425: First Majestic to Acquire Gatos Silver, Creating a Leading Silver Producer in Mexico

First Majestic Silver Corp. is set to acquire Gatos Silver, consolidating three Mexican silver mining districts and creating a diversified, intermediate primary silver producer.

Summary

• First Majestic Silver Corp. is acquiring Gatos Silver, consolidating silver mining operations in Mexico.
• The combined entity will have annual production of 30-32 million ounces of silver equivalent (AgEq), including 15-16 million ounces of silver.
• All-in sustaining costs (AISC) are estimated at US$18.00-US$20.00/oz AgEq.
• Gatos is expected to contribute approximately US$70 million in annual free cash flow.
• The acquisition creates a company with a pro forma market capitalization approaching US$3 billion and average daily trading liquidity of approximately US$49 million.
• The combined entity will have a 350,000 ha land package with exploration potential.
• Synergies are expected from corporate cost savings, supply chain efficiencies, and optimization of internal projects.
• The combined company will derive over 50% of its pro forma revenue from silver, compared to an average of ~30% for intermediate silver producing peers.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the acquisition, highlighting the potential for increased production, cost savings, and shareholder value. The tone is optimistic and forward-looking.

Positives

• The acquisition creates a larger company with a strengthened balance sheet and improved capital markets profile.
• The combined entity will have a peer-leading exposure to silver.
• The acquisition is expected to result in meaningful synergies and value creation for shareholders.
• Cerro Los Gatos is a high-grade primary silver deposit with substantial by-products.
• Cerro Los Gatos has attractive AISC versus comparable primary silver operations.
• Cerro Los Gatos has stable free cash flow generation and significant asset upside.

Future Outlook

The combined company is well-positioned to deliver increased shareholder value through synergies, exploration, and a strong balance sheet.

Industry Context

The acquisition reflects a trend towards consolidation in the silver mining industry, with companies seeking to increase production, diversify assets, and improve access to capital.

Comparison to Industry Standards

• The combined company will have over 50% of pro forma revenue derived from silver compared to an average of ~30% for intermediate silver producing peers.
• Cerro Los Gatos is one of the largest primary silver mines globally.
• Peer AISC figures are based on full-year 2023 reporting; peer costs include both silver and gold operations to reflect the cost base of the operating portfolios.
• Peers reporting on a by-product AISC basis include Hecla, Coeur, MAG and Endeavour Silver.
• Peers reporting on a co-product AISC basis include First Majestic (pre-transaction), Fresnillo, and SilverCrest.

Stakeholder Impact

• Shareholders are expected to benefit from increased value creation.
• Employees of both companies may experience changes as a result of the integration.
• Communities in the mining districts may see increased economic activity.

Next Steps

• First Majestic will file a registration statement on Form F-4 with the SEC, including a Proxy Statement/Prospectus.
• First Majestic will file a management proxy circular with Canadian securities regulatory authorities.
• Gatos plans to mail the definitive Proxy Statement/Prospectus to its stockholders.
• First Majestic will deliver its proxy circular to its shareholders.

Key Dates