Silvercorp deal for Adventus hits roadblock

Silvercorp Metals (TSX: SVM) says it’s reviewing plans to acquire Adventus Mining (TSXV: ADZN) after a local lawsuit challenged the target company’s environmental permit for its project in Ecuador.

The $200-million, all-stock deal for Adventus, announced in April, would give China-focused precious and base metals miner Silvercorp a 75% interest in the El Domo copper-gold project.

The deal came with conditions, including the absence of any “material adverse effect.” Silvercorp says the potential cancellation of the El Domo permit qualifies as such an effect. 

“The company will continue to monitor and evaluate the litigation and its surrounding circumstances and remains open to working cooperatively with Adventus with a view to closing the transaction if the conditions to closing for the benefit of Silvercorp can be satisfied,” it said in a statement.

Silvercorp has expressed willingness to extend the deal’s closing deadline, initially set for July 31.

Adventus disagreed with Silvercorp’s interpretation that the legal challenge to the permit represents an unmet condition for closing. In a separate statement, the Canadian company emphasized its commitment to protecting the interests of shareholders and stated that it would take the necessary steps to uphold the arrangement.

“While Adventus may continue to have discussions with Silvercorp about the completion of the arrangement, Adventus reserves all of its rights in the event that Silvercorp fails to close the arrangement as required by the arrangement agreement, including by the ‘outside date’ under the agreement of July 31,” it said.

Ecuador’s third operating mine 

Adventus and its partner in the Curipamba-El Domo copper-gold project, Salazar Resources (TSXV: SRL), planned to begin construction in June. Despite receiving a key water-use permit for the project last month, the companies warned activities could be further delayed as a result of a lawsuit filed by a group of locals.

The injunction alleges the environmental permit process did not comply with Ecuador’s mining laws, which makes mining firms carry out public consultations. Adventus and Salazar say they have “ample well-documented evidence” showing the opposite.

Popular referendums are a necessary step for any company to obtain a mining licence in Ecuador. Without them, firms would have to wait longer than expected to have all permits in place before starting construction of a mine.

Adventus and Salazar Resources have estimated that a decision on the case by the local judge could take between two and three months. A potential appeal may follow, which could take an additional three to six months. Depending on the ruling, the case could end up in the country’s Constitutional Court, they said last month. 

They noted the environmental licence remains in effect unless the latest legal action succeeds.

A feasibility study for El Domo-Curipamba, published in late 2021, envisioned a 10-year operation with average annual production of 10,463 tonnes of copper, or 21,390 tonnes of copper-equivalent. This outlook is based on proven and probable 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.

Once built, El Domo-Curipamba would be the third operating mine considered key by Ecuador’s government. To date, the country’s only two producing assets are the Mirador copper mine, run by China-backed Ecuacorriente and Lundin Gold’s (TSX: LUG) Fruta del Norte gold mine.