Mining sector shake-up: First Majestic Silver to acquire Gatos Silver, uniting key Mexican assets

First Majestic Silver Corp. has agreed to acquire Gatos Silver, Inc. in a transformative all-stock transaction valued at approximately $970 million. This acquisition will consolidate three major silver-producing mining districts in Mexico under First Majestic’s management, significantly strengthening its position as a leading intermediate silver producer.

Under the terms of the merger, Gatos Silver shareholders will receive 2.550 common shares of First Majestic for each share they own. This translates to an implied value of $13.49 per Gatos share, representing a 16% premium over recent stock prices and a 20-day volume-weighted average price basis. The deal will result in Gatos shareholders owning about 38% of the combined entity on a fully diluted basis. The acquisition is expected to close in early 2025, subject to regulatory approvals and other customary conditions.

The merger will combine First Majestic’s San Dimas and Santa Elena mines with Gatos Silver’s Cerro Los Gatos mine in the Los Gatos district of Chihuahua, Mexico. The Cerro Los Gatos mine is known for its high-grade silver deposits and is one of the highest-grade silver mines in the industry, with reserves of approximately 96 million ounces of silver. The expanded portfolio will allow First Majestic to produce an estimated 30-32 million ounces of silver-equivalent annually, including 15-16 million ounces of silver, enhancing its production capabilities and cost efficiencies.

The acquisition also creates significant potential for synergies, such as optimizing supply chains, reducing corporate costs, and accelerating exploration programs. The merger aligns well with First Majestic’s long-standing operations in Mexico, where it has operated for over two decades. This familiarity with the local landscape is expected to streamline integration efforts and enhance overall value creation for shareholders.

Following the announcement, Gatos Silver shares surged by 7.5% to $12.49 in pre-market trading, reflecting investor confidence in the acquisition’s strategic merits. Conversely, First Majestic’s stock dipped slightly by 5.1% to $5.02, possibly indicating initial market concerns about the dilution effects of the all-stock transaction.

The acquisition comes amid a bullish outlook for silver prices, which have risen nearly 21% this year due to strong demand from industries like solar energy and electronics. This positive macroeconomic environment is expected to support the newly combined entity’s operations and potential future expansions.

The deal between First Majestic and Gatos Silver is a reflection of broader trends in the mining sector, particularly in Latin America. Increased foreign investment, driven by favorable macroeconomic conditions and political stability in countries like Mexico, Chile, and Brazil, is contributing to a surge in merger and acquisition activity in the region.

As First Majestic integrates Gatos Silver’s assets, the company is well-positioned to leverage its expertise in silver production and community engagement to deliver sustainable growth. The combined entity’s strengthened capital markets profile, coupled with enhanced production capacity and resource base, sets the stage for potentially higher returns for shareholders.

The acquisition of Gatos Silver by First Majestic Silver represents a significant move in the silver mining industry, bringing together substantial assets in Mexico to create a stronger, more diversified silver producer. As the transaction progresses toward completion, the market will closely watch how effectively First Majestic can realize the anticipated synergies and deliver on its promise of enhanced shareholder value.