Pictured here is Coeur Mining's Rochester mine, an open pit, heap leach silver-gold operation, located in Pershing County, Nevada.Coeur Mining Inc.
Coeur Mining Inc.’s CDE-N attempt to improve its balance sheet by buying Vancouver-based SilverCrest Metals Inc. SIL-T in an all-stock deal worth US$1.7-billion hasn’t gone down well with investors.
Chicago-based Coeur announced on Friday it is paying 1.6022 of its shares for each SilverCrest share, or US$11.34 a share. The deal price is a 22-per-cent premium to SilverCrest’s closing price on Thursday on the New York Stock Exchange. SilverCrest’s shares had already doubled in value over the past year, and were trading not far from an all-time high. The company has performed well lately owing to both the strong performance of silver and high-margin production coming out of its main mine in Mexico.
SilverCrest’s marquee asset is its underground Las Chispas silver and gold mine in Sonora, Mexico, which went into production in 2022.
Cash flow from Las Chispas in combination with SilverCrest’s stellar balance sheet should allow heavily indebted Coeur to reduce its leverage considerably, the company said in a statement. SilverCrest is holding US$122-million in cash and cash equivalents, and has no debt. Coeur was holding US$555-million in net debt at the end of the second quarter.
By buying Las Chispas, Coeur’s silver production in 2025 is expected to hit 21 million ounces. In addition, the company is on track to produce 432,000 ounces of gold next year. Coeur already owns the Rochester silver and gold mine in Nevada and the Palmarejo complex in northern Mexico.
“The rationale and timing of the deal makes sense in a rising metal price environment, with Las Chispas being one of very few high-quality-producing primary silver mines available in the market,” said Michael Siperco, analyst with RBC Dominion Securities Inc. in a note to clients.
Despite the enthusiasm from some analysts, the deal did not get a warm reception in the market. Coeur shares fell by 9.6 per cent in trading on the New York Stock Exchange on Friday to US$6.40 apiece, wiping away a major portion of the paper premium for the deal. SilverCrest shares ended the session up 9.4 per cent to US$10.16.
Tyler Tebbs, founder of event-driven research firm Tebbs Capital, said in an interview that the lack of synergies in the deal is a concern. Another worry is the lack of a signed lock-up agreement with a large block of SilverCrest shareholders agreeing to vote for the deal. Mr. Tebbs says the transaction seems to be about improving the balance sheet of the acquirer more than anything else – essentially a backdoor financing.
“I don’t think I’ve ever seen this before,” he said.
Mr. Tebbs sees the potential for a competing bidder showing up for SilverCrest, including possibly Pan American Silver Corp. PAAS-T or Hecla Mining Co. HL-N. But he isn’t ruling out Coeur itself becoming a target either, a dynamic that makes the deal particularly tricky to trade for merger and arbitrage players.
“The No. 1 question I’m being asked is, is this a defensive deal?”
Any potential acquirer of either SilverCrest or Coeur would have to factor in the break fees that are payable if the current tie-up falls apart. If SilverCrest terminates the deal, a $60-million break fee is payable; If Coeur walks, the break fee is US$100-million.
At least two-thirds of votes cast by SilverCrest shareholders in a meeting to be held at year-end must be in favour for the deal to succeed. The transaction also requires Coeur Mining shareholders to approve the issuance of new shares to pay for the acquisition.
SilverCrest’s chief executive, Eric Fier, and one other unnamed SilverCrest director will join the board of Coeur if the deal closes.
The price of silver has risen by almost 50 per cent over the past year to around US$32 an ounce. Silver, like gold, is seen as a safe-haven investment, but it also has uses in electronics, solar panels, and in the medical industry.