On the Deal Q&A: ‘Simplicity’ in Silver

Coeur Mining’s physical entry into Canada was negotiated quickly with limited approvals required
Things could not have gone more smoothly in Coeur Mining Inc.’s acquisition of the Silvertip Mine — a high-grade silver-zinc-lead operation in Northern BC — and private company JDS Silver Holdings Ltd. The deal that marked the Chicago-based precious metals producer’s physical entry into Canada was marked by its ‘simplicity’ in execution. And in these complicated times, that could bode well for foreign inbound mining.

LEXPERT: Why did Coeur decided to launch operations in Canada for the first time? What is it about the Silvertip mine that was appealing?
Kari MacKayGoodmans LLP (for Coeur Mining): Most senior producers prefer to operate in stable jurisdictions or where other production risks have been minimized. However, equally important to senior producers is their pipeline of continuing growth. The Silvertip mine is one of those unique opportunities that check all the boxes for a producing company. … Silvertip is a new mine with one of the highest grade opportunities in the sector, it has anticipated near-term high margin cash flows with low costs, is in a stable jurisdiction and has a lot of exploration potential.

LEXPERT: Can you give me a sense of how this deal came about? Had the Silvertip mine been on Coeur’s radar for a while? 
MacKay: Like many senior producers, Coeur is always looking for growth pipeline opportunities. They regularly look at a variety of opportunities and sometimes spend many years looking at an asset. In this instance, although there were the inevitable starts and stops in early discussions, the process moved along at a relatively quick pace once negotiations began in earnest. Coeur has been involved in a number of Canadian transactions over the years and is very happy to have a physical presence, as well as its significant investor presence at this time.

LEXPERT: There were several elements to this deal, including the cash-and-share considerations, assumption of debt and additional contingent payments of up to US$50 million. Why was the deal structured in this way? 
MacKay: The diverse forms of consideration offer the best opportunity to both the purchaser to get good value for its money, and for the sellers to leverage potential of the asset and maintain exposure to future expansions. The milestone payments are objective opportunities to recognize future potential with limited risks to Coeur. Taking a portion of the consideration in stock, diversifies the holdings of JDS’ shareholders while maintaining their exposure to this great asset.

LEXPERT: How large a role did the environmental aspect play in the due diligence process? 
MacKay: Environmental protection is of critical importance to Coeur not only in its diligence process, but throughout its tenure with any project. Coeur spent a lot of time considering the environmental risks of the intended operations and assured itself as to the historical activities of prior operators. As in any mining operation, there are a number of specific environmental matters that continue to be monitored at the Silvertip mine so that Coeur may continue sound environmental stewardship.

LEXPERT: As a corollary to that, how much further discussion was required with First Nations stakeholders? Do you expect furconsultations going forward?
Keith Bergner (Lawson Lundell LLP, for Coeur in British Columbia): There is an existing agreement in place with the Kaska Nation, and the parties recognize they have a mutual interest in building a strong relationship and co-operating with each other. As with much of British Columbia, there are some overlapping claims in the area, including a claim by the Tahltan. The company is committed to fostering strong relationships with all potentially affected First Nations communities and believes that the Silvertip project holds opportunities for all communities in the region.
MacKay: As part of our diligence, we confirmed the historically positive relationship with the First Nations communities in the area of the Silvertip mine. Coeur anticipates ongoing consultation with these communities both in the context of optimization and exploration, and as a matter of regular operations. Like its environmental stewardship policies, Coeur is dedicated to preserving good community relations and unique ecosystems throughout operations through to post-reclamation.

LEXPERT: Given that there is a new NDP government in British Columbia, was there any uncertainty around how things would play out? 
MacKay: The change in government in British Columbia last spring was interesting to observe. However, given the mine life of many of its projects, Coeur anticipates that there will regularly be changes in government, and strives to produce sound operational plans that are of benefit to communities.

LEXPERT: What kind of regulatory approvals were necessary?
MacKay: Based on the financial metrics of JDS Silver and the parties to the transactions  including their Canadian presence  neither Competition Act nor Investment Canada Act filings were required. There were limited approvals required to complete the transaction.

LEXPERT: Did the legal teams know each other going in? How would you characterize the tone of the negotiations?
MacKay: We were very happy to have the opportunity to work with our colleagues at Blakes and Bennett Jones again and with Lawson Lundell. I believe many of us knew each other from prior transactions  or long-past school days  but it is always great to be back in touch. I would characterize our interactions as friendly, professional, and very productive. As mentioned previously, our clients were in discussions for a long period but once commercial arrangements were determined, things moved quite quickly and negotiations happened over a short period near the end of last summer.

LEXPERT: How are things going with plans to restart production? Exploration?
MacKay: Coeur continues to anticipate production to be back on line in the first quarter of this year, and as indicated, Coeur sees significant opportunities for exploration at Silvertip. All of these plans require technical and legal consideration, most of which is completed by Coeur’s highly experienced in-house team.
Karen MacMillan, Lawson Lundell (for Coeur in British Columbia): The transition is going well and the minor legal issues that we have encountered have been those that we anticipated leading up to the acquisition. We have provided significant advisory work in terms of this transaction and have played a role in helping Coeur in understanding the BC landscape and in navigating the implementation process.

LEXPERT: Some observers say that a rebound is afoot after a long dry spell in the mine building and development sector. What can we expect to see going forward?
MacKay: It is an interesting time right now, but our impression is that the mood during this [investment] “conference season” is generally positive. There continues to be a number of transactions where the purpose is to rationalize balance sheets but the recent rebound in gold prices seems to have provided an opportunity for greater exploration budgets.
MacMillan: Key indicators suggest a rebound in the mining sector and Canada continues to be an attractive jurisdiction for miners. Based on activity levels in 2017, I would not be surprised to see a continued increase in interest in acquiring and/or advancing Canadian mining projects.

LEXPERT: Finally, what would you say was the most memorable or unusual aspect of this deal? 
MacKay: Negotiations on this transaction proceeded rapidly, with an executed agreement being confirmed over a short period of time. Also, there were no approvals required and limited interactions with third parties. One might say that the most unique aspect of this transaction was the simplicity in execution and completion. We are very lucky to have been working with the excellent team at Coeur for so long.

MacMillan: Coeur was a new client for the firm … It has been gratifying to help establish the company’s presence in BC.

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Kari MacKay Karen L. MacMillan Keith B. Bergner