TORONTO (miningweekly.com) – Minefinders Corporation, which rose 22% on the TSX on Monday after agreeing to a $1.5-billion friendly bid from Pan American Silver, will not likely see an interloper emerging, Salman Partners analyst David West said on Monday.

The companies struck the friendly deal after around one year of talks, said Pan American CEO Geoff Burns, calling it a “prudent derisking transaction”.

The buyer is offering Minefinders shareholders the choice of either 0.55 shares in Pan American and $1.84 in cash, 0.6235 shares, or $15.60 in cash for each share held.

The cash option represented a 35% premium to Minefinders’ closing share price on Friday, and speaking on a conference call, CEO Mark Bailey called the proposed deal “a win-win and a good fit”.

West said Minefinders would not likely find another company coming in with a higher offer, as it did not offer enough growth to attract a higher premium.

“I don’t think that there will be anybody else coming in here,” he said in a telephone interview.

Minefinders, based in Vancouver, has the Delores silver mine in Mexico as its flagship asset, and this does not offer much growth beyond the planned construction of a mill to boost recoveries, commented West, saying that Pan American was simply buying “straight production”.

An analyst, who asked to remain anonymous because he had not yet sent out research to clients, said “on a per ounce basis it [the bid] looks to be a little bit on the high side”, but that there were “many working gears to this transaction”.

For example, he pointed out that before the deal was announced, Minefinders’ share price had been trading significantly below the C$18.33 year-high it hit in September.

“So a mining company is paying a high premium and still getting it at discount to last year’s highs,” the analyst said.

Because a portion of the offer is in shares, it is important to note that Pan American’s share price has also shrunk by nearly half since its April highs.

Also speaking on a conference call, Burns said the combined company would have a market capitalisation of around $4-billion, and would double output to over 50-million ounces by 2015.

It would also establish Pan American as the largest primary silver mining company in the world, with eight operating mines, he noted.

Minefinders’ Dolores mine in Mexico, which produced 74 193 oz of gold and 3.57-million ounces of silver last year, gave the buyer greater diversification away from high-risk jurisdictions such as Bolivia and Argentina, where cost inflation is rampant.

Pan American already operates the Alamo Dorado and the La Colorado mines in Mexico.

The deal requires 66% of Minefinders shareholders to vote in favour at a meeting likely to take place in March, and simply a majority of Pan American shareholders to give it the thumbs up.

The firms agreed to a $42-million reciprocated termination fee, and Pan American has five days to match any competing bid.

Burns said Pan American might dispose of some of Minefinders’ assets which would be noncore, such as the La Bolsa in Mexico, near the US border.

“It is interesting, but looks a bit small for the combined company,” he said.

Minefinders gained 22% on Monday to close at C$14.06, while Pan American lost more than 10% to end the day at C$22.40.
 

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