First Majestic Silver has agreed to acquire all issued and outstanding common shares of silver-dominant producer Gatos Silver, in an all-share deal that implies a total equity value for the latter of about $970m.
According to the terms of the definitive agreement, shareholders of Gatos Silver will receive 2.55 common shares of First Majestic for each common share of Gatos Silver held.
The consideration represents a total offer value of $13.49 per share of Gatos Silver, based on First Majestic’s closing price on 4 September 2024.
At the closing of the proposed transaction, First Majestic will issue a total of around 177 million common shares to Gatos Silver shareholders.
Upon the completion of the deal, the existing shareholders of Gatos Silver will hold approximately 38% of the issued and outstanding common shares of First Majestic on a fully diluted basis.
Gatos Silver, which discovered a new silver and zinc-rich mineral district in southern Chihuahua State, Mexico, has a 70% stake in the Los Gatos joint venture (JV). The JV owns the Cerro Los Gatos underground silver mine in Chihuahua.
Gatos Silver CEO Dale Andres said: “We are pleased to enter into this transaction with First Majestic, as it provides our shareholders an attractive immediate premium and the opportunity to retain exposure to the high quality, long-life Cerro Los Gatos asset, now within a well-established intermediate primary silver producer.
“This transaction also provides our shareholders with the benefits of First Majestic’s enhanced capital markets presence, liquidity and balance sheet, while combining its local Mexican expertise and history of operations with our history of successful performance.”
By integrating the Cerro Los Gatos mine with First Majestic’s existing assets, including the San Dimas and Santa Elena silver/gold mines in Mexico, the transaction will create a diversified silver producer with an enhanced production profile.
The combined entity is expected to produce 30-32 million ounces of silver-equivalent annually, with 15-16 million ounces of silver. It will also have a 350,000ha highly prospective land package.
Additionally, the enlarged company will have a strengthened balance sheet and improved capital markets profile. It will have a pro forma market capitalisation nearing $3bn and average daily trading liquidity of around $49m.
The merger is also projected to generate significant synergies, including corporate cost savings, supply chain and procurement efficiencies, and optimisation of internal projects and exploration programmes.
First Majestic Silver CEO and president Keith Neumeyer said: “The acquisition of Gatos Silver is a highly compelling and transformative transaction that meaningfully enhances First Majestic’s operating platform through the addition of 70% of Cerro Los Gatos – a high quality, long-life, unencumbered, free cash flow generating asset in the mining-friendly state of Chihuahua, Mexico.”
Subject to customary conditions, including shareholders’ approval, regulatory approvals, and clearance under Mexican anti-trust laws, the deal is anticipated to be completed in early 2025.
The board of directors of each of First Majestic and Gatos Silver have unanimously approved the definitive agreement and the transaction.
For the transaction, National Bank Financial was the exclusive financial adviser to First Majestic, while BofA Securities served as the exclusive financial adviser to Gatos Silver.
