Cash, Additional Mine Among the Benefits of First Majestic's SilverCrest Buy

The silver space saw some excitement Monday morning when First Majestic Silver (TSX:FR,NYSE:AG) announced a friendly acquisition of SilverCrest Mines (TSX:SVL). 
According to a press release put out Monday morning, the companies have entered into a definitive agreement under which First Majestic will acquire all of the issued and outstanding common shares of SilverCrest for 0.2769 of a common share of First Majestic plus C$0.0001 in cash per common share of SilverCrest.
That equates to an implied value of C$1.30 per SilverCrest share based on the closing price last Friday for First Majestic’s common shares. It’s also about a 37-percent premium to SilverCrest’s 30-day volume-weighted average price on the TSX for the period ended July 24, 2015. Compared to SilverCrest’s previous closing price, it’s a 35-percent premium.
Commenting positively on the deal, Keith Neumeyer, president and CEO of First Majestic, said that it “provides an excellent opportunity for the shareholders of both First Majestic and SilverCrest. Shareholders stand to gain significant upside in the combined company with production of well over 20 million silver equivalent ounces per year while maintaining one of the lowest production costs and highest purity to silver in the industry.”
So far, market watchers also appear to agree with his assessment. In a note released following the news, Dundee Capital Markets states that the deal is good for both companies, with benefits for First Majestic and its shareholders including:

• A stronger balance sheet: The acquisition of SilverCrest will add about C$30 million in cash to First Majestic’s balance sheet. Dundee estimated previously that the company would need C$20 million by year end “to strengthen its balance sheet while it transitions costs at its current operations towards current metal prices.”

• An additional producing mine: In acquiring SilverCrest, First Majestic will gain the company’s Santa Elena mine. It will be First Majestic’s sixth producing silver mine, and the company sees it adding further growth potential to its Mexican portfolio.

• Higher silver production: According to Dundee, the transaction should increase First Majestic’s 2016 production from 16.8 million silver equivalent ounces to 20.1 million silver equivalent ounces. That’s a jump of 20 percent.

On the SilverCrest side, benefits for shareholders and the company include:

• Spin-off ownership: SilverCrest shareholders will gain shares in a spin-off company, currently dubbed New SilverCrest, as part of the transaction with First Majestic. Specifically, SilverCrest shareholders will receive 0.1667 common shares of the new company, which is to be headed by current SilverCrest COO N. Eric Fier. It will have C$5.25 million in cash and will hold five former SilverCrest exploration project and one former First Majestic exploration project; all of the projects are located in Mexico.

• Increased leverage to silver: SilverCrest shareholders will gain exposure to a “broad portfolio of Mexican assets” through the deal, and because those assets are largely focused on silver, will have higher leverage to silver.

SilverCrest’s board of directors has unanimously approved the transaction, and plans to recommend in writing that shareholders also approve it. Furthermore, SilverCrest’s directors and senior officers have agreed to vote in favor of the deal when a special meeting of SilverCrest shareholders is held to discuss it. Dundee expects that that meeting, and the equivalent meeting of First Majestic shareholders, to be held in late September.
At 3:20 p.m. EST, Silvercrest’s share price was up nearly 15 percent on the TSX, at $1.10; it was up nearly 16 percent, at $0.85, on the NYSE MKT. For its part, First Majestic’s share price was down 12.82 percent, at $4.08, on the TSX and down 12.95 percent, at $3.12, on the NYSE.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.