Great post from okaynow on SH. Very much worth reading and considering.

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If you go to the Penoles and Fresnillo web pages you will find a deal that was struck between these two companies involving Penoles Sabinas mine. It is also referred to as the Silverstream asset. The deal requires Penoles to deliver at least 60,000,000 ounces of silver to Fresnillo by December of 2032. Penoles retains the the Pb, Zn and Cu.

Now, the grades of this mine are as follows:
Ag - 106 g/t
Pb - 0.74%
Zn - 3.45%
Cu - 0.77%

It is obviously a nice property, but not in the same class as Jaunicipio. The financials show that both Penoles and Fresnillo are carrying the VALUE of the 60,000,000 ounces (in the ground) of silver at $350,000,000. This is for the silver only and is discounted out to 2032 on a annual production basis. This deal was used in the spin-off of Fresnillo from Penoles and must have been reviewed and accepted by the various regulatory bodies involved in the London listing.

So, Fresnillo and Penoles have assigned an in the ground value of $5.83/ounce of silver discounted over 24 years. At this early stage the Jaunicipio joint venture has announced 189,000,000 ounces of silver in the ground. Using their own valuation metrics Fresnillo should be able to accept a silver value of 189,000,000 x 44% x $5.83 which is $485 million dollars. On a fully diluted basis this alone is $9.25/share of MAG. In addition to their own silver valuation, how much is 44% of 566,000 ounces of gold, 456,000,000 lbs of Pb, and 767,000,000 lbs of Zn that they have reported worth?

Here is an excerpt of the deal as struck and reported. The "Group" is Fresnillo. You will note that in addition to the $350 million up front payment made by Fresnillo, they are also required to pay between $2 and $5 per ounce of silver.

"On 31 December 2007, the Group entered into an agreement with Peñoles through which it is entitled to receive the proceeds received by the Peñoles Group in respect of the refined silver sold from the Sabinas Mine (“Sabinas”), a base metals mine owned and operated by the Peñoles group, for an upfront payment of US$350 million. In addition, a per ounce cash payment of $2.00 in years 1 to 5 and $5.00 thereafter (subject to an inflationary adjustment commencing on 31 December 2013) is payable to Peñoles. Under the contract, the Group has the option to receive a net cash settlement from Peñoles attributable to the silver produced and sold from Sabinas, to take delivery of an equivalent amount of refined silver or to receive settlement in the form of both cash and silver. If, by 31 December 2032, the amount of silver produced by Sabinas is less than 60 million ounces, a further payment is due from Peñoles of US$1 per ounce of shortfall. The Silverstream contract represents a derivative financial instrument which has been recorded at fair value and classified within non-current and current assets as appropriate. Changes in the contract’s fair value, other than those represented by the realisation of the asset through the receipt of either cash or refined silver, are charged or credited to the income statement. In the year ended 31 December 2008 total proceeds received were US$31.7 million (2007: US$nil). See note 32 for further information relating to market and credit risks associated with the Silverstream asset, and note 2(c) for the estimates and assumptions."

Maybe Dan and Company should thoroughly review the fairness opinions within the Fresnillo IPO to assist them with their case to the OSC.