Bolnisi Gold's (BSG) interest in Mexico's huge Palmarejo silver project has attracted the attention of North American silver heavyweight Coeur d'Alene Mines. Consequently, Coeur has announced its intention to merge with the existing owners. The resultant company will be one of the world's leading silver producers.

The project is 100 percent owned by its namesake, Palmarejo Silver and Gold Corporation. Meanwhile, Bolnisi gains its exposure to the deposit through a 73.6 percent interest in Palmarejo Silver and Gold.

Under the terms of the deal, Coeur will purchase all of the shares of both Bolnisi and Palmarejo Silver and Gold. In total, the transaction is valued at around US$1.1 billion. To fund the deal, Coeur will issue around 271 million new shares.

Bolnisi shareholders will have the option to receive either 0.682 Coeur (NYSE: CDE and TSX: CDM) shares or Australian listed CDIs (representing the Coeur shares) for each Bolnisi share owned. In addition to this, Bolnisi shareholders will also receive a nominal cash payment of $0.004 per share.

For the transaction to go ahead, Coeur requires the approval of: 75 percent of Bolnisi shareholders, 66.6 percent of Palmarejo's ownership and over 50 percent of existing Coeur shareholders.

Bolnisi's board supports the move and our expectation is for Coeur to achieve the scheduled third quarter completion date.

Assuming the deal is successful, Coeur will nearly double its current production levels to 32 million ounces of silver and 290,000 ounces of gold over the next few years. Furthermore, the mining behemoth will boast a resource base of 364 million ounces of silver and 3.4 million ounces of gold.

In addition to the size of the Palmarejo project, an additional attraction is its low cost profile due to the sale of by product gold. In fact, following commencement of production at the site, Coeur estimates that its overall operating costs will be below US$2 per ounce of silver.

Since announcing the deal, Coeur's stock price has fallen and currently trades around US$3.83. Coeur investors are obviously not excited about the diluting impact the deal will have on Coeur's stock. As a result, the value of the stock issued for each Bolnisi share is currently around $3.18 - below Bolnisi's current stock price of $3.21.

Investors have plenty of time to consider the deal with information packs not landing in letterboxes until June and Bolnisi's shareholder meeting scheduled for late July. The question is, should investors accept the offer?

We based our original investment in Bolnisi on its status as an exploration company with significant upside potential. Should the merger go ahead, investors will find themselves owning a company with a very different profile, and Coeur hasn't exactly set the world on fire over the past few years, despite the strong rise in gold and silver prices.

Indeed, we can't help but feel a little annoyed that a large North American miner looks set to absorb Bolnisi, thus removing a solid exploration company from the reaches of Australian investors.

However, given all the corporate activity going on around the world today, we are not surprised that Coeur has snapped up the Mexico focussed Bolnisi. Despite our confidence in the precious metals sector, we are not overly keen to add a North American silver miner to our portfolio.

Since our initial recommendation in December 2005, Bolnisi Gold has performed exceptionally well, appreciating by more than 200 percent.

Given the circumstances, we are locking in our gains and selling Bolnisi Gold. As such, we recommend all members sell Bolnisi Gold around $3.20.

As an investment alternative, pure silver companies are few and far between in Australia. However, Members may wish to consider switching funds into Oxiana. The stock has run strongly since our recommendation last week, however, we believe the company holds long term promise and would consider any short term weakness a buying opportunity.