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Silvercorp Metals looking ahead with confidence after second quarter results breeze past analyst estimates

Snapshot

The group's flagship asset is the Ying project, also known as the SGX silver-lead-zinc property, which started commercial production in 2006

Silvercorp Metals Inc -

Quick facts: Silvercorp Metals Inc

Price: 6.78 CAD

TSX:SVM
Market: TSX
Market Cap: $1.17 billion
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  • China's premier silver producer

  • A significant resource and reserve base

  • Well-funded to grow with US$135.2 million in cash and equivalents at end September

What Silvercorp Metals does:

Silvercorp Metals Inc (NSYEAMERICAN:SVM) (TSX:SVM) has been operating underground mines in China since 2006 and has a track record of growing the company organically through generating its own cashflow.  It has also built up a substantial reserve base. The profitable company is currently focused on silver, lead and zinc.

The group's flagship asset is the Ying project, also known as the SGX silver-lead-zinc property, which was acquired in March 2004 and started commercial production on April 1, 2006. It lies 240 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 kilometers (km). The mine life runs until 2036.

Elsewhere, at the profitable GC mine in Guangdong province, initial 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 June this year for GC showed a mineral 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.

In the last 13 years, the group has generated 66 million ounces of silver and 946 million pounds of lead and zinc.

The group's consolidated proven and probable reserves of contained metal is around 106 million ounces of silver, 517,660 tonnes of lead and 278,613 tonnes of zinc.

Silvercorp, which is headquartered in Vancouver, also owns about 29% of New Pacific Metals Corp (CVE:NUAG), which is advancing the Silver Sand project in Bolivia, where an initial resource is targeted for the end of 2019. Silvercorp chairman and CEO Dr Rui Feng is the CEO at New Pacific.

The group also wants to bring the BYP gold mine in Hunan province, suspended since 2014, back into production, targeting 30,000 ounces of the yellow metal a year. It will also hope to grow the value of its investment - US$30 million since 2017 - in New Pacific Metals Corp.

How is it doing:

On November 8, Silvercorp reported a 52% increase in net income for its second quarter to end September, and said it expected production to beat its guidance for the year as a whole to end-March, 2020.

Silvercorp had said previously it expected to produce around 900,000 tonnes of ore, leading to around 6.1 million ounces of silver, 65.1 million pounds of lead, and 21.8 million pounds of zinc for the year.

In the three months to end September, the company produced and sold 1.9 million ounces of silver, 1,100 ounces of gold, 19.1 million pounds of lead, and 6.7 million pounds of zinc, which saw revenue come in at US$49.9 million, up 4% on the US$48 million seen a year earlier. Net income was US$12.2 million, or US$0.07 per share, up 52% compared to US$8.0 million, or $0.05 per share in the prior year quarter.

A key mining metric - the all-in sustaining cost per ounce - of silver came in at US$4.15, which was up 63% compared to last year. The miner ended its fiscal 2Q in rude financial health with US$135.2 million in cash and equivalents and short-term investments, up 17% on the US$115.3 million seen at the end of March this year.

Notably, due to soft demand for battery lead due to a weak automobile market, measures in China and increased smelter charges, the firm revealed it planned to build up silver-lead concentrate inventories over the next two quarters to get a better price.

Also there was an exploration success in November from SGX, where drilling is mainly conducted from the mine's current production levels to delineate downdip and along-strike extensions and to test for new veins in previously less-explored areas. Mineralization has been expanded to the northwest of the SGX mine, the firm said

Between April 1 last year and September 30 this year, Silvercorp completed over 41,000 metres of diamond drilling with seven underground rigs and also carried out 30,748 metres of exploration tunnelling between elevation levels 110 metres (m) and 710m at the mine.

Similarly, exploration has also boosted the GC mine. Over nearly a year, 25,877m of diamond drilling and 14,243m of exploration tunnelling between the elevation levels of 300m and 150m have taken place. 

Drilling has extended the major mineralized vein structures along strike and downdip, while tunnelling exposed high grade mineralized zones within major production vein structures, the firm said.

What analysts say:

Following 2Q results, which it said were better than expected "across the board",  broker Roth Capital repeated a 'Buy' rating on the firm and lifted its price target to US$5.50 a share from US$5.25 previously.

In a note to clients, analyst Joe Reagor said: "we believe the company remains somewhat undervalued and that there is significant potential for them to acquire and build another asset."

"We note that in most cases in the mining industry, acquisitions tend to result in value destruction for the acquiring company, but we believe SVM is in a unique position to target undervalued assets that have the potential to be smaller-scale cash generating mines," he added.

What the boss says:

Looking ahead, SilverCorp vice-president Lon Shaver, speaking to Proactive in September, said: "Things are picking up in the sector, certainly we saw it in gold first and now silver's been following, and I think there's a lot more excitement and enthusiasm in the sector and we definitely want to capitalise on that."

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