The deal creates a diversified precious metals producer with two profitable underground mines in China and a gold operation in Guyana along with a strong balance sheet to fund growth

The Aurora mine in Guyana reached commercial production in January, 2016

Silvercorp Metals Inc (NSYEAMERICAN:SVM) (TSX:SVM) revealed on Monday that it is acquiring mid-tier gold producer Guyana Goldfields Inc (TSE:GUY), which runs the Aurora gold mine in the South American country, in a C$105M deal.

“This transaction will create a new globally diversified precious metals producer with the addition of Aurora to our growing asset portfolio,” Rui Feng, chairman and CEO of Silvercorp said in a statement.

“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,” he added.

Aurora reached commercial production in January 2016, so the deal creates a diversified precious metals producer with two profitable underground mines in China and a gold operation in Guyana, along with a strong balance sheet to fund growth.

“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,” Alan Pangbourne, president and CEO at Guyana Goldfields said.

Alongside the acquisition agreement, the two companies have also struck a loan agreement, whereby Silvercorp will lend Guyana Goldfields up to US$15 million to be used for ongoing operations at the Aurora underground project and for working capital.

Under the terms of the overall acquisition, Guyana Goldfields shareholders will have the option to receive C$0.60 in cash or 0.1195 of a Silvercorp share, subject to a maximum cash consideration of C$33.2 million. If all Guyana Goldfields shareholders elect to receive cash, consideration for each share will consist of C$0.20 in cash and 0.0796 of a Silvercorp share.

Assuming the maximum cash consideration, existing Guyana Goldfields shareholders will own 7.1% of Silvercorp’s basic shares outstanding following the deal.

The consideration of C$0.60 per share represents a 71% premium to the 20-day volume-weighted average price of Guyana Goldfields as at close of trade on Friday, April 24. The implied equity share value of the acquisitions is around C$105 million, noted Silvercorp.

The deal means exploration can now be funded to test numerous, high-priority brownfield and greenfield exploration targets within a 1,200 sq km land package hosted in the highly prospective Guiana Shield Greenstone Belt, Silvercorp added.