425: First Majestic to Acquire Gatos Silver in US$970 Million Deal, Creating Silver Mining Powerhouse

First Majestic Silver Corp. announces a definitive agreement to acquire Gatos Silver, Inc. for US$970 million, creating a leading silver producer with enhanced production and cash flow.

Summary

• First Majestic Silver Corp. will acquire Gatos Silver, Inc. in a transaction valued at approximately US$970 million.
• Gatos shareholders will receive 2.550 common shares of First Majestic for each Gatos share.
• This represents a 16% premium based on closing prices and a 20% premium based on 20-day VWAP as of September 4, 2024.
• Following the transaction, Gatos shareholders will own approximately 38% of First Majestic on a fully-diluted basis.
• 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 expected to contribute approximately US$70 million in annual free cash flow to the combined entity.
• The transaction is expected to close in early 2025, pending shareholder and regulatory approvals.

Sentiment

Score: 8

Explanation: The announcement is positive due to the strategic benefits of the acquisition, including increased production, diversification, and potential synergies. The premium offered to Gatos shareholders and the positive comments from management contribute to the positive sentiment.

Positives

• The acquisition consolidates three world-class silver mining districts in Mexico under one company.
• The combined entity will have a stronger production profile with strong margins.
• The acquisition is expected to bolster free cash flow generation.
• The combined company will have a highly experienced team with a strong track record in Mexico.
• The combined company will maintain peer-leading exposure to silver.
• The acquisition creates a larger company with a strengthened balance sheet and improved capital markets profile.
• The acquisition is expected to result in meaningful synergies, including corporate cost savings and supply chain efficiencies.
• The transaction provides Gatos shareholders with an attractive immediate premium.
• The transaction provides Gatos shareholders with the opportunity to retain exposure to the Cerro Los Gatos asset.
• The transaction provides Gatos shareholders with the benefits of First Majestic's enhanced capital markets presence, liquidity and balance sheet.

Risks

• The transaction is subject to customary closing conditions, including shareholder and regulatory approvals.
• There is a risk that the anticipated synergies from the transaction may not be realized.
• Fluctuations in security markets and commodity prices could impact the value of the combined company.
• Changes in national or local governments and applicable legislation could impact the combined company.
• Operating or technical difficulties in connection with mining activities could impact the combined company.
• The presence of laws and regulations that may impose restrictions on mining, including those currently enacted or pending in Mexico, whether or not currently in force.

Future Outlook

The combined company aims to leverage its enhanced production profile, strong margins, and experienced team to deliver increased shareholder value and operational synergies. The company expects to accelerate and optimize internal projects and exploration programs.

Management Comments

• Keith Neumeyer, President & CEO of First Majestic, stated that the acquisition is a highly compelling and transformative transaction that meaningfully enhances First Majestic's operating platform.
• Dale Andres, CEO of Gatos, stated that the transaction provides Gatos shareholders with an attractive immediate premium and the opportunity to retain exposure to the Cerro Los Gatos asset.

Industry Context

This acquisition reflects a trend of consolidation in the silver mining industry, as companies seek to increase production, diversify assets, and improve access to capital. The combined entity will be a significant player in the silver market, competing with other intermediate primary silver producers.

Comparison to Industry Standards

• First Majestic's acquisition of Gatos Silver aims to create a company with a silver revenue contribution exceeding the ~30% average of its intermediate silver producing peers.
• Companies like Pan American Silver and Hecla Mining are comparable in terms of market capitalization and production profile, but the combined First Majestic-Gatos entity will have a stronger focus on silver production.
• The all-in sustaining costs (AISC) target of US$18.00-US$20.00 per silver-equivalent ounce is competitive with industry benchmarks for underground silver mines in Mexico.

Stakeholder Impact

• Shareholders of both First Majestic and Gatos are expected to benefit from the transaction through increased shareholder value and exposure to a larger, more diversified company.
• Employees of both companies may experience changes as a result of the integration of the two businesses.
• Local communities in Mexico where the companies operate may benefit from increased economic activity and social responsibility initiatives.
• Suppliers and creditors of both companies may be impacted by changes in the combined company's supply chain and financial position.

Next Steps

• First Majestic and Gatos will seek shareholder approvals for the transaction.
• The companies will pursue regulatory approvals, including clearance under Mexican anti-trust laws.
• First Majestic will apply for the listing of its common shares to be issued under the transaction on the Toronto Stock Exchange and the NYSE.
• The transaction is expected to close in early 2025.

Key Dates