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Investing.com -- Shares of MAG Silver (NYSE:MAG) jumped 7.5% following the announcement of a $2.1 billion acquisition deal by Pan American Silver (TSX:PAAS) (NASDAQ:NYSE:PAAS), which saw its own shares decline by 6.6%.
The transaction, which involves $500 million in cash and 0.755x PAAS shares per MAG share, places a significant premium on MAG’s 44% stake in the Juanicipio Silver mine.
MAG’s interest in the Juanicipio mine, which it holds through a joint venture with Fresnillo (LON:FRES), is a key asset with 143 million ounces of silver equivalent reserves attributable to the company. Analysts project the mine to yield an average of 6.0 million ounces of silver equivalent for MAG by 2025.
This acquisition represents a substantial valuation of MAG’s stake at 2.23x price to net asset value (P/NAV) and 9.52x 24-month forward enterprise value to EBITDA, according to RBC estimates at spot prices.
The deal, which is subject to approval from Mexican authorities and two-thirds of MAG shareholders, has been well received in the market, particularly given the scarcity of silver assets highlighted by RBC.
The premium placed on MAG’s stake by the agreement is notably higher than current market valuations, with Fresnillo’s 56% stake in Juanicipio now implied to be worth $2.5 billion, far exceeding RBC’s forecast of $900 million and the consensus estimate of $814 million.
RBC commented on the broader implications of the deal for the silver industry, stating, "The deal highlights the scarcity value of silver assets. Following last year’s combinations of Gatos/FirstMajestic and Silvercrest/Coeur there are not many single asset producers left in the silver space. We see this as having a positive read through for Adriatic (ADT1 LN) and its Vares silver project."
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