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This morning’s Flash Update for subscribers

It’s now post-bell and this (bar one redaction) is what was delivered to subscribers 30 minutes before the bell this morning, Thursday July 26th 2012. And yes, it means your humble scribe has today taken a long position in U.S. Silver (USA.to) with a near-term bias to the trade.
Good morning, about half an hour before the opening bell on a pleasant, crisp Thursday morning.
Four things to mention in this Flash update:
1) U.S. Silver (USA.to) is a potential near-term trading buy, sweetened bid likely:
The news out last night is that Hecla (HL) is offering $111m, or $1.80 per share, for U.S. Silver. 
It’s a hostile bid and needs 66 2/3rds % approval to win through. This bid is very interesting because it’s a better deal on paper than the current merger plan between USA.to and RX Gold & Silver (RXE.v), but at the same time it’s unlikely to be high enough to secure the two thirds of votes it needs. Therefore, the most likely situation is a sweetened bid down the line from HL that moves this to a friendly acquisition status. On consideration (and some early morning math and estimates), I think HL will be willing to pay up to $2.10 per share for USA.to all cash.
Therefore if $1.80 is offered this morning, those looking for a near-term trade with little downside risk and a good chance of perhaps 15% upside may want to take a position in USA.to. However, if counterbids get baked in immediately and USA.to trades higher (let’s say $1.95 or above), the risk-reward balance tips against our favour and the trade isn’t one that appeals, for your author at least.
2) Baja Mining (BAJ.to): No trade here
This morning, Baja Mining (BAJ.to) secured a $90m funding for Boleo in exchange for 21% of its ownership ((BAJ) is now down to 49%). NR here:
However, the most important part of the NR is right at the bottom where it says (key sentence bold-typed and underlined):

SRK Consulting has been retained to prepare an updated NI 43-101 compliant technical report on the Boleo project. Baja anticipates that the updated technical report will be filed in September 2012. Upon completion and filing of this report, Baja will have 60 days to complete a non-backstopped rights offering to provide it with funds to exercise its Stage II participation right. Mount Kellett has advised Baja that it does not intend to participate in such rights offering.

Our prospects of a trade in BAJ have always hinged on Mount Kellett arranging a deal that it likes (and that can be coattailed by us smallfry). As that is now clearly not the case, we’re dropping our radar coverage on BAJ as from today. There’s no trade here, unless you like them über-risky (and that’s not for my blood, folks)
3) Market comment
Gold looks strong this morning on the back of the Draghi comments today that boils down to “We will print Euros if necessary”. Although this doesn’t mean gold will rally in the very-short-term, the roadmap is now pretty clear. I added a few more [STOCK NAME REDACTED] yesterday close to lows and was glad to do so. Although somewhat dangerous to say out loud, I’m more confident that the worst of 2012 is now behind us and will look to add exposure in the quality end of my portfolio (rather than the illiquid tinycaps). More Sunday on this.
4) Sunward Resources (SWD.to)
Quite a few mails about the Colombia-may-ban-cyanide report yesterday. More in IKN169 on Sunday, but just a quick note here to say that our exposure to Colombia juniors, namely Sunward Resources (SWD.to), is unlikely to need cyanide in any eventual processing operation. According the the first-pass met studies in the Titiribi 43-101, standard gravity-plus-flotation techniques return very good recovery rates, so cyanide is not needed for economic extraction (or at least that’s the obvious conclusion to draw from these early-stage met results) 
Best, O

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