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Silvercorp Metals on track to meet fiscal 2021 output guidance as exploration drilling continues

Snapshot

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

Silvercorp Metals Inc -

Quick facts: Silvercorp Metals Inc

Price: 7.45 CAD

TSX:SVM
Market: TSX
Market Cap: $1.31 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 around 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:

On January 15 this year, 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.

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, 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.

And in October last year, the group reported the results of its exploration program at the TLP mine. From October 1, last year to September 30, the drilling program at TLP had targeted the down/up-dip and along-strike extensions of known mineralized vein structures in production areas. Drilling had hit many higher-grade silver-lead ore zones, including veins T11, T2E, T33W5, and the newly-discovered T15W3 vein, the firm had said.

In November last year, it reported it had discovered new gold zones from recent drilling at the LMW mine at the Ying project. Silvercorp believes most of these higher-grade, silver-lead discoveries can be mined through existing tunnels, which is expected to substantially reduce tunnel development costs at the LMW mine going forward.

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 the mine and all the firm's others in the Ying mining district, the firm said.

Inflection points:

  • Third quarter financial (as opposed to operating) results
  • More resource upgrades and exploration success
  • Acquisition news

What the broker says:

The miner recently had a 'buy' rating reiterated by Canaccord Genuity analyst Dalton Baretto on valuation grounds.

Baretto also repeated the price target at $11.00. Silvercorp shares have recorded a 16% gain in calendar 2020, underperforming the peer group average of 51%, despite a 45% rally in the silver price.

Baretto said: "We expect management’s focus in calendar 2021 to remain on the same key aspects as in 2020: operational prowess, exploration, and the acquisition of another asset (one outside China). Key catalysts include movements in the silver price, capital allocation decisions, and acquisition efforts."

What the boss says:

Following the positive drill results from the LMW mine, vice-president Lon Shaver spoke to Proactive in November last year and said the firm currently had 56 drill rigs operating at the Ying project.

"More news is coming and we are continuing to drill......there's an opportunity here to really employ the drill rigs as a a really efficient tool," he said.

"We are really using the drill rigs to really focus in on areas that we think have great promise for either the traditional silver, lead, zinc mineralization that we're currently mining  and for these new gold zones, so I think we'll see this drilling continue for a while."

Contact the author at giles@proactiveinvestors.com

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Silvercorp Metals aggressive drill program at LMW returned significant...

Silvercorp Metals (TSE: SVM- NYSEAMERCIAN: SVM) Vice President Lon Shaver joined Steve Darling from Proactive with news the company has seen some very positive returns from their drilling program at the LMW Mine. Shaver telling Proactive this drilling is focussing on gold zones that were...

on 17/11/20

6 min read