McEwen plans to merge US Gold, Minera Andes

Rob McEwen, the largest shareholder of both US Gold (UXG-T, UXG-N) and Minera Andes (MAI-T), plans to combine the two companies to create a dynamic, mid-tier silver producer in the Americas. 

“The combined company would be low-cost and possess a significant pipeline of production growth, in addition to owning an exciting portfolio of exploration properties,” said McEwen in a prepared statement. He added, most importantly, that the merger would bring US Gold closer to qualifying for inclusion in the S&P 500 Index by 2015. 

During US Gold’s annual general meeting in Toronto on June 14, McEwen further explained that for a company to qualify for the index, it needed a market cap of US$5 billion, and four consecutive quarters of earnings, among other requirements. 

With the merger, the combined company would meet the four quarters of consecutive earnings, but still would require a stretch to bring its market cap of US$1.4 billion closer to the US$5-billion mark. 

McEwen pointed out that the only gold company listed on the S&P 500 Index is Newmont Mining (NMC-T, NEM-N). Newmont trades at a premium to its peers, because, he says, being an American company and playing by American rules comforts investors.

McEwen currently owns 21% of US Gold and 31% of Minera Andes, and would own 25% of the new company, which would be named McEwen Mining. His investment in McEwen Mining would amount to US$345 million. 

Under the proposed merger, Minera Andes shareholders would get 0.4 of a US Gold share for each Minera Andes share held, which presents a small premium to the closing price on June 13. 

Some highlights of the combined entity would include: a boost in silver production, lower costs, a strong balance sheet and a well-positioned exploration portfolio. 

 McEwen Mining’s forecast of 2.5 million silver oz. for 2011 is expected to reach 7.5 million oz. by 2014, while the estimated cash cost of negative US40¢ per silver oz., net of gold byproduct, is expected to reduce beyond negative US$1.50 per oz. as new production starts. 

But the benefits don’t stop there. The combined debt-free company would boast US$122 million in cash, including silver and gold bullion. 

It would also host a combined silver resource of 81.2 million measured and indicated oz., and 51.1 million inferred oz., with gold resources amounting to 3.8 million oz. in the measured and indicated category, and 900,000 oz. inferred. Copper resources would total 2.2 billion indicated lbs. and 10.3 billion inferred lbs.

McEwen, who is the CEO of both companies, noted the merger would allow streamlined operations, and for him to “focus on one story, and that’s where I want to build value.” 

The merger requires approval of both companies’ boards and their special committees and shareholders. The proposal would also need regulatory, stock exchange and court approvals. 

If given the go-ahead, McEwen Mining is expected to start trading in late October 2011, and would have 252.7 million shares outstanding.

Meanwhile, US Gold is pushing its El Gallo silver-gold project in Mexico and Gold Bar project in Nevada towards production. El Gallo is estimated to start producing by 2014.

Minera Andes currently has three main assets in Argentina: the San Jose gold mine, the wholly-owned Los Azules copper deposit and a large portfolio of exploration properties in Santa Cruz province. 

“If life has taught me anything,” said McEwen reading a quote during the annual general meeting, “it’s that we are capable of far greater things than one can possibly imagine.” In McEwen’s opinion, this applies to US Gold and his vision to create a larger company, which could repeat the stellar success he achieved previously as chief executive of Goldcorp (G-T, GG-N).

“There are times when opportunity presents itself to each and every one of us,” he said. “And you have to reach out and grab it, and embrace it and run with it. And that is what we are doing today.”  

On news of the proposed merger, Minera Andes shares gained 6% to end at $2.17 on 1.29 million shares traded, while US Gold shares jumped 5% to $5.64 on 195,356 shares traded.