This article is a sponsored feature from Mining.com.au partner Silvercorp Ltd. It is not financial advice. Talk to a registered financial expert before making investment decisions.
Silvercorp Metals (TSX/NYSE-A:SVM) has always had a clear-cut strategy for corporate growth.
Since its inception, the Canadian mining company, with a market capitalisation of US$422 million, has built a reputation for pursuing merger and acquisition (M&A) opportunities to unlock value. This has run in parallel with generating revenue streams through organic growth.
With a long history of profitability and growth — while producing silver, gold, lead, and zinc – Silvercorp’s ethos also focuses on generating free cash flow from long-life mines.
Over the past 18 years, Silvercorp has produced about 100 million ounces of silver and 1.3 billion pounds of lead and zinc in ‘high-quality’ concentrates, with more than 15 years of reserve life remaining. More than US$200 million has been distributed back to shareholders in dividends and share buybacks as a result of its profitable operations.
This has all been achieved organically through extensive drilling for discovery, capacity expansion, and regional consolidation at its operations led by founder Rui Feng – a successful entrepreneur, explorer, and mine builder who established Silvercorp in 2003 by acquiring early stage properties in China.
Lon Shaver, Silvercorp President explains: “After he (Feng) came to Canada in the late 80s to finish his studies in geology, doing a Ph.D. here in Canada, he set out to build a profitable business that generated real value and paid dividends to shareholders, like many of the industry stalwarts in Canada at the time.
So, when he was looking at assets that he could develop, he kept that in mind. And it was really looking for good geology that he could develop and turn into a profitable business.”
Golden opportunity
Some 21 years later, Silvercorp is hoping to add to its track record of growth by snaring Tanzania-focused gold developer OreCorp (ASX:ORR). Silvercorp views the target as having near-term potential to generate value and add revenue streams should it complete the transaction and construction of the mine.
This measured confidence, Shaver tells Mining.com.au, is by offering an “excellent investment opportunity for investors looking to get exposure to the precious metals sector with a company with a long track record and a healthy future going forward”.
“It really goes back to the philosophy of making sure that you’re building a profitable business that can stand on its own two feet. So, looking at assets, getting them going, delivering cashflow, optimising, growing it, as opposed to chasing projects with long development timelines and big budgets that don’t quite deliver as expected.”
In August 2023, Silvercorp announced it had found such an asset in. And keeping in line with Silvercorp’s ambitions, it intends to acquire such a golden opportunity.
As part of the proposed transaction, Silvercorp agreed to invest A$28 million into the target to continue project advancement.
Silvercorp owns a meaningful 15.74% of OreCorp. In November last year, Africa-focused gold miner Perseus Mining (ASX:PRU) obtained a competing 19.9% interest and declared it would not vote in favour of Silvercorp’s offer. This prompted Silvercorp to launch an off-market takeover last December, which continues to be supported by OreCorp’s board.
Fast forward to January 2024, Perseus launched its own off-market takeover bid for OreCorp and is seeking approval from the Tanzanian government.
However, Silvercorp beat Perseus to the punch as the company has already received a Merger Clearance Certificate (dated 30 January) from the Tanzania Fair Competition Commission (FCC) in early February, providing unconditional merger control approval for the proposed transaction.
The FCC approval represents the sole Tanzanian regulatory requirement needed to complete the transaction. As of the date of publication, Perseus has not obtained FCC approval.
The Canadian company’s tilt for OreCorp is by way of an off-market takeover for all the target’s shares it does not already own, comprising 0.0967 common shares of Silvercorp and A$0.19 cash per OreCorp share.
OreCorp continues to recommend its shareholders accept the proposal (in the absence of a superior one). Neither the suitor nor the target believes that Perseus has a superior proposal.
As of 30 January 2024, Silvercorp’s offer valued OreCorp at about A$261 million.
OreCorp appointed BDO Corporate Finance (WA) to prepare an Independent Expert’s Report (IER), which includes an Independent Technical Specialist’s Report prepared by SRK Consulting (Australasia).
OreCorp has since released its Target’s Statement, including a copy of the IER’s Report, which concludes that Silvercorp’s proposal is fair and reasonable.
On 19 February 2024, Perseus Mining despatched its bidder’s statement for OreCorp wherein it said it believed it was likely to obtain offer approval for its proposed change of control before the end of February 2024.
This remains to be seen.
Buyer’s market
Amid this backdrop and looking at the current environment, nobody would argue that markets are at a high. Shaver notes that investors tend to want to buy low and sell high, so this wouldn’t be the ideal time to liquidate an investment for cash.
He adds: “Given that a portion of our consideration is in the form of our shares, people who accept our offer have the exposure and the ability to participate, not just to the Nyanzaga Gold Project, but also the upside in our shares, especially with the potential to be re-rated.”
On the other hand, the other offer (from Perseus) is all cash, which means investors would be exiting the market at a time perceived to be closer to the lows, Shaver notes.
As mentioned, working in Silvercorp’s favour is that the OreCorp board have all tendered its shares and continues to recommend shareholders to do the same.
Meanwhile, Silvercorp remains in a strong position to capitalise on all aspects of its growth strategy.
In its financial and operating results for the three months ending December 2023, Silvercorp generated $23.6 million in cash flow from operating activities for the period.
The company closed with a strong balance sheet with $198.3 million in cash and cash equivalents and short-term investments. It holds a further equity investment portfolio in associates and other companies with a total market value of $139.5 million.
Income from mine operations was $23.3 million – up 7% compared to $21.7 million in the previous corresponding period.
The quarter highlights the company’s consistent cash flow generation from long-line mines to support organic growth projects, and pursue merger and acquisition opportunities to unlock value.
As it stands, the company could soon have a Tanzanian near-term gold-producing asset within its portfolio, with the aim of replicating the same success of their current operations for their next phase of growth.
Write to Adam Orlando at Mining.com.au
Images: OreCorp
