ECU plans to buy recovery plant, to raise $17.5-million

2009-01-27 16:01 ET - News Release

Mr. Stephen Altmann reports

ECU ANNOUNCES PROPOSED ACQUISITION OF GOLD AND SILVER PLANT AND CONCURRENT BOUGHT DEAL FINANCING

ECU Silver Mining Inc. has entered into a non-binding letter of intent with Hecla Mining Company for the acquisition of a 500-tonne-per-day gold and silver recovery plant located adjacent to ECU's properties near the town of Velardena, in Durango, Mexico. The proposed transaction is subject to ECU and Hecla executing a definitive purchase and sale agreement for the Mill. In order to fund such acquisition, ECU has entered into an agreement to proceed with a bought deal offering of subscription receipts by way of short form prospectus for gross proceeds of $17,500,000.

Acquisition of Gold and Silver Plant

ECU has entered into a letter of intent with Hecla, whereupon ECU will acquire the Mill in consideration of a cash payment of US$8,000,000 and the issuance by ECU to Hecla, by way of private placement, of 750,000 common shares of ECU. If issued, the resale of the ECU common shares by Hecla will be subject to certain quantitative restrictions over and above the four-month hold period that applies under applicable Canadian securities legislation.

The Mill is a conventional cyanide leach, Merrill Crowe precipitation circuit. It is ideally suited to process ECU's oxide material and gold-pyrite concentrate inventory. The Company expects to generate a gold and silver precipitate or dore bars from the Mill, either of which can be sold to a third party refinery. The Mill has a capacity to process mineralized material up to 500 tpd. The Company initially expects to process high grade mineralized material at an average rate of 300 tpd. The Company has reported oxide resources of 1,075,000 tonnes in the measured and indicated category and 379,000 tonnes in the inferred category.

"The Mill is located only two kilometres from the Company's Santa Juana mine site and immediately adjacent to its Chicago Property. The close proximity of the Mill to ECU's mining operations will give the Company a significant advantage with respect to transportation. In addition, we have trained personnel and mining equipment already in place," stated Michel Roy, the Chairman and CEO of the Company.

Stephen Altmann, the President of the Company, added that "The acquisition of this plant will provide ECU with a near-term opportunity to generate cash flows from both gold and silver without the need to enter into smelter contracts."

The acquisition by the Company of the Mill (the "Acquisition") is subject to (i) the execution of a definitive agreement acceptable to each of the Company and Hecla, (ii) the completion by the Company of its due diligence review of the Mill, (iii) the receipt of all requisite third party consents and approvals, and (iv) the approval of the Board of Directors of the Company.

Offering of Subscription Receipts

Furthermore, ECU announces that it has entered into an agreement with a syndicate of underwriters (the "Underwriters), led by Blackmont Capital Inc. and including TD Securities Inc., whereby the Underwriters have agreed to purchase, on a bought deal basis, 25,000,000 subscription receipts of the Company (the "Subscription Receipts") at a purchase price of $0.70 per Subscription Receipt (the "Issue Price") for aggregate gross proceeds of $17,500,000 (the "Offering").

Each Subscription Receipt will entitle the holder thereof to receive, concurrent with the completion by the Company of the Acquisition, one common share of the Company and one common share purchase warrant (a "Warrant"). Each Warrant shall entitle the holder thereof to acquire one additional common share of the Company (a "Warrant Share") at a price of $0.95 per Warrant Share at any time until the date that is five years after the date of the closing of the Offering. Upon the closing of the Offering, 100% of the gross proceeds of the Offering less a portion of the commission payable to the Underwriters will be deposited in escrow (the "Escrowed Funds"). The Escrowed Funds, less the balance of the commission payable to the Underwriters and the US$8,000,000 cash portion of the purchase price payable by the Company to Hecla in connection with the Acquisition, will be released to the Company upon the closing of that transaction. If the Company has not completed the Acquisition prior to 5:00 p.m. (Toronto time) on March 30, 2009, the Escrowed Funds, plus any accrued interest earned thereon, shall be returned pro rata to each holder of Subscription Receipts in exchange for that number of Subscription Receipts held by such holder.

In addition, the Company has granted the Underwriters an option, exercisable within 30 days after the closing of the Offering, to purchase from the Company for resale up to an additional 15% of the Subscription Receipts at the Issue Price for additional gross proceeds of up to $2,625,000.

The net proceeds of the Offering will be used to fund the US$8,000,000 cash component of the Acquisition, for initial working capital and capital expenditures at the Mill, and for ECU's working capital and general corporate purposes.

The Offering will be made by way of short-form prospectus filed in all provinces of Canada and will be made in the United States to Qualified Institutional Buyers through Rule 144A of the United States Securities Act of 1933 and to certain accredited investors through Regulation D and in other eligible foreign jurisdictions pursuant to applicable private placement exemptions under applicable securities laws in such jurisdictions.

The securities offered have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The Offering is scheduled to close on or about February 18, 2009 and is subject to acceptance by the Toronto Stock Exchange.

This press release shall not constitute an offer to sell or solicitation of an offer to buy the securities in any jurisdiction.

We seek Safe Harbor.