CHRYSALIS CAPITAL III CP
CHRYSALIS CAPITAL III CORPORATION PROVIDES FURTHER DETAILS ON THE ACQUISITION OF U.S. SILVER CORPORATION AND COMPLETION OF U.S.$6.9 MILLION PRIVATE PLACEMENT BY U.S. SILVER CORPORATION
(Not for Distribution to the United States Newswire
12/7/2006
Toronto, ON December 07, 2006
FSC / Press Release
CHRYSALIS CAPITAL III CORPORATION PROVIDES FURTHER DETAILS ON THE ACQUISITION OF
U.S. SILVER CORPORATION AND COMPLETION OF U.S.$6.9 MILLION PRIVATE PLACEMENT BY U.S. SILVER CORPORATION
(Not for Distribution to the United States Newswire Services or for Dissemination in the United States)
(See the important legends at the end of this Press Release)
Toronto, Ontario CANADA, December 07, 2006 /FSC/ - Chrysalis Capital III Corporation (TSX - VX: CYX.P), ("Chrysalis") is pleased to provide further details on the proposed qualifying transaction (the "Proposed Transaction") with U.S. Silver Corporation ("U.S. Silver"), previously announced on October 11, 2006.
Chrysalis is also pleased to announce that U.S. Silver completed on December 5, 2006 a private placement of U.S.$6,869,500 in convertible debentures, as further described in this press release. A prior private placement was completed in June 2006, in which U.S. Silver raised U.S.$20,793,080, a significant portion of which was used to acquire its mining properties in the Coeur d'Alene Mining District in Idaho. In total, U.S. Silver has raised in these two recent private placements U.S.$27.7 million, or approximately Cdn$31.2 million, for the mineral activities discussed in this press release.
BACKGROUND
On October 10, 2006, Chrysalis entered into an agreement (the "Acquisition Agreement") with U.S. Silver and certain U.S. Silver principal stockholders pursuant to which Chrysalis will acquire all of the issued and outstanding shares of U.S. Silver common stock by way of a merger (the "Merger") in which Chrysalis Capital III USA Corporation, a Delaware corporation that is wholly-owned by Chrysalis (the "Merger Sub"), will merge with and into U.S. Silver, with U.S. Silver being the surviving entity. As a result of the Merger, each issued and outstanding share of common stock of U.S. Silver will be converted into the right to receive three and one-tenth (3.1) common shares of Chrysalis, and each outstanding share of the Merger Sub will be converted into one share of U.S. Silver; and thereby U.S. Silver will become a wholly-owned subsidiary of Chrysalis.
After completion of the Proposed Transaction, Chrysalis, through U.S. Silver and U.S. Silver's wholly-owned operating subsidiary, will be involved in the mining industry, as further described below in this press release under the caption "The Properties Owned and Operated by U.S. Silver".
On December 6, 2006 U.S. Silver stockholders held a special meeting at which they approved the Proposed Transaction. Completion of the Proposed Transaction is subject to compliance with all necessary regulatory approvals and certain other terms and conditions. When completed, the Proposed Transaction will constitute Chrysalis' "qualifying transaction" pursuant to the policies of the TSX Venture Exchange (the "Exchange").
THE QUALIFYING TRANSACTION
As consideration for the acquisition of all of the outstanding shares of U.S. Silver common stock pursuant to the Merger, Chrysalis will issue three and one-tenth (3.1) common shares for each one (1) share of U.S. Silver common stock issued and outstanding immediately prior to the Merger. Immediately prior to the closing of the Qualifying Transaction, there will be 42,546,821 shares of U.S. Silver common stock issued and outstanding, including the shares issuable in respect of certain outstanding debt securities which will be automatically converted into shares of common stock prior to the closing. These shares of U.S. Silver common stock will automatically be converted into an aggregate of 131,895,145 common shares of Chrysalis. Thus, when combined with the 10,000,000 common shares of Chrysalis that are currently issued and outstanding, upon completion of the Proposed Transaction there will be an aggregate of 141,895,145 common shares of Chrysalis issued and outstanding.
There are also U.S. Silver warrants outstanding to purchase an aggregate of 17,318,145 shares of U.S. Silver common stock. The Acquisition Agreement provides that, upon completion of the Proposed Transaction, any such outstanding warrant, if the holder so elects, will be exchanged and replaced with a warrant issued by Chrysalis for the right to purchase a number of Chrsyalis common shares equal to the product of (i) 3.1 and (ii) the number of shares issuable upon exercise of the U.S. Silver warrant being exchanged. The aggregate exercise price of any new warrant issued by Chrysalis, for all of the shares issuable upon exercise thereof, will be the same as the aggregate exercise price of the U.S. Silver warrant exchanged therefor. Any U.S. Silver warrant that is not exchanged will continue to be outstanding after the Proposed Transaction and will by its terms thereafter represent the right to purchase a number of Chrsyalis common shares equal to the product of (i) 3.1 and (ii) the number of shares issuable upon exercise of the U.S. Silver warrant prior to the Proposed Transaction, at the same aggregate exercise price as was in effect immediately prior to the Merger.
From and after the closing of the Proposed Transaction, the U.S. Silver warrants will represent the right to acquire an aggregate of 53,686,411 Chrysalis common shares. Accordingly, on a fully diluted basis, an aggregate of up to 185,581,556 Chrysalis common shares may be issued to holders of securities of U.S. Silver. Thus, when combined with the 10,000,000 common shares of Chrysalis that are currently issued and outstanding, there are outstanding 600,000 Chrysalis agent compensation options and 1,100,000 Chrysalis stock options and up to an additional 13,189,514 Chrysalis stock options that may be granted under Chrysalis' stock option plan following completion of the Proposed Transaction, on a fully diluted basis, there will be up to 209,871,070 Chrysalis common shares outstanding.
Chrysalis intends to grant on closing of the Proposed Transaction, up to 13,189,514 Chrysalis stock options exercisable to acquire Chrysalis common shares at a price of $0.40 per share, representing 10% of the number of Chrysalis common shares to be issued on closing of the Proposed Transaction, subject to such closing and board approval of the option grants. The grant of such stock options is also subject to TSXV approval.
THE PROPERTIES OWNED AND OPERATED BY U.S. SILVER
On June 1, 2006, U.S. Silver acquired Coeur Silver Valley, Inc., a Delaware corporation, from Coeur d'Alene Mines Corporation. Subsequent to that acquisition, U.S. Silver renamed Coeur Silver Valley, Inc. as U.S. Silver-Idaho, Inc. U.S. Silver operates the Properties (defined herein) through this wholly-owned subsidiary.
The Properties consist of the Galena underground silver mine (the "Galena Mine") as well two adjacent properties known as the Coeur Mine and Caladay Property, which are both located near the Galena Mine, and also certain other contiguous mining properties in the Coeur d'Alene Mining District (collectively the "Properties").
Information of a technical nature in this press release respecting the Properties is derived from the "Technical Report, Galena Mine Project, Idaho, U.S.A." dated November 17, 2006 by Chlumsky Ambrust & Meyer LLC ("CAM"). The principal author of such Technical Report, Fred Barnard, Ph.D., Professional Geologist, is a "qualified person" and an "independent person" each within the meaning of National Instrument 43-101 of the Canadian Securities Administrators.
The Properties are located in an area approximately 9 miles long in a northwest-to-southeast direction, which area is approximately 2 miles wide. The shaft of the Galena Mine is located near the center of the property, at 47.48 degrees North latitude and 115.97 degrees West longitude.
The Properties lie in Shoshone County in Northern Idaho, U.S.A., between the towns of Osburn and Wallace, about a mile south of Interstate Highway 90. Spokane, Washington is approximately 75 miles by highway to the west of property, while Missoula, Montana is approximately 100 miles by highway to the east.
The Properties and the communities in the region are long-established and have good infrastructure, including electric grid power, paved roads and piped water supplies. Public highway transportation is well developed in the area, but railroad service in the district was discontinued several years ago. The nearest railheads are now in Spokane, Washington, approximately 75 miles to the west, and in Superior, Montana, approximately 60 miles to the east. U.S. Silver utilizes a rail terminal in Butte, Montana for shipping a portion of its concentrates to Quebec, because of better rail loading facilities than at Superior, Montana.
The Properties are within what is generally called the Bitterroot Mountains, a part of the Northern Rocky Mountains. Ridge crests and the peaks along them range in altitude from 6,000 to 7,000 feet above mean sea level.
Mineral activity in the Coeur d'Alene District began in the mid-1800's with the discovery of placer gold. Activity was sporadic until 1883, when larger placers were developed and intensive prospecting for lodes began. Lode mining for silver began in 1884. The nucleus of what is now the Galena Mine was first developed in 1887. This holding was gradually expanded by acquisition of several adjacent properties. The mine was successively operated by the Wm. Clark interests from Butte, (1887-1916), the Day interests (1917-1920), the Callahan interests (1920-47), ASARCO (1947-1995), Silver Valley Resources, a joint venture of ASARCO and Coeur d'Alene Mines (1995-1999), Coeur d'Alene Mines (1999-2006), and U.S. Silver (from June 1, 2006). Since 1999, the operating company for the Galena Mine and the adjacent properties has been Coeur Silver Valley, Inc. (recently renamed U.S. Silver-Idaho, Inc. as noted above).
The Galena Mine has been in production since 1887, with closures during 1931-53 and 1992-1997 due to low silver prices. The defining event in the Galena Mine's history occurred in February 1953, when ASARCO cut a silver vein, the first of the tetrahedrite-dominated veins, on the 3000-foot level. Prior to that, all production had been from veins containing argentiferous galena. From 1953 to year-end 2005, the Galena Mine has produced over 160 million ounces of silver, 116 million pounds of copper, and 22.0 million pounds of lead, from 7.0 million tons of ore. The average grade of the silver-copper ore was 22.89 ounces per ton of silver and 0.83 percent copper, while the silver-lead ore averaged 8.18 ounces silver and 8.8 percent lead per ton of ore.
The Galena Mine is currently producing silver-copper ore (tetrahedrite-bearing ore) at a rate of approximately 400 tons per day. Ore grades are approximately 17.4 ounces per ton silver and 0.7 percent copper, with a small gold credit. Silver-lead ore (galena-bearing) has not been systematically mined since 2001, and neither smelter currently pays for lead in concentrates.
U.S. Silver estimates that it will produce approximately 3.3 million ounces of silver during 2007, and that before the end of 2007 its production rate of silver-copper ore will increase to approximately 650 tons per day. However, there can be no assurance that U.S. Silver will actually achieve these estimates.
The Caladay Property lies just southeast of the Galena Mine and was first explored underground in the 1970's, and was acquired by Coeur Silver Valley, Inc. (then owned by Coeur d'Alene Mines Corporation) in the 1980's. Although silver-lead mineralization was identified, the Caladay Property has never been in production. The Caladay Property and Galena Mine exploration drifts are connected at the 4900 Level, and the Caladay Property shaft is used for exhaust ventilation by the Galena Mine operation. The Caladay Property is now owned U.S. Silver. No reserves or resources are carried on the Caladay Property.
The Coeur Mine is located two miles northwest of the Galena Mine, and produced during 1969-1991 and 1996-1998. Since 1998 the Coeur Mine has been on care and maintenance. The production was 39 million ounces of silver and 33 million pounds of copper from 2.4 million tons of ore. Average ore grades were 16.6 ounces per ton silver and 0.72 percent copper.
The Galena Mine and Coeur Mine contain 118 named or numbered veins containing reported resources of silver mineralization.
The total mineral resources and reserves of the U.S. Silver Properties as of December 31, 2005 were as follows:
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------------------------------------------------------------------------- Ag Grade ContainedSilver-Copper Tons oz/t % cu Ounces-------------------------------------------------------------------------1. Proven and Probable Reserves (included in the amounts shown in the "Resources" (line #2. below) 394,246 25.81 0.86 10,173,929-------------------------------------------------------------------------2. Measured & Indicated Resources 1,614,049 15.87 0.58 25,620,1633. Inferred Resources 558,379 16.90 0.73 9,435,387------------------------------------------------------------------------- Ag Grade ContainedSilver-Lead Tons oz/t % pb Ounces-------------------------------------------------------------------------4. Measured & Indicated Resources 316,548 9.13 10.30 2,889,9625. Inferred Resources 541,075 5.01 5.70 2,713,925-------------------------------------------------------------------------6. Total Proven and Probable Reserves and Measured and Indicated 1,930,597 14.76 n/a 28,510,125Resources -------------------------------------------------------------------------7. Total Inferred Resources 1,099,454 11.05 n/a 12,149,312-------------------------------------------------------------------------
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U.S. Silver's exploration budget for 2007 calls for estimated total expenditures of approximately U.S.$3,550,000, including 74,000 feet of exploration drilling at an estimated per-foot cost of U.S.$20 (U.S.$1,480,000 in total), 7,500 feet of exploration drifting (i.e., mining by means of opening a horizontal tunnel) at an estimated per-foot cost of U.S.$250 (U.S.$1,875,000 in total), as well as geology and assay costs. In addition, U.S. Silver intends to improve certain elements of its mining operations infrastructure during 2007, including certain rehabilitation actions with respect to the Galena Mine shaft, and certain upgrades to the Coeur and Galena mill facilities
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