Exploration Geologist Explains, “How We
Acquired Over 250 Million Oz’s Of Silver—For
The Cost Of Filings Fees”
February 12, 2013 | By Tekoa Da Silva

In one of the more fascinating conversations I’ve had over the last year, I was able to connect with
exploration geologist, Dr. Peter Megaw. Dr. Megaw is an expert on Mexican gold and silver exploration, and has authored a number of scientific pieces on ore deposits. He is also a director of silver exploration
company, Mag Silver.

Over the last 30 years, Dr. Megaw and his team have acquired some of Mexico’s most highly prized and
elephant-sized silver deposits. These deposits are so large and of such high grade, they will “make money at $10 an oz. silver” and survive “under almost any market conditions”, explained Dr. Megaw.
He further shared the riveting story of how he and his team were able to acquire over 250 million oz.’s of
silver in the ground for the cost of filing fees.

Here are my notes from the conversation:

TD: Dr. Megaw, what did you see years ago that others didn’t in terms of getting your hands on such large deposits of silver in Mexico?

DPM: Well, after the Bre-X scandal (1997) until 2003, there was simply no demand for exploration
properties. The exploration business was completely in the tank and the period was referred to as “nuclear winter”. The upside during that time, was that lots of very high quality properties were dropped and available for acquisition at very low costs. We had identified the potential of some of these properties and simply acquired them when nobody else wanted them—in most cases for the cost of filings fees. Many of us have enough years in the business to realize that these things are cyclical, and there’s no better time to acquire inventory then when no one wants it.

TD: What deposit characteristics have served as “must have’s” for you and your team?

DPM: Our long-term focus has been searching out size and grade. Everything we’ve ever done as
‘explorationists’ has focused on finding deposits that are of high enough grade to make it under almostany market conditions, and large enough to be district-scale plays. We’ve never been interested in looking for the next “ore-body” or the next “small mine”. We’ve always focused on the big plays. A big play you believe in is something fairly easy to latch onto conceptually, as well as to hang on to during tough markets.

TD: How would you characterize today’s exploration market? Is great value finally flushing itself out?

DPM: I would call this time a Darwinian or Malthusian reckoning. Over the last 5 years, our industry has been inflated by literally hundreds of companies that have gone into various aspects of exploration that either don’t make sense or they simply don’t have the people. You walk into the big room at the PDAC, and there are 850+ companies in that room, representing virtually every element on the periodic table. There are five companies chasing each element, with every one of them trying to get investors’ attention. Most of them don’t have quality properties, and a very high percentage don’t have the people with the technical training needed. Over the last 30 years, there’s been a huge downsizing in our industry, and one professional after another has been flushed out through one down cycle after another. The number of people left standing after that is small. And of course there were times when some of the schools that teach economic geology only had a couple of students in them. So you’ve got this huge upsurge of companies that don’t have fully qualified technical people, and they’ve got properties that in many cases have been drilled and killed and walked away from.

Some of these companies deserve to disappear, and it’s actually a positive cleansing thing. The other
aspect is that the companies out there that have high quality properties and people will survive, they’ll still be around.

If what you’re exploring for and what you’re finding is economic at any price, you don’t have to stay up at night worrying about whether your project is going to be economic in the morning or not. If you focus on quality, the market will take care of itself.

TD: How is Mag Silver doing in this market?

DPM: Mag is doing quite well despite the current troubles in the market. Our share price is higher than it was a year ago, our projects are moving forward, and we’ll be breaking ground in the next month or two on our Juanicipio project. It’s going to take 3-4 years to build out, but after that it’ll become one of the world’s most profitable primary silver mines. I think we’ll weather the storm pretty well. The high grade stuff we have will make money at about $10 oz silver.

TD: What are your thoughts on the macroeconomic picture for silver and gold?

DPM: I’ve seen these market cycles come and go, but what we’ve never seen before are these kind
of accumulated world debts. When does the dollar and when do world currencies hit bottom? And when does the inflation from governments trying to print their way out of economic distress come home to roost? It’s concern about that that’s driving a lot of the monetary interest in silver and gold. I don’t know of any government that’s solving these problems in any substantial way. I don’t think we’re headed back to living in caves and out of the back of our cars—but I do think the turbulent times ahead of us will be very good for gold, but not so good for people.

TD: Speaking geologically Dr. Megaw, is there “anything left in the ground”? Have all the exciting gold and silver deposits been discovered?

DPM: Not even close. If I thought that I’d cash in all my shares and retire tomorrow. We’ve found two
major deposits in Mag Silver in the last 10 years. At least two other major blind discoveries have been
made in Mexico in the same period of time. Mexico is incredibly prospective, most of the major mines in one way or another were found by the Spanish within 50 years of the conquest of Mexico. Those deposits poked out at the surface, anybody could see the silver, and anybody could work on them. What we’re having to do now (and this is worldwide), is to look a little deeper and a little smarter. As we develop the technology to do that—surprise, surprise, people are finding things all over the place. It’s going to cost more, it’s going to be a little more difficult to bring things into production, but we will continue to find them, they’re out there. However, it’s not as easy as walking down the sidewalk and picking them up off the ground.

TD: Dr. Megaw, thanks for sharing your comments.

DPM: My pleasure.