Tahoe and Rio Alto

A merger in the mining industry to start the week as Tahoe Resources and Rio Alto have agreed on terms to create a leading Latin American based mining producer. Both companies were profitable at current metal prices and were generating free cash flow.

The combined company will offer shareholders low cost silver production from the world class Escobal mine in Guatemala. The Escobal mine is one of the worlds largest silver mines opening last year and producing 20.3 million ounces of silver. Costs at the mine are lower than peers because of Escobal being an extremely high grade silver deposit (585 g/t average in 2014).

Rio will bring low cost gold production into the new company. The La Arena mine in Peru has been a steady profitable producer over the last couple years.  Growth will come from the Shahuindo gold project which RIO purchased off Sulliden in 2014.

Transaction details:

  • 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.
  • 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.

Goldcorp who owns 39% of Tahoe has voted in favour of the deal. A large break free of $57.6 million is payable to Tahoe and with support of both management teams and Goldcorp it is highly likely this deal closes.

Closing of the deal is expected in early April.

The new Tahoe will be led by a combination management from both companies and will continue to pay $0.02 monthly dividend Tahoe had in place.

Kevin McArthur, Vice Chair and Chief Executive Officer of Tahoe, 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."

Alex Black, President and Chief Executive Officer of Rio Alto,said, "In addition to Tahoe's attractive dividend policy, this transaction positions our shareholders to realize superior returns as we become part of a larger and more diversified intermediate precious metals producer in the Americas with enhanced cash flow generating capability. We are highly excited about the prospects of the combined company."

Read: Tahoe Resources And Rio Alto Mining Combine Creating A Leading Precious Metals Producer

Related: Arguably the best silver asset in the world or Rio Alto Mining moves forward with strong growth plan

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This is not investment advice. All facts are to be checked and verified by reader. As always please do your own due diligence.