Shares of Gatos Silver, Inc. (NYSE: GATO) are gaining significant momentum on the US stock charts following the announcement of a merger agreement. As of the latest check during early morning trading session, GATO stock was trading 6.80% higher at $12.41.
Gatos Inked A Merger Agreement
In accordance with the terms of the definitive merger agreement, Majestic Silver Corp will first buy all of Gatos Silver’s outstanding common shares. Gatos, a well-known silver producer, owns 70% of the Los Gatos Joint Venture, which operates the Cerro Los Gatos underground silver mine in Chihuahua, Mexico.
According to the agreement, a shareholder would get 2.550 common shares of First Majestic for each share of Gatos they owned. Based on First Majestic’s closing price on September 4, 2024, this exchange values Gatos shares at US$13.49, which is 16% more than current closing prices and a volume-weighted average price (VWAP) of 20 days.
GATO Shared Strategic And Financial Implications
The transaction is strategically significant, consolidating three major silver mining districts in Mexico: Cerro Los Gatos, San Dimas, and Santa Elena. This merger will form a diversified, intermediate silver producer with enhanced production capabilities.
The combined entity is expected to produce 30-32 million ounces of silver-equivalent annually, including 15-16 million ounces of pure silver, at an all-in sustaining cost of US$18.00-US$20.00 per silver-equivalent ounce.
Gatos is projected to contribute approximately US$70 million in annual free cash flow, supported by a skilled and experienced management team with a strong track record in Mexico.
Enhanced Market Position And Future Prospects
After the merger, silver will account for more over half of the combined company’s sales, compared to its rivals’ average of about 30%. The newly formed organization will also have authority over a 350,000-hectare land package that has a track record of productive exploration and important economic findings.
The acquisition is expected to result in a stronger company with a robust balance sheet, improved trading liquidity, and a market valuation of about US$3 billion. The combination will boost shareholder value and provide the combined company a greater profile in the capital markets.