Canada’s silver mining sector got some much-needed consolidation on Monday, as First Majestic Silver Corp. announced a friendly $154-million takeover bid for SilverCrest Mines Inc.
Desjardins Capital Markets analyst Michael Parkin thinks this all-stock deal is accretive and logical for First Majestic. By his calculation, SilverCrest’s Santa Elena mine in Mexico generated free income of US$2.99 per ounce of silver equivalent production in the first quarter. That is an impressive figure in a market where many mines are producing negative cash flow.
Parkin noted the deal boosts First Majestic’s production by about 26 per cent and improves its balance sheet by adding $30 million of cash (along with $15 million of debt).
He also thinks Santa Elena may beat its guidance this season. The mine is expected to produce between four and 4.4 million silver equivalent ounces, but production in the first quarter reached an archive 1.35 million.
Of course, there is always a chance another company could step in with a higher bid for SilverCrest. Takeover battles within the precious metals space have been extremely rare throughout the current bear market, but Parkin thinks it\’s a possibility in this instance.
“We believe there is potential for an interloper on this deal, given the Santa Elena mine is doing well, and (SilverCrest) is generating (free income) and has a comparatively good balance sheet,” he said in a note.