Precious Metals

Prophecy Coal enters into the silver market as it looks to diversify its holdings.

Prophecy Coal (TSX:PCY,OTCQX:PRPCF,FWB:1P2) is getting outside the realm of coal and into the silver market with a new acquisition.

In a news release on Wednesday, Prophecy announced plans to acquire Apogee Silver’s (TSXV:APE) Pulacayo-Paca silver-leadzinc mining project in Bolivia in exchange for $250,000 as well as 60 million Prophecy class B convertible, non-voting shares. So far, the agreement has found favor with Apogee shareholders, with investors representing 18.2 percent of Apogee’s common shares supporting the agreement. Shareholders representing 20 percent of Apogee’s shares are needed, so Prophecy is well on its way to gaining approval.

“We are confident that the highly experienced Prophecy Coal mining team, led by John Lee, will be able to bring the Pulacayo project into production in due course, adding value for both the Apogee and Prophecy shareholders,” G. Scott Paterson, chairman of the board at Apogee, said in a statement.

Prophecy already has projects focused on copper and vanadium, but this will be one of the most advanced properties it has acquired.

Gain for Apogee

Apogee first started drilling the Pulacayo-Paca project back in 2006, under a joint venture agreement with Apex Silver. It has since bought out Apex and has remained the primary operator of all exploration initiatives. From the first drilling performed back in 2006 it has completed 244 diamond drill holes totaling 64,728 meters at Pulacayo and 80 diamond drill holes totaling 14,814 meters at Paca.

Trial mining was started in 2011 and lasted a total of a year and a half. During that time, Apogee mined 12,550 total tonnes of ore containing 270 grams per tonne silver followed by 2.7-percent lead and 2.4-percent zinc.

The company received approval for the development of Pulacayo from Bolivia’s ministry of environment and water just over a year ago. At the time, it acknowledged a desire to find partners to help fund the project.

Why the change for Prophecy?

With silver prices currently in the dumps, the decision to expand into the sector appears confusing at first glance. But the chance to diversify the company’s holdings appears to be the goal.

A line in today’s press release gives a glimpse into the reason behind the purchase.

“By combining advanced-stage mining and energy projects in different geographic regions, Prophecy will diversify its project portfolio by adding exposure to multiple commodities, broadening its appeal to Asian, European and American investors; and mitigating perceived political risks,” the release reads.

Shedding more light on that statement is a September Mining Weekly report about Prophecy’s travails in shipping its coal through a re-opened Mongolian border to Russia. Today’s deal will help limit the impact of such issues in the future.

That said, Prophecy primarily operates coal and energy projects in Mongolia, where 90 percent of its staff reside and work, and in the release says that will remain its primary focus.

What’s next?

The news provided an 11-percent boost for Prophecy shares, rising to $0.05 by the close of the markets.

Both companies have agreed to enter into a definitive agreement by October 24, 2014 with the aim of completing the transaction by December 29, 2014. If the deal doesn’t reach the required percentage of shareholders, then Apogee will have to pay $850,000 as a break-up fee in cash to Prophecy.

 

Securities Disclosure: I, Nick Wells, hold no direct or indirect involvement in any of the companies mentioned.

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