Silvercorp promotes mine ventureSilvercorp promotes mine venture
Some question safety practices at Chinese minesite
Joanne Lee-Young, Vancouver Sun
Published: Monday, February 19, 2007
Silvercorp is a Vancouver-based company on a financial growth spurt.
Shares in the S&P TSX-listed company have almost tripled in the past year to $19.40. This month, it reported a 74-per-cent increase in net income and said it will pay a 2007 dividend on its first year of production.
The company's name is topping business page charts marked: "If you had put a $1,000 in this stock last year . . . ."
Now, it is courting analysts and reporters, taking them to the heart of its story: Ying silver mine in China's central Henan province.
Here, on narrow veins of very rich silver, Silvercorp is directing a low-mech scene of labour-intensive mining.
Ruddy-faced workers steer rudimentary three-wheel trucks. They blast, dig and hand-sort ore. There are five camps with 12 dormitories stretched over a 10-kilometre area. More than 800 miners, 45 geologists, surveyors and engineers are on site.
To compare, an "Inco mine in Ontario that produces ten times as much might have 10 people," said Lawrence Roulston, an independent Vancouver-based mining analyst who has been to the Ying site.
Size aside, the sheer speed of the company's debut is also astounding observers. Three years ago, it had five employees.
"They have really turned this thing inside out and made it into what appears to be a sustainable operation that will be highly profitable because of the cost structure and the grades," said Jim Mustard, a mining analyst at Haywood Securities. He visited Ying two years ago and recently sat down with Silvercorp executives to look at updated photographs and review production levels.
Vancouver mining companies usually raise money, explore and wait. Silvercorp, however, found an edge by heading pretty much straight into production when it got its mining permit last April. Chinese smelters are starving for silver and have been willing to pay the company cash in advance for as much as it can produce.
So "we are using the cash flow from this to fund exploration," said Silvercorp's CEO Rui Feng in an interview.
This means that although the company has spent some $25 million expanding and developing Ying, it has only exhausted $5.5 million directly from its own coffers.
"If you look at our bank accounts, only $5.5 million has left Canada," said Cathy Fong, the company's president. "The rest of the investment has been generated in China. It has been self-financing," she said.
The company is Canadian, but "we are doing things the Chinese way," said Feng. "Our model is the Chinese peasant miner."
His comment is self-deprecating, but apt, according to analysts.
"Other Canadian companies have gone in and said 'this is silly.' We need big trucks like we have in North America. Rui Feng has been smart enough to apply the local approach instead of imposing the Western mining approach," said Roulston.
Silvercorp says that a go-local mantra has helped it smooth out business snafus and cultural impasses. For example, "a typical Vancouver company might send in a Canadian team of 30 expat geologists. They exacerbate the situation by staying in five-star accommodation," said Fong. "Their Chinese partners look at them like bacon ready to be fried on both sides because they are not willing to be like the locals."
By many accounts, the company's ability to get on the ground in China -- to nail agreements, to engage officials, to assess sites, to ramp up staffing -- boils down to Rui Feng.
"He is 90 to 95 per cent the whole company," said Mustard at Haywood Securities. "He is a very tenacious individual. He rolls up his shirtsleeves and doesn't leave stuff to anyone else."
The Vancouver-based entrepreneur was born in central China's Wuhan city. He did degrees in geology there and moved to Canada in 1988. He then completed a Phd at the University of Saskatchewan and started working in mining, first as a government geologist in Alberta. During the mid-1990s, he got involved with building Chinese mines, stumbling on failures and picking up some consolation prizes along the way.
Ying is definitely his big hit.
As the company increases its profile, however, the battle to win over investors is an uphill one. Mix the thought of mining with the thought of China and the brew is a heady one, even for risk seekers. After all, it wasn't too long ago, in 2005, that Vancouver-based Mundoro Mining announced a stall to its grand China plans because the provincial government of Liaoning did not renew a licence for its Maoling gold project.
Also, while analysts are impressed with the work done so far at Silvercorp, there is among them and other observers some scuttlebutt about the company's safety standards.
When a reporter from The Northern Miner, a Toronto-based trade publication, visited Ying at the end of last year, "children were darting out to the ore tracks from a row of barracks built around the mine portal, underground blasting was taking place so close to the visiting group that one could smell the cordite, and there was an open hole in the tunnel floor big enough for a person to fall through."
Fong confirmed that there have been two fatalities at Ying. "It is very different from North America. We are trying to impose health and safety standards, but there is only so much we can control. It is truly an emerging situation that will improve as education and prosperity trickle down," said Fong.
To illustrate gaps in understanding, Fong said that Silvercorp constantly makes workers aware of guidelines and rules. There are signs everywhere. But when it comes to safety, many of the miners have found more resonance in small, kitchen-god shrines posted at the entrance of each mine portal. "It has been a much more powerful way to enforce and psychologically remind miners to practise safety," said Fong.
For now, as Silvercorp moves from Ying to acquire and develop other mines in the area, all eyes are on its next step. Said Roulston: "They have done a great job from starting point to here. How do they continue that pace and demonstrate to investors that they are going to continue to build the company?"