On Sunday Pan American Silver (PAAS) announced its $2.1B acquisition of MAG Silver (MAG) and its 44% stake in the highly coveted Juanicipio silver mine in Mexico.
The deal rationale is clear, as the 34% bump in pro-forma silver production cements PAAS as the 2nd largest producer globally and materially improves its cost profile.
Where the market isn’t yet convinced is on the price, which is rich at ~2.2x NAV - a >20% premium to MAG’s share price. With $500M of cash outlay (over half of Pan American’s cash balance) and 60M new shares, PAAS fell 16% on the day.
With the gold-to-silver ratio sitting well above historical norms, though, PAAS may have made this acquisition at an opportune time.
