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TABLE OF CONTENTS Nov 26 - Dec 2, 2012 Volume 98 Number 41 - 0 comments

MAG Silver faces 'eviction' in Mexico

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Mexican media reports that landholders from the community of Benito Juarez have voted to expel MAG Silver (MAG-T, MVG-X) from its Cinco de Mayo polymetallic property in Chihuahua State, Mexico, and ban mining in the area for 100 years, sent shares in the mining company down about 12%.

The vote was apparently held at a local assembly meeting (“Ejido”)on Nov. 17, but MAG Silver argues that the meeting was illegally called and orchestrated by a small group of radical agrarian activists known as El Barzon, who oppose mining and industrial agricultural development in the region.

The Vancouver-based miner says it has been advised by local sources that key signatures required to call the meeting were fraudulent, and that the Ejido assembly does not have the legal ability to impose a ban on mining, which falls under federal jurisdiction.

“While permission of the Ejido assembly is required to obtain surface access, MAG believes that the El Barzon group and its supporters do not represent the will of the majority of the 421 voting members of the Ejido or the 12,000 other citizens in the project area,” MAG Silver writes in a press release, adding that it is pursuing legal remedies at the state and federal level to have the Nov. 17 meeting annulled.

The company says that it will ask government officials to oversee a new assembly meeting to make sure that procedural and governance rules are respected, and the vote is properly conducted.

On Nov. 19 MAG Silver shares fell $1.33 to $9.96. Over the last year, the company’s stock has traded in a range of $6.17 to $12.31 per share.

Nicholas Campbell of Canaccord Genuity revised his 12-month target price on the company to $19.25 per share from his previous $20.75 per share estimate, but argues in a research note that while the news creates uncertainty about the project, the sell-off represents a buying opportunity. “Even without a positive resolution to the Cinco de Mayo project, we see significant upside potential in the shares of MAG,” he says.

John Hayes, and analyst with BMO Capital Markets, notes that while community issues “are often hard to read,” the company “has been working on Cinco de Mayo for an extensive period of time with no previous signs of trouble.” He also argues that “a number of the claims being made about the company and the moratorium appear irrational.”

“The company is applying for drill licences for Cinco de Mayo, which requires community consultations,” he says in a note to clients. “In the absence of additional information, the sell-off appears to be overdone. However, the need to clarify the community’s position on the project could extend timelines for the resumption of drilling.”

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Cinco de Mayo Property

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