Silver miner Hecla set to acquire Alexco Resources

Hecla Mining [HL-NYSE], the largest silver producer in the U.S., said Tuesday it has agreed to acquire all the shares of Alexco Resources Corp. (AXR-TSX, AXU-NYSE) it doesn’t already own in an all-stock deal worth 47 cents a share.

Under the transaction, each outstanding common share of Alexco will be exchanged for 0.116 of a Hecla common share, implying a 23% premium based on the companies’ five-day weighted average price on the NYSE and NYSE American on July 1, 2022.

Alexco shares advanced on the news, rising 1.8% or $0.01 to 56 cents on volume of 526,760. The shares are currently trading in a 52-week range of $3.15 and 45.5 cents.

Alexco’s key asset is the Keno Hill silver mine in the Canadian Yukon, which has the potential to become Canada’s largest silver producer, Hecla said in a press release.

Hecla said it has struck a deal that will see Wheaton Precious Metals Corp. (WPM-TSX, WPM-NYSE) terminating its silver streaming interest in the Keno Hill property in exchange for US$135 million worth of Hecla common shares.

News of the Hecla takeover comes after Alexco recently struggled to achieve its commercial production targets at Keno Hill. The aim is for the U.S. company to use its expertise to help the mine reach its full potential.

With that goal in mind, Hecla is providing Alexco with a US$30 million secured loan facility and is purchasing 8.9 million shares at 50 cents per share, resulting in 9.9% of Alexco shares being held by Hecla or its affiliates.

A portion of the loan will be immediately drawn and the remainder available on a revolving basis. Proceeds are earmarked for agreed upon working capital and capital expenditure purposes according to a plan jointly approved by Alexco and Hecla.

The loan and the share purchase are intended to provide Alexco with immediate working capital to continue development work at Keno Hill and are not conditional upon completion of the transaction.

“At Hecla, we have followed the Keno Hill project closely for a number of years, as it is one of the very few deposits that fit seamlessly into Hecla’s strategy of owning and operating high-grade properties in tier on jurisdictions,” said Hecla President and CEO Phillips S. Baker Jr.

Alexco Chairman and CEO Clynton Nauman said the deal has immediate benefits for his company.”By partnering with Hecla, an industry leader in high-grade narrow vein silver mining, we further position Keno Hill to achieve its full potential,” said Nauman.

“There is no doubt that we have fallen well behind the development and production plan at Keno Hill – and our original estimate of achieving commercial production in early 2022,” he said.

“There are a myriad of reasons for those challenges, but fundamentally, they all led to an increasing level of stress across our business, which was having a negative on the share price, our finances, our employees and other stakeholders,” Nyman  added.

“As a much larger business, Hecla has the organizational expertise and financial strength to build Keno Hill to the level and capacity required, while being able to invest in exploration across the district, something that we, as Alexco, independently would likely struggle to achieve,” he said.

It is anticipated that a special meeting will be held in September 2022, with the acquisition expected to close later that month.