In a strategic move to enhance its silver production capabilities, First Majestic Silver Corp. (TSE: AG) (NYSE: AG) announced on Thursday its agreement to acquire Gatos Silver, Inc. (NYSE: GATO) (TSE: GATO) in an all-stock transaction valued at approximately $970 million.
This acquisition marks a significant expansion for First Majestic, aiming to solidify its position as a leading primary silver producer.
Gatos Silver’s key asset in this transaction is its 70 per cent interest in the Cerro Los Gatos mine, located in Chihuahua, Mexico. Known for its high-quality, long-life silver deposits, the mine will significantly enhance First Majestic’s operational platform.
The acquisition of Gatos Silver boosts First Majestic’s annual production expectations to between 30-32 million ounces of silver-equivalent, with silver ounces alone projected at 15-16 million. This increased production will also improve the company’s cost profile, with all-in sustaining costs expected to be between USD$18-20 per silver-equivalent ounce.
Following the merger, the combined entity will be worth approximately USD$3 billion. Gatos Silver is anticipated to contribute around USD$70 million in annual free cash flow immediately. This will consequently strengthen the financial position of the newly combined company.
The market has reacted positively to the announcement, with Gatos Silver’s stock price rising by 7.5 per cent in pre-market trading. Subsequently, this reflects investor confidence in the deal.
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Silver prices have risen nearly 21% this year
The acquisition is viewed as a strategic consolidation within the silver mining industry.
First Majestic’s CEO, Keith Neumeyer, has emphasized the importance of adding the Cerro Los Gatos mine to their operations, not only for its production capacity but also for its large land package, which holds significant exploration potential.
This could lead to future discoveries, further enhancing First Majestic’s position in the silver market. Additionally, with silver prices rising by nearly 21 per cent this year due to increased industrial demand and investment interest, this acquisition positions First Majestic to capitalize on the market’s growth. Over 50 per cent of the company’s revenue is now expected to come from silver, surpassing many of its peers in silver exposure.
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