Pan American Silver Corp., a miner of the metal in Latin America, agreed to buy Minefinders Corp. for about C$1.5 billion ($1.49 billion) in cash and stock to expand production and add reserves in Mexico.
Minefinders investors will get 0.55 of a Pan American share and C$1.84 in cash, or 0.6235 of a share, or C$15.60 in cash, the Vancouver-based companies said today in a joint statement. The C$15.60 per-share proposal represents a 36 percent premium to Minefinders’ Jan. 20 closing price.
Pan American is seeking to increase production amid silver prices that have almost doubled since the end of 2009. The two companies said today they produced about 26 million ounces of silver last year and may top 50 million ounces annually by 2015.
The offer “appears to be a full price in our view,” Steven Green, a Toronto-based analyst at TD Securities Inc., who has a “hold” rating on Minefinders, said in a note to clients. “Arguably being taken over by an experienced mining company makes sense for what has been an underperforming asset.”
Minefinders owns the Dolores gold and silver mine, which it plans to expand, and the La Bolsa project, both in Mexico. Pan American has seven silver mines in Peru, Mexico, Argentina and Bolivia.
“This acquisition is logical and consistent with Pan American’s vision to become the largest, low-cost primary producer of silver in the world,” Pan American Chief Executive Officer Geoff Burns said in the statement.
At C$15.60 a share, the offer represents a 32 percent premium to Minefinders’ 20-day average trading price. That compares with the 19 percent average of eight takeovers of precious-metals companies valued at $100 million or more announced in the past five years, according to data compiled by Bloomberg.
Minefinders directors and management holding 3.5 percent of the company’s shares have entered into voting agreements to support the deal, the companies said in the statement. The transaction requires two-thirds approval in a vote by Minefinders investors and majority approval by Pan American shareholders.
The acquisition gives Pan American “breathing room and cash flow generation,” Adam Graf, a New York-based analyst at Dahlman Rose & Co., said in a note to clients. The deal is seen as “modestly dilutive,” said Graf, who rates Pan American shares a “buy.”
Minefinders rose 22 percent to C$14.06 at the close in Toronto. Pan American fell 10 percent to C$22.40.
Silver futures for March delivery gained 1.9 percent to close at $32.27 an ounce on the Comex, after earlier touching $32.775, the highest since Dec. 8. It’s the best-performing precious metal this year.
Pan American will have a right to match superior offers for Minefinders within five business days, the companies said today.
Pan American was advised by CIBC World Markets and law firms Borden Ladner Gervais LLP and Skadden, Arps, Slate, Meagher & Flom LLP. Scotia Capital provided a fairness opinion to the company’s board of directors. Minefinders’ financial adviser is BMO Capital Markets and its legal advisers are Stikeman Elliott LLP and Dorsey & Whitney LLP.