RE: Yet another reason for AUQ to pop?"Doug Casey" may have a bit of a following, and a write-up by him may or may not help v.AUQ in the shorter term. But he does come across as a bit of a twit; at least that's the impression left in this release on t.SVM -- he missed the boat on it as it went from $4 to $20, and then claims he "recommended" it (just not "formally" ?!?), and that his readers are the ones that moved this $700MM cap stock!
What a twit!
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Silvercorp
T.SVM, PK.SVMFF www.silvercorp.ca
Price Share: C$19 MCap: C$833 million On: 4/13/06
History Rec: C$3.90, 12/1/05 Gain: 387.2% 52-week: C$1.34-C$20.95
Shares SO: 43,839,657 FD: 48,160,782 As of: 12/31/05
Warrants UnEx: 1,646,000 C$1.75 & C$4.60 Exp: 2/23/06-9/15/06
Options Open: 2,675,125 C$0.35 – C$3.90 Exp: 7/14/06-2/28/10
Cash C$9.3 million* Burn: C$438,000/mo As of: 12/31/05
*SVM just announced a bought deal financing for C$41.5mm
BUY IF YOU DARE—We did not formally recommend Silvercorp in our December 2005 issue of the International Speculator >,, but we did say that if one wanted to speculate on China plays, it would be one of our top choices. That was at C$3.90. We know some of you did buy SVM, because we saw the share price and volume move after our recommendation. So, formal credit or not, we’re pleased one of our picks was indeed the first Canadian junior to get a mining license in China—and we’re very glad we helped some subscribers turn a profit in short order.
So, would we buy now? As crazy as it may sound, we just might. Yes, the stock has gone through the ceiling, and the market is giving Silvercorp a lot of credit for profits that haven’t materialized yet. On the other hand, Rui Feng and his team have delivered on everything they promised, while doing business in a very tricky part of the world. That’s quite an accomplishment. Furthermore, SVM spent C$2+ million on exploration last year—but offset those costs by making C$2+ million selling exploration by-product ore. Not only did this pay for a lot of value added without dilution (the company’s share structure is incredibly tight for a producing silver company rapidly headed for the mid-tier), it bodes very well for how quickly SVM will be able to turn a profit. Management hopes to make C$35 to C$40 million this year, and, given their track record, we believe them. If you apply normal P/E rations to this number, there’s still plenty of room for SVM’s admittedly substantial market cap to grow.
Perhaps more importantly, there’s plenty of room for SVM’s Ying deposit to grow. The current (but two-year-old) 43-101-compliant resource has 43+ million ounces of silver in all categories, based on just five of the dozens of veins in the Ying project. A new resource is due out within a month, and will be based on twelve veins. This is pure back-of-the-envelope speculation, but if the grades measure up—and from the company’s steady flow of press releases reporting kilos per tonne of silver, it looks like they are—the new resource could easily go over 100 million ounces of silver. And with cash flowing in, there’s plenty of room and exploration money available to double that in 2007. Not only that, but now that the company has Ying in hand, their next step is to go on the hunt for local acquisitions and lock up the whole district, which Rui says has many highly prospective projects.
In other words, far from having reached maximum velocity, this is a train that is still picking up steam. That said, buying a China play—even a fully licensed one—at these prices can only be regarded as very risky. This is only a play for high-stakes gamblers able to laugh off a 50% hair cut in a day of bad news. But SVM has earned our respect, so we’re formalizing our Buy recommendation.