First Majestic Silver Corp. and Gatos Silver, Inc. have announced a definitive merger agreement, under which First Majestic will acquire all of the issued and outstanding common shares of Gatos. The transaction implies a total equity value for Gatos of approximately US$970 million, with existing Gatos shareholders set to own approximately 38% of First Majestic shares on a fully-diluted basis.
The transaction is set to consolidate three world-class, producing silver mining districts in Mexico under one banner, enhancing the production profile with strong margins. The combined annual production is expected to reach 30-32 million ounces of silver-equivalent, including 15-16 million ounces of silver at all-in sustaining costs of US$18.00-US$20.00 per silver-equivalent ounce.
Furthermore, the acquisition is expected to bolster free cash flow generation, with Gatos anticipated to contribute approximately US$70 million annually to the combined entity. The transaction also maintains peer-leading exposure to silver, with over 50% of pro forma revenue derived from silver compared to an average of ~30% for intermediate silver producing peers.
The acquisition is expected to result in a larger company with a strengthened balance sheet, leading trading liquidity, and improved capital markets profile. The pro forma market capitalization is approaching US$3 billion, with average daily trading liquidity of approximately US$49 million.
First Majestic's President & CEO, Keith Neumeyer, commented that the acquisition is a highly compelling and transformative transaction that meaningfully enhances the company's operating platform. He also expressed excitement about deploying their operating expertise within the mining districts to deliver operational synergies and exploration success for their shareholders.
Gatos' CEO, Dale Andres, expressed pleasure in entering the transaction, highlighting the benefits it provides to their shareholders in terms of an attractive immediate premium, exposure to a high-quality, long-life asset, and the combination with First Majestic's enhanced capital markets presence, liquidity, and balance sheet.
The transaction is expected to close in early 2025, subject to the satisfaction of customary closing conditions, including approvals of the shareholders of First Majestic and Gatos, clearance under Mexican anti-trust laws, and approval of the listing of the First Majestic common shares to be issued under the transaction on both the Toronto Stock Exchange and the NYSE.
The acquisition is expected to be accretive on all key metrics, including net asset value, cash flow, production, and mineral reserves to First Majestic shareholders, and it offers Gatos shareholders an attractive immediate premium of 16% on a spot and 20-day volume weighted average price basis. Following these announcements, the company's shares moved 4.8%, and are now trading at a price of $12.18. For the full picture, make sure to review Gatos Silver's 8-K report.
