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Orex, Canasil, Pan American to jointly develop Sandra-Escobar project

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Orex, Canasil, Pan American to jointly develop Sandra-Escobar project

Orex Minerals Inc., Canasil Resources Inc. and Pan American Silver Corp.'s Plata Panamericana SA de CV signed a nonbinding letter of intent contemplating their cooperation in developing the Sandra-Escobar silver project in Mexico, Canasil and Orex said in separate Dec. 19 statements.

The companies' interests in the project are governed by separate agreements, one between Pan American and Canasil and another between Canasil and Orex. The companies also got tangled in a legal proceeding after Pan American filed a lawsuit against Canasil in September related to the latter's Sandra-Escobar joint venture deal with Orex.

Pan American and Canasil's option agreement dates back to March 2009, under which Canasil earned a 40% interest in Escobar and Pan American held the remaining 60% stake. In September 2015, Canasil and Orex signed a separate deal for a joint venture over the project, with Orex owning a 55% stake and Canasil holding a 45% interest.

The new LOI among the companies requires the Orex-Canasil joint venture to grant Pan American a 10% interest in the Sandra property. Pan American will then have the right to earn an additional 41% stake in Sandra during a stipulated four-year earn-in period by contributing US$5 million to the operations of both the Sandra and Escobar properties, US$2 million of which will be required in the first two years.

Meanwhile, the Orex-Canasil joint venture will also have the option to increase its project stakes by 9% within the same earn-in period by spending US$1 million on both properties. The exercise of this option will give the joint venture a 49% ownership of the project, with Pan American holding the majority 51%.

Should Pan American elect to withdraw from the deal during the earn-in period, the company will forfeit its initial 10% in favor of the Orex-Canasil joint venture. Pan American, however, will have the right to further increase its interest in Sandra-Escobar to 60% if the company completes a pre-feasibility study on the project.

The companies agreed to form a technical committee to review and recommend exploration programs for Sandra-Escobar, with the Orex-Canasil joint venture serving as the project operator.

The deal remains subject to the parties' execution of a definitive agreement, which will start the transaction's four-year earn-in period.