First Majestic Silver Corp. and Primero Mining Corp. have entered into a definitive arrangement agreement whereby First Majestic will acquire all of the issued and outstanding common shares of Primero. Under the terms of the Arrangement Agreement, all of Primero’s issued and outstanding common shares will be exchanged for First Majestic common shares on the basis of 0.03325 of a First Majestic common share for each Primero common share (the Exchange Ratio).
Alongside the execution of the Arrangement Agreement, First Majestic has entered into agreements with Wheaton Precious Metals International Ltd, a wholly-owned subsidiary of Wheaton Precious Metals Corp. (WPM) whereby, following closing of the Arrangement, the current silver streaming interest at Primero’s San Dimas silver-gold mine held by WPM will be terminated and First Majestic and WPM will enter into a new stream arrangement based on 25% of the gold equivalent production at San Dimas (the New Stream) with ongoing payments of US$600 per gold equivalent ounce delivered under the agreement. As part of the transaction, WPM will receive 20 914 590 common shares of First Majestic having an aggregate value of US$151 million.
The Exchange Ratio suggests consideration of CAN$0.30 per Primero common share, based on the 20-day volume weighted average price of the First Majestic common shares on the Toronto Stock Exchange (TSX) for the period ending 10 January 2018, representing a 200% premium to the weighted average price of Primero common shares on the TSX over the same period. The total transaction value is estimated at approximately US$320 million, consisting of First Majestic equity to be issued to Primero shareholders and WPM described above and certain additional amounts payable in connection with the arrangement, including repayment of all amounts owing under Primero's existing revolving credit facility, net of Primero cash on hand and the expected repayment of Primero's US$75 million of outstanding convertible debentures and various transaction expenses.
Primero operates the 100%-owned San Dimas silver-gold mine in Durango, Mexico, a premier low-cost asset with more than 100 years of mine production history. Primero has identified more than 120 epithermal veins with exploration potential. Together with First Majestic's existing six operating silver mines in Mexico, the combined company is expected to be a premier leading Mexican silver producer with pro forma annualised attributable silver equivalent production of 27 – 30 million silver equivalent oz. With a strong balance sheet and liquidity profile and a diversified portfolio of seven producing silver mines in Mexico, the combined company is expected to continue generating strong free cash flow and industry leading exposure to silver prices.
Benefits to First Majestic shareholders
- Establishes a cornerstone long-lived mine in Durango, Mexico, with well-established, low-cost operations complementary to First Majestic’s existing operations.
- Builds on First Majestic's strengths in Mexico and underground mining expertise.
- Accretive on all key metrics including NAV, cash flow, production, and resources to First Majestic shareholders, further diversifying production and free cash flow to First Majestic.
- The amendment to the existing WPM stream agreement provides for a number of value creation opportunities with alignment between silver and gold production and increased post-stream cash flow at San Dimas.
Benefits to Primero shareholders
- Provides a comprehensive solution for Primero's capital structure and delivers a significant and immediate up-front premium to Primero shareholders.
- Provides equity participation in a pro forma company with a strong balance sheet and diversified portfolio of seven operating mines with strong internal growth profile.
- Superior financial strength and flexibility to support advancement of various development projects and silver production growth.
- Enhances capital markets presence, increased analyst coverage and trading liquidity through equity participation in First Majestic.
- Ability to leverage First Majestic's long-term good standing with the local unions, community and Mexico's tax authority.
CEO of First Majestic, Keith Neumeyer, said: "The acquisition of Primero is a highly compelling transformative transaction that further enhances First Majestic's operating platform, adding a very high quality, long-lived asset in San Dimas, all in First Majestic's backyard in Durango, Mexico. Most importantly, the New Stream and related amendments with WPM repositions the asset by maximising silver exposure for our shareholders, while significantly increasing the free cash flow from San Dimas. We look forward to working with the operating team at San Dimas and with WPM. We also welcome WPM as a significant business partner and shareholder in First Majestic going forward."
Interim President and CEO of Primero, Joseph Conway, stated: "Over the last year Primero has conducted a formal strategic review process and evaluated numerous strategic alternatives to address our debt maturity obligations. We are pleased with the business combination with First Majestic as it provides our shareholders an attractive immediate premium as well as the opportunity to retain exposure to the high quality, long-lived San Dimas asset that they invested in, with a significantly reduced stream. This transaction also provides our shareholders with exposure to First Majestic’s enhanced capital markets presence, liquidity and balance sheet, as well as leveraging their local Mexican expertise and history of operations. I want to thank the San Dimas operating team for their dedication and wish them well in their future with First Majestic, we believe together they have the opportunity to generate significant value for our shareholders."
President and CEO of WPM, Randy Smallwood, said: "With the New Stream being linked to a combination of gold and silver production, we believe San Dimas will continue to deliver significant value to WPM for many years to come while also providing economic and social opportunities to the community of Tayoltita. First Majestic has a long history of operating in Mexico and an expertise in mining narrow vein underground deposits similar to San Dimas. Given their experience and renewed focus on mining the entire deposit, including the silver rich areas, we are excited to welcome First Majestic as a partner."
Read the article online at: https://www.globalminingreview.com/finance-business/15012018/first-majestic-to-acquire-primero-mining/