U.S. Silver And RX Gold & Silver Announce Proposed Business Combination To Create A Growth-Oriented U.S. Precious Metals Producer

U.S. Silver Corporation and RX Gold & Silver Inc. are pleased to announce the signing of a definitive agreement to combine the two companies by way of a plan of arrangement.  The resulting company, to be called U.S. Silver & Gold Inc., will be a well-funded, growth-oriented precious metals producer with U.S. Silver's producing Galena mine in Idaho, RX Gold's producing Drumlummon mine in Montana and U.S. Silver's Coeur re-development projects in Idaho.

Highlights of the Transaction

• U.S. Silver shareholders to receive 0.670 U.S. Silver & Gold shares per U.S. Silver share, resulting in their effective ownership of approximately 70% of the combined company.

• RX Gold shareholders to receive 0.109 U.S. Silver & Gold shares per RX Gold share, resulting in their effective ownership of approximately 30% of the combined company.
• Two - 100% owned U.S. based precious metal operations that deliver immediate cash and one silver re-development asset:
  • Combined production base of 2.7 million¹ ounces of silver and 26,500¹ ounces of gold
  • Opportunities for significant resource growth, brownfield development and operational and head office synergies
  • Meaningful organic exploration potential at Drumlummon and Silver Valley areas
  • Geographic concentration of assets that allows for near term focus on improving mine planning and execution of cost reduction strategies.
• Proven board of directors and management team with significant executive experience in senior precious metals companies and the capability to deliver results in tough market conditions.
• Improved liquidity and capital markets profile, US$25 million in cash and capital markets relationships that position the larger, combined company for further growth through opportunistic and accretive acquisitions.
• Unanimous recommendations from the boards of both companies that shareholders vote for the Transaction.  The board and senior management of each company have agreed to vote in favour of the Transaction.  In addition, Sprott Asset Management LP ("Sprott") has signed a lock-up agreement supporting the Transaction. Sprott is the largest shareholder of both companies and currently holds approximately 14% of U.S. Silver shares and 8% of RX Gold shares.
• A key objective of the combined company will be to exceed 5.0 million ounces of silver production at significantly lower cash costs by 2014.

Upon completion of the Transaction, the combined company will have approximately 60 million basic common shares issued and outstanding, and there will be options and warrants outstanding to acquire an additional 6.3 million shares.  The warrants of both companies will become exercisable for common shares of U.S. Silver & Gold based on the applicable exchange ratio and the options of both companies will be exchanged for options of U.S. Silver & Gold based on the applicable exchange ratio.

Leadership Team

Upon completion of the Transaction, the board of directors of U.S. Silver & Gold will be comprised of four current U.S. Silver board members and four current RX Gold board members (see appendix for full U.S. Silver & Gold board of directors) and the management team will be comprised of the combined best talent from U.S. Silver and RX Gold.

Gordon Pridham, Executive Chairman and Interim CEO of U.S. Silver will serve as Chairman of the board of the combined company.  Mr. Pridham has over 30 years of experience as a global finance executive and serves on a number of public boards of directors and has been a director of U.S. Silver since November 2008.

Darren Blasutti, currently President and CEO of RX Gold, will assume the same role for the combined company.  A chartered accountant, Mr. Blasutti was previously Senior Vice President, Corporate Development at Barrick Gold, where he reported to the CEO, led strategic development, and executed more than 25 M&A transactions over his 13 year tenure.

Robert Taylor, RX Gold's current Chief Operating Officer will assume the role of COO of the combined company and with Steve Long, Senior Vice President of Operations, will lead an impressive group of operating professionals in Idaho and Montana. Mr. Taylor has close to 40 years of mining experience and was previously with Kinross Gold, where he served as Vice President of North American Operations until 2009.

Gord Pridham, U.S. Silver Interim CEO and Executive Chairman, commented, "The combination of U.S. Silver and RX Gold will create a strong North American-focused precious metals producer with a solid portfolio of production and development assets.  The proposed management team and board have proven capability to optimize existing operations, drive significant cost savings through synergies and pursue aggressive growth thereby, creating meaningful value for shareholders."

Darren Blasutti, President & CEO RX Gold, stated, "The Galena mine and Coeur re-development project will enhance RX Gold shareholders' exposure to precious metals production and cash flow.  With a rapid production ramp-up and aggressive consolidation strategy, underpinned by a much larger and well-funded company, the RX Gold board and management—all of whom are significant shareholders—believe the strategic and financial rationale of this transaction will benefit all shareholders, employees and other stakeholders.  I am confident we will have the financial, human and capital markets wherewithal to achieve our goal of exceeding 5 million ounces of silver production by 2014."

Benefits to Shareholders of U.S. Silver

• U.S. Silver shareholders will own approximately 70% of a combined growth-oriented, larger, producing precious metals company.

• In addition to key U.S. Silver board and management, the combined company gains solid and proven expertise among RX Gold's management, particularly as it pertains to acquiring, exploring, developing and operating mining projects, as well as significant capital markets expertise.
• Participation in the 100% owned high grade gold and silver Drumlummon mine, which has historically produced more than 1 million ounces of gold and 12 million ounces of silver:
  • The mine produced 6,625 ounces of gold and 117,635 ounces of silver in Q1 2012
  • Excellent exploration potential for future resource expansion at Drumlummon and the recently acquired Belmont mine.
• As a result of the effective ownership split, U.S. Silver shareholders will receive an implied premium of approximately 45% based on the closing price of C$1.46 on June 6, 2012.
• Participation in the potential re-rating of  U.S. Silver & Gold resulting from the increased size, synergies, liquidity, research analyst coverage and market visibility of the combined company.

Benefits to Shareholders of RX Gold

• Participation in the Galena mine, which provides high grade, narrow vein copper-silver and lead-silver with over 200 million ounces of silver produced historically and no historic environmental liabilities:
  • The mine produced 559,027 ounces of silver in Q1 2012
  • NI-43-101 compliant silver reserves of 23.2 million² ounces and M& I silver resources of 35.1 million³ ounces (inclusive of reserves).
• Participation in the Coeur mine, which is fully funded and under re-development with expected production by year-end:
  • Historical production of 39 million ounces of silver and targeted production rate of 500,000 ounces of silver per year by end of 2013
  • NI-43-101 compliant M& I resources of 3.3 million ounces of silver (included in Galena resources noted above).
• Increased cash flow and excellent exploration potential with a dominant land position in the Silver Valley.
• Strong balance sheet with roughly US$25 million in cash.

Further Transaction Details

Sprott, the largest shareholder of both RX Gold and U.S. Silver, has entered into a lock-up agreement in support of the Transaction in respect of its approximate 14% ownership of U.S. Silver and its approximate 8% ownership of RX Gold.  This represents approximately 12% of the issued and outstanding common shares of the combined company.

Eric Sprott, CEO & CIO of Sprott, "As a major shareholder of both U.S. Silver and RX Gold, we are very supportive of this transaction. We believe it will unlock significant value for shareholders as the newly formed company will have the production base, management team, balance sheet and capital markets profile to pursue its growth strategy."

The board of directors of each of U.S. Silver and RX Gold has received a fairness opinion with respect to the Transaction consideration.  Both boards have unanimously approved the Transaction and are recommending approval by their respective shareholders. All management and board members have agreed to vote their respective shares in favour of the Transaction.

U.S. Silver and RX Gold have agreed to not solicit alternative transactions to the proposed Transaction, subject to the right to respond to superior proposals.  In the event that a party enters into an agreement to effect a superior proposal, then such party is obligated to pay to the other party a termination payment that is outlined in the definitive agreement.

The Transaction is conditional upon the receipt of all necessary regulatory approvals, the absence of material adverse changes, and holders of at least 66 2/3% of the total votes cast by shareholders of each of U.S. Silver and RX Gold, as applicable, approving the Transaction at a meeting of each of U.S. Silver and RX Gold shareholders.

Full details of the Transaction will be included in the information circulars of U.S. Silver and RX Gold, which are expected to be filed with securities regulatory authorities and mailed to U.S. Silver and RX Gold shareholders in early July. It is anticipated that the shareholders meeting of both U.S. Silver and RX Gold to approve the Transaction will occur by early August. Closing of the Transaction is anticipated shortly after the shareholders meetings.

Advisors and Counsel

U.S. Silver's financial advisor is Cormark Securities Inc. and its legal counsel is Stikeman Elliott LLP. Cormark has provided an opinion to the board of directors of U.S. Silver that, as of the date thereof, the consideration to be paid under the Transaction is fair, from a financial point of view, to the shareholders of U.S. Silver.

RX Gold has engaged Davies Ward Phillips & Vineberg LLP as its legal counsel.  Macquarie Capital Markets Canada Ltd. has provided an opinion to the board of directors of RX Gold that, as of the date thereof, the consideration to be paid under the Transaction is fair, from a financial point of view, to the shareholders of RX Gold.

Conference Call Information

A conference call for the investment community will take place to discuss the Transaction on Friday, June 8, 2012, at 11am Eastern time (8am Pacific time). Investors, analysts, media and other interested parties are invited to attend.

Webcast/Conference Call

Live Dial-In Information:
Toronto and International:  647-427-7450
North America (Toll Free):  1-888-231-8191

Participant Audio Webcast:  http://www.newswire.ca/en/webcast/detail/989105/1066033

The presentation referenced on the conference call will be made available for download on the U.S. Silver website at www.us-silver.com and the RX Gold website at www.rxgold.com. A replay of the call will be available by dialing  1-855-859-2056 and entering reference number 89952475 or by accessing the link to the recording that will be posted to the U.S. Silver and RX Gold websites shortly after the conference call.

About U.S. Silver

U.S. Silver, through its wholly owned subsidiaries, owns and/or operates the Galena, Coeur, Caladay and Dayrock silver-lead-copper mines in Shoshone County, Idaho, with the Galena mine being the second most prolific silver mine in U.S. history. Total silver production from U.S. Silver's mining complex has exceeded 217 million ounces of silver production since 1953. U.S. Silver controls a land package now totalling approximately 14,000 acres in the heart of the Coeur d'Alene Mining District. U.S. Silver is focused on expanding the production from existing operations as well as exploring and developing its extensive Silver Valley holdings in the Coeur d'Alene Mining District.  www.us-silver.com

About RX Gold

RX Gold is a gold and silver mining company focused on growth in North America. Currently RX Gold is concentrating on continuing test mining and expanding development at its 100% owned Drumlummon Mine. The Drumlummon Mine is a bonanza style low sulphidation epithermal gold and silver deposit with historic production of approximately one million ounces of gold equivalent. The mine has never been fully exploited or explored and material that was once considered waste is now potentially economic. In addition, RX Gold has discovered a series of entirely new high-grade gold and silver veins that remain open for expansion in three directions.  www.rxgold.com

Certain information in this press release may contain forward-looking statements. This information is based on current expectations that are subject to significant risks, assumptions and uncertainties that are difficult to predict and the risk that regulatory approvals may not be obtained or that conditions of closing will not be satisfied or waved within the timeframe contemplated. Additional potential risks include: that U.S. Silver & Gold may not achieve anticipated synergies; loss of key personnel; reduction in the anticipated cash levels; and, not achieving production goals stated. Actual results might differ materially from results suggested in any forward-looking statements. U.S. Silver and RX Gold assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those reflected in the forward looking-statements unless and until required by securities laws applicable to the U.S. Silver and RX Gold. Additional information identifying risks and uncertainties is contained in filings by the U.S. Silver and RX Gold with the Canadian securities regulators, which filings are available at www.sedar.com.

Appendix: Proposed U.S. Silver & Gold Board of Directors

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¹ Q1, 2012 production results, annualized.

² 1.47 million tonnes at 490.3 g/t Ag from the Technical Report Shoshone County, Idaho prepared for U.S. Silver (dated March 19, 2012) (the "U.S. Silver Report")

³ 2.26 million tonnes at 571.6 g/t Ag from the U.S. Silver Report

SOURCE U.S. Silver Corporation