BINGO!!!
Scorpio Mining to merge with U.S. Silver
2014-11-07 18:53 ET - News Release
Also News Release (C-USA) US Silver & Gold Inc
Mr. Darren Blasutti of U.S. Silver & Gold reports
SCORPIO MINING AND U.S. SILVER & GOLD ANNOUNCE BUSINESS COMBINATION TO CREATE A WELL-FUNDED JUNIOR SILVER PRODUCER
Scorpio Mining Corp. and U.S. Silver & Gold Inc. have entered into a definitive agreement to complete a merger of equals that will combine their respective businesses to create a leading junior silver producer in the Americas.
The combined company will continue under the name of Scorpio Mining Corp. 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 $40-million (including approximately $21-million in cash (as of Sept. 30, 2014, assuming a U.S.-Canadian-dollar exchange rate of 0.88)). 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 per cent and former shareholders of U.S. Silver & Gold will own 41 per cent. The transaction values the combined company at $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 million to five million silver equivalent ounces from Scorpio Mining's Cosala district operations in Sinaloa, Mexico, and U.S. Silver & Gold's Galena complex in Idaho, United States;
Improving cash cost profile: Cash costs expected to decline as current operations and brownfield development assets are optimized and general and administrative (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 $40-million (including approximately $21-million in cash), with greater access to capital to finance 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 comprise 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 below.
"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 $2-million to $3-million per year.
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 per cent at the Galena complex by implementing strict cost controls and productivity enhancements. Based on detailed mutual due diligence, U.S. Silver & Gold and Scorpio Mining believe that 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 $2-million to $3-million of cost savings per year.
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 Cajon asset as part of its due diligence process, including the potential boundary movement and related effect on 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 Cajon of 40 per cent to 50 per cent for the purposes of evaluating the transaction. Despite this, U.S. Silver & Gold believes that pending production from the continued development of El Cajon 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 Cajon infrastructure. This operating scenario was used by U.S. 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 the respective company's shareholders based on a number of factors, including the recommendation of Scorpio Mining's special committee and fairness opinions received from respective financial advisers. Each company's board of directors unanimously approved the terms of the transaction and recommends that shareholders vote in favour of the transaction. GMP Securities LP and Morrison Park Advisors Inc. provided fairness opinions to the board of directors of U.S. Silver & Gold and Scorpio Mining, respectively.
All the officers and directors of Scorpio Mining and U.S. Silver & Gold have 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 favour of the approval of the transaction. In addition, Tocqueville Asset Management LP, which holds or controls approximately 15.9 per cent of the outstanding Scorpio Mining common shares, and Sprott Asset Management LP, which, together with Eric Sprott, holds or controls approximately 19.6 per cent of the outstanding U.S. Silver & Gold common shares and approximately 1.6 per cent of the outstanding Scorpio Mining common shares, have entered into lock-up agreements and have agreed to vote in favour 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 66-2/3 per cent 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 per cent of its equity value as a termination payment. Expense reimbursement of $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.
Advisers and counsel
GMP Securities LP is acting as financial adviser to U.S. Silver & Gold and Davies Ward Phillips & Vineberg LLP is acting as legal counsel. Medalist Capital Inc. acted as a strategic adviser.
Morrison Park Advisors Inc. is acting as financial adviser to Scorpio Mining and Irwin Lowy LLP is acting as legal counsel.
Qualified persons
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, 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, Nov. 10, 2014m at 9 a.m. 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 United States 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.
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 Corp., Noranda Inc., Placer Dome Inc. and Barrick Gold. Mr. Hawley is the founder of Scorpio Mining Corp. and current CEO of Scorpio Gold Corp.
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., and 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 Co. 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 Corp. Mr. Davidson has over 25 years of 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 Ltd., 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 Entree Gold Inc., AuRico Gold Inc. (chairman), Oracle Mining Corp. (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 Corp. Mr. Edwards holds an MBA from the University of Arizona and a BS 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 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 its 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 Corp. (chairman, compensation), Titanium Corp. 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 U.S. Silver and 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 Corp. 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 practised law with a major Canadian law firm. Mr. Waisberg is accredited as ICD.D by the Institute of Corporate Directors
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