Silvercorp Metals on track to meet fiscal 2021 output guidance as the miner continues to expand its asset portfolio

Silvercorp Metals on track to meet fiscal 2021 output guidance as the miner continues to expand its asset portfolio

Proactive Investors

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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: Silvercorp reported its 4Q and fiscal 2021 production results on April 16, 2021, that came in bang in line with its guidance.  During fiscal 4Q, the three-month period ended March 31, 2021, Silvercorp 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 Vancouver-based 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 on the acquisition trail recently. In January this year, it 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 five square kilometres (sq km) and lies around 75 kilometres (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 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. And in September last year, Silvercorp announced a resource boost for the Ying operation, which means the mine could keep operating for at least another 20 years. The higher confidence measured and indicated (M&I) silver resources at Ying increased by 18%, while proven and probable silver reserves increased by 4%. Ying now boasts 23% more measured and indicated resources, with silver increasing by 18% and gold increasing by 109%. Lead and zinc resources are also higher at 16% and 20%, respectively. Inferred resource tonnes increased by 78% in comparison with a 2017 report. The update covered six underground mines at Ying - the SGX, HZG, HPG, TLP, LME, and LMW properties. The study also pegged a pre-tax net present value (NPV) of US$954 million for the site, with 62% of net revenue projected to come from silver, 29% from lead, 6% from zinc and 2% from gold. Inflection points: Full  fiscal 2021 financial results due on May 20 More resource upgrades and exploration success Start of work at newly-acquired projects What the broker says: Two brokers Canaccord and Roth both repeated a 'Buy' on the company recently following the miner's fiscal third-quarter 2021 results reported in February Analyst Joe Reagor at Roth highlighted that the miner's production guidance for fiscal 2022 had been in line with the broker's expectations, but capital spending and operating cost guidance were both "above expectations." Because of that, along with the decline in precious metals in recent months, Roth cut its price target to $9 per share from $10, but repeated a 'Buy'. Elsewhere, analysts at Canaccord also noted that it continued to "like" Silvercorp for its 'pure-play' silver exposure, which the broker believes commands a scarcity premium, as well as the company's "conservative management" approach. It said that due to the impact of lower production in fiscal 2022 on its near-term estimates, it 'modestly' lowered its target price to C$10.50 per share from C$11 previously, but did reiterate a 'Buy' recommendation. 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." Contact the author at giles@proactiveinvestors.com

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