GATO Gatos Silver Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 5, 2024

GATOS SILVER, INC.

(Exact name of registrant as specified in its charter)

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Registrant’s telephone number, including area code: (604) 424-0984

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

On September 5, 2024, Gatos Silver, Inc., a Delaware corporation (“Gatos”), and First Majestic Silver Corp., a British Columbia company (“First Majestic”), issued a joint press release announcing the entry into an Agreement and Plan of Merger, dated September 5, 2024 (the “Merger Agreement”), pursuant to which First Majestic will, upon the terms and subject to the conditions set forth in the Merger Agreement, merge with Gatos in a stock-for-stock transaction (the “Transaction”), with Gatos surviving the merger as a wholly owned subsidiary of First Majestic.  A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

On September 5, 2024, Gatos and First Majestic provided supplemental information regarding the Transaction in a presentation to analysts and investors.  A copy of the investor presentation and a transcript of the presentation are attached as Exhibits 99.2 and 99.3 hereto and are incorporated by reference herein.

Important Information for Investors and Stockholders about the Transaction and Where to Find It

None of this current report on Form 8-K, nor the exhibits hereto, is intended to and constitutes an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities of First Majestic or Gatos or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities of First Majestic or Gatos in any jurisdiction in contravention of applicable law. This current report on Form 8-K may be deemed to be soliciting material relating to the Transaction.

In connection with the Transaction between First Majestic and Gatos pursuant to the Merger Agreement and subject to future developments, First Majestic will file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form F-4 that is expected to include a Proxy Statement of Gatos that will also constitute a Prospectus of First Majestic (the “Proxy Statement/Prospectus”) and other documents. First Majestic will also file a management proxy circular in connection with the transaction with applicable Canadian securities regulatory authorities.  This current report on Form 8-K is not a substitute for any registration statement, proxy statement, prospectus or other document First Majestic or Gatos may file with the SEC or Canadian securities regulatory authorities in connection with the pending Transaction. Gatos plans to mail to its shareholders the definitive Proxy Statement/Prospectus in connection with the transaction and First Majestic will deliver its management proxy circular to First Majestic shareholders. INVESTORS AND SECURITY HOLDERS OF GATOS AND FIRST MAJESTIC ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND MANAGEMENT PROXY CIRCULAR, RESPECTIVELY, AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC OR CANADIAN SECURITIES REGULATORY AUTHORITIES CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE TRANSACTION BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FIRST MAJESTIC, GATOS, THE TRANSACTION AND RELATED MATTERS. Investors and security holders will be able to obtain free copies of the Proxy Statement/Prospectus (when available), the filings with the SEC that will be incorporated by reference into the Proxy Statement/Prospectus and other documents filed with the SEC by First Majestic and Gatos containing important information about First Majestic or Gatos and the Transaction through the website maintained by the SEC at www.sec.gov. Investors will also be able to obtain free copies of the management proxy circular and other documents filed with Canadian securities regulatory authorities by First Majestic, through the website maintained by the Canadian Securities Administrators at www.sedarplus.com. In addition, investors and security holders will be able to obtain free copies of the documents filed by First Majestic with the SEC and Canadian securities regulatory authorities on First Majestic’s website at www.firstmajestic.com or by contacting First Majestic’s investor relations team. Copies of the documents filed with the SEC by Gatos will be available free of charge on Gatos’ website or by contacting Gatos’ investor relations team.

Participants in the Merger Solicitation

First Majestic, Gatos and certain of their respective directors, executive officers and employees may be considered participants in the solicitation of proxies in connection with the proposed Transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the shareholders of First Majestic and the stockholders of Gatos in connection with the Transaction, including a description of their respective direct or indirect interests, by security holdings or otherwise, will be included in the Proxy Statement/Prospectus described above and other relevant documents when it is filed with the SEC and Canadian securities regulatory authorities in connection with the Transaction. Additional information regarding First Majestic’s directors and executive officers is also included in First Majestic’s Notice of Annual Meeting of Shareholders and 2024 Proxy Statement, which was filed with the SEC and Canadian securities regulatory authorities on April 15, 2024, and information regarding Gatos’ directors and executive officers is also included in Gatos’ Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 20, 2024, as amended by Amendment No. 1 to such annual report filed with the SEC on May 6, 2024 and Gatos’ 2024 Proxy Statement for its 2024 Annual Meeting of Stockholders, which was filed with the SEC on April 25, 2024. These documents are available free of charge as described above.

Cautionary Note Regarding Forward Looking Statements

This current report on Form 8-K and the exhibits hereto contain “forward‐looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbor created by such sections and other applicable laws and “forward‐looking information” under applicable Canadian securities laws (collectively, “forward‐looking statements”). These statements relate to future events or the future performance, business prospects or opportunities of First Majestic and/or Gatos that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management of First Majestic and/or Gatos made in good faith in light of management’s experience and perception of historical trends, current conditions and expected future developments. Forward‐looking statements in this current report on Form 8-K and the exhibits hereto include, but are not limited to, statements with respect to: closing of the Transaction and the terms and timing related thereto; the anticipated benefits of the Transaction to First Majestic, Gatos and their respective shareholders including increased shareholder value; the timing and receipt of required shareholder, stock exchange and regulatory approvals; satisfaction of the conditions to completion of the Transaction; the anticipated timing of mailing proxy statements and circulars regarding the Transaction; liquidity, enhanced value and capital markets profile of First Majestic; annual free cash flow and revenue estimates; future growth potential for First Majestic, Gatos and their respective businesses; life of mine estimates; estimates regarding the future price of silver and other metals, asset quality and geographic spread, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, and the timing and amount of estimated future production, recovery rates, costs of production and all-in sustaining costs, capital expenditures, the costs and timing of the development of new deposits and exploration programs and expected listing of shares on the New York Stock Exchange and the Toronto Stock Exchange. Assumptions may prove to be incorrect and actual results may differ materially from those anticipated. Consequently, guidance cannot be guaranteed. As such, investors are cautioned not to place undue reliance upon guidance and forward‐looking statements as there can be no assurance that the plans, assumptions or expectations upon which they are placed will occur. All statements other than statements of historical fact may be forward‐looking statements. Statements concerning proven and probable mineral reserves and mineral resource estimates may also be deemed to constitute forward‐looking statements to the extent that they involve estimates of the mineralization that will be encountered as and if the property is developed, and in the case of measured and indicated mineral resources or proven and probable mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives or future events or performance (often, but not always, using words or phrases such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “forecast”, “potential”, “target”, “intend”, “could”, “might”, “should”, “believe” and similar expressions) are not statements of historical fact and may be “forward‐looking statements”.

Actual results may vary from forward‐looking statements. Forward‐looking statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results to materially differ from those expressed or implied by such forward‐looking statements, including but not limited to: satisfaction or waiver of all applicable closing conditions for the Transaction on a timely basis or at all including, without limitation, receipt of all necessary shareholder, stock exchange and regulatory approvals or consents and lack of material changes with respect to First Majestic and Gatos and their respective businesses, all as more particularly set forth in the Merger Agreement and the timing of the closing of the Transaction and the failure of the Transaction to close for any reason; the outcome of any legal proceedings that may be instituted against First Majestic or Gatos and others related to the Transaction; unanticipated difficulties or expenditures relating to the Transaction; risks relating to the value of the consideration to be issued in connection with the Transaction; the diversion of management time on pending Transaction-related issues; the synergies expected from the Transaction not being realized; business integration risks; fluctuations in security markets; the duration and effects of the COVID‐19, and any other pandemics on operations and workforce, and the effects on global economies and society; general economic conditions including inflation risks; actual results of exploration activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; commodity prices; variations in ore reserves, grade or recovery rates; availability of sufficient water for operating purposes; actual performance of plant, equipment or processes relative to specifications and expectations; accidents; labor relations; relations with local communities; changes in national or local governments; changes in applicable legislation or application thereof; delays in obtaining approvals or financing or in the completion of development or construction activities; exchange rate fluctuations; requirements for additional capital; government regulation; environmental risks; reclamation expenses; outcomes of pending litigation; limitations on insurance coverage, changes in national and local government, legislation, taxation, controls, regulations and political or economic developments; operating or technical difficulties in connection with mining or development activities; risks and hazards associated with the business of mineral exploration, development and mining (including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins and flooding); risks relating to the credit worthiness or financial condition of suppliers, refiners and other parties with whom First Majestic or Gatos does business; inability to obtain adequate insurance to cover risks and hazards; and the presence of laws and regulations that may impose restrictions on mining, including those currently enacted in Mexico; employee relations; relationships with and claims by local communities and indigenous populations; availability and increasing costs associated with mining inputs and labor; the speculative nature of mineral exploration and development, including the risks of obtaining necessary licenses, permits and approvals from government authorities; diminishing quantities or grades of mineral reserves as properties are mined; First Majestic’s and Gatos’ title to properties, changes in climate conditions and extreme weather events, as well as those factors discussed in (a) the section entitled “Description of the Business ‐ Risk Factors” in First Majestic’s most recently filed AIF, available under its profile on SEDAR+ at www.sedarplus.ca, and as an exhibit to its most recently filed Form 40‐F available on EDGAR at www.sec.gov/edgar or on First Majestic’s website and (b) the Gatos’ Annual Report on Form 10-K for the year ended December 31, 2023, available on EDGAR at www.sec.gov/edgar or on Gatos’ website. First Majestic is not affirming or adopting any statements or reports attributed to Gatos (including prior mineral reserve and resource declaration) in this current report on Form 8-K or made by Gatos outside of this current report on Form 8-K and the exhibits hereto. Gatos is not affirming or adopting any statements or reports attributed to First Majestic (including prior mineral reserve and resource declaration) in this current report on Form 8-K or made by First Majestic outside of this current report on Form 8-K. In addition, the failure of a party to comply with the terms of the Merger 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.  Although First Majestic and Gatos have attempted to identify important factors that could cause actual results to differ materially from those contained in forward‐looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.

First Majestic and Gatos believe that the expectations reflected in these forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included herein should not be unduly relied upon. These statements speak only as of the date hereof. First Majestic and Gatos do not intend, and do not assume any obligation, to update these forward-looking statements or forward-looking information, except as required by applicable laws.

(d) Exhibits.

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NEWS RELEASE

September 5, 2024

 

 

Vancouver, BC, Canada - First Majestic Silver Corp. (NYSE:AG) (TSX:AG) (FSE:FMV) (“First Majestic”) and Gatos Silver, Inc. (“Gatos”) (NYSE:GATO) (TSX:GATO) are pleased to announce they have entered into a definitive merger agreement (the “Definitive Agreement”) pursuant to which First Majestic will acquire all of the issued and outstanding common shares of Gatos (the “Transaction”). Gatos is a silver dominant producer with a 70% interest in the Los Gatos Joint Venture, which owns the producing Cerro Los Gatos underground silver mine in Chihuahua, Mexico.

 

Under the terms of the Definitive Agreement, Gatos shareholders will receive 2.550 common shares of First Majestic for each common share of Gatos held. The consideration implies a total offer value of US$13.49 per common share of Gatos based on the closing price of First Majestic’s common shares on the New York Stock Exchange (the “NYSE”) on September 4, 2024, and represents a 16% premium based on each company’s closing prices and 20-day volume weighted average prices (“VWAP”) on the NYSE ending September 4, 2024. The proposed Transaction implies a total equity value for Gatos of approximately US$970 million. Following completion of the Transaction, existing Gatos shareholders will own approximately 38% of First Majestic shares on a fully-diluted basis.

 

TRANSACTION HIGHLIGHTS

 

 

 

 

 

¹ Based on First Majestic and Gatos 2024 production guidance, adjusted for First Majestic metal price assumptions and shown on an attributable basis

² Based on analyst consensus estimates for 2024

 

 

 

 

Keith Neumeyer, President & Chief Executive Officer of First Majestic, commented, “The acquisition of Gatos Silver is a highly compelling and transformative transaction that meaningfully enhances First Majestic’s operating platform through the addition of 70% of Cerro Los Gatos - a high quality, long-life, unencumbered, free cash flow generating asset in the mining-friendly state of Chihuahua, Mexico. Mexico is a country that First Majestic has operated in for over 20 years, and we are extremely excited to deploy our operating expertise within these mining districts to deliver operational synergies and exploration success for our shareholders. We look forward to working with the operating team at Cerro Los Gatos and with our new joint venture partner Dowa Metals & Mining Co., Ltd. (“Dowa”) ,and we are pleased to welcome all Gatos shareholders as they transition into being shareholders of First Majestic going forward.”

Dale Andres, Chief Executive Officer of Gatos, commented, “We are pleased to enter into this transaction with First Majestic, as it provides our shareholders an attractive immediate premium and the opportunity to retain exposure to the high quality, long-life Cerro Los Gatos asset, now within a well-established intermediate primary silver producer. This transaction also provides our shareholders with the benefits of First Majestic’s enhanced capital markets presence, liquidity and balance sheet, while combining its local Mexican expertise and history of operations with our history of successful performance. I want to thank the Cerro Los Gatos operating team for its dedication. I am confident that the combination of our strong operating teams will create an opportunity to generate significant value for all shareholders.”

 

BENEFITS TO FIRST MAJESTIC SHAREHOLDERS

 

 

 

 

³ Based on each company’s average daily value traded over the last twelve months

 

 

 

 

BENEFITS TO GATOS SHAREHOLDERS

 

 

 

 

 

 

 

 

TRANSACTION SUMMARY

 

The Transaction will be effected by way of a reverse triangular merger under Delaware law, whereby a wholly-owned Delaware subsidiary of First Majestic will merge with and into Gatos, with Gatos surviving the merger as a direct, wholly-owned subsidiary of First Majestic. Under the terms of the Definitive Agreement, Gatos’ shareholders will receive 2.550 common shares of First Majestic for each common share of Gatos held as of the effective date of the Transaction. At closing, First Majestic will issue an aggregate of approximately 177 million common shares to Gatos shareholders, and following completion of the Transaction, existing Gatos shareholders will own approximately 38% of the issued and outstanding common shares of First Majestic on a fully-diluted basis.

 

The Transaction is expected to close in early 2025, subject to the satisfaction of customary closing conditions, including approvals of the shareholders of First Majestic and Gatos, clearance under Mexican anti-trust laws, and approval of the listing of the First Majestic common shares to be issued under the Transaction on both the Toronto Stock Exchange and the NYSE. The Definitive Agreement and the Transaction have been unanimously approved by the board of directors of each of First Majestic and Gatos, and in the case of Gatos, on the unanimous recommendation of a special committee of independent directors of Gatos.

 

All directors and certain executive officers of Gatos, as well as the Electrum Group, which owns approximately 32% of the issued and outstanding common shares of Gatos, have entered into voting support agreements with First Majestic pursuant to which they have agreed, subject to the terms of such agreements, to vote their Gatos shares in favour of the Transaction.

 

ADVISORS AND COUNSEL

 

National Bank Financial acted as exclusive financial advisor to First Majestic. TD Securities provided a fairness opinion to the board of directors of First Majestic. Bennett Jones LLP and Dorsey & Whitney LLP acted as legal advisors to First Majestic.

 

BofA Securities acted as exclusive financial advisor to Gatos. GenCap Mining Advisory Ltd. provided a fairness opinion to the Special Committee of the Gatos board of directors. White & Case LLP and McCarthy Tetrault LLP acted as legal advisors to Gatos.

 

CONFERENCE CALL DETAILS

 

First Majestic and Gatos will host a joint conference call and webcast on Thursday, September 5, 2024, at 8:00 a.m. (PT) / 11:00 a.m. (ET) to discuss the Transaction.

 

To participate in the conference call, please use the following dial-in numbers:

 

 

Participants should dial-in at least 10 minutes prior to the start of the call to ensure placement into the conference on time.

 

A live webcast of the call will be accessible through the “September 5, 2024 Webcast Link” on the First Majestic home page at www.firstmajestic.com and on Gatos’ website at www.gatossilver.com. A webcast archive will be available approximately one hour after the end of the event and will be accessible for three months through the same link as the live event.

 

A recording of the conference call will be available for telephone replay approximately one hour after the end of the event by calling:

 

 

The telephone audio replay will be available for seven days following the end of the event.

 

ABOUT FIRST MAJESTIC

 

First Majestic is a publicly traded mining company focused on silver and gold production in Mexico and the United States. First Majestic presently owns and operates the San Dimas Silver/Gold Mine, the Santa Elena Silver/Gold Mine, and the La Encantada Silver Mine, all located in Mexico, as well as a portfolio of development and exploration assets, including the Jerritt Canyon Gold project located in northeastern Nevada, U.S.A.

 

First Majestic is proud to own and operate its own minting facility, First Mint, LLC, and to offer a portion of its silver production for sale to the public. Bars, ingots, coins and medallions are available for purchase online at www.firstmint.com, at some of the lowest premiums available.

 

Investors and Media Contact:

Darrell Rae

Investor Relations

(604) 688 3033

 

ABOUT GATOS

 

Gatos is a silver dominant exploration, development and production company that discovered a new silver and zinc-rich mineral district in southern Chihuahua State, Mexico. As a 70% owner of the Los Gatos Joint Venture (the “LGJV”), the Company is primarily focused on operating the Cerro Los Gatos mine and on growth and development of the Los Gatos district. The LGJV consists of approximately 103,000 hectares of mineral rights, representing a highly prospective and under-explored district with numerous silver-zinc-lead epithermal mineralized zones identified as priority targets.

 

Investors and Media Contact:

André van Niekerk

Chief Financial Officer

(604) 424 0984

 

Important Information for Investors and Shareholders about the Transaction and Where to Find It

 

This news release is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities of First Majestic or Gatos or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities of First Majestic or Gatos in any jurisdiction in contravention of applicable law. This news release may be deemed to be soliciting material relating to the Transaction.

 

In connection with the proposed transaction between First Majestic and Gatos pursuant to the Definitive Agreement and subject to future developments, First Majestic will file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form F-4 that is expected to include a Proxy Statement of Gatos that will also constitute a Prospectus of First Majestic (the “Proxy Statement/Prospectus”) and other documents. First Majestic will also file a management proxy circular in connection with the transaction with applicable Canadian securities regulatory authorities. This news release is not a substitute for any registration statement, proxy statement, prospectus or other document First Majestic or Gatos may file with the SEC or Canadian securities regulatory authorities in connection with the pending Transaction. Gatos plans to mail to the Gatos stockholders the definitive Proxy Statement/Prospectus in connection with the transaction and First Majestic will deliver its proxy circular to First Majestic shareholders. INVESTORS AND SECURITY HOLDERS OF GATOS AND FIRST MAJESTIC ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND MANAGEMENT PROXY CIRCULAR, RESPECTIVELY, AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC OR CANADIAN SECURITIES REGULATORY AUTHORITIES CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE TRANSACTION BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FIRST MAJESTIC, GATOS, THE TRANSACTION AND RELATED MATTERS. Investors and security holders will be able to obtain free copies of the Proxy Statement/Prospectus (when available), the filings with the SEC that will be incorporated by reference into the Proxy Statement/Prospectus and other documents filed with the SEC by First Majestic and Gatos containing important information about First Majestic or Gatos and the Transaction through the website maintained by the SEC at www.sec.gov. Investors will also be able to obtain free copies of the management proxy circular and other documents filed with Canadian securities regulatory authorities by First Majestic, through the website maintained by the Canadian Securities Administrators at www.sedarplus.com. In addition, investors and security holders will be able to obtain free copies of the documents filed by First Majestic with the SEC and Canadian securities regulatory authorities on First Majestic’s website at www.firstmajestic.com or by contacting First Majestic’s investor relations team. Copies of the documents filed with the SEC by Gatos will be available free of charge on Gatos’s website or by contacting Gatos’ investor relations team.

 

Participants in the Merger Solicitation

 

First Majestic, Gatos and certain of their respective directors, executive officers and employees may be considered participants in the solicitation of proxies in connection with the proposed Transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the shareholders of First Majestic and the stockholders of Gatos in connection with the Transaction, including a description of their respective direct or indirect interests, by security holdings or otherwise, will be included in the Proxy Statement/Prospectus described above and other relevant documents when it is filed with the SEC and Canadian securities regulatory authorities in connection with the Transaction. Additional information regarding First Majestic’s directors and executive officers is also included in First Majestic’s Notice of Annual Meeting of Shareholders and 2024 Proxy Statement, which was filed with the SEC and Canadian securities regulatory authorities on April 15, 2024, and information regarding Gatos’s directors and executive officers is also included in Gatos’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 20, 2024, as amended by Amendment No. 1 to such annual report filed with the SEC on May 6, 2024 and Gatos’ 2024 Proxy Statement for its 2024 Annual Meeting of Stockholders, which was filed with the SEC on April 25, 2024. These documents are available free of charge as described above.

 

Non-GAAP Financial Measures

 

 

For a complete description of how Gatos calculates such measures and a reconciliation of certain measures to GAAP terms, please see “Non-GAAP Measures” in Gatos’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 20, 2024, as amended by Amendment No. 1 to such annual report filed with the SEC on May 6, 2024 at www.sec.gov/edgar.

 

Cautionary Note Regarding Forward Looking Statements

 

This news release contains “forward‐looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbor created by such sections and other applicable laws and “forward-looking information” under applicable Canadian securities laws (collectively, “forward‐looking statements”). These statements relate to future events or the future performance, business prospects or opportunities of First Majestic and/or Gatos that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management of First Majestic and/or Gatos made in good faith in light of management’s experience and perception of historical trends, current conditions and expected future developments. Forward‐looking statements in this news release include, but are not limited to, statements with respect to: closing of the Transaction and the terms and timing related thereto; the anticipated benefits of the Transaction to First Majestic, Gatos and their respective shareholders including increased shareholder value; the timing and receipt of required shareholder, stock exchange and regulatory approvals; satisfaction of the conditions to completion of the Transaction; the anticipated timing of mailing proxy statements and circulars regarding the Transaction; liquidity, enhanced value and capital markets profile of First Majestic; cash flow and revenue estimates; future growth potential for First Majestic, Gatos and their respective businesses; life of mine estimates; estimates regarding the future price of silver and other metals, asset quality and geographic spread, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, and the timing and amount of estimated future production, recovery rates, costs of production and all-in sustaining costs, capital expenditures, the costs and timing of the development of new deposits and exploration programs and expected listing of shares on the New York Stock Exchange and the Toronto Stock Exchange. Assumptions may prove to be incorrect and actual results may differ materially from those anticipated. Consequently, guidance cannot be guaranteed. As such, investors are cautioned not to place undue reliance upon guidance and forward‐looking statements as there can be no assurance that the plans, assumptions or expectations upon which they are placed will occur. All statements other than statements of historical fact may be forward‐looking statements. Statements concerning proven and probable mineral reserves and mineral resource estimates may also be deemed to constitute forward‐looking statements to the extent that they involve estimates of the mineralization that will be encountered as and if the property is developed, and in the case of measured and indicated mineral resources or proven and probable mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives or future events or performance (often, but not always, using words or phrases such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “forecast”, “potential”, “target”, “intend”, “could”, “might”, “should”, “believe” and similar expressions) are not statements of historical fact and may be “forward‐looking statements”.

 

 

First Majestic and Gatos believe that the expectations reflected in these forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included herein should not be unduly relied upon. These statements speak only as of the date hereof. First Majestic and Gatos do not intend, and do not assume any obligation, to update these forward-looking statements or forward-looking information, except as required by applicable laws.

8

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First Majestic Silver Corp. (TSX:AG)

 

Gatos Silver, Inc. (NYSE:GATO)

 

M&A Call – Creating the Leading Intermediate Silver Producer

 

Thursday, September 5, 2024 8:00 AM PDT

Call Participants

 

Dale E. Andres

CEO & Director

Gatos Silver, Inc.

Keith N. Neumeyer

President & CEO

First Majestic Silver Corp.

Samir Patel

General Counsel & Corporate Secretary

First Majestic Silver Corp.

Operator

 

Thank you for standing by. This is the conference operator. Welcome to the First Majestic announces agreement to acquire Gatos Silver conference call.

The conference is being recorded.  I would now like to turn the conference over to Mr. Keith Neumeyer, President and Chief Executive Officer of First Majestic Silver. Keith, please go ahead, sir.

Keith N. Neumeyer

Well, thank you, and welcome, everyone and thanks for joining today's call. A copy of today's news release, I hope all of you have seen it, is posted on our website, and we'll be covering a couple of the highlights from the presentation today. So feel free to listen in, but also look at the website in your leisure if you want further details. I'm joined here today with Gatos CEO, Dale Andres.

Dale E. Andres

Good morning.

Keith N. Neumeyer

And he'll be covering off a number of points today as well, including ourselves. We're doing a joint call today. We also have other members of the First Majestic and Gatos team on the line listening in. But before we proceed, I'd like to introduce Samir Patel, our General Counsel and Corporate Secretary, to provide comments on our forward-looking statements.

Samir Devendra Patel

Thanks, Keith. Before we begin today's call, I would like to note that we will be referring to certain non-GAAP financial measures related to both First Majestic and Gatos Silver. Non-GAAP financial measures are not standardized measures under the financial reporting frameworks of either company. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP or IFRS. We will also be making certain statements regarding First Majestic, Gatos Silver and their respective operations that constitute forward-looking statements in accordance with applicable Canadian and U.S. securities laws. All statements that are not facts, such as statements regarding future estimates and plans or expectations of future performance, constitute forward-looking statements that reflect each company's current views with respect to future events. These statements are necessarily based upon a number of assumptions and estimates that, while considered reasonable, are inherently subject to significant business, economic, competitive, political and social uncertainties and continuities. We encourage you to refer to the cautionary language that was included in the joint news release of First Majestic and Gatos Silver that was disseminated earlier this morning and to the cautionary language at the beginning of today's presentation, a copy of which will be filed on EDGAR with the United States Securities and Exchange Commission after this morning's call. Investors are cautioned against attributing undue certainty or reliance on any forward-looking statements made during today's call. And the company does not intend or assume any obligation to update these forward-looking statements or information, other than as required by law. With that, I will turn the call back to Keith.

Keith N. Neumeyer

Great. Thanks, Samir. Advancing the slides, as you can see, we have a PowerPoint presentation that we're going to go through quickly today and this PowerPoint will be posted on both companies' websites if you care to review them in more detail. We're just going to quickly skim through these. As you can tell by this acquisition or this merger, we're combining 3 world class assets under a single company, of course, Cerro Los Gatos, San Dimas and Santa Elena is what we're referring to. It takes our production close to 32 million ounces of silver-equivalent production per year, of which about 50% of that is silver. And the majority is gold and with the Gatos acquisition we're also bringing lead and zinc into our portfolio. This transaction bolsters our free cash flow quite significantly. It will also combine 2 very strong operating teams together under 1 umbrella, which will be very useful for the future growth of the combined company. We maintain our peer-leading exposure to silver. As I mentioned, 50% of our revenues will be from silver up a little bit from pre-transaction, consolidates a very large land package as well. Cerro Los Gatos adds 103,000 hectares to our portfolio, combined 350,000 hectares, which is 3 very large districts, we would call them, in Mexico. Obviously, the transaction results in a much larger company with a stronger balance sheet, improved trading liquidity and market cap of somewhere around $3 billion and there will be lots of synergies as well. Over time, I'm sure we'll -- with the 2 skill sets combined into one company, I'm sure we'll be finding all kinds of great synergies in the combined business. Dale, do you have any further comments?

Dale E. Andres

Yes. Thanks, Keith, and good morning again, everyone. Today is truly a milestone day for Gatos. And as Keith mentioned, vending Gatos into First Majestic, we believe creates the best-in-class intermediate primary silver producer. When I look at this transaction through the lens of Gatos' shareholders, there is a lot to like. This transaction offers a very reasonable premium and what is even more important for Gatos' shareholders is we will now have exposure to a more diversified production base. And as Keith said, 3 worldclass producing silver mining districts, and this significantly derisks Gatos as we now move from being a single asset producer into being part of a multi-asset and silver-focused producing company and what I think is tremendous exploration potential in 3 unrivaled exploration districts.

Furthermore, our shareholders will now be shareholders in a pro forma company with an improved capital markets presence, as Keith said, significant trading liquidity and combined a very, very healthy financial base to continue to advance the company. Additionally, Keith and his team have operated in Mexico for decades. They understand these types of underground mines, including what we do at Cerro Los Gatos. And I have all the confidence in the world that his team will continue to add value to Cerro Los Gatos and successfully execute on multiple value drivers that exist there and continue to create value for all shareholders as part of the broader First Majestic portfolio. Back over to you, Keith.

Keith N. Neumeyer

Thanks, Dale, and advancing to the next slide, as you can see, there's quite a bit of information on this slide, and I'm not going to read it all. The highlights on this slide are the pro forma ownership between the 2 companies, 62% of the combined entity will be held by current First Majestic shareholders, 38% will be held by current Gatos shareholders. Electrum Group owns 32% of Gatos is in favor and very supportive of the transaction. They're quite excited about the combined entity and moving forward as a team. They'll end up owning 12% of the combined company post-closing. We have unanimous Board and officer support for the transaction. The shareholder meeting will be announced in the next few weeks. We don't know the exact date yet. But we're expecting sometime in late Q4, likely in November at some time, but we'll be putting that data out as soon as we know it and we expect closing sometime in Q1 early in 2025. Moving along. I see on this slide, the combined transaction will have a very strong treasury as a result of the combination. As I mentioned already, the market cap will be substantial. It will be somewhere around $3 billion. Our financial liquidity increases quite nicely to over USD 500 million. So the combined company to the point of this transaction or the point of this slide is really just to show how strong the company will be as a result of the combined companies. Moving to the next slide. Benefits to First Majestic as I covered a little bit, but adds a third very large district to our portfolio, a ton of exploration upside, as Dale mentioned, combine that Santa Elena, San Dimas, we've got a very, very large land package and very underexplored as well as it takes a lifetime to drill out some of these large land packages. But we're very excited and we've done a lot of plans with Cerro Los Gatos to advance it further on and potentially going to expand it, but Dale will cover that on the coming slides. So we're adding about 6 million ounces of silver production and about 9 million silver equivalent ounces, the difference being lead and zinc. Los Gatos is a significant cash flow generator, which we're happy to see, obviously, and I've already covered off the concessions - we'll be adding 103,000 hectares of the land.

And we're combining 2 expert teams together in the combined entity and it's going to enhance our -- I think our capital markets presence and really solidifies our go-forward plan of being a leading producer of silver in the space. Dale?

Dale E. Andres

Thanks, Keith, and I've spoken to some of the benefits to Gatos' shareholders already, but I'll just expand on that. Beyond the 16% premium, Gatos' shareholders are getting very meaningful participation in 2 additional world-class mining districts at Santa Elena and San Dimas. And I will say, I recently had the opportunity and pleasure to visit both of those assets. And I will say they have very experienced and capable operating teams. And more importantly, what I believe to be  tremendous upside potential, particularly on the exploration side. Keith's team has done a terrific job at Santa Elena, growing resources and reserves and together with production. And I'm really excited about the recent discovery that they announced in the Navidad zone at Santa Elena. And we're equally as excited about the long-term potential of the San Dimas district as well. Moving from a single asset company for Gatos to a diversified silver producer with 3 quality districts is a game changer for Gatos, and I believe Gatos' shareholders. The combined company has critical mass. It elevates Gatos to a new capital markets bracket and provides greatly enhanced trading liquidity. Back over to you, Keith.

Keith N. Neumeyer

Thanks, Dale. And if you look at the slide that's on the screen now, this is really the map of Mexico and then all North America as well showing the assets between the 2 companies. You see there quite nicely aligned. They're close, relatively close together. Los Gatos being in Chihuahua, a state we're familiar with. I visited Chihuahua myself a number of times looking at other acquisitions over the last several years, and it's nice to finally be active in that in the mining-friendly state of Chihuahua, and you see the locations of Santa Elena and San Dimas as well. So 3 very large districts, which we're very pleased to have under one umbrella. Obviously, in the United States in Nevada, most of you know, we have the Jerritt Canyon mine in the state of Nevada and also our first mint facility just opened up in the last 6 months or so. Both companies Gatos and First Majestic are located, their head offices are in Vancouver. Any comments, Dale?

Dale E. Andres

No, I'll just say we happen to be in the same building. So it was very easy for me to come up here and have this session with Keith. But no, again, I've been to see both their main assets recently and I can say they're quality assets, and we're excited to be part of this new portfolio. So just continuing on, I'll talk a little bit more about the Cerro Los Gatos asset itself. The mine has been operating since 2019, so for 5 years now. And it's clearly a Tier 1 asset. It produces higher grade silver-bearing lead and zinc concentrates. And for those familiar with the asset, the zinc goes to our Japanese partner for the Akita smelter, and that is Dowa Metals and Mining. Last year, the mine produced more than 14 million silver equivalent ounces and at a very low cost and 64% of our production comes from silver. The facilities are modern. They're well capitalized. We have a proven operating team in place, and we'll continue to drive performance, and I fully expect that to continue going forward. The joint venture holds a very large concession package that's roughly 50 kilometers by 40 kilometers and extend. And we've already got more than 50 individual targets identified within that land package. So it's very prospective. Following the recent discovery and definition of the Southeast Deep Zone over the last 2 years, which we expect to significantly extend mine life,we recently shifted focus to drilling near-mine priority targets as well as other targets across the district. And these would include targets like Portigueño, and San Luis. And we also think there's very good potential below the existing workings adjacent to the Southeast deeps, both in the central zone and Northwest zone, and we have drills turning on those targets today as well. So very excited about the future of Cerro Los Gatos and as being part of this new portfolio going forward for us.

Keith N. Neumeyer

I'll jump into the next slide. So as you can see on this slide, we've got the 3 mines on here, showing their current production. Cerro Los Gatos that's 100% of their attributable ounces. Dowa owns 30%, as I think everyone knows, you can see on a combined entity, how compelling the company looks and compares to its peers in the space and probably a low-cost producer as well. Very happy to see those costs, Obviously, lot to do with grade and just the mill itself, it's actually one of the newest mills, I think, in the entire country of Mexico, I would assume. It's a beautiful facility. And, Dale do you have any further comments?

Dale E. Andres

Yes. I'll just say that the ore body itself is very amenable to low cost and productive mining. We're continuing to drive performance, and I'll speak to that a little bit on the next slide. But we've got a great operating team there. They're continuing to just drive performance in the asset, continuing to elevate targets and achieve those. And the asset itself has very stable free cash flow generation. And we think, obviously, that potential to keep extending that out is there. And it's just a great district. And I'll talk a little bit more about the performance of the operation on the next slide. We can switch. And just as far as the operation itself, we've been exceeding design capacity currently by over 30% with record mill throughput for the past 6 consecutive quarters in a row. The mill does have proven capacity on average over 3,500 tonnes per day or successfully debottlenecking the mine to fill that mill and to fill that capacity. Site operating costs decreased by 9% over the past 3 years, and that's despite inflationary pressures and strengthening of the peso, obviously helped by that increased mill throughput. And the site team just continues to focus on efficiency of our underground workforce and equipment and that includes rebuilding our equipment, which were a good part of the way through. We're sustaining the 3,200 to 3,300 tonne per day rate, and we're further extending that up to 3,500 and beyond in the near term. And I'd just like to highlight one small example. I think there's a lot of synergies with this deal. But one small example of the many synergies we see is in this combination is First Majestic runs and owns their own central maintenance facility and that would now be available for Cerro Los Gatos for future rebuilds of our equipment. Just one of the many smaller examples, but many examples that we think are there for synergies. Back over to you, Keith.

Keith N. Neumeyer

So on this slide here, you'll notice the percentage of revenue from silver. We're moving from 43% to 51%. You can see how we compare against our peers on a silver production basis. We've got a nice uptick in gross margins as a result of the combined entity.

You see the production there of 31 million silver equivalent ounces, of which 15 million is pure silver and how it compares against our peer group. And going to free cash flow, of course, we've covered a lot here, but it is substantial and something we're excited about combining within the First Majestic portfolio. You'll see here the market cap. We've talked about a little already going from the current levels of about 1.6 billion to 2.6 billion or closer to 3 billion, and on our trading volume, our liquidity has always been pretty strong over the years, and it does get an uptick as a result of this acquisition as well. So further daily volume is always nice to see and helpful for future cost of capital. And jumping to the last slide, I'm not going to really cover this much. We pretty well covered all these points already. But really, I think the main point of this whole presentation is really this transaction is very consistent with First Majestic's vision, being one of the leading producers of silver in the world, then this helps us get to our goals and objectives and looking forward to seeing this close early in the year and watching the combined entity evolve as it develops these 3 core assets. Dale, any further comments?

Dale E. Andres

Thanks, Keith, and I'll just reiterate, this friendly acquisition really does represent a great opportunity for Gatos' shareholders, putting together 3 world-class districts with Cerro Los Gatos, Santa Elena and San Dimas. I'm extremely proud of what our team has done at Gatos and what we've accomplished together. I would like to thank our shareholders, in particular, our joint venture partner, Dowa as well, the government, both in Mexico and Chihuahua and our local community and stakeholders. I'm confident that Cerro Los Gatos will continue to thrive together with First Majestic under the combination that we're announcing today. Thanks very much, Keith.

Keith N. Neumeyer

Thanks, Dale. And we won't be taking questions today. I would request if there's anyone on the call that does have questions or comments, you just contact our Investor Relations departments. You can see on the slide here, both First Majestic's and Gatos' information.  Feel free to reach out to either of our Investor Relations team. So I think that's it, Dale.

Dale E. Andres

We will be available.  The same contact information is there, and please refer to our website for more information. Thanks, everyone.

Keith N. Neumeyer

Yes, thanks everyone, for your time and for listening.

Operator

Thank you. This brings today's conference to a close. You may now disconnect your lines, and thank you for participating. Have a pleasant day.

 

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