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Why Silvercorp Metals Stock Jumped 11% Today

By Reuben Gregg Brewer - Apr 28, 2020 at 4:20PM

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The precious metals miner announced an acquisition and investors appear to like the plan, for now.

What happened

Shares of precious metals miner Silvercorp Metals (NYSEMKT: SVMLF) were up around 10% an hour before the close on April 28. It wasn't an all-at-once move, however, with the stock gaining steadily most of the day. The driving force behind the advance was likely the announcement of an acquisition.

So what

Silvercorp intends to buy Guyana Goldfields, a tiny Toronto Stock Exchange listed company, for around $75 million. That's a roughly 70% premium based on the average price of Guyana Goldfields stock over the previous 20 days. Silvercorp will also provide Guyana a $15 million loan to fund its near-term exploration efforts while the deal is still pending.   

A man holding a gold ingot in his hand.

Image source: Getty Images.

Silvercorp operates a pair of silver mines in China, which also produce lead and zinc. Guyana Goldfields owns a gold mine in its namesake country. Although Silvercorp pitched the acquisition as a way to create a more diversified global miner, the truth is that the shares of Guyana Goldfields have been falling for years because of weak operating performance and management issues. The stock of Guyana Goldfields has lost more than 90% of its value since 2016. Silvercorp appears to have stepped in to buy what it viewed as a bargain, even if the company is something of a fixer-upper with high operating costs. 

Now what

Silvercorp is a relatively small silver miner that is expanding its portfolio to include gold. Only time will tell how well this works out for the company. All in, it's a reasonable move (gold is performing better than silver at the moment) but the real question is whether or not it got a good enough deal, as Guyana Goldfields is far from a perfect asset. In fact, while this acquisition is interesting, most investors looking at precious metals investments would probably be better off playing it safe and sticking to larger, more established players

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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