Thursday, 12 April 2012

Orko talks with suitors as Pan American exits La Preciosa project

Orko Silver Corp. (CVE:OK) Wednesday confirmed on a conference call with investors that it was in talks with a number of parties over its La Preciosa property in Mexico.
Last week, Pan American Silver (TSE:PAA)(NASDAQ:PAAS) relinquished its right to earn a 55 percent interest in the La Preciosa project, one of the world's largest primary silver deposits, after it decided not to deliver feasibility study before an April 13, 2012 deadline.
In a conference call, Orko Silver's chief executive Gary Cope confirmed that four unnamed mining companies had "expressed an interest", with Orko signing standstill agreements with two of these parties - preventing these two parties from launching a hostile bid.
"Our preferred exit strategy was always to sell the deposit to a mining company," Cope said in the conference call.
Orko's Cope said confidentiality agreements prevented him from naming these parties but he did say that one company has been "very agressive" in coming to the table, while two others had prior knowledge of La Preciosa and "were happy" that the project was up for sale.
La Preciosa is located in Durango State, which envelops the heart of Mexico’s prolific Sierra Madre Mining Belt, and includes large silver deposits such as Fresnillo and Pitarrilla.
An August 2011 preliminary economic assessment (PEA) gave an estimated mineral resource containing 113 million ounces of silver classified as indicated and a further 46 million ounces of silver classified as inferred. In addition, the deposit contains over 222,000 ounces of indicated gold and 83,000 ounces of gold in the inferred category.
The PEA showed an after-tax net present value of $315 million at a five percent discount rate, and a 24.3 percent internal rate of return. The results assumed prices of $25 per ounce of silver and $1,250 per ounce of gold.
At the time, Orko's management called the PEA's findings "conservative" and had been expecting "significant upside potential" in a pending feasability study.
On the conference call, Orko's vice president of exploration George Cavey added that there was a lot of value to be discovered close to La Preciosa's existing deposits.
Orko's Cope said that the project was worth "considerably more" than the last PEA, and return of 100 percent control of La Preciosa was a "good deal" for shareholders. Orko has now commissioned AMEC to prepare a new PEA which is due in late July.
Cope illustrated that at current precious metals prices, the after-tax net present value would jump to around $922 million.
Although Pan American said it ended the joint venture due to the Mexican silver deposit being "unlikely to generate a rate of return that meets Pan American's internal economic hurdle rate", Orko management speculated that there may have been other, uncited reasons for Pan American's exit.
Mike Devji, Orko's executive vice president, said the explorer had $12.5 million of cash in the bank. The company has already paid approximately half of the $900,000 required for AMEC's pending PEA.
Meanwhile, a separate joint venture deal with Pan American and Canasil Resources (CVE:CLZ) on the Carina silver project, located 6.5 kilometres southeast of La Preciosa, is "still in place" Cope said.
"It doesn't affect us right now unless a big discovery is made," Cope told investors and analysts on the call.
Orko's Cope also said that the company has had numerous financing offers if it chose to put La Preciosa into production itself.
"If nobody was interested, we would put this [project] forward ourselves and would have no problem at financing."

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