Casey Research Silvercorp: SVM is trading once again at levels similar to when they were attacked by the anonymous short-sellers last summer. Weak silver prices are partly the cause. Another cause is that many silver producers like Silvercorp with large exposure to base metals – base metal demand is highly correlated to economic activity – have experienced falling share prices due to worries of a global economic slowdown (those base metals do help keep silver production costs low, though, so having them is not all negative).
The biggest likely culprit is the recent strange actions from those who remind us of the self-professed short-sellers. Short interest did spike in December, so it appears the anonymous groups were up to their tricks again since the company has been aggressively pursuing them. In the end these groups will lose; Chinese authorities are getting more involved now, and Silvercorp management continues pursuing legal action against those attacking the company. It may take time, but this is a management team that simply refuses to give up on their company, their assets, or their shareholders.
For SVM, 2011 was a volatile year, and its stock performed poorly. Yet, ironically, it was one of the best years for the company from an operational and growth standpoint. We repeat our conclusion from the past investigation: there is nothing wrong with the company itself – assets or management – and the stock will, sooner or later, benefit tremendously from the 90% increase in production over the next two years. In the short-term, the stock will pop again when short interest unwinds, much like it did after the KPMG report last October.
Buy at current levels. If you have your full allocation of SVM, we think you can plan on holding for the