McEwen 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 what would be 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, the combination would put US Gold closer to its goal of qualifying for inclusion in the S&P 500 Index by 2015.

During US Gold’s annual general meeting in Toronto on June 14, McEwen 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.

With the combination, the company would have a market cap of US$1.4 billion, which would put it a third closer to the US$5-billion mark.

McEwen also added that the only gold company currently listed on the S&P 500 Index is Newmont Mining (NMC-T, NEM-N), which trades at a premium to its peer.  

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 the merged company would amount to about 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.

If combined, the forecast of 2.5 million silver oz. for 2011 is expected to increase to 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 further to about negative US$1.50 as new production starts.

But, the benefits don’t stop there, the combined company, which would be debt-free, would boast about 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., while gold resources would amount to 3.8 million oz. in the measured and indicated category, with 900,000 oz. in inferred. Copper resources would total 2.2 billion indicated lbs. and 10.3 billion inferred lbs.

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

However, for the merger to go through, both companies’ boards and their special committees and shareholders will have to approve. The proposal would also need regulatory, stock exchange and court approvals.

If given the go-ahead, the proposed merger is expected to become effective in late October 2011, and the combined company would have about 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 expected to start producing by 2014.)

Minera Andes currently has three main assets in Argentina: the San Jose gold mine; the 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 possible imagine,” which in his opinion applies to US Gold and his vision for the company.

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