Pan Am, Corner Bay shareholders voice approval

Pan American Silver (PAA-T) shareholders have voted overwhelmingly in favour of the company’s proposed merger with Corner Bay Silver (BAY-T).

Under a revised deal, each Corner Bay share will be exchanged for 0.385 of a Pan Am share, plus 0.1925 of a share purchase warrant. Each warrant allows the holder to buy one Pan Am share for $12 for five years. The boards of both companies have unanimously endorsed the offer.

Corner Bay’s shareholders recently approved an arrangement resolution, green-lighting the merger deal, at a special meeting on Sept. 4.

The last obstacle to the deal is Corner Bay securing water rights for the Alamo Dorado project in Mexico’s Sonora state – Corner Bay’s key asset. The company’s first request to draw 2.5 million cubic metres of water from the Miguel Hidalgo water reservoir was turned down by the Mexican federal agency CAN, which owns the water rights. The company is in talks with existing users that are not drawing their allocated amounts.

The Alamo Dorado deposit, which Corner Bay discovered in 1997, contains proven and probable reserves of 35.5 million tonnes grading 68 grams silver and 0.26 gram gold per tonne, equivalent to 77 million oz. silver and 297,000 oz. gold. The minable reserves are based on an open-pit model with a stripping ratio of 1.08-to-1 and prices of US$4.60 per oz. silver and US$300 per oz. gold.

A bankable feasibility study completed in July 2002 by AMEC E&C Services envisions a 12,500-tonne-per-day (4.5-million-tonne-per-year) crushing and heap-leach operation capable of producing 6 million oz. silver and 29,000 oz. gold per year, or 7.9 million oz. silver-equivalent, over an 8-year mine life. Direct cash operating costs are projected to be US$3.25 per oz. silver-equivalent, with total costs of US$4.13 per oz. The capital cost is pegged at US$45.1 million.

A base-case scenario, assuming 100% equity financing and prices of US$5 per oz. silver and US$325 per oz. gold, would see an after-tax internal rate of return of 17%, with a payback of 2.8 years.

Corner Bay hopes to have the water rights issue and merger deal wrapped up by mid-November.