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US Silver to Shareholders: Reject Hecla Offer, Vote For RX Gold Merger

Posted on 2012-11-05, By A-Best Staff

US Silver (TSX:USA, OTCPINK:USSIF) and RX Gold and Silver (TSXV:RXE)  have a plan to merge into US Silver and Gold, a combined company with the goal of exceeding 5 million ounces of silver by 2014. Under the terms of the deal, US Silver shareholders will own approximately 70 percent of the new company and RX shareholders get 30 percent. However, Hecla Mining (NYSE:HL) has upped the ante by making an all-cash offer for US Silver, a deal that US Silver urges its shareholders to reject.

If their merger plans are successful, US Silver and RX Gold will merge and focus on “three strong assets”:

US Silver’s Galena silver-copper mine in Idaho, which  produced 559,027 ounces of silver in Q1 2012.RX’s Drumlummon gold-silver mine in Montana, which produced 6,625 ounces of gold and 117,635 ounces of silver in Q1.US Silver’s redevelopment projects in Idaho, such as Coeur mine, which is expected to go into production this year.

Operating as US Silver and Gold, the companies expect a production base of 2.7 million ounces of silver and 26,500 ounces of gold.

These figures will represent a 12 percent increase in silver production for US Silver, according to Mark Grothe, lead analyst at proxy firm Glass Lewis and Co. With RX’s gold, there is a 75 percent increase on a silver equivalent basis, which he says is significant.

The companies expect greater growth and development opportunities and that the geographical proximity of their operations will allow corporate, milling and production synergies that will promote efficiency and lower costs by  more than $10 million per year.

Other benefits are said to include improved liquidity and capital markets profile and management that can deliver results.

In a Business News Network interview, Darren Blasutti, president and CEO of RX, and CEO of the new US Silver and Gold, said US Silver has a very established asset but not a strong enough management team to unlock the necessary value. He believes this is a gap RX can fill since the company is formed by former Kinross (TSX: K,NYSE:KGC) and Barrick (TSX:ABX,NYSE:ABX) personnel, like him.

As with any merger, there are risks, and the benefits are not guaranteed. Time frames in which the potential benefits will be realized are unknown, and the expected results are largely contingent upon silver prices and mining valuations recovering.

Hecla makes an offer

Hecla believes it has a better plan – offering US Silver shareholders C$1.80 per share and C$.205 per outstanding common share purchase warrant.

This deal represents a 23 percent premium over US Silver’s closing share price on July 24, a 28 percent premium over the company’s one-month average, and a 28 percent premium over the offer price of $C 1.41 under the proposed RX merger.

This deal involves cash, which Hecla has on hand, but is contingent upon the RX merger not going through.

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