CdA Mines to gain silver mine in Mexico

Coeur d’Alene Mines Corp. announced plans Thursday for a $1.1 billion merger with an Australian and a Canadian firm to gain control of a Mexican silver mine.

Ownership of the Palmarejoproperty, located about 260 miles south of Chihuahua, Mexico, would nearly double the company’s current annual silver output, officials said. It would also give Coeur d’Alene Mines its first property in Mexico.

“Mexico is the world’s second largest producer of silver,” Scott Lamb, the firm’s vice president of investor relations. “It’s politically stable. They have favorable mining laws and regulations. …It’s a good place to be if you’re in the silver business.”

The deal is expected to close by the third quarter, but requires regulatory approval and shareholders’ endorsement. It’s largely a stock transaction, in which Coeur d’Alene Mines would acquire all of the outstanding shares in the two other firms, Bolnisi Gold NL of Australia and Montreal’s Palmarejo Silver and Gold Corp.

Coeur d’Alene Mines has been looking for new properties to restock its portfolio and boost its output. The Rochester Mine in Nevada, which generated about half the company’s revenues in recent years, is winding down and will close in four years. Last year, the company also sold another silver producer, the Galena Mine in Silverton, Idaho.

The Palmarejo mine is expected to open in late 2008. According to company projections, the mine would produce about 12 million ounces of silver and 110,000 ounces of gold annually over a 12-year operating life. At current prices of $13.35 per ounce, the Palmarejo’s annual silver output would be worth about $160 million. The deal also includes other mining exploration properties.

Constructing the Palmarejo Mine will cost roughly $100 million, about half of which has already been spent by the current owners, Lamb said.

Coeur d’Alene Mines brings technical experience, as well as deeper pockets, to the project, said James Crombie, president and CEO of Palmarejo Silver and Gold.

“It was a good fit,” he said. “We do believe that we could have continued and built the mine ourselves, but they’re already a major silver player.”

Under the deal announced Thursday, Bolnisi shareholders would receive 0.682 shares of Coeur d’Alene Mines’ stock for every Bolnisi share they own. Palmarejo shareholders would receive 2.715 shares of Coeur stock for each company share they own. In addition, both Bolnisi and Palmarejo shareholders would receive a nominal cash payment, worth less than 1 cent per share.

Coeur d’Alene Mines anticipates issuing 271 million new shares of stock to complete the transaction. The company stock closed at $3.90 per share Thursday, down 15 cents per share.

The agreement has been approved by each company’s board of directors, but shareholders must still vote on the deal.