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Mag Silver Corp (NYSEMKT:MVG)

Recent Activities at the Cinco de Mayo Property Conference Call

November 20, 2012 12:30 pm ET

Executives

Dan MacInnis – President and Chief Executive Officer

Peter Megaw – Director

Analysts

David Sadowski – Raymond James Ltd.

Michael J. Gray – Macquarie Capital Markets

John Hayes – BMO Capital Markets

Operator

Good afternoon, my name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to MAG Silver Corp. Conference Call. All lines have been placed on mute to prevent any background noise, after the speakers remarks there will be a question-and-answer session (Operator Instructions).

Thank you, I’ll now introduce and turn the call over to your host for today, Mr. Dan MacInnis, President and CEO; and Dr. Peter Megaw, Director of the Company and Director of Exploration. You may begin your conference.

Dan MacInnis

Good morning one and all. My name is Dan MacInnis, I’m the President and CEO of MAG and I’d like to welcome everybody to this MAG Silver conference call. I’m also here today with Dr. Peter Megaw and Larry Taddei our CFO. We are here to discuss the recent events that’s related to our Cinco de Mayo property in Chihuahua State in Northern part of Mexico.

The press release from this morning provided more detail and this mornings press conference will hopefully provide some more context and correct a lot of misinformation that is also out there.

Let me begin first by stating that this event does not have any effect on our Juanicipio project. It’s the world’s highest grade and best undeveloped silver deposit on the planet today. And MAG is still forging ahead with Fresnillo to undertake an underground development program hopefully to begin in Q1 of next year. And the rest of the conference today, I will briefly review the contents of our press release, and reiterate some of several of the key parts and points that we have made and then move into a question-and-answer format.

And let me begin by stating that we reiterate that we are of the view that the November 17 assembly meeting at Benito Juarez Ejido was illegally called and was orchestrated by a small group of radical agrarian activists. This group is known as El Barzón, and they are opposed to mining and industrial agricultural development throughout the region.

We have been advised by several of local sources that many of the signatures required to call the meeting were fraudulent in nature. And other concerns have been expressed also by local community members that the vote at the meeting had many, many irregularities and including a significant number of votes that were cast through unverified proxies and there were exclusions at the door of voting members of the Ejido who were supportive of MAG's activities.

MAG in the community is one of the largest employer and we have been in the community for the last six years and have had no previous issues with the Ejido at any time. We also note that the assembly passed two resolutions, one of which is a 100 year moratorium on mining. We would like to point out that the assembly has no ability to impose a ban on mining as this is a Federal jurisdiction.

While permission is still required to obtain the surface access, I should say, we also believe that the El Barzón group and its supporters do not represent the will of the majority. We feel quite strongly that we have the community behind us and if and when this meeting is held under proper democratic and legal methodologies, they will be supportive of our proposals.

In fact, we have made many calls over the last two months to have a proper assembly instituted as well as have many of the Ejidatarios members and we need this access permission to carry out our ongoing exploration at Cinco. And it’ s quite obvious that the illegal meeting on the November 17 was an attempt by these radicals to thwart a free and open vote on our proposal, in fact our proposal were not even on the agenda, there were two self serving items that they put forward to their own cause.

As we mentioned earlier and have reported in other documents, we were in the process of negotiating an ordinary, everyday surface access permission from the Ejidatarios including the Ejido in question. In connection with this application we are required for the Soil Use Change Permit. This is required in order to keep the exploration activities ongoing. We have negotiated this over the last six years on the average about every two years, and this is the first time we’ve run into this type of disruptive behavior. And we’ve had a long and very productive relationship with the Ejido and we anticipated obtaining this permission some time in the first quarter of the coming year.

However on October 22, a member of the Ejido unfortunately and his wife were killed outside of Ciudad Cuauhtémoc in Chihuahua. After these murders, vicious rumors were propagated by people and organizations and groups sympathetic to the El Barzón cause and they alleged that somehow MAG was involved in this crime. We had on October 23, we posted a statement on our website and when the local papers in Mexico have strenuously denying any such involvement and I’ll reiterate that we were not involved in anyway in this heinous act and we extend our condolences once again to Mr. Solorio and his wife Martha. I might also add that we had many agreements with Mr. Solorio over the past few years for access rights on properties within the Ejido including that of his mother-in-law.

Until recently, it appeared that the efforts to use this tragic incident as a basis to interfere with our activities were losing momentum. However, the events of November 17 of the Ejido meeting which was illegally held appeared to be another step in a carefully orchestrated scheme to undermine our legal rights and thwart the will of the community at large.

We also again will reiterate at this point that we have always strived for the calling of a legal meeting and we are going through the process. We feel quite strongly that if put to a proper and democratic vote that we will prevail. We’ve had no issues with the Ejido over the last several years, in fact most of what they have requested we have carried out. At their behest we carried out an environmental study with the Mexican equivalent to the EPA if you like and passed with flying colors, that report is at hand, in hand I should say. And we also have to provide mining title assurances to the Federal authorities as part of our permitting process, we’ve done that. And the next step right now is to defend vigorously, defend our right through legal and diplomatic channels if necessary to ensure that these activities, these illegal and fraudulent activities of this fringe group are not allow to interfere with the will of the larger Ejido populous.

And with that that's our position, we feel quite strongly again that we will prevail in our dealings with the Ejido, it's a simple normal course access permits that we are requesting. We have enabled to secure those quite regularly over the last six years and see no issue going forward other than the disturbances that have been caused by this radical El Barzón.

And perhaps at this time just to add a little color, I would ask Dr. Megaw, he would take a few moments and just walk you through the process that we’ve been carrying out over the last few years and might add we've been in Cinco and at Benito Juarez for over six years. Peter?

Peter Megaw

Hello Dan, good morning everyone on the call. I'm Peter Megaw and have been managing the exploration at Cinco de Mayo since – well before 2006. Since 2006 when we started drilling, we have had to negotiate Rights of Way and surface access with the Ejido on a number of occasions, and we've done this through their formal assembly process.

Starting in May of 2012, the Mexican environmental agencies sort of ramped up the level of requirement for drilling and any more extensive exploration works on that, which requires demonstration that’s your claims are in good standing, which we didn’t had any difficulty that you have an environmental review of the property by PROFEPA, which is the enforcement arm of the Mexican environmental agency, and as Dan said not only did we pass that, but they gave us a commendation for doing such a good job, I should point out also that there were a number of members of the Ejido involved in sort of monitoring that process, and among other things, the assertion that has been made by some of the newspapers in Mexico that we have an active mine that is contaminating anything is patently false we are purely of the exploration stage, so there is no significant surface disturbance.

The last thing you need to get a Soil Use Change Permit is surface access permission and Ejido is one of several stakeholders from which we need to get that. We were pointing out that that working within Ejido or working within the legal system in Mexico you are dealing with a highly formal series of procedures and norms that you have to follow, and we have followed these very carefully guided by the Mexican group headed by Minera Cascabel that we work within Mexico. We have top Ejido advisors on our hands including a gentleman who was given the Presidential Citation in Mexico for solving a long-standing Ejido crisis in southern Mexico.

So we understand what their policies and their procedures are for moving things through in assembly in terms of what constitutes the legal quorum and a series of meetings that you can go through with steadily decreasing quorum requirements to have a formal assembly called. Simply point out that from the very face of it the meeting on November 17 was not properly constituted. There were signatures on the documents calling the meeting, which were from people who had no standing within the Ejido to sign those documents.

So our first argument that is being pursued vigorously at the Chihuahua State and federal level today is that the constitution – the meeting needs to be declared null and void simply because it was illegally constituted from the beginning, the fact that the meeting had irregularities beyond that has been conveyed to us by a number of people who are there. But the basic point being that the meeting was illegally constituted.

We have been working with members of the Ejido for sometime as Dan mentioned to who have been asking for a legally constituted assembly with secret ballot and verification of Ejido membership to make sure that it is completely about what we fully support that process, but we are not trying to meddle in the Ejido affairs. We simply want a fair and democratic hearing of what we proposed to do.

And I think that's basically the outline of what happened. The first thing for us to do is to get this overturned, and it’s in the government's hands, so we expect to get that overturned in due course, and then the second stage will be to assist, collaborate and cooperate in anyway we can for the calling of a properly constituted assembly.

With that I'll turn it back to Dan.

Dan MacInnis

Thanks very much Peter. That was very informative. I think probably at this point, we can turn it over to a question-and-answer period here. And I’d ask the operator to assist us in this.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from David Sadowski with Raymond James. Your line is now open.

David Sadowski – Raymond James Ltd.

Hi, thanks for hosting this conference call, it's a good decision I think. I joined the call a bit late, so I apologize if you addressed this already in your opening comments, but how these fellows appointed to the three-man council that heads up the assembly?

Peter Megaw

I think I'll just speak to that, Dan just because I’ve been around the track on this sort of things probably more than you have. The Ejido Council is elected by members of the Ejido under Mexican law. It’s a two year term that they serve. Under Mexican law there is no reelection, so essentially there is a complete turnover at the Ejido Council every two years. So that's the process by which people get on the Ejido Council.

David Sadowski – Raymond James Ltd.

And it's a three-man council of which two are currently El Barzón members?

Peter Megaw

That is correct.

David Sadowski – Raymond James Ltd.

Okay. And just secondly, could you provide any guidance us to when, I know it's difficult, but when the government could step in, and you could call a second meeting, a proper meeting perhaps by referencing similar disputes that you know with Ejidos in the past?

Dan MacInnis

Don't think we have the ability to predict or what that timeframe will be. We have representatives in Mexico City today speaking to the various government agencies cast with Ejido matters. See how those meetings go and there is also the issue that on December 1, the government will change over, and I suspect that will cause some delay in the process. I would not want to speculate on timing here, although we are already in action here and it’s really too early to tell how long this will take, be rest assured that as we get information, we will be informing our shareholders and general public as to how the process is doing.

David Sadowski – Raymond James Ltd.

Okay, that's understood. Perhaps asked in a different way then how soon after the successful, presumably successful conclusion to a second meeting, could you secure drill permits, and have you in the past how could be that happened?

Dan MacInnis

Well, I mean it’s probably worth mentioning that this process of requiring the Soil Use Change Permit, before a drilling permit. I mean the Soil Use Change Permit is part of your drill permit application, that’s only been in effect since last may. So we have seen it go anywhere from two months to probably as much as four months, depending on which state office of the federal dependency that makes these decision you're working with.

So somewhere in that kind of timeframe, but remember we have a three stage process here. The first stage is to get the November 17 meeting invalidated; the second step is to get a properly constituted and properly vetted assembly and assuming that we prevail as we believe we will; the next step will be to wrap that surface access commission with the other documents which are already prepared and then push that into the processes of getting a drilling permit, so a month or so after that probably.

David Sadowski – Raymond James Ltd.

So a month or so after it's submitted, you might expect to get those permits. I thought you said 2 to 4 months, but when does that start?

Dan MacInnis

It's one to four months probably David. It's very difficult to predict especially because you're dealing with these state offices or agencies of the federal dependencies where I'll be changing personal at some level as well. So, at this point it is hard to predict how long it will take.

David Sadowski – Raymond James Ltd.

Okay. Thank you very much guys.

Dan MacInnis

Thank you.

Operator

Your next question comes from Michael Gray from Macquarie Capital Market. Your line is now open.

Michael J. Gray – Macquarie Capital Markets

Yeah, good morning guys and thanks for hosting this call. I think it is important to get this. One question is on, you mentioned misinformation around the circumstances in these development. Have you been contacted by the Mexican newspapers and have you been contacted by the various media blogs including NGOs on your side of the story in this misinformation you're indicating that's out there?

Dan MacInnis

We've had no formal contracts from any of the Mexican newspapers or the blogs or any of the NGOs. And the misinformation that we have referred to is some of the accusation that somehow we were involved in these tragic incidents of Mr. Solorio and his wife. And the fact that we're mining, we have a large open pit in (inaudible) which we do not and that we were responsible for the use of cyanide, which we are not and there has been absolutely no call from anybody checking any of these facts. And I just wanted to make it clear that this is an expiration of play. Normally what you have seen in Mexico is that this type of action is taken against those that are already in operation.

Why we are being targeted here, in fact that we happen to be based in the same town as the some of the (inaudible) and it's rather more convenient, actually a convenient target. But in terms of having been questioned on any of the fact that have been perpetrated by a lot of these blogs and other websites you see, we’ve had no official inquiries at all.

Peter Megaw

I think it is worth pointing out Mike that we are not the only group that has been sort of broad-brush accusation that potential involvement in the murder that the Barzón group was very active in commenting questions and about water users especially from some of the larger industrial level agricultural operations in Northern Chihuahua prior to the presidential election in July, and the gentleman who was fascinated was part of the activist group that was out defending what they felt was the water rights used in the particular (inaudible).

So we're not the only one that's been picked out for that and although they haven't contacted MAG in Canada, Minera Cascabel a consulting group we work with very closely in Mexico has been contacted by some of the newspapers in Chihuahua and Hermosillo, the Mexico City and we have provided detailed documentary evidence showing that the assertions being made by the NGO groups that we were not working with proper permits and that we have environmental problems so on and so forth. We answered that with documentary evidence, chapter and verse and that has been published at least in three Mexican newspapers. So we have been defending ourselves at least that level.

Dan MacInnis

And I might add that it’s on my website we have a statement that we released several weeks ago and that statement has also been released and published in various newspapers in the state of Chihuahua.

Michael J. Gray – Macquarie Capital Markets

And are you comfortable that you informed the community about the factor, the exploration stage and implications in the future should be successful in terms of, Peter, you touched on water use and things like that in terms of providing a picture of what developments could look like?

Peter Megaw

Yes. Absolutely Mike. I mean part of the lead up to our – the assembly that we wanted to have call for some time or we've been – members of the Ejido who are on our-who support us have been pushing for, they asked us and we have brought in hydrologists to explain what the realities of the kind of underground mining operations we would have, what impact they would have on the aquifer.

We have brought in experts to talk about what kind of drilling we've done, may have on the aquifer. We brought in community relations people who understand the mining business and have been involved with educating local communities of what the realities of the potential mining or a potential mine would mean that the community.

So we brought these people in as a whole series of community lectures basically. And this has been going on for some time and fairly substantial proportion of the local population has participated in these and seem to be quite comfortable with potential realities. In fact many of them are quite eager for what the reality is, the economic realities of a mine potentially would be down the road. Remember this is a community of 12,000 people of whom 420 belong to the Ejido. We have over 150 people working for us in the community. For us and the community on the community is quite broad and quite well based.

Michael J. Gray – Macquarie Capital Markets

Okay. Thank you very much.

Peter Megaw

And this is also important to note that a lot of this lectures that we've been holding is also been at the request of the (inaudible), so they can better understand how the process works and what effects it will have. So as I say mentioned earlier, we've been there for over six years and our relationship with the Ejido and the community itself of all 12,000 it has always been amicable and friendly and it's only been in the last six months that we have been, these – composers’ or commissioners have been very disruptive to the process. And then particular are taking advantage of the fact that one of their compatriots has been killed and are trying to, I believe just get a lot of publicity for their cause, and we’re the unfortunate targets of that.

Michael J. Gray – Macquarie Capital Markets

Okay. Thank you, Dan and Peter

Peter Megaw

Thank you, Mike.

Operator

Your next question comes from John Hayes with BMO Capital Markets. Your line is now open.

John Hayes – BMO Capital Markets

Thank you. Thanks again for doing this call. I have a question like there has a lot of things been said, one of them was that you somehow legally obtained water rights in the Ejido under some protest filed or complaint filed with the Canadian government. Is any of that true?

Dan MacInnis

No idea about water rights. We will need those as we go forward, but we have not acquired any…

Peter Megaw

Dan, I think what John is probably referring to is there have been some fairly awkward translations of some NGO letters that have come out of Mexico that are talking about both what we are doing in terms of our exploration and they have us having a mine with which we’re contaminating water, which of course is not true because we don’t have a mine.

But those same documents also are mentioning the defense of water rights throughout the region and the campaign that El Barzón has been on to shut down illegal water wells throughout northern Chihuahua. So I think there may have been some confusion between those two completely separate issues. And with awkward translations, the two have become conflated, because I’ve read most of the stuff that’s come out and we actually purchase water from the Ejido for our drilling program. So they know what’s going on in terms of our water use.

John Hayes – BMO Capital Markets

Okay, that would [advance] my next question, where is the water coming from for the drills. But there is specifically some comment about the complaint made to the Canadian embassy about this? Are you aware of anything like that or is that just more of the process floating around?

Dan MacInnis

I would suspect that’s mostly the – as you described it, the process that’s floating along and we’ve been in touch with the Canadian embassy in a number of occasions over the last two weeks and they’ve never brought up the issue with us at all.

Peter Megaw

They’ve been very supportive.

Dan MacInnis

They’ve actually been very supportive of us.

John Hayes – BMO Capital Markets

So but actually I believe there was an email letter from one of those NGOs that was sort of [blank] addressed to a number of people may have been sent to the Canadian embassy as well.

Dan MacInnis

And I believe it was sent to the American embassy and it was sent to anybody whose email address they have. I think if one of those anti mining groups just trying to perpetuate all this disinformation that were somehow operating a large open pit out there.

John Hayes – BMO Capital Markets

Okay. So I guess from perspective here I mean you see some of these things and there is like little kernel of truth and is stretched into a great big distortion and then…

Dan MacInnis

Yeah, it’s the belief that anything on the internet is true and you can’t – there is a lot you can’t deny. You’ll chase these accusations and as you said take these kernels of truth and then they stretch them beyond imagination.

John Hayes – BMO Capital Markets

Right. So may be I can ask a more productive question perhaps. Okay, when you go through the soil use permits process and what does that do for timelines for permitting say down the road if you wanted to do an exploration development ahead of mining or how does that fit into the broader picture now?

Peter Megaw

Soil use permit is essentially a mechanism through which land is – how the government treats the land in terms of its classification. So the default throughout Mexico is that land is considered of agricultural use whether it’s being used or not, whether it’s suitable or not, that’s just the default. If you are going to convert it to industrial use, that’s what the soil change permit indicates. And so that’s basically what we are looking at here.

So once you have a soil use change permits then basically the land has been converted. So as long as you are covering enough area as you move forward that soil use change permit goes with you. So you don’t have to reapply for it is my point.

John Hayes – BMO Capital Markets

Okay. Thanks very much.

Dan MacInnis

And I might just add to a little bit of color [there] too where we are finding out talking to our peers and elsewhere in the state at this new process are causing all kinds of delays as Peter pointed out depending, which office you have been, which state you are in, I mean it’s a new process. And I think over time it will probably get streamline, but I think its safe to say that the delays are inevitable, and I believe we had technical committee meeting with Fresnillo a few weeks ago they were experiencing similar issues on their projects as well.

So this is a new program, it’s used to be that the soil use was required for development projects. Now they moved it down to the drill base and that’s just a process that’s going to take some little bit of extra time to do. And right now I start to predict what that time frame will be.

John Hayes – BMO Capital Markets

Okay. Thanks.

Dan MacInnis

Thanks, John.

Operator

Good luck. Your last question comes from Richard Greg, private investor. Your line is now open.

Unidentified Analyst

Good morning, Dan and Peter. Very simple question of geography, what proportion of the Cinco leases is covered by this Ejido and do you have other Ejidos that you have to negotiate with?

Peter Megaw

The area of the Bridge Zone, Pegaso, Upper Manto where we’ve been drilling recently is entirely on the Ejido property. The Pozo Seco part of the project on the west side of the range is entirely on a private ranch.

Unidentified Analyst

Thank you.

Dan MacInnis

And as we pointed out earlier too Richard, we’ve also have agreements in place with other ranchers and private land owners out there over the last six years for access including the mother-in-law of the gentlemen who was tragically killed and again we’ve never had an issues in standard access agreements.

Unidentified Analyst

Thank you.

Dan MacInnis

Okay. I believe that that was our last question and I would encourage anyone out there that if you have any further questions or any further clarification, please feel free to call us here at the MAG offices and we will make every effort to keep you updated.

I would like to thank you all for attending, and I trust that this presentation this morning has helped clarify this issue related to our Cinco de Mayo project and I will reiterate once again this has absolutely no effect on any of our other projects including Juanicipio Joint Venture. And I would also like to thank Peter for his added color here as well this morning and with that, I will say good bye and have a good afternoon. Thank you.

Peter Megaw

And good bye from me and happy Thanksgiving for those on the side of the border.

Operator

This concludes today’s conference call. You may now disconnect.

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