First Majestic Silver Corp. AG announced that it has entered into an agreement to acquire Gatos Silver, Inc. With this deal, AG will gain 70% interest in the high-quality and long-life Cerro Los Gatos underground mine. The deal implies a total equity value for Gatos at around $970 million.

The Gatos Silver deal will solidify First Majestic’s position as an intermediate primary silver producer. The combined entity, with a pro forma market capitalization of around $3 billion, will have an enhanced production profile with a strong balance sheet and margins.

Gatos Silver Buyout Will Fortify AG’s Operating Platform

Gatos is a silver-dominant producer with a 70% interest in the Los Gatos Joint Venture, which owns the Cerro Los Gatos silver mine located in the mining-friendly state of Chihuahua, Mexico. It is a long-life, high-quality, low-cost, underground mine with further exploration potential and free from any debt liability.

The Cerro Los Gatos mine, combined with First Majestic’s existing San Dimas Silver/Gold mine and the Santa Elena Silver/Gold mine, will boost AG’s annual production to 30-32 million ounces of silver-equivalent. This includes silver ounces in the range of 15-16 million. 

With more than 50% of its revenues expected to be derived from silver, First Majestic will have an edge over its intermediate silver-producing peers, who have an average of 30% exposure to the metal.

AG-Gatos Deal to Boost Cash Flow & Lead to Synergies

The acquisition is expected to immediately contribute an annual free cash flow of approximately $70 million to the combined entity. Meaningful synergies are expected through corporate cost savings and supply-chain and procurement efficiencies. Acceleration and optimization of internal projects and exploration programs are expected to deliver meaningful value creation for shareholders.

Further Details of First Majestic’s $970M All-Stock Deal

Per the terms of the agreement, Gatos shareholders will receive 2.550 common shares of First Majestic for each common share of Gatos held. The consideration implies a total offer value of $13.49 per common share of Gatos based on the closing price of AG’s shares on the New York Stock Exchange (NYSE) on Sep. 4, 2024. It represents a 16% premium based on each company’s closing prices and 20-day volume weighted average prices on the NYSE on Sept. 4, 2024. 

The transaction is expected to close in early 2025, subject to the clearance of customary closing conditions. This includes approvals of the shareholders of First Majestic and Gatos, as well as clearance under Mexican anti-trust laws. It is also subject to the approval of the listing of the First Majestic common shares to be issued under the transaction on both the Toronto Stock Exchange and the NYSE.

Following completion, existing Gatos’ shareholders will own approximately 38% of AG shares.