BOISE – The famed Sunshine Mine in North Idaho is changing hands. Canadian mining company Minco Silver Corp. said Wednesday it will pay $62.3 million for the mine’s owner, Sterling Mining Co.
Sterling, based in Wallace, disclosed last month that financial problems had forced it to consider unloading assets or finding a partner.
Sterling bought the dormant Sunshine Mine in 2003 and began initial production last December after the construction of a 5,000-foot tunnel that allowed miners a second escape route and allowed more machinery to be brought in. In June, however, Sterling announced its cash flow had been impaired by delays in production due to extreme weather, safety inspections, equipment failures and cancellation of expected financing from equipment suppliers, forcing it to seek “strategic alliances.”
As part of the sale, Minco Silver has given Sterling a $15 million line of credit, of which $5 million at 10 percent interest is to be paid immediately so the Sunshine Mine can keep its operations afloat.
The transaction announced Wednesday “provides the financial resources to fund the immediate requirements of Sterling and ensures that the Sunshine Mine will be a significant contributor going forward,” said Ken Berscht, who became Sterling’s interim president in May when he replaced Ray DeMotte.
The mine is not yet profitable, Berscht said, but is expected to operate in the black by the end of the year.
“We’re producing a significant amount of silver but we won’t be cash-flow positive until sometime in the fall,” he said. Company executives expected the operation to grow faster than it did, Berscht added.
The mine has about 170 workers operating in two daily shifts. Berscht said the work force will grow, because of the merger, to about 230.
About 360 million ounces of silver have been taken out of the Sunshine Mine since it opened in 1884, making it one of America’s richest mines. It’s also the site of one of America’s deadliest accidents, when 91 miners died in a May 2, 1972, fire about 3,700 feet underground.
Vancouver, B.C.-based Minco Silver offered 0.51 of a share for each Sterling share, valuing the transaction at $1.58 per Sterling share, based on Minco Silver’s July 21, 2008, closing price, according to a news release from both companies.
Sterling shares had traded as high as $4.45 as recently as last September on the U.S. over-the-counter exchange before tumbling. They rose 11 cents, or nearly 9 percent, to $1.36 on Wednesday.
The transaction still has to get shareholders’ approval but is expected to close in December.
The price of metals has risen to near-historic levels following a bust that saw the Silver Valley economy collapse in the early 1980s and the Sunshine Mine closed temporarily in 2001. Silver futures traded at more than $17.45 an ounce Wednesday on the New York Mercantile Exchange, up from about $4 an ounce in 2001.
As a result, companies like Minco are showing increased interest in acquiring projects where ore deposits have yet to be played out. Before its financial problems, Sterling had said it hoped to process more than 120,000 tons of silver ore in 2008.
Minco also owns mining interests in China’s Fuwan silver belt.
“The combination of these companies will bring together two world-class silver deposits with significant exploration upside,” said Ken Cai, Minco’s chairman and chief executive officer.
Minco Silver shareholders will own 61 percent and former Sterling shareholders will own 39 percent of the new company. The merger, if completed by December , would turn the combined company into one of the five largest in the world in total silver reserves, according to a Minco news release. That total reserve of silver between Sunshine and Minco operations is estimated at 418.5 million ounces; about 240 million ounces are at the Sunshine Mine, Berscht said.