UPDATE 2-Mexico's Fresnillo to double silver, gold output

(Recasts with plans for IPO proceeds, adds details)

By Mica Rosenberg

MEXICO CITY, May 12 (Reuters) - Mexican precious metals miner Fresnillo will invest money from its recent London IPO to buy new mines and double output at the world's biggest silver mine, its CEO said on Monday.

Fresnillo (FRES.L: Quote, Profile, Research, Stock Buzz), a subsidiary of Mexico's Penoles (PENOLES.MX: Quote, Profile, Research, Stock Buzz), will ramp up annual production of gold to 400,000 ounces and silver to 60 million ounces over the next ten years, Chief Executive Officer Jaime Lomelin told reporters.

The bulk of the new output will come from the company's three major mines, he said.

"We have a lot of projects in the pipeline," Lomelin said.

The company plans to open a new project called Fresnillo II at the massive silver deposit in central Mexico, which was first mined in the mid-1500s. There are five promising veins in exploration at the site, he said.

The company is trying to raise over $2 billion with its recent initial public offering on the London Stock Exchange that split Penoles' base metal and refining operations off from Fresnillo's precious metals business.

After paying down debt and other costs, Fresnillo will have $100 million to invest in the expansion, spending $50 million for new explorations. Five million of that will go to explore sites in Peru and Chile.

Chief Financial Officer Mario Arreguin said Fresnillo was eyeing new acquisitions and possibilities for future joint ventures.

"We are launching with zero debt, but that doesn't mean that we are going to stay with zero debt forever. If we see an interesting opportunity for an acquisition we can go to the debt markets and raise money," Arreguin said.

The two top executives spoke with reporters after weeks on the road in the United States and London talking to investors ahead of the offering. Some investors in Dubai and the Netherlands took Fresnillo's pitch via conference call.

Arreguin said after 200 meetings, some 40 institutional investors took an interest in the company.

NEW TECHNOLOGY

Lomelin, who used to be CEO of Penoles before the company split, said the strength of the business in coming years will come from investment in new technologies.

Company scientists working with Mexican universities have come up with a way to extract minerals using sulfur-eating bacteria and some installations are already using robotic technology to mine ore, Lomelin said.  Continued...