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It is all about the price of silver. USSIF now produces about 700,000 ounces of silver per quarter and 6,500 ounces of gold per quarter plus about $2.5M in copper and lead. Third quarter revenues should come in at around $33M. RXE now has $3M in cash plus $6M in unsold concentrate inventory inventory. and about $8M in debt. The cash and concentrate inventory they bring is greater than the debt. The combined company has about $30M in cash on hand plus $6M in unsold gold inventory with $8M in debt.. RXE was profitable in quarter 2 and increased it's cash position. RXE currently generates about $13M per quarter in revenue. Beginning in quarter 4 the Coeur mine will start producing silver and copper. The new company should produce around 3M ounces of silver and 26,000 ounces of gold in 2013. Copper production will also increase as Coeur starts producing. Copper and lead revenue should be about $12M in 2013. It is all about the silver price. A silver price of $38 means an increase of cash and profits of about $30M next year. This company is highly leveraged to silver.
I guess we need to assess where we are after the merger. We are now getting close to seeing some production at the Coeur mine. If the new stock trades above $2 we begin a countdown of twenty trading days until an AMEX listinng. RXE has increased it's cash position from $1.4M to $3M and has $6M worth of concentrate inventory on hand. We can expect them to produce about $13M worth of revenue in quarter 3 and quarter 4. Total revenues from the combined company should be about $33M in quarter 3 and quarter 4. Now it is up to the price of silver.
Huge volume in Canada. USA has traded 2.2M shares in Canada. Someone is buying everything they can get their hands on at $1.60. Who in their right mind would do that since we all know the stock is going to $1.40 or lower. Is it Hecla or is another bid coming from someone else?
As you can see, as of June 30 RXE now has $3M in cash and $6M in unsold inventory and $7.9M in debt. Cash and inventory now exceeds debt.
New insights on the situtation...please read.
link: http://silverinvestingnews.com/13147/us-silver-to-shareholders-reject-hecla-offer-vote-for-rx-gold-merger.html
US Silver to Shareholders: Reject Hecla Offer, Vote For RX Gold Merger
Tuesday August 7, 2012, 3:45am PDT
By Michelle Smith - Exclusive to Silver Investing News
--------------------------------------------------------------------------------
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.
Weighing the options
US Silver says Hecla’s offer is inadequate and highly opportunistic.
While the Hecla deal offers a seemingly attractive premium from a short-term perspective, US Silver accuses Hecla of trying to take advantage of recently low silver and mining share prices saying the offer represents a 10 percent discount to the 180-day volume weighted average.
Glass Lewis also describes Hecla’s offer as being on “the low side.” Its proxy paper says the premiums are below the average paid for similar-sized takeover deals for silver mining companies and adds that the offer implies a 20 percent discount below the one year stock price.
US Silver further complains that the offer does not fully reflect the value of its assets and organic growth opportunities. It accuses Hecla of trying to take advantage of its cash balances to finance the offer. With approximately C$29 million in working capital, which represents 26 percent of funding for Hecla’s offer, US Silver says it is effectively only being valued at C$1.39 share.
With the stock-for-stock RX merger, US Silver claims it will acquire RX at a 34 percent discount below the stock price on the day of the announcement.
But Hecla warns shareholders that voting in favor of the RX merger will deliver significant risk, considerable debt and assets of questionable value.
US Silver has no debt and about $29 million in working capital. Hecla points out that as of March 31, RX had $1.4 million in cash and had drawn about $8 million on a credit facility.
RX responded saying that as of June 30, it had about $3 million in cash, had reduced the credit line to $7.9 million and had concentrate inventory with gross market value of approximately $6.1 million.
But Hecla’s warning didn’t stop with finances. The company says RX’s flagship property, Drumlummon, contains a number of risks and uncertainties related to achieving full production, such as the fact that it is currently operating under a smaller miners exclusion (SME), which limits a company to five acres or less of surface disturbance. Hecla says there is no certainty of obtaining full operating permits.
RX says the SME does not limit production.
Where is the added value for US Silver shareholders? Hecla asks.
US Silver board opposed to Hecla offer
Hecla does not believe the US Silver board protected shareholders rights to properly evaluate their unsolicited offer.
Hecla claims to have wanted a friendly transaction and approached US Silver on July 23. No agreement was reached and US Silver planned to proceed with the vote for the RX merger, so Hecla announced its intentions directly to shareholders July 25.
On July 26, US Silver said the board was in the process of reviewing and analyzing the offer with outside financial and legal advisers. By July 30 US Silver said the board unanimously rejected the Hecla offer and urged votes in favor of the RX merger.
Gordon Pridham, Chairman & Interim CEO of US Silver, said the board believes the proposed strategic combination transaction with RX Gold is in the best interest of shareholders.
RX and US Silver also point to those who have reaffirmed support for their merger, such as Eric Sprott, CEO and CIO of Sprott Asset Management. Sprott is a major investor in both US Silver and RX. He is also the founder of Cormark Securities.
Cormark is US Silver’s financial adviser for the RX merger and will determine fairness for the shareholders.
Much ado has also been made about the fact that Glass Lewis and another top proxy advisory firm, ISS, reaffirmed their support for the RX merger after Hecla’s offer. Their updated recommendations for shareholders to vote in favor of the merger were reported on July 31, one day after the board’s rejection of Hecla’s offer.
That was within the normal time frame for Glass Lewis, according to Grothe.
It is against Glass Lewis policy for Grothe to reveal whether the top shareholders at US Silver or RX are among its clients.
He did, however, respond to a request for clarification as to why the Hecla offer is not compelling while finding that the RX merger is.
“We believe the expected benefits of the merger, including increased production base, exposure to Drumlummon, a strong management team, cost savings and synergies and an enhanced capital markets profile- – all at a price that implies a premium for US Silver – is superior to Hecla’s unsolicited offer which isn’t that much higher than the price implied by the merger,” he said.
He also noted that the market values junior and intermediate companies on the potential of their assets.
“As such, we believe paying a discount to the market for a company with claims to quality resources located adjacent to those already owned by the buyer is indeed strategically and financially compelling.”
But, what about Hecla’s concerns about risks and quality of RX assets?
“We made sure to acknowledge Hecla’s opinion,” Grothe said. “Beyond that we defer to the board’s judgment because we don’t think we’re in a better position than the board and its advisers to determine the true risks of production or quality of assets at RX Gold’s properties, especially considering the technical nature of evaluating mining assets and operating plans.”
Grothe also reiterates that the report states Hecla’s offer represents immediate and assured value in the form of liquidity without any operational, integration, or pricing risks.
US Silver shareholders will have to decide if their appetite is for potential, eventual value or risk-free ready cash.
After Hecla’s offer announcement US Silver shares rose from about $1.40 to trade around $1.80. US Silver shareholders are scheduled to vote on August 7.
Southpen, I wasn't suggesting that you were being misleading. I'm only suggesting that those numbers are misleading. Yes! They come from the RXE website, but they are meaningless. When a company hasn't declared commercial production yet they don't report any revenue. To say they lost over $4M in quarter 1 is ridiculous. They had $15M worth of revenue that wasn't reported because of accounting rules. How does a company that has only $9M worth of assets produce $27M worth of gold and silver in six months. The second quarter report will show a drastic difference. Something that people are not taking into considerationj is that the combined company will likely sell for over $2 per share and if Hecla doesn't buy it will likely trade on the AMEX. The outstanding shares are not going to go up so the share price should be higher. The combined market cap is about $140M with about 62M shares outstanding of the new company. This suggests a selling price of around $2.30 for the new company. I still expect Hecla to up it's offer and eventually own USSIF. The only question is will they also own RXE or will they buy USSI(F before the merger is finalized?
Those are totally misleading numbers. Since they did not start commercial production until quarter 2 all the gold produced(6,200 ounces) and silver produced (112,000 ounces) in quarter 1 were not recognized as revenue. In reality RXE had $15M in revenue in quarter 1 and $12M in revenue in quarter 2. They allready said that they will report a profit for quarter 2. You are treating trhem as an exploration company even though they produced $27M worth of product in the first half of the year. USSIF likely produced about $38M worth of product in that same time. They received a large amount of cash as payment for first quarter production in April and May. They likely have quite a bit of cash on hand now after receiving these payments during quarter 2. No one knows how many reserves they actually have yet. One third of their ore being used now comes from ore that is not included in their reserves. Do you really believe that Sprott is so stupid that he owns part of a company that has no reserves. He could have sold his RXE at a much higher price rather than putting this merger together. He obviously knows something about RXE that we don't.
Please keep in mind that RXE has produced about $27M worth of revenues in the first half of the year. One third of this production has come from ore that is not included in their reserves. They did not receive any cash for this production until the end of the first quarter. They have announced that they expect to report a profit for quarter 2. This merger is not the disaster that some think it will be. I would accept an offer of $2.50 from Hecla, but would hold on long term if the RXE merger goes through. JMHO
The big question for me is who was buying over 6M shares(both exchanges) of USSIF last week at $1.80-$1.83? What was the motive for buying that many shares at that price. If you thought the RXE merger was going through then you certainly wouldn't be buying at $1.83. If you thought the $1.80 offer would be accepted you certainly wouldn't be buying at $1.83 unless you were Hecla. Hecla is the only one I can think of that would be buying at these prices. Why not buy all you can at $1.80ish, especially if you think you will up the offer later?
It appears that USSIF has been acquired by RX. We now know why the sudden "retirement" and why no effort has been made to find a new CEO. The RX CEO is the new CEO. If the company can meet it's goal of 5M ounces of silver production in 2014 we are looking at a company with $210M in revenues in 2014, $150M in silver, $20M in copper and lead and $40M in gold at current prices. This assumes no growth in gold production by then. Both companies should see expense reductions as they reduce total board members, have one CEO, have one financial statement instead of two and one stock listing which will likely be AMEX. Another benefit is that miners could be moved between the three mines as needed and having three mines reduces the risk of total shutdown in case of a mine accident. We might have accidentally fallen into a gold mine here.
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6/13/2012 8:43:26 PM | | 162 reads | Post #31169499
Bob: To answer that question, I should first start with a disclaimer that, although I have been bullish on gold and silver for over ten years, my biggest bet was on Central Fd. of Canada and then later various larger gold and silver companies, none of whose management I had any contact with. And my background is anything but mining, metallugy and engineering, so a mining CEO could be talking through his hat and I would be fooled. So don't assume I know what I am talking about in a very specialized field like this.
That said, although I am a retired private investor now, in my career I had contacts with hundreds of CEOs and other top managers of public companies in a wide variety of fields, so I can form some judgement on people's intelligence, strategic thinking ability, etc. I met the CEO of RXE once at an investment conference, and had a few phone conversations. So far, I am impressed.
Given his own background as one of the top people at Barrick, and the COO's (who I have never met or spoken with) background as one of the top people at Kinross, they are both overqualified to run a tiny Montana mining company. My sense is that they are very ambitious, and want to use a combination of operating improvements at existing properties, and acquisitions of underperforming companies that they have the expertise to improve, to build a much larger gold and silver mining company that will be a major player in the field. They took pay cuts to work at RXE and purchased a few million dollars worth of stock directly from the company and in the market, both at higher prices than today. It is pretty obvious that their goal isn't to build an empire and soak the company with high salaries, which is fairly common, but to build something big and make their money on their stock and warrants. At least at USA, which is their first acquisition (not counting land buys to expand the Drumlummon footprint), they seem very optimistic that they can make some significant improvements to output over the next couple years and make the company much more profitable.
Of course, a lot depends on silver and gold prices which are completely out of their hands. That bothers me, but that is the reality of mining and you can't get away from it. In terms of what they do control--their resources of property, people, and capital--they seem to be very focused on making this venture a success and at least to me seem smart enough to pull it off, if metal prices care to accomodate them.
At current prices and production USSIf is generating revenues of about $78M and RX gold is generating revenues of about $54M. The combined company would generate revenues of about $132M per year. The Coeur mine would add about $17M in revenue once in full production. 2014 revenues would likely be about $150M. The combined market caps of the two companies is $132M. With 60M shares outtstanding the stock would likely sell for about $2.17. This would make the new company eligible for an AMEX listing.
More good news. Here's some more good news for USSIF investors. The company has been saying that they were targeting 5M ounces of silver at Coeur. On the April presentation now on their website they are targeting 6M ounces. It looks like drilling must be going very well at Coeur.
The news release was great news. Production guidance was reaffirmed at 2.4M ounces and the buyback is resuming. Cash stayed at $27M as of March 31. This is good because USSIF spent $750,000 on stock repurchases and $1M on Coeur developement in quarter 1. To keep cash even with these expenses is very good news.
High grade silver vein. According to a post on Stockhouse USSIF has hit an unexpected high grade silver vein and is processing that ore now. Another issue being discussed is something that I have suspected. G & A expenses averaged $1M per quarter for the first three quarters. In quarter 4 thwey were $2.2M. Exploration expenses averaged $750,000 per quarter for the first three quarters and were $1.6M in quarter 4. It may well be that USSIF loaded expenses into 2011 to make 2012 comparisons easier. If other expenses return to normal in quarter 1 along with the elimination of hedge losses we could see a $2.5M drop in other expenses for quarter 1.
The Stockhouse poster had said a few days ago that the AMEX was being held up because USSIF did not have a valid transfer agent. Apparantly this has now been worked out. The problem is that once the stock goes under $2 they must get back above $2 for ten days before trading can begin. When they said awhile back that they had been approved they thought they had. Then the transfer agent thing delayed it and the price dropped under $2. Apparantly they stopped the buyback waiting to see what would happen with the AMEX. The key now is whether they start back the buyback. The Stockhouse poster is very reliable and usually knows what he is talking about. Resumption of the buyback should restore confidence and start the move back to $2.
No more hedging losses. People are forgetting that USSIF had $4,277,000 in hedging losses in 2011 that will not be repeated. The hedging loss in quarter 4 was $800,000. The following is my estimate of 1st quarter results based on 550,000 ounces of silver produced and 630,000 ounces sold(83,000 ounces carried over from 4th quarter): 630,000 X $32.50 + $20.5M in silver revenue + $2.5M in copper and lead = $23M in revenues. Production expenses = $16M. Other expenses = $3.5M. Profit before taxes = $3.5M JMHO
If USSIF does produce 2.4M ounces of silver during 2012 then revenues with silver @ 33 would be about $92M or the same as 2011. Pretax profits would be a little lower due to higher expenses, but aftertax profits would be higher due to lower taxes. USSIF has had it's federal tax rate reduced to 20% permanantly. 500,000 additional ounces from Coeur in 2013 adds about $18M(includes copper & lead) to annual revenues with $33 silver. USSIF is very dependant on silver prices. If silver is $30 in 2013 then USSIF is a dud. If silver is $40 or higher then we are looking at $130M in revenues in 2013. It all depends on the silver price. If you like silver you will love USSIF if we get that rise.
From an accounting standpoint it appears that USSIF had a loss in quarter 4, but lets look at the facts. When silver is shipped it is 2-3 months later before it is settled. Most silver is still unsettled at the end of a quarter. Silver was $28 on December 31. USSIF computed revenues based on 450,000 ounces sold @28 or $12.6M in silver + copper and lead sales for $15M in total revenue. Silver quickly went up to as high as $35.50 and averaged $33 for quarter 1. USSIF produced 530,000 ounces of silver in quarter 4 that was sold for about $17.5M + copper and lead means that actual 4th quarter revenues were about $20M. If USSIF produces 550,000 ounces in quarter 1 they will likely sell about 630,000 ounces, making up for the 83,000 not sold in quarter 4. This would make 1st quarter revenues about $23M.
AMEX was being held pending the filing of the annual report which should happen today.They will let us know next week when AMEX trading will start. USSIF produced 530,000 ounces in quarter,but only sold 447,000 ounces. Those 87,000 ounces were sold in quarter 1. Company would have had a profit in quarter 4 if those ounces had been sold. The company has repurchased 320,000 of it's shares in the buyback program. They were under a blackout period for the last 14 days where they couldn't buy due to the upcoming annual report. Repurchases can begin on Minday again.The company has reviewed it's tax policy and expects to get a refund of $2M on taxes paid for last year. They expect no cash taxes to be paid in 2012 or 2013. There is a small amount of production from Coeur included in 2012 production projections. They are being conservative on that. It looks like we will see some Coeur production in quarter 4.
4th quarter production was 530,000 ounces which was very disappointing. This explains the low projection for 2012. We need to find out at the CC why production dropped. Revenues were $15M and USSIF had a $1.6M loss in quarter 4. It looks like this was partly due to selling much less silver than they produced. It looks like they may have sold only around 400,000 ounces. If they make that up in quarter 1 they should have a good quarter. For 2012 we are likely looking at revenues of $90M and about trhe same profit as 2011 depending on silver. We need that Coeur tonnage and higher silver prices.
I don't expect a great earnings report tomorrow. I am looking for revenues of $23M and after tax earnings of $3M or .05 per shares. The real news will be the reserve report, progress on Coeur developement and prgress on new CEO.
http://www.b-tv.com/features/watch-now.h... We see 3.5M ounces of production with a goal of 5M. Production is expected to accelerate in 2012. IMHO they have low balled us with the 2.4M production figure. It looks like Mr. Pridham believes in under promise and overperform.
I wonder if some of this selling could be by NASDAQ dealers selling off their inventory of shares since they will no longer be dealing in USSIF?
Don't people realize that USSIF has not beenj listed on the AMEX yet? The real benefit will come when those that never heard of USSIF and those that would never buy a .pk stock begin buying. This hasn't happened yet. There are investors out there that never heard of USSIF that will be buying it a week from now. Right now, a few panicked sellers are selling because it didn't go up 20% on the announcement. The approval announcement is not the same as actual AMEX trading.
This news isd mostly for those allready owning USSIF and expecting the news. The new buyers that will buy when it hits the AMEX don't know anything about it yet. Once it actually starts trading on the AMEX many new buyers will notice it.
It is true that short interest in USSIF has historically been very low. Once the RS was announced that might have changed. Many people like to short anything that has a RS split. They see it as a sign of weakness. There may be some shorts out there now.
More shares are being repurchased. USSIF repurchased another 22,000 shares on Tuesday and again on Wednesday. If there is a silver lining in the recent price drop it is that USSIF has once again started repurchasing shares. This is constantly reducing the number of shares outstanding and reducing the shares in the dealer's inventories. Each time the company makes a purchase those shares are sent back to the company and retired forever. When the AMEX listing finally happens and new buyers come in there will be far fewer shares available for them to buy.
Is Sprott buying again? One thing I did not consider is that the 56,000 share purchase Friday might have been by Sprott. They were supposed to start a new fund in March and may have purchased for that fund. TMX does not tell you who the buyer is when they list insider purchases. It very well might have been Sprott.
USS is not restricted to purchasing only 22,000 shares per day. They are allowed to purchase 22,000 shares plus block trades. This 56,000 share purchase shows that USS is serious about the share repurchase program. So far they have purchased mkore than 150,000 shares under the program. There are also 50,000 options that will expire worthless in March. USS has reduced it's fully diluted share count by over 200,000 shares during February/March. More options will be expiring worthless during May.
Keep in mind that GPL sells at 33X earnings while USSIF sells at 10X earnings. GPL got carried away when it went to $5. At $5 USSIF would sell for 20X earnings which is pretty average for miners. Although it is true that production won't go up in 2012 it is also true that USSIF stands to earn $16M after taxes with $34 silver in 2012. The news that we could be looking at a third mine in 2014 was very encouraging. Coeur is going to lead to lower cash costs. JMHO, but in 2014 if silver is $50 USSIF would make about $28 per ounce on about 3.2M ounces of silver or about $90M pretax or about $60M after taxes. That is close to $1 per share in earnings. That does not include the third mine.
He/she just has diarreah of the mouth. If you say hot they say cold. If you say up they say down. Just wants to show how knowledgable they are so they disagree with everything.
This would be great timing with silver up. You sure don't want to start on the AMEX on a day when silver is down 5%. Any guess on the new symbol?
USSIF repurchased 1,200 shares at $2.50 on Wednesday. Don't know yet if they purchased any shares today. It looks like $2.50 is the most they are willing to pay right now. This helps keep a floor under the stock at $2.50.
Anyone wanting to buy today that didn't know about the symbol change is trying to buy using USSID. If they don't find out about the symbol change they won't know how to buy. Volume is much higher on the TSX where there was no symbol change. Hopefully, USSIF will only be used for a few days as we should get another new symbol when AMEX trading starts.
Yahoo is also showing no more USSID. Perhaps it is related to the AMEX listing and a new symbol is coming out?
Outstanding post. I would add encouraging articles such as appear in Seeking Alpha. We need to get the story out to more analysts.I notice that Kitco doesn't even list U.S. Silver on it's list of silver stocks. We need more exposure. I wonder what's going on this morning? USA.TO shows a bid of $2.69. Perhaps the AMEX news will come out today?
Link: http://www.tmxmoney.com/HttpController?GetPage=SearchInsiderTrade&Language=en&Submit=Submit&QuerySymbol=usa&x=56&y=10 ------------------------------------------------------The buyback continues. There were 20 transactions yesterday so it looks like they are buying in 1,100 share lots. So far 43.300 shares have disappeared from the float. At this rate, 111,000 shares should disappear every week. If USSID repurchases the full 3M shares we will have 59M outstanding at yearend. All of the stock options that expire in 2012 are out of the money and will likely expire worthless.
17 down and 3 to go. We have now traded above $2 for 17 straight trading days. Monday will be the last day before meeting the requirement for AMEX listing. Hopefully, all other paperwork is taken care of and we could see AMEX trading as early as next Thursday. In the meantime 22,000 shares disppear from the float every day.
Insider buying continues. USSID purchased 21,100 of it's own shares yesterday. Gordon Pridham, temporary CEO has been purchasing shares on almost a daily basis. You can find the link to these purchases on the Stockhouse t.usa message board. These insider purchases by Mr. Pridham have been ongoing for over a week now and total 18,000 shares purchased. This is in addition to the 50,000 shares purchased by the new board member.
The buying has begun. I have confirmation from IR that the buyback purchases have begun today.