TORONTO (miningweekly.com) – Mexican precious metals producer Fresnillo will proceed directly with the second investment option at the Coneto gold/silver project, in Durango, Mexico, after it has met the exploration expenditures of the first investment option.

Under a February 2012 agreement between Fresnillo and explorer Orex Minerals, Fresnillo committed to spend $2-million on initial work, followed by the first investment option of $2-million, both of which had now been completed. To date, exploration expenditures had exceeded the $4-million mark.

Under the second option stage, Fresnillo would spend $2-million more and had already started. Three diamond drill rigs were in operation at Coneto as part of a 10 800 m 2014 drill programme. A joint technical committee, with both Orex and Fresnillo representation, was managing the Coneto exploration programme, Orex said on Thursday.

"Coneto is a highly prospective, mining-district-scale project and Fresnillo's decision to continue is a positive sign,” Orex president Gary Cope said.

After Fresnillo had spent $6-million on exploration activities and if Fresnillo exercised its right to continue, Orex and Fresnillo would each contribute their respective mining concessions to a new company, NewCo, that would at first be owned 55% by Fresnillo and 45% by Orex.

Fresnillo would have the right to lift its ownership of NewCo to 70% by advancing the Coneto project to the prefeasibility stage or, alternatively, spending $21-million more on exploration.

Should Fresnillo not exercise the right to increase its ownership of NewCo to 70%, Fresnillo and Orex would share the costs to complete a prefeasibility study proportionally.

Fresnillo also had a right of first refusal to acquire Orex's shares in NewCo should Orex receive a third-party offer for its interest in NewCo that it proposed to accept.

The historic Coneto mining district is situated in the heart of the ‘Mexican Silver Trend’ on the Mesa Central, stretching from Guanajuato in the south-east to the states of Zacatecas and Durango. This prolific trend hosts some of the world's largest silver camps and deposits, including Fresnillo, Guanajuato, La Pitarrilla, La Preciosa, Real de Angeles and Zacatecas.

Orex and Fresnillo hold extensive contiguous mineral concessions in the Coneto district, which are collectively about 17 600 ha and cover multiple mineralised epithermal quartz veins. In the first two phases, Orex and Fresnillo drilled 51 holes covering 17 000 m.