Silvercorp nearly triples GC silver resource

Vancouver – As Silvercorp Metals (SVM-T, SVM-X) boosts silver resources by 250% at its GC project in China, a company spokesperson says plans to advance GC to production remain on track.

Silvercorp corporate communications manager Shirley Zhou says despite the significant jump in resources, Silvercorp still maintains a previously disclosed 1,500-tonne-per-day target at GC.

“Yes, the plan is pretty much the same,” she says.

The latest resource estimate pegs GC at 6.4 million measured and indicated tonnes grading 138 grams silver per tonne, 1.49% lead and 3.34% zinc. GC has a further 7.9 million tonnes grading 121 grams silver, 1.45% lead and 2.7% zinc in the inferred category.

Compared to the previous April, 2008, resource estimate, the latest figures represent a 250% increase of silver resources in terms of tonnage in the measured and indicated categories and an 8% boost in the inferred category. Silver grades in all categories improved slightly.

The new resource estimate was based on 26 veins, twice as many veins as were considered in the April 2008 resource.

On news of the updated resource Silvercorp’s share price gained 23¢ to close at $4.24.

The plan at GC is to begin construction of a mine next year and have it producing 2 million oz. silver a year starting in 2012. That would add about 30% more production to the 7 million oz. silver Silvercorp expects to churn out three years from now.

In the year leading up to March 2009 Silvercorp sold about 4 million oz. silver and nearly 50 million lbs. lead and 13 million lbs. zinc. Revenues were US$108 million and net earnings came in at US$60 million.

Zhou says Silvercorp expects authorities will approve a pending mining license for the GC project by the end of this year and, once in hand, it could break ground.

In some respects the GC project marks a departure for Silvercorp in that, unlike at its flagship Ying mine where there was pre-existing infrastructure, at GC Silvercorp will be starting more or less from scratch. As well, mineralization at GC is by and large found within much wider veins and at lower grades than at Ying.

For Silvercorp the lesser grades of by-products zinc and lead especially will mean that cash costs will be higher at GC compared to Ying. “It’s definitely a higher cash cost,” Zhou says, though she notes Silvercorp still expects to mine GC with a profit margin of around 50%.

Silvercorp acquired a 95% interest in the GC project and nearby SMT project, about 200 km west of Guangzhou, in April 2008 by purchasing Yangtze Mining for about $24 million in cash and about 4.5 million shares.

Silvercorp has said the GC project would cost about US$30 million to build.

In what may mark another major departure for Silvercorp – expansion into mining projects outside China – June 8 it announced a bid for Klondex Mines (KDX-T), which owns the Fire Creek property in Nevada. Silvercorp is offering Klondex shareholders half a Silvercorp share for every Klondex share they own which represented a 59% premium based on the two companies’ share prices June 5, the day before the offer.

Klondex is currently reviewing the bid and has yet to officially respond to it except to say that it has hired Scotia Capital as an adviser.

Silvercorp’s CEO Rui Feng said in a press release that the company has been “unsuccessful in our efforts to engage Klondex in discussions regarding a negotiated transaction, and as a result we are presenting our proposal directly to Klondex shareholders.”

The reticent reception may have to do with the fact that Klondex and its management have held on to the Fire Creek property for decades and may be loathe to give it all up and see it developed by another company. Zhou agrees. “It is very close to their hearts,” she says.