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Endeavour Silver to buy SSR’s Pitarrilla project in Mexico for $70m

Equipment at Silver Standard Resources’ Pitarrilla silver project in Mexico’s Durango state. Source: Silver Standard Resources.

Endeavour Silver (TSX: EDR; NYSE: EXK) is acquiring SSR Mining’s (TSX: SSRM; NASDAQ: SSRM; ASX: SSR) Pitarrilla silver-lead-zinc project in northern Mexico in a cash and share deal valued at $70 million.   

The transaction is expected to include $35 million in cash and the same amount worth of shares. Once the deal closes, SSR will own about 5% of Endeavour.  

SSR will also receive a 1.25% net smelter return royalty, which it says is currently worth $57 million.   

 “The acquisition of Pitarrilla, one of the world’s largest undeveloped silver projects, accelerates our vision to become a premier senior silver producer,” Dan Dickson, Endeavour Silver’s CEO, said in an interview. He expects Pitarrilla to take priority over the company’s other projects once the company analyzes “the economics of various scales and options for production.”   

The decision to buy the project came about in a relatively short time, Dickson said, noting that the two companies started talking about the acquisition in the fourth quarter of last year.

“For us sometimes deals take a long time, sometimes quickly,” he said. “At the end of the day, it is [one of] the largest undeveloped bodies in the world.”  

“There’s just not many primary silver producers out there and our ability to pick up one of the crown jewels in the space is a big testament,” he said, adding that for SRR Mining, which was moving towards gold, “it didn’t make sense for them to develop this ore body.”   

For SSR, the transaction is a part of the company’s goal of “realizing value by monetizing non-core assets,” SRR said. “Together with the sale of our non-core royalty portfolio in the third quarter of 2021 and ongoing rationalization of non-core equity positions, SSR Mining has realized in excess of $235 million … over the past seven months,” the company stated in a press release.   

Endeavour Silver has committed to spend a minimum of $10 million on exploration at Pitarrilla over a five-year period after the transaction closes, SSR said.   

The Pitarrilla project, 160 km north of the city of Durango, has measured and indicated resources of 164.7 million tonnes grading 99.1 grams silver per tonne, 0.36% lead and 0.91% zinc for contained metal of 525.7 million oz. of silver, 1.3 billion lb. of lead and 3.2 billion lb. of zinc.  

Endeavour Silver is treating the resources, which SSR first outlined in a 2012 technical report, as “historic” and aims to build current resource data within the next six months, said Dickson.   

The deposit remains open and according to Endeavour, the geology at Pitarrilla is “broadly similar” to its Guanacevi and Bolanitos underground mines, also in Mexico.   

Located 260 km away from Durango city, in northern Mexico, the Guanacevi mine, which Endeavour acquired in 2004, is the company’s highest-grade silver operation.  The mine produced 4.3 million oz. silver in 2021. 

The Bolanitos mine, located 12 km northwest of  Guanajuato city, was acquired in 2007. The mine produced 491,412 oz. of silver in 2021.  

Ovais Habib, an analyst who covers SRR Mining at Scotiabank, described the transaction as neutral.    

“We view the announcement neutrally as the sale monetizes a non-core asset while also allowing the company to maintain upside potential through the 1.25% NSR and ~5% equity stake in Endeavour Silver,” he wrote.  

“We look forward to future updates from SSR and Endeavour Silver about Pittarilla’s exploration and development.”  

Habib has an outperform rating on SRR and a one-year target price of C$31 per share.  

BMO analyst Ryan Thompson in a research note to clients stated that the cash and stock deal of $70 million was higher than BMO’s “prior carrying value” of C$47 million. “The company also retains a 1.25% NSR on Pitarrilla. We are pleased to see SSR monetize another non-core asset following the sale of its royalty portfolio, which closed in late October.” 

(This article first appeared in The Northern Miner)