Silvercorp turning on China’s silver tap (August 20, 2008)

Record production brought in higher revenues for Silvercorp Metals (SVM-T), and the company maintained its status as one of the industry’s lowest cost silver producers.

For the quarter ending June 30th the company reported revenues of US$30.9 million, an increase of 39% from the prior year period on the back of silver production of 1.1 million ounces, an increase of 27%.

The higher production was built on the back the TLP and LM Mines, which went into limited production in the quarter only three months after their acquisition.

And while the company had suffered production slowdowns due to power rationing in the region, it says a new hydro project has helped smooth out much of those concerns.

The company says local authorities have assured it that rationing will be minimized going forward. It is doing its part to ensure that will be the case by putting US$1 million into a new power line to the Ying Mine which is expected to be finished by the end of the month.

The company says it will expand its diesel power generating capacity as insurance should more rationing come its way.

More concerning for investors, however, could be the fact that higher production and revenues failed to translate into stronger net income.

Coming in at US$11.6 million or 8 per share, net income was 2 less than the 10 per share figure for the same period last year.

Silvercorp explains that last years higher numbers were due to an income tax benefit of $1.5 million, and mineral property option income of $1.9 million.

Once those two factors are taken out of last years numbers net income for the quarter actually increased by 4%, the company says.

Even with that taken into account net earnings still failed to track the gains in revenues. The reasons for that, the company says, are plentiful.

It lists lower grades at the Ying Mine, higher depreciation, and depletion costs, increases in general exploration expenses and administrative fees, and the inauguration of an income tax expense of $2.1 million.

But newly minted production at its LM and TLP mines are the bigger part of Silvercorp’s story for the quarter.

That new production pushed the company to new heights in silver production as it hit a record 1.1 million oz. for the quarter.

That production was sold at an average price of US$13.93 per oz. for total proceeds of US$15.4 million. The company also sold 525 oz. of gold sold for US$300,000, 14.4 million lbs of lead for US$12.8 million and 4.1 million lbs of zinc for US$2.3 million

But coinciding with the increase in production was an increase in costs.

The total mining cost per tonne of ore mined was up 60% to US$73.45 per tonne. That uptick came courtesy of higher amortization costs, an increase in raw materials costs and exploration costs.

Milling costs were also up, 22% to US$13.39 per tonne thanks to higher administration and transportation, increased wages, and higher taxes.

But production costs still remain amongst the lowest in the industry thanks to the by-product credits. Coming in at negative US$5.37 per ounce of silver.

In Toronto on Aug. 20, the Vancouver-based company’s shares were off 5 to $3.76 on roughly 522,000 shares traded.