Silvercorp drops objection to Adventus deal in wake of Ecuador court ruling

Silvercorp Metals (TSX: SVM; NYSE-AM: SVM) says it will proceed with its $200-million deal to acquire Adventus Mining (TSXV: ADZN), after a court challenge to the junior’s 75%-owned El Domo-Curipamba copper-gold project in Ecuador put the deal in jeopardy.

Silvercorp made the friendly, all-share offer for Adventus in April.

But in June, local groups launched a legal action challenging the validity of the project’s environmental licence. They raising procedural allegations about the consultation process followed by Ecuador’s environment ministry.

According to Silvercorp, the lawsuit presented a “material adverse effect” that would block the deal from closing. Adventus disagreed, as the suit only named the company as a related third party.

While a court last week upheld the permit, finding that found that the procedures used by government authorities were applicable with mining laws, Silvercorp had insisted the adverse effect was still in place. The local groups say they will challenge the ruling.

Adventus moved toward closing the deal, with a deadline set at July 31 for Silvercorp to do the same on its end.

Silvercorp has been looking to diversify its precious metals mining business outside of China.

El Domo is one of the highest grade and lowest capital intensity copper-gold projects globally, and if developed, will be the next big mine in Ecuador after Mirador, owned by China’s EcuaCorriente, and Lundin Gold’s (TSX: LUG) Fruta del Norte.

A feasibility study published in 2021 envisioned a 10-year operation with average annual production of 10,463 tonnes of copper, or 21,390 tonnes of copper-equivalent. This will be mined from total reserves of 6.5 million tonnes at 1.93% copper, 2.52 grams gold per tonne, 2.49% zinc, 45.7 grams silver and 0.25% lead.

Under the base-case scenario, the project has an after-tax net present value, discounted at 8%, of US$259 million and an internal rate of return of 32%. Initial capital costs were estimated at US$248 million, with a payback period of 2.6 years.

Construction of the project, which was scheduled to begin in June, would be fully funded from Silvercorp’s existing cash balance combined with a US$175.5-million streaming deal Adventus signed with Wheaton Precious Metals in 2022.

Salazar Resources (TSXV: SRL) holds 25% of the project.

Adventus Mining’s stock surged 18.6% by 12:50 p.m. ET following the announcement, capitalizing the company at $229.4 million. Silvercorp Metals was down 2.1% with a market capitalization of $905.9 million.