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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Gatos Silver Inc | NYSE:GATO | NYSE | Common Stock |
| Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 14.40 | 0 | 00:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☒
Filed by a party other than the Registrant ☐
Check the appropriate box:
| ☐ | Preliminary Proxy Statement |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☐ | Definitive Proxy Statement |
| ☒ | Definitive Additional Materials |
| ☐ | Soliciting Material under §240.14a-12 |
GATOS SILVER, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):
| ☒ | No fee required |
| ☐ | Fee paid previously with preliminary materials. |
| ☐ | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11 |
Gatos Silver, Inc. (“Gatos Silver” or the “Company”) disclosed the following on its Current Report filed on Form 8-K with the Securities and Exchange Commission on December 20, 2024:
Item 1.01. Entry into a Material Definitive Agreement.
On December 19, 2024, Gatos Silver, Inc. (“Gatos Silver” or the “Company”), Dowa Metals & Mining Co., Ltd. (“Dowa”), Minera Plata Real, S. de R.L. de C.V. ( “MPR”) and Operaciones San José de Plata, S. de R.L. de C.V. (“OpCo”) entered into an amended and restated joint venture agreement (the “Amended and Restated Joint Venture Agreement”) regarding the Los Gatos Joint Venture (“LGJV”) to explore, develop and operate the Los Gatos concessions including the Cerro Los Gatos Mine (“CLG”) in northern Mexico. The Amended and Restated Joint Venture Agreement amends and restates the Unanimous Omnibus Partner Agreement effective as of January 1, 2015, as amended, among the Company, Dowa, MPR, Servicios San José De Plata, S de R.L. de C.V. (“SSJ”, which merged into MPR, effective July 15, 2021) and OpCo.
In addition, on December 19, 2024, OpCo and Dowa entered into an amended and restated offtake agreement (the “Amended and Restated Offtake Agreement”) regarding Dowa’s purchase of the zinc concentrates produced at CLG. The Amended and Restated Offtake Agreement amends and restates the Zinc Offtake Agreement dated as of June 27, 2019, as amended, among OpCo and Dowa. Also on December 19, 2024 Gatos Silver, MPR and OpCo entered into an amended and restated services agreement (the “Amended and Restated Services Agreement”) regarding Gatos Silver oversight and direction of OpCo and the provision of services by OpCo to MPR. The Amended and Restated Services Agreement amends and restates the Services Agreement dated as of January 23, 2015, as amended, among Gatos Silver, MPR and OpCo. The Amended and Restated Joint Venture Agreement, the Amended and Restated Offtake Agreement and the Amended and Restated Services Agreement are collectively referred to as the “Amended and Restated LGJV Agreements.” The Amended and Restated LGJV Agreements will be effective January 1, 2025.
The Amended and Restated Joint Venture Agreement: (i) establishes certain obligations of Gatos Silver to cause MPR and OpCo to use commercially reasonable efforts to meet certain quality criteria for zinc concentrates and to maintain certain levels of production; (ii) reduces supermajority voting requirements within the LGJV (the effect of which will be to provide Gatos Silver with control over a variety of ordinary-course operational, budgeting and planning decisions); and (iii) provides a new sole-funding right to Gatos Silver for mine or plant modifications or expansions, allowing Gatos Silver to require that the same be undertaken and to dilute Dowa’s interest in the LGJV if Dowa elects not to participate, among other amendments.
The foregoing descriptions of the Amended and Restated Joint Venture Agreement, the Amended and Restated Offtake Agreement and the Amended and Restated Services Agreement are qualified in their entirety by the terms of such agreements, which are filed hereto as Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 respectively, and incorporated herein by reference.
Item 2.01 Completion of Acquisition or Disposition of Assets.
Reference is made to the information set forth in Item 1.01 of this Current Report on Form 8-K, which information is incorporated by reference into this
Item 2.01.
As a result of the Amended and Restated LGJV Agreements, Gatos Silver’s investment in the LGJV, which has to date been reported on an unconsolidated basis under the equity method of accounting, will be accounted for on a consolidated basis effective January 1, 2025. In particular, the changes to the supermajority requirements under the Amended and Restated Joint Venture Agreement will provide Gatos Silver with sufficient control over the LGJV to enable financial consolidation. Gatos Silver’s economic interest in the LGJV remains unchanged and Dowa’s interest, which is also unchanged, will be reported as a minority interest. The unaudited pro forma condensed combined balance sheet as of September 30, 2024 and the unaudited proforma condensed combined statement of earnings (loss) for the nine months ended September 30, 2024 and for the fiscal year ended December 31, 2023 have been included as Exhibit 99.4 to this Current Report on Form 8-K.
Item 8.01. Other Events.
On December 19, 2024, the Company issued a press release announcing the entry into the Amended and Restated LGJV Agreements. A copy of that press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of businesses or funds acquired.
The audited combined financial statements of Los Gatos Joint Venture as of and for the years ended December 31, 2023 and 2022 are incorporated by reference as Exhibit 99.2 to this Current Report on Form 8-K.
The unaudited consolidated financial statements of Gatos Silver, Inc. as of and for the nine months ended September 30, 2024, which includes the Los Gatos Joint Venture combined balance sheet and related combined statements of operations and comprehensive income and statement of cash flows as of and for such period, are incorporated by reference as Exhibit 99.3 to this Current Report on Form 8-K.
(b) Pro forma financial information.
The unaudited pro forma condensed combined statement of financial position as at September 30, 2024 and the unaudited pro forma condensed combined statement of earnings (loss) for the nine months ended September 30, 2024 and for the fiscal year ended December 31, 2023 reflecting the consolidation and the previously announced acquisition of Gatos Silver by First Majestic Silver Corp. is attached as Exhibit 99.4 to this Current Report on Form 8-K and incorporated in this report by reference.
(d) Exhibits.
| * | Certain confidential information contained in this document has been redacted in accordance with Item 601(b)(10)(iv) of Regulation S-K. Gatos agrees to furnish supplementally an unredacted copy of the exhibit to the SEC upon request. |
Important Information for Investors and Stockholders about the Transaction and Where to Find It
This current report on Form 8-K is not intended to and does not constitute an offer to buy or sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities of First Majestic Silver Corp. (“First Majestic”) or Gatos Silver or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities of First Majestic or Gatos Silver in any jurisdiction in contravention of applicable law. This current report on Form 8-K may be deemed to be soliciting material relating to First Majestic’s proposed acquisition of all of the issued and outstanding shares of common stock of Gatos Silver (the “Transaction”).
In connection with the Transaction between First Majestic and Gatos Silver pursuant to the previously announced Agreement and Plan of Merger (the “Merger Agreement”), First Majestic filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form F-4 that includes a Proxy Statement of Gatos Silver that also constitutes a Prospectus of First Majestic (the “Proxy Statement/Prospectus”) and other documents. Each of First Majestic and Gatos Silver may also file other relevant documents with the SEC regarding the Transaction. The registration statement on Form F-4 was declared effective by the SEC on December 2, 2024. Gatos Silver filed a Proxy Statement/Prospectus with the SEC on December 3, 2024 which it commenced mailing on December 6, 2024 to its stockholders in connection with the Transaction. First Majestic filed the Information Circular in connection with the proposed Transaction with applicable Canadian securities regulatory authorities on December 10, 2024 and commenced mailing the meeting materials to its shareholders on December 10, 2024. This current report on Form 8-K is not a substitute for any registration statement, proxy statement, prospectus or other document First Majestic or Gatos Silver has filed or may file with the SEC or Canadian securities regulatory authorities in connection with the pending Transaction. INVESTORS AND SECURITY HOLDERS OF GATOS SILVER AND FIRST MAJESTIC ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND MANAGEMENT PROXY CIRCULAR, RESPECTIVELY, AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC OR CANADIAN SECURITIES REGULATORY AUTHORITIES AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS THERETO CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE TRANSACTION BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT FIRST MAJESTIC, GATOS SILVER, THE TRANSACTION AND RELATED MATTERS. Investors and security holders are able to obtain free copies of the Proxy Statement/Prospectus, the filings with the SEC that are and will be incorporated by reference into the Proxy Statement/Prospectus and other documents filed with the SEC by First Majestic and Gatos Silver containing important information about First Majestic or Gatos Silver and the Transaction through the website maintained by the SEC at www.sec.gov. Investors are also able to obtain free copies of the management proxy circular and other documents filed with Canadian securities regulatory authorities by First Majestic, through the website maintained by the Canadian Securities Administrators at www.sedarplus.com. In addition, investors and security holders are able to obtain free copies of the documents filed by First Majestic with the SEC and Canadian securities regulatory authorities on First Majestic’s website at www.firstmajestic.com or by contacting First Majestic’s investor relations team. Copies of the documents filed with the SEC by Gatos Silver are available free of charge on Gatos Silver’s website or by contacting Gatos Silver’s investor relations team.
Participants in the Merger Solicitation
First Majestic, Gatos Silver and certain of their respective directors, executive officers and employees may be considered participants in the solicitation of proxies in connection with the proposed Transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the shareholders of First Majestic and the stockholders of Gatos Silver in connection with the Transaction, including a description of their respective direct or indirect interests, by security holdings or otherwise, is included in the Proxy Statement/Prospectus described above and other relevant documents filed with the SEC and Canadian securities regulatory authorities in connection with the Transaction. Additional information regarding First Majestic’s directors and executive officers is also included in First Majestic’s Notice of Annual Meeting of Shareholders and 2024 Proxy Statement, which was filed with the SEC and Canadian securities regulatory authorities on April 15, 2024, and information regarding Gatos Silver’s directors and executive officers is also included in Gatos Silver’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 20, 2024, as amended by Amendment No. 1 to such annual report filed with the SEC on May 6, 2024 and Gatos Silver’s 2024 Proxy Statement for its 2024 Annual Meeting of Stockholders, which was filed with the SEC on April 25, 2024. These documents are available free of charge as described above.
About Gatos Silver
Gatos Silver is a silver dominant exploration, development and production company that discovered a new silver and zinc-rich mineral district in southern Chihuahua State, Mexico. As a 70% owner of the LGJV, the Company is primarily focused on operating the Cerro Los Gatos mine and on growth and development of the Los Gatos district. The LGJV includes approximately 103,000 hectares of mineral rights, representing a highly prospective and under-explored district with numerous silver-zinc-lead epithermal mineralized zones identified as priority targets.
On September 5, 2024, Gatos Silver and First Majestic Silver Corp. (“First Majestic”) announced that they entered into a definitive merger agreement pursuant to which First Majestic will acquire all of the issued and outstanding common shares of Gatos Silver (the “Merger”). The proposed Merger would consolidate three world-class, producing silver mining districts in Mexico to create a leading intermediate primary silver producer. Information relating to the proposed Merger can be found at the Company’s website at www.gatossilver.com.
Cautionary Note Regarding Forward-Looking Statements
This current report on Form 8-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbor created by such sections and other applicable laws and “forward-looking information” under applicable Canadian securities laws (collectively, “forward-looking statements”). These statements relate to future events of First Majestic and/or Gatos Silver that are based on assumptions of management of First Majestic and/or Gatos Silver made in good faith in light of management’s experience and perception of future developments. Forward-looking statements in this current report on Form 8-K include, but are not limited to, statements with respect to: the timing of the effectiveness of the Amended Agreements and their impact on Gatos Silver’s financial statements, and the timing of closing of the Transaction. Assumptions may prove to be incorrect and actual results may differ materially from those anticipated. Consequently, guidance cannot be guaranteed. As such, investors are cautioned not to place undue reliance upon guidance and forward-looking statements as there can be no assurance that the plans, assumptions or expectations upon which they are placed will occur.
Actual results may vary from forward-looking statements. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results to materially differ from those expressed or implied by such forward-looking statements, including but not limited to those factors discussed in (a) the section entitled “Description of the Business—Risk Factors” in First Majestic’s most recently filed Annual Information Form, available under its profile on SEDAR+ at www.sedarplus.com, and as an exhibit to its most recently filed Form 40-F available on EDGAR at www.sec.gov/edgar or on First Majestic’s website and (b) the Gatos Silver’s Annual Report on Form 10-K for the year ended December 31, 2023, available on EDGAR at www.sec.gov/edgar or on Gatos Silver’s website. First Majestic is not affirming or adopting any statements or reports attributed to Gatos Silver in this current report on Form 8-K or made by Gatos Silver outside of this current report on Form 8-K. Gatos Silver is not affirming or adopting any statements or reports attributed to First Majestic in this current report on Form 8-K or made by First Majestic outside of this current report on Form 8-K. Although First Majestic and Gatos Silver have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.
First Majestic and Gatos Silver believe that the expectations reflected in these forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included herein should not be unduly relied upon. These statements speak only as of the date hereof. First Majestic and Gatos Silver do not intend, and do not assume any obligation, to update these forward-looking statements or forward-looking information, except as required by applicable laws.
Exhibit 99.1
|
|
925 W Georgia St, Suite 910
Vancouver, British Columbia V6C 3L2
(604) 424-0984
www.gatossilver.com |
GATOS SILVER AMENDS JOINT VENTURE AGREEMENTS WITH DOWA TO OBTAIN ENHANCED MANAGEMENT RIGHTS AND ANNOUNCES FINANCIAL STATEMENT CONSOLIDATION
Vancouver, BC — December 19, 2024 — Gatos Silver, Inc. (NYSE/TSX: GATO) (“Gatos Silver” or the “Company”) today announced that it has entered into amended and restated agreements (the “Amended Agreements”) with Dowa Metals & Mining Co., Ltd. (“Dowa”) regarding the Los Gatos Joint Venture (the “LGJV”). The Amended Agreements, which are effective on January 1, 2025, expand Gatos Silver’s management rights within the LGJV which will result in the Company being able to fully consolidate the financial statements of the LGJV rather than accounting for its investment in the LGJV under the equity method of accounting as is currently required. The ownership interests of the Company and Dowa in the LGJV are unchanged, at 70% and 30%, respectively.
The Amended Agreements strengthen Dowa’s zinc concentrate offtake rights, including amending pre-defined commercial terms, which continue to be based on world benchmarks, and commitments regarding concentrate production and product quality. The Amended Agreements also update the terms for management services provided by Gatos Silver in its oversight of the LGJV, reduce supermajority voting requirements and provide the Company with a new sole-funding right for significant mine or plant modifications or expansions, among other things.
“The Los Gatos Joint Venture has been very successful since its establishment 10 years ago, founded on the strength of its assets, our team, and our relationship with Dowa as a valued partner,” said Dale Andres, CEO. “The amended joint venture agreements build upon this foundation, and importantly, allow full financial consolidation within Gatos Silver which will streamline financial reporting and provide investors with a focused picture of the Company’s financial performance, including following the merger with First Majestic which we anticipate will close in January 2025.”
Important Information for Investors and Stockholders about the Transaction and Where to Find It
This news release is not intended to and does not constitute an offer to buy or sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities of First Majestic Silver Corp. (“First Majestic”) or Gatos Silver or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities of First Majestic or Gatos Silver in any jurisdiction in contravention of applicable law. This news release may be deemed to be soliciting material relating to First Majestic’s proposed acquisition of all of the issued and outstanding shares of common stock of Gatos Silver (the “Transaction”).
In connection with the Transaction between First Majestic and Gatos Silver pursuant to the previously announced Agreement and Plan of Merger (the “Merger Agreement”), First Majestic filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form F-4 that includes a Proxy Statement of Gatos Silver that also constitutes a Prospectus of First Majestic (the “Proxy Statement/Prospectus”) and other documents. Each of First Majestic and Gatos Silver may also file other relevant documents with the SEC regarding the Transaction. The registration statement on Form F-4 was declared effective by the SEC on December 2, 2024. Gatos Silver filed a Proxy Statement/Prospectus with the SEC on December 3, 2024 which it commenced mailing on December 6, 2024 to its stockholders in connection with the Transaction. First Majestic filed the Information Circular in connection with the proposed Transaction with applicable Canadian securities regulatory authorities on December 10, 2024 and commenced mailing the meeting materials to its shareholders on December 10, 2024. This news release is not a substitute for any registration statement, proxy statement, prospectus or other document First Majestic or Gatos Silver has filed or may file with the SEC or Canadian securities regulatory authorities in connection with the pending Transaction. INVESTORS AND SECURITY HOLDERS OF GATOS SILVER AND FIRST MAJESTIC ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND MANAGEMENT PROXY CIRCULAR, RESPECTIVELY, AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC OR CANADIAN SECURITIES REGULATORY AUTHORITIES AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS THERETO CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE TRANSACTION BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT FIRST MAJESTIC, GATOS SILVER, THE TRANSACTION AND RELATED MATTERS. Investors and security holders are able to obtain free copies of the Proxy Statement/Prospectus, the filings with the SEC that are and will be incorporated by reference into the Proxy Statement/Prospectus and other documents filed with the SEC by First Majestic and Gatos Silver containing important information about First Majestic or Gatos Silver and the Transaction through the website maintained by the SEC at www.sec.gov. Investors are also able to obtain free copies of the management proxy circular and other documents filed with Canadian securities regulatory authorities by First Majestic, through the website maintained by the Canadian Securities Administrators at www.sedarplus.com. In addition, investors and security holders are able to obtain free copies of the documents filed by First Majestic with the SEC and Canadian securities regulatory authorities on First Majestic’s website at www.firstmajestic.com or by contacting First Majestic’s investor relations team. Copies of the documents filed with the SEC by Gatos Silver are available free of charge on Gatos Silver’s website or by contacting Gatos Silver’s investor relations team.
1
Participants in the Merger Solicitation
First Majestic, Gatos Silver and certain of their respective directors, executive officers and employees may be considered participants in the solicitation of proxies in connection with the proposed Transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the shareholders of First Majestic and the stockholders of Gatos Silver in connection with the Transaction, including a description of their respective direct or indirect interests, by security holdings or otherwise, is included in the Proxy Statement/Prospectus described above and other relevant documents filed with the SEC and Canadian securities regulatory authorities in connection with the Transaction. Additional information regarding First Majestic’s directors and executive officers is also included in First Majestic’s Notice of Annual Meeting of Shareholders and 2024 Proxy Statement, which was filed with the SEC and Canadian securities regulatory authorities on April 15, 2024, and information regarding Gatos Silver’s directors and executive officers is also included in Gatos Silver’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 20, 2024, as amended by Amendment No. 1 to such annual report filed with the SEC on May 6, 2024 and Gatos Silver’s 2024 Proxy Statement for its 2024 Annual Meeting of Stockholders, which was filed with the SEC on April 25, 2024. These documents are available free of charge as described above.
About Gatos Silver
Gatos Silver is a silver dominant exploration, development and production company that discovered a new silver and zinc-rich mineral district in southern Chihuahua State, Mexico. As a 70% owner of the LGJV, the Company is primarily focused on operating the Cerro Los Gatos mine and on growth and development of the Los Gatos district. The LGJV includes approximately 103,000 hectares of mineral rights, representing a highly prospective and under-explored district with numerous silver-zinc-lead epithermal mineralized zones identified as priority targets.
On September 5, 2024, Gatos Silver and First Majestic Silver Corp. (“First Majestic”) announced that they entered into a definitive merger agreement pursuant to which First Majestic will acquire all of the issued and outstanding common shares of Gatos Silver (the “Merger”). The proposed Merger would consolidate three world-class, producing silver mining districts in Mexico to create a leading intermediate primary silver producer. Information relating to the proposed Merger can be found at the Company’s website at www.gatossilver.com.
Cautionary Note Regarding Forward-Looking Statements
This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbor created by such sections and other applicable laws and “forward-looking information” under applicable Canadian securities laws (collectively, “forward-looking statements”). These statements relate to future events of First Majestic and/or Gatos Silver that are based on assumptions of management of First Majestic and/or Gatos Silver made in good faith in light of management’s experience and perception of future developments. Forward-looking statements in this news release include, but are not limited to, statements with respect to: the timing of the effectiveness of the Amended Agreements and their impact on Gatos Silver’s financial statements, and the timing of closing of the Transaction. Assumptions may prove to be incorrect and actual results may differ materially from those anticipated. Consequently, guidance cannot be guaranteed. As such, investors are cautioned not to place undue reliance upon guidance and forward-looking statements as there can be no assurance that the plans, assumptions or expectations upon which they are placed will occur.
2
Actual results may vary from forward-looking statements. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results to materially differ from those expressed or implied by such forward-looking statements, including but not limited to those factors discussed in (a) the section entitled “Description of the Business - Risk Factors” in First Majestic’s most recently filed Annual Information Form, available under its profile on SEDAR+ at www.sedarplus.com, and as an exhibit to its most recently filed Form 40-F available on EDGAR at www.sec.gov/edgar or on First Majestic’s website and (b) the Gatos Silver’s Annual Report on Form 10-K for the year ended December 31, 2023, available on EDGAR at www.sec.gov/edgar or on Gatos Silver’s website. First Majestic is not affirming or adopting any statements or reports attributed to Gatos Silver in this news release or made by Gatos Silver outside of this news release. Gatos Silver is not affirming or adopting any statements or reports attributed to First Majestic in this news release or made by First Majestic outside of this news release. Although First Majestic and Gatos Silver have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.
First Majestic and Gatos Silver believe that the expectations reflected in these forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included herein should not be unduly relied upon. These statements speak only as of the date hereof. First Majestic and Gatos Silver do not intend, and do not assume any obligation, to update these forward-looking statements or forward-looking information, except as required by applicable laws.
Investors and Media Contact
André van Niekerk
Chief Financial Officer
investors@gatossilver.com
(604) 424 0984
3
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information (the “unaudited pro forma financial information”) has been prepared based on the historical audited and unaudited consolidated financial statements of First Majestic Silver Corp. (“First Majestic” or the “Company”) and Gatos Silver Inc. (“Gatos”), as indicated below, adjusted to give effect to the Consolidation (as defined below) and the acquisition of Gatos by First Majestic (the “Transaction”) as if it had consummated at said dates below. The following unaudited pro forma financial information has been prepared in accordance with Article 11 of Regulation S-X to depict the accounting for the Consolidation and the Transaction (“Transaction Accounting Adjustments”), which reflects the application of the accounting in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), including adjustments to align Gatos’ and the Los Gatos Joint Venture’s (the “LGJV”) historical accounting
policies under U.S. GAAP (as defined below) to First Majestic’s significant accounting policies under IFRS, as further discussed below.
The following unaudited pro forma condensed combined statements of financial position as at September 30, 2024 (the “unaudited pro forma statement of financial position”), assume the Consolidation and the Transaction occurred on September 30, 2024. The unaudited pro forma condensed combined statements of earnings (loss) for the nine months ended September 30, 2024 and for the year ended December 31, 2023 (together, the “unaudited pro forma statements of loss”) assumes that the Consolidation and the Transaction occurred on January 1, 2023. On December 19, 2024, Gatos amended its existing agreements (the “Amended Agreements”) regarding the LGJV with Dowa Metals & Mining Co., Ltd. (“Dowa”) and the other parties thereto. The Amended Agreements, which will be effective on January 1, 2025, modify certain decision making rights, including eliminating the requirements for approval from both LGJV partners on activities which significantly affect LGJV’s returns, the effect of which will be to provide Gatos with control over a variety of decisions that significantly affect LGJV’s returns. As a result, Gatos will consolidate the financial results of the LGJV when the Amended Agreements becomes effective (the “Consolidation”).
The unaudited pro forma financial information has been presented for illustrative purposes only and is not intended to be indicative of the combined entity’s financial condition or results of operations that would have actually occurred had the Consolidation and the Transaction occurred on the dates indicated. Further, the unaudited pro forma financial information also may not be useful in predicting the future financial condition and results of operations of the combined entity. The actual financial position and results of operations of the combined entity may differ from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma financial information was derived from and should be read in conjunction with:
| • | The accompanying notes to the unaudited pro forma financial information; |
| • | The audited consolidated financial statements and the accompanying notes of First Majestic as at and for the year ended December 31, 2023, filed as Exhibit 99.2 to First Majestic’s Annual Report on Form 40-F filed with the Securities and Exchange Commission (“SEC”) on April 2, 2024; |
| • | the unaudited condensed interim consolidated financial statements and the accompanying notes of First Majestic as at and for the nine months ended September 30, 2024, included as Exhibit 99.1 to First Majestic’s Form 6-K filed with the SEC on November 7, 2024; |
| • | The audited consolidated financial statements and the accompanying notes of Gatos as at and for the year ended December 31, 2023, included in Gatos’ Annual Report on Form 10-K, as amended by Gatos’ Annual Report on Form 10-K/A filed with the SEC on May 6, 2024; |
| • | the unaudited condensed interim consolidated financial statements and the accompanying notes of Gatos as at and for the nine months ended September 30, 2024, included in Gatos’ Form 10-Q filed with the SEC on November 12, 2024; and |
| • | The audited combined financial statements and the accompanying notes of the LGJV as at and for the year ended December 31, 2023, included in Gatos’ Annual Report on Form 10-K, as amended by Gatos’ Annual Report on Form 10-K/A filed with the SEC on May 6, 2024. |
Description of the Transaction
On September 5, 2024, First Majestic and Gatos entered into a definitive merger agreement (the “Merger Agreement”) pursuant to which First Majestic will acquire all of the issued and outstanding common shares of Gatos. Gatos is a silver producer with a 70% interest in the Los Gatos Joint Venture, which owns the producing Cerro Los Gatos underground silver mine in Chihuahua, Mexico.
Under the terms of the Merger Agreement, Gatos shareholders will receive 2.55 common shares of First Majestic for each common stock of Gatos held.
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As at September 30, 2024
(in thousands of US dollars)
| First Majestic | Gatos (Note 2) [post- Consolidation] |
Transaction Accounting Adjustments |
Notes | Pro Forma Combined |
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| Current Assets |
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| Cash and cash equivalents |
154,730 | 150,616 | (24,103 | ) | 4 | (a) | 281,243 | |||||||||||||
| Trade and other receivables |
18,080 | 13,646 | — | 31,726 | ||||||||||||||||
| Value added taxes receivable |
41,044 | 14,064 | — | 55,108 | ||||||||||||||||
| Income tax receivables |
— | 9,296 | — | 9,296 | ||||||||||||||||
| Inventories |
68,268 | 16,180 | — | 84,448 | ||||||||||||||||
| Other financial assets |
63,994 | 3,445 | — | 67,439 | ||||||||||||||||
| Prepaid expenses and other |
9,478 | 558 | — | 10,036 | ||||||||||||||||
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|||||||||||||
| Total Current Assets |
355,594 | 207,805 | (24,103 | ) | 539,296 | |||||||||||||||
| Non-Current Assets |
||||||||||||||||||||
| Mining interests |
1,028,578 | 1,676,960 | — | 2,705,538 | ||||||||||||||||
| Property, plant and equipment |
383,591 | 159,220 | — | 542,811 | ||||||||||||||||
| Right-of-use assets |
22,480 | 348 | — | 22,828 | ||||||||||||||||
| Deposits on non-current assets |
6,511 | — | — | 6,511 | ||||||||||||||||
| Non-current restricted cash |
103,866 | — | — | 103,866 | ||||||||||||||||
| Non-current value added taxes receivable |
11,098 | — | — | 11,098 | ||||||||||||||||
| Deferred tax assets |
65,777 | 921 | — | 66,698 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Assets |
1,977,495 | 2,045,254 | (24,103 | ) | 3,998,646 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Current Liabilities |
||||||||||||||||||||
| Trade and other payables |
92,266 | 45,545 | — | 137,811 | ||||||||||||||||
| VAT payable |
— | 11,873 | — | 11,873 | ||||||||||||||||
| Unearned revenue |
782 | — | — | 782 | ||||||||||||||||
| Current portion of debt facilities |
607 | — | — | 607 | ||||||||||||||||
| Current portion of lease liabilities |
15,840 | 132 | — | 15,972 | ||||||||||||||||
| Income tax payable |
7,875 | 11,752 | — | 19,627 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Current Liabilities |
117,370 | 69,302 | — | 186,672 | ||||||||||||||||
| Non-Current Liabilities |
||||||||||||||||||||
| Debt facilities |
206,190 | — | — | 206,190 | ||||||||||||||||
| Lease liabilities |
10,884 | 342 | — | 11,226 | ||||||||||||||||
| Decommissioning liabilities |
158,239 | — | — | 158,239 | ||||||||||||||||
| Other liabilities |
6,025 | — | — | 6,025 | ||||||||||||||||
| Asset retirement obligation |
— | 12,245 | 12,245 | |||||||||||||||||
| Non-current income tax payable |
20,323 | — | — | 20,323 | ||||||||||||||||
| Deferred tax liabilities |
81,154 | 355,915 | — | 437,069 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Liabilities |
600,185 | 437,804 | — | 1,037,989 | ||||||||||||||||
| Equity |
||||||||||||||||||||
| Share capital |
1,976,695 | 556,167 | 562,372 | 4 | (b) | 3,095,234 | ||||||||||||||
| Equity reserves |
102,745 | — | — | 102,745 | ||||||||||||||||
| Accumulated deficit |
(702,130 | ) | 600,983 | (586,475 | ) | 4 | (a) (b) | (687,622 | ) | |||||||||||
| Non-controlling interest |
— | 450,300 | 450,300 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Equity |
1,377,310 | 1,607,450 | (24,103 | ) | 2,960,657 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Liabilities and Equity |
1,977,495 | 2,045,254 | (24,103 | ) | 3,998,646 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
See the accompanying notes to the unaudited pro forma condensed combined financial information.
Unaudited Pro Forma Condensed Combined Statement of Earnings (Loss)
For the Nine Months Ended September 30, 2024
(in thousands of US dollars)
| First Majestic | Gatos (Note 2) [post- Consolidation] |
Transaction Accounting Adjustments |
Notes | Pro Forma Combined |
||||||||||||||||
| Revenue |
388,267 | 260,255 | — | 648,522 | ||||||||||||||||
| Mine operating costs |
— | — | — | |||||||||||||||||
| Cost of sales |
255,279 | 95,613 | — | 350,892 | ||||||||||||||||
| Cost of sales – standby costs |
— | — | — | — | ||||||||||||||||
| Depletion, depreciation and amortization |
89,325 | 228,692 | (17,298 | ) | 4 | (c) | 300,719 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 344,604 | 324,305 | (17,298 | ) | 651,611 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Mine operating earnings (loss) |
43,663 | (64,050 | ) | 17,298 | (3,089 | ) | ||||||||||||||
| General and administrative expenses |
28,186 | 37,883 | — | 66,069 | ||||||||||||||||
| Share-based payments |
10,895 | — | 3,853 | 4 | (d) | 14,748 | ||||||||||||||
| Mine holding costs |
18,173 | — | — | 18,173 | ||||||||||||||||
| Foreign exchange loss |
15,824 | 36 | — | 15,860 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating (loss) income |
(29,415 | ) | (101,969 | ) | 13,445 | (117,939 | ) | |||||||||||||
| Investment and other income |
4,086 | 3,545 | — | 7,631 | ||||||||||||||||
| Finance costs |
(21,277 | ) | (1,503 | ) | — | (22,780 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (Loss) income before income taxes |
(46,606 | ) | (99,927 | ) | 13,445 | (133,088 | ) | |||||||||||||
| Income taxes |
||||||||||||||||||||
| Current income tax expense |
16,707 | 31,887 | — | 48,594 | ||||||||||||||||
| Deferred income tax expense (recovery) |
25,094 | (59,847 | ) | — | (34,753 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 41,801 | (27,960 | ) | — | 13,841 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net (loss) income for the period |
(88,407 | ) | (71,967 | ) | 13,445 | (146,929 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Loss per common share |
|
|||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Basic |
(0.30 | ) | (0.27 | ) | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted |
(0.30 | ) | (0.27 | ) | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Weighted average shares outstanding |
||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Basic |
293,440,674 | 473,559,748 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted |
293,440,674 | 473,559,748 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
See the accompanying notes to the unaudited pro forma condensed combined financial information.
Unaudited Pro Forma Condensed Combined Statement of Earnings (Loss)
For the year Ended December 31, 2023
(in thousands of US dollars)
| First Majestic | Gatos (Note 2) [post- Consolidation] |
Transaction Accounting Adjustments |
Notes | Pro Forma Combined |
||||||||||||||||
| Revenue |
573,801 | 268,671 | — | 842,472 | ||||||||||||||||
| Mine operating costs |
— | — | ||||||||||||||||||
| Cost of sales |
410,057 | 112,629 | — | 522,686 | ||||||||||||||||
| Cost of sales – standby costs |
13,438 | — | — | 13,438 | ||||||||||||||||
| Depletion, depreciation and amortization |
124,664 | 327,269 | (30,395 | ) | 4 | (c) | 421,538 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 548,159 | 439,898 | (30,395 | ) | 957,662 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Mine operating earnings (loss) |
25,642 | (171,227 | ) | 30,395 | (115,190 | ) | ||||||||||||||
| General and administrative expenses |
38,709 | 40,657 | 6,529 | 4 | (a) | 85,895 | ||||||||||||||
| Share-based payments |
13,177 | — | 5,137 | 4 | (d) | 18,314 | ||||||||||||||
| Mine holding costs |
22,088 | — | — | 22,088 | ||||||||||||||||
| Write down on asset held-for- sales |
7,229 | — | — | 7,229 | ||||||||||||||||
| Restructuring costs |
6,883 | — | — | 6,883 | ||||||||||||||||
| Impairment of non-current asset |
125,200 | — | — | 125,200 | ||||||||||||||||
| Loss on sale of mining interest |
3,024 | — | — | 3,024 | ||||||||||||||||
| Foreign exchange (gain) |
(11,884 | ) | (2,580 | ) | — | (14,464 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating (loss) income |
(178,784 | ) | (209,304 | ) | 18,729 | (369,359 | ) | |||||||||||||
| Investment and other income |
9,149 | 2,150 | — | 11,299 | ||||||||||||||||
| Legal settlement loss |
— | (1,500 | ) | — | (1,500 | ) | ||||||||||||||
| Gain |
— | 765,300 | — | 4 | (e) | 765,300 | ||||||||||||||
| Finance costs |
(26,280 | ) | (2,484 | ) | — | (28,764 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (Loss) income before income taxes |
(195,915 | ) | 554,162 | 18,729 | 376,976 | |||||||||||||||
| Income taxes |
||||||||||||||||||||
| Current income tax expense |
14,005 | 8,261 | — | 22,266 | ||||||||||||||||
| Deferred income tax (recovery) |
(74,808 | ) | (88,858 | ) | — | (163,666 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (60,803 | ) | (80,597 | ) | — | (141,400 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net (loss) income for the period |
(135,112 | ) | 634,759 | 18,729 | 518,376 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Loss per common share |
||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Basic |
(0.48 | ) | 1.09 | |||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted |
(0.48 | ) | 1.03 | |||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Weighted average shares outstanding |
||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Basic |
282,331,106 | 462,450,180 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted |
282,331,106 | 489,879,902 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
See the accompanying notes to the unaudited pro forma condensed combined financial information.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
| 1. | Basis of Presentation |
The preparation of the unaudited pro forma financial information is based on the historical financial statements of First Majestic, Gatos and LGJV. Gatos and LGJV historically reported their financial statements in U.S. dollars and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For the purposes of the unaudited pro forma condensed combined financial information, the Gatos and LGJV financial statements have been adjusted to align Gatos’ and LGJVs’ historical accounting policies under U.S. GAAP to First Majestic’s significant accounting policies under IFRS.
All dollar amounts presented are in U.S. dollars unless otherwise specified.
The unaudited pro forma financial information has been prepared using statements derived from and should be read in conjunction with, the following:
| • | The audited consolidated financial statements of First Majestic as at and for the year ended December 31, 2023; |
| • | The unaudited condensed interim consolidated financial statements of First Majestic as at and for the nine months ended September 30, 2024; |
| • | The audited consolidated financial statements of Gatos as at and for the year ended December 31, 2023; |
| • | The unaudited condensed consolidated financial statements of Gatos as at and for the nine months ended September 30, 2024; and |
| • | The audited combined financial statements of the LGJV as at and for the year ended December 31, 2023. |
The unaudited pro forma financial information does not give effect to any anticipated synergies, operating efficiencies, tax saving or cost saving that may be associated with the Transaction.
Anticipated Accounting Treatment of Consolidation and the Transaction
The unaudited pro forma financial information reflects the impact of two separate transactions.
On December 19, 2024 Gatos entered into the Amended Agreements regarding the LGJV, effective on January 1, 2025. The Amended Agreements, which will be effective on January 1, 2025, modify certain decision making rights, including eliminating the requirements for approval from both LGJV partners on activities which significantly affect LGJV’s returns, the effect of which will be to provide Gatos with control over a variety of decisions that significantly affect LGJV’s returns. As a result, Gatos will consolidate the financial results of the LGJV when the Amended Agreements becomes effective. The Gatos financial information included in the unaudited pro forma financial information has been adjusted to reflect the impact of the Consolidation. Refer to Note 2 of the pro forma financial information.
The impact of the Consolidation and the Transaction are reflected in the pro forma financial information.
The Consolidation and the Transaction are within the scope of IFRS 3, Business Combinations (“IFRS 3”) because each of the LGJV and Gatos meets the definition of a business in accordance with IFRS 3. As a result, the Consolidation and the Transaction is accounted for as a business combination in the unaudited pro forma financial information.
Under IFRS 3, First Majestic is considered the accounting acquirer of Gatos and the preliminary purchase price is allocated to the underlying assets acquired and liabilities assumed based on their respective fair market values. As of the date hereof, First Majestic has not completed the detailed valuation study necessary to arrive at the required final estimates of (i) the fair value of the Gatos assets to be acquired and liabilities to be assumed and (ii) the fair value of the interest in the LGJV, nor has it identified all adjustments necessary to align Gatos’ and LGJV’s historical audited financial policies under U.S. GAAP to First Majestic’s significant accounting policies under IFRS. A final determination of the fair value of Gatos’ assets and liabilities will be based on the actual assets and liabilities of Gatos that exist as of the effective date of the Consolidation and closing date of the Transaction and, therefore, cannot be made prior to the acquisition date. In addition, the value of the consideration to be paid by First Majestic upon the consummation of the Transaction will be determined based on the closing price of First Majestic’s common shares on the acquisition date. As a result of the foregoing, the Transaction Accounting Adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary Transaction Accounting Adjustments have been made solely for the purpose of providing the unaudited pro forma financial information presented herein. First Majestic has estimated the fair value of Gatos’ assets and liabilities based on discussions with Gatos’ management, preliminary valuation studies, due diligence and information presented in Gatos’ filings with the SEC. Until the Transaction is completed, both companies are limited in their ability to share certain information. Upon completion of the Transaction, a final determination of relative fair values of Gatos’ assets and liabilities will be performed. The final accounting for the Consolidation and the Transaction may be materially different than that reflected in the unaudited pro forma financial information presented herein.
Purchase Consideration
The total preliminary estimated purchase price of approximately $1,157,150 was determined as of November 11, 2024 based on First Majestic common shares to be issued to Gatos shareholders in exchange for Gatos’ issued and outstanding common stock and equity awards outstanding at September 30, 2024 under Gatos’ incentive compensation plans that will be exchanged on or after the closing of the Transaction, and First Majestic’s share price on November 11, 2024. As part of the closing of the Transaction, outstanding RSUs, PSUs, and DSUs, of Gatos that are vested or become vested in connection with the Transaction will be exchanged into First Majestic common shares using the same exchange ratio outlined above. In addition, the outstanding and unexercised Gatos stock options will be converted into stock options of First Majestic based on the exchange ratio. The aggregate purchase price will be based on the actual closing price per First Majestic’s common shares on the closing date, which could differ materially from the assumed value disclosed in the notes to the unaudited pro forma financial information. Further, no effect has been given to any other new Gatos common stock or other equity awards that may be issued or granted subsequent to the date hereof and before the effective date for the Consolidation or the closing date of the Transaction. In all cases in which First Majestic’s closing share price is a determining factor in arriving at the final purchase consideration, the share price assumed for the total preliminary purchase price is the closing price of First Majestic’s common shares on November 11, 2024 ($6.21 per share), which was the share price used to prepare the unaudited pro forma financial information contained in First Majestic’s Registration Statement on Form F-4 that became effective on December 2, 2024.
| Purchase Consideration (in thousands of US dollars) |
| |||
| Gatos outstanding common stock at September 30, 2024 |
69,352,645 | |||
| Total outstanding Gatos RSUs, DSUs, and PSUs at September 30, 20241 |
1,282,286 | |||
|
|
|
|||
| Total Gatos outstanding common stock to be exchanged |
70,634,931 | |||
|
|
|
|||
| Exchange ratio |
2.55 | |||
|
|
|
|||
| Total First Majestic shares to be issued |
180,119,074 | |||
|
|
|
|||
| First Majestic share price2 |
$ | 6.21 | ||
|
|
|
|||
| Share consideration (rounded) |
$ | 1,118,539 | ||
|
|
|
|||
| Stock options exchanged for Gatos stock options (rounded) |
$ | 21,037 | ||
|
|
|
|||
| Transaction Costs (rounded) (Note 4a) |
$ | 17,574 | ||
|
|
|
|||
| Total consideration (rounded) |
$ | 1,157,150 | ||
|
|
|
|||
| 1 | All outstanding Gatos RSUs, DSUs, and PSUs that are vested or that will vest in connection with the Transaction will be exchanged for First Majestic common shares in accordance with the exchange ratio. |
| 2 | First Majestic’s common share price on November 11, 2024 |
Sensitivity Analysis
First Majestic determined that a price volatility of as much as 10% in First Majestic’s common shares trading price on the closing date of the Transaction from the common share price assumed in this unaudited pro forma financial information is reasonably possible based upon the recent history of the price of First Majestic common shares. A change of this magnitude would increase or decrease the consideration expected to be transferred by approximately $111,854, which would be reflected in these unaudited pro forma financial information as an increase or decrease to mining interests.
| Total First Majestic outstanding common share to be issued |
Share Price | Impact on mining interests |
||||||
| 180,119,074 |
$ | 6.83 | $ | 111,854 | ||||
| 180,119,074 |
$ | 5.59 | $ | (111,854 | ) | |||
Preliminary Purchase Price Allocation
The table below summarizes the preliminary allocation of the purchase price to the assets acquired and the liabilities assumed for the purposes of the unaudited pro forma financial information as if the Consolidation and the Transaction occurred on September 30, 2024.
| Assets acquired and liabilities assumed (in thousands of U.S. dollars) |
| |||
| Cash and cash equivalents |
$ | 150,616 | ||
| Receivables |
$ | 13,646 | ||
| Inventories |
$ | 16,180 | ||
| Value added taxes receivable |
$ | 14,064 | ||
| Income tax receivables |
$ | 9,296 | ||
| Prepaid expense and other |
$ | 558 | ||
| Other current assets |
$ | 3,445 | ||
| Mining interests |
$ | 1,676,960 | ||
| Property, plant and equipment, net |
$ | 159,220 | ||
| Deferred tax assets |
$ | 921 | ||
| Other non-current assets |
$ | 348 | ||
|
|
|
|||
| Total assets |
$ | 2,045,254 | ||
| Accounts payable and accrued liabilities |
$ | 45,545 | ||
| Value added taxes payable |
$ | 11,873 | ||
| Income tax payable |
$ | 11,752 | ||
| Current lease liability |
$ | 132 | ||
| Lease liability |
$ | 342 | ||
| Asset retirement obligation |
$ | 12,245 | ||
| Deferred tax liabilities |
$ | 355,915 | ||
|
|
|
|||
| Total liabilities |
$ | 437,804 | ||
| Non-controlling interests |
$ | 450,300 | ||
|
|
|
|||
| Total Preliminary Purchase Price |
$ | 1,157,150 | ||
| 2. | Gatos Historical Financial Statements |
Gatos’ historical balances were derived from Gatos’ historical audited consolidated financial statements as described above and are presented under U.S. GAAP and are in U.S. dollars. On December 19, 2024, Gatos entered into the Amended Agreements regarding the LGJV. The Amended Agreements, which will be effective on January 1, 2025, modify certain decision making rights, including eliminating the requirements for approval from both LGJV partners on activities which significantly affect LGJV’s returns, the effect of which will be to provide Gatos with control over a variety of decisions that significantly affect LGJV’s returns. As a result, Gatos will consolidate the financial results of the LGJV when the Amended Agreements becomes effective. As a result, Gatos will consolidate the financial statements of the LGJV when the Amended Agreements become effective. The Gatos unaudited pro forma financial information has been adjusted to reflect the impact of gaining control of the LGJV as if the Consolidation occurred on September 30, 2024 for the unaudited pro forma combined balance sheet and on January 1, 2023 for the Gatos unaudited pro forma combined statements of operations and comprehensive income. Gatos has applied acquisition accounting to reflect the acquisition of control. The fair value of the LGJV used in the adjustments was estimated based on the preliminary purchase price shown in Note 1 above, adjusted for any working capital and other assets and liabilities held by Gatos. For the purpose of the unaudited pro forma financial information, First Majestic have estimated that the fair value of the LGJV will equal the preliminary purchase price shown in Note 1 because the Consolidation and the Transaction are assumed to occur on January 1, 2023. No additional consideration was transferred as part of the Consolidation. As such, a gain is expected to be recognized reflecting the difference between the fair value and the carrying value of LGJV. This gain will not be recognized by First Majestic in its financial statements as the Consolidation is expected to take place prior to the closing of the Transaction.
| Gatos Silver Inc. Unaudited Pro Forma Consolidated Balance Sheet As of September 30, 2024 (in thousands of United States dollars) |
||||||||||||||||||||||||
| Gatos Historical Amount |
LGJV Historical Amount |
Acquisition Adjustment |
Consolidation Adjustment |
Notes | Gatos post- Consolidation |
|||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Current Assets |
||||||||||||||||||||||||
| Cash and cash equivalents |
$ | 116,732 | $ | 33,884 | $ | 150,616 | ||||||||||||||||||
| Receivables |
— | 13,646 | 13,646 | |||||||||||||||||||||
| Inventories |
— | 16,180 | 16,180 | |||||||||||||||||||||
| VAT receivables |
— | 13,417 | 13,417 | |||||||||||||||||||||
| Income taxes receivable |
— | 9,296 | 9,296 | |||||||||||||||||||||
| Related party receivable |
292 | — | (292 | ) | a | ) | — | |||||||||||||||||
| Other current assets |
1,215 | 3,435 | 4,650 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total current assets |
118,239 | 89,858 | (292 | ) | 207,805 | |||||||||||||||||||
| Non-current Assets |
||||||||||||||||||||||||
| Investment in affiliates |
285,454 | — | (285,454 | ) | b | ) | — | |||||||||||||||||
| Mine development |
— | 231,060 | 1,445,900 | c | ) | 1,676,960 | ||||||||||||||||||
| Property, plant and equipment, net |
— | 159,220 | 159,220 | |||||||||||||||||||||
| Deferred tax assets |
222 | 699 | 921 | |||||||||||||||||||||
| Other non-current assets |
348 | — | 348 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total non-current assets |
286,024 | 390,979 | 1,160,446 | 1,837,449 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total Assets |
$ | 404,263 | $ | 480,837 | 1,160,446 | (292 | ) | $ | 2,045,254 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liabilities and Stockholders’ Equity |
||||||||||||||||||||||||
| Current Liabilities |
||||||||||||||||||||||||
| Accounts payable and other accrued liabilities |
$ | 12,226 | $ | 33,999 | $ | 46,225 | ||||||||||||||||||
| VAT payables |
— | 11,873 | 11,873 | |||||||||||||||||||||
| Income taxes payable |
— | 11,204 | 11,204 | |||||||||||||||||||||
| Related party payable |
— | 270 | (270 | ) | a | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total current liabilities |
12,226 | 57,346 | (270 | ) | 69,302 | |||||||||||||||||||
| Non-current Liabilities |
||||||||||||||||||||||||
| Lease liabilities |
187 | 155 | 342 | |||||||||||||||||||||
| Asset retirement obligation |
— | 12,245 | 12,245 | |||||||||||||||||||||
| Deferred tax liabilities |
— | 4,974 | 350,941 | d | ) | 355,915 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total non-current liabilities |
187 | 17,374 | 350,941 | 368,502 | ||||||||||||||||||||
| Stockholders’ Equity |
||||||||||||||||||||||||
| Common stock |
117 | — | 117 | |||||||||||||||||||||
| Capital contributions |
— | 360,638 | (360,638 | ) | b | ) | — | |||||||||||||||||
| Paid-in capital |
556,050 | 18,186 | (18,186 | ) | b | ) | 556,050 | |||||||||||||||||
| Accumulated deficit |
(164,317 | ) | 27,293 | 738,007 | b | ) | 600,983 | |||||||||||||||||
| Non-controlling interests |
— | — | 450,300 | b | ) | 450,300 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total stockholders’ equity |
391,850 | 406,117 | 809,483 | 1,607,450 | ||||||||||||||||||||
| Total Liabilities and Stockholders’ Equity |
$ | 404,263 | $ | 480,837 | 1,160,424 | (270 | ) | $ | 2,045,254 | |||||||||||||||
Gatos Silver Inc.
Unaudited Pro Forma Consolidated Statements of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2024
(in thousands of United States dollars)
| Gatos Historical Amount |
LGJV Historical Amount |
Acquisition Adjustment |
Consolidation Adjustment |
Notes | Gatos post- Consolidation |
|||||||||||||||||||
| Revenue |
$ | — | $ | 260,255 | — | $ | 260,255 | |||||||||||||||||
| Expense |
||||||||||||||||||||||||
| Cost of sales |
— | 93,931 | — | 93,931 | ||||||||||||||||||||
| Royalties and duties |
— | 1,682 | — | 1,682 | ||||||||||||||||||||
| Exploration |
219 | 4,577 | — | 4,796 | ||||||||||||||||||||
| General and administrative |
25,270 | 12,317 | (4,500 | ) | e) | 33,087 | ||||||||||||||||||
| Amortization |
11 | 58,901 | 169,780 | g) | 228,692 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total expenses |
$ | 25,500 | $ | 171,408 | 169,780 | (4,500 | ) | $ | 362,188 | |||||||||||||||
| Other income (expense) |
||||||||||||||||||||||||
| Equity income in affiliates |
$ | 39,985 | — | ($ | 39,985 | ) | f) | $ | — | |||||||||||||||
| Accretion expense |
— | ($ | 652 | ) | — | (652 | ) | |||||||||||||||||
| Interest expense |
— | (851 | ) | — | (851 | ) | ||||||||||||||||||
| Interest income |
3,206 | 892 | — | 4,098 | ||||||||||||||||||||
| Other income (expense) |
4,582 | (635 | ) | (4,500 | ) | e) | (553 | ) | ||||||||||||||||
| Foreign exchange gain (loss) |
— | (36 | ) | (36 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total other income (loss) |
$ | 47,773 | ($ | 1,282 | ) | (39,985 | ) | (4,500 | ) | $ | 2,006 | |||||||||||||
| Income (loss) before taxes |
$ | 22,273 | $ | 87,565 | (209,765 | ) | — | $ | (99,927 | ) | ||||||||||||||
| Income tax expense (recovery) |
701 | 31,186 | — | 31,887 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Deferred income tax (recovery) |
(59,847 | ) | g) | (59,847 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) and comprehensive income |
$ | 21,572 | $ | 56,379 | (149,918 | ) | — | $ | (71,967 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gatos Silver Inc.
Unaudited Pro Forma Consolidated Statements of Operations and Comprehensive Income
For the Year Ended December 31, 2023
(in thousands of United States dollars)
| Gatos Historical Amount |
LGJV Historical Amount |
Acquisition Adjustment |
Consolidation Adjustment |
Notes | Gatos post- Consolidation |
|||||||||||||||||||
| Revenue |
$ | — | $ | 268,671 | — | $ | 268,671 | |||||||||||||||||
| Expense |
||||||||||||||||||||||||
| Cost of sales |
— | 111,266 | — | 111,266 | ||||||||||||||||||||
| Royalties and duties |
— | 1,363 | — | 1,363 | ||||||||||||||||||||
| Exploration |
26 | 2,875 | — | 2,901 | ||||||||||||||||||||
| General and administrative |
25,688 | 18,068 | (6,000 | ) | e) | 37,756 | ||||||||||||||||||
| Amortization |
79 | 75,110 | 252,080 | g) | 327,269 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total expenses |
$ | 25,793 | $ | 208,682 | 252,080 | (6,000 | ) | $ | 480,555 | |||||||||||||||
| Other income (expense) |
||||||||||||||||||||||||
| Equity income in affiliates |
$ | 33,622 | $ | — | ($ | 33,622 | ) | f) | $ | — | ||||||||||||||
| Accretion expense |
— | (1,145 | ) | — | (1,145 | ) | ||||||||||||||||||
| Legal settlement loss |
(1,500 | ) | — | — | (1,500 | ) | ||||||||||||||||||
| Interest expense |
(679 | ) | (660 | ) | — | (1,339 | ) | |||||||||||||||||
| Interest income |
1,332 | 1,567 | — | 2,899 | ||||||||||||||||||||
| Other income (expense) |
5,992 | (741 | ) | (6,000 | ) | e) | (749 | ) | ||||||||||||||||
| Gain |
— | — | 765,300 | — | h) | 765,300 | ||||||||||||||||||
| Foreign exchange gain (loss) |
— | 2,580 | — | 2,580 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total other income |
$ | 38,767 | $ | 1,601 | 731,678 | (6,000 | ) | $ | 766,046 | |||||||||||||||
| Income before taxes |
$ | 12,974 | $ | 61,590 | 479,598 | — | $ | 554,162 | ||||||||||||||||
| Income tax expense |
114 | 8,147 | 8,261 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Deferred income tax (recovery) |
(88,858 | ) | — | g) | (88,858 | |||||||||||||||||||
| Net (loss) income and comprehensive income |
$ | 12,860 | $ | 53,443 | 568,456 | — | $ | 634,759 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| a) | To eliminate intercompany balances. |
| b) | To reflect the Consolidation, the investment in affiliate is derecognized and the share capital and accumulated deficit balances are eliminated, and a non-controlling interest is recognized at fair value to reflect the participating interest owned by Dowa Metals & Mining Co., Ltd in the LGJV. The accumulated deficit balances include the gain of $765,300. |
| c) | The adjustment to this balance mainly reflects the allocation of the consideration to the Cerro Los Gatos mine. The incremental fair value of the acquisition of $1,445,900 is preliminary allocated to the carrying value of mine development. There has not been an allocation of the fair value between mine development and property, plant and equipment for the purpose of the unaudited pro forma financial information. |
| d) | The adjustment reflects the deferred tax liability impact on the fair value adjustment on LGJV’s identifiable assets, and liabilities as part of the Consolidation. |
| e) | To eliminate the management and administrative services fees paid by LGJV to Gatos. |
| f) | To eliminate equity income recognized by Gatos relating to the LGJV. |
| g) | The adjustment of $252,080 and $169,780 for the year ended December 31, 2023, and the nine-month period ended September 30, 2024, respectively, reflects a total adjustment of $421,860 to represent the before tax additional depletion that has taken place from the start of 2023 to the end of September 2024 which relates to the incremental cost of acquisition described above. The adjustment of $88,858 and $59,847 for the year ended December 31, 2023, and the nine-month period ended September 30, 2024, respectively, reflects the deferred income tax recovery related to the additional depletion described above. |
| h) | To reflect the gain recognized for the Consolidation. The purchase consideration is estimated to be $1,050,754 (estimated based on purchase consideration determined for the Transaction (Note 1) and excluding any working capital and other assets and liabilities held by Gatos). The carrying value of investment in LGJV is $285,454 and as a result, there is a gain of $765,300 recognized. |
The historical balances also reflect certain reclassifications of Gatos’ unaudited pro forma consolidated statements of operations and comprehensive income and unaudited pro forma consolidated balance sheets categories to conform to First Majestic’s presentation in its consolidated statements of earnings (loss) and the consolidated statement of financial position. Further review may identify additional reclassifications that could have a material impact on the unaudited pro forma financial information of the combined company. The reclassifications identified and presented in the unaudited pro forma financial information are based on discussions with Gatos’ management, due diligence and information presented in Gatos’ filings with the SEC. Until the Transaction is completed, both companies are limited in their ability to share certain information. As of the date hereof, First Majestic is not aware of any additional reclassifications that would have a material impact on the unaudited pro forma financial information that are not reflected in the pro forma adjustments.
The reclassifications are summarized below:
Gatos Financial Statement Line
| Gatos post- Consolidation |
Reclassification | Gatos post- Consolidation reclassified Amount |
First Majestic Statement Line |
|||||||||||||
| (in thousands of United States dollars) | ||||||||||||||||
| Unaudited Pro Forma Combined Statements of Operations and Comprehensive Income for the Nine months ended September 30, 2024 |
||||||||||||||||
| Revenue |
$ | 260,255 | $ | — | $ | 260,255 | Revenue | |||||||||
| Cost of sales |
93,931 | 1,682 | 95,613 | Cost of sales | ||||||||||||
| Royalties and duties |
1,682 | (1,682 | ) | — | Cost of sales | |||||||||||
| Exploration |
4,796 | (4,796 | ) | — | |
General and administrative |
| |||||||||
| General and administrative |
33,087 | 4,796 | 37,883 | |
General and administrative |
| ||||||||||
| Amortization |
228,692 | |
(228,692 228,592 |
)
|
|
— 228,692 |
|
|
Depletion, depreciation and amortization |
| ||||||
| Accretion expense |
(652 | ) | 652 | — | Finance cost | |||||||||||
| Interest expense |
(851 | ) | (652 | ) | (1,503 | ) | Finance cost | |||||||||
| Interest income |
4,098 | (553 | ) | 3,545 | |
Investment and other income |
| |||||||||
| Other income (expense) |
(553 | ) | 553 | — | |
Investment and other income |
| |||||||||
| Foreign exchange gain (loss) |
(36 | ) | — | (36 | ) | |
Foreign exchange gain (loss) |
| ||||||||
| Income tax expense (recovery) |
31,887 | — | 31,887 | |
Current income tax expense |
| ||||||||||
| Deferred income tax (recovery) |
(59,847 | ) | — | (59,847 | ) | |
Deferred income tax expense (recovery) |
| ||||||||
|
|
|
|
|
|
|
|||||||||||
| Net loss |
$ | (71,967 | ) | $ | — | $ | (71,967 | ) | ||||||||
| Unaudited Pro Forma Combined Statements of Operations and Comprehensive Income for the year ended December 31, 2023 |
||||||||||||||||
| Revenue |
$ | 268,671 | $ | — | $ | 268,671 | Revenue | |||||||||
| Cost of sales |
111,266 | 1,363 | 112,629 | Cost of sales | ||||||||||||
| Royalties and duties |
1,363 | (1,363 | ) | — | Cost of sales | |||||||||||
| Exploration |
2,901 | (2,901 | ) | — | |
General and administrative |
| |||||||||
| General and administrative |
37,756 | 2,901 | 40,657 | |
General and administrative |
| ||||||||||
| Amortization |
327,269 | (327,269 | ) | — | ||||||||||||
| 327,269 | 327,269 | |
Depletion, depreciation and amortization |
| ||||||||||||
| Accretion expense |
(1,145 | ) | 1,145 | — | Finance cost | |||||||||||
| Legal settlement loss |
(1,500 | ) | — | (1,500 | ) | |
Legal settlement loss |
| ||||||||
| Interest expense |
(1,339 | ) | (1,145 | ) | (2,484 | ) | Finance cost | |||||||||
| Interest income |
2,899 | (749 | ) | 2,150 | |
Investment and other income |
| |||||||||
| Other income (expense) |
(749 | ) | 749 | — | |
Investment and other income |
| |||||||||
| Gain |
765,300 | — | 765,300 | Gain | ||||||||||||
| Foreign exchange gain (loss) |
2,580 | — | 2,580 | |
Foreign exchange gain (loss) |
| ||||||||||
| Income tax expense (recovery) |
8,261 | — | 8,261 | |
Current income tax expense |
| ||||||||||
| Deferred income tax (recovery) |
(88,858 | ) | — | (88,858 | ) | |
Deferred income tax expense (recovery) |
| ||||||||
|
|
|
|
|
|
|
|||||||||||
| Net Income |
$ | 634,759 | $ | — | $ | 634,759 |
| Unaudited Pro Forma Combined Balance Sheets as of September 30, 2024 |
||||||||||||||||
| Assets |
||||||||||||||||
| Current Assets |
||||||||||||||||
| Cash and cash equivalents |
$ | 150,616 | $ | — | $ | 150,616 | |
Cash and cash equivalents |
| |||||||
| Receivables |
13,646 | — | 13,646 | |
Trade and other receivables |
| ||||||||||
| Inventories |
16,180 | — | 16,180 | Inventories | ||||||||||||
| VAT receivables |
13,417 | 647 | 14,064 | |
Value added taxes receivable |
| ||||||||||
| Income taxes receivable |
9,296 | — | 9,296 | |
Income taxes receivable |
| ||||||||||
| Other current assets |
4,650 | (1,205 | ) | 3,445 | |
Other financial assets |
| |||||||||
| 558 | 558 | |
Prepaid expense and other |
| ||||||||||||
| Total Current Assets |
207,805 | — | 207,805 | |||||||||||||
| Non-Current Assets |
||||||||||||||||
| Mine development |
1,676,900 | — | 1,676,900 | Mining interests | ||||||||||||
| Property, plant and equipment, net |
159,220 | — | 159,220 | |
Property, plant and equipment |
| ||||||||||
| Deferred tax assets |
921 | — | 921 | Deferred tax assets | ||||||||||||
| Other non-current assets |
348 | — | 348 | Right-of-use assets | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total Non-current Assets |
1,837,449 | — | 1,837,449 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total Assets |
$ | 2,045,254 | $ | 2,045,254 |
| Liabilities and Stockholder’ Equity |
||||||||||||||||
| Current Liabilities |
||||||||||||||||
| Accounts payable and other accrued liabilities |
$ | 46,225 | |
(680 132 |
)
|
$
|
45,545 132 |
|
|
Trade and other payables Current portion of |
| |||||
| VAT payable |
11,873 | — | 11,873 | |
Value added taxes payable |
| ||||||||||
| Income taxes payable |
11,204 | 548 | 11,752 | Income taxes payable | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total Current Liabilities |
69,302 | — | 69,302 | |||||||||||||
| Non-Current Liabilities |
||||||||||||||||
| Lease liabilities |
342 | — | 342 | Lease liabilities | ||||||||||||
| Asset retirement obligation |
12,245 | — | 12,245 | |
Asset retirement obligation |
| ||||||||||
| Deferred tax liabilities |
355,915 | — | 355,915 | Deferred tax liabilities | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total Non-Current Liabilities |
368,502 | — | 368,502 | |||||||||||||
| Stockholders’ Equity |
||||||||||||||||
| Common stock |
117 | 556,050 | 556,167 | Share capital | ||||||||||||
| Paid-in capital |
556,050 | (556,050 | ) | — | Share capital | |||||||||||
| Accumulated deficit |
600,983 | — | 600,983 | Accumulated deficit | ||||||||||||
| Non-controlling interests |
450,300 | — | 450,300 | |
Non-controlling interests |
| ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total Stockholders’ Equity |
1,607,450 | — | 1,607,450 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total Liabilities and Stockholders’ Equity |
$ | 2,045,254 | $ | — | $ | 2,045,254 | ||||||||||
|
|
|
|
|
|
|
3) U. S. GAAP to IFRS Adjustments
a) Impairment of long-lived assets
Under both U.S. GAAP and IFRS, long-lived assets are tested for impairment when events or changes in circumstances indicate that the carrying amounts may be impaired. Under U.S. GAAP, the asset group is first tested for recoverability by determining if its carrying amount exceeds the expected future cash flows from the asset group on an undiscounted basis. If the asset group is determined to not be recoverable, an impairment expense is recorded for the excess of the asset group’s carrying amount over its fair value. Further, future reversal of a previously recognized impairment loss is prohibited.
Under IFRS, when an impairment indicator is determined to exist, an impairment expense is recorded for the excess of the cash generating unit carrying amount over the greater of its fair value less costs of disposal and its value in use. Impairment expense previously recorded is reversible in subsequent periods under certain conditions.
In the fourth quarter of 2021 Gatos recorded an impairment loss of $80,348 related to the carrying value of the investment in the LGJV. The unaudited pro forma financial information does not separately reflect any potential reversal of this historical impairment that would otherwise have been taken by Gatos given all assets and liabilities of LGJV have been recognized at fair value to reflect the effect of the Consolidation as explained in Note 2 and any such impairment reversal would have been included in the gain as reflected in Note 2.
b) Other considerations
First Majestic has performed a preliminary assessment of the potential U.S. GAAP to IFRS differences for exploration and evaluation expenditures, asset retirement obligations, impairment of receivables, and leases and have determined that the differences are not material. As such, these adjustments have not been reflected in the unaudited pro forma financial information.
4) Transaction Accounting Adjustments
The following adjustments have been made to the unaudited pro forma financial information to reflect certain preliminary purchase price accounting and other pro forma adjustments. Further review may identify additional adjustments that could have a material impact on the unaudited pro forma financial information of the combined company.
a) Transaction costs
The total estimated cash transaction costs are $24,103 incurred by First Majestic and Gatos which includes the estimated aggregate fee for BofA Securities, Inc. in connection with the merger. The transaction costs of $17,574 incurred by Gatos are expected to be included in the total cost of the acquisition. The transaction costs of $6,529 are costs to be incurred by First Majestic, which have been recognized as expense in the unaudited pro forma condensed combined statement of earnings for the year ended December 31, 2023 and as a reduction to retained earnings in the unaudited pro forma condensed combined statement of financial position as of September 30, 2024.
| b) | Shareholder Equity |
This adjustment reflects a net increase to share capital of $562,372 to reflect the issuance of First Majestic shares to effect the Transaction and the consideration attributable to First Majestic stock options issued to replace Gatos stock options, which is measured based on the fair value of Gatos shares acquired as described in Note 1 under “Purchase Consideration”, and to eliminated Gatos accumulated deficit of $600,983.
| c) | Depletion expense |
The adjustment is to align Gatos depletion accounting policy to First Majestic’s depletion accounting policy under IFRS. The adjustment will reduce the depletion expense by $30,395 and $17,298 for the year ended December 31, 2023 and the nine months ended September 30, 2024 respectively, because First Majestic’s depletion policy includes 50% of inferred resources in the depletion calculation.
| d) | Share-based payments |
In conjunction with the Transaction, First Majestic will issue First Majestic stock options to Gatos employees as replacements for their Gatos stock options. The incremental fair value of the replacement First Majestic stock options over the existing Gatos stock options will be expensed over the remaining vesting period. The incremental expense is estimated to be $5,137 and $3,853 for the year ended December 31, 2023 and the nine months ended September 30, 2024 respectively.
| e) | Gain |
The pro forma condensed combined statement of earnings (loss) for the year ended December 31, 2023 includes the gain arising from the Consolidation (Note 2), which would be consummated prior to the Transaction and will not be included in the First Majestic consolidated financial statements prepared under IFRS when the Transaction closes.
5) Unaudited Pro Forma Condensed Combined Financial Information per Share Data
The following table presents, for the periods presented in the unaudited pro forma financial information, the unaudited pro forma income per share and the unaudited pro forma weighted average shares outstanding of the combined entity.
The following table assumes the issuance of approximately 180 million shares of First Majestic in connection with the Transaction assuming the Transaction occurred on September 30, 2024 and based on the number of outstanding Gatos common stock and outstanding RSUs, PSUs, and DSUs as at September 30, 2024. As discussed herein, the actual number of shares of First Majestic issuable under the Transaction will be adjusted based on the number of Gatos common shares outstanding at the completion of the Transaction. The pro forma data in the table assumes that the Transaction occurred on January 1, 2023 for income statement purposes.
| Pro Forma Combined | ||||||||
| For the year ended December 31, 2023 |
For the nine months ended September 30, 2024 |
|||||||
| Income (loss) from operations per common share |
||||||||
| Basic |
1.09 | (0.27 | ) | |||||
| Diluted |
1.03 | (0.27 | ) | |||||
| Shares used in calculating basic and diluted income (loss) from operations per common share |
||||||||
| Basic |
462,450 | 473,560 | ||||||
| Diluted |
489,880 | 473,560 | ||||||
| First Majestic Combined | ||||||||
| For the year ended December 31, 2023 |
For the nine months ended September 30, 2024 |
|||||||
| Weighted average shares outstanding |
||||||||
| Actual weighted average number of shares outstanding for the period |
282,331 | 293,441 | ||||||
| Shares issued |
180,119 | 180,119 | ||||||
| Pro forma weighted average number of shares outstanding |
462,450 | 473,560 | ||||||
| Dilutive instruments |
27,430 | — | ||||||
| Pro forma weighted average diluted number of shares outstanding |
489,880 | 473,560 | ||||||
1 Year Gatos Silver Chart |
1 Month Gatos Silver Chart |
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