Pan American Silver (PAAS, PAAS.TO) has just made a billion-dollar friendly bid to acquire Tahoe Resources (TAHO, THO.TO). The good news for Tahoe shareholders is that they can take cash now, if they are tired of that company's problems and want out, or PAAS shares, if they want to retain upside in case Tahoe's problems are resolved favorably. There's even a provision for extra compensation for Tahoe shareholders should their shuttered flagship Escobal silver mine in Guatemala ever get going again.
This is a clever arrangement that snags a spectacular silver asset for Pan American on the very cheap. But it's not without risk. This is an extremely gutsy move on Pan American's part. If management is the root of the problems Tahoe has in Guatemala, then this change of ownership--and management--could break the logjam and get the mine going again. But it's far from certain that this is the case. It could be that the locals are now so bent out of shape, the mine will never be put back into production--at least not by due process respecting Gringos. But even if new management is the answer, that won't make Guatemalan courts move faster or do other than whatever they please.
If I still owned PAAS shares, I wouldn't be too happy with the huge risk the company is taking, especially given that Pan American already has another big silver project stuck in limbo: Navidad. On the other hand, if they can be rescued and put into production, both deposits will have been bought for a song. Longer term, Pan American may come out looking like a bunch of geniuses. But for now, it really raises the risk profile of the company. I'm glad I got out when I did. If the stock gets stupid-cheap at some point, I might buy back in again.
