First Majestic Agrees To Buy Primero, Restructures Stream With Wheaton
(Kitco News) - First Majestic Silver Corp. (TSX: FR; NYSE: AG) has agreed to acquire Primero MiningCorp. (TSX: P) in an all-stockdeal, the companies announced Friday.
With the addition ofPrimero’s San Dimas silver-gold mine in Mexico, First Majestic said it anticipatescompany annualized silver-equivalent production of 27 million to 30 millionounces. First Majestic already operates six mines in Mexico.
Meanwhile, a concurrentdeal with a subsidiary of Wheaton Precious Metals Corp. (TSX: WPM;NYSE: WPM)calls for the current silver-streaming interest at San Dimas mine to beterminated and be replaced by a new arrangement. Also, First Majestic willissue 20.9 million of its shares, valued at $151 million, to Wheaton.
Under the friendlytakeover deal, each Primero share would be exchanged for 0.03325 of a FirstMajestic share. This implies a price of 30 Canadian cents per Primero share. Basedon the 20-day volume-weighted average price of First Majestic shares on theToronto Stock Exchange for the period ending Wednesday, this represents a 200%premium. Officials reported that the board of directors for each companyunanimously favored the deal.
First Majesticestimated the value of the transaction at $320 million, when factoring inequity to be issued to Primero shareholders and Wheaton Precious Metals, aswell as certain other factors, including repayment of loans under Primero'srevolving credit facility and expected repayment of Primero's $75 million ofconvertible debentures.
First Majesticdescribed the San Dimas silver-gold mine as a low-cost asset with more than 100years of production. Primero has identified more than 120 epithermal veins withexploration potential.
"The acquisitionof Primero is a highly compelling transformative transaction that furtherenhances 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,” said Keith Neumeyer, chief executive officer of First Majestic. “Mostimportantly, the new stream and related amendments with WPM repositions theasset by maximizing silver exposure for our shareholders, while significantlyincreasing the free cash flow from San Dimas.”
Under the newstreaming agreement, Wheaton Precious Metals will receive 25% of the goldproduction and 25% of the silver production at San Dimas converted to gold at afixed exchange ratio of 70:1, in exchange for ongoing payments equal to thelesser of $600 subject to a 1% annual inflation adjustment and the prevailingmarket price for each gold ounce delivered. First Majestic said the deal meansless payable metal than under the current stream, allowing it more free cashflow from San Dimas.
Randy Smallwood, presidentand chief executive officer of Wheaton Precious Metals, said the new streamingdeal means “San Dimas will continue to deliver significant value to WPM for many years to come.”
The silver stream on San Dimas averaged10% of Wheaton's historical production over the past three years atapproximately 5.4 million silver ounces per year, the company said. Under thenew deal with First Majestic, San Dimas is expected to contribute on average some 40,000 to 45,000 ouncesof gold production to Wheaton over the next five years. Wheaton said it willupdate its five-year average annual guidance for both silver and gold when itreleases its next quarterly earnings report.
Primero and FirstMajestic have held talks with Mexican authorities in an effort to resolve a taxdispute involving San Dimas’s silver production for the years 2010 to 2014,First Majestic said. These discussions will continue, although with no certaintyon the timing or outcome.
Details about theproposed transaction will be included in a Primero proxy statement andinformation circular, which is expected to be mailed to shareholders inFebruary, the companies said. Officials anticipate that Primero shareholder anddebentureholder meetings on the issue will take place in March, and if the dealis approved, the transaction will close by the end of that month.
By Allen SykoraFor Kitco News
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