First Majestic started the year out with a bang by announcing its US$256 million (CA$320 million) acquisition of Canadian-based precious metal producer, Primero Mining. The definitive arrangement agreement consists of First Majestic acquiring all of Primero’s issued and outstanding common shares, which means the company takes over the operation of the flagship San Dimas mine in Durango. It is expected to become First Majestic’s largest producing mine.
The transaction also implied the termination of Wheaton Precious Metals’ (WPM) silver purchase agreement with Primero Mining and the start of a new one with First Majestic. The new stream agreement for 25 percent of the gold equivalent production at San Dimas is based on ongoing payments of CA$600 per gold equivalent ounce delivered.
“The acquisition of Primero is a highly compelling transformative transaction that further enhances First Majestic’s operating platform, adding a very high quality, long-lived asset in San Dimas,” stated Keith Neumeyer, CEO of First Majestic in an official announcement. “Most importantly, the New Stream and related amendments with WPM repositions the asset by maximizing silver exposure for our shareholders, while significantly increasing the free cash flow from San Dimas.”
With Primero having struggled in recent months to keep the project profitable, this could imply the start of a new chapter for the San Dimas mine. “The mine has been operating for over 200 years and the mineral potential on the property is still very strong,” stated Joseph Conway, Interim President and CEO of Primero Mining in an exclusive interview with Mexico Mining Review. “Due to the issues we experienced in 2016, we were not able to do much exploration or drilling work onsite.” The company was also impacted by an eight-week strike by unionized employees and SAT’s decision to change its advanced tax ruling.
According to Joseph Conway, “the majority of the financial issues were driven by the decision taken by SAT to change its position with respect to our advanced tax ruling.” As Primero was selling a large portion of its silver production to Wheaton Precious Metal at a fixed price of approximately US$4.20, it reached a deal with the previous federal government for an advanced tax ruling with respect to this arrangement. But, according to Joseph Conway, the current administration was trying to retroactively change this agreement. Primero was involved in litigation with the Mexican government over the issue since Feb. 2016.
“First Majestic has a long history of operating in Mexico and an expertise in mining narrow vein underground deposits similar to San Dimas,” said Randy Smallwood, President and CEO of WPM. “Given their experience and renewed focus on mining the entire deposit, including the silver rich areas, we are excited to welcome First Majestic as a partner.”