425: First Majestic Silver to Acquire Gatos Silver in $970M All-Share Deal

First Majestic Silver Corp. announces an agreement to acquire Gatos Silver, Inc. in an all-share transaction valued at approximately US$970 million, aiming to create a leading primary silver producer.

Summary

• First Majestic Silver Corp. is set to acquire Gatos Silver, Inc. in an all-share deal valued at approximately US$970 million.
• The transaction involves a fixed exchange ratio of 2.550 First Majestic shares for each Gatos share.
• This represents a price of US$13.49 per Gatos share, reflecting a 16% premium based on closing prices on September 4, 2024.
• The combined entity is expected to produce 30-32 million ounces of silver equivalent annually, including 15-16 million ounces of silver.
• All-in sustaining costs are estimated at US$18.00-US$20.00 per silver equivalent ounce.
• Gatos is projected to contribute approximately US$70 million in annual free cash flow to the combined company.
• The pro forma market capitalization of the merged entity is expected to approach US$3 billion, with average daily trading liquidity of around US$49 million.
• The transaction is subject to shareholder and regulatory approvals, with an anticipated closing in January 2025.
• First Majestic shareholders will own approximately 62% and Gatos shareholders will own approximately 38% of the pro forma entity.
• The Electrum Group LLC will own approximately 12% of the pro forma entity.
• The combined company will have a 350,000 ha land package.
• First Majestic's ESG Risk Rating improved by 39% year over year, with a score of 30.6 as of Q2 2024, placing it in the top 40% of industry performance.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the acquisition, highlighting numerous benefits and synergies. The deal is expected to enhance production, reduce costs, and increase shareholder value, leading to a favorable sentiment.

Positives

• The acquisition consolidates three world-class silver mining districts in Mexico under one banner.
• The combined entity will have an enhanced production profile with strong margins.
• Gatos is expected to immediately contribute annual free cash flow of ~US$70M to the combined entity.
• The merger leverages a highly experienced combined team with a strong track record of value creation in Mexico.
• The combined company maintains peer-leading exposure to silver, with over 50% of pro forma revenue derived from silver.
• The transaction creates a 350,000 ha highly prospective land package.
• The resulting company will have a strengthened balance sheet, leading trading liquidity, and improved capital markets profile.
• Meaningful synergies are expected through corporate cost savings, supply chain efficiencies, and cross-pollination of expertise.
• First Majestic's ESG Risk Rating improved by 39% year over year, with a score of 30.6 as of Q2 2024, placing it in the top 40% of industry performance.

Negatives

• The transaction is subject to shareholder and regulatory approvals, which introduces uncertainty.
• There are customary non-solicitation provisions, subject to fiduciary out in the event of a superior proposal and intervening event.
• Termination fees of US$46M payable by First Majestic and US$28M payable by Gatos in certain circumstances.

Risks

• Changes in climate conditions could adversely affect the business and operations through shifting weather patterns, environmental incidents, and extreme weather events.
• There is no assurance that the Company will be able to successfully anticipate, respond to or manage risks associated with severe climate conditions.
• Actual results may vary from forward-looking statements due to known and unknown risks, uncertainties and other factors.
• The transaction is subject to satisfaction and waiver of all applicable closing conditions for the Transaction on a timely basis or at all including, without limitation, receipt of all necessary shareholder, stock exchange and regulatory approvals or consents and lack of material changes with respect to the Company and Gatos and their respective businesses.
• The outcome of any legal proceedings could impact the transaction.
• Unanticipated difficulties or expenditures relating to the Transaction could arise.
• Risks relating to the value of the consideration to be issued in connection with the Transaction could impact the deal.
• The diversion of management time on pending Transaction-related issues could affect operations.
• Risks related to the integration of acquisitions could impact the success of the merger.
• Fluctuations in security markets could affect the transaction.
• General economic conditions including inflation risks could impact the transaction.
• Possible variations in ore reserves, grade or recovery rates could affect production.
• Delays in obtaining governmental approvals or financing or in the completion of development or construction activities could impact the transaction.
• Operating or technical difficulties in connection with mining or development activities could arise.
• Risks and hazards associated with the business of mineral exploration, development and mining could impact the transaction.
• The presence of laws and regulations that may impose restrictions on mining, including those currently enacted in Mexico, could affect operations.
• Relationships with and claims by local communities and indigenous populations could impact the transaction.
• Availability and increasing costs associated with mining inputs and labour could affect operations.
• The speculative nature of mineral exploration and development, including the risks of obtaining necessary licenses, permits and approvals from government authorities, could impact the transaction.
• Diminishing quantities or grades of mineral reserves as properties are mined could affect production.
• Changes in climate conditions and extreme weather events could impact operations.

Future Outlook

The combined entity aims to become the world's largest primary silver producer, leveraging the strengths of both First Majestic and Gatos Silver. The company anticipates increased shareholder value through synergies, enhanced production, and a strengthened balance sheet.

Industry Context

This acquisition reflects a trend towards consolidation in the silver mining industry, with companies seeking to increase production, diversify assets, and improve access to capital. The combined entity will be better positioned to compete with other major silver producers and capitalize on the growing demand for silver in industrial and investment applications.

Comparison to Industry Standards

• The document compares First Majestic's ESG performance to the Metals & Mining industry average, showing improvement and placement in the top 40% for certain metrics.
• The document compares Cerro Los Gatos (CLG) to other primary silver mines globally, highlighting its large scale, low-cost, and high-margin characteristics.
• CLG's AISC is compared to peers like Fresnillo, Hecla, Coeur, and SilverCrest, showcasing its competitive cost structure.
• The document compares First Majestic's silver purity, silver-equivalent production, and free cash flow to its peers, indicating a strong position in the sector.

Stakeholder Impact

• Shareholders of both First Majestic and Gatos Silver are expected to benefit from the increased scale, diversification, and synergies of the combined entity.
• Employees of both companies may experience changes as a result of the integration, but the combined entity is expected to be a stronger and more competitive employer.
• Local communities in the areas where the companies operate may benefit from increased economic activity and social responsibility initiatives.
• Customers and suppliers of both companies may experience changes in their relationships as a result of the merger.

Next Steps

• Shareholder meetings to be held before the end of 2024.
• Closing and integrating Gatos Silver into the First Majestic portfolio.
• Ongoing exploration activities, mine plan optimization and processing plant improvements planned at Jerritt Canyon.
• Continued improvements in metallurgical recoveries through implementation of fine grinding and other R&D.
• Over 210,000 m of exploration planned in 2024 West, Central & Sinaloa blocks, Los Hernandez, Ermitao, Navidad & Jerritt Canyon.

Key Dates