SilverCrest is being bought out – and we’ll get a bigger and better silver miner as a result
10th October 2024 |
You might have seen that SilverCrest (TSX: SIL) shares have jumped higher in recent sessions.
Shares jumped from C$12.59 at the close on Thursday to C$13.81 one day later after the Canadian miner agreed to be acquired by Coeur Mining in an all-share deal valued at US$1.7 billion.
The two companies said on Friday that, through a subsidiary, Coeur will offer 1.6022 of its shares for each SilverCrest common share, implying a consideration of US$11.34 apiece.
The offer represents a premium of 18% over the 20-day volume-weighted average prices of both companies as at Thursday’s closing levels, and a 22% premium to SilverCrest’s closing price on that day on the NYSE American (where the company also lists its shares).
Once the transaction is complete, SilverCrest shareholders will own about 37% of the combined company, and Coeur shareholders will hold the other 63%.
Coeur operates in Mexico, Nevada, Alaska and South Dakota, while the Las Chispas mine in Sonora, Mexico, is SilverCrest’s biggest. In fact, Las Chispas is one of the lowest-cost, highest-grade silver operations anywhere. In 2023, the mine’s first full-year of operations, it produced over 10.25 million silver equivalent ounces at a cash cost of $7.73 per ounce.
Certainly, the addition of Silvercrest’s Las Chispas mine is expected to make Coeur a leading global silver miner with 21 million ounces of the metal and 432,000 ounces of gold a year.
The merged company will own five mines in North America, with three of them – Rochester in Nevada; Palmarejo in Mexico’s Chihuahua; and Las Chispas – considered top silver producers.
Why this deal makes sense
This deal makes sense to me, certainly.
After all, as we flagged in the recommendation, Silvercrest had a pipeline problem – in that, as a single-asset company, it didn’t really have one. The current expected mine of Las Chispas is only eight years. Meanwhile, Coeur has a cost problem – they are generally on the high side. With this merger, both these problems are solved.
The cash flow from Las Chispas will certainly allow Coeur to stick to its aggressive exploration over the next two to three years to help get SilverTip, its exploration project in British Columbia, to the project stage.
In short, the merged company will be a monster silver miner, bigger and better than before, and able to thrive as sentiment continues to improve in the sector.
The wider backdrop to the deal is that miners are desperately looking to secure reserves amid surging demand for silver and an increasing supply deficit.
Silver prices have climbed nearly 35% this year, hitting a 12-year high in late September, amid rising demand for the white metal used in industries ranging from solar panels to electronics.
Last month, Canada’s First Majestic (TSX: AG) agreed to acquire Mexico-focused Gatos Silver (NYSE: GATO) for $970 million, marking a major consolidation in the silver mining sector.
For now, there’s not much for us to do.
Both companies’ boards have already unanimously endorsed the deal, urging their shareholders to vote in favour.
The transaction still requires approval from SilverCrest and Coeur shareholders, as well as regulatory authorities, including Mexican antitrust approval. A special meeting is expected by the end of 2024, with the deal anticipated to close in Q1 2025.
Your SilverCrest shares will convert to Coeur shares once the deal closes.
Of course, we’ll continue to monitor developments, and will update accordingly.
Until next time,
James Allen
Co-editor, Southbank Growth Advantage
