Mining Giant Acquires Premium Silver Producer for US$2.1B
MAG Silver Corp. (MAG:TSX; MAG:NYSE American) announces a definitive agreement to buy Tier 1 silver producer MAG Silver Corp. for US$2.1 billion. Read what is in the deal for shareholders of both companies.
MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) stock rose more than 7% on Monday after it announced it has entered into a definitive agreement to be acquired by Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) for US$2.1 billion.
The company had just announced its second dividend, now shareholders woke up to a deal representing US$20.54 per MAG share, based on the closing price of Pan American's common shares on the NYSE on Friday. The deal is made up of a mix of cash totaling US$500 million and 0.755 Pan American shares per MAG share.
MAG said it represents an about 21% and 27% premium, respectively, on a prorated basis to the closing price and the 20-day volume weighted average price of MAG's common shares on the NYSE American.
After the transaction, MAG said its existing shareholders will own about 14% of Pan American shares on a fully diluted basis.
"This transaction represents a compelling opportunity for our shareholders, providing an immediate premium and meaningful exposure to Pan American's world-class assets and proven growth strategy," said MAG President and Chief Executive Officer George Paspalas. "We are proud of what we've accomplished at MAG, particularly our partnership with Fresnillo which has created extraordinary value at the exceptional Juanicipio mine. Through the acquisition of our interest by Pan American a respected leader in the global precious metals industry our shareholders will participate in an exciting future defined by operational excellence, substantial exploration potential, and strong financial stewardship with significant portfolio exposure."
Pan American President and CEO Michael Steinmann said the acquisition brings "one of the best silver mines in the world" into Pan American's portfolio. Juanicipio is a joint venture between MAG and Fresnillo Plc, with MAG owning 44%.
"Juanicipio is a large-scale, high-grade, low-cost silver mine that will meaningfully increase Pan American's exposure to high-margin silver ounces," Steinmann said. "Furthermore, we see future growth opportunities through the significant exploration potential at Juanicipio as well as MAG's Deer Trail and Larder properties. This strategic acquisition further solidifies Pan American as a leading Americas-focused silver producer."
Steinmann said the companies together bring "many decades of operator experience in Mexico and Latin America to the Joint Venture, and we are looking forward to a collaborative future and value generation for all shareholders involved."
Analyst Joe Reagor of Roth Capital Markets wrote an updated research note on the company Monday, maintaining his Neutral rating on MAG's stock but raising the firm's price target from US$16 to US$18 per share.
"We believe the transaction is likely to receive all necessary approvals and close later this year," Reagor wrote.
'The Scarcity Value of Silver Assets'
According to a report in Investing.com on Monday, Pan American saw its own shares decline by more than 6% on news of the transaction.
"The deal highlights the scarcity value of silver assets," Royal Bank of Canada commented on the broader implications of the deal for the silver industry, according to the report. "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."
Also on Monday, Finimize wrote that the mixed market response "reflects investor enthusiasm for immediate gains while balancing concerns over strategic debt."
Chen Lin of What Is Chen Buying? What Is Chen Selling? noted he had been trading MAG shares back and forth "with great success in the past years.""This move could enrich Pan American's portfolio amid favorable silver demand, promising long-term growth, the site said. "This acquisition points to ongoing consolidation trends in mining, with firms combining forces to enhance exploration. As inflation hedging remains pivotal and renewable technologies grow, silver's importance underlies strategic mergers and acquisitions like this one."
In a conference call with Steinmann and Paspalas after the announcement on Monday, Paspalas said, "The transaction preserves everything we value at MAG: strong assets, a strong team, disciplined growth, responsible stewardship, and it faces and places it within a platform that can scale and grow further in a way that would be difficult to do when achieved independently."
Paspalas said the company was proud of what it had accomplished at Juanicipio.
"We believe this is the right transaction at the right time, and we're excited about the opportunity it represents for our shareholders and team," he said.
Steinmann said the transaction "checks all the boxes of what we were looking for: a large-scale silver mine at the low end of the cost curve with a long reserve life and future exploration upside located within our geographic focus of the Americas."
"Simply stated, Juanicipio is one of the largest-scale and lowest-cost primary silver mines in the world, and a 44% joint venture ownership interest with Fresnillo fits well in Pan American's portfolio," he continued.
Not Many Silver Mines Available for Purchase
Global Analyst Adrian Day said Pan American "needs/wants silver ounces; a majority of its revenues are from gold . . . (and) there not that many silver mines available for purchase."
"This is a decent (but not great) deal for PAAS," Day said. "I think it is an indication that the majors are looking for more ounces, in production or at least near term, and will pay up for them. It is also a positive for the Mexican mining sector, which has been a bit of a pariah in recent years."
Global Analyst Adrian Day said Pan American "needs/wants silver ounces; a majority of its revenues are from gold . . . (and) there not that many silver mines available for purchase."Chen Lin of What Is Chen Buying? What Is Chen Selling? noted he had been trading MAG shares back and forth "with great success in the past years."
He said he was surprised and thought Fresnillo would be the most likely major to purchase MAG.
"Maybe there's a remote chance FRES would join the party?" Chen asked. "I do believe the M&A will continue. I am very focused on newly built high-margin mines."
Reagor with Roth noted that he believed there was still a chance for Fresnillo to make an offer, as well.
"While we believe the transaction is likely to close, we note there remains potential for Fresnillo to make a competing bid," Reagor wrote. "At this time, FRES has not agreed to a standstill but has also been supportive verbally and by allowing PAAS to conduct a site visit. We believe there remains potential for FRES to make a higher offer if they choose to do so."
Two Dividends, Strong Cashflow
Earlier this month, MAG announced its second dividend for shareholders, a fixed dividend of US0.02 per share and an additional cashflow-linked dividend of US$0.18 per share for total of US$0.20 per share payable on May 28.
The company announced its inaugural dividend totaling of US$0.18 per share earlier this year and its first quarter financial results and production totals from Juanicipio.
The company reported a record net income of US$28.7 million (or US$0.28 per share) and adjusted EBITDA of US$55.8 million, driven by income from Juanicipio (equity accounted) of US$33.9 million and MAG's attributable interest in Juanicipio adjusted EBITDA of US$59.5 million.
During April 2025, Juanicipio returned a total of US$61.5 to MAG: US$59.4 million as its second dividend, and US$2.1 million in interest and loan principal repayments. All loan balances to Juanicipio have now been fully repaid, MAG said.
The inaugural dividend payment was made to shareholders on April 21 before the company decided on the second one payable on May 28.
A total of 337,017 tonnes of ore at a silver head grade of 430 grams per tonne (g/t) (equivalent silver head grade of 660 g/t) was processed at Juanicipio during the quarter. Record silver recovery of 96%, up from 89% in Q1 2024, was also reported, reflecting the commencement of commercial pyrite and gravimetric concentrate production during Q2 2024 as well as the benefit from ongoing optimizations in the processing plant.
MAG said Juanicipio achieved silver production and equivalent silver production of 4.5 and 6.5 million ounces (Moz), respectively.
Juanicipio generated strong operating cashflow and free cashflow of US$86.4 million and US$77.4 million, respectively. It also continued to maintain its strong cost performance with an all-in sustaining cost of US$2.04 per silver ounce sold (US$10.64 per equivalent silver ounce sold).
The Catalyst: Volatile Market Still to See Increased Demand
According to Christopher Lewis writing for FX Empire on Friday, the silver market continues to see "a lot of back and forth."
"Silver is highly susceptible to pressures from external sources, and as a result, (it tends) to be very volatile," Lewis wrote.
"At this point in time, I just don't see any momentum one way or the other," Lewis said. "So, I think we will stay in this US$2 range for the time being and rangebound traders will love this market. Traders who go back and forth on short-term charts have been cleaning up in the silver market. And I think that more likely than not will remain the same until we get some type of movement on tariffs or negotiations."
Lewis suggested caution as "volatility is most certainly a major problem with markets at the moment, and silver is almost always one of the more volatile ones."
But the material's industrial utility means there will still be a deficit for silver, which is the best conductor of electricity among the metals.
Streetwise Ownership Overview*
MAG Silver Corp. (MAG:TSX; MAG:NYSE American)
*Share Structureas of 11/30/2023Source: MAG Silver Corp."Underpinning silver's fundamentals is robust demand from industrial applications," The Silver Institute said in its World Silver Survey 2024 report. "These continued to push higher last year, reaching a new all-time record, fueled by the remarkable rise in solar demand and in spite of stagnation in some other sectors. Sluggish silver supply, owing to the slight decline in global mine production, was another factor contributing to silver's deficit conditions last year."
Mordor Intelligence noted that silver is expected to register a compound annual growth rate (CAGR) of more than 5% between 2024 and 2029.
Ownership and Share Structure
Institutions own 70% of MAG, and 30% is retail, according to the company.
Top institutional shareholders include Juanicipio operator Fresnillo Plc. with 9%, BlackRock Investment Management (UK) Ltd. with 10.8%, Van Eck Associates Corp. with 9%, First Eagle Investment Management LLC with 6.2%, and Sprott Asset Management LP with 3%, the company said.
MAG Silver has a market cap of US$1.75 billion. It has 103.36 million shares outstanding, according to Reuters. It trades in a 52-week range of US$11.29 and US$18.27.
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Important Disclosures:
MAG Silver Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Pan American Silver Corp.Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.For additional disclosures, please click here.