Silvercorp Metals shines in third quarter

In just two years Silvercorp Metals (SVM-T) took US$6 million and parlayed it into a US$100 million revenue mining operation in China’s Henan province.

Their success stems from a heady mixture of low labor and material expenditures (average production costs are negative US$13.62 per oz. silver); high quality by-product credits of lead and zinc; rising silver prices; and the savvy of a China-born entrepreneur who moved to Canada in the late 1980s and completed a PhD in geology at the University of Saskatchewan.

Silvercorp now operates four mines in the Ying mining district of eastern central China and is also exploring the Na-Bao polymetalic project in coastal Qinghai province.

The Vancouver-based company’s Ying silver mine has been in production since April 2006 and its HPG silver-gold-lead mine since May 2007. Last November Silvercorp added two more mines to its stable: the LM silver mine and the TLP silver-lead mine.

A new mill is being built within 15 km of all four mines, which will boost milling capacity at the mining camp from 1,000 tonnes per day to 3,000 tonnes per day when it is completed in November.

Silvercorp also holds about a 24% interest in New Pacific Metals (NUX-V), which is exploring for nickel, copper and platinum group metals in China.

In the third quarter, Silvercorp posted consolidated net earnings of C$17.5 million — or 12 per share up from C$9.3 million, or 6 per share, in the same quarter a year ago.

Gross profits surged 100% year-on-year to C$24 million. Net cash from operating activities rose to C$22.9 million, a 71% year-on-year increase.

After adjusting for by-product credits, total production costs during the quarter were negative US$11.07 per oz. silver compared with negative US$8.49 per oz. in the same quarter a year ago.

Gross profit from mine operations reached C$24 million on total sales of C$29.8 million, a gross margin of 81%.

Silvercorp believes it can produce 500,000 tonnes of ore in its 2009 fiscal year, including 250,000 tonnes from the Ying mine, 100,000 tonnes from the HPG mine, 120,000 tonnes from the TLP mine and 30,000 tonnes from the LM mine.

In terms of mineralization, the deposits at Ying are similar to the mesothermal veins of the Coeur d’Alene district in the United States.

Mineralization occurs as a multitude of quartz-ankerite veins in north- to northeast-trending fault-fissure zones that cut Precambrian-age mafic and felsic gneisses.

Individual veins are often a km or more long and typically a metre or less wide. The controlling structures are sometimes filled by altered andesite or diabase dikes, or are identified only as alteration selvages up to 2 metres or more wide within the gneiss.

In Toronto, Silvercorp shares were up 21 to $9.47 on a trading volume of 159,278. The company has a 52-week trading range of $5.10 to $10.63 and has 148.7 million shares outstanding.