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viewSilvercorp Metals Inc

Silvercorp Metals on track to meet fiscal 2021 output guidance as the miner continues to expand its asset portfolio

Snapshot

Silvercorp Metals is a miner focused on silver, lead and zinc in China

Silvercorp Metals Inc -

Quick facts: Silvercorp Metals Inc

Price: 6.62 CAD

TSX:SVM
Market: TSX
Market Cap: $1.16 billion
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  • China's premier silver producer
  • A profitable, underground mine specialist
  • Aiming for healthy returns via organic growth and acquisition of good projects

What Silvercorp Metals does:

Silvercorp Metals Inc (NYSEAMERICAN:SVM) (TSE:SVM) has been an underground mine operator in China since 2006 and has a track record of growing organically through its own cash flow.

The Vancouver-headquartered company has also built up substantial reserves. A profitable company, it is focused on mining silver, lead and zinc.

The group's flagship asset is the Ying project, which was acquired in March 2004 and which started commercial production on April 1, 2006. It lies 240 kilometers (km) southwest of Zhengzhou, the capital city of Henan Province in central China and consists of six separate mines which feed two mills with 3,200 tonnes per day (tpd). Six smelters lie within 200 km.

Elsewhere, the company has the GC mine in Guangdong province. Output started in 2014 and the projected mine life of 12 years, through to 2031, is based on proven and probable reserves, at an average annual production rate of about 300,000 tonnes.

An updated report in 2019 for the GC asset showed a resource of 9.1 million tonnes in the measured and indicated categories, an increase of 42%, which contained around 24.5 million ounces of silver, 233 million pounds of lead and 564 million pounds of zinc.

Between April 2006 and December 2019, Silvercorp produced a consolidated 69.7 million ounces of silver and 999.2 million pounds of lead and zinc. In terms of resources, its consolidated measured and indicated resources of contained metal is around 151 million ounces of silver, 736,000 tonnes of lead and 470,000 tonnes of zinc.

Silvercorp also owns around 29% of New Pacific Metals Corp (CVE:NUAG), which has a market cap of about C$920 million, and hopes to grow this investment.

Silvercorp also wants to bring its BYP gold mine in Hunan province, suspended since 2014, back into production, targeting 30,000 ounces of the yellow metal a year. An NI 43-101 resource for BYP has shown 421,000 ounces in the measured and indicated (M&I) and 110,000 in inferred.

How is it doing:

Silvercorp has been on the acquisition trail recently. In January this year, it said it had added to its portfolio in China by successfully bidding for the exploration rights at the Zhonghe silver project via an online auction, offering RMB 495 million, or around US$76 million.

The project covers an area of nearly five square kilometres (sq km) and lies around 75 kilometres (km) by road northeast from the firm's producing Ying project, which is also in Luoning County, Henan Province, and the company said it plans to begin a drilling campaign in the first quarter of 2021 that will be completed by 2022.

And in February, the miner revealed its subsidiary New Infini Silver Inc had acquired the La Yesca silver project in Nayarit State, Mexico. The project covers an area of around 47.7 sq km with previous exploration activities between 2014 and 2018. A silver-lead-zinc soil geochemical anomaly of more than 500 meters (m) in width and 7.5km long has been defined at the site.

Also in January, the miner said it was set to achieve its annual production guidance for fiscal 2021 as it posted operating results for its third quarter to end-December, 2020. For the year to end March, Silvercorp said it was on track to produce between 6.2 and 6.5 million ounces of silver, between 66.1 and 68.5 million pounds of lead, and between 24.5 and 26.7 million pounds of zinc. That came after it said consolidated silver production for the three months to December 31, 2020 was 1,676 ounces, down from 1,779 ounces in the same quarter in fiscal 2020.

Gold output for the period came in at 900 ounces (the same as in 3Q, 2020), while the company produced 17,111 pounds of lead, down from 20,044 pounds in the same quarter last year. It generated 8,673 pounds of zinc, up from 8,035 pounds in the same period of fiscal 2020. In terms of sales for the three months, on a consolidated basis, the company sold around 1.6 million ounces of silver, 800 ounces of gold, 16.8 million pounds of lead, and 9 million pounds of zinc in fiscal 3Q, 2021.

In fiscal 3Q, the miner posted a 33% increase in income and a 20% uptick in revenue. For the three months to end-December 2020, the group reported net income of US$8.4 million, or US$0.05 per share, compared to US$6.3 million, or US$0.04 a share, in the same period a year earlier. Revenue in the quarter came in at US$53.3 million, up from US$44.5 million in fiscal 3Q, 2020.

All-in sustaining cost (AISC) per ounce of silver, net of by-product credits, was US$6.92, compared to US$7.21 in the prior-year quarter, while the company ended the period with US$204.1 million in cash and equivalents and short-term investments, up 2% compared to US$200.1 million as of September 30, 2020.

Significantly, in September last year, Silvercorp announced a resource boost for the Ying operation, which means the mine could keep operating for at least another 20 years.

The higher confidence measured and indicated (M&I) silver resources at Ying increased by 18%, while proven and probable silver reserves increased by 4%. Ying now boasts 23% more measured and indicated resources, with silver increasing by 18% and gold increasing by 109%. Lead and zinc resources are also higher at 16% and 20%, respectively. Inferred resource tonnes increased by 78% in comparison with a 2017 report.

The update covered six underground mines at Ying - the SGX, HZG, HPG, TLP, LME, and LMW properties. The study also pegged a pre-tax net present value (NPV) of US$954 million for the site, with 62% of net revenue projected to come from silver, 29% from lead, 6% from zinc and 2% from gold.

In June last year, Silvercorp announced it would not exercise its right to match an offer for miner Guyana Goldfields Inc (TSE:GUY), which runs the Aurora gold mine in Guyana, after the latter received "a superior" proposal from a third party. A month earlier, Silvercorp had unveiled an amendment to the previously-announced agreement with Guyana Goldfields, lifting the valuation of Guyana to around C$227 million.

On January 6, 2021, the group reported drill assay results from the HPG mine in China’s Henan Province, which included a 1.58 metre (m) interval grading 17.08 grams per tonne (g/t) gold, 301 g/t silver, and 18.66% lead in a new vein. Exploration drilling and tunneling are continuing at this mine and all the firm's others in the Ying mining district (six mines in all), the firm said.

Inflection points:

  • Next set of results
  • More resource upgrades and exploration success
  • Start of work at newly-acquired projects

What the broker says:

Two brokers Canaccord and Roth both repeated a 'Buy' on the company recently following the miner's fiscal third-quarter 2021 results.

Analyst Joe Reagor at Roth highlighted that the miner's production guidance for fiscal 2022 had been in line with the broker's expectations, but capital spending and operating cost guidance were both "above expectations."

Because of that, along with the decline in precious metals in recent months, Roth cut its price target to $9 per share from $10, but repeated a 'Buy'.

Elsewhere, analysts at Canaccord also noted that it continued to "like" Silvercorp for its 'pure-play' silver exposure, which the broker believes commands a scarcity premium, as well as the company's "conservative management" approach.

It said that due to the impact of lower production in fiscal 2022 on its near-term estimates, it 'modestly' lowered its target price to C$10.50 per share from C$11 previously, but did reiterate a 'Buy' recommendation.

What the boss says:

In January this year, the group's vice-president Lon Shaver spoke to Proactive's Steve Darling following news of the Zhonghe silver project acquisition.

"We are very comfortable with what it's going to take to do the work, to move this project ahead, and hopefully bring it on as another production centre for the company."

Contact the author at giles@proactiveinvestors.com

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Silvercorp wins auction to acquire the Zhonghe Silver Project in China

SilverCorp Metals (TSE: SVM- NYSE American: SVM) Vice President Lon Shaver joined Steve Darling from Proactive with news the company’s subsidiary, Henan Found Mining was the successful bidder in an online auction for a silver project, Zhonghe, which is located in Henan Province of...

on 21/1/21

7 min read