Sterling acquisition to make Minco a major silver producer by 2011

Vancouver – The company advancing the Fuwan silver property in China, Minco Silver (MSV-T), is taking over Sterling Mining (SMQ-T), proprietor of the Sunshine silver mine in Idaho, to create a new top-five silver producing company.

In late July the companies signed onto a merger deal that will see Minco offer 0.51 shares for each Sterling share, equating to an offer of US$1.58 per Sterling share based on Minco’s July 21 closing price. The offer values Sterling at US$62.3 million and represents a 40% premium over Sterling’s 20-day volume weighted average share price.

Of the new company, which will have 52 million shares issued, Minco Silver shareholders will own 61% and Sterling shareholders will hold 39%. Due diligence should be complete as of August 23, following which the two companies will execute a definitive agreement.

The new Minco will be able to boast 23 million oz. in silver reserves, 101 million oz. in indicated silver resources, and 294 million oz. in inferred silver resources. The total places the company fifth in the world in terms of silver reserves and resources, behind Silver Standard (SSO-T, SSRI-Q), Silver Wheaton (SLW-T, SLW-N), Coeur d’Alene (CDM-T, CDE-N), and Pan American Silver (PAA-T, PAAS-Q).

If development at Fuwan and ramp-up at Sunshine go according to plan, the combined entity will produce over 10 million oz. silver annually by 2011. Fuwan is supposed to start production in 2010.

The Fuwan silver project is a large land package in southern China. The location is fairly ideal: the property already has highway access as well as power and water and it sits close to a major river.

The deposit, too, is fairly ideal. The flat-lying, stratabound deposit hosts 93.5 million oz. of indicated silver plus 63.3 million oz. of inferred silver. A preliminary economic analysis determined that, for a capital investment of US$57 million, an underground mine producing 2,500 tonnes of ore daily could feed a mill for 12 years, resulting in annual production of 4.9 million oz. silver.

Cash costs for the simple flotation mill would be come in at US$2.40 per oz. silver, after by-product credits, and the project’s internal rate of return would be 38%. Payback would come after 1.7 years.

A full feasibility study for the project is due out by the end of the year, along with the environmental impact assessment report. Minco plans to start construction in early 2009.

In addition, Minco recently started a regional exploration program along the Fuwan silver belt. The company’s exploration permits cover more than 200 sq. km; Minco has to date only explored a small fraction of that land. Within the land package the Fuwan deposit currently stretches along 3 km of the 10-km long silver belt.

A 2008 exploration program with a $2.5-million budget will include 300 km of ground magnetic survey, 30 km of induced polarization survey, and 10,000 metres of diamond core drilling to test two main target areas: Luzhou and Dieping.

Sterling’s major contribution to the new Minco is the Sunshine mine, in the Coeur d’Alene silver valley of northern Idaho. When refurbishment of the historic producer is complete, narrow high-grade veins mined underground will feed a 1,000 tonnes of ore daily into a flotation mill able, to produce a silver-copper concentrate and a lead concentrate. By 2010 the mine should be producing 5 million oz. silver annually.

The mine had already produced some 365 million oz. of silver before being abandoned. Now, mine rehabilitation is advancing. De-watering is in progress and the mill has already been completely refurbished. All permits are already in place for production.

Sunshine currently hosts 23 million oz. of proven and probable silver reserves as well as 231 million oz. of inferred silver resource. Sterling argues there is good potential to upgrade a chunk of those resources; in fact the company plans to define 30 million oz. of new silver reserve in the next three years. In addition the property contains several unexplored veins and several veins remain open down-dip.

Since announcing the merger in late July Minco’s share price has slid from almost $3 to less than $2. As for Sterling, the company’s share price has fallen from $1.45 to 70.