Tahoe Resources buys rival Rio Alto for C$1.3-bn
10 February 2015
US precious metals miner Tahoe Resources Inc is acquiring junior Canadian gold miner Rio Alto Mining Ltd in a cash-and-stock deal for approximately C$1.3 billion, aiming to create a leading intermediate precious metal producer and expand its operations in Latin America.
Nevada-based Tahoe's main asset is its world-class Escobal silver mine in Guatemala, which has become operational in 2014. Vancouver-based Rio Alto's prime properties are its La Arena gold mine and the Shahuindo gold project due for production early next year, both located in Peru.
Through the business combination, the miners expect to achieve strong operating margins and low capital risk, better free cash flow, superior financial returns and a strong balance sheet with zero debt, the companies said in a joint statement.
The deal is a sign of consolidation taking place in the precious metals mining industry amid low commodity prices, weak oil and strong dollar. Last month, Canada's Goldcorp Inc, one of the world's biggest gold miners, struck a deal to buy junior miner Probe Mines Ltd for about C$526 million. (See: Goldcorp acquires Probe Mines)
Under the terms of the agreement, Rio Alto shareholders will get 0.227 shares of Tahoe and C$0.001 in cash for each Rio Alto share they own. Based on the closing price of Tahoe stock on 6 February on Toronto Stock Exchange, each Rio Alto share is valued at C$4.00, representing a 22-per cent premium to its closing price of C$3.28 on that day.
Further to the news, shares in Rio Alto surged over 11 per cent to C$3.65 yesterday in Toronto, while Tahoe stock ended 9 per cent lower at C$16.00.
Tahoe has a market capitalisation of around C$2.3 billion while Rio Alto's market cap is approximately C$1.1 billion.
Tahoe vice chair and chief executive officer Kevin McArthur said, ''The combination of Tahoe and Rio Alto is designed to create a stronger and better positioned company going forward. In addition to diversifying our asset base into one of the most attractive precious metal producing regions in the world, this transaction establishes a strong platform for future growth."
"Escobal is truly a world-class silver mine, and we believe this transaction represents a logical combination of two complementary, low cost asset bases that will continue to generate strong free cash flows into the future," said Alex Black, president and chief executive officer of Rio Alto.
The transaction, approved by the boards of both the companies has been recommended to their respective shareholders.
Goldcorp Inc, a 39-per cent stake-holder in Tahoe, said that it will vote in favour of the deal.
Upon closing, existing Tahoe shareholders will own approximately 65 per cent of the combined entity, while the Rio Alto shareholders will own the remaining 35 per cent.
On completion of the merger, Tahoe's Kevin McArthur is expected to become the executive chairman of the combined company, while Rio Alto's Alex Black will be the new chief executive officer.
The transaction is expected to close in April subject to customary closing conditions and required regulatory approvals.
The agreement includes a break-up fee of C$57.6 million to be paid to Tahoe under certain circumstances.
Tahoe stock is listed on the stock exchanges of Toronto and New York, while Rio Alto shares are traded in Toronto, Lima and New York.
GMP Securities LP acted as financial advisor to Rio Alto while BMO Capital Markets, Raymond James Ltd and Bank of America Merrill Lynch acted as financial advisors to e Tahoe on the deal.