Farallon Resources [TSX:FAN; OTC:FRLLF] made significant progress to developing its G-9 deposit in Mexico by securing an $80 million silver off-take package from Silver Wheaton [TSX:SLW; NYSE:SLW] today. The money, including a portion that will be paid out within the coming weeks, ensures Farallon has the cash in hand to get its innovative G-9 project up and running.

Farallon's currently working to develop the G-9 deposit on a unique fast-track approach to mining development - drilling out and expanding inferred resources at the project all while proceeding toward mineral development this summer, with the goal of getting the largely base metal project into production while the market remains strong.

Shares of Farallon surged as much as 12% during Tuesday trading in response to the deal, which provides $30 million in cash within the next few weeks, and $50 million paid out in pre-arranged instalments as the silver production is delivered. The deal allows Silver Wheaton to buy 75% of the mine's estimated 1 million ounces of lifetime silver production at a maximum price of $3.90 per ounce.

Thus, expected total cash to Farallon from the agreement (ignoring time value of money) is in the neighbourhood of $83 million – which should give investors additional confidence in the company's financial wherewithal ability to proceed toward production.

A portion of the proceeds will be used to retire the company's existing $30 million bridge facility, with the remainder used to fund construction on G-9. According to company President Dick Whittington the company is now fully funded to production at G-9.

Additionally, Farallon still remains on track to arrange a $70 million financing package from NM Rothschild to further fund start-up costs, according to Whittington. This means that the Silver Wheaton deal will hopefully just provide an extra cash cushion since once the Rothschild package is tied up it won't have to be used to pay down the bridge loan.

In short, the deal helps to reduce investor's financing concerns in what has been a very shaky market for development financing, and should reduce the company's relatively high development discount.

Farallon's inferred 5.6 million tonne G-9 deposit (at a zinc cut-off of 2%) contains 2.8 g/t Au, 186 g/t Ag, 1% Pb, 1.3% Cu and 7.3% Zn. Average annual production under this inferred base is roughly projected at 120 million pounds of zinc, 15 million pounds of copper, 1 million ounces of silver, 6 million pounds of lead and 9,000 ounces of gold.

This is expected to be more or less maintained for the first three years of production before trailing off in the total estimated 7-10 years of mine life at the deposit. Pre-tax payback given this rough scenario, according to Farallon, would occur within just one year.

While the numbers remain highly subjective at this point, it's fairly easy to see the strong upside potential that exists at Farallon's deposit – and is likely being overly discounted by the market.

The recent positive trending in the stock price action, however, has this correspondent feeling more positive about some of the discount being extinguished at the company gets closer to production. When coupled with today's agreement with Silver Wheaton, investors may finally be getting more comfortable with the development risk at G-9.

Beyond G-9, Farallon has significant upside exploration potential throughout its multiple properties in the Campo Morado district. Just last year, the company discovered a new zone north of the main G-9 deposit, suggesting that the broader area north of the deposit remains open to further discoveries.