TORONTO - Junior miners Lake Shore Gold Corp. (TSX:LSG) and West Timmins Mining Inc. (TSX:WTM) are merging in a deal aimed at building what Lake Shore CEO Tony Makuch says will be "Canada's next mid-tier gold producer."

Under the share-swap agreement Thursday, Toronto-based Lake Shore will buy Vancouver-based West Timmins in a transaction that values West Timmins at about C$319 million.

The companies say the combination will create a new large-scale, wholly owned Timmins West Gold Mine complex on the western Timmins mining district of northern Ontario, bringing together assets and joint ventures held by the two companies.

"The combination of Lake Shore Gold and West Timmins is an important step towards our vision, our goal to build the next mid-tier gold company," Makuch told a conference with analysts and investors.

"With about 130 square kilometres of property, we have a dominate ownership position along the Timmins gold structure west of the Mattagami River fault, where the geology is very similar to that of the historic Timmins mines," he said.

He said combining the Timmins Mine and the adjacent Thunder Creek property allows Lake Shore to realize significant cost synergies and will expedite Thunder Creek's development.

Among other things, he said the merged company will be able to develop and mine Thunder Creek using the Timmins Mine infrastructure and permits.

"We plan to commence an underground exploration program at Thunder Creek shortly after the transaction closes and our plan is to begin bulk sampling from thunder creak by the end of next year," he said.

Darren Wagner, president of West Timmins, called the merger a "natural fit."

"One of the huge benefits is that it transforms WT from and exploration company into a company with near-term gold production potential on multiple fronts," he said.

And because it is an all-share transaction,, "we are still able to stay at the table and participate in the exploration success that we've been having."

Under terms of the agreement, West Timmins shareholders will receive 0.73 of a Lake Shore Gold share for each of their shares. The combined company will be held 67 per cent by current Lake Shore Gold shareholders and 33 per cent by current West Timmins shareholders.

Three of 13 seats on the Lake Shore Gold board will go to West Timmins.

Wagner said he expects a West Timmins shareholder meeting and vote by November, with the deal closing shortly after that. The deal requires approval by two-thirds of West Timmins' shareholders.

The two executives said there is no need for a Lake Shore shareholders to vote on the deal.

Lake Shore Gold and West Timmins currently own 60 per cent and 40 per cent of the Thunder Creek project. Lake Shore Gold's other Timmins assets are made up of projects nearing production, including the Timmins Mine and Bell Creek Complex.

In addition to its 40 per cent interest in Thunder Creek, West Timmins has 120 square kilometres of nearby exploration property near Thunder Creek. In Mexico, West Timmins owns the Lluvia Oro gold-silver and Montana de Oro projects.

Both men said the discoveries at Timmins Mine and Thunder Creek confirm the exploration potential of the large land package and suggest an excellent potential for additional discoveries.

"We see ourselves just at the cusp of the lowest quartile in terms of cash cost per ounce," Makuch told one analyst. "It's going to take us until 2011 . . . the end of 2010 to achieve that, but that's the type of business were trying to build."

Shares of both companies were halted on the TSX pending news of the merger.

After trading resumed, Lake Shore shares were down two cents at $3.10 on volume of 2.8 million shares on the Toronto Stock Exchange.

West Timmins shares were up two cents at $2.22 on almost 5.7 million shares.