Silvercorp Metals Inc. [SVM-TSX, NYSE American] and Guyana Goldfields Inc. [GUY-TSX] have entered into a definitive agreement whereby Silvercorp will acquire all of the issued and outstanding shares of Guyana Goldfields, subject to regulatory approval. The transaction will create a diversified precious metals producer with two profitable underground silver mining operations in China and a gold mining operation in Guyana with a strong balance sheet to finance growth opportunities.
Under the terms of the transaction, each holder of Guyana Goldfields shares will have the option to receive, for each Guyana Goldfields share held, 60 cents in cash or 0.1195 of a Silvercorp common share (valued at 60 cents based on the volume-weighted average price for Silvercorp common shares for the 20 trading days ended April 24, 2020), subject to a maximum cash consideration of $33.2-million.
If all Guyana Goldfields shareholders elect to receive cash, consideration for each share will consist of 20 cents in cash and 0.0796 of a Silvercorp common share (valued at 40 cents based on the volume-weighted average price for Silvercorp common shares for the 20 trading days ended April 24, 2020).
Assuming the maximum cash consideration, existing Guyana Goldfields shareholders will own 7.1% of Silvercorp’s pro forma basic shares outstanding following the transaction. The consideration of 60 cents per share represents a 71% premium to the 20-day volume-weighted average price of Guyana Goldfields as of the close of trading on April 24, 2020. The implied equity value of the transaction is approximately $105-million.
Concurrently with entering into the arrangement agreement, Silvercorp and Guyana Goldfields have also entered into a loan agreement, whereby Silvercorp will lend Guyana Goldfields up to US $15-million with a defined use of proceeds related to continuing operations at the Aurora underground project, as well as for certain working capital and general corporate purposes.
The combined company will benefit from enhanced strategic positioning and greater diversification, providing the opportunity for a significant rerate upon the successful development of the Aurora underground project in Guyana. A strong balance sheet and a robust cash flow profile will provide the capital to develop the Aurora underground project and pursue further potential M&A (merger and acquisition) opportunities. The gold project pipeline includes the BYP gold project in China and the Aurora underground project in Guyana.
The combined company will have the ability to finance exploration programs to test numerous, high-priority brownfield and greenfield exploration targets within a 1,200 km2 land package hosted in the prospective Guiana shield greenstone belt, providing an opportunity to unlock value from an underexplored land package.
The combined company will also benefit from the strong underground mining skill set of a proven management team and will have the ability to deliver efficiencies at the corporate level and leverage Guyana Goldfield’s deep experience and network in Guyana during a transition period, working toward near-term development.
In addition, the combined company will bolster trading liquidity and the shareholder base with a newly diversified asset portfolio, in addition to the recent inclusion of Silvercorp in major indices including the VanEck Gold Miners (GDX) and S&P/TSX Composite Index.
Dr. Rui Feng, Chairman and CEO of Silvercorp, stated: “This transaction will create a new globally diversified precious metals producer with the addition of Aurora to our growing asset portfolio. 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.
“We look forward to partnering with the government of Guyana to make a successful entry into the region, leveraging Guyana Goldfield’s existing team and relationships to ensure a smooth transition and continued development that benefits all stakeholders.”
Alan Pangbourne, President and CEO of Guyana Goldfields, stated: “This transaction provides our shareholders with an immediate and significant upfront premium and exposure to a geographically diverse mid-tier precious metal company. With a strong operating history, solid balance sheet and significant underground experience, Silvercorp’s management team is well positioned to fund and continue to advance the underground project at Aurora.”
The combined entity will continue to have its headquarters in Vancouver and detailed integration plans will be finalized over the next few months.
Silvercorp is a profitable Canadian mining company producing silver, lead and zinc metals in concentrates from mines in China. Guyana Goldfields is a Canadian-based gold producer primarily focused on the exploration, development and operation of gold deposits in Guyana, South America.
Guyana Goldfield shares rose by 39.8%, up $0.165 to $0.58. Silvercorp shares fell $0.09 to $5.08.