MAG in Mexico: In models we trust

Vancouver Over five years MAG Silver (MAG-V) has charted an impressive course for a Canadian Junior, acquiring a half-dozen, primarily silver properties in Mexico, building its bank account from zero to around $60 million and drilling targets blind with success.

As MAG president and CEO Dan MacInnis tells it MAG’s story is about two things: faith in geological models in an age when large, mineralized surface expressions are few and far between and concentration on deposits with higher grades.

“In the past you didn’t go in somewhere if there wasn’t a quarter ounce of gold (or its equivalent),” MacInnis says. “That still holds true today.”

In May 2003 MAG Silver began drilling its Juanicipio property next door to the world’s largest silver mine operated by Fresnillo, a subsidiary of Mexican silver-giant Industrias Penoles. It was a bold move made possible by the head of MAG’s exploration team Peter Megaw, a geologist with 30 years of experience in Mexico.

In the late 1990s, Megaw, after taking a look at the style of mineralization at Fresnillo, recognized at Juanicipio surface alterations characteristic of the upper reaches of Fresnillo’s, vein-hosted, high grade silver. He saw argillic to advanced argillic alteration cutting a roughly 75-metre thick blanket of silicification.

That observation, among others he had made about potential tell-tale signs of mineralization deep beneath the surface elsewhere in Mexico, led to the formation of MAG Silver in 2002 and the acquisition of Juanicipio.

In retrospect, it may seem like an obvious move to pick up property next to a mine that at the time was producing about 12% of the world’s silver and whose underground workings were only 3 km away and slowly working towards your company’s targets. But at the time it was a gamble, to place bets on a geological model and to drill an area down to 750 metres without a trace of silver at surface.

MAG’s first drill hole in early 2003 paid off. Although it had to be treated as a vein grab sample with only 30% recovery, it hit some decent silver and gold mineralization at about 500 metres. The best intersection cut 2 metres grading 181.4 grams silver per tonne and 9.92 grams gold per tonne.

Later on that year, as MAG’s geologists got a better handle on the mineralization, they tagged into higher grades in what they called the Juanicipio vein results breaking the 500 grams silver barrier. A wedge offset of hole 1 intersected as much as 0.40 metres grading 691.7 grams silver starting 604 metres downhole.

That garnered the attention of its neighbour, Penoles, and soon led a joint venture agreement. In the spring of 2005 Penoles pledged US$5 million towards an exploration program over four years for a 56% stake in Juanicipio.

While Juanicipio took shape, among several other acquisitions, MAG focused its own efforts at Cinco de Mayo, 250 km northwest of Chihuahua, on a completely different style of mineralization: carbonate replacement deposits (CRD). Historically these have produced about 40% of Mexico’s silver, as Megaw well knew, having completed a PhD on them.

Like Juanicipio, Cinco de Mayo was another bet on a geological model. This time MAG had a property three quarters covered in alluvium and showing little outcropping. Although employing as many geochemical and geophysical tools as it could, these still only gave MAG so much information to go on.

It was “prospecting with a drill”, as MacInnis calls it, that led to the blind discovery of well mineralized galena and sphalerite-rich massive sulphides in 2007. Hole 20 cut 6.8 metres grading 254 grams silver, 6.4% lead and 7.0% zinc about 500 metres below surface.

Drilling since has defined a massive sulphide manto where MAG has outlined a mineralized area between 400 and 550 metres below surface that is 1.8 km long by about 150-200 metres wide and in a magnetic low encompassing two parallel thrust faults.

With two drills turning, and in holding with MAG’s philosophy of high grades, MacInnis says that at this point, rather than building up a Cinco de Mayo resource estimate, the company wants to find “sweet spots”, which means following up on drill targets identified in the magnetic low.

“Grades make up for a lot of give during doldrums,” he says. “We want properties that would operate at low silver prices.”

These ideas aren’t platitudes coming from MacInnis. Although it may still be early days at Cinco de Mayo, the joint venture at Juanicipio has led to even higher grades with the discovery of the Valdecanas vein in late 2005, 1 km north of the Juanicipio vein.

Hole 16 cut 6.35 metres grading 1,789 grams silver, 2.91 grams gold, 3.43% lead and 5.51% zinc starting 681 metres downhole. The discovery of the Valdecanas vein initiated a frenzy of drilling and culminated with MAG’s first resource estimate: 7.3 million inferred tonnes grading 1,011 grams silver per tonne, 2.06 grams gold per tonne and 6.25% lead/zinc.

Now boasts MacInnis, “Others guys talk in the hundreds of grams silver per tonne. We talk in kilos.”