Canadian silver miner Silvercorp Metals Inc is buying the Region Seven-based Guyana Goldfields Inc (GGI) in a CDN$105m deal which has been welcomed by the de facto government.
The workers of GGI’s large-scale Aurora Gold Mines (AGM) have however, through their union, expressed “disappointment” that they were not consulted prior to the agreement being signed.
According to a press statement from the two companies they have entered into a definitive agreement whereby Silvercorp – with China-based silver mining operations – will acquire all of the issued and outstanding shares of Guyana Goldfields by way of a plan of arrangement under the Canada Business Corporations Act.
The statement indicated that the transaction will create a diversified precious metals producer with two profitable underground silver mining operations in China and a gold mining operation in Guyana with a strong balance sheet to fund growth opportunities.
“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. We look forward to partnering with the Government of Guyana to make a successful entry into the region, leveraging Guyana Goldfield’s existing team and relationships to ensure a smooth transition and continued development that benefits all stakeholders,” Rui Feng, Chairman and CEO of Silvercorp is quoted as stating.
His company’s strong balance sheet, is expected to mitigate the significant issues which the company has encountered over the last two years.
During that time Guyana Goldfields has encountered a series of problems including a boardroom battle for control of the company, a slump in share value and a slide in production.
“Everyone knew we were looking for refinancing,” GGI’s Corporate Director Peter Benny told Stabroek News yesterday in an invited comment.
Under the terms of the transaction each GGI shareholder has been presented the option to receive C$0.60 per share in cash or 0.1195 of a share in Silvercorp, to a maximum cash consideration of C$33.2 million ($24m).
The C$0.60/share price represents a 71% premium to the 20-day volume-weighted average price of the target company as of close of business on April 24.
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 common share. This common share is valued at C$0.40 based on the volume weighted average price for Silvercorp common shares for the 20 trading days ended April 24.
Assuming the maximum cash consideration, existing Guyana Goldfields shareholders will own 7.1% of Silvercorp’s pro forma basic shares outstanding following the transaction. The implied equity value of the Transaction is approximately C$105 million.
This acquisition is expected to be finalized following a GGI shareholders’ meeting tentatively scheduled for the end of June. The two months until then will be a transition period during which all legal requirements related to the transfer of ownership should be worked out. During this transition GGI has been granted a loan of up to US$15 million from Silvercorp to support continuation of the Aurora Underground Mining Project as well as for certain working capital and general corporate purposes.
Welcomed
Noting that AGM has contributed significantly to annual gold declarations, and the Guyanese economy, the Guyanese government has welcomed the new investment.
In a statement issued after the public announcement, the Ministry of Natural Resource stated that this investment is expected to put the company in a more stable financial position to continue its operations and fulfill its obligations to its shareholders and the Government and people of Guyana.
They note that prior to approval being granted, the Government will be carrying out the necessary due diligence exercises as required by the laws of Guyana to ensure that there is legal compliance with the proposed transfer of interests, and that matters pertaining to workers’ rights especially, and other important obligations, are satisfactorily addressed.
The issue of workers’ rights has already developed contention with the National Mining Workers’ Union (NMWU) saying they are disappointed that the management of AGM did not find it necessary for the Union to be informed and involved in the process.
President of the Union, Sherwyn Downer told Stabroek News that their major concern is whether or not the benefits including years of service accrued by workers will be transferred.
“Right now there is an uproar at Aurora because workers don’t have clarity. They were told during a meeting with management that this is a transition period and they don’t fully know the plans of SIlvercorp so persons are concerned,” he explained.
According to Downer workers in the industry have previously suffered following transitions of this nature and the union would therefore like a black and white commitment on promises made.
The main promise for which they would like a commitment is that of the retention of years of service.
GGI President and Chief Executive Officer, Alan Pangbourne told workers that their record of service with AGM will continue since AGM continues.
“You are employed by AGM so all of your benefits: current salaries, length of services all continues to be recognized going forward…Your employer is the same so for all intents and purposes the deal is being done at the Canadian level and wouldn’t impact workers at that level,” he could be heard telling yesterday’s meeting.
Downer is not comforted.
“We’ve seen this before. A Company is sold and workers are told your years of service are safe and then a year or two years later when a worker wants to leave they are told we can only pay you for when you were employed with us. What happens when Goldfields pack up and leave? How do we find them to make sure the workers get their benefits?” he asked.
Downer has said the workers would either like to see that promise formalized in a legally binding document or for workers to be let go with severance.
“We preferred for workers to be made redundant and paid severance and then possibly be given first preference for future hiring. From all indication this company was sold and once sold workers have to be paid their severances,” he stressed.
Benny has indicated his willingness to speak with the union to offer further clarification but dismissed their claim that they should’ve been informed beforehand.
“These negotiations were very confidential. Acquisitions at that level are only for the ears and involvement of a few…not even senior managers were aware of the negotiation. Our role is to inform the union of decisions,” he explained, noting that while there is a recognition agreement there is no collective labour agreement which sets out terms and condition for employment.
GGI’s inaugural gold bar in August 2015 from the Aurora mine came 19 years after its first foray into the Cuyuni region in search for gold and US$249 million in capital costs.
The company at the time said it was targeting production of 3.29 million ounces of the precious metal over 17 years with at least 500 jobs and projected corporate income tax to the economy of US$509 million.
Guyana Goldfields on February 25th this year announced its fourth quarter and full year 2019 production figures showing total output lower than that of 2018.
The company had also said then that there would be an ore-supply gap of four to six months and it needed further financing for additional waste stripping at its open pit and for underground development.
According to the Guyana Goldfields release issued on February 25th, gold production at the company’s Aurora Mine totaled 28,300 ounces in the fourth quarter of 2019, up 28% from 22,100 ounces in the third quarter of 2019 but down 28% from 39,100 ounces in the fourth quarter of 2018. For the full year of 2019, gold production totaled 124,200 ounces, down 17% from 150,400 ounces a year earlier.
