Penoles, the world’s largest refined silver producer, is splitting
its precious metals assets from its base metals business and plans a
$2 billion float of the gold and silver miner in London, sources
close to the deal said on Friday.

Fresnillo Ltd,
the precious metals business, plans to offer about $900 million in
new shares and around $1 billion of shares owned by parent firm
Penoles (PENOLES.MX),
the sources said.

Penoles said it
was separating the two operations to maximize efficiencies. Investors
often prefer pure gold and silver plays over polymetalic companies.

“This is
the most important move Penoles has made in its history,” said
Mario Arreguin, Fresnillo’s CFO told Reuters in an interview.

Shares of
Penoles, which was founded 120 years ago, soared more than 12 percent
to a record high on the news as the wider Mexican stock exchange

“The market
rewards these types of companies that are more focused — it takes
away the contamination effect of the chemical and base metal part of
the business,” said Carlos Hermosillo, analyst at Vector

Penoles will
retain its Met-Mex refinery and smelter, one of the largest
metallurgical complexes in the world, and also its chemical division,
one of the world’s largest makers of sodium sulfate, used to make
soap and detergents.

Penoles will
retain a stake of 75 percent to 77.3 percent of Fresnillo after the
initial public offering.

The deal,
underwritten by JPMorgan Cazenove, will start book-building in the
last week of April and be priced in the second week of May, one
source said.

The company is
talking with investors in Europe and the United States and possibly
Canada this month, presenting its plan to double silver output over
the next decade, Arreguin said.

Penoles will
keep the Francisco I. Madero zinc pit, lead mine Naica, zinc producer
Bismark, polymetalic mine Sabinas, copper mine Milpillas and zinc
mine Tizapa. Penoles also keeps 1.2 million hectares of mining

Fresnillo Ltd
owns its Fresnillo silver mine and gold mines at Cienaga and
Herradura. It also has two development projects at Fresnillo II and
Soledad-Dipolos and three exploration projects at San Juan, San
Julian and Orysivo.

Fresnillo is
vying for investor interest with Czech coal producer New World
Resources’ $2.2 billion IPO, another deal handled by JPMorgan

The two IPOs
come as equity markets become less volatile. The Britain’s top index
FTSE 100
has gained 3.6 percent over the last two weeks.

Silver equities
rise as spot silver prices breached $20 per ounce level
for the first time since 1980, in mid-March, before falling to $17.70
on Friday.

Silver is expect
to remain strong over the next few months, but could peak as the
seasonally weaker summer period approaches.

Russia mining
firm Polymetal (PMTLq.L),
the world’s second largest silver producer, has seen its shares trade
up as much as 18 percent since its $604.5 million listing on the
London Stock Exchange and Russian bourse RTS in February 2007, at
$7.75 each. It closed at $8.00 on Friday.

Fresnillo, which
will be admitted to the FTSE 100 index and according to Arreguin
would be debt free after the float, produced 34.4 million ounces of
silver and 280,000 ounces of gold in 2007. Fresnillo had revenue of
$647.9 million in 2007.

Sales at
Penoles, controlled by the Bailleres family, last year totaled $4.43
billion, according to Reuters data.

U.S.-listed Pan
American Silver Corp (PAAS.O),
which is to produce 23 million ounces of silver in 2009, has risen 10
percent to trade at 1.9 times net asset value (NAV) of $20 apiece so
far this year.

However, Coeur
d’Alene Mines (CDE.N),
the world’s third biggest silver producer, has fallen 25 percent to
trade at 1.1 times its NAV of $3.30 per share since it announced on
March 12 of a $200 million convertible debentures raising to get
through capital-intensive period of mine building. (Additional
reporting by Mark Potter and Jonathan Saul in London and Chris Aspin
in Mexico City; Editing by Tim Dobbyn)

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