It took just one week for SilverCrest Metals Inc. to announce a major investment and then lose that same investment due to concerns about COVID-19.

When the Vancouver-based exploration company with a focus on the Las Chispas mining district in Sonora, Mexico issued a statement on March 11, everything was positive: a syndicate of underwriters led by National Bank Financial Inc., Eight Capital Corp. and Scotia Capital Inc. had agreed to purchase 9,100,000 common shares of the SilverCrest on a bought-deal basis at a price of $8.25 per share. In total, the deal was worth a minimum of $75,075,000 with the potential for an even greater investment as provisions were included for the purchase of an additional 15 per cent of the SilverCrest shares.

SilverCrest planned to use the funding to continue exploration and development of its Las Chispas project (a feasibility study is currently underway and a decision about starting construction was expected to be made this summer) and for general working capital and administrative purposes. That plan, however, is now in jeopardy. On March 18, the miner issued a statement explaining that “it has received notice from National Bank Financial Inc. purporting to terminate its obligations.”

The reason cited for the change of heart is COVID-19. The pandemic is being used to trigger what is known as the “disaster out” clause in the offering agreement. March 11 was also the day the World Health Organization formally declared the outbreak of the virus a pandemic noting at that point there were 118,000 confirmed cases in 114 countries.

“Our decision to exercise this clause, along with Scotia and Eight Capital – our collective decision – was not because of the company. This is not a reflection on SilverCrest. It is however, a reflection, really, on what has changed and changed very dramatically since March 11,” said Toronto-based Brian Davis, co-president and co-CEO of National Bank Financial Inc.

“What we identified in particular was how the epidemic has spread and became, later that evening, designated as a pandemic by the World Health Organization. That has led to border closures, travel restrictions, declarations of states of emergency. These measures affect us domestically and internationally. And they have clearly, profoundly, adversely affected the financial markets in general. It is for all those reason – and I absolutely say I wish we weren’t put in this position – we chose, along with Scotia and Eight Capital, and with the support of the rest of the syndicate for that matter, to exercise the disaster out clause.”

Davis explained that under the terms of the underwriting agreement – terms that are typical for any similar agreement – the underwriters (in this case National Bank Financial, Eight Capital, Scotia Capital and the other investors in the syndicate) have the ability to terminate their obligations “at any time prior to the closing of the offering ‘if there shall develop, occur or come into existence or be announced any event, action, state, condition of national or international consequence or any law, action or regulation or other occurrence of any nature whatsoever, which, in the opinion of an underwriter, materially adversely affects or involves the financial markets generally or the condition of the company.’”

Related: Teck winds down operations at Peruvian Antamina mine amid national state of emergency

While the agreement may have provisions for the parties involved to terminate it, executives from SilverCrest Metals do not believe the termination provisions were properly enacted and have stated their intentions to take legal action to hold the National Bank Financial and its partners to the original intent of the deal. The company issued a statement outlining that viewpoint.

“The agreement between SilverCrest and NBF created a binding legal obligation on the part of NBF to complete the transaction as is customary in Canada for ‘bought deal’ financings. SilverCrest is of the view that NBF is not entitled to terminate the agreement. In SilverCrest's opinion, the novel coronavirus pandemic considered by NBF as the basis for terminating this agreement was fully evident when the ‘bought deal’ financing was agreed upon with expectations that the precious metals market would respond positively to this known risk. Accordingly, SilverCrest intends to pursue its legal remedies against NBF for breach of NBF's obligations under the terms of the agreement.”

Getting lawyers involved in a business deal is not something that Eric Fier, CEO and director of SilverCrest said he wants to do, especially since SilverCrest Metals and his earlier mining company SilverCrest Mines (located next door to the current Las Chispas Project), have been long-term clients of the National Bank. Asserting SilverCrest’s legal position, however, something he feels he is being forced to do.

“I’m well versed in everything that is going on in the world, but a bought deal is a bought deal and this was eyes wide open. Everybody knew what was going on in the world. It’s our reputation too, so I want to protect that,” he said.

“We feel that National Bank is legally obligated to this bought deal, and we intend to pursue our rights to protect our shareholders and our stakeholders. We’re long-term clients of National Bank, and as a client, we are very disappointed in their lack of insight into the situation, and the support they are giving us – support they are supposed to give to key clients when the going gets tough.”

Fier stated that SilverCrest isn’t dependent on the syndicate’s financing to continue operations, even though over the course of the next two years, the goal was to raise $110 million to complete its financing. Currently, he said that the company has US$90 million in the bank and a burn rate of US$4 million per month, mainly for underground development. Up until January, there were 20 drills on site. Now there are 12, and that number may be reduced further due to the changing circumstances and pressures caused by COVID-19.

According to Fier, the timing of the National Bank-led deal was convenient as it would have helped them de-risk decisions about construction, and it came before the company had to go into a blackout period prior to disclosing the latest updated resources and reserves figures to the public. Financing however, should still be available, as Fier believes that good projects can find investors or debt financing, even in challenging financial times.

“I don’t want to be tainted by National Bank breaking this deal for what they think may be a good reason. That shouldn’t happen,” Fier said. “This project is a wonderful project … and it’s going to move forward.”

Admittedly, Fier said he has concerns about the effects of COVID-19 on the project, on his employees and on the supply chain, but he said he is trying to take those in stride.

“We’re dedicated to working through these problems. I like to always remind my team, most of whom are engineers and geologists that we were built – it’s in our DNA – to solve problems. They should be in the height of their glory moving forward.”