RE:Rating: Buy, Risk: Above-average, Target: C$8.00 The key asset to be acquired is SVL’s Santa Elena silver-gold mine in Sonora, Mexico. The asset is
expected to produce 4.0–4.4m silver-equivalent ounces (SEO) this year, but reported a record 1Q15
figure of 1.35m SEO, which makes the guidance look conservative (consensus of 5.05m SEO). The
total reserve base consists of 18.8Moz of silver and 0.3Moz of gold, or ~36.5m SEO using a silver:gold
ratio of 60:1. Higher grades were processed in 1Q15 which, according to the MD&A, helped drive the
record result. Based on the reported 1Q15 financial statements, SVL generated US$2.99/SEO in FCF, an
impressive figure compared with FR’s negative US$1.28/SEO for the same period. Overall, we view this
deal as very good for FR as it is FCF-accretive, boosts production by 25.9% (based on the mid-point of
Santa Elena’s guidance for 2015) and improves the balance sheet by adding C$30m in cash (and C$15m
in debt). We believe there is potential for an interloper on this deal, given the Santa Elena mine is doing
well, and SVL is generating FCF and has a relatively good balance sheet.