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M&A heat rises on Americas Silver, Pershing Gold merger

Merger and acquisition activity in the precious metals sector continues to gain momentum following an announcement Sunday that Americas Silver (TSX:USA) will merge with Pershing Gold (Nasdaq:PGLC).
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Pershing Gold 's Relief Canyon project in Nevada

The all-scrip deal would create a new Americas-focused precious metals producer, with Pershing shareholders set to receive 0.715 Americas Silver shares for each Pershing common share held.

Based on the closing price of Americas Silver on the NYSE American on Friday, this implied a value of US$1.69 per Pershing common share, and reflected a 39% premium to Pershing's closing price on the NASDAQ and a 39% premium based on the volume weighted average prices of Americas Silver and Pershing for the 10-day period ending on September 28.

News of the deal pushed Pershing's stock up more than 27% on Monday morning, to an intra-day high of US$1.54 a share. Americas Silver's Toronto-quoted equity fell to a new 52-week low at C$2.72 a share in early trading on Monday.

Both boards of directors had unanimously endorsed the transaction.

"This transaction aligns with our stated initiative of building a profitable and low-cost precious metal company in the Americas by operating and building low risk, low capital, high return projects," Americas Silver CEO Darren Blasutti said.

Pershing CEO Steve Alfers said the deal signaled a clear path to the development of its flagship Relief Canyon asset, in Nevada, and gave Americas Silver a new foothold in the prospective state.

Blasutti had been focused on low-grade silver and base metal production at Americas Silver's San Rafael mine within the Cosalá operations, in Mexico, and at the Galena Complex in Idaho, choosing to keep the high-grade silver ore for another day, when silver prices were much higher.

A feasibility study for the Relief Canyon project had highlighted about 91,000oz of annual gold ooutput, a pre-tax net present value, at a 5% discount, of $118 million and pre-tax internal rate of return of 71% at spot gold prices.

Barrick Gold (TSX:ABX) and Randgold Resources (LSE:RRS) shocked markets last week when they announced a US$6 billion all-stock lash-up. The new company would have a market cap of $18 billion - making it the largest gold producer in the world.