Silvercorp diversifies into South America with $146 million deal for Adventus

Credit: Adventus Mining

Silvercorp Metals (TSX: SVM) (NYSE American: SVM) is diversifying into South America with the acquisition of Adventus Mining (TSXV: ADZN) and its 75% interest in the El Domo copper-gold project in Ecuador.

In a news release Friday, the China-focused precious-base metals miner announced the all-stock deal valued at C$200 million ($146m). Under the terms, it will exchange 0.1015 of a common stock per Adventus share acquired, for an implied value of C$0.50 — a 31% premium on the 20-day volume-weighted average of the companies’ share prices.

Shortly after market open, shares of Adventus Mining gained 8.5% to C$0.47 apiece for a 52-week high, for a market capitalization of approximately C$175 million ($128m). Silvercorp shares were down 4.1% to C$4.64 by 10:00 a.m. ET, capitalizing it at C$823.3 million ($602.5m).

At closing, existing Silvercorp and Adventus shareholders will own approximately 81.6% and 18.4%, respectively, of Silvercorp’s share capital. Currently, Silvercorp does not hold any share in Adventus.

The deal will create “a new globally diversified green metals producer” and present an opportunity for the company to leverage its technical expertise to construct the El Domo project, Silvercorp chairman and CEO Rui Feng said.

El Domo is an advanced-stage project located that already had a feasibility study completed.

The study — published in late 2021 — envisioned a 10-year operation with average annual production of 10,463 tonnes of copper, or 21,390 tonnes of copper-equivalent. This outlook is based on proven and probable mineral reserves of 6.5 million tonnes at 1.93% copper, 2.52 g/t gold, 2.49% zinc, 45.7 g/t silver and 0.25% lead.

The base-case scenario presented an after-tax net present value, discounted at 8%, of $259 million and an internal rate of return of 32%. Initial capital cost (including refundable value-added tax) was estimated at $248 million, with a payback period of 2.6 years.

This, according to Adventus, makes El Domo one of the highest grade and lowest capital intensity copper-gold projects globally. A volcanic massive sulphide deposit, El Domo is part of a larger group of concessions called Curipamba in Ecuador. The total Curipamba property area is 215 sq. km.

75/25 joint venture

Following the feasibility milestone, Adventus earned into its majority 75% interest in the project from fellow Canadian junior Salazar Resources (TSXV: SRL), which kept a 25% stake. Adventus initially entered the project in 2017, and over the five-year period, it had spent the required $25 million on exploration.

Under their joint venture agreement, Adventus will fund El Domo’s capital costs to production and will receive 95% of the project’s free cashflows until all of its investments since 2017 are repaid, after which the cashflows will be shared 75% to Adventus and 25% to Salazar.

“I am very proud of the accomplishments of our entire Adventus team, together with Salazar Resources and other partners since 2017, highlighted by the advancement of El Domo from an inferred resource to the construction ready project that it is today,” Adventus CEO Christian Kargl-Simard said in a news release.

In the same release, Silvercorp said it has the technical capabilities to bring El Domo into production on an accelerated basis, having built eight mines in its current operations, along with three flotation mills of similar size to El Domo (with a new 1,500 t/d flotation mill under construction at Ying), and three tailings storage facilities.

Silvercorp’s existing cash balance of $200 million, combined with a $175.5 million streaming deal Adventus signed with Wheaton Precious Metals in 2022, is expected to fully fund El Domo through construction, it added.

The project currently has an investment protection agreement in place with the Ecuadorian government, and all its key permits have been secured, including the environmental licence and tailings storage approval.

In addition to El Domo, Adventus also holds several other exploration assets in Ecuador, led by the PEA (preliminary economic assessment)-stage Condor project.

According to the 2021 PEA, the Condor North area alone could support a 12-year mine with average annual payable production of 187,000 oz. of gold and 758,000 oz. of silver. The project hosts 2.3 million indicated oz. of gold and 12.8 million indicated oz. of silver and inferred resources of 4.3 million oz. of gold and 18.1 million oz. of silver.