UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of June 15, 2018
Commission File Number 001-34984
FIRST MAJESTIC SILVER CORP.
(Translation of registrant's name into English)
925 West Georgia Street, Suite 1800, Vancouver BC V6C 3L2
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ ] Form 20-F [ x ] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
SUBMITTED HEREWITH
Exhibits
99.1 | Business Acquisition Report | |
99.2 | Pro Forma Condensed Consolidated Financial Statements for the period ended March 31, 2018 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST MAJESTIC SILVER CORP. | |
By: | |
/s/ Connie Lillico | |
Connie Lillico | |
Corporate Secretary | |
June 15, 2018 |
FIRST MAJESTIC SILVER CORP.
FORM 51-102F4
Business Acquisition
Report
Item 1 | Identity of Company |
1.1 | Name and Address of Company |
First Majestic Silver Corp. ("First Majestic") | |
Suite 1800 925 West Georgia Street |
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Vancouver, British Columbia V6C 3L2 |
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1.2 |
Executive Officer |
The following executive officer of First Majestic is knowledgeable about the Arrangement (as defined below) and this report: |
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Raymond L. Polman |
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Chief Financial Officer |
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Telephone: (604) 688-3033 |
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Item 2 |
Details of Acquisition |
2.1 |
Nature of Business Acquired |
Pursuant to a Plan of Arrangement under Part 5 of Division 9 of the Business Corporations Act (British Columbia) (the "Arrangement"), First Majestic acquired all of the issued and outstanding common shares of Primero Mining Corp. ("Primero"), a Canadian precious metals producer headquartered in Toronto, Ontario. Primero's flagship property is the 100%-owned San Dimas silver and gold mine, located in Durango, Mexico. |
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In connection with the Arrangement, the existing silver purchase agreement between Primero and Wheaton Precious Metals Corp. ("WPM") relating to the San Dimas mine was terminated and the parties entered into a new precious metals purchase agreement. |
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First Majestic concurrently entered into an amended and restated credit agreement with the Bank of Nova Scotia, Bank of Montreal and Investec Bank PLC, as lenders, pursuant to which the lenders agreed, among other things, to provide First Majestic with a US$75 million secured revolving term credit facility (the "New Credit Facility"). The New Credit Facility replaced the prior credit facility of Primero and First Majestic's existing credit agreement with the Bank of Nova Scotia and Investec Bank PLC, as lenders. |
1
2.2 |
Acquisition Date |
May 10, 2018 |
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2.3 |
Consideration |
First Majestic issued to former Primero shareholders an aggregate of 6,418,594 common shares of First Majestic, representing 0.03325 First Majestic common shares for each Primero common share held immediately prior to the effective date of the Arrangement. Options of Primero were exchanged for replacement options of First Majestic at the same exchange ratio as the common shares. |
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In connection with the Arrangement, holders of Primero's $75 million 2020 convertible debentures (the "Debentures") approved an amendment to the terms of their governing indenture pursuant to which the Debentures matured and were repaid in full on May 11, 2018. |
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As part of the termination of the existing silver purchase agreement with WPM, First Majestic issued 20,914,590 common shares of First Majestic to Wheaton Precious Metals International Ltd., a subsidiary of WPM. |
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2.4 |
Effect on Financial Position |
First Majestic intends to continue to operate Primero's San Dimas mine. First Majestic intends to conduct an internal reorganization with respect to the acquired business, but does not currently have any plans or proposals for material changes in its business affairs or the affairs of the acquired business which would have a significant effect on the financial performance and financial position of First Majestic. |
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2.5 |
Prior Valuations |
There have been no prior valuation opinions obtained within the last 12 months by Primero or First Majestic to support the consideration paid. |
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2.6 |
Parties to Transaction |
None of the transactions referred to herein were with an informed person, associate or affiliate of First Majestic. |
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2.7 |
Date of Report |
June 15, 2018 |
2
Item 3 | Financial Statements and Other Information |
Pursuant to Part 8 of National Instrument 51-102, the unaudited pro forma consolidated financial statements of First Majestic as at and for the three month period ended March 31, 2018 and for the year ended December 31, 2017 are attached as Schedule "A". |
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The unaudited condensed interim financial statements of Primero for the period ended March 31, 2018 were filed on SEDAR on May 9, 2018 and are incorporated herein by reference. These financial statements consist of the condensed consolidated interim statements of financial position of Primero as at March 31, 2018 and December 31, 2017, the condensed consolidated interim statements of operations and comprehensive income (loss), condensed consolidated interim statements of cash flows and condensed consolidated interim states of changes in equity for the three months ended March 31, 2018 and March 31, 2017, and the related notes. |
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The audited consolidated financial statements of Primero as at December 31, 2017 and 2016 and for the years then ended were filed on SEDAR on March 20, 2018 and are incorporated herein by reference. These financial statements and the unaudited interim financial statements of Primero can be viewed on Primero's SEDAR profile at www.sedar.com . |
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First Majestic did not obtain the consent of the auditors for the inclusion of their auditors report in this Report. |
FIRST MAJESTIC SILVER CORP.
Connie Lillico
_________________________________
Connie Lillico
Corporate Secretary
3
FIRST MAJESTIC SILVER CORP. |
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
AS AT AND FOR THE THREE MONTHS ENDED MARCH 31, 2018 |
AND |
FOR THE YEAR ENDED DECEMBER 31, 2017 |
(UNAUDITED) |
925 West Georgia Street, Suite 1800, Vancouver, B.C., Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
First Majestic Silver Corp. |
PRO FORMA CONDENSED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
AS AT MARCH 31, 2018 |
(Unaudited) (tabular amounts are expressed in thousands of United States dollars, unless otherwise stated) |
First Majestic | |||||||||||||
First Majestic | Primero Mining | Note | Pro Forma | Pro Forma | |||||||||
Silver Corp. | Corp. | 4 | Adjustments | Consolidated | |||||||||
Assets | |||||||||||||
Current assets | |||||||||||||
Cash and cash equivalents | $ | 249,239 | $ | 16,344 | a | $ | 35,969 | $ | 147,944 | ||||
b | (59,339 | ) | |||||||||||
c | (75,851 | ) | |||||||||||
g | (4,540 | ) | |||||||||||
h | (13,878 | ) | |||||||||||
Trade and other receivables | 24,482 | 49,646 | - | 74,128 | |||||||||
Income tax receivables | 172 | - | - | 172 | |||||||||
Inventories | 18,182 | 15,069 | - | 33,251 | |||||||||
Other financial assets | 8,692 | - | - | 8,692 | |||||||||
Prepaid expenses and other | 3,958 | 1,640 | - | 5,598 | |||||||||
Total current assets | 304,725 | 82,699 | (117,639 | ) | 269,785 | ||||||||
Non-current assets | |||||||||||||
Mining interests | 380,193 | 88,563 | d | 26,351 | 638,163 | ||||||||
e | 143,056 | ||||||||||||
Property, plant and equipment | 186,569 | 39,608 | 226,177 | ||||||||||
Goodwill | - | - | f | 59,716 | 59,716 | ||||||||
Deposits on non-current assets | 1,651 | - | - | 1,651 | |||||||||
Other non-current assets | - | 825 | - | 825 | |||||||||
Deferred tax assets | 46,283 | - | - | 46,283 | |||||||||
Total assets | $ | 919,421 | $ | 211,695 | $ | 111,484 | $ | 1,242,600 | |||||
Liabilities and Equity | |||||||||||||
Current liabilities | |||||||||||||
Trade and other payables | $ | 33,293 | $ | 25,333 | $ | 58,626 | |||||||
Unearned revenue | 3,061 | - | - | 3,061 | |||||||||
Current portion of debt facilities | 29,086 | 30,253 | b | (59,339 | ) | - | |||||||
Current portion of financing obligations | 3,670 | - | - | 3,670 | |||||||||
Income taxes payable | - | 2,210 | - | 2,210 | |||||||||
Total current liabilities | 69,110 | 57,796 | (59,339 | ) | 67,567 | ||||||||
Non-current liabilities | |||||||||||||
Debt facilities | 125,706 | 73,875 | a | 35,969 | 161,675 | ||||||||
c | (73,875 | ) | |||||||||||
Equipment financing obligations | 5,039 | - | - | 5,039 | |||||||||
Decommissioning liabilities | 17,598 | 11,911 | - | 29,509 | |||||||||
Other liabilities | 255 | 6,051 | - | 6,306 | |||||||||
Other taxes payable | - | 21,195 | - | 21,195 | |||||||||
Deferred tax liabilities | 104,094 | 7,461 | f | 59,716 | 171,271 | ||||||||
Total liabilities | $ | 321,802 | $ | 178,289 | $ | (37,529 | ) | $ | 462,562 | ||||
Equity | |||||||||||||
Shareholders' equity | |||||||||||||
Share capital | $ | 636,568 | $ | 915,884 | d | 43,903 | $ | 823,527 | |||||
d | (915,884 | ) | |||||||||||
e | 143,056 | ||||||||||||
Equity reserves | 83,523 | 57,423 | d | (57,423 | ) | 83,523 | |||||||
Deficit | (122,472 | ) | (939,901 | ) | c | (1,976 | ) | (127,012 | ) | ||||
d | 955,755 | ||||||||||||
h | (13,878 | ) | |||||||||||
g | (4,540 | ) | |||||||||||
Total equity | 597,619 | 33,406 | 149,013 | 780,038 | |||||||||
Total liabilities and equity | $ | 919,421 | $ | 211,695 | $ | 111,484 | $ | 1,242,600 |
The accompanying notes are an integral part of the pro forma condensed consolidated financial statements |
First Majestic Silver Corp. |
PRO FORMA CONDENSED INTERIM CONSOLIDATED STATEMENT OF LOSS |
FOR THE THREE MONTHS ENDED MARCH 31, 2018 |
(Unaudited) (tabular amounts are expressed in thousands of United States dollars, unless otherwise stated) |
First Majestic | |||||||||||||
First Majestic | Primero Mining | Note | Pro Forma | Pro Forma | |||||||||
Silver Corp. | Corp. | 4 | Adjustments | Consolidated | |||||||||
Revenues | $ | 58,593 | $ | 36,832 | i | $ | 9,243 | $ | 104,668 | ||||
Mine operating costs | |||||||||||||
Cost of sales | 39,681 | 22,131 | - | 61,812 | |||||||||
Depletion, depreciation and amortization | 19,335 | 4,079 | j | 3,850 | 27,264 | ||||||||
59,016 | 26,210 | 3,850 | 89,076 | ||||||||||
Mine operating (loss) earnings | (423 | ) | 10,622 | 5,393 | 15,592 | ||||||||
General and administrative expenses | 4,868 | 3,234 | - | 8,102 | |||||||||
Share-based payments | 2,516 | 624 | - | 3,140 | |||||||||
Other charges | - | 2,763 | - | 2,763 | |||||||||
Foreign exchange (gain) loss | 2,296 | (596 | ) | - | 1,700 | ||||||||
Operating (loss) earnings | (10,103 | ) | 4,597 | 5,393 | (113 | ) | |||||||
Investment and other loss | (1,459 | ) | (26,740 | ) | n | 26,249 | (1,950 | ) | |||||
Finance costs | (2,459 | ) | (2,247 | ) | k | 2,034 | (3,758 | ) | |||||
l | (405 | ) | |||||||||||
m | (681 | ) | |||||||||||
(Loss) earnings before income taxes | (14,021 | ) | (24,390 | ) | 32,590 | (5,821 | ) | ||||||
Income taxes | |||||||||||||
Current income tax expense | 694 | 1,524 | - | 2,218 | |||||||||
Deferred income tax (recovery) expense | (9,123 | ) | 1,049 | o | 11,488 | 3,414 | |||||||
(8,429 | ) | 2,573 | 11,488 | 5,632 | |||||||||
Net (loss) earnings for the period | (5,592 | ) | (26,963 | ) | 21,102 | (11,453 | ) | ||||||
Earnings (loss) per common share - basic and diluted | $ | (0.03 | ) | $ | (0.14 | ) | $ | (0.06 | ) | ||||
Weighted average shares outstanding - basic and diluted | 165,819,786 | 193,045,822 | (165,712,459 | ) | 193,153,149 |
The accompanying notes are an integral part of the pro forma condensed consolidated financial statements |
First Majestic Silver Corp. |
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF LOSS |
FOR THE YEAR ENDED DECEMBER 31, 2017 |
(Unaudited) (tabular amounts are expressed in thousands of United States dollars, unless otherwise stated) |
First Majestic | |||||||||||||
First Majestic | Primero Mining | Note | Pro Forma | Pro Forma | |||||||||
Silver Corp. | Corp. | 4 | Adjustments | Consolidated | |||||||||
Revenues | $ | 252,288 | $ | 91,769 | i | $ | 30,668 | $ | 374,725 | ||||
Mine operating costs | |||||||||||||
Cost of sales | 159,265 | 67,280 | - | 226,545 | |||||||||
Depletion, depreciation and amortization | 77,045 | 22,433 | j | 15,401 | 114,879 | ||||||||
236,310 | 89,713 | 15,401 | 341,424 | ||||||||||
Mine operating earnings | 15,978 | 2,056 | 15,267 | 33,301 | |||||||||
General and administrative expenses | 17,493 | 11,479 | - | 28,972 | |||||||||
Share-based payments | 8,295 | 4,149 | - | 12,444 | |||||||||
Other charges | - | 14,596 | - | 14,596 | |||||||||
Impairment of non-current assets | 65,500 | 303,858 | - | 369,358 | |||||||||
Foreign exchange gain | (4,314 | ) | (76 | ) | - | (4,390 | ) | ||||||
Operating (loss) earnings | (70,996 | ) | (331,950 | ) | 15,267 | (387,679 | ) | ||||||
Investment and other loss | (34 | ) | 5,466 | n | (5,897 | ) | (465 | ) | |||||
Finance costs | (4,271 | ) | (11,285 | ) | k | 12,437 | (13,184 | ) | |||||
l | (1,619 | ) | |||||||||||
m | (8,446 | ) | |||||||||||
(Loss) earnings before income taxes | (75,301 | ) | (337,769 | ) | 11,741 | (401,329 | ) | ||||||
Income taxes | |||||||||||||
Current income tax expense | 7,177 | 3,298 | - | 10,475 | |||||||||
Deferred income tax recovery | (29,206 | ) | (7,691 | ) | o | 4,139 | (32,758 | ) | |||||
(22,029 | ) | (4,393 | ) | 4,139 | (22,283 | ) | |||||||
Net (loss) earnings from continuing operations | (53,272 | ) | (333,376 | ) | 7,602 | (379,046 | ) | ||||||
Net loss from discontinued operations, net of taxes | - | (76,309 | ) | - | (76,309 | ) | |||||||
Net (loss) earnings for the period | $ | (53,272 | ) | $ | (409,685 | ) | $ | 7,602 | $ | (455,355 | ) | ||
Earnings (loss) per common share - basic and diluted | $ | (0.32 | ) | $ | (2.14 | ) | $ | (2.36 | ) | ||||
Weighted average shares outstanding - basic and diluted | 165,293,893 | 191,738,274 | (164,405,090 | ) | 192,627,077 |
The accompanying notes are an integral part of the pro forma condensed consolidated financial statements |
First Majestic Silver Corp. |
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(unaudited) (tabular amounts are expressed in thousands of United States dollars, unless otherwise stated) |
1. |
DESCRIPTION OF THE TRANSACTION |
Acquisition of Primero Mining Corp. |
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On May 10, 2018, First Majestic Silver Corp. (“First Majestic” or the “Company”) completed the acquisition of all of the issued and outstanding common shares (the "Arrangement") of Primero Mining Corp. (“Primero”) pursuant to the terms and conditions of an arrangement agreement (the “Arrangement Agreement”) between First Majestic and Primero dated January 11, 2018. Under the terms of the Arrangement Agreement, First Majestic issued an aggregate of 6,418,594 common shares to Primero shareholders, on the basis of 0.03325 of a First Majestic common share for each Primero common share (the "Exchange Ratio"). |
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The Arrangement also provided for the issuance by First Majestic of an aggregate of 221,908 replacement stock options (the “Replacement Options”) to the holders of outstanding Primero options, at exercise prices adjusted by the Exchange Ratio. Under the Arrangement, all existing warrants of Primero also became exercisable to acquire First Majestic shares at exercise prices adjusted by the Exchange Ratio. After the effective time of the Arrangement, such warrants are exercisable for an aggregate of 366,124 common shares of the Company. |
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San Dimas Stream Restructuring |
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In connection with the Arrangement, First Majestic terminated the pre-existing silver purchase agreement with Wheaton Precious Metals Corp. (WPM) and its subsidiary, Wheaton Precious Metals International Ltd. (WPMI), relating to the newly acquired San Dimas Mine and entered into a new precious metal purchase agreement (the New Stream Agreement) with WPMI and FM Metal Trading (Barbados) Inc., a wholly-owned subsidiary of First Majestic. |
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Pursuant to the New Stream Agreement, WPMI is entitled to receive 25% of the gold production and 25% of the silver production converted to gold equivalent at a fixed exchange ratio of 70:1 at San Dimas in exchange for ongoing payments equal to the lesser of $600 (subject to a 1% annual inflation adjustment) and the prevailing market price, for each gold ounce delivered to an offtaker under the agreement. As part of the termination of the previous silver purchase agreement, WPMI received 20,914,590 common shares of First Majestic with an aggregate fair market value of approximately $143.1 million. |
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Settlement of Primero Convertible Debentures |
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In connection with the Arrangement, First Majestic caused Primero to pay out all outstanding amounts of Primero’s $75.0 million convertible debentures (the "Debentures") which, in accordance with their terms, matured on May 11, 2018. |
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Financing |
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To fund the repayment of the Debentures, amounts outstanding under Primero's existing revolving credit facility and other costs related to the closing of the Arrangement, the Company raised cash through the following debt financing arrangements: |
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A $75.0 million senior secured revolving term credit facility (the New Credit Facility) which was used to replace an existing First Majestic credit facility and the prior credit facility of Primero. The New Credit Facility will mature on the third anniversary date but can be prepaid in advance of such date. Interest will accrue at LIBOR plus an applicable range which is dependent on certain financial parameters of First Majestic. |
|
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$156.5 million unsecured senior convertible debentures (the “Notes”) issued on January 29, 2018 and February 15, 2018, respectively, the proceeds of which were used primarily for repayment of the Debentures, other costs related to the closing of the Arrangement and general working capital purposes. The Notes mature on March 1, 2023 and bear an interest rate of 1.875% per annum. The Notes are convertible into common shares of the Company at a conversion rate of 104.3297 common shares per $1,000 principal amount of Notes converted, representing an initial conversion price of $9.59 per common share, subject to certain anti-dilution adjustments. |
Notes Page 1
2. |
BASIS OF PRESENTATION |
The unaudited pro forma condensed consolidated statement of financial position of First Majestic as at March 31, 2018 and the unaudited pro forma condensed consolidated statements of loss for the three months ended March 31, 2018 and for the year ended December 31, 2017 have been prepared, for illustrative purposes only, to give effect to the acquisition of Primero by First Majestic pursuant to the assumptions described in notes 3 and 4 of these unaudited pro forma condensed consolidated financial statements. These unaudited pro forma condensed consolidated financial statements have been prepared based on financial statements which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and have been compiled from the following historical information: |
a) |
Pro forma condensed consolidated statement of financial position combining: |
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i) |
The unaudited condensed interim consolidated statement of financial position of First Majestic as at March 31, 2018; and |
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ii) |
The unaudited condensed consolidated interim statement of financial position of Primero as at March 31, 2018. |
b) |
Pro forma condensed consolidated statement of loss for the three months ended March 31, 2018 combining: |
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i) |
The unaudited condensed interim consolidated statements of loss of First Majestic for the three months ended March 31, 2018; and |
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ii) |
The unaudited condensed consolidated interim statements of operations and comprehensive income (loss) of Primero for the three months ended March 31, 2018. |
c) |
Pro forma consolidated statement of loss for the year ended December 31, 2017 combining: |
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i) |
The audited consolidated statements of loss of First Majestic for the year ended December 31, 2017; and |
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ii) |
The audited consolidated statements of operations and comprehensive loss of Primero for the year ended December 31, 2017. |
The unaudited pro forma condensed consolidated statement of financial position as at March 31, 2018 has been prepared as if the transactions described in notes 1, 3 and 4 had occurred on March 31, 2018. The unaudited pro forma condensed consolidated statement of loss for the three months ended March 31, 2018 and the unaudited pro forma consolidated statement of loss for the year ended December 31, 2017 have been prepared as if the transactions described in notes 1, 3 and 4 had occurred on January 1, 2017.
The unaudited pro forma condensed consolidated financial statements are not intended to reflect the financial performance or the financial position of First Majestic, which would have actually resulted had the transactions been effected on the dates indicated. Actual amounts recorded upon consummation of the acquisition will likely differ from those recorded in the unaudited pro forma condensed consolidated financial statements. Similarly, the allocation of the purchase price has been prepared on a preliminary basis and is subject to change as a result of several factors which could include among others: changes in fair value of assets acquired and liabilities assumed, recoverability of value added taxes receivable and exposure to income taxes payable subject to ongoing negotiations with Mexican tax authorities on certain ongoing tax matters. Any potential synergies that may be realized and integration costs that may be incurred upon consummation of the transactions have been excluded from the unaudited pro forma financial information. Furthermore, the pro forma financial information is not necessarily indicative of the financial performance that may be obtained in the future.
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of First Majestic and Primero for the year ended December 31, 2017, and notes thereto; as well as the unaudited condensed interim consolidated financial statements of First Majestic and Primero for the three months ended March 31, 2018.
Notes Page 2
2. |
BASIS OF PRESENTATION (continued) |
The accounting policies used in the preparation of these unaudited pro forma condensed consolidated financial statements are those set out in First Majestics audited consolidated financial statements as at December 31, 2017 and condensed interim consolidated financial statements as at March 31, 2018. In preparing the unaudited pro forma condensed consolidated financial statements, a review was undertaken to identify accounting policy differences between First Majestic and Primero where the impact was potentially material. The significant accounting policies of Primero conform in all material respects to those of First Majestic. |
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3. |
PRO FORMA PURCHASE PRICE ALLOCATION |
These unaudited pro forma condensed consolidated financial statements have been prepared based on a total of 27,333,184 First Majestic common shares issued consisting of: (a) 6,418,594 common shares in exchange for all issued and outstanding Primero shares as at March 31, 2018 and (b) 20,914,590 common shares in relation to restructuring of the stream arrangement with WPM. The value of the First Majestic common shares issued was calculated based on the closing price of First Majestic common shares on May 9, 2018 of $6.84 (CAD$8.80) for the purpose of preparing these consolidated pro forma financial statements. The final common share purchase consideration was determined based on the closing market price of First Majestics common shares on the day before the closing date of the acquisition. |
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The transaction has a total consideration of $187.0 million including the following items at March 31, 2018: |
i) |
27,333,184 First Majestic common shares at $6.84 per share (CAD$8.80) for total share consideration of $187.0 million; and |
|
ii) |
Nominal value of replacement stock options issuable to existing Primero option holders and amended warrants. |
The fair value, determined using a Black-Scholes valuation model, of the First Majestic replacement options and amended warrants resulted in a nominal value as the exercise prices of the options and warrants are significantly out-of-the-money based on the exchange ratio and underlying share price.
The transaction will be accounted for as a business combination. With the exception of Primeros convertible debentures, which were adjusted to fair value, First Majestic has allocated the consideration estimating the fair value of the non-mining interest net assets to be equal to their carrying value. The balance of the consideration has been estimated to be the fair value of the acquired mining interests resulting in a $169.4 million pro-forma adjustment to mining interests. A deferred income tax liability and a corresponding goodwill of $59.7 million arising from temporary difference on purchase price allocation is recognized as a result of the fair value adjustments to mining interests.
Notes Page 3
3. |
PRO FORMA PURCHASE PRICE ALLOCATION (continued) |
The preliminary allocation of the purchase price for the purposes of these unaudited pro forma condensed consolidated financial statements is summarized in the table below: |
Total Consideration | ||||
6,418,594 First Majestic shares to Primero shareholders at $6.84 (CAD$8.80) per share | $ | 43,903 | ||
20,914,590 First Majestic shares to WPM at $6.84 (CAD$8.80) per share | 143,056 | |||
Total consideration | $ | 186,959 | ||
Allocation of Purchase Price | ||||
Cash and cash equivalents | $ | 2,466 | ||
Inventories | 15,069 | |||
Mining interests | 297,578 | |||
Goodwill | 59,716 | |||
Other non-current assets | 825 | |||
Other working capital items | 25,953 | |||
Income and other taxes receivable, net | (23,405 | ) | ||
Debt facilities | (106,104 | ) | ||
Decommissioning liabilities | (11,911 | ) | ||
Other non-current liabilities | (6,051 | ) | ||
Deferred tax liabilities | (67,177 | ) | ||
Net assets acquired | $ | 186,959 |
The Company will complete a full and detailed valuation of the fair value of the net assets of Primero acquired with the assistance of an independent third party. Therefore, it is likely that the purchase price and fair values of assets acquired and liabilities assumed will vary from those shown above and the differences may be material. The allocation of the purchase price is based upon managements preliminary estimates and certain assumptions with respect to the fair value increment associated with the assets to be acquired and the liabilities to be assumed. The actual fair values of the assets and liabilities will be determined as of the date of acquisition and may differ materially from the amounts disclosed above in the assumed pro forma purchase price allocation because of changes in fair values of the assets and liabilities up to the date of the transaction, and as further analysis (including the identification of intangible assets, recoverability of value added tax receivables, and exposure to income tax liabilities included in the preliminary amounts shown above) is completed. Consequently, the actual allocation of the purchase price may result in different adjustments than those in the unaudited pro forma condensed consolidated statement of financial position.
Notes Page 4
4. |
PRO FORMA ASSUMPTIONS AND ADJUSTMENTS |
The unaudited pro forma condensed consolidated statement of financial position reflects the following adjustments as if the business combination of Primero had occurred on March 31, 2018. |
a) |
To record proceeds from the new $75.0 million three year revolving credit facility, of which $36.0 million was drawn to pay down First Majestic and Primeros pre-existing debt facilities. |
|
b) |
To record the settlement of First Majestic and Primeros pre-existing debt facilities. |
|
c) |
To record the settlement of Primeros $75.0 million principal amount of convertible debentures. |
|
d) |
To record the issuance of 6,418,594 First Majestic common shares to Primero shareholders with a fair value of $43.9 million based on $6.84 (CAD$8.80) per share being the closing price of First Majestics shares at May 9, 2018; and elimination of historical equity of Primero on acquisition. The estimated fair value of the acquired mining interests based on the unallocated purchase consideration resulted in a $26.4 million pro-forma adjustment to mining interests. |
|
e) |
To record the issuance of 20,914,590 First Majestic common shares with a fair value of $143.1 million to WPMI for the new stream arrangement based on 25% of the gold equivalent production at San Dimas for ongoing payment of $600 per equivalent gold ounce. The shares issued are valued at a price of $6.84 (CAD$8.80) per share being the closing price of First Majestics shares at May 9, 2018. |
|
f) |
To record the deferred tax effect due to adjustments d) and e) above at the Mexican effective tax rate of 35.25% with a corresponding debit to goodwill. |
|
g) |
To record transaction costs incurred by First Majestic for the acquisition of Primero. |
|
h) |
To record estimated transaction costs incurred by Primero. |
The unaudited pro forma condensed consolidated statements of loss for the three months ended March 31, 2018 and year ended December 31, 2017 reflect the following adjustments as if the business combination had occurred on January 1, 2017:
i) |
To adjust for the estimated impact of the New Stream agreement with WPMI on revenue: |
a. |
For the three months ended March 31, 2018, the revenue adjustment was estimated based on repricing of 1.4 million ounces of silver revenue from $4.32 per ounce, the price per the previous stream agreement, to $16.77 per ounce, the average market price for the three months ended March 31, 2018, and 10,704 ounces of gold equivalent revenue from $1,330 per ounce, the average market price for the three months ended March 31, 2018, to $600 per ounce, the price per the New Stream agreement; |
|
b. |
For the year ended December 31, 2017, the revenue adjustment was estimated based on repricing of 3.9 million ounces of silver revenue from $4.30 per ounce, the price per the previous stream agreement, to $17.04 per ounce, the average market price for the year ended December 31, 2017, and 28,799 ounces of gold equivalent revenue from $1,261 per ounce, the average market price for the year ended December 31, 2017, to $600 per ounce, the price per the New Stream agreement. |
j) |
To adjust depletion, depreciation and amortization as a result of the increased value of mining interests attributed to the San Dimas Mine arising from the purchase price allocation per Note 3. |
|
k) |
To eliminate financing costs on existing Primero and First Majestic debt facilities as a result of the settlements described in b) and c) above. |
|
l) |
To record pro-forma financing costs related to First Majestic’s new $75.0 million credit facility as described in a) above. |
|
m) |
To record pro-forma financing costs related to First Majestic’s new $156.5 million convertible debentures. |
Notes Page 5
4. |
PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (continued) |
|
n) |
To eliminate mark-to-market gain on existing Primero convertible debentures and warrants as a result of their settlements described in c) above. |
|
o) |
To record the deferred tax recovery at 35.25%, the effective tax rate in Mexico, relating to adjustments per j) to o) above. |
5. |
SHARE CAPITAL |
First Majestics issued and outstanding shares, after reflecting the additional shares resulting from transactions described in notes 1, 3 and 4 at March 31, 2018, are as follows: |
Number of shares | Amount | ||||||
Authorized | |||||||
Unlimited common shares without par value | |||||||
Issued | |||||||
First Majestic common shares outstanding at March 31, 2018 | 165,743,653 | $ | 636,568 | ||||
First Majestic common shares issued for the transactions | 27,333,184 | 186,959 | |||||
Pro forma balance, March 31, 2018 | 193,076,837 | $ | 823,527 |
6. |
PRO FORMA EARNINGS PER SHARE |
The weighted average shares outstanding for First Majestic have been adjusted to reflect the additional shares resulting from transactions described in notes 1, 3 and 4 effective January 1, 2017. |
Three Months Ended | Year Ended | ||||||
March 31, 2018 | December 31, 2017 | ||||||
Weighted average number of shares on issue - basic and diluted | 165,819,786 | 165,293,893 | |||||
Adjustments for shares issued for acquisition | 27,333,184 | 27,333,184 | |||||
Pro forma weighted average number of shares on issue - basic and diluted | 193,152,970 | 192,627,077 |
Notes Page 6