TORONTO, Nov. 7, 2014 /CNW/ - Scorpio Mining Corporation
("Scorpio Mining") (TSX: SPM) and U.S. Silver & Gold Inc.
("U.S. Silver & Gold") (TSX: USA) are pleased to announce that they have
entered into a definitive agreement (the "Agreement") to complete a
merger of equals that will combine their respective businesses (the
"Transaction") to create a leading junior silver producer in the
Americas.
The combined company will continue under the name of Scorpio
Mining Corporation and is positioned to have a strong operating
platform with two established producing mines, a third mine in
development, an advanced stage exploration project, and pro forma
net working capital of approximately C$40
million (including approximately C$21
million in cash)[1]. In addition, the combined company will
be led by a highly experienced management team and Board of
Directors that will focus on efficiently executing a combined
business plan, further reducing costs and optimizing operations
given current market conditions and evaluating accretive growth
opportunities.
Under the terms of the Transaction, which will be effected by a
statutory plan of arrangement, shareholders of U.S. Silver &
Gold will receive 1.68 common shares of Scorpio Mining for each
share of U.S. Silver & Gold held. Shareholders of Scorpio
Mining will not have to exchange their shares of Scorpio Mining in
the transaction. Upon completion of the Transaction, the combined
company will have approximately 335 million common shares
outstanding, of which former shareholders of Scorpio Mining will
own approximately 59% and former shareholders of U.S. Silver &
Gold will own 41%. The Transaction values the combined company at
C$65 million on a basic basis.
Highlights of the Transaction
Key investment highlights of the combined company include:
- Diversified production base: Sustainable annual
production of approximately 4.5 - 5.0 million silver equivalent
ounces from Scorpio Mining's Cosalá District operations in
Sinaloa, Mexico and U.S. Silver
& Gold's Galena Complex in Idaho,
USA.
- Improving cash cost profile: Cash costs expected to
decline as current operations and brownfield development assets are
optimized and G&A synergies are realized.
- Proven management team: Extensive experience in all
critical mining disciplines with demonstrated capabilities in
financing, acquiring, developing and operating open pit and
underground mines.
- Solid financial position: Pro forma net working capital
of approximately C$40 million
(including approximately C$21 million
in cash)1 with greater access to capital to fund future
growth initiatives.
- Robust reserve and resource base: Supports sustainable
operations at current prices with further potential profitable
expansion at higher prices from earlier stage internal
projects.
- Enhanced market presence: The larger company is expected
to appeal to a broader institutional shareholder base, increase
analytical following and improve share trading liquidity.
- Compelling value proposition: Leading leverage among
junior silver producer equities and attractive relative valuation
on net asset value and cash flow multiples.
Management Team and Board of Directors
The combined
management team will be led by Darren
Blasutti, who will assume the title of President and Chief
Executive Officer and will draw from the expertise of both
companies. Upon completion of the Transaction, the new Board
will be comprised of Mr. Blasutti together with four directors from
each of Scorpio Mining and U.S. Silver & Gold. Scorpio Mining
founder Peter Hawley will be
Chairman of the combined company. Biographies of all proposed
directors are included in an attachment to this press release.
"This merger creates a stronger, better positioned company
that is capable of not only surviving the current low silver price
environment, but potentially transitioning from a junior precious
metals company to an intermediate producer over the next couple of
years," stated Darren Blasutti,
President and Chief Executive Officer of U.S. Silver & Gold.
"The diversified low risk asset base, solid financial position,
enhanced capital markets profile and proven abilities of the
combined management team and Board make this a compelling and
unique value proposition for all shareholders."
Ewan Mason, current Chairman of
Scorpio Mining, added: "As we look to expand our operating
portfolio, we have a strong combined management team that has a
very recent track record of significantly reducing operating costs.
Management of the combined company will aim to surface tangible
near-term cost savings through realization of G&A synergies,
focus on cost control, and a systematic review of operations to
achieve improved productivity and operational efficiencies at its
existing assets. We see this business combination as the first step
towards building a leading precious metal producer in the
Americas."
Optimized Corporate Structure and Asset Base
The
Transaction is supported by strong intrinsic value-creation
opportunities that if realized, would provide mutual benefits to
the shareholders of both Scorpio Mining and U.S. Silver &
Gold.
Single asset mining companies are not efficient in the current
market environment and the proposed merger represents an effort to
create a stronger combined entity that has the ability to:
- Eliminate duplicate corporate and mine site G&A
costs: Management believes that this could save the combined
company approximately C$2.0 - C$3.0
million per annum.
- Optimize current operations and development
opportunities: In the last two years, the U.S. Silver &
Gold team reduced all-in sustaining cash costs by almost 50% at its
Galena Complex by implementing strict cost controls and
productivity enhancements. Based on detailed mutual due diligence,
U.S. Silver & Gold and Scorpio Mining believe there is an
opportunity to further improve profitability across the combined
asset base through operational improvements, some of which are
already being implemented, that could result in an additional
C$2.0 – C$3.0
million of cost savings per annum.
- Allocate capital efficiently: Management plans to
allocate existing financial resources over a larger universe of
opportunities, not only internally, but to potentially take
advantage of opportunities arising from historically low valuations
in the precious metals sector.
U.S. Silver & Gold management has intensively reviewed
Scorpio Mining's El Cajón asset as part of its due diligence
process, including the potential boundary movement and related
impact to mineral resources. While the final location of the
concession boundary remains subject to confirmation, based on its
review of the current facts, U.S Silver & Gold has assumed a
potential reduction of total resources at El Cajón of 40% to 50%
for purposes of evaluating the Transaction. Despite this,
U.S. Silver & Gold believes that pending production from the
continued development of El Cajón will contribute positive cash
flows for three to four years at current silver prices and will
efficiently bridge the development of the 120 Zone at San Rafael in the next two years through
shared El Cajón infrastructure. This operating scenario was used by
US Silver & Gold as a basis for the relative valuation
discussion and exchange ratio determination between the two
companies.
Board of Directors' Recommendations
The Board of
Directors of each company has determined that the proposed
Transaction is in the best interests of their respective
shareholders based on a number of factors, including the
recommendation of Scorpio Mining's Special Committee and fairness
opinions received from their respective financial advisors. Each
company's Board of Directors unanimously approved the terms of the
Transaction and recommends that their respective shareholders vote
in favor of the Transaction. GMP Securities L.P. and Morrison
Park Advisors Inc. provided fairness opinions to the Board of
Directors of U.S. Silver & Gold and Scorpio Mining,
respectively.
Each of the officers and directors of Scorpio Mining and U.S.
Silver & Gold has consented to enter into an agreement
supporting the Transaction pursuant to which they will vote any
common shares of the companies that are held by them in favor of
the approval of the Transaction. In addition, Tocqueville
Asset Management L.P., which holds or controls approximately 15.9%
of the outstanding Scorpio Mining common shares, and Sprott Asset
Management LP, which together with Eric
Sprott, holds or controls approximately 19.6% of the
outstanding U.S. Silver & Gold common shares and approximately
1.6% of the outstanding Scorpio Mining common shares, have entered
into lock-up agreements and have agreed to vote in favor of the
Transaction.
Details of the Transaction
The Transaction will be
carried out by way of court-approved plan of arrangement under the
Business Corporations Act (Ontario). It requires the approval of at least
66⅔% of the votes cast by shareholders of U.S. Silver & Gold
represented in person or by proxy at a special meeting of the
shareholders of U.S. Silver & Gold to be called to consider the
plan of arrangement. Approval by a simple majority of votes cast by
Scorpio Mining shareholders will also be required at a special
meeting of the shareholders of Scorpio Mining that will be held in
connection with the Transaction. In addition, the Transaction
will be subject to the approval of the Toronto Stock Exchange.
The Agreement includes customary provisions including, among
other things, reciprocal non-solicitation covenants, fiduciary outs
and rights to match any superior proposal. In the event
that a party wishes to terminate the Agreement in order to support
an alternative proposal, such party is obligated to pay to the
other party an amount equal to 4% of its equity value as a
termination payment. Expense reimbursement of C$1 million is payable by a party in the event
that approval from its shareholders is not obtained.
Timing
Scorpio Mining and U.S. Silver & Gold
expect to mail shareholder information circulars in mid-November 2014 and plan to hold their
respective shareholder meetings in mid-December 2014. The
Transaction is expected to close prior to year end.
Advisors and Counsel
GMP Securities L.P. is acting as
financial advisor to U.S. Silver & Gold and Davies Ward
Phillips & Vineberg LLP is acting as legal counsel.
Medalist Capital Inc. acted as a strategic advisor.
Morrison Park Advisors Inc. is acting as financial advisor to
Scorpio Mining and Irwin Lowy LLP is acting as legal counsel.
Qualified Persons
Mr. Daren
Dell, Vice President, Technical Services of U.S. Silver
& Gold is a Qualified Person under National Instrument 43-101
and has approved the applicable contents of this news release.
Scorpio Mining's President and CEO, Mr. Pierre Lacombe, Eng., is a Qualified Person as
defined under National Instrument 43-101 and has reviewed and
approved the applicable contents of this news release.
Conference Call
A joint conference call will be held
on Monday, November 10, 2014 at
9:00 am ET to discuss the
Transaction. An investor presentation will be available on
each company's website prior to the call. The call-in details
are as follows:
- Local and International: +1 416 981 9001
- Canada and USA toll-free: 800 763 5728
Please dial-in 15 minutes prior to the start of the call to
secure a line. You will be put on hold until the call begins. A
replay will be available on both company websites approximately two
hours following the end of the call.
About Scorpio Mining Corporation
Scorpio Mining
Corporation (TSX:SPM) is a Canadian-based silver producer with
significant base metal by-product credits. The 100% owned Nuestra
Señora Mine in the Cosalá District of Sinaloa State, Mexico, has flexible mining methods and
diversified metal production. It has a fully mechanized underground
operation and a processing facility permitted for expansion to
4,000 tonnes per day. The plant produces zinc, copper and lead
concentrates - two of which contain a significant silver component
that contributes ~50% of the revenue from metal payable.
Scorpio's opportunity for growth lies within the Cosalá
District, where Scorpio controls over 26,000 hectares covering
multiple exploration targets, advanced deposits and historically
producing mines. Outside of Cosalá, Scorpio holds two high-grade
silver properties in the Parral District of Chihuahua and Durango
States. The Company continues to focus on internal growth through
development of its deposits and aggressive exploration
programs.
About U.S. Silver & Gold Inc.
U.S. Silver &
Gold (TSX:USA) is a silver and gold mining company focused on
profitable production from its existing asset base and execution of
targeted accretive acquisitions. It owns and operates the Galena
Mine Complex in the heart of the Silver
Valley/Coeur d'Alene Mining District, Shoshone County, Idaho, which produces
high-grade silver and is the second most prolific silver mine in
U.S. history, delivering over 250 million ounces to date. U.S.
Silver & Gold also owns the Drumlummon Mine Complex in
Lewis and Clark County,
Montana.
Cautionary Statement on Forward-Looking
Information
This news release contains "forward-looking
information" within the meaning of applicable securities laws.
Forward-looking information includes, but is not limited to,
expectations, intentions, plans, assumptions and beliefs with
respect to, among other things, the Transaction, the combined
company following completion of the Transaction and its operations,
and the assumption for the reduction of total resources at El Cajón
utilized by U.S. Silver & Gold for purposes of evaluating the
Transaction. Often, but not always, forward-looking information can
be identified by forward-looking words such as "anticipate",
"believe", "expect", "goal", "plan", "intend", "estimate", "may",
"assume" and "will" or similar words suggesting future outcomes, or
other expectations, beliefs, plans, objectives, assumptions,
intentions, or statements about future events or performance.
Forward-looking information is based on the opinions and estimates
of the applicable company as of the date such information is
provided and is subject to known and unknown risks, uncertainties,
and other factors that may cause the actual results, level of
activity, performance, or achievements of the applicable company to
be materially different from those expressed or implied by such
forward looking information. This includes the ability to develop
and operate the properties of the combined company, risks
associated with the mining industry such as economic factors
(including future commodity prices, currency fluctuations and
energy prices), failure of plant, equipment, processes and
transportation services to operate as anticipated, environmental
risks, government regulation, actual results of current exploration
activities, possible variations in ore grade or recovery rates,
permitting timelines, capital expenditures, reclamation activities,
social and political developments and other risks of the mining
industry. Although each of Scorpio Mining and U.S. Silver &
Gold has attempted to identify important factors that could cause
actual results to differ materially from those contained in
forward-looking information, there may be other factors that cause
results not to be as anticipated, estimated, or intended. Readers
are cautioned not to place undue reliance on such information. By
its nature, forward-looking information involves numerous
assumptions, inherent risks and uncertainties, both general and
specific those contribute to the possibility that the predictions,
forecasts, and projections of various future events will not occur.
Each of Scorpio Mining and U.S. Silver & Gold undertakes no
obligation to update publicly or otherwise revise any
forward-looking information whether as a result of new information,
future events or other such factors which affect this information,
except as required by law. Readers are also cautioned that
the assumption for the reduction in total resources at El Cajón
utilized by U.S. Silver & Gold for purposes of evaluating the
Transaction is an assumption of U.S. Silver & Gold only, and is
not a statement of, or otherwise endorsed by, Scorpio Mining, and
the actual reduction in total resources at El Cajón may differ
materially from the assumption of U.S. Silver & Gold, including
because the concession boundaries underlying the El Cajón deposit
have not yet been confirmed by the Dirección General de Regulación
Minera and the technical work to determine resources based on such
confirmed boundaries has not yet been conducted. Scorpio
Mining intends to prepare an updated mineral resource estimate for
its El Cajón deposit and a revised technical report, prepared in
accordance with National Instrument 43-101 - Standards of
Disclosure for Mineral Projects, following the Dirección
General de Regulación Minera's final confirmation of the concession
boundaries underlying the El Cajón deposit.
PROPOSED BOARD OF DIRECTORS FOR THE COMBINED
COMPANY
Peter J. Hawley, BSc, BEng,
PGeo
Chairman
Mr. Hawley has over 30 years of
experience in the exploration and mining industry. He has worked as
a consulting geologist to a large number of intermediate and senior
mining companies including Teck Corporation, Noranda Inc, Placer
Dome Inc and Barrick Gold. Mr. Hawley is the founder of Scorpio
Mining Corporation and current CEO of Scorpio Gold Corporation.
Darren Blasutti
Mr.
Blasutti is currently the President and CEO of U.S. Silver &
Gold and will serve in this role for the combined Company. He
was formerly the President and CEO of RX Gold & Silver Inc.
Prior to that was Senior Vice President of Corporate Development at
Barrick Gold, where he reported to the CEO and played a lead role
in the strategic development for over 13 years. While at Barrick,
Mr. Blasutti executed over 25 gold mining transactions including
the acquisition of Homestake Mining Company and Placer Dome Inc.
and the consolidation of the world class Cortez property from Rio
Tinto. He also led the creation of Barrick Energy Inc. to hedge the
Company's exposure to energy prices and was integral to the initial
public offering of African Barrick Gold. During his tenure at
Barrick, Mr. Blasutti also led the Investor Relations function. He
was previously at PwC Canada where he planned, supervised and
managed audits for a variety of clients. Mr. Blasutti is a member
of the Canadian Institute of Chartered Accountants and a director
of Noront Resources Ltd.
Alex Davidson
Mr.
Davidson is currently a corporate director and was formerly
Executive Vice President, Exploration and Corporate Development at
Barrick Gold with responsibility for the Company's international
exploration programs and corporate development activities. Mr.
Davidson joined Barrick in 1993 as Vice-President Exploration with
responsibility for expanding the exploration program. He initiated
the Company's expansion into Latin
America and beyond. Prior to joining Barrick, Mr. Davidson
was Vice- President, Exploration for Metall Mining Corporation. Mr.
Davidson has over 25 years' experience in designing, implementing
and managing gold and base metal exploration and acquisition
programs throughout the world. In 2005, he was presented the
A.O. Dufresne Award by the Canadian
Institute of Mining, Metallurgy and Petroleum to recognize
exceptional achievement and distinguished contributions to mining
exploration in Canada. In 2003,
Mr. Davidson was named Prospector of the Year by the Prospectors
and Developers Association of Canada in recognition of his team's discovery
of the Lagunas Norte Project in the Alto Chicama District in
Peru. Mr. Davidson is also a
director of MBAC Fertilizer Corp., Capital Drilling Limited, Amara
Mining plc, Orca Gold Inc. and Yamana Gold Inc.
Alan Edwards
Mr.
Edwards serves on the board of directors and is President of AE
Consulting Corp. He also serves on the board of directors for
Entrée Gold Inc., AuRico Gold Inc. (Chairman), Oracle Mining
Corporation (Chairman), and AQM Copper Inc. (Chairman). From
September 2012 to July 2013, he was CEO of Oracle Mining; from 2009
to May 2011, he was President and CEO
of Copper One Inc.; and from 2007 to 2009, he was President and CEO
of Frontera Copper Corporation. Mr. Edwards holds an MBA from
the University of Arizona and a B.S. in
Mining Engineering also from the University of
Arizona.
Bradley R. Kipp, HBA, CFA, CPA
CA
Mr. Kipp has over 18 years of experience in the mining
sector specializing in operations, corporate finance and public
company reporting. In 1997 he joined a mining development company
as Vice-President, Finance and has been involved in the financing
and development of emerging and start-up mineral projects focused
primarily in southern Africa,
Mexico and Myanmar. As part of these activities he is, or
has been, Chief Financial Officer and/or Director of several public
companies listed on both the Toronto and London AIM stock exchanges.
Ewan Mason, HBSc,
MBA
Mr. Mason began his career as a contract geologist
working for a number of mining companies. Following receipt of his
MBA in 1992, he embarked on a corporate banking career with the
Bank of Nova Scotia, focusing on
project financing. Recruited by Richardson
Greenshields in 1995 (acquired by RBC in 1996), Mr. Mason
rose to the role of Managing Director. In 2005, he was recruited by
TD Securities to start up and head their mining investment banking
team, which he led until May
2009.
Thomas McGrail, BSc,
BEng
Mr. McGrail has over 35 years of experience in the
mining industry, most recently as Chief Operating Officer for
Scorpio Mining. Prior to joining Scorpio, he was General Manager of
the Mulatos Mine for Alamos Gold. His previous positions also
include Vice-President of Operations for Aura Minerals with
responsibility for their San
Andres open-pit mine in Honduras and the Aranzazu underground mine in
Mexico, consultant to Cia Minera
de Caldas, S.A., General Manager for Desarrollo Minera de
Nicaragua, S.A., and President and
General Manager of HEMCO de Nicaragua, S.A.
Gordon Pridham
Mr.
Pridham is Principal of Edgewater Capital and sits on the public
company boards of Newalta Corporation (Chairman, Compensation),
Titanium Corporation Inc. (Chairman), and Roxgold Inc. He is on the
advisory board for Enertech Capital a Clean Tech Venture Fund.
Recent activities include the merger of US Silver with RX Gold as
Chairman, the sale of Norock Realty to Partners REIT as Chairman of
the Special Committee, and the sale of Western Prospector to CNNC
as Chairman of the Special Committee. Mr. Pridham has over 25
years of experience in investment banking, capital markets and
corporate banking. He has worked in New
York, Calgary, Toronto and Hong
Kong for global financial institutions and has financed and
advised companies in public and private markets across a broad
range of industry sectors. He is a graduate of the
University of Toronto and the Institute
of Corporate Directors program.
Lorie Waisberg
Mr.
Waisberg is a corporate director currently serving as a director of
Chantrell Ventures Corp., Chemtrade Logistics Income Fund, Metalex
Ventures Ltd., Primary Energy Recycling Corporation and Tembec Inc.
Prior to retirement, Mr. Waisberg served as Executive Vice
President, Finance and Administration of Co-Steel Inc., a steel
manufacturer. Prior to this, he practiced law with a major Canadian
law firm. Mr. Waisberg is accredited as ICD.D by the Institute of
Corporate Directors.
[1] As at September 30, 2014,
assuming a US/CDN exchange rate of 0.88
SOURCE U.S. Silver & Gold Inc.