Raymond James report discusses Cinco drilling (exerpt)
MAG-TSX | MVG-AMEX Company Brief
David Sadowski | 604.659.8255 | david.sadowski@raymondjames.ca
Rating Outperform 2
Current Price ( Jul-17-12 ) C$9.44
Mining | Precious Metals - Silver
New Pegaso Zone - First True Sniff of Bonanza Feeder Structure
This morning, MAG announced results from a single drill hole – 431 – from the Jose-
Cinco zone at its 100%-owned Cinco de Mayo project in Chihuahua, Mexico.
? Best Hole to Date. Hole 431 was drilled near the center of the current Jose-Cinco
Zone (4 km strike) to test for deep mineralization. Four separate, deep zones were
cut over a broad area. The best interval starts at the deepest core depth to date,
927m: 61.6 m grading 89 g/t Ag, 0.78 g/t Au, 0.13% Cu, 2.1% Pb and 7.3% Zn – in
total, equivalent to 13.0% Zn (“ZnEq”) or US$291/t in-situ rock value, at current RJL
LT metal prices. In a shallower zone, 10.0 m graded 11.8% Zn, or 20.1% ZnEq
including other metals (US$449/t). Thicknesses appear near true width. All told, we
view 431 as the best hole drilled on the property to date.
? Close to Regional Source. We believe the newly-named “Pegaso” zone is the closest
zone yet to a major, high-grade feeder structure that supplied mineralizing fluids to
the Cinco CRD. This view is corroborated by Pegaso’s structural complexity, with
faults hosting the Jose Manto (NW) and Bridge Zone (SE) overlapping to form a
significant fluid conduit, as well as the strength of grades and widths, and
particularly strong alteration, including very coarse grained sulphides, coarse
marble and tungsten-bearing garnet skarn pervasive throughout the zone. Major
Mexican CRDs, such as San Martin-Sabinas, exhibit similar geology near their local
bonanza-grade feeders.
? Could Bulk up Zone Significantly. Based on similar characteristics of mantos
intercepted at shallower depths in earlier drilling (see our May-17-12 Brief, “Cinco
Bulking Up; Source Zone May be in MAG's Crosshairs”, price C$7.17), mineralization
is likely semi-continuous from 125-900 m vertical depth. Upcoming seismic surveys
should help to determine vertical continuity and lateral extent of Pegaso at depth
and resolve targets for further deep holes. At this time, given high costs, only one
other deep hole is on-going, ~500m to the NW. We believe there is strong potential
to add pounds in and around Pegaso itself with more deep holes, as well as at other
shallower areas (Jose-Cinco is open in all directions). Based on earlier drilling, our
modeled Jose-Cinco estimate is 10-15Mt grading ~10% ZnEq.
? Exploration Model Works. We view today’s result as an affirmation of the
company’s exploration model. Within a very large land package with little outcrop,
MAG’s systematic approach since ‘06 – widespread geophysics, ‘blind’ drilling under
alluvium, analyzing analogous regions and deposits – has generated a significant,
value-adding secondary project, whose value could rival that of MAG’s 44%-stake in
Juanicipio, if the deposit continues to approach the size of other world-class
deposits in Mexico’s CRD belt.
? Other Potential Catalysts. Looking ahead, we expect the next set of results from
Cinco in early-Augt (5 rigs on property) and a maiden resource by mid-October. A
PEA at the Pozo Seco moly-gold zone (also on the Cinco property) is also expected
mid-October. At Juanicipio, next drill results are due by end of August (8 rigs);
amongst other areas, drills are testing the prospective southern area of the JV
property, where veins just over the property boundary (on FRES’ 100%-owned
property) are postulated to continue west, onto JV ground. The JV partners
are due to meet this week to plan the next steps towards developing the project.