Feb 10 2015
Tahoe Resources Inc. and Rio Alto Mining Limited are pleased to announce that they have entered into a definitive agreement (the Arrangement Agreement) to combine their respective businesses (the Transaction) and create a new, leading intermediate precious metals producer with several value-enhancing growth opportunities.
The combined company offers shareholders significant low cost production from the world-class Escobal silver mine in Guatemala and the established La Arena gold mine in Peru, in addition to long-term sustainable growth fueled by the development of the Shahuindo gold project with first production expected in early 2016. With strong operating margins and low capital risk, the combined company will boast industry-leading free cash flow generation, superior financial returns and a strong balance sheet with zero net debt. In addition, the combined company will benefit from a top-tier management team focused on delivering long-term shareholder returns.
Under the terms of the Arrangement Agreement, all of the Rio Alto issued and outstanding common shares will be exchanged on the basis of 0.227 of a Tahoe common share and C$0.001 in cash per Rio Alto share (Exchange Ratio). Upon completion of the Transaction, existing Tahoe and Rio Alto shareholders will own approximately 65 percent and 35 percent of the combined company, respectively.
Based on the closing price of Tahoe's common shares on the Toronto Stock Exchange (TSX) of C$17.64 on February 6, 2015, the offer implies consideration of C$4.00 per Rio Alto share which represents a premium of 22.1 percent to the closing price of Rio Alto shares of C$3.28 on the TSX on February 6, 2015 and a premium of 20.3 percent based on the volume weighted average prices of each respective company on the TSX for the 20-day period ending on February 6, 2015.
Highlights of the Transaction
Key investment highlights of the combined company include:
- A leading precious metals producer: Combines one of the world's largest and highest grade silver mines with an established gold operation in Peru, a world-class mining jurisdiction, providing the combined company with a strong growth platform.
- Superior financial performance: Strong cash flow generation and industry-leading return on equity to drive shareholder returns and provide the financial flexibility to fund growth initiatives.
- Significant low-cost production: 2015 production guidance of 18-21million ounces (mozs) of silver at total cash costs of US$6.35-US$8.25/oz and all-in sustaining costs (AISC) of US$9.75-US$11.50/oz and 210-220 thousand ounces (kozs) of gold at net cash costs of US$570-US$600/oz and AISC of US$730-US$765/oz expected to yield operating margins in excess of 50 percent based on consensus commodity price forecasts.
- Long-term sustainable growth: Growth to be driven by the completion of the Escobal mine expansion from 3,500 to 4,500 tpd and the planned 2015 construction of Shahuindo, with potential for continued exploration success across the combined asset base.
- Highly experienced management and Board: Complementary management team with strong cultural fit and a rich history of substantial shareholder value creation and proven expertise in the construction and operation of both open pit and underground mines.
- Strong balance sheet: Zero net debt and one of the lowest debt-to-equity ratios in the mining industry.
- Attractive dividend policy: The Company plans to continue the monthly dividend policy of US$0.02 per share subject to Board of Directors approval.
- Enhanced capital markets presence: Combined US$3.25 billion market capitalization is expected to appeal to a broader institutional shareholder base, increase analyst coverage and improve share trading liquidity.