Olympic power rationing hits Silvercorp

Vancouver – Inadequate coal supplies for Chinese power plants means industrial customers are facing power rationing in order to ensure sufficient electricity for the Olympic Games.

Vancouver-based Silvercorp Metals (SVM-T) is feeling the disruption. The company’s operations at its Ying mining camp in Henan province were shut down for some 100 hours in July, roughly 13.4% of the month or 3.2 hours per day.

During the first eight days of August the company was forced to sit idle 32% of the time, losing about 60 hours or 7.5 hours per day. The company expects this level of rationing to continue until the Olympics are over on September 5.

Silvercorp says power supply issues may continue to affect the company’s operations after the Games due to the presence of coal supply issues both nationally and within Luoyang City, wherein the Ying mining camp is located.

“We’ve always experienced challenges with power,” says Lorne Waldman, Silvercorp’s corporate secretary. “The positive thing is we have a good relationship with the power authorities when there has to be a ration we are warned.”

In China, coal-fired power plants supply some 78% of the country’s electricity. A recent toughening of the safety laws around coal mining in China mean many of small-scale mines of which there are thousands have been forced to shut down or consolidate, significantly disrupting supply.

Waldman says the Olympics have just made a bad situation worse because the government is re-allocating the grid’s already sparse power to make sure the Games run smoothly. In general, however, Waldman says power is a constant risk factor for the company’s operations.

“On a daily basis we are in contact with the power authorities but they aren’t able to give us a long-term plan,” he says.

In the last year Silvercorp has grown from having a single mining operation at Ying to having four producing silver-lead-zinc mines. The company plans to expand mining capacity from 300,000 tonnes per year to 500,000 tonnes in 2009 and 700,000 tonnes in 2010.

Silvercorp closed the day at $3.92, down 23 or 5.5% even though the company did not release news of the power disruption until after the close of trading. The company has a 52-week trading range of $4.07 to $10.65 and has 153 million shares issued.