On Sunday Pan American Silver (PAAS) announced its $2.1B acquisition of MAG Silver (MAG) and its 44% stake in the highly coveted Juanicipio silver mine in Mexico.

The deal rationale is clear, as the 34% bump in pro-forma silver production cements PAAS as the 2^nd largest producer globally and materially improves its cost profile.

Where the market isn’t yet convinced is on the price, which is rich at ~2.2x NAV - a >20% premium to MAG’s share price. With $500M of cash outlay (over half of Pan American’s cash balance) and 60M new shares, PAAS fell 16% on the day.

With the gold-to-silver ratio sitting well above historical norms, though, PAAS may have made this acquisition at an opportune time.