Gatos Silver Inc.

Gatos Silver, Inc. (NYSE/TSX: GATO) was a silver-focused exploration, development and production company built around the discovery of a silver-and-zinc-rich mineral district in southern Chihuahua State, Mexico. Its principal asset was a 70% interest in the Los Gatos Joint Venture (LGJV), operator of the Cerro Los Gatos (CLG) underground mine, with Japan's Dowa Metals & Mining as the 30% joint-venture partner.

Public market history

The company completed its IPO in October 2020 at $7.00 per share. Its early public life was defined less by a smooth ramp-up than by a significant setback. On January 25, 2022, Gatos Silver disclosed that, following reconciliation work at Cerro Los Gatos, it had concluded there were errors in the July 1, 2020 technical report for the Los Gatos Project, along with indications that the existing resource model was overestimated. The company preliminarily estimated a potential reduction of the mine's mineral reserve metal content ranging from 30% to 50% of the metal remaining after depletion.

The market reaction was severe. On the news, Gatos Silver's stock fell roughly 69%, and the disclosure prompted multiple shareholder class-action lawsuits alleging that the IPO registration statement and subsequent statements failed to disclose that the technical report contained errors and that mineral reserves had been overstated by as much as 50%. The company subsequently undertook a full resource and reserve re-estimation, incorporating tens of thousands of additional meters of surface and underground drilling and a revised geological modelling methodology, and worked through the associated restatement and re-listing issues over the following period.

Despite the reserve controversy, the Cerro Los Gatos operation itself continued to perform well through 2022, supported by underground drilling, geological mapping, short-term mine planning and operational execution. Over the following two years the operation established a track record as a cash-flow-generating mine, which set the stage for the eventual takeover.

The First Majestic transaction

On September 5, 2024, First Majestic Silver (TSX:AG,NYSE:AG) and Gatos Silver entered into a definitive merger agreement under which First Majestic would acquire all outstanding common shares of Gatos. The deal terms were:

• Exchange ratio: 2.550 First Majestic common shares for each Gatos share held.
• Implied value: US$13.49 per Gatos share, based on First Majestic's NYSE closing price on September 4, 2024, representing a 16% premium on both closing prices and 20-day VWAP.
• Total implied equity value: approximately US$970 million (about C$1.31 billion).
• Post-close ownership: former Gatos shareholders would hold approximately 38% of the fully diluted combined company.

It was structured as an all-stock transaction, meaning Gatos shareholders became First Majestic shareholders rather than receiving cash. First Majestic framed the acquisition as adding a high-quality, long-life, free-cash-flow-generating asset and welcomed Dowa as its new joint-venture partner. The company positioned the combined entity as a diversified mid-sized primary silver producer bringing together Cerro Los Gatos, San Dimas and Santa Elena.

Completion

On January 14, 2025, both companies received the necessary shareholder approvals, and First Majestic completed the acquisition, with Gatos Silver becoming a wholly-owned subsidiary. Shareholder support was overwhelming — approximately 98.44% of First Majestic votes and 99.23% of Gatos Silver votes were cast in favor. Gatos shareholders received 2.55 First Majestic shares per Gatos share, plus cash in lieu of fractional shares.