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Insight

Late 2014 Deals Show Mexican M&A Market Potential

Wed, 10/21/2015 - 14:25

The M&A mining market has long been stagnant but a number of deals in the second half of 2014 showed there is still some life in the old dog yet. As the global mining community looks for good opportunities, the deals detailed below prove that Mexico should feature prominently on any M&A shopping list.

COEUR MINING BUYS PARAMOUNT GOLD & SILVER

In a deal that must have contributed to buoyant perspectives for 2015, the US silver producer Coeur Mining acquired Paramount Gold and Silver for US$146 million. Its stated reason for doing so was to extend its Mexican operations. The choice of Paramount was an obvious one since its San Miguel project borders Coeur Mining’s existing Palmarejo operation in Chihuahua. It is hoped that San Miguel’s Don Ese deposit will be producing by 2016, adding to the success of Palmarejo which is already one of the top gold and silver producers in the world. Once Don Ese enters production it will lead to an increase in cash flow at Palmarejo through improved grades and recoveries and allowing the Palmarejo mill to run closer to its full capacity. Paramount’s non-Mexican assets will be spun off into a standalone company to be known as Paramount Nevada Gold. Coeur owns a 4.9% stake in this new entity and gave it US$10 million as part of the agreement.

MERGER OF SCORPIO MINING AND U.S. SILVER & GOLD

In November 2014, Scorpio Mining and U.S. Silver & Gold announced that they would undergo a complete merger, making the new entity the leading junior silver producer in the Americas. Valued at US$55 million, the combined company maintains the name of Scorpio Mining Corporation and will run two producing mines, namely the Nuestra Señora mine in Sinaloa and the Galena Complex in Idaho for a combined production of 4.5-5 million ounces of silver equivalent. Overall, this merger is expected to save US$1.6-2.5 million dollars by eliminating overlapping general and administrative costs. Furthermore, U.S. Silver and Gold has been hailed for reducing its all-in sustaining cash costs at Galena by close to 50% in two years through strict cost control and productivity enhancement methods. “This merger creates a stronger, better positioned company that is capable of not only surviving the current low silver price environment, but potentially transitioning from a junior precious metals company to an intermediate producer over the next couple of years,” stated Darren Blasutti, the President and CEO of U.S. Silver & Gold, who will take on the same role for the combined company.

TIMMINS GOLD BUYS CABALLO BLANCO

While this purchase involved a specific mine rather than a full M&A transaction, it showed that specific mining assets within Mexico can still make worthwhile acquisitions. Timmins Gold paid US$30 million to Goldgroup Mining for its Caballo Blanco project in Veracruz. This represents a major expansion of Timmins’ commitment to Mexico as it aims to rapidly get Caballo Blanco into production, with the earliest estimates pointing to a 2016 start date. Work on Caballo Blanco should be relatively straightforward for Timmins since its new acquisition will be an open-pit/ heap leach operation much like the company’s existing San Francisco mine in northern Sonora. In fact, the evolution of the Veracruz project will go hand-in-hand with the expansion of the San Francisco mine. Combined, these two projects should produce an output of 231,000oz of gold a year while helping the major reduce its cash costs to near US$784 an ounce.

FRESNILLO BUYS OUT NEWMONT IN PENMONT JV

In October, Fresnillo bought out Newmont Mining’s 44% interest in the two companies’ Penmont JV in a deal worth US$450 million. The now dissolved JV oversaw a significant portfolio of mines, including the Herradura, Noche Buena, and Soledad-Dipolos gold mines, and the Mega Centauro and Centauro Deep exploration projects in Sonora. Fresnillo, already Mexico’s largest silver and second largest gold producer, will now be able to count with an additional annual production of at least 183,000 attributable ounces of gold, the same total produced by Penmont in 2013. Octavio Alvídrez, Fresnillo’s CEO, said that “the Penmont acquisition would significantly enhance our gold production. It will enable us, with our current operations, to increase our target of reaching 500,000oz of attributable gold production by 2018 to 750,000oz.”

AGNICO EAGLE ACQUIRES CAYDEN RESOURCES

In September 2014, Canadian major producer Agnico Eagle made a significant acquisition by acquiring Cayden Resources for US$205 million. This will help to significantly boost Agnico Eagle’s Mexican assets, since Cayden owns the El Barqueno property in Jalisco, a promising property which hosts an epithermal bonanzatype gold vein where high-grade gold was found in June 2014. Alongside El Barqueno, Cayden owned Morelos Sur, which covers a significant area of the Guerrero gold belt and where exploration successfully found 4.46 and 4.26 g/t of gold at two of three properties on the site. Sean Boyd, the President and CEO of Agnico Eagle, was quoted as saying that “this acquisition is consistent with our long-term strategy of acquiring promising, early stage gold projects where we can add value through focused exploration and mine building. This strategy has served us well in Mexico.