Silvercorp to buy copper-gold focused junior Celsius Resources

Silvercorp Metals (TSX: SVM) is moving towards being a diversified precious-base metals producer with the signing of a preliminary agreement to acquire Australia’s Celsius Resources (ASX: CLA) in a stock-plus-cash transaction valued at A$56 million.

Under the proposed deal, Silvercorp would acquire each outstanding share of Celsius at a fixed value of A3¢, with total consideration to be paid in the form of 90% Silvercorp stock and 10% cash. Based on Silvercorp’s current share price, this would result in the company issuing approximately 9.7 million shares and paying A$5.6 million to Celsius shareholders.

Silvercorp noted that the offer represents a 76% premium to Celsius’ 20-day volume weighted average price as of the close of trading on on May 11. The stock ended last week’s trading at a price of A2¢.

Celsius’ main asset is the high-grade Maalinao-Caigutan-Biyog (MCB) copper-gold project located in the Philippines. The project was previously explored by Freeport-McMoRan over a span of seven years, before being sold to Celsius in September 2020.

The MCB project currently has a JORC-compliant resource (December 2022) of 296 million measured and indicated tonnes grading 0.46% copper and 0.12 gram gold per tonne, for 1.4 million tonnes of copper and 1.1 million oz. of gold. It also has inferred resources of 42 million tonnes grading 0.52% copper and 0.11 gram gold for another 218,000 tonnes of copper and 149,000 oz. of gold.

A scoping study released by Celsius in December 2021 outlined a development plan for an underground mining operation at MCB with back-filling and a flotation mill at 2.3 million tonnes per year to produce high-quality copper-gold concentrates over a 25-year mine life. The estimated average head grade is 1.18% copper and 0.56 gram gold with a 94% recovery rate for copper and 79% for gold, producing 22,000 tonnes of copper and 27,000 oz. of gold annually for the first 10 years.

Assuming a copper price of US$4 per lb., a gold price of US$1,695 per oz. and an estimated initial capital cost of US$253 million, the study concluded that the MCB project has a post-tax net present value (at 8% discount) of US$464 million, an internal rate of return of 31% and a payback period of 2.7 years.

“The addition of the MCB project to our growing project portfolio aligns with our strategic objectives of diversifying and growing our asset base and will position us to benefit from copper’s strong fundamentals, a key ingredient in the green energy revolution,” Dr. Rui Feng, chairman and CEO of Silvercorp, commented.

“We believe this is a rare opportunity to leverage our underground mining expertise and financial strength to unlock value for all shareholders through the development of the MCB project, as well as aggressive exploration programs in the Pacific Rim metallogenic belt, one of the most important porphyry copper-gold belts in the world,” he added.

In addition to the proposed transaction, Silvercorp and Celsius have also executed a private placement subscription agreement for a total of A$5 million, providing the interim funding for further development of Celsius’ MCB project.

Silvercorp plans to spin off Celsius’s rights and interest in the Sagay (Philippines) and Opuwo (Namibia) projects and invest A$4 million in the new company, which would have post-financed market capitalization of A$30 million once it goes public. Celsius shareholders are expected to receive shares in the new company on a 10:1 basis, resulting in an 87% ownership.