In announcing the proposed merger, Phillip Brodie-Hall, President and CEO of South American Silver Corp., commented:
"This is an excellent development for both companies. It puts South American Silver back into precious metals through the acquisition of the Gold Springs gold-silver project. Gold Springs straddles the border of Utah and Nevada, both of which are pro-development, safe, mining-friendly states. Gold Springs is an outcropping, near-surface gold-silver deposit which early metallurgical test-work suggests will produce material that is amenable to heap leaching. This all means that, should the Gold Springs deposit prove economic after further exploration and engineering studies, it could be brought into production relatively quickly with minimal technical risk and at reasonable capital costs. I am very excited about this opportunity."
Ralph Fitch, President, CEO and Chairman of High Desert Gold Corporation went on to say:
"I, too, am very excited about this opportunity and agree that this is an excellent development for both companies. It provides HDGC shareholders with the financial resources to have a continuing interest in this important, developing exploration property as well as exposure to the other major assets of SASC. Gold Springs' exploration and development will be the immediate focus of the merged company and will be achievable through the availability of funding and the existing exploration team. This year's drilling at Gold Springs has been very successful in expanding the footprint of mineralization in the Grey Eagle target to beyond the limits of the reported resource. Now with the additional funding we will be able to continue this expansion and move towards developing a PEA and an updated, expanded resource in the near term."
The Arrangement also gives SASC's shareholders, immediately prior to the acquisition of HDGC, a potentially significant new benefit in the form of a Class B Share for each existing share of SASC. The holders of these new shares will collectively receive 85% of the net cash proceeds (after costs, including applicable taxes, and the third party funder's portion of any award or settlement) that is received from any arbitration award or settlement in favour of South American Silver Ltd. arising from the Bolivian government's expropriation of the Malku Khota project in 2012. A Preliminary Economic Assessment published in 2011 (see SASC NR11-03, dated 31 March, 2011) reported pre-tax NPV at a 5% discount rate of $704 million at "base case" silver price of $18.00/oz silver, increasing to a NPV5% of $1.536 billion at the "middle price case" of $25.00/oz silver.
Management of the combined company will be led by Ralph Fitch, as President and CEO, with a management team comprised of Matias Herrero (Chief Financial Officer), Randy Moore (EVP of Exploration - North America) and Felipe Malbran (EVP of Exploration - South America).
Details of the Arrangement
The proposed transactions will be carried out by way of a plan of arrangement under the Business Corporation Act (British Columbia). (the "BCBCA"). Prior to implementing the Arrangement, each of SASC and HDGC will become subject to the BCBCA via a continuance under corporate law, exporting from the Canada Business Corporations Act which currently governs each of SASC and HDGC.
Under the Arrangement, immediately prior to the exchange of the outstanding securities of HDGC for securities of SASC, each SASC shareholder will exchange each of its SASC common shares for one SASC Class A Share and one SASC Class B Share. The Class A Shares will carry voting, dividend and liquidation rights similar to SASC's current common shares, while the Class B Shares will be non-voting and non-participating in regards to dividend and liquidation rights.
Post Arrangement, each pre-Arrangement outstanding SASC option and warrant will be exercisable to acquire one SASC Class A Share and one SASC Class B Share instead of a common share at the same exercise price.
HDGC shareholders (other than SASC) will be issued a total of 19.46 million Class A Shares in exchange for their HDGC common shares, representing approximately 14.4% of the Class A Shares outstanding after the Arrangement. All outstanding HDGC's options and warrants will be replaced or assumed by SASC and exercisable to acquire SASC Class A Shares with the number of SASC Class A Shares and exercise price proportionately adjusted to reflect the consideration to be received by the HDGC shareholders pursuant to the Arrangement.
Implementation of the Arrangement is subject to a number of conditions, including approval by at least 66 2/3% of the votes cast, together with minority approval, by shareholders of HDGC and approval by at least 66 2/3% of the votes cast by shareholders of SASC, in each case at separate special meetings of such shareholders that are expected to be held in December 2013, approval of the Supreme Court of British Columbia, approval of the Toronto Stock Exchange and the TSX Venture Exchange, completion of definitive closing documentation and such other conditions as are customary for a transaction of this nature. There can be no assurance that such conditions will be met and if they are not met or waived the Arrangement will not be implemented.
The Agreement also provides for, among other things, customary board support and non-solicitation covenants from HDGC (subject to "fiduciary out" provisions that entitle HDGC to consider and accept a superior proposal and a right in favour of SASC to match any superior proposal). The Agreement also provides for the payment of a termination fee to SASC of $250,000 should HDGC accept an unsolicited superior proposal and terminate the Agreement.
The Board of Directors of SASC has received an opinion from GMP Securities L.P., its financial advisor, that as of the date of the Agreement, subject to the assumptions, limitations and qualifications described therein, the Arrangement is fair, from a financial point of view, to SASC's shareholders. The Board of Directors of SASC is recommending that SASC shareholders vote in favour of the Arrangement.
Advisors
GMP Securities L.P. is acting as financial advisor to SASC and its board of directors. Gowling Lafleur Henderson LLP is acting as legal advisor to SASC.
About South American Silver Corp.
South American Silver Corp. is a growth focused mineral exploration company creating value through the exploration and development of the large scale Escalones copper-gold project in Chile, the pursuit of new opportunities and the realization of value from the Malku Khota project in Bolivia. The Company's approach to business combines the team's track record of discovery and advancement of large projects, key operational and process expertise, and a focus on community relations and sustainable development. Management has extensive experience in the global exploration and mining industry. Additional information related to South American Silver Corp. is available at www.soamsilver.com and on SEDAR at www.sedar.com.