Gold producer Silver Lake Resources has backed out of a deal to acquire gold and copper explorer Phillips River Mining.

However, it has agreed to buy one of Phillips River’s projects.

Phillips River shares were down 10 cents, or 38.46 per cent, at 16 cents, while Silver Lake shares were two cents down at $3.53.

Silver Lake agreed in January to acquire Phillips River via a scrip-based transaction that valued the target at about $20 million.

Silver Lake on Monday said a condition of the deal, the completion of due diligence on Phillips River, had not been completed to its satisfaction, so it had terminated the planned scheme of arrangement.

“The due diligence process identified a potential issue with the concentrate delivery schedule within the metals offtake agreement for the Trilogy project between LN Metals International Limited and Phillips River,” the gold miner said in a statement.

“Silver Lake did not have sufficient confidence that this issue could be satisfactorily resolved.”

Phillips River conceded that it would not have been able to meet the delivery schedule, due to start in the second half of 2013, due to project development delays and given current market conditions.

Phillips River chairman Hamish Bohannan said the company was in talks with LN Metals about changing the delivery schedule and believed a satisfactory outcome was achievable in coming months.

Silver Lake said it had agreed to buy Phillips Rivers’ Munglinup project in Western Australia, near the Trilogy project, for $325,000.