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MAG Silver Corp. (NYSEMKT:MVG)

The Wall Street Analyst Forum Call Transcript

November 19, 2008, 10:30 am ET

Executives

Helen Baud – Host, The Wall Street Analyst Forum

Pete Megaw – Co-Founder and Director

Helen Baud

Good morning, ladies and gentlemen. My name is Helen Baud with the Wall Street Analyst Forum and I’m your host in this room for today. At this time I would ask anyone with any cell phone, pagers, or other handheld devices to please either turn them off or to the silent position so as to disturb the presentations. Next company presenting today is MAG Silver Corporation.

MAG is a leading exploration company working the Mexican Silver Belt. The high-grade discoveries in Juanicipio property are helping transform the Fresnillo Trend, the world’s oldest and most prolific silver district. Work with partner Fresnillo plc, 56%, is defining a world-class mineral resource, key to the next generation production by the world’s largest silver miner.

MAG also wholly owns over 100 square miles of protected grounds [ph] around Mexico, including the second largest free-holding in the Fresnillo Trend as well as the Cinco de Mayo CRD property in Chihuahua Trough where early drill results indicated significant new silver/lead/zinc discovery in the making. Presenting for us today for MAG Silver is Pete Megaw who is the Co-Founder.

Pete Megaw

Thank you, and good morning. It’s a pleasure as always to be able to tell the MAG story. As always, I have to start off with the fine print, the Safe Harbor forward-looking statements disclaimer. MAG Silver is exploring for silver in Mexico. Mexico is the finest and highest grade feature real estate in the world for silver. Over 25% of all the silver ever produced in human history has come from Mexico.

MAG Silver uses modern geologic models and science to drive district scale exploration for high-grade mineralization. That’s especially important in today’s environment, because with a significant discovery, the kind of thing we are looking for has the grade to get you through times when metal prices are low as we are seeing now and it has the size to carry you through several market cycles. So what we look for is something that will make several market cycles at whatever the lowest imaginable silver price would happen to be, those are the kinds of things we are looking for. And very fortunately, that’s what we have managed to find.

The Valdecañas Vein, which is in joint venture with Fresnillo plc, the world’s largest silver producer, has been shown to have an inferred resource of 238 million ounces of silver. MAG’s share of that is 104 million ounces. And that has had a grade of over a kilogram, over 30 ounces per ton silver. We also have a significant silver/lead/zinc discovery at Cinco de Mayo. We’ve had exploration success at Batopilas. And we are currently drilling at our Lagartos Southeast and Lorena projects. Ours is a land package assembled over a 15-year period, largely during times when people didn’t want the properties. We were able to acquire these properties at very low cost. Therefore our holding costs are very low, with one exception all of our properties are held outright by MAG. So our exploration is driven by result. It’s not driven by the deals that we have on our properties.

A quick rundown of our 52-week high or low. Our high was $16.40. Our low was $3.12. Recently we’ve been at around $4.50, between $4.50 and $5.00. We are up slightly this morning, thanks to a press release that went out on the Valdecañas Vein, which I will mention again in a minute. Issued an outstanding 48 million and change for 0.4 million options, leaving us fully diluted at about 51 million shares. We were very fortunate to do a significant financing around a year ago at $15.50, so our war chest [ph] is pretty well topped off. We’ve got $60 million in the bank.

Who are our major shareholders? Our largest shareholder is Fresnillo plc, our partner in the d Juanicipio joint venture. Over the last month, they have gone from having 4.5% to 19.8% of our company. They claim in their filings that this is for investment purposes. That’s as much as we know, but the management of MAG has formed – the Board has formed a special committee to consider what it means when your partner buys almost a fifth of your company and evaluate all of the various possibilities that could result from something like that. Sprott Asset has 8.3%. And you can see there is a number of other large holders, including management having a significant percentage of the corporation.

Who is our management team? People with long experience in the mining exploration and development business and importantly people who have lot of experience with mergers and acquisitions and takeovers; Jonathan Rubenstein, Richard Colterjohn, and Derek White, especially. You will notice some of these names. Jonathan was associated with Canico, Sutton, and most recently Aurelian.

We are covered by four analysts at major houses; George Albino with Macquarie, Andrew Kaip at Haywood, Bart Jaworski of Raymond James, and John Hayes at BMO. Several of these people have been following us for several years before we made our major discoveries.

Where are our properties located? Our largest – our biggest property holdings are here in the Fresnillo Trend, down here in Central Mexico. This is not remote treasure as the Sierra Madre kind of territory. This is an hour’s drive on paved highways from a major international airport to most of these project areas. And we have Cinco de Mayo DD [ph] and Sierra Ramirez, which are in the high plains of Northern Mexico, also within very short drives of major international airports and cities. So the infrastructure is very good. Again, we picked a district scale property holdings in all of these districts and that’s what we are exploring, Combination of veins here and what are called carbonate replacement deposits over here. Carbonate replacement deposits are the backbone of the Mexican underground base and precious metals mining business.

Our largest holdings are in the Fresnillo Silver Trend. I mentioned earlier, the 25% of all the silver produced in human history has come from Mexico. There are dozen billion-ounce silver deposits in the world. Four of them lie in this belt between Guanajuato and San Martin Sombrerete. That would include Fresnillo District where Juanicipio project is, our Lagartos Southeast project, and the Zacatecas District, and our Lorena project, which is just off of Guanajuato. These four districts are billion-ounce producers. That’s 10% of all the silver produced in the world.

There is a regional structure that links these. This isn’t just putting a road on the map and say, Gee, mom, look I can connect all of these with a straight line. There actually is underlying geology that links all of this together. We picked up on what we believe are some of the alternation features that allow us to work through cover because 60% to 70% of the area in here is covered by recent alluvium and volcanic rocks. And we believe that there are more of these large districts buried under this cover. It is ridiculous to believe that all of the districts in this belt cropped out and were findable by the Spaniards 450 years ago when the major discoveries were made in this belt.

This is the Juanicipio joint venture. Immediately to the west is the Fresnillo District, right here. These are the remainder of our holdings in the immediate Zacatecas area. You can see they are very large property packages. We spent a certain amount of time doing negative exploration, carving up ground that we don’t believe we need to hold. Again, to minimize our operating costs, we are currently drilling right here in Lagartos as well as having three rigs turning at Juanicipio.

Juanicipio joint venture was incorporated just under a year ago, 56% Fresnillo plc, 44% MAG. This joint venture is exclusively dedicated to the exploration and development of the Juanicipio joint venture ground. I’m about to show you an inferred resource, so I have to give you a resource disclaimer that says this is an inferred resource, which has no demonstrated economic value and so on and so forth. These are the numbers based on drilling up to the end of December 2007. There is almost a year’s worth of drilling that’s been done since this.

Here is the inferred resource. 7.3 million tonnes; 2 grams gold; 1,011 grams of silver, which is little over 30 ounces; 2.3% lead; and 3.94% zinc. This translates into a total of about 238 million ounces of silver, almost 0.5 million ounces of gold, and 1 billion pounds combined lead and zinc. MAG gets 44% of that. So that’s 1,004 million ounces. Note that with these gold and silver grades and amounts, those will more than cover all of the anticipated operating costs for this operation. So the silver will effectively be net.

This is where the Valdecañas Vein lies within the Juanicipio joint venture. Fresnillo II is what Fresnillo Mining Company plc has proposed as a regional mine/mill development to include the veins within the joint venture ground and a series of veins that have been discovered essentially using the results of the Valdecañas exploration in the surrounding ground. Within our ground, we’ve discovered the Valdecañas Vein, also the Juanicipio Vein, which is our additional discovery. And we’ve gain returned in our drilling on the Juanicipio Vein.

Fresnillo II will consist of Minera Juanicipio and the Valdecañas, and any other veins we find. And Minera Saucito, which is their 100% owned company that owns those veins that you saw outside of the joint venture ground. Note that, of the 382 million ounces in inferred in the indicated resource between these two sets of veins, 238 million of those ounces come from the joint venture ground.

So by far the preponderance of ounces lies within the joint venture ground, not only that the preponderance of grade lies within the joint venture ground. Here is a comparison of the grades indicated in the inferred resource for Saucito and Jarillas veins. Notice that the best of these is 513 grams silver. The inferred resource at Valdecañas is twice that.

This is where the vein lies. And what we are doing right now, our drilling program, which is right on schedule, is to drill this vein, the Valdecañas Vein out on 100 meter centers within what is called the bonanza zone. The style of vein has sort of a banded [ph] mineralization within it that starts around 350, 400 meters below the surface and goes down to about 700 meters below the surface. So we have to get our drill holes into that.

Saying that this is also a zone, here we are about 350 meters below the surface right here where the vein starts to widen. Note that if you follow this series of intercepts down the vein, you will see that it goes from being relatively narrow, 0.5 meter to 1.5 meters to 7 meters. That’s where it really starts to blossom here. Silver grade goes from a few hundred to under a hundred to multi-kilo grade. Base metals start low and get higher as you go down. When you get down into the bottom parts of the vein, your silver grade starts to drop out again. So any time you look at a MAG press release on a series of vein intercepts, it’s important to understand where they are with respect to the zoning, because the vein widens as you get down into the top of the bonanza shoot and the silver grade is very strong at the top and base metals come in strong at the bottom.

These are just some examples as some of the results we’ve put out earlier this year for a number of these holes. Here is a series of holes. QD, E, and F, which show that transition from 0.7 meters to 4.7 meters to 6 meters, and you can see the silver grade go from 2 to 1,200 grams back down to 600 as the base metals come up. So you need to walk back and forth between these as you look at any of our press releases, including the one that just came out today, which shows a number of holes essentially in this portion, the middle and the lower part of the bonanza zone. So we’ve got some very good numbers out in today’s press release. This is just a series of other holes that we put out during the year.

Note that we’ve started to hit a series of Hanging Wall splits in the western part of the vein. Some of these are coming in extremely high, multi-kilo grades that relatively narrow so far. We expect these things to widen. They are simply indicating that we’ve passed into a new vein field out in this area, and it’s still early days as far as the exploration upside is concerned.

This diagram is starting to get very crowded. Every one of these intersections of these grid lines is a 100-meter setter, and the idea is to have a drill hole at each of those points. As we are filling this thing in, you can see it starts to get difficult to read. But basically, the red holes are all 500-plus gram holes. The orange holes are 250 to 500 grams. So you can see we are consistently getting good grade throughout this vein. And that’s the straight length of about 1.5 kilometers from there to there. So this is a very significant vein discovered.

We have other targets. We have a couple of hits out here in the VP-2 vein, high gold in one case, high silver in another. And the Juanicipio Vein over here where we had intercepts as good as 60 centimeters of four kilos silver. We now know that that hole went in high, went in at the very top of the bonanza zone. We currently have a hole going in one section 18 right here, 150 meters below that intercept to see if the vein has blossomed out. That hole was down around 300 meters at the moment.

We can also see that Fresnillo established series of veins out in the area outside of the joint venture grounds and it’s fairly obvious that you want to try to project those structures into the joint venture ground and look for new veins. But right now, the focus is get the Valdecañas to the point where we can move it to an indicated resource by the end of the year, so we can pass it off to the engineer, so we can go underground on it. So that’s what’s going on.

We expect to finish this pattern by the end of the year. We will do a resource estimate by the end of the year. Remember that number I showed you was for drilling as of December last year, that’s 11 months out of date at this point. And our drilling has gotten much more efficient than it was last year. So we hope the revised resource and an indicated resource by the end of the year. We are drilling on the Valdecañas Vein, advanced engineering studies for actually how we are going to get underground on this thing. It’s ongoing, but it’s moving along nicely. And we are starting to work where we have worked on our metallurgy as well. Yes, questions.

Unidentified Speaker

100-meter centers, is that good for inferred resource, indicated resource, or is it actually for reserve from the future?

Pete Megaw

Based on – the question is – and I’m repeating this for the benefit of people online. The question is, is a 100-by-100 meter grid pattern good enough for an inferred or indicated resource. Based on Fresnillo’s experience of mining veins in the Fresnillo District for over 100 years, they are very comfortable with making an underground go-ahead decision based on what we would call an indicated resource based on 100-by-100 meter drill pattern. And they are the operators, so we’re moving forward based on that. One of the characteristics of the Fresnillo District is that historically the ore shoots and veins in the Fresnillo District are extremely consistent laterally over very good distances. It’s not shooting [ph] like many veins happen to be.

So where else are we drilling? We are also drilling at our Cinco de Mayo project up here in Northern Chihuahua. This lies in the belt of carbonate replacement deposits. These are very large skarn and replacement systems that have historically been the backbone of the underground lead, zinc and silver mining in Mexico. 40% of the silver produced in Mexico has come from this deposit site. These things tend to be high grade in the 8 to 15-ounce silver range with anywhere from 15% to 25% combined lead and zinc. Many of these things are produced underground at rates between 3,500 and 7,500 tonnes a day. So this is bulk underground mining. Very productive, very low cost mining. Major examples having Eulalia [ph] as the largest deposits of the type known in the world, (inaudible) deposit, which is the highest grade operating mine in Mexico, is located right there.

We got to Cinco de Mayo by applying this exploration model, which was based on 20 years of research that I did on carbonate replacement deposits in Mexico and over $2 million Teck Cominco’s money doing systematic regional exploration for these deposits. They lost interest in the program or their corporate objective has changed is probably a better way to put it. Properties and knowledge reverted to us. We picked up Cinco de Mayo. We actually originally picked it up for them and they dropped it back to us.

Our exploration suggests we have found the most difficult part of the system or way out of the end of a tendril and we are trying to follow those tendrils called manto back to what we anticipate to be a chimney zone, which are large vertical pipes composed almost exclusively of sulfide minerals back toward the intrusive center, which we believe exists in the district. So you get intrusive center, high temperature skarn with base metal – base precious metal mineralization working way out through these large bodies of massive sulfide replacements, very hybrid. Cinco de Mayo, we have a challenge. There is very little outcrop. That little ridge that you see over there is basically all we have to work with. Everything else here is covered. They are something you see it in the background.

Interestingly, I have a 12-point list of things that I look for as features of major carbonate replacement deposits, things that I look for when I evaluate the property. We found seven of the 12 in that limited outcrop that was there. We have since added four to that list. So the only thing we haven’t found so far is the intrusion. We have found Manto here, which we have traced towards skarn mineralization, which has Scheelite, which is tungsten, and a very well developed skarn. We are starting to pick up some dikes and sills. Those are peripheral intrusion style, and everything is telling us that the source is back in this direction.

We have a large magnetic anomaly over in this area, which we think may be the intrusive source and we started to drill hole on that on Sunday. Some of the holes we’ve had width up to 6, 7 meters, grades in the 250 to 1,000 grams silver. You see very strong lead values, up to 19%; 20% zinc. These are the kinds of grades that are characteristic of the best of these deposits in Mexico, and we simply have to keep following this mineralization back until things get big.

Here is my checklist. Most important, we are located right on Main Street as far as the CRD Belt is concerned. We’ve got the grade. We’ve got the multiple stages of mineralization, zoning all these other things. The only thing we are lacking so far is the (inaudible) stock and we think we’ve got to drill hole to design and find that now. So MAG is a very busy company, on the move even in today’s market because we have a strong war chest, we are continuing to explore.

We are not wasting our money, but we are exploring in places that have good potential to make significant discoveries that will get people’s attention. We are pushing the joint venture with Fresnillo strongly. Here we have our – I’d run you through our first resource estimate, a 100 million ounces plus of silver to MAG. Note that’s fully diluted. MAG only has a few more than 50 million shares outstanding. So these silver ounces are net. There is effectively two ounces of net silver for every share of MAG out there. So you can decide whether or not that’s useful valuation for the stock or not.

We are moving forward advanced engineering to go underground, and we’ve got a whole drilling on our second vein, the Juanicipio, which the last intercept we’ve got on was 4 kilograms. That’s over 100 ounces of silver, 1.5 gram gold. Cinco de Mayo is moving forward smartly with very good silver, lead and zinc grades over reasonable thicknesses. And as I mentioned, our corporate strength is good $60 million.

And we have a Board of Directors with a proven track record, not only of mine development but knowing how to deal with merger and acquisition, which is one of the possible scenarios that comes, A, from having this kind of money. We are evaluating things that might make sense for us to acquire. We are also looking at the potential ramifications of being acquired with somebody who makes a run at us during this market time when we believe we are undervalued. This is essentially the same thing, so I’m not going to run you through that again. I will simply say, thank you for your attention and I’d be happy to answer any questions you may have.

Question-and-Answer Session

Unidentified Speaker

(inaudible question)

Pete Megaw

Well, Fresnillo plc has only existed since last April or May. So they haven’t had much of a chance to develop that kind of history. So, no –

Unidentified Speaker

(inaudible question)

Pete Megaw

Predecessor (inaudible) which still exists as the largest base metal producer in Mexico. They have made joint ventures with a number of major companies. I mean, they have an ongoing joint venture with Newmont on the Herradura, which is the largest open pit gold mine in Mexico. We also have a long-term joint venture with Codelco, looking for copper in Northwestern Mexico. So, they have a track record from the Peñoles side of co-existing with joint venture partners. In the past, though, they have been joint venture partners with Cyprus at Bismarck [ph] and they ultimately bought out Cyprus. That’s a long time ago, so I don’t know how germane that would be to the current market comparison. There are not being any other questions. I thank you for your attention.

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