Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver Tahoe Resources conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Michael Steinmann, President and CEO of Pan American Silver. Please go ahead, sir.
Thank you, operator, and good morning, everyone. Thank you for joining us on the call today. With me today are Kevin McArthur, Executive Chair of Tahoe, Jim Voorhees, CEO of Tahoe, Steve Busby, Chief Operating Officer of Pan American Silver, and Rob Doyle, CFO of Pan American Silver. Today, we are pleased to announce that Pan American and Tahoe have reached a friendly agreement whereby Pan American will acquire Tahoe for cash and shares, creating the world's premier silver mining company. The new Pan American Silver will hold some of the most attractive silver assets in the world, boasting the largest silver reserves and measured and indicated resources space globally, which, coupled with an industry-leading growth profile, makes the combined company the most attractive investment in the silver mining space today.
Please keep in mind I will use forward-looking statements in my presentation, and please read the cautionary notes we have included in the slides. Under the terms of the agreement, Tahoe shareholders will receive a total consideration of $4.10 per Tahoe share. The total consideration is comprised of two parts: a base purchase price and a contingent consideration component, which becomes payable when the Escobal mine is restarted. The base purchase price of $3.40 per Tahoe share represents a 34.9% premium to Tahoe's 20-day VWAP and is payable at closing. Tahoe shareholders can elect to receive all cash up to a maximum of $275 million or all shares at 0.2403 Pan American shares per Tahoe share, both of which are subject to proration.
The contingent consideration of $0.70 per Tahoe share is payable upon first commercial shipment of concentrate of Escobal, representing an additional premium of 27.9% based on the 20-day VWAP. The Escobal contingent consideration will be structured as an Escobal contingent value right, or CVR, which will be fully transferable. Each Escobal CVR will automatically convert into 0.0497 Pan American shares on the payment date. Together, the base purchase price and Escobal CVR represent a 62.8% premium to Tahoe's 20-day VWAP. The transaction has the unanimous support of Tahoe's Board of Directors and Special Committee, as well as unanimous support of the Pan American Board of Directors. Post-payment of the Escobal CVR, Tahoe shareholders will own approximately one-third of New Pan American.
The strategic rationale for the deal is clear and powerful, with a portfolio of some of the best silver mines, a leading growth profile, and leading position within the industry across numerous metrics. New Pan American will truly be the world's premier silver mining company. Escobal is a world-class asset, and we are excited to bring it into our portfolio. The new Pan American will have the largest silver reserve base in the world, diversified across the most important silver-producing jurisdiction in the Americas. New Pan American will also have one of the most exciting growth profiles in the industry, with the Escobal restart, expansion potential at La Colorada, and potential development of Navidad, one of the world's largest undeveloped silver deposits.
Our management team has a proven 25-year track record of success in Latin America, which, in addition to the financial benefit, is one of the key attributes for Tahoe in pursuing this predominantly share-based transaction. Pan American will maintain a strong balance sheet post-transaction, enabling us to advance our growth projects. The opportunity to optimize our asset portfolio through the sale of non-core assets will further strengthen our financial position and maximize our exposure to primary silver opportunities. These attributes make Pan American, now the largest silver mining company by free float, the go-to investment in the silver industry. This transaction is compelling on a number of fronts for both Pan American and Tahoe shareholders. For starters, it doubles our silver reserve base and potentially nearly doubles our silver production base. Pan American is gaining exposure to one of the most attractive silver mines in the world through Escobal.
When in operation, Escobal was a consistent leader in low-cost production. With over $500 million invested in development and infrastructure, this is a well-built, proven, turnkey operation capable of restarting production rapidly once social acceptance is reestablished in Guatemala. The contingent value right structure is an appropriate way to share some of the risks. However, we fully expect to become payable in due course. Once the mine is restarted, Escobal will add approximately 80% to our silver production base. We have a defined path towards resuming production, which I will review shortly, and our team is focused on establishing the long-term trust and partnership required with all stakeholders to ensure a successful long-term solution at the mine. Tahoe also has an attractive portfolio of gold assets. Recent investment totaling approximately $225 million will position these assets to deliver significant low-cost production in the future.
Shahuindo, La Arena, and the Timmins mines are well-built, modern operations in favorable jurisdictions well known to Pan American Silver. These assets will allow Pan American Silver to improve its overall cost profile, with further efficiencies possible through operating and administrative synergies. They also enhance our geographic diversification while maintaining our focus on the Americas. These exciting attributes are why our board is unanimously recommending that Pan American shareholders support this transaction. I would like to turn over to Kevin now to walk us through the benefits for the Tahoe shareholders.
Thank you, Michael, and thanks, everyone, for attending this call. We've been talking with Pan American about creating the world's premier silver mining company for quite a long time, and this transaction achieves it. The combination will provide significant benefits to the shareholders of both companies for the reasons Michael has highlighted. Tahoe shareholders, in particular, have many reasons to support this transaction. First of all, a substantial upfront premium, of course. Additional upside tied to Escobal and the go-forward ownership in what we believe will be the world's best silver mining company, run by a management team with the best track record in the industry. Total consideration for Tahoe shareholders under the agreement represents a substantial premium, 63% to Tahoe's 20-day VWAP. Importantly, Tahoe shareholders will retain exposure to the world-class Escobal mine, but will also benefit from an improved balance sheet.
This will enable the new Pan American to pursue additional growth opportunities while we continue to make progress on the consultation with the Xinka Group in Guatemala. Tahoe shareholders will also benefit from diversification of production through exposure to Pan American's portfolio of high-quality operations in the Americas and exposure to Pan American's robust growth profile, with potential expansion at La Colorada and development of Navidad, one of the world's largest undeveloped silver deposits. We have known Pan American and its management team for many years. We've been very impressed with their long-term success, and we are confident that they, together with our excellent operational team, are best positioned to maximize the value of the combined company's assets.
The combination of a significant upfront premium and the long-term value creation potential of ownership in the new Pan American makes this a very compelling transaction for Tahoe shareholders, and that's why our board and the special committee are unanimously recommending that our shareholders support it. With that, I'll turn it back over to you, Michael. Thanks.
Thanks, Kevin. I want to take some more time to highlight Escobal, which is simply one of the world's best silver mines. There is a scarcity of high-quality primary silver assets, and the opportunity to acquire an asset such as Escobal is rare and exciting. Having been to site a couple of times, and most recently last month, I can personally attest to how well-built this operation is. Kevin and his team have done an exceptional job in developing this mine, having invested over $500 million since 2011 in development, expansion, and sustainable capital. When it was producing, Escobal was one of the world's largest primary silver operations, producing over 20 million ounces of silver with consistently high margins for three consecutive years. As one of the world's largest silver deposits holding 264 million ounces in reserves, Escobal has significant long-term production potential.
With a long-standing track record for responsible mining in Latin America, Pan American is committed to being fully engaged in the process of consultation with the Xinka community and to establish a long-term relationship of trust and partnership with all of the Escobal stakeholders. This transaction enhances our geographic diversification while allowing us to stay focused on our target jurisdictions, where our strong operational track record and experience can be best utilized. As you can see on the map, Pan American operates in the most important silver jurisdictions in the world. At Pan American, we have strived to provide investors with primary silver exposure, and this remains our focus. The acquisition of Tahoe will double our reserves, given Pan American the largest silver reserve base in the world. Importantly, we remain a silver-focused company, with 48% of our reserve value coming from silver.
With the potential development of our large Navidad deposit in Argentina, our silver reserve base could experience further exponential growth. On these key metrics, the new Pan American would become the new industry leader with the largest silver reserve base, largest silver M&I resource base, highest margin operations, and strong production profile. With the potential addition of Navidad, the new Pan American Silver would eclipse Fresnillo as the world's largest silver producer. This is what I mean by saying we have created the world's premier silver mining company with this transaction. I spoke before about our focus on silver. The next slide shows how we would compare to other major silver companies in this metric. True silver exposure seems to be a fading priority for most of our peers, due, in part, to how difficult it is to find or acquire primary silver mines.
Our silver exposure of 48% is second only to Hochschild, but our reserve base will be nearly 10 times larger. Fresnillo is the only company that has a larger silver equivalent reserve base than Pan American, but the majority of their reserve value is in gold. For primary silver exposure with scale, new Pan American is the clear leader with significant growth potential. At Pan American, we are not only looking to be the premier silver mining company, but also the premier silver mining investment. The combination with Tahoe also helps achieve this. We will be the largest silver mining company by free float, enabling investors to gain primary silver mining exposure through a highly liquid, widely traded security. We have spent a lot of time so far talking about silver and how this transaction positions the new Pan American as the world's premier silver miner.
But I do not want to neglect the quality of the gold assets we are acquiring as part of the combination with Tahoe. Shahuindo, La Arena, and the Timmins mines are well-built, well-run modern operations in favorable jurisdictions with significant scale production over 400,000 ounces. The recent capital programs at Shahuindo and Timmins position these assets well to deliver low-cost production in the future, bolstering the new Pan American cash flow potential. Further efficiencies exist through synergies in Peru and North America, which we expect will further improve margins. With their quality and location, these assets are also highly marketable, which provides new Pan American with additional liquidity options to foster investment in the future. There are many opportunities to harvest additional value in this transaction by developing a positive integration plan that takes full advantage of the strength of both Pan American and Tahoe teams.
Obviously, a key focus on the integration plan will be to fully respect, support, and cooperate with the four-stage Constitutional Court mandate and government-led process of consultation with the Xinka community that is well underway in Guatemala addressing the Escobal mine. In addition, full support will be directed towards satisfactorily addressing the court mandate, administrative matters, and most importantly, the integration plan that will strive towards creating an open, transparent, and inclusive dialogue with the local communities in an effort to build long-term trust and integrate our future business in those communities. The four-stage consultation process with the Xinka community has been well defined, and we are committed to working collaboratively with indigenous communities, ministries, courts, and other stakeholders to successfully conclude the consultation process.
Our efforts will not stop there, as we are determined to become the employer of choice in the region and demonstrate to the local people that we are committed to an open dialogue and collaborative solution. An important aspect of our ability to successfully unlock the potential created by the combination with Tahoe is our operational track record. Since 1995, we have consistently and successfully found and built mines and grown production exponentially. La Colorada, Alamo Dorado, Morococha, Manantial Espejo, San Vicente, the La Colorada expansion, and the Dolores expansion were all mines that were built collectively on time and on budget and with significant value drivers for the company. The new Pan American Silver will have a significant amount of growth opportunities in the portfolio with Escobal, Navidad, and another potential La Colorada expansion, which, based on our history, I'm fully confident we can execute.
Simply put, past results are the best predictor of future results. While we are proud of our success in building mines, growing production, and creating value, we are particularly proud of doing so responsibly. Our focus on transparency, building trust in local communities, and generating real benefits for our communities where we operate has been central to our success in Latin America. Social responsibility is an important pillar of our governing philosophy and is something that we intend to emulate at all operations following the combination with Tahoe. I'd like to take the opportunity to address some of our Spanish-speaking listeners who may be on the line.
[Foreign language] Para quienes son de habla española, quiero contarles que la larga trayectoria que tenemos de trabajo ético, responsable y sostenible en las Américas nos facilitará la integración de las nuevas operaciones en nuestro negocio y permitirá que Pan American Silver se convierta en la principal empresa minera de plata del mundo. Los invito a todos a visitar nuestro sitio web, donde encontrarán información detallada de la empresa en español, incluyendo el reporte de sostenibilidad, el cual habla de nuestra responsabilidad con el medio ambiente y las comunidades. The next few slides provide further detail on the structure of the transaction with Tahoe, which I summarized before, as well as providing an overview of the pro forma capitalization of the new Pan American.
The transaction is subject to approval of 66.23% of Tahoe shareholders and a simple majority of Pan American shareholders and the 66.23% of Pan American shareholders to increase Pan American's authorized capital to facilitate the transaction. Shareholder circulars, which will include full details of the transaction, will be sent to Pan American and Tahoe shareholders in December 2018. We expect shareholder meetings to be held in January 2019, with closing also targeted for January next year. Irrespective of using $275 million in cash as part of the transaction, our balance sheets will retain the ability to fund growth and development projects going forward. Our pro forma Pan American net debt to 2019 EBITDA ratio of 0.2 times, based on analyst consensus estimates of 2019 EBITDA, is well below our peers and can be further improved with the opportunistic sale of non-core assets should we decide to do so.
To conclude, I want to re-emphasize the motivation for this deal, which is to create the world's premier silver mining company. New Pan American Silver will have the largest silver reserves based in the world, with an asset portfolio focused in the Americas and exposure to the most important silver-producing jurisdictions. Pan American Silver has the potential to unlock superior operating metrics and industry-leading production and margins from these portfolios, and leveraging on our 25-year track record of success in Latin America. New Pan American will have one of the most compelling growth profiles in the industry, with the Escobal restart, expansion potential at La Colorada, and potential development of Navidad, the world's largest undeveloped primary silver deposit. With these attributes, Pan American is the world's premier silver company, and as the largest silver mining company by free float, Pan American will become the undisputed go-to silver mining investment.
These compelling attributes of the new Pan American Silver are why the boards of both companies have unanimously recommended that shareholders support this transaction. We are confident to have set this company on course to deliver value for all stakeholders. Thank you very much, and with that, I will open a call for questions.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from Ralph Profiti with Eight Capital. Please go ahead.
Thanks, Operator. Good morning, everyone.
Hey, Michael, I have a question on the valuation approach to Escobal and the CVR. Would it be fair to say that the goal was to share the Escobal risks somewhat, maybe equally, between Pan American and Tahoe? Because it appears that the 340 payment does have some value of Escobal in there. I'd like to get your thoughts on that, please.
Ralph, good morning. Yeah, I think that's fair to say. There is a sharing, as I alluded to in my text, the sharing of the risk, which is appropriate, I think, for the deal for the high-quality asset of Escobal.
Okay.
Yeah.
And just switching gears to some of the non-silver assets, I'd like to get your thoughts on what you think the exploration potential is for the Timmins assets.
Maybe secondly, what's your view on how La Arena II fits into the potential new Pan American strategy, it being a copper asset?
It's obviously early days here in the transaction, but you know us, you know that exploration is always a very important pillar to us for value creation. This will not change here in the future. As a geologist in my former life here, I absolutely believe in value creation through the drill bit. I think we have shown that many times, just recently, actually, with the discovery that we announced at La Colorada. And we fully intend to do that in all the other and additional assets that we add to our portfolio as well. I think there is, in many places, in most mines, always a very large potential to find more through brownfield, smart brownfield exploration.
I always think it's one of the best ways to create value. Sorry, what was the second part of your question?
Specifically, La Arena II. How does that fit in?
La Arena II, it's a bit early right now yet, right? I mean, we have an early study out there. It seems to be a very large base metal deposit that needs a bit more work. So I think it's too early to make a statement on what the plans are for La Arena II going forward here. Just to emphasize again, I'm very excited about the exploration potential of all the assets that we are purchasing here.
Great. Thanks for your answers.
The next question comes from Mark Mihaljević with RBC Capital Markets.
Thanks and good morning, everyone. Good morning.
So first off, can you just give us a bit of background on the deal coming together, the amount of due diligence that was done, and all that fun stuff?
Yes, Mark. Look, obviously, I alluded many times in conference calls, especially in the last, I would say, year and a half or two years, that we are very active looking around in the M&A space. I think where the market sits right now, it's the right time to do deals. It's very hard to find high-quality silver assets. I'm sure you are aware of that. And having access to an asset like Escobal is an amazing opportunity for us. This talks and communication have started very early, I think, just because I was always interested in the Escobal asset. As you know, I always counted, basically, or discussed assets that are of high quality.
And there are not many available. Many are already in our possession. And Escobal was always sitting there, so I was always interested. So discussions have been taken on and off for quite a while here and intensified over the last few months. And today, we are here to celebrate the result of it.
Thanks. Yeah, I definitely know you guys have been shopping, and hard to get something across the line, typically in this space. I guess kind of on the flip side of all of this, you kind of alluded to the potential to sell some non-core assets. And obviously, you've always highlighted your focus on the silver side of things. So do you kind of see Tahoe's gold segment as a potential non-core assets, or do you think some of your smaller silver assets now become kind of more work than they're worth to keep around? Just what your thoughts are around that rationalization?
Look, I think there are non-core assets on both sides here. We will need time here to work through all of it and make final decisions. Nothing is decided yet. There's absolutely no time pressure or need for us to sell any assets here. We will be very opportunistic with these sales. As you understand or saw there or heard about in my call, we will continue to have a very strong balance sheet, so there's no pressure on the company to sell them. But for sure, I can see a few non-core assets and investments that we have on our side and the same on the Tahoe side.
Thanks, for that. And then just one final one for me. Just trying to get a sense of kind of what you expect to do differently down in Guatemala? It sounds like the consultation process is kind of continuing as planned. So just seeing what you guys think you'll bring to the table or how you'll approach things differently.
Sure. I think I alluded a few times in my script to 25 years of experience that our team has in Latin America will help a lot here. I'm confident about that. We build, and I set a list there. I put the list up there. Actually, I could put every mine that we have, every asset that we have right now in Latin America as we need to build from scratch or expand it by the current management team of Pan American Silver. So we have a lot of experience. I personally have over 30 years of experience in Latin America, living there, working there, and so has the core team in Pan American.
So a lot of experience that we have. We have a long history on the CSR side. I think we're probably the first silver mining company publishing six years ago a detailed CSR report, which is, by the way, available in English and Spanish on our website. And this is always obviously based in engaging with the communities, listening to the communities, finding out needs, and finding solutions together. It served us very well over the last 25 years, and I'm sure it will serve us very well in the future.
Okay. So I guess it's just a matter of doing some of the basics and kind of reinforcing the fundamentals, but the overall process is going to remain the same. And kind of hoping for a, call it, 12-month resolution is fair to say at this point.
I don't want to put the time frame on this process here, Mark. I think we just keep on going here. Obviously, the technical side or the four-stage process, as I explained in the call, is pretty well defined, and we will start to work on the side here with the communities, as I said, engage with the communities, listen to the communities, and I'm sure and confident that will bring us to success.
Okay. Thanks. That's it for me.
Thank you.
The next question comes from Trevor Turnbull with Scotiabank.
Yeah. Hi, Michael. I just had a question with respect to the contingent value rights, the CVRs, and how they convert to Pan American shares. I think it was mentioned that they convert based on a payment date, which obviously is predicated on Escobal coming back into production.
I'm just wondering how that mechanism works in terms of setting the date. Are there any kind of upper bounds or lower bounds kind of depending on the Pan American share price? I assume that depending on when Escobal comes back into production, you're not necessarily going to convert the CVRs based on, say, today's Pan American share price. But I assume there's some factor as to where the Pan American share price is at the time Escobal is back online.
Obviously, it's, as you said, related to the restart of Escobal mine. It will be triggered by the first commercial shipment of concentrate from the asset.
Right. And so then do you just take the Pan American share price at the time that happens, or is there a VWAP mechanism, or is it somehow tied to today's share price when the deal closes?
I'm just wondering if there's any kind of adjustment that takes place, or it's just simply based on the share price at Pan American at the time of the restart.
As I explained, and it's also shown in our press release, there's already a fixed ratio between our shares and what the CVR will represent. And as I said, it will be paying out at the time when we have the first commercial shipment out of Escobal.
Okay. Thank you, Michael.
You're welcome.
The next question comes from John Tumazos with John Tumazos Very Independent Research .
Thank you very much. Congratulations to Pan Am. My question is directed to Jim on the Tahoe side. Why did you choose to sell out now? It would appear to be unfavorable timing near the climax of tax selling after Tahoe was one of the weaker performers in 2017 and 2018.
Why not hold out for six or 12 months for a better moment or a better auction?
John, this is Kevin. Thanks for the question. We know that there would be questions as to why we would sell at what looks like an all-time low. This was a big concern of ours, of course, and the board and the special committee. What we saw was the combined company will bring a much stronger balance sheet and the financial capacity to manage our way through the consultation period in Guatemala all the way to a restart. Furthermore, we strongly believe in the projects, the mines, and the future of the new Pan American. We're confident that the shares of the combined company will do well and very well may result in a re-rating of our assets as we go forward.
We also believe that consolidation in the industry is important, and the synergies between our companies are meaningful. And we do retain full exposure to the metals prices, the mines, and the projects, and the eventual restart to Escobal. And as the prior caller was asking, this ratio brings us the Pan American shares right away, and so we have that full exposure. Last, of course, we've been offered a strong premium to our share price. And we felt that for all of these reasons, this was compelling to us and that we needed to bring this to our shareholders, and we strongly support it. We can't dictate timing, but what we can do is look at the ratio of the shares of Pan American to ours. And of course, we had two fairness opinions that concluded this was a fair deal for our shareholders.
Kevin, you only have about $50 million of net debt at the moment. Is there any covenant that you're near violating or some event of default that you're concerned about?
No, not at all. And this is a long-term issue for how long it would take to get a restart in Guatemala. And when we looked at the risks of metals prices and all of our projects and our strong desire to start advancing the La Arena II project, this looked like to us, on a risk-weighted basis, the best way to move the company forward.
So Kevin, if I could disagree, you do have control over timing. You could say no and not sell out when your stock is at an all-time low by a 90% magnitude.
Yeah. Certainly, that's an option.
So Kevin, based on what I know, I'm going to vote my shares against your transaction. I own both stock, but I'm going to vote my Tahoe shares against the transaction. And frankly, if an attorney called me up and wanted me to participate in a suit against all you guys, it'd be hard to argue against it despite BMO and Trinity's opinions.
Okay, John. Thanks for your comments.
Thank you.
Once again, if you have a question, please press star, then one. Our next question comes from Chris Thompson with PI Financial.
Hi, Michael. Hi, guys. Thanks for taking my question. I guess the big question I have, maybe even the elephant in the room here, is what sort of time frame we're looking at with respect to where we stand in the consultation process, where we stand related to the Guatemalan Constitutional Court verification and ultimate Escobal restart. Could you just hang a time frame around this, Michael?
Like I said before, I don't want to put a time frame on this. This is moving along as it should move with this four-stage process on the legal side. It moves along on the side with the communication and contacts with the communities, and it will take as long as it takes to be very successful here. I want to get that really, really right. It's important to get it right on all sides here, on the legal side, on the community side, etc., etc., so I don't want to put a time frame on it. I think the deal structure takes care of this time frame. It takes care of sharing the risk, and we will work very diligently and strong and hard with communities, with the ministries, to get that mine up and running again.
Okay.
All right. Sorry, I had all the question.
This concludes time allocated for the question-and-answer session. I would like to turn the conference back over to Michael Steinmann for any closing remarks.
Thank you, everybody, to call in that early morning, at least very early morning here in Vancouver. I think this is a very, very exciting story, creating the world's premier silver mining company. I'm looking forward over the next few weeks to talk to many of you in person. Have a good day. Thank you very much. Bye.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.