Silvercorp boosts production

While China-focused miner Silvercorp Metals (SVM-T) saw record production in its first quarter ended June 30, the company’s profits slipped by US$4.1 million or 35% from the year-earlier period because of lower net smelter return prices for silver and base metals.

Silvercorp recorded net earnings of US$7.5 million or US5¢ per share its first quarter ended June 30, down from US$11.6 million or US8¢ per share last year. It was, however an improvement over the previous quarter, when net income was US$1.2 million or US1¢ per share.

The drop in profits from last year came as the company boosted production to 1.2 million oz. silver and 14.4 million lbs. lead, up 6% and 11%, respectively, from the same period last year. Lower net smelter return prices for silver and base metals, which pushed sales revenue down to US$22.6 million from last year’s US$30.9 million, eroded the production gains.

Silvercorp says that even with the lower sales prices, operational improvements and cost controls helped raise its gross profit margin to 74% for the quarter from 69% in the year-earlier period.

First-quarter production came mainly from the Ying mine in Henan province. Production from the company’s nearby TLP, LM and HPG mines was suspended in late 2008 because of low metal prices, and in the recent quarter had only partially resumed. At Ying, which contributed 86,250 tonnes of production out of a total 103,920 tonnes, cash costs were a negative US$5 per oz. silver, compared with a negative US$7.42 per oz. in the comparable period of last year.

Head grades and recovery rates both improved over the previous year’s first quarter.

For fiscal 2010, the company expects to process a total of 410,000 tonnes from its four mines, churning out between 4.65 and 5.05 million oz. silver.

At the end of its first quarter, Silvercorp had US$75.7 million in cash and equivalents, and short-term investments.

The company is just coming off a failed bid for Klondex Mines (KDX-T). Klondex, which owns a gold project in Nevada, rejected Silvercorp’s unsolicited offer and found a white knight in Paramount Gold and Silver (PZG-T) in July. Silvercorp says it’s continuing to pursue other growth opportunities and acquisitions.

Silvercorp shares closed up 14¢ on the first-quarter results yesterday at $3.83. They traded at $3.75 in Toronto today, in a 52-week range of $1.19-4.50. The company has 162 million shares outstanding.