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Silver Standard, Mandalay Ink Deal

Zacks Equity Research

Vancouver-based mining company Silver Standard Resources Inc. (SSRI) has entered into a definitive agreement with Mandalay Resources Corporation to divest 100% stake of its Challacollo silver project in Region I, Northern Chile. Mandalay Resources is a natural resource company based in Canada.

Per the deal, Silver Standard will vend its Challacollo project for $7.5 million in cash and 12 million common shares of Mandalay (the current value of which stands at $8.9 million based on the share price as of Dec 19, 2013) to be issued at closing. Another 5 million common shares of Mandalay will be issued at the end of first quarter in which commercial production begins.  

The agreement will also include a cash payment equivalent to 240,000 ounces of silver (based on the average quarterly silver price). This amount is payable in eight quarterly installments from second quarter after the beginning of commercial production.

Silver Standard will also hold a 2% Net Smelter Returns royalty on silver sales in excess of 36 million ounces, up to a maximum of $5 million.

The proposed deal is subject to customary closing conditions, including the receipt of Toronto Stock Exchange approvals. The transaction is expected to close in the first quarter of 2014.

This transaction will position Silver Standard well in the market and is expected to further boost its robust balance sheet. This transaction will augment Silver Standard’s growth strategy, which comprises monetizing its portfolio by building mines and selling non-core properties.

The Challacollo transaction meets Mandalay’s acquisition criteria of a well-established resource, existing mine infrastructure, significant exploration potential and a two- to three-year timeline to production. This deal will also represent a significant growth step for Mandalay and will add to its portfolio of assets in Australia and Chile.

Mandalay’s Canadian legal counselor, Chilean legal counselor and technical advisors for the transaction are Goodmans LLP, Philippi, Yrarrázaval, Pulido & Brunner and Roscoe Postle Associates Inc., respectively.

Silver Standard, which is among the leading players in the silver mining industry along with Silver Wheaton Corp. (SLW) and Hecla Mining (HL), currently retains a Zacks Rank #3 (Hold).
Alexco Resource Corp. (AXU), with a Zacks Rank #1 (Strong Buy), is a good investment option in the silver mining industry.

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