Pan American Silver is set to double its silver production with the $US1.07-billion acquisition of Tahoe Resources.
Pan American Silver (TSX:PAAS, NASDAQ:PAAS), the second-largest silver producer in the world, is about to significantly increase its white metal holdings following the purchase of Tahoe Resources (TSX:THO, NYSE:TAHO) for US$1.07-billion, which the companies announced in a joint statement on Wednesday (November 14).
Pan American Silver, which has found success with its six mines in Mexico, Peru, Argentina and Bolivia, will become a “world premier silver mining company” when it acquires Tahoe, which owns the recently-troubled Escobal mine in Guatemala, as well as gold mines in Peru and Canada.
“The combination of Pan American and Tahoe will establish the world’s premier silver mining company with an industry-leading portfolio of assets, superior growth opportunities and attractive operating margins,” stated Michael Steinmann, president and CEO of Pan American Silver.
In the third quarter, Pan American produced 6.3 million ounces of silver while Tahoe was unable to produce silver due to the suspension of operations at its Escobal mine. That said, Tahoe achieved 21-million ounces of silver output in its most recent four quarters of undisturbed production.
As per the agreement, Tahoe shareholders may elect to receive US$3.40 in cash or 0.2403 Pan American shares for each Tahoe share. Each case will be subject to pro-ration based on a maximum cash consideration of US$275-million and a maximum number of Pan American shares issued of 56 million, totalling US$1.067-million.
The base purchase price represents a premium of 34.9 percent to Tahoe’s volume-weighted average price (VWAP) for the 20-day period ended on November 13.
Additionally, Tahoe shareholders will receive contingent consideration in the form of contingent value rights (CVRs), that will be exchanged for 0.0497 Pan American shares for each Tahoe share, currently valued at US$221-million.
The contingent will be payable upon first commercial shipment of concentrate following restart of operations at the Escobal mine.
Upon closing, existing Pan American and Tahoe shareholders will own approximately 73 percent and 27 percent of Pan American, respectively. Upon satisfaction of the payment conditions under the terms of the CVR, Pan American and Tahoe shareholders will own roughly 68 percent and 32 percent respectively of the merged company.
Each of Tahoe’s directors and senior officers support Tahoe’s acquisition by Pan American and will agree to vote their shares in favor of the transaction.
“This transaction allows our shareholders to participate in the creation of the world’s premier silver company with the contribution of the world-class Escobal mine to Pan American’s existing asset base,” said Tahoe chairperson Kevin McArthur.
“In addition to the upfront premium, we will continue to participate in the upside inherent in a restart of Escobal through the CVRs,” he added.
Following the announcement, shares of Pan American were down 12.08 percent and as of 2:41 a.m. EST, the company was trading at C$16.45. Meanwhile, shares of Tahoe spiked substantially and were up 46.21 percent, trading at C$4.24.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.