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Production stall, price slump weigh on Silvercorp's bottom line

Last updated: 09:07 15 Nov 2013 EST, First published: 10:07 15 Nov 2013 EST

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Silvercorp Metals (TSE:SVM)(NYSE:SVM) could not escape the impact of sluggish silver prices that have rattled the entire mining industry's bottom line this year, a trend that steered the company to a loss in the second quarter.

Silvercorp, whose mining properties are predominantly in China, lowered its production in the wake of a steady decline in the price of its namesake product. The company's average realized price for silver in the quarter dropped 29% to $16.33/oz. from $23.15/oz. in the same period last year.

Silver prices have moved from a peak of about US$32.23 per ounce in January to a June low of US$18.61/oz., to the current price of about US$20.64/oz.

The Vancouver-based miner lost $43.2 million or 25 cents per share, versus a $9.5 million or six cents per share profit in last year's fiscal second quarter. Stripping out a $42.8 million impairment charge, Silvercorp's adjusted net loss was $0.4 million or break even on a per share basis, versus the mean analyst prediction of a two-penny a share profit.

Silvercorp's revenue in fiscal 2014's second quarter declined 37% to $28.5 million from $45.2 million last year. The company's cash flow from operations was $5.6 million, or three cents a share.

Silver production dropped 20% to 1.0 million ounces, compared to 1.3 million oz. last year. Lead production declined 29% to 9.5 pounds, while zinc production slumped 36% to 2.2 million pounds, while the year-over-year price of each fell 4% and 3%, respectively.

A labour shortage in the Ying Mining District, where Silvercorp has four mines, also caused production to fall. The company said it will replace the current contractor with its own miners sometime this month, which it says should help bring production back to prior levels over the next two quarters.

By the end of the quarter, the company said it had completed approximately 2,400 metres of development work for the 4,800m access ramp at the LM Mine West in Ying Mining District. It also completed approximately 17,500m of horizontal tunnels, raises and declines. Silvercorp spent $8.5 million on exploration and development in the district.

At the GC project in China's Guangdong Province, Silvercorp said most of the mine is constructed and environmental procedures are finished and it will now turn its attention to the completion of the concrete rooms for the pumping station and underground main power station. The company said it will take another six months to obtain a safety production permit, although it has a temporary safety production permit for trial mining.

At the BYP mine, Silvercorp completed the installation of shaft equipment for the newly completed 265m shaft. It has suspended operations at the  XHP project in the Henan Province as part of its cost saving measures.

Silvercorp shares fell 0.7% to $2.97 on Friday morning. Shares have fallen about 42% this year.

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