First Majestic to acquire Gatos Silver in $970M deal

Published 05/09/2024, 12:06
First Majestic to acquire Gatos Silver in $970M deal

VANCOUVER - First Majestic Silver Corp. (NYSE:AG) (TSX:AG) and Gatos Silver, Inc. (NYSE:GATO) (TSX:GATO) have announced a definitive merger agreement under which First Majestic will acquire all issued and outstanding shares of Gatos. The transaction, valued at approximately $970 million, is expected to close in early 2025.

Under the terms of the agreement, Gatos shareholders will receive 2.550 common shares of First Majestic for each Gatos share held. This exchange ratio reflects a total offer value of $13.49 per Gatos share, based on First Majestic's closing price on the New York Stock Exchange on September 4, 2024. The premium offered is 16% based on the closing prices and 20-day volume-weighted average prices of both companies as of the same date.

The merger is projected to create an intermediate primary silver producer with a combined annual production of 30-32 million ounces of silver-equivalent, including 15-16 million ounces of silver. The combined entity is expected to have all-in sustaining costs between $18.00 and $20.00 per silver-equivalent ounce. Gatos's contribution to the annual free cash flow is forecasted at approximately $70 million.

Keith Neumeyer, President & CEO of First Majestic, emphasized the strategic fit of the acquisition, highlighting Cerro Los Gatos as a high-quality, long-life asset that complements First Majestic's existing portfolio. Dale Andres, CEO of Gatos, endorsed the transaction, noting the immediate premium for shareholders and the combined company's enhanced market presence.

The merger will add a third cornerstone asset to First Majestic's portfolio and is anticipated to be accretive on key metrics, including net asset value, cash flow, production, and mineral reserves. Gatos shareholders will hold about 38% of First Majestic's shares post-transaction.

The transaction is subject to customary closing conditions, including shareholder approvals and clearance under Mexican anti-trust laws. The boards of both companies have unanimously approved the agreement, and a special committee of independent Gatos directors has recommended the deal. Key Gatos shareholders have already agreed to support the transaction.

First Majestic and Gatos will host a joint conference call to discuss the merger details.

This news article is based on a press release statement.

In other recent news, First Majestic Silver Corp. reported a rise in silver and gold production in the second quarter, with a 7% increase in silver output and a 9% increase in gold output from its three operating mines in Mexico. Significant findings of silver and gold mineralization at its San Dimas Silver/Gold Mine have also been reported, particularly within the central and western parts of the property. BMO Capital maintained its Market Perform rating on the company's stock, with a steady price target of Cdn$10.00, following the disclosure of these second-quarter production figures. Despite ongoing labor negotiations at San Dimas, the company has adjusted its 2024 production outlook, considering the robust results from Santa Elena and La Encantada. The company's all-in sustaining costs for the first quarter were reported at $21.53 per ounce of silver equivalent. These are the recent developments for First Majestic Silver Corp.

InvestingPro Insights

As First Majestic Silver Corp. (NYSE:AG) (TSX:AG) prepares to acquire Gatos Silver, Inc. (NYSE:GATO) (TSX:GATO), investors are closely monitoring the financial metrics that could impact the merger's success. According to the latest data from InvestingPro, First Majestic's market capitalization stands at $1.59 billion, indicating the size and market weight of the company in the silver mining sector.

InvestingPro Tips suggest that while analysts are not expecting First Majestic to be profitable this year, the company operates with a moderate level of debt and its liquid assets exceed short-term obligations. This financial stability may provide some reassurance to Gatos shareholders as they consider the merger proposition.

However, it's important to note that First Majestic has not been profitable over the last twelve months, with a negative P/E ratio of -19.52, reflecting challenges in generating earnings. The revenue growth has also been negative at -16.23% over the last twelve months as of Q2 2024, which may be a concern for investors looking for growth in the combined entity.

Despite these challenges, the company's gross profit margin stands at a healthy 26.27%, indicating a solid ability to control costs relative to its revenue. Additionally, with a price/book ratio of 1.16, the company's stock is currently valued near its book value, which could suggest a potentially attractive valuation for investors considering the merger's prospects.

For those looking for more in-depth analysis, InvestingPro offers additional tips on First Majestic, providing a comprehensive understanding of its financial health and future outlook. Visit https://www.investing.com/pro/AG for more InvestingPro Tips.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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