Thank you for standing by. Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp conference call to discuss the announced acquisition of Adventus Mining. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press star, then the number two. Thank you. Joining us on today's call are Lon Shaver, President of Silvercorp, and Christian Kargl-Simard, President and CEO of Adventus. I would now like to turn the conference over to Lon Shaver. Please go ahead.
Thanks very much, Julie. Yes, Lon Shaver, President of Silvercorp, here. I'm joined by Christian Kargl-Simard, CEO of Adventus. We'd like to welcome you all to the conference call this morning to announce the transaction that was to discuss the transaction that was announced overnight. We've got a few slides here that have been made available for you to track through on obviously on this link. I guess I'll kick it off here. First off, just from a disclaimer standpoint, this presentation will contain information that is forward-looking. Turning to slide two, transaction rationale. I will speak to this from a Silvercorp standpoint, but but I think these you know these ideas, these key concepts will apply to Adventus as well.
But we view this transaction as helping to create a growth cro- a growth-focused, geographically diversified green metals company. The acquisition really brings immediate asset diversification from a geographic and commodity standpoint, and also, you know, adds more of the key metals that we have been producing, including silver, lead, and zinc. El Domo, a key feature and factor for us in this transaction is advanced. It's got key permits, and as a result of this, the transaction will be fully funded to move forward through construction. Transaction is accretive on a per-share basis both in terms of net asset value, reserves, and resources. Going forward, we share the same corporate values in terms of developing projects for all key stakeholders, as has been demonstrated by Adventus to date.
Silvercorp has the technical capabilities to bring El Domo into production on an accelerated basis, and adding El Domo really brings our near-term production growth to the Silvercorp story, and longer term, adds optionality from the PEA stage Condor project. We view this transaction as giving shareholders of both companies opportunities for a rerate due to the increased scale and enhanced growth profile, and establishing a presence in a new, for Silvercorp, emerging mining-friendly jurisdiction. Turning to the next page, I'll hand it over to Christian to run through the transaction terms.
Thank you, Lon. So this is an all-stock transaction, Silvercorp, acquiring Adventus. Adventus shareholders will become Silvercorp shareholders, approximately CAD 200 million transaction equity value, resulting in pro forma ownership of approximately 80/20. The share exchange ratio is 0.1015, which results in a consideration of CAD 0.50 per Adventus share based on Silvercorp's 20-day VWAP, and results in approximately 31% premium based on a 20-day VWAP of Silvercorp and Adventus, respectively. As part of this transaction, and this is an important piece, for Adventus, Silvercorp will be subscribing for a placement of CAD 25.6 million at CAD 0.38 a share. There's some key use of proceeds there.
We have approximately $10 million debt facility that's maturing on June the 30th, so that will repay that. We also had an outstanding unsecured convertible debenture with Altius that had a right to convert to a royalty. This deal will allow us to extinguish that convert and extinguish the conversion to a royalty option. Over the next few months, as the transaction closes, we will continue to de-risk the pre-construction activities leading to a construction at El Domo later in the summer, and for general working cap expenditures. Unanimous approval by the board of directors of Adventus. All the officers and board members of Adventus have locked up on this transaction.
Standard 66 2/3 required support in a shareholder vote that we expect to be held, perhaps as soon as end of June, but more likely the beginning of July. We have lockups on top of insiders with Ross Beaty and Wheaton Precious Metals for a total of about 23% of Adventus's outstanding common shares. Customary deal protections, including Adventus' non-solicitation covenant, and Silvercorp right to match superior proposals. There's a break fee of $10 million payable to Silvercorp in certain circumstances as well.
Christian, you wanted to speak too? Well, I guess I can speak to timing, expected to close in the third quarter of 2024. Moving to the next slide, benefits to shareholders. As I highlighted in the opening comments, in terms of rationale for the transaction, it provides immediate asset, geographic, and metal diversification.... Going forward, the company will have exposure to China and Ecuador, as well as in green metals such as silver, copper, lead, and zinc that are key for a low carbon future.
We're adding the high-margin advanced El Domo project and accretive transaction on those key metrics, you know, per share for net asset value, reserves, and resources, enhancement of our production profile, adding the PEA-stage Condor project adds an attractive, future growth project, in Ecuador and, with a gold emphasis, and as I mentioned, a rerating opportunity.
Benefits to Adventus shareholders, obviously, this immediate premium is attractive on top of a significant share appreciation over the last few months since we achieved our environmental permitting. One of the key aspects of this transaction is, now that we've de-risked most of the permit through construction and eventually production, there's a funding gap in still quite a difficult overall market for funding. This transaction fully funds us with our existing Wheaton Precious Metals stream to see Curipamba El Domo into production in 2026. This transaction really maximizes the company's NAV per share as a result.
We like Silvercorp's exposure to silver, zinc, and lead, so, that will give additional exposure to those commodities, as well as retain upside with, our assets in Ecuador. Impressed with the technical capabilities of Silvercorp. We are quite constructive on the silver price, and as El Domo is getting built, as the silver price continues to potentially rise, our shareholders should benefit from that. Much more liquid than Adventus, Silvercorp is. It trades over the last three months, $8 million per day, primarily on the NYSE. And, we're impressed with Silvercorp's commitment to ESG practices, which we think marries very well with what we've done, in Ecuador.
Overall, Adventus has a lot of net asset value in the ground, and this combination, I think, will allow us to extract a lot of that value, not only at Curipamba, but at Condor and some of our other assets.
Okay, on the next slide, I will just speak quickly to some key numbers. This table and pro forma capitalization is obviously based on the transaction. So the implied value for Adventus of CAD 0.50 is shown there in that column. Key takeaways, though, really are overall from a transaction value standpoint, fully diluted in the money basis, this is a just over CAD 200 million acquisition. Going forward, our market cap at Silvercorp with the Adventus shareholders participating goes through that CAD 1 billion level. From an ownership standpoint, as has been highlighted on a fully diluted in the money basis, it's at 18.4% owned by Adventus shareholders going forward.
Coming to the next slide, highlight some of these diversification elements. On the left-hand side, we're looking at total silver equivalent M&I resources on a 100% basis. So on the left, you can see in terms of the current status quo for Silvercorp, 217 million ounces, with the addition of both Condor, a very gold-rich project, you can see, as 191 on a silver equivalent basis, and then El Domo, 65. That actually brings us to 473, so more than a double in terms of precious metals exposure. Moving to the right-hand side of the table, now, this is looking at the base metals, and we're showing things on a copper equivalent basis.
Again, left-hand side of that chart shows the cumulative amount for Silvercorp at 361 million tons of copper equivalent. And moving over, with the addition, in this case, a bigger contribution from El Domo because of the metal mix, and then also adding Condor's zinc contribution gets us to 667, so quite a significant increase. The next page speaks to a revenue profile in terms of for the next several years, showing Silvercorp on a standalone basis, the key components, silver revenue, lead revenue, zinc, and then gold, as well as at the top, what the all-in sustaining cost to produce an ounce of silver on a byproduct basis is.
Going forward, you can see the jump in revenue. This is looking just at El Domo and factoring in the attributable revenue to the shareholders of the project after the Wheaton stream. You can see that number going from $294 million in 2025, and assuming a startup of production around El Domo in 2026, that goes to $469 million. On a combined byproduct basis, it also brings our own sustaining cost down from that $8.28 level per ounce of silver to $0.58, and then in fact negative in 2027 and 2028. Christian, I'll let you speak to this slide first.
So, what Adventus brings in the immediate future is the Curipamba El Domo project. So El Domo is the copper, gold, zinc, silver project. It is, in our view, the next copper mine to be built globally, probably by a few years ahead of the next greenfields copper project. So that project is what is contributing to the potential growth year of Silvercorp's production over the next few years. So Silvercorp's standalone, 12.7 million ounces of silver equivalent, equivalent with El Domo, it jumps to 18.2 million ounces of silver equivalent. And it's important to note that these are very low-cost production ounces. So the cash costs reduces as a result of the El Domo project coming online in 2026.
The third bar there is the production growth. So Silvercorp will be at near the top in terms of that growth. And keep in mind, this is just considering El Domo. This has nothing to do with the potential contribution of Condor down the road. And then on, from a P/NAV perspective, you think about what is Adventus shareholders getting in terms of paper Silvercorp? Silvercorp is quite cheap, very cheap in the silver slash precious metals peer group. It's gonna get even cheaper with this transaction because of Adventus's relative multiple. But together, as a group, we can rerate significantly to the peer group. On.
Yeah, and I just add that this kind of rerate is obviously something that we're looking forward to for Silvercorp shareholders.
On the re-rating, there's a significant synergy here when it comes to fully financing this project. When we concluded a merger with Luminex Resources in January and received an environmental permit, we had indicated to the public markets that we were looking to fill the financing gap in Q2, and that we were looking at all alternatives to do so with the focus of maximizing our NAV per share. A public markets financing was probably gonna be the most dilutive. An M&A transaction with an existing producer and a strong balance sheet was probably gonna be the most accretive. So I think we've checked all the boxes in terms of what we set out to do with this Silvercorp transaction.
And not only is El Domo now fully funded, but our other projects, which, if we were standalone, would have been care and maintenance through the construction of El Domo, now have a chance to be advanced with value created, through construction of El Domo as well. On.
This is a point where I can jump in and speak to the fact that, from a Silvercorp standpoint, we believe there can be opportunities with some of the relationships for suppliers and contractors, to reduce that initial CapEx number, as has been outlined in the Adventus feasibility study. Also, from a owner-operator standpoint, we think that we might be able to look at a more optimized mine plan.
And then, you know, lastly, and Christian touched on this from our operational experience, you know, we've built eight mines, three processing facilities, three tailings storage facilities, and we're currently in the midst of an expansion of our mill at the Ying Mining District, adding 1,500 tons per day of flotation capacity, which is not too far off the targeted throughput of the mill at El Domo. So we think we can bring some access to better and better cost equipment and implement that on a cheaper basis than what's been identified in that feasibility study.
So a little bit more about El Domo. It is a volcanic massive sulfide deposit, a copper, gold, zinc-rich one. These type of deposits have significant capital efficiencies and are significant drivers, ultimately, of free cash flow generation. If you compare El Domo to similar stage copper projects, globally, we would have very low capital cost intensity as a result of very high grades. We have close to 10 million tons of 5% copper equivalent, and most of that is open-pittable, drives a very strong rate of return and should add significant cash to the balance sheet to help grow Silvercorp's business, which is synergistic with the assets that they have in China.
So of those group projects in the top, two of those are VMSs, the rest are porphyries. And on the bottom there, just backing up my commentary, the all-in sustaining costs on a co-product basis are expected to be $1.26 a pound copper equivalent, which puts it in the lowest quartile in the copper business. Next slide. Ecuador. Adventus entered Ecuador in late 2017, so we've been in the country for six years. They've been consistently very supportive in working with industry to help grow the mining business. Two major mines in production: the Mirador copper mine and Fruta del Norte, a large gold mine owned by Lundin Gold. El Domo would be, or is expected to be, the third major mine in the country.
Already, the two major mines in production is quickly vaulting mining into one of the top three most important industries in Ecuador. With Daniel Noboa, the new president, being elected in Ecuador as president in November of last year, he's shown a very strong commitment to growing the mining business. He was the first Ecuadorian president to attend the mining conference, PDAC, in Toronto in March. There were several signings done, high-profile signings done there. One of them was a Investment Protection Agreement, memorandum of understanding for a Condor project. That's in the exploration stage. Approximately $52 million has been spent to date in exploration on that project, so another $48 million is protected.
At El Domo, we have an Investment Protection Agreement for exploitation, and we are looking forward to continuing with the Daniel Noboa government to help build this industry for the long term.
Okay. I will recap those key points that we highlighted at the beginning and we've been speaking to throughout this presentation. Acquiring Adventus really brings us immediate diversification from an asset standpoint. That's obviously geographically adding a key component in Ecuador. Also from a commodity standpoint, adding those key metals in terms of copper, but also augmenting our silver, lead, and zinc production. Key focus for us at Silvercorp has been looking for an advanced project that is ready to go. El Domo has those key permits and will now be fully funded with the existing Wheaton precious metal stream, as well as the cash that we have on hand. An accretive transaction on an NAV reserve and resources basis.
As companies, we share the same corporate values in terms of developing projects with a long-term vision and view to benefit all stakeholders. Internally, we, Silvercorp has the technical capabilities to bring El Domo into production, and again, on an accelerated basis and for the benefit of those stakeholders. Adding the El Domo project significantly enhances our near-term growth profile and adds longer-term optionality with the Condor Project. Again, for both sets of shareholders, we feel this is a re-rating opportunity, having a larger company with an increased scale, a better growth profile, and establishing a presence in a new, for Silvercorp, emerging and mining-friendly jurisdiction. With that, operator, we'd like to open up the call for questions.
Thank you, sir. Ladies and gentlemen, we will now conduct a Q&A session. If you'd like to ask a question, press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Dalton Baretto from Canaccord. Please go ahead.
Thanks. Good morning, and congratulations, guys.
Thanks, Dalton.
I apologize, I apologize, guys. I'm not really that familiar with El Domo, and I'm wondering if I could ask about the community relationships in the area and sort of the dynamics there, as well as the security situation in the region. Thank you.
Christian, I'll let you tackle that one.
Sure. So, over the last six years in Ecuador, we have really focused on that social license to operate and building that trust and support from the local communities. The best way I can describe that support is through the consultation process to receive our environmental impact assessment. The government, in the last stage, had to run a non-binding vote with the direct communities of interest around the project. That occurred in December, and the result was approximately 98% support to proceed with constructing the project. So, very, very proud of that outcome. And our communities have been very patient for the last, you know, 15 years, hoping and waiting for this mine to be built and the job opportunities that come out of it.
From a security perspective, we've never had any serious incidents, any blockades, any kind of shutdowns of the project. Obviously, building a mine is a different set or a different, you know, task, but to date, from a security perspective, it's been very manageable.
Okay, thank you for that. And then maybe over to you, Lon. Can you talk a little bit about some of the both the CapEx as well as the mine plan optimization opportunities you guys see?
Yeah, I think, and, you know, we've had this conversation before, and I'd say it's a similar conversation that we've had. Speaking to the, you know, from a mining standpoint, still some work to be done there. And from a CapEx standpoint, obviously, some work to do. And from a regulatory standpoint, not in a position to give, you know, firm and specific numbers, but, you know, the CapEx number that has been identified from the feasibility study was about CAD 248 million.
You know, we have gone through from our study and analysis, looking at the key elements of the construction cost, and, and we do feel that the numbers that have been put together, while a good job done by the consultants, we think that we can access suppliers at better rates to get some of these key elements constructed. You know, as you'll note, you know, we're adding that 1,500 ton per day capacity at Ying for approximately $7 million.
Now, obviously, that's on an existing operating site with some shared infrastructure, but, you know, when we look at the mill components at El Domo, you know, we think that we can probably trim back some of those costs and maybe even get some synergies from a supply and construction standpoint by packaging up these items together.
Thanks, Lon. Maybe I can squeeze one last one in. Is the Salazar piece of El Domo, you know, up for acquisition as well, and would you have any interest in it? Thanks.
Well, I think the key thing, they're obviously Adventus' partner. They're their own company, and they'll make their own decisions. You know, our understanding is that they have every intention of seeing this project through to production and cash flow, you know, for their shareholders. And you know, we recognize their long-standing involvement in the project, and you know, we welcome them as a partner and in particular as a very well-respected Ecuadorian partner.
Thanks, guys. Congrats again.
Thank you.
Your next question comes from Pierre Vaillancourt from Haywood. Please go ahead.
Yeah, could you, could you give me the, the latest on, on when you expect to be, breaking ground? Just, just give me a schedule of, activities in, in Ecuador going forward.
Well, Christian, we've talked about that. Do you want to tackle this? And I can maybe add some comments in terms of what our near-term priorities are.
Sure. Hi, Pierre. So first and foremost, as you know, we've been trying to source this final capital to get the visibility to see through to production. So this transaction, as mentioned, in our opinion, maximizes our NAV per share. And we're looking to announce a transaction like this in Q2. I think we're talking about May, and we beat that timeline by about a week. There are still some secondary permits that are required, although we have the permits to start construction. There's still some optimization work that can be done and some pre-construction works.
I suspect, during this intervening period between announcement and closing, more of that work will be done, integration with Silvercorp before construction starts, but still more discussions to be had on exactly how that looks like, Lon.
Yeah, and, and, and I would add to that, you know, Christian's comments on optimization. I think there will be some optimization exercises, but when we look at the opportunity here, you know, there's certain elements of the project development that need to be undertaken, sort of no matter what sort of the final specs of the project are. Things like site infrastructure, getting power line commitments going. So, so we can see those as being some of the near-term efforts in areas where we would spend capital to get the project moving forward and, and hit that 2026 production timeframe. If nothing else from Pierre, operator, maybe the next question, please.
Ladies and gentlemen, once again, to ask a question, please press star one. Your next question comes from Dalton Baretto from Canaccord. Please go ahead.
Thanks, guys. I thought I'd squeeze in a couple more. This thing's a VMS package, right? Can you talk a little bit about some of the work you've done on the broader land package and any other lenses you see and, you know, what sort of stage of progress those are at?
Sure. I'll take that. It's a very large land package, 22,000 hectares, in total. When we started here in 2017, we had high conviction that El Domo was going to be a mine. And we also felt, as you know, VMSs tend to occur in clusters, and through airborne geophysics, we had a good chance of tapping into additional VMSs, although there's the potential for porphyry and epithermal gold type deposits within the district as well. We did the geophysics. We've developed 14 different targets within the district. Each of those targets has multiple individual targets. But we started to quickly realize this is absolutely a mine, and dedicate all of our capital and resources to fast-track El Domo into production.
Our view is that Adventus' view is that copper will do very well over the next few years, and we want to be in production when that happens. And a single asset developer, especially in this last few years with the difficult markets, doesn't have the luxury to be advancing a construction project or near construction project and doing exploration as well. So we've had to put the exploration in the back burner. Over the years, we did test a few of these targets, and we did discover a new VMS system called Agua Santa. Our discovery hole was 6.5 m at 5.5% copper equivalent, but we haven't followed up for a few years.
So our hope is with Silvercorp and its free cash flow and balance sheet, as I mentioned earlier in the call, it will allow us to extract value, not only through de-risking and construction, production of El Domo, but testing some of this low-hanging fruit in the district, adding resources and reserves, and also advancing some of the other projects in the portfolio, all in tandem.
Thanks. That's helpful. And maybe one last one, maybe over to you, Lon. Condor, is that gonna be considered core to you? And where does that fit into the, the game plan?
Well, I think it's obviously a significant resource, and there's been a PA done on that. We're certainly, you know, more than intrigued or attracted to that project. We think it has great potential. We might have a bit of a different, you know, vision on its development. You know how we work, you know, we're looking at how can we turn an interesting deposit into a business? So, you know, that'll, that's something that we'll certainly be turning our attention to, you know, in the coming months. But yes, you know, it was clearly of interest to us in this transaction.
Thanks, guys.
Thank you, Don.
Your next question comes from Pierre Vaillancourt from Haywood. Please go ahead.
Yeah, just wondered what your plans are for New Pacific now? And you know, just to follow up on your later comments. So in terms of commitment to all the other Ecuadorian assets, have you given some thought to what you want to do? You know, I recognize you're interested in El Condor, so what does that mean in terms of, you know, commitment, spending, work in the area ahead?
Well, we haven't identified any specific budgets for Condor or any of the other projects as of yet. I think, you know, clearly our near-term focus here is El Domo. It's the permanent project. It's the one that's funded, ready to go, and you know, I think it's in all shareholders' interest to move that project ahead and get that into production and generating cash flow. And from that point on, you know, as we've demonstrated, you know, with our operations at our mines in China, you know, we've been aggressive following up on exploration targets, you know, once the mine is built and running. Switching gears to New Pacific, I mean, nothing changes from our perspective regarding New Pacific at this point.
It's a very key and core asset for us. We're very excited about the milestones that are coming, supportive shareholder. And again, you know, the key differentiator here in terms of, you know, why make this move now, is coming back to that, that status of permitting and funding and having basically a feasibility study done in El Domo, is something that is actionable for us, from a construction standpoint. New Pacific still has some work to do. At that later date, when those projects move to that point, you know, we'll have a decision to make, as will New Pacific and, you know, others. So, we'll cross that bridge when we get to it.
But for now, supportive and don't have any plans to, you know, change our exposure or commitment to New Pacific.
Okay, thanks.
Your next question comes from Gabriel Gonzalez from Echelon Capital Markets. Please go ahead.
Hi, good morning, and congratulations on this transaction. I think El Domo is an outstanding asset. I visited the project over 10 years ago before Adventus bought into the project from Salazar Resources. Some of my questions have actually already been asked, but just one question regarding the geographic, I guess, implication. With New Pacific now with Adventus Mining, are you looking more to the Americas to potentially build out more critical mass with governments and local mining communities here? Or will you continue to look for acquisitions in other parts of the world, as you have been doing up until now?
Thanks, Gabriel. Good question. Obviously, you know, we've got an investment and exposure, you know, into Bolivia through New Pacific, adding Ecuador through Adventus, certainly consolidates interest in South America. There can be, you know, viewed as potentially synergies at some point down the road, yes. But we do remain, you know, open-minded in looking at really from an asset by asset basis. You know, what does that asset bring in terms of, you know, potential to change and grow Silvercorp going forward? And obviously, the other, you know, key elements are, do you get the sort of licensed to operate and the ability to move forward with those assets in those other jurisdictions?
So, you know, we look at each case on a case-by-case basis, and we remain open-minded. Yes, the next transaction could be, you know, one in South America, but we're not against or shut off from the idea of looking at, you know, Africa as we did in the OreCorp transaction.
Mm-hmm. Okay, wonderful. Thank you very much.
This concludes the question-and-answer session. I would like to turn the conference back over to Lon Shaver for closing remarks.
All right. Well, thank you, operator. Thanks, everyone, for joining to hear the presentation, as well for all those great questions at the end. Of course, if anyone has any follow-up questions, you know, both teams at Silvercorp and Adventus would be, you know, pleased to tackle them. And so do look forward to getting a chance to speak to you again in the future. Thanks very much.
This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a wonderful day.