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Pan American Agrees To Acquire Tahoe Resources For $1.07 Billion

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(Kitco News) - Pan American Silver Corp. (Nasdaq, TSX: PAAS), the world’s second-largest primary silver producer, will acquire Tahoe Resources Inc. (NYSE: TAHO; TSX: THO) in a $1.07 billion stock-cash deal announced by the two companies Wednesday.

Officials said the merger will create the world’s largest publicly traded silver-mining company and will have the world’s largest silver reserve base and silver measured and indicated resource base.

Under the deal, Tahoe shareholders can elect to receive $3.40 in cash or 0.2403 Pan American shares for each Tahoe share, subject to a pro-ration based on a maximum cash total of $275 million and a maximum number of Pan American shares issued of 56 million, the companies said. The $1.07 billion purchase price represents a premium of 34.9% to Tahoe’s volume-weighted average price for the 20-day period ending on Tuesday.

In addition, the companies announced a contingency in which Tahoe shareholders would also receive 0.0497 Pan American shares for each Tahoe share, which would be valued at a total of $221 million, after the first commercial shipment of concentrate following a restart of operations at Tahoe’s giant Escobal silver mine in Guatemala. With this contingency, Tahoe shareholders would be receiving $4.10 per share, which would be a 62.8% premium to the 20-day volume-weighted average price as of Tuesday, the companies said.

Guatemala’s Supreme Court shut down the mine last year over a dispute on whether the Ministry of Energy and Mines properly consulted surrounding indigenous communities on the project. The Constitutional Court has provided a resolution for a process that can lead to a restart of the mine, although there is no timeline.

Tahoe reported no silver production in the third quarter due to the shutdown of the mine, while consolidated gold output elsewhere was 91,000 ounces. The Escobal mine produced 21 million ounces of silver at all-in sustaining costs of $8.63 during its last four quarters of undisturbed production, Tahoe said.

During the third quarter, Pan American listed silver production of 6.3 million ounces and gold output of 42,100 ounces. Zinc, lead and copper production were 16,700 tonnes, 5,700 tonnes, and 2,600 tonnes, respectively. The company projects 2018 silver output of 25 million to 26.5 million ounces, with gold output of 175,000 to 185,000 ounces.

“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,” said Michael Steinmann, president and chief executive officer of Pan American Silver. “This transaction doubles our silver reserves and further improves our cost profile.”

Pan American said it has sufficient cash on hand to finance the cash portion of the transaction. The boards of directors for both companies have unanimously approved the merger, which will be subject to a number of conditions, including shareholder approval. Both companies are aiming to have shareholder meetings to consider the deal in January. If approved, the transaction is expected to close in the first quarter.

Pan American and Tahoe shareholders would own 73% and 27% of Pan American. With the contingency after reopening of the Escobal mine, the ownership percentages would be 68% and 32%, respectively.

"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 Kevin McArthur, executive chair of Tahoe Resources.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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