Pan American Silver in US$1B deal to acquire Tahoe

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Escobal Mine in Guatemala. Source: Tahoe Resources Inc.

Pan American Silver Corp. [PAAS-TSX, NASDAQ] said Wednesday November 14 that it has agreed to acquire Tahoe Resources Inc. [THO-TSX, NYSE] in a US$1 billion transaction that will create the world’s largest premier silver mining company.

Under the agreement, shareholders of Tahoe can elect to receive US$3.40 in cash or 0.2403 Pan American common shares for each share of Tahoe. The option in each case is subject to pro-ration based on a maximum cash consideration of US$275 million, and a maximum number of Pan American shares issued of 56 million, totaling US$1.067 billion.

The base purchase price represents a premium of 34.9% to Tahoe’s volume weighted average price. On the TSX Wednesday, Tahoe shares gained 45.52% or $1.32 to $4.22 on volume of 4.17 million. The shares trade in a 52-week range of $7.27 and $2.88.

Tahoe is an Americas-focused precious metals company. It operates the Escobal Mine in Guatemala, the La Arena and Shahiundo gold mines in Peru and the Timmins West and Bell Creek gold mines in Canada.

It has a 100% interest in the Escobal gold mine, which is located in 30 km southeast of Guatemala City.

Tahoe snapped up the La Arena and Shahiundo gold mines three years ago by acquiring Rio Alto Mining in a cash-and-share deal worth US$1.12 billion. At the time of the deal, Tahoe already controlled the Escobal silver mine.

Pan American owns and operates six mines in Mexico, Peru, Argentina and Bolivia. The Peruvian operations include the Huaron and Morococha mines and an exploration stage gold property know as Pico Machay.  Huaron is a 2,300 tonne-per-day underground polymetallic silver mine located in the province of Pasco in the Central Highlands of Peru.

On Wednesday, Pan American shares eased 13.7% or $2.56 to $16.15. The shares trade in a 52-week range of $24.22 and $16.05.

Under the agreement, Tahoe shareholders will receive contingent consideration in the form of contingent value rights (CVR) that will be exchanged for 0.0497 Pan American Silver shares for each Tahoe share, currently valued at US$221 million and payable following the first commercial shipment of concentrate after restart at the Escobal Mine. The CVRs will be transferable and have a term of 10 years.  The total consideration, including the base purchase price and contingent purchase price is US$4.10 per share, representing a premium of 62.8% to Tahoe’s 20-day volume weighted average share price.

Published reports say the CVRs are included because Escobal is a key Tahoe asset and it is still in the middle of a supervised indigenous consultation process where it could be another year before the mine actually restarts.

At closing, Pan American and Tahoe shareholders will own approximately 73% and 27% of the combined company respectively. Once the payment conditions of the CVR have been executed, Pan American and Tahoe shareholders will own 68% and 32% respectively of the combined company.

Highlights of the deal include a robust growth profile following the restart of the Escobal silver mine after the completion of the consultation process and community engagement. Pan American said Escobal is a well built, turn-key operation with minimal capital outlay and development risk.

The mine produced 21 million ounces of silver at an all-in-sustaining cost of US$8.63 per ounce during its last four quarters of undisturbed production.


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Filed in: Resources, Silver

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