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12/18/2012
First Majestic Purchases Orko Silver

It's not a great deal for First Majestic, but a good one. They paid $387 million (a 70% premium) for 75 million ounces ($5 per oz). But they will get 7 million ounces of additional production (beginning in 2016 or 2017) and substantial exploration potential. If they can double La Preciosa’s resources to 150 million ounces, then it will be great deal. I don’t think they would have bought it unless they expected to find a lot more silver on Orko’s properties. If they have success with the drill bit, this could turn out to be an excellent deal.

As usual, the company that gets taken out gets the short end of the deal. Investors in Orko do get a 70% premium, but that is at a depressed price. Also, if Orko has more silver in the ground, which is highly likely, then shareholders are not getting any value for that silver. Sure, First Majestic is a great company, but Orko could have been a 5 bagger, which is not likely for First Majestic. Many Orko investors are likely to sell their stock now and move on to another stock with 5 bagger potential – the very thing that made Orko attractive.

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