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Mexico Penoles sees silver output rising

Wed Mar 21, 2007 7:21pm EDT

Reporter's Notebook

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By Frank Jack Daniel and Monica Medel

MEXICO CITY (Reuters) - Mexican miner Penoles (PENOLES.MX: Quote, Profile, Research, Stock Buzz), the world's top silver refiner, will see output rise gradually for the next few years, then jump by about 10 million ounces in 2010 or 2011 as new projects start up.

Chief Executive Jaime Lomelin, speaking at the Reuters Latin American Investment Summit in Mexico City on Wednesday, said the company had no plans to expand through acquisitions but was increasing its exploration budget to $80 million in 2007 from $60 million in 2006.

"In these boom times for metals it is very difficult to buy companies or well-advanced projects, so we have focused basically on exploration," he said.

Penoles (PENOLES.MX: Quote, Profile, Research, Stock Buzz), which celebrates its 120th anniversary this year, is known as a cautious company that invests in exploration even when metals prices are low.

"The growth is a little slower, more organic, but in the end it is often cleaner growth," he said.

The company plans to produce 52 million ounces of silver this year, up from 49 million ounces in 2006, Lomelin said.

He said the silver company would increase production by 3 percent to 4 percent in 2008 and 2009 and predicted high metals prices would hold in that period.

"This bubble could last for some years yet, two or three years more," said Lomelin.

He said geopolitical worries were a factor supporting the recent boom and that demand from China and India would mean tight supplies even if the U.S. economy slows this year.

Silver touched a 25-year high of $15.17 in May last year. Futures contracts for May 2007 silver closed down 5.0 cents at $13.32 an ounce on New York's COMEX exchange on Wednesday.

Lomelin said the scramble among mining companies to take advantage of the price surge had caused high cost inflation for everything from tires to skilled personnel.

"The cost of fuel is no longer the same, the cost of labor is no longer the same," he said.

Costs for mining consumables in Mexico rose by about 13 percent last year, he said. Workers won pay raises of about 6 percent in 2006 and will get about the same this year, he said.

Penoles stock gained 3 percent to 118.95 pesos in late trading on Wednesday.

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