A strategic acquisition in the resource sector is poised to create a geographically diversified mining company.
Canadian silver miner Silvercorp Metals Inc. (TSX/NYSE-A:SVM) recently announced a friendly deal to acquire Adventus Mining Corp. Adventus Mining Corp. (TSXV:ADZN) in an all-stock transaction worth C$200 million. Adventus’ flagship property is the permitted El Domo Copper-Gold Project in Ecuador. The move marks a significant milestone for both companies and aligns with Silvercorp’s strategy of acquiring and developing near-production mining assets globally.
According to Canaccord mining analyst Dalton Baretto, “We view the acquisition of ADZN as a sound strategic move by SVM. El Domo adds jurisdictional and commodity diversification, and the project demonstrates an attractive base case along with the exploration upside that comes from controlling a large land package in an unexplored VMS camp.”
The transaction at a glance
Under the arrangement agreement entered in late April, Adventus shareholders will receive 0.1015 of one Silvercorp share for each of their Adventus shares, for an implied value of C$0.50 per Adventus share – a premium of 31 per cent based on the 20-day volume-weighted average price of both companies on the TSX and TSXV, as at April 25, 2024.
Post transaction, existing Silvercorp and Adventus shareholders will hold 81.6 per cent and 18.4 per cent of the combined entity, respectively.
Silvercorp has already closed a C$25.6M private placement, securing a roughly15 per cent stake in Adventus. The proceeds will allow Adventus to repay loans, fund working capital, pay general administrative expenses, and make early project development expenditures.
The Adventus Board has unanimously approved the transaction, which is subject to a shareholder vote in late June and satisfaction of other customary closing conditions. The company’s directors, officers, and top shareholders Mr. Ross Beaty and Wheaton, representing 23 per cent of shares, have entered into voting support agreements with Silvercorp.
The transaction is subject to a termination fee of C$10 million payable by Adventus in certain circumstances and is expected to close in early July.
El Domo Project
The advanced, high-grade El Domo copper-gold project is located in Central Ecuador, approximately 150km northeast of the major port city of Guayaquil. The project is 75 per cent owned by Adventus with the remaining 25 per cent owned by Salazar Resources.
The addition of El Domo will provide Silvercorp with immediate geographic diversification with increased exposure to copper and gold.
The key permits for El Domo, including the Environmental License, tailings storage approval, and Investment Protection Agreement with the Government of Ecuador, have already been secured.
In 2021, Adventus published a feasibility study outlining a conventional open-pit operation at the El Domo project. Highlights from the study include:
- Pit-constrained Proven and Probable Mineral Reserves of 6.5 million tonnes at 1.93 per cent Cu, 2.52 g/t Au, 2.49 per cent Zn, 45.7 g/t Ag, 0.25 per cent Pb
- A 10-year mine life with average annual production of 11 kt copper and 26 koz gold over the life-of-mine
- Production C1 cash cost of US$1.14/lb and AISC of US$1.26/lb copper equivalent
- Initial capital cost of US$248 million with a payback period of 2.6 years, after-tax IRR of 32 per cent and NPV8 per cent of US$259 million, utilizing US$3.50/lb Cu, US$1,700/oz Au, US$1.20/lb Zn, US$23.00/oz Ag and US$0.95/lb Pb
The transaction would de-risk El Domo development by leveraging Silvercorp’s technical capabilities and financial strength, which includes a cash position of US$200 M and no debt as of December 2023. Having built eight mines in its current operations, along with three flotation mills of similar size to El Domo (with a new 1,500 tpd flotation mill expansion underway at Ying), Silvercorp has the relevant technical capabilities to bring El Domo into production on an accelerated basis.
Management insights
“This transaction will create a new globally diversified green metals producer. It presents the opportunity for us to leverage our technical expertise and strong balance sheet to unlock value for all shareholders by constructing the El Domo project. We look forward to working with the Government of Ecuador and local communities, as well as leveraging the existing Adventus and Curimining teams, to grow our business in Ecuador which will generate sustainable economic, social, and environmental value for all stakeholders,” Silvercorp’s chairman and CEO, Dr. Rui Feng, said in a news release. “We would also like to acknowledge the hard work and contributions to the El Domo project by our future partners at Salazar Resources. Silvercorp will continue to work collaboratively with Salazar as El Domo is advanced into construction and ultimately operations.”
Analyst insights
Analyst data collected by Tipranks averages Silvercorp as a “strong buy” rating. Analysts have weighed in on Silvercorp Metals’ proposed acquisition of Adventus, with generally positive views on the strategic merits of the deal.
Dalton Baretto (Canaccord) – “We view the acquisition of ADZN as a sound strategic move by SVM. El Domo adds jurisdictional and commodity diversification, and the project demonstrates an attractive base case along with the exploration upside that comes from controlling a large land package in an unexplored VMS camp.”
Felix Shafigullin (Eight Capital)– “The proposed acquisition of ADZN follows SVM’s strategy of buying and incubating near-production mining assets globally. We are encouraged to see SVM continue to pursue this strategy. …”
Joe Reagon (Roth) – “Additionally, SVM should benefit from its private placement investment into Adventus, which was priced below the transaction price.”
Farooq Hamed (Raymond James) – “The SVM acquisition provides the remaining financing and technical capabilities to continue advancing the El Domo project to construction.”
Overall, the analyst commentary suggests that Silvercorp’s acquisition of Adventus is viewed as a positive strategic move that aligns with the company’s growth objectives, adds diversification, and provides the resources to advance the El Domo project.
Investor’s corner
With a market cap of C$852 million, Silvercorp stock has risen more than 40 per cent year-to-date.
With its strong balance sheet and consistent cash flow generation, Silvercorp continues to drive sustainable growth while returning capital to shareholders.
The proposed acquisition of Adventus combines Silvercorp’s operational expertise and Adventus’ promising exploration assets, positioning the company for accelerated growth and value creation. Furthermore, Silvercorp stands for a re-rating opportunity resulting from increased scale, significantly enhanced growth profile and establishing a presence in an emerging, mining-friendly jurisdiction.
As the deal progresses through the regulatory steps, investors should closely follow developments and consider taking a position in this growing company. Investors who recognize the compelling investment case may reap the rewards of being early movers in this transformative mining story.
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