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Pan American Silver buys Tahoe Resources

14th November 2018

By: Mariaan Webb

Creamer Media Senior Deputy Editor Online

     

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The world’s second-largest primary silver producer, Pan American Silver, is about to get bigger with the $1.07-billion acquisition of Tahoe Resources, which owns the troubled Escobal silver mine, in Guatemala, in addition to gold mines in Peru and Canada.

Pan American Silver, which operates six mines in Mexico, Peru, Argentina and Bolivia, will effectively double its silver reserves with the acquisition, establishing the business as the “world’s premier silver mining company”, president and CEO Michael Steinmann said on Wednesday.

He added that the company would rely on its 25-year track record of operating mines in Latin America to work with the communities around Escobal to gain their support to enable the restart of the mine.

Escobal mine has effectively been mothballed since last year, after its licence was suspended in a feud with a local community. In its most recent four quarters of undisturbed production, the mine produced 21-million ounces of silver at an all-in sustaining cost of $8.63/oz.

Tahoe’s shares, which have lost more than half of their value since work at the mine was suspended, surged 46% to C$4.25 apiece on Wednesday.

TRANSACTION DETAILS
Pursuant to the arrangement, Tahoe shareholders may elect to receive $3.40 in cash or 0.2403 Pan American shares for each Tahoe share, subject in each case to pro-ration based on a maximum cash consideration of $275-million and a maximum number of Pan American shares issued of 56-million, totalling $1.067-million. The base purchase price represents a premium of 34.9% to Tahoe’s volume-weighted average price (VWAP) for the 20-day period ended on November 13.

In addition, Tahoe shareholders will receive contingent consideration in the form of contingent value rights (CVRs), that will be exchanged for 0.0497 Pan American shares for each Tahoe share, currently valued at $221-million, and payable upon first commercial shipment of concentrate following restart of operations at the Escobal mine.

The total consideration, including the base purchase price and the contingent purchase price, is $4.10 a share, representing a premium of 62.8% to Tahoe’s VWAP for the 20-day period ended on November 13.

At closing, existing Pan American and Tahoe shareholders will own about 73% and 27% of Pan American, respectively. Upon satisfaction of the payment conditions under the terms of the CVR, Pan American and Tahoe shareholders will own about 68% and 32% respectively of the combined company.

Each of Tahoe’s directors and senior officers, who together hold or exercise control or direction of more than 5.3-million common shares of Tahoe, representing about 1.7% of Tahoe’s issued and outstanding common shares, have entered into support agreements with Pan American, agreeing to vote their Tahoe shares in favour of the transaction.

"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. In addition to the upfront premium, we will continue to participate in the upside inherent in a restart of Escobal through the CVRs,” said Tahoe chairperson Kevin McArthur.  

The boards of directors of Pan American and Tahoe have recommended the transaction.

Edited by Creamer Media Reporter

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