by Rob Driscoll
Silvercorp Metals Inc.’s (TSX/NYSE-A: SVM) announcement of an agreement to purchase ASX listed OreCorp Limited is a clear signal that the company is on the way to executing its ambitious growth plans.
“The mining space is going through a down cycle in terms of appeal to the general investment community – and that presents all kinds of challenges – but it also presents opportunities to grow through mergers and acquisitions,” says Silvercorp Vice President Lon Shaver.
Established in 2003, Silvercorp is a Canadian precious metals mining company listed on the TSX and NYSE-A. Since production began in 2006, Silvercorp has grown steadily by expanding existing projects through extensive drilling and consolidation.
While producing mines have been considered, Silvercorp management is currently focused on evaluating exploration and development opportunities.
“There can be a premium attached to purchasing working mines, and sometimes the numbers work,” Shaver says. “For now, we like the idea of leveraging our proven operational excellence to drive efficient mine development and cost-effective production on promising undeveloped projects.”
“We have the management team, proven/profitable business model, strong cash position, and demonstrated operational prowess that allows Silvercorp to pick up promising development plays and really optimize the projects,” says Shaver.
The search has not been easy; there have been very few projects that meet Silvercorp’s strict investment criteria.
“There are three key factors that we examine,” explains Shaver. “Do we like the technical aspects of the project? Do we see a concrete path forward? And can we get the deal across the finish line?”
On the technical side, there is plenty of promise. The Nyanzaga Gold Project (NGP) is in the Lake Victoria Goldfields, a world-class mining zone that has produced about 25 million ounces of gold since production started in 1909. The undeveloped, open-pit gold project is outlined as a long life, high margin project with a robust gold production profile. Based on the feasibility study, once built, the mine is projected to deliver more than 2.5 million ounces of gold over 11 years. With Silvercorp’s refined mining practices and process optimization, Shaver believes that Nyanzaga will be able to produce more ounces of gold at a lower initial capital cost and continue its value creation well beyond the current 11-year horizon.
Regarding the path forward, the OreCorp project’s key permits are in place, and all parties are onside – the community, locals, stakeholders, all the way up to the federal government in Tanzania are very receptive in seeing it get built.
Under the terms of the OreCorp agreement, prior to closing the acquisition, which is expected to occur in late November or early December, Silvercorp provided OreCorp with approximately AUD$28 million in funding via an equity placement to immediately advance the development of its Nyanzaga Gold Project in Tanzania.
Getting the deal across the finish line is never guaranteed but having management and board that are aligned in seeing the deal as benefitting both companies is a good sign. The agreement is unanimously supported by the OreCorp board, who have indicated intent to vote all their OreCorp shares in favour of the scheme resolution at the scheme meeting.
“The OreCorp deal is an example of a project that makes sense for everyone – shareholders on both sides, the Tanzanian government, and the local community,” sums up Shaver.
Silvercorp CEO Dr. Rui Feng had recently come back from Tanzania for meetings with government officials prior to signing the deal. While the project is still undeveloped, Dr. Feng sees great potential in the multi-million ounce project with Silvercorp’s backing. “We have a very strong financial position and liquidity, with capacity to fund construction and aggressive exploration of Nyanzaga,” says Dr. Feng. Dr. Feng likes what he sees in Tanzania, and he is not alone. Major mining operators BHP, Barrick, and AngloGold Ashanti have been investing recently in this mineral-rich region.
Shaver also likes the upside that come with such deals. “We have highly experienced management and technical teams with a proven history of exploration and development success, significant mine building and operational experience to build Nyanzaga and pursue opportunities for optimization and expansion.”
For more information about Silvercorp’s projects, please visit www.silvercorpmetals.com/welcome
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