MAG Silver Corporation – A Once in a Lifetime Resource
MAG Silver Corporation tells us the story of how they discovered and have begun to develop one of the highest-grade silver resources in the world.
MAG Silver is a Canadian exploration and development company focused on becoming a top-tier primary silver mining company. The company made its IPO in 2003 when it had accumulated three properties in Mexico which it believed had high potential for the discovery of silver deposits. However, one of these properties would prove to harbour a resource beyond MAG Silver’s wildest dreams.
“Sometimes I wake up and pinch myself,” confesses George Paspalas, CEO and President of MAG Silver.
The story begins when MAG Silver began to evaluate a resource at Juanicipio, located in the Fresnillo District of Zacatecas State, in Mexico.
“Our Chief Exploration Officer Dr Peter Megaw had reviewed all the historical literature and felt this was a prospective piece of ground with a disruptive geological theory,” Paspalas tells us. “He came in to test these theories and discovered a substantial vein on the first hole. That rarely ever happens in exploration, so that was fantastic. It was already a substantial discovery.”
If it had ended there, this would already be a success story. Juanicipio is in the pre-eminent silver district in the world. One out of every ten ounces of silver on Earth has come from this area. To strike a resource in the first hole would have been lucky, but this was only the beginning.
“MAG Silver confirmed the discovery, and Fresnillo Plc on the other side of the boundary to this property saw what we were doing and wanted to get involved. So we offered them a joint venture back in 2005,” Paspalas recalls. “Fresnillo quickly earned in with a 56% holding in the property, while we own 44%. So, over the course of time in 2005, we discovered, on the 16th hole, another vein, Valdecañas and that has proven to be an incredible mineral system.”
Again, so far so good. But subsequent drilling in this area located what Paspalas calls “the Bonanza Zone”, for obvious reasons.
“It turned out we had landed on one of the highest-grade undeveloped silver properties in the world,” Paspalas explains.
If this was the end of the story it would already be a once in a lifetime find. It’s not.
“In 2013 we decided to construct a five-by-five-metre ramp down to the mineralisation, 350 metres below the surface, with Fresnillo Plc as partners and the operators,” Paspalas says. “Then in 2015, we decided to put down sterilisation holes, just to make sure that we had found the bottom of the mineralization.”
If you’re not familiar with the mining industry, sterilisation holes are designed to poke right through a mineral resource and out the other side. The idea is that these holes will help measure the limits of a resource. The goal isn’t to find anything. They found something.
“When we put the four holes down, we found a deep zone. The mineralisation continued,” Paspalas says. “What’s significant is that the deep zone is continuous with the Bonanza Zone. It implies a massive endowment of mineralisation.”
At this point, MAG Silver and Fresnillo Plc were both starting to finally realise exactly what they had. A resource of this significance would need to be handled slightly differently to your typical silver resource.
Adapting to Good Fortune
“The decision we had to make was, what would be the optimal project to build here?” Paspalas says. “In 2016 we upsized the project from a projected 2,700 tonne-a-day facility to a 4,000 tonne-a-day facility. With that upsizing came measures like putting crushers underground in the mine workings, a conveyor belt to bring the crushed material to the surface and an internal shaft to get down to the deeper material quicker. It means we had to put a second ramp in.”
In expanding the remit of the project, MAG Silver finally hit upon the reason this resource was so unique.
“We did all that and we continued to drill, and what we discovered the Valdecañas is sitting on top of a fluid upwelling zone,” Paspalas explains. “This is like a geologist’s dream. The site was directly above the source where the metals come from. Any permeable structure around that will be mineralised, and we’ve seen that.”
Even now, Juanicipio still had more to reveal. Last year, for the first time in this area, MAG Silver discovered epithermal veins running perpendicular to the veins it had already found. The high-grade silver deposits have grown significantly.
“As we continue to drill, we keep finding more and more extensions of the deep zone, so this will be a massive silver producer when it’s fully operational,” Paspalas explains. “We’ve consciously spent incrementally more capital to prepare ourselves for this to be expanded. We’re doing it now while we’re building it the first time, building it slightly bigger, so when the expansion comes our capital expenditure is less because we’ve spent it upfront.”
Even now, only 5% of the property has been explored.
“Our challenge is we can’t drag the drillers away from Valdecañas, because whenever they drill, they find something else!” Paspalas points out.
The Deer Trail Project
MAG Silver’s good fortune in Juanicipio is an incredible story. The sort of thing that someone in the mining industry could hope to encounter maybe once in a lifetime. But Juanicipio is not MAG Silver’s only resource.
“We’ve recently announced an acquisition in Utah called the Deer Trail Project. We’re excited about this one,” Paspalas tells us. “Dr Peter Megaw, who found the vein in hole one at Juanicipio, was working on this asset in 1982 and really liked it, and we’ve only now finally been able to acquire it.”
It’s been a story of patience and relationship building, and MAG Silver has spent four years positioning themselves before disclosing the acquisition to the market.
“I’m excited because Deer Trail lies on a fault system with significant deposits. Along the same trend the Deer Trail’s on, is Bingham Canyon, one of the greatest copper mines in the world,” Paspalas says. “It’s one of the few manmade structures that can be seen from outer space.”
MAG Silver isn’t looking for copper, however. Before copper Bingham was being mined for carbonate replacement deposits and high-grade silver, MAG Silver’s speciality.
As unbelievable as it sounds, Paspalas is willing to say, “There’s a recipe for potentially replicating a Juanicipio-style discovery here.”
Optimistic and excited as Paspalas is, MAG Silver is taking it slowly with the Deer Trail prospect.
“We’ve started drilling at Deer Trail, but only to prove our technical model. We’re not looking to find mineralisation in that first programme, but to find the structure we believe exists that will show where the mineralisation is potentially located,” he explains. “We’re telling people not to expect minerals to come out of this first drilling programme. If we get 300-400 metres of red wall limestone, we will be popping champagne corks at MAG. This is the way we approach exploration, prove our geological model first, then try and find the bling.”
At the same time as building up a picture of the resource, MAG Silver is also building relationships.
“We feel we’re going to be here a long time, so we’re being careful with our approach with regulators and communities,” Paspalas says. “We’ve rehabilitated all the small mining operations, we’ve built a great reputation, and we’re in a very mining-friendly jurisdiction and we won’t abuse that. We’re working closely with people.”
Meanwhile, as Juanicipio is still gearing up, the mine is already processing minerals two days out of every month.
“That’s unique in this business. We’re still building our processing plant but for two days a month, we’re putting our mineralized material through a neighbouring, very similar Fresnillo plant and learning a lot about how it responds,” Paspalas says. “When it comes to starting up our own plant, we’ll have had almost a year of two-days-a-month operating history, de-risking our start-up and making a bit of cash along the way.”
Paspalas sounds like he can hardly believe it himself as he tells us, “We’re getting cash out of the mine while we’re still in construction, it’s crazy!”