Silvercorp rebounds on resource updates, share buyback

Bruised by the fallout of the Sino-Forest (TRE-T) debacle, Silvercorp Metals (SVM-T) has regained lost ground after several resource updates, and a proposed share buyback.

Between July 5 and 7, the Vancouver-based and China-focused company reported a resource estimate for its BYP gold-lead-zinc project in China’s Hunan province, updated the numbers at its three mines in the Ying silver-lead-zinc mining district in Henan province and updated the resource at its Silvertip silver-lead-zinc property in B.C.

At BYP the resource is based on 36,000 metres of drilling from 1992, and recent underground channel sampling. The resource comes in at 2.1 million indicated tonnes grading 3.27 grams gold per tonne for 225,400 contained oz. gold, plus 2.8 million inferred tonnes at 2.29 grams gold, both using a 1-gram gold cut-off. The lead-zinc resource is 8.3 million inferred tonnes at 1.34% lead and 3.42% zinc, with a 3% lead-zinc
cut-off.

The company estimates that the Silvertip project has 4.2 million indicated tonnes at 261.3 grams silver per tonne, 4.87% lead and 8.5% zinc for 35 million oz. silver, 203,000 tonnes lead and 354,000 tonnes zinc; and an inferred resource of 908,000 tonnes grading 278.2 grams silver, 4.8% lead and 9.6% lead.

At the Ying district, Silvercorp estimates that combined, the three mines contain proven and probable reserves of 6.6 million tonnes at 273 grams silver, 4.69% lead, 1.32% zinc, and some copper-gold for 58 million oz. silver, 309,000 tonnes lead, 87,000 tonnes zinc, 17,000 oz. gold and 2,000 tonnes copper.

The wave of updates comes two weeks after the company received approval to buy back up to 10 million shares over the next year, representing almost 6% of its 175 million shares outstanding.

Silvercorp stated it may undertake the buyback “because it believes that prevailing market
conditions have resulted in Silvercorp’s shares being undervalued, relative to the immediate and long-term value of Silvercorp’s portfolio of producing and development properties in China and Canada.”

The company’s share price ended at $10.82 in late May before the Muddy Waters report about Sino-Forest broke, which heightened skepticism about China-focussed companies. Silvercorp’s share price proceeded to drop to a low of $7.91. On June 17, it announced the share buyback plan and ended the decline.

On July 8, following the resource updates, the company closed at $10.33 after gaining $1.13 over four days. The rebound puts Silvercorp close to where it was before the early June drop, but still a far cry from $15.60 in early April, when the price of silver peaked at US$48.70 per oz. The silver price declined sharply in early May along with Silvercorp’s share price, hitting almost US$32 per oz. silver, while on July 8 the price closed at US$36.71 per oz.