First Majestic Silver Corp. ("First Majestic")
(TSX:FR) (NYSE:AG) (Frankfurt:FMV)
and Primero Mining Corp.
("Primero") (TSX:P) are pleased to announce that they have
entered into a definitive arrangement agreement (the "Arrangement
Agreement") whereby First Majestic will acquire all of the issued
and outstanding common shares of Primero (the "Arrangement"). Under
the terms of the Arrangement Agreement, all of Primero’s issued and
outstanding common shares will be exchanged for First Majestic
common shares on the basis of 0.03325 of a First Majestic common
share for each Primero common share (the "Exchange Ratio").
Concurrent with execution of the Arrangement
Agreement, First Majestic has entered into agreements with Wheaton
Precious Metals International Ltd., a wholly-owned subsidiary of
Wheaton Precious Metals Corp. ("WPM") whereby, following closing of
the Arrangement, the current silver streaming interest at Primero’s
San Dimas silver-gold mine (“San Dimas”) held by WPM will be
terminated and First Majestic and WPM will enter into a new stream
arrangement based on 25% of the gold equivalent production at San
Dimas (the "New Stream") with ongoing payments of $600 per gold
equivalent ounce delivered under the agreement. As part of the
transaction, WPM will receive 20,914,590 common shares of First
Majestic having an aggregate value of $151 million.
The Exchange Ratio implies consideration of
C$0.30 per Primero common share, based on the 20day volume weighted
average price of the First Majestic common shares on the Toronto
Stock Exchange (“TSX”) for the period ending January 10, 2018,
representing a 200% premium to the weighted average price of
Primero common shares on the TSX over the same period. The total
transaction value is estimated at approximately $320 million,
consisting of First Majestic equity to be issued to Primero
shareholders and WPM described above and certain additional amounts
payable in connection with the Arrangement, including repayment of
all amounts owing under Primero's existing revolving credit
facility, net of Primero cash on hand and the expected repayment of
Primero's $75 million of outstanding convertible debentures and
various transaction expenses.
Primero operates the 100%-owned San Dimas
silver-gold mine in Durango, Mexico, a premier low-cost asset with
more than 100 years of mine production history. Primero has
identified more than 120 epithermal veins with exploration
potential. Together with First Majestic's existing six operating
silver mines in Mexico, the combined company is expected to be a
premier leading Mexican silver producer with pro forma annualized
attributable silver equivalent production of 27-30 million silver
equivalent ounces. With a strong balance sheet and liquidity
profile and a diversified portfolio of seven producing silver mines
in Mexico, the combined company is expected to continue generating
strong free cash flow and industry leading exposure to silver
prices.
BENEFITS TO FIRST MAJESTIC
SHAREHOLDERS
- Establishes a cornerstone long-lived mine in Durango, Mexico,
with well-established, low-cost operations complementary to First
Majestic’s existing operations.
- Builds on First Majestic's strengths in Mexico and underground
mining expertise.
- Accretive on all key metrics including NAV, cash flow,
production, and resources to First Majestic shareholders, further
diversifying production and free cash flow to First Majestic.
- The amendment to the existing WPM stream agreement provides for
a number of value creation opportunities with alignment between
silver and gold production and increased post-stream cash flow at
San Dimas.
BENEFITS TO PRIMERO
SHAREHOLDERS
- Provides a comprehensive solution for Primero's capital
structure and delivers a significant and immediate up-front premium
to Primero shareholders.
- Provides equity participation in a pro forma company with a
strong balance sheet and diversified portfolio of seven operating
mines with strong internal growth profile.
- Superior financial strength and flexibility to support
advancement of various development projects and silver production
growth.
- Enhances capital markets presence, increased analyst coverage
and trading liquidity through equity participation in First
Majestic.
- Ability to leverage First Majestic's long-term good standing
with the local unions, community and Mexico's tax authority.
Keith Neumeyer, CEO of First Majestic, said,
"The acquisition of Primero is a highly compelling transformative
transaction that further enhances First Majestic's operating
platform, adding a very high quality, long-lived asset in San
Dimas, all in First Majestic's backyard in Durango, Mexico. Most
importantly, the New Stream and related amendments with WPM
repositions the asset by maximizing silver exposure for our
shareholders, while significantly increasing the free cash flow
from San Dimas. We look forward to working with the operating team
at San Dimas and with WPM. We also welcome WPM as a significant
business partner and shareholder in First Majestic going
forward."
Joseph Conway, Interim President and CEO of
Primero, stated, "Over the last year Primero has conducted a formal
strategic review process and evaluated numerous strategic
alternatives to address our debt maturity obligations. We are
pleased with the business combination with First Majestic as it
provides our shareholders an attractive immediate premium as well
as the opportunity to retain exposure to the high quality,
long-lived San Dimas asset that they invested in, with a
significantly reduced stream. This transaction also provides our
shareholders with exposure to First Majestic’s enhanced capital
markets presence, liquidity and balance sheet, as well as
leveraging their local Mexican expertise and history of operations.
I want to thank the San Dimas operating team for their dedication
and wish them well in their future with First Majestic, we believe
together they have the opportunity to generate significant value
for our shareholders."
Randy Smallwood, President and CEO of WPM, said,
"With the New Stream being linked to a combination of gold and
silver production, we believe San Dimas will continue to deliver
significant value to WPM for many years to come while also
providing economic and social opportunities to the community of
Tayoltita. First Majestic has a long history of operating in Mexico
and an expertise in mining narrow vein underground deposits similar
to San Dimas. Given their experience and renewed focus on mining
the entire deposit, including the silver rich areas, we are excited
to welcome First Majestic as a partner."
BOARD OF DIRECTORS'
RECOMMENDATION
The Arrangement Agreement has been unanimously
approved by the board of directors of each of First Majestic and
Primero. The Primero board of directors recommends that Primero
shareholders vote in favour of the Arrangement. Rothschild (Canada)
Inc. has provided an opinion to the board of directors of Primero,
stating, as of the date of the opinion and based upon and subject
to the assumptions, limitations, and qualifications set forth
therein, the Exchange Ratio to be received by the holders of
Primero common shares pursuant to the Arrangement is fair, from a
financial point of view, to such holders.
All executive officers and directors of Primero
have entered into lockup agreements and have agreed to vote their
Primero securities in favour of the Arrangement and, if applicable,
the debentureholder resolution approving amendments to the
debenture indenture (as discussed below).
TRANSACTION SUMMARY
Under the terms of the Arrangement Agreement,
Primero shareholders will receive 0.03325 common shares of First
Majestic for each Primero common share held as of the effective
date of the Arrangement. Pursuant to the transaction, First
Majestic will issue an aggregate of approximately 6,418,774 common
shares to Primero shareholders. Upon completion of the Arrangement
and the restructuring of the New Stream, WPM and current Primero
shareholders will own approximately 11% and 3%, respectively, of
the issued and outstanding common shares of First Majestic.
The Arrangement will be effected by way of a
plan of arrangement under the Business Corporations Act (British
Columbia). The Arrangement will require approval by
66 2/3 percent of the votes cast at a special meeting of
Primero shareholders and any additional shareholder approvals which
may be required under Multilateral Instrument 61-101 - Protection
of Minority Security Holders in Special Transactions. In addition
to shareholder and court approvals, the Arrangement is subject to
applicable regulatory approvals (including Mexican anti-trust
clearance) and the satisfaction of certain other closing conditions
customary in transactions of this nature.
The Arrangement will also provide for the
issuance by First Majestic of an aggregate of approximately 226,476
replacement stock options (the "Replacement Options") (assuming no
exercise of existing Primero options) to Primero optionholders who
do not exercise their Primero options prior to the effective time
of the Arrangement, at exercise prices adjusted by the Exchange
Ratio. Under the Arrangement all existing warrants of Primero will
become exercisable to acquire First Majestic common shares at
exercise prices adjusted by the Exchange Ratio. The Arrangement
will also provide that upon the Arrangement becoming effective all
existing deferred share units and phantom share units of Primero
will be paid out in cash in an amount equal to C$0.30 per deferred
share unit or phantom share unit.
Holders of Primero’s $75 million 2020
convertible debentures (the "Debentures") will be asked to approve
an amendment to the terms of their governing indenture pursuant to
which the maturity date of the Debentures will be accelerated to
the next business day following the effective date of the
Arrangement and the Debentures will then be paid in full in
accordance with the terms of the indenture. The debentureholder
amendment will require approval by debentureholders holding 2/3 of
the outstanding principal amount of the Debentures at a special
meeting of Primero debentureholders which will be held immediately
after the Primero shareholder meeting. Approval by the
debentureholders is not a condition to closing of the Arrangement.
If the approval of the debentureholders is not obtained, then under
the terms of the indenture, First Majestic will be required to
assume the obligations of Primero under the indenture and will be
required to offer to repurchase all of the Debentures following
closing of the Arrangement.
The Arrangement Agreement includes customary
provisions including non-solicitation of alternative transactions,
right to match superior proposals and fiduciary-out provisions. In
addition, Primero has agreed to pay a termination fee to First
Majestic of $10 million upon the occurrence of certain events.
First Majestic and Primero have each agreed to pay a C$2 million
expense reimbursement fee to the other party as reimbursement for
certain expenses upon termination of the Arrangement Agreement due
to the occurrence of certain other events.
Over the last number of months, Primero and
First Majestic have held high level discussions with Mexico’s tax
authority, the Servicio de Administracion Tributaria ("SAT"), in an
effort to find a favourable resolution to the SAT litigation and
the tax situation related to San Dimas’s silver production for the
years 2010 to 2014. First Majestic and Primero are continuing to
advance discussions with SAT although there can be no certainty on
the timing or outcome of such discussions.
SAN DIMAS STREAM
RESTRUCTURING
In connection with the Arrangement, First
Majestic and WPM have entered into agreements concurrent with
execution of the Arrangement Agreement whereby, following closing
of the Arrangement, the current silver streaming interest at San
Dimas held by WPM will be terminated in exchange for entering into
the New Stream and 20,914,590 common shares of First Majestic
having an aggregate value of $151 million. Under the New Stream,
WPM will be entitled to receive 25% of the gold production and 25%
of the silver production converted to gold at a fixed exchange
ratio of 70:1 at San Dimas in exchange for ongoing payments equal
to the lesser of $600 subject to a 1% annual inflation adjustment
and the prevailing market price for each gold ounce delivered under
the agreement.
The New Stream will provide for a significant
reduction in the amount of payable metal compared to the current
stream which is expected to allow for greater free cash flow
generation at San Dimas. By basing the New Stream on gold
equivalent production at San Dimas, the New Stream is expected to
maximize First Majestic's exposure to silver. First Majestic and
WPM have agreed to fix the gold to silver ratio that will be used
to calculate the gold equivalent production at 70:1, with
provisions to adjust the gold to silver ratio if the average gold
to silver ratio moves above or below 90:1 or 50:1, respectively,
for a period of 6 months.
In exchange for agreeing to terminate the
existing stream on San Dimas, First Majestic will issue 20,914,590
common shares of First Majestic to WPM with an aggregate value of
$151 million based on the 20-day volume weighted average price of
the First Majestic common shares on the TSX for the period ending
January 10, 2018. The common shares to be issued to WPM will be
subject to a 6 month hold period (subject to certain exceptions),
with volume selling restrictions thereafter.
TRANSACTION FINANCING
The proposed repayment of the Debentures,
amounts outstanding under Primero's existing revolving credit
facility and other costs related to the closing of the Arrangement,
totaling approximately $120 million will be funded with a
combination of:
- First Majestic's current cash on hand ($118 million as of
December 31, 2017);
- $150 million in new credit facilities committed by Scotiabank
which will replace First Majestic's existing credit facility;
plus
- Cash on hand at Primero.
TIMING
Full details of the proposed transaction will be
included in Primero's proxy statement and information circular,
which is expected to be mailed to shareholders in mid to late
February 2018. It is anticipated that the Primero shareholder and
debentureholder meetings and closing of the proposed transactions
will take place in mid to late March 2018.
In order to facilitate the closing of the
Arrangement, WPM has agreed to extend the guarantee previously
provided by WPM and certain of its subsidiaries under Primero’s
existing revolving credit facility to April 30, 2018.
ADVISORS AND COUNSEL
TD Securities Inc. acted as exclusive financial
advisor and McCullough O'Connor Irwin LLP and Dorsey and Whitney
LLP acted as legal counsel to First Majestic.
Scotia Capital Inc. and Rothschild (Canada) Inc.
acted as financial advisors to Primero. Stikeman Elliott LLP and
Millbank, Tweed, Hadley and McCloy LLP acted as Primero's legal
advisors.
CONFERENCE CALL
First Majestic will be holding a conference call
and webcast on Friday, January 12, 2018 at 8 am PDT
(11 am EDT).
To participate in the conference call, please
dial the following:
Toll Free Canada & USA: |
1-800-319-4610
|
Outside of Canada & USA: |
1-604-638-5430 |
Toll Free Germany: |
0800 180 1954 |
Toll Free UK: |
0808 101 2791 |
Participants should dial in 10 minutes prior to the
conference.
Click on WEBCAST on the First Majestic homepage
as a simultaneous audio webcast of the conference call
at www.firstmajestic.com.
The conference call will be recorded and you can
listen to an archive of the conference by calling:
Toll Free Canada & USA: |
1-800-319-6413 |
Outside of Canada & USA: |
1-604-638-9010 |
Access Code: |
1991 followed by the # sign |
An archived webcast of the conference call will also be
available at www.firstmajestic.com.
ABOUT FIRST MAJESTIC
First Majestic is a mining company focused on
growing primary silver production in Mexico and is aggressively
pursuing the development of its existing mineral property assets.
First Majestic presently owns and operates six producing silver
mines; the La Parrilla Silver Mine, the San Martin Silver Mine, the
La Encantada Silver Mine, the La Guitarra Silver Mine, Del Toro
Silver Mine and the Santa Elena Silver/Gold Mine. Production from
these six mines is projected to be between 10.0 to 10.6 million
ounces of pure silver or 15.7 to 16.6 million ounces of silver
equivalents for 2017.
For further information, contact
info@firstmajestic.com, visit our website at www.firstmajestic.com
or Investor Relations at 1.866.529.2807.
ABOUT PRIMERO
Primero Mining Corp. is a Canadian-based
precious metals producer that owns 100% of the San Dimas
silver-gold mine in Mexico.
For further information, contact Investor
Relations at 1.416.814.3160.
SPECIAL NOTE REGARDING FORWARD LOOKING
STATEMENTS
This news release includes certain
"Forward‐Looking Statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and
“forward‐looking information” under applicable Canadian securities
laws. When used in this news release, the words "anticipate",
"believe", "estimate", "expect", "target", "plan", "forecast",
"may", “would”, “could”, "schedule" and similar words or
expressions, identify forward‐looking statements or information.
These forward‐looking statements or information relate to, among
other things: closing of the Arrangement; termination of the
current stream and adoption of the New Stream; anticipated benefits
of the Arrangement to First Majestic, Primero and their respective
shareholders; the timing and receipt of required shareholder,
court, stock exchange and regulatory approvals for the Arrangement;
the ability of First Majestic and Primero to satisfy the other
conditions to, and to complete, the Arrangement; the timing and
receipt of debentureholder approval, the anticipated timing of the
mailing of Primero’s proxy statements and information circular
regarding the Arrangement; the development of San Dimas; future
mineral production; liquidity, enhanced value and capital markets
profile of First Majestic; future growth potential for First
Majestic, Primero and their respective businesses; estimates
regarding future production and future profitability; estimates of
production costs; and completion of financing.
In respect of the forward‐looking statements and
forward-looking information concerning the anticipated completion
of the proposed Arrangement and the anticipated timing for
completion of the Arrangement, the parties have provided such
statements in reliance on certain assumptions that they believe are
reasonable at this time, including assumptions as to the time
required to prepare and mail shareholder meeting materials,
including the required information circular and proxy statement;
the ability of the parties to receive, in a timely manner, the
necessary shareholder, court, stock exchange and regulatory
approvals; the timing and receipt of Debentureholder approval and
the ability of the parties to satisfy, in a timely manner, the
other conditions to the closing of the Arrangement. These dates may
change for a number of reasons, including, but not limited to,
unforeseen delays in preparing meeting materials; inability to
secure necessary shareholder, court, stock exchange and regulatory
approvals in the time assumed or the need for additional time to
satisfy the other conditions to the completion of the Arrangement.
Accordingly, readers should not place undue reliance on the
forward‐looking statements and forward-looking information
contained in this news release concerning these times and
dates.
Forward‐looking statements and forward‐looking
information relating to any future mineral production, liquidity,
enhanced value and capital markets profile of First Majestic,
future growth potential for First Majestic, Primero and their
respective businesses, future mine development plans, estimates
regarding the life of and recovery of minerals at San
Dimas and estimates of production costs is based on management
of the applicable parties’ reasonable assumptions, estimates,
expectations, analyses and opinions, which are based on such
management’s experience and perception of trends, current
conditions and expected developments, and other factors that the
applicable parties’ management believes are relevant and reasonable
in the circumstances, but which may prove to be incorrect.
Assumptions have been made regarding, among other things, the price
of silver, gold and other metals; costs of development and
production; termination of the current stream and adoption of the
New Stream; estimated production rates for silver and other metals
produced by the parties; the estimated costs of development of
development projects; First Majestic and/or Primero’s ability to
operate in a safe and effective manner and their ability to obtain
financing on reasonable terms.
These statements reflect the parties’ respective
current views with respect to future events and are necessarily
based upon a number of other assumptions and estimates that, while
considered reasonable by the respective parties, are inherently
subject to significant business, economic, competitive, political
and social uncertainties and contingencies. Many factors, both
known and unknown, could cause actual results, performance or
achievements to be materially different from the results,
performance or achievements that are or may be expressed or implied
by such forward‐looking statements or forward-looking information
and the parties have made assumptions and estimates based on or
related to many of these factors. Such factors include, without
limitation: satisfaction or waiver of all applicable conditions to
closing of the Arrangement including, without limitation, receipt
of all necessary shareholder, court, stock exchange and regulatory
approvals or consents and lack of material changes with respect to
First Majestic and Primero and their respective businesses, all as
more particularly set forth in the Arrangement Agreement; the
synergies expected from the Arrangement not being realized;
business integration risks; fluctuations in general macro‐economic
conditions; fluctuations in securities markets and the market price
of First Majestic’s common shares; and the factors identified under
the caption "Risk Factors" in First Majestic’s annual information
form and under the caption "Risk Factors" in Primero’s annual
information form. In addition, the failure of a party to comply
with the terms of the Arrangement Agreement may result in that
party being required to pay a fee to the other party, the result of
which could have a material adverse effect on the paying party’s
financial position and results of operations and its ability to
fund growth prospects and current operations. Readers are cautioned
against attributing undue certainty to forward‐looking statements
or forward-looking information. Although the parties have attempted
to identify important factors that could cause actual results to
differ materially, there may be other factors that cause results
not to be anticipated, estimated or intended. The parties do not
intend, and do not assume any obligation, to update these
forward‐looking statements or forward-looking information to
reflect changes in assumptions or changes in circumstances or any
other events affecting such statements or information, other than
as required by applicable law.