Merger of equals for Genco, Silvermex

VANCOUVER — Mexico-focused Genco Resources (GGC-T) and Silvermex Resources (SMR-V) have agreed to join forces to better advance their silver and gold projects in the country.

Silvermex has a number of projects at various stages of exploration, while Genco has a modest but operating gold-silver mine with established potential for expansion.

The terms of the all-share deal has Genco shares being subdivided on a 1.1-for-1 basis and Silvermex shares being exchanged for Genco shares on a 1-for-1 basis, while the combined company will keep Silvermex’s name. Genco shareholders will have a 53% interest in the combined company while Silvermex shareholders will hold the remaining 47%.

Both boards of directors have unanimously approved the deal that will be put to shareholder votes in November. The combined company will have roughly $6.2 million in cash.

Genco’s La Guitarra underground mine, located roughly 130 km from Mexico City, was forced to close in late 2008 after former contractors blockaded the entrance. The issues were resolved in late 2009 and production resumed in April, though relying at first on lower-grade stockpiles.

The current mine has a proven capacity of 320 tonnes per day, but a late 2009 feasibility study outlined plans to increase capacity tenfold and incorporate open-pit mining on the hill above the mine.

Reserves at La Guitarra for underground and open-pit mining stand at 9 million tonnes grading 113 grams silver per tonne and 0.93 gram gold per tonne for 32.4 million oz. silver and 267,200 oz. gold.

Silvermex, meanwhile, has its Penasco Quemado project, with an established resource of 3.1 million measured and indicated tonnes of 101.8 grams silver and 600,000 inferred tonnes of 71.2 grams silver. The project spans 200 sq. km in north-central Sonora.

The company also has its Rosario property in the Sinaloa state, acquired late last year after taking over Aurcana Mexico. The 163-sq.-km property has several past-producing mines including the San Marcial, which has a current resource of 1.13 million indicated tonnes grading 310.21 grams silver and on which Silvermex recently completed a drill program.

Drill results from San Marcial included 19.5 metres grading 188.5 grams silver, 11.5 metres of 224.2 grams silver and 4.5 metres averaging 335.4 grams silver.

Silvermex also owns the La Frazada project with a modest silver-based resource and the Lobos property, but has not conducted exploration on either this year. The company wrote off its Penasco Quemado property at a carrying value of $3.7 million earlier this year and last year wrote off its Cerro de Plata and El Rayo properties.

Genco’s share price was up 8.5¢ or 23.9% on the merger news to close at 44¢ on 1.8 million shares traded. Silvermex’s share price was up 3¢ or 6.6% to close at 48.5¢ on 2.5 million shares traded. Genco has 90.8 million shares outstandi ng while Silvermex has 85.8 million.