October 14, 2009 / 12:59 PM / 10 years ago

UPDATE 2-Pan American Silver to acquire Aquiline Resources

* Says deal valued at C$626 million

* Aquiline shares up 22 pct, Pan American shares fall

By Euan Rocha

TORONTO, Oct 14 (Reuters) - Canadian silver miner Pan American Silver Corp PAA.TO said on Wednesday it plans to acquire exploration company Aquiline Resources Inc AQI.TO in a deal valued at C$626 million ($609 million).

The deal will more than triple the size of Pan American’s measured and indicated silver resources to 945 million ounces.

Almost all of the increase will come from Aquiline’s Navidad project in Argentina, one of the world’s largest undeveloped silver deposits.

Navidad, which means Christmas in Spanish, lies in the Patagonian province of Chubut, which has an important tourism industry. Existing laws in the province ban open-pit mining and the use of cyanide in mining.

This could prove to a significant hurdle in developing Navidad, but the companies are confident that mining laws in the province will be amended to let the project move forward.

“This is an open pit project and frankly without a change in laws I don’t see a way in which this project can be developed,” said Pan American’s Chief Executive Geoffrey Burns, on a conference call.

Burns said he has held talks with officials at the central and provincial government levels in Argentina and is very confident that the current mining laws will be changed.

Chubut Governor Mario Das Neves has launched a debate over local mining legislation in recent weeks and local media reports indicate that he aims to foster mining development in the arid Andean plateau, where Navidad is located.

Burns noted that Pan American has experience working in Argentina. It recently developed the Manantial Espejo silver mine in Argentina, which began production late in 2008.

DEAL VALUE

Pan American is offering 0.2495 of a Pan American common share, plus 0.1 of a Pan American common share purchase warrant for each Aquiline share.

The implied value of the offer is C$7.47 per Aquiline common share, a premium of about 36.6 percent over Aquiline’s closing price on the Toronto Stock Exchange on Tuesday.

Aquiline’s board has recommended that its shareholders tender to the offer. Aquiline shareholders will own about 19 percent of the enlarged Pan American once the deal closes.

Aquiline shares were up 22 percent at C$6.66 in afternoon trade in Toronto, while those of Pan American were down 5.4 percent at C$25.28.

The deal will also almost double Pan American’s measured and indicated gold resources to about 1.9 million ounces.

The companies expect the deal to close before the end of this year, if a minimum of about 67 percent of Aquiline’s shares are tendered in favor of the deal.

The deal includes a break-up fee of C$18 million and gives Pan American a five business day right to match any superior offer. ($1= $1.028 Canadian) (Additional reporting by Helen Popper in Buenos Aires; editing by Janet Guttsman)

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