Chap eyes $48 million for Zinkgruvan

Chap Mercantile (SLW-T) plans to raise $48 million via the private placement of 64 million units at 75 apiece with a group of underwriters, including GMP Securities, Canaccord Capital, Orion Securities, First Associates Investments, Fort House, Haywood Securities, Salman Partners, Scotia Capital, and Sprott Securities.

The $48 million in gross proceeds will go toward Chap’s planned acquisition of all the silver produced from the Zinkgruvan mine in central Sweden. That total may grow by up to $12 million, as the underwriters can buy up to another 16 million like-priced units for two days prior to closing. One unit includes one Silver Wheaton share plus half a purchase warrant; each whole warrant is good for another share at $1.10 per share for 5 years.

Chap, a 75%-owned silver-focused spinoff of Wheaton River Minerals (WRM-T) recently agreed to acquire Zinkgruvan’s silver from Vancouver-based Lundin Mining (LUN-T) for US$50 million in cash, plus 30 million shares and 30 million share warrants up front. Each of those warrant is good for an additional share at 80 apiece until Aug. 5, 2009. Thereafter, Chap will buy each ounce of silver for US$3.90 or the going market rate at the time of delivery, whichever is less.

In 2003, Zinkgruvan produced 66,000 tonnes zinc, 32,000 tonnes lead, and 1.8 million oz. silver. The mine has produced continuously since 1857 and is expected to produce around 2 million oz. silver per year for the next 19 years.

At the end of 2003, proven reserves totalled 7.9 million tonnes grading 9.9% zinc, 5.2% lead and 103 grams silver per tonne, and probable reserves stood at 1.6 million tonnes grading 9.3% zinc, 2.8% lead and 68 grams silver.

Wheaton says the acquisition boosts its silver reserves and resources to more than 200 million oz. Silver sales in 2005 are projected at 9.5 million, and more than 10 million oz. in 2006.

The transaction is subject to definitive agreements and regulatory approval. Closing is expected by mid-December.

Shareholders of Chap Mercantile will vote on a proposed name change to Silver Wheaton on Dec. 8. The company will also be looking for approval of 1-for-5-share consolidation and a bigger board.