First Majestic to take control block in First Silver (April 17, 2006)

First Majestic Resource (FR-V, FMJRF-O) will take up a 63% ownership stake in silver producer First Silver Reserve (FSR-T, FSLVF-O) from First Silver’s president and major shareholder, Hector Davila Santos. The acquisition helps First Majestic position itself as a credible junior silver producer.

First Majestic will pay $53.4 million for 24.6 million shares, at the 10-day average of First Silver’s share price, $2.165 per share. Half of the cash is payable on closing and one-quarter at each of the first and second anniversaries of the closing date, currently scheduled for June 2.

First Silver’s principal asset is the San Martin silver mine in Jalisco state, Mexico, which produced 2 million oz. silver last year from 249,000 tonnes of ore. It had reserves of 676,000 tonnes grading 241 grams silver per tonne and measured and indicated resources — not included in reserves — of 4.4 million tonnes at 263 grams per tonne.

First Majestic is trying to position itself as a mid-tier silver producer and has one operating mine, La Parrilla, in Durango state, about 35 km southeast of Durango city. It also has option deals on two other advanced projects. At Dios Padre in Sonora state, First Majestic has a resource drilling program under way and expects to have a feasibility study and production decision in hand in the next few months. The company can earn a 100% interest by paying US$6.5 million and issuing 500,000 shares under a 4-year option agreement.

At La Candelaria in Jalisco state, which has a 100-tonne-per-day mill, First Majestic is to start a resource drilling program. The La Candelaria agreement is another 4-year option, with total payments of US$2.6 million, mainly in the last half of the term.

Part of the funding for the transaction will come out of a $20-million bought-deal financing with Sprott Securities, which is taking 5 million special warrants for $4.00 each. The special warrants are convertible to shares to be issued under a forthcoming prospectus, and have a half-warrant attached. A full warrant entitles the holder to buy a common share at $5.00 for 18 months. Sprott can call another 2 million of the special warrants at $4.00, bringing the proceeds of the deal to $28 million.