The acquisition hunger of First Majestic Silver

Silver mining investor won't have missed the news that First Majestic Silver will acquire Gatos Silver as soon as shareholders will have given their consent. With a 'friendly takeover': agreed by the boards of both miners, there is little doubt that the acquisition will run its course.

The acquisition will be paid for in First Majestic Silver (AG) stocks. As the deal was announced the take-over was valued at USD 970 M or CS 1.31 B. Gatos shareholders will obtain 2.55 AG stocks per Gatos Silver (GATO) stock owned. This offer equates to a total value of $13.49 per common share of Gatos, based on the closing price of First Majestic's common shares on the New York Stock Exchange on 4 September 2024. Once the transaction is finalised, current Gatos shareholders will hold approximately 38% of the fully diluted First Majestic shares.

Synergies

Keith Neumeyer, president and CEO of First Majestic, stated: “The acquisition of Gatos Silver enhances First Majestic's operating platform through the addition of 70% of Cerro Los Gatos – a high quality, long-life, unencumbered, free cash flow-generating asset in the mining-friendly state of Chihuahua, Mexico.”

The deal brings together three top-tier, operational silver mining areas in Mexico: Cerro Los Gatos, San Dimas and Santa Elena. First Majestic says these areas form the basis of a diversified, mid-sized primary silver producer under a single entity.

The project would also enhance First Majestic’s annual production output to 30–32 million ounces (moz) of silver equivalent. This includes 15–16 Moz of silver at all-in-sustaining costs ranging from $18–20 per silver-equivalent ounce.

The deal also adds concessions covering approximately 103,000 hectares of unencumbered land at Cerro Los Gatos, with significant exploration potential supported by a large mineral reserves and resources base.

Interview of First Majestic Silver CEO Keith Neumeyer by Michael Mc Crae of Kitco Mining News on the acquisition of Gatos Silver:

Prior acquisitions

This is not the first take-over operation of First Majestic Silver. A short overview:

The acquisition of SilverMex Resources in July 2012. Prior to its acquisition, SilverMex had merged with Genco Silver, which operated "La Guitarra" silver-gold property located in the Temascaltepec Mining District of Mexico.

Prior to this acquisition, First Majestic Silver had already acquired two Silver Mining development companies, which had grown its silver production potential. (Normabec and the purchase of the Real de Catorce mine and its royalty rights, both in November 2009)

Later on in December 2012, First Majestic Silver acquired Orko Silver. This acquisition added the 'La Preciosa Mine' in the same Mexican Durango staate district where its La Parilla and Del Toro mines were also situated. 

Next followed the acquisition of SilverCrest in October 2015. This acquisition added the Mexican Santa Elena mine to the AG portfolio.

With the acquistion of the remaining Mexican mine of Primero Mining the San Dimas mine was added to the already impressive portfolio of AG (March 2018). Primero had gotten itself too deeply into debt and first sold its profitable Canadian gold mine to Mc Ewen Mining (MUX). It proved impossible to crank up production at San Dimas in a short time frame for Primero Mining. Keith Neumeyer successfully renegociated the streaming deal with Wheaton Precious Metals, which could make the mine profitable.

In April 2021 AG bought the Jeritt Canyon Mine in Nevada US from Sprott Asset Mgt.

Stock price doesn't follow

As is often the case, the stock price of AG doesn't really reflect the growth of the turnover. Moreover, since the silver price has been lagging the rise of the gold price until last few weeks, silver miners had major difficulties catching up with the better of gold producers. Over the long run, there has hardly been any appreciation of the First Majestic Silver stock. In 2007 and 2008 private placements were at $5.00 and $5.35. During several years (2009-2010), the AG stock has been quoting below $5, which again happened in 2014-2015. But we also witnessed surges to above $20 during 2011 and through early 2013 and briefly above $15 in 2016 and 2021.

Whoever bought at the initial offering realized a meager gain just short of 59% over 17 years. Some dividends have been paid, but they were often only symbolic. 

At the AG IPO in 2007, silver quoted between $13 and $14/Oz. In the end you would have been better off just having held the physical metal over 17 years instead of the AG stock. Only having sold the major rallies would have made First Majestic a profitable investment. (Silver) mining investment is not for the faint of heart.