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First Majestic Agrees To Buy Primero, Restructures Stream With Wheaton

Kitco News

(Kitco News) - First Majestic Silver Corp. (TSX: FR; NYSE: AG) has agreed to acquire Primero Mining Corp. (TSX: P) in an all-stock deal, the companies announced Friday.

With the addition of Primero’s San Dimas silver-gold mine in Mexico, First Majestic said it anticipates company annualized silver-equivalent production of 27 million to 30 million ounces. First Majestic already operates six mines in Mexico.

Meanwhile, a concurrent deal with a subsidiary of Wheaton Precious Metals Corp. (TSX: WPM; NYSE: WPM) calls for the current silver-streaming interest at San Dimas mine to be terminated and be replaced by a new arrangement. Also, First Majestic will issue 20.9 million of its shares, valued at $151 million, to Wheaton.

Under the friendly takeover deal, each Primero share would be exchanged for 0.03325 of a First Majestic share. This implies a price of 30 Canadian cents per Primero share. Based on the 20-day volume-weighted average price of First Majestic shares on the Toronto Stock Exchange for the period ending Wednesday, this represents a 200% premium. Officials reported that the board of directors for each company unanimously favored the deal.

First Majestic estimated the value of the transaction at $320 million, when factoring in equity to be issued to Primero shareholders and Wheaton Precious Metals, as well as certain other factors, including repayment of loans under Primero's revolving credit facility and expected repayment of Primero's $75 million of convertible debentures.

First Majestic described the San Dimas silver-gold mine as a low-cost asset with more than 100 years of production. Primero has identified more than 120 epithermal veins with exploration potential.

"The acquisition of Primero is a highly compelling transformative transaction that further enhances First Majestic's operating platform, adding a very high-quality, long-lived asset in San Dimas, all in First Majestic's backyard in Durango, Mexico,” said Keith Neumeyer, chief executive officer of First Majestic. “Most importantly, the new stream and related amendments with WPM repositions the asset by maximizing silver exposure for our shareholders, while significantly increasing the free cash flow from San Dimas.”

Under the new streaming agreement, Wheaton Precious Metals will receive 25% of the gold production and 25% of the silver production at San Dimas converted to gold at a fixed exchange ratio of 70:1, in exchange for ongoing payments equal to the lesser of $600 subject to a 1% annual inflation adjustment and the prevailing market price for each gold ounce delivered. First Majestic said the deal means less payable metal than under the current stream, allowing it more free cash flow from San Dimas.

Randy Smallwood, president and chief executive officer of Wheaton Precious Metals, said the new streaming deal means “San Dimas will continue to deliver significant value to WPM for many years to come.”

The silver stream on San Dimas averaged 10% of Wheaton's historical production over the past three years at approximately 5.4 million silver ounces per year, the company said. Under the new deal with First Majestic, San Dimas is expected to contribute on average some 40,000 to 45,000 ounces of gold production to Wheaton over the next five years. Wheaton said it will update its five-year average annual guidance for both silver and gold when it releases its next quarterly earnings report.

Primero and First Majestic have held talks with Mexican authorities in an effort to resolve a tax dispute involving San Dimas’s silver production for the years 2010 to 2014, First Majestic said. These discussions will continue, although with no certainty on the timing or outcome.

Details about the proposed transaction will be included in a Primero proxy statement and information circular, which is expected to be mailed to shareholders in February, the companies said. Officials anticipate that Primero shareholder and debentureholder meetings on the issue will take place in March, and if the deal is approved, the transaction will close by the end of that month.

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