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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

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TSX:SVM

Price: 4.96 CAD

Market Cap: $874.72 m
  • 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:

On May 21, 2021, Silvercorp Metals posted its results for the fiscal year to end-March 2021, which showed a 35% increase in net income compared to the year-earlier period, on revenue, which was 21% higher.  The company, recorded net income attributable to shareholders of US$46.4 million in the fiscal year, compared to US$34.3 million in fiscal year 2020.

Revenue came in at US$192.1 million versus US$158.8 million for the previous year after the company sold around 6.3 million ounces of silver, 4,700 ounces of gold, 67.1 million pounds of lead, and 27.9 million pounds of zinc. That was an increase of 1%, 42%, 3%, and 10%, respectively, compared to fiscal 2020.

In the fourth and final quarter of fiscal 2021, net income was US$7 million, up 122% from the US$3.1 million recorded a year earlier, while revenue was up 89% in the quarter to US$35.7 million. In 4Q, the company mined 163,072 tonnes of ore and milled 180,674 tonnes of ore, up 53% and 76%, respectively, compared to the prior-year quarter.

The group's all-in-sustaining-cost (AISC) per ounce of silver metric, net of by-product credits, for the full year came in at US$7.49, a bit higher than the US$6.86 figure seen the previous year,  but in the fourth quarter, the figure was US$12.55 per ounce of silver, down from US$15.17 an ounce in the same period a year earlier. For fiscal 2021, cash flow from operations was US$85.9 million, up 11% or US$8.7 million, compared to US$77.2 million in the prior year.

Silvercorp had reported its 4Q and fiscal 2021 production results on April 16, 2021, which came in bang in line with its guidance. For the three-month period ended March 31, 2021, the company nearly doubled its silver output and saw marked increases in its lead and zinc levels compared to the year-ago quarter. 

Total production of silver was around 1.2 million ounces compared to 696,000 in 4Q 2020, while lead output came in at 12.2 million points compared to 7.8 million and zinc increased from 3.3 million pounds to 4.7 million in the current quarter. All told, Silvercorp sold nearly 1.1 million silver ounces, 10.9 million pounds of lead and 4.6 million pounds of zinc in fiscal 4Q.

The results meant that Silvercorp either met or exceeded its 2021 production guidance. Throughout its fiscal 2021, the company produced around 6.3 million ounces of silver and 68.4 million pounds of lead, meeting the production guidance of between 6.2 to 6.5 million ounces of silver and 66.1 to 68.5 million pounds of lead. The company beat its zinc guidance, producing 28 million pounds of zinc – higher than the 24.5 to 26.7 million pounds it had targeted. Gold production from its Ying mining operation came in at 3,500 ounces.

On a consolidated basis, Silvercorp sold about 6.3 million ounces of silver, 4,700 ounces of gold, 67.1 million pounds of lead, and 27.9 million pounds of zinc, up 0.9%, 42.8%, 2.7%, and 9.9%, respectively, over fiscal 2020.

Silvercorp has been expanding in 2021. On April 29, the company said it had increased the mining potential at its flagship Ying project, revealing that it has been granted three new exploration permits. The metals producer said the new permits range over 48.8 square kilometers (sq km) and cover the depth extensions of three mining permits, namely SGX, HPG, and TLP-LME-LMW. Silvercorp started commercial production at Ying in 2006. The asset consists of six separate mines - the SGX, HZG, HPG, TLP, LME, and LMW properties - which feed two mills with 3,200 tonnes per day (tpd).

In January this year, Silvercorp 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 f5 sq km and lies around 75 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 that 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.

Looking at existing operations, 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:

  • More resource upgrades and exploration success
  • Start of work at newly-acquired projects
  • Further possible expansion moves

What the broker says:

In a note on May 24, 2021, analysts at Roth Capital raised their target price for Silvercorp Metals to $9.00 from $8.75 and reiterated their 'Buy' rating on the stock following fiscal Q4 and full-year 2021results from the company.

Roth's analysts noted that Silvercorp's revenue of $35.7 million in Q4 was slightly below their estimate of $36.2 million due to price realizations, however, Q4 EPS of $0.04 was in line with the analysts' estimate. They concluded: "Other than the slight revenue shortfall, results were uneventful, in our view."

The Roth analysts estimate that Silvercorp will report production of 6.6 million ounces of silver, 27.4 million pounds of zinc, 67.6 million pounds of lead, and 2,800 ounces of gold in fiscal 2022. As a result, they estimate the company's fiscal 2022 free cash flow (FCF) to equity to be $50.9 million. The analysts noted that Silvercorp's fiscal 2022 and 2023 cash flow should benefit from a temporarily lower take rate.

The Roth analysts also said that they anticipate Silvercorp should generate strong free cash flow in 2022 and beyond. Additionally, they believe the company remains undervalued compared to its peer group and that there is significant upside for the company's equity investments, which could provide external catalysts for the company.

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," Shaver said.

Contact the author at jon.hopkins@proactiveinvestors.com

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