Canada’s Silvercorp Metals (TSX, NYSE: SVM) is buying Guyana Goldfields (TSX: GUY) in a C$105 million ($75m) cash and stock deal that creates a diversified precious metals producer with two silver mines in China and a gold operation in Guyana.
The Vancouver-based miner, which currently produces silver, lead and zinc from mines in China, will give Guyana’s shareholders the option to receive C$0.60 per share in cash or 0.1195 of a share in the company, to a maximum cash consideration of C$33.2 million ($24m).
The C$0.60/share price represents a 71% premium to the 20-day volume-weighted average price of the target company as of Friday’s close.
“This transaction will create a new globally diversified precious metals producer,” Rui Feng, chairman and CEO of Silvercorp said.
“We believe this is a rare opportunity to leverage our underground mining expertise and strong balance sheet to unlock value for all shareholders through the development of the Aurora underground project as well as aggressive exploration programs in a proven gold district,” Feng added.
The two companies have also struck a loan agreement, whereby Silvercorp will lend Guyana Goldfields up to $15 million. The funding will be used for the ongoing underground expansion of Aurora during the period before the transaction’s closing and for working capital.
Guyana has been under investor pressure due to the poor performance of its flagship and only operating mine, Aurora, following a resources review.
The mid-tier gold producer shocked the market in March last year by announcing the amount of gold in proven and probable reserves at Aurora had declined by almost 1.7 million ounces, compared to estimates published in 2018.
The news triggered a bitter battle for control of the company led by founder and former chairman Patrick Sheridan, which was settled in April 2019. The deal included the appointment of an interim director and chief executive, who was replaced in January by Alan Pangbourne, Guyana’s current president and CEO.
Shares in the company fell to the lowest since 2008 in October, after the embattled Canadian miner revealed Aurora would fail to meet production guidance. The company added that a mine plan review was underway.
Guyana Goldfields’ share price has steadily declined since then. So far this year, is down 39%, last trading on Friday at 42 Canadian cents.
The miner’s current market capitalization is sitting at almost C$73 million, about half the C$167 million it was a year ago.