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A "Buy" Rating for Silvercorp Metals Inc.
This article gives a Buy rating to Silvercorp Metals (NYSE:SVM) stock.
This recommendation is the same one we gave in the previous analysis.
In the previous analysis, we wrote:
“Silver prices are expected to enter a bull market as investors seek safe haven assets amid concerns about an economic recession.
Silvercorp Metals' high margins, low costs and longevity in China, supported by strong financial conditions, make it an attractive investment in the silver market.”
These catalysts have had a positive impact on SVM shares.
The Outlook for Silvercorp Metals Inc.
Silvercorp Metals Inc. is a Vancouver, Canada-based mining company with metal production and exploration activities in China.
Silvercorp Metals indirectly owns 99% of the Gaocheng Mine (“GC”), 14 km west of Yunfu in Henan, Guangdong Province, and owns an 80% interest in the Ying Operation, 110 km southwest of Luoyang, in Hunan Province.
In addition to silver, the company produces zinc, lead and gold, but since it reports its total production in silver equivalent ounces, the most important factor for this stock is the changes in silver sentiment.
Given the rising prices of the company's metals, particularly silver, the outlook is encouraging as the company's total production is expressed in silver equivalent ounces. Later, this analysis will highlight the reasons why silver will remain in high demand, which against a supply from mines struggling to keep up, leads to a reasonably expected price per ounce to add gains after 30.77% at the time of writing.
Florian Grummes, analyst at Seeking Alpha and CEO of Midas Touch Consulting, has actually made a bullish forecast for the price of silver. This lifts the profit potential for Silvercorp Metals Inc., bolstered by the company's low operating costs compared to the global industry, and since profits are the key driver for the U.S.-listed stocks, SVM shares are well-positioned for higher levels as well.
In late October, Max Gottlich, news editor at Seeking Alpha, reported Grummes’ view on future silver prices:
“Silver (XAGUSD:CUR), which also has recorded strong price gains this year, still has a lot of catching up to do relative to gold (XAUUSD:CUR), Grummes said. He thinks $50 is a reasonable price target in the current bull run. In the very long-run, he added, silver could see $100+.”
At the time of writing, the Silver Spot Price (XAGUSD:CUR) was approximately $31.10/ounce.
Since the Last Analysis, Silvercorp Metals Has Performed as Follows
Since the last Buy recommendation on October 30, 2023, SVM stock has delivered a total return of +53.44% including a share price increase of 52.14% plus a dividend yield of 1.3%, outperforming the S&P 500's change of +42.94% at the time of this writing. This is because shares were boosted, as expected, by a silver price increase, gaining 34.06% at the time of this writing and the improvement in Silvercorp Metals' production, operating activities and financial condition.
Silvercorp Metals Inc. will pay a semi-annual dividend of $0.0125 per share on December 13, 2024, equal to the semi-annual dividend paid on June 27, 2024.
The Upward Catalyst of Rising Silver Prices
As for silver price gains, the past year's uptrend was marked by two peaks, primarily due to factors that were amply predicted in our previous analysis of SVM shares.
The first significant peak occurred on May 21, as Yoel Minkoff, SA News Editor, describes here:
“Silver: The metal has outperformed gold in recent weeks, bringing its total gain to 32% YTD, compared to gold's 18% return. It also benefits from all the safe haven attributes of its shiny cousin, such as a popular hedge against inflation, along with some distinctive practical qualities of its own. Silver is used for industrial purposes, like solar panel cells, and is relatively cheap in ounces when compared to pricey gold.”
The second significant peak was reached on October 22, when the price of silver rose to its highest level in 12 years, as reported by Carl Surran, SA News Editor, citing GoldSeek.com founder Peter Spina's forecasts and triggers, revealing strong industrial demand for silver, along with safe-haven purposes and interest rate cut policies, as catalysts for the soaring price of silver:
“ "Silver is making a major move now and it is going to get noticed by more investors and speculators," GoldSeek.com founder Peter Spina said, believing the next move higher in silver "will be aggressive with $40-plus an ounce on the horizon, likely before year's end."
As gold rips higher, "the buying pressures on silver grows, as does the fourth year of supply deficits," Spina said, noting the Silver Institute forecasts 2024 total global silver supply at more than 1B oz alongside total demand of nearly 1.22B oz, following supply deficits in 2021, 2022 and 2023. ”
The Upward Catalyst of Low Cost, Robust Silver Equivalent Production
In terms of production and operations, SVM achieved very good results in the first half of the 2025 fiscal year (ended September 30, 2024) compared to the same period last year. The increase in ore production by 22% to 705,287 tonnes and ore processing by 9% to 604,901 tonnes was reflected in 3.553 million ounces of silver equivalent and strong zinc production, totaling 12.245 million pounds in the first half of fiscal 2025.
Due to its good conductivity, zinc, like copper and silver, is a crucial component for electrification, the energy transition and the manufacture of electric cars – but with the advantage that this base metal represents a cheap alternative when the hype around copper and silver causes the prices of these two metals to rise to unprecedented heights.
Silver equivalent production was robust in the first half of fiscal 2025 compared to 3.725 million ounces in the first half of fiscal 2024, thanks to consistent silver production of 3.372 million ounces (versus 3.37 million ounces in the first half of fiscal 2024), largely offsetting a 42% year-over-year decline in gold production to 2,329 ounces. The company had a 7% year-over-year increase in zinc production, which helped greatly to mitigate the headwinds from a 15% year-over-year decline in lead production to 28.821 million pounds.
The contribution from silver and zinc production therefore best fits Silvercorp Metal's profile in China, as according to the IEA, “It's clear that China is pushing electrification hard, and it now dominates the manufacturing of solar panels, batteries and EVs.”, it is said in this article by Reuters.
Production was at an All-in Sustaining Cost (“AISC”) per silver ounce (net of by-product credits) of $10.72 for H1 fiscal 2025, which was up 3% year-on-year, this is true, but Silvercorp Metal mines are operated much more affordably than many mining companies around the world.
As a benchmark to assess whether production at Silvercorp Metal mines is cost-effective or not, the average industry AISC on a “by-product basis” is nearly US$18 per silver ounce. This average benchmark is representative of global silver mines, according to the “Launch of World Silver Survey 2024” prepared by Metals Focus for The Silver Institute in April 2024.
The Economic Situation Has Strengthened
Adjusted income and cash flow were strong thanks to sales volumes supported by robust low-cost production and higher metal prices, with silver prices up 35% year-on-year to US$26.41/oz for the six months ended September 30, 2024.
Backed by a 23% year-on-year increase in revenues to $140.168 million for the first half of fiscal 2025 (ended September 30, 2024), the company delivered a 60% year-on-year increase in adjusted net income attributable to equity holders to $38.379 million (or a 40% year-on-year increase in adjusted earnings per share to $0.20) and a 9% year-on-year increase in operating cash flow to $63.083 million.
This provided the company with the opportunity to increase total capital expenditure by 54% year-on-year to $47.716 million in the first half of fiscal 2025. These were capitalized and used to make significant progress on growth plans by advancing the mill expansion at one of the two mills in the Ying Mining District (Mill No. 2 with a target capacity of 3,500 tonnes per day), which is expected to come on stream in Q4 2024.
The capitalized costs have also been allocated to the Condor project in Ecuador, which in the northern area alone could support a 12-year mine with an average annual production of 187,000 oz. of payable gold and 758,000 oz. of payable silver and potential for further growth.
Capitalized expenditures were also allocated to the 75% interest in the El Domo – Curipamba copper-gold project, which is considered a high-grade and capital-intensive metal asset located six kilometres southeast of Las Naves, Ecuador, where the process for the construction of the mine has already commenced, and production is expected to begin during 2026.
El Domo has a study that in 2021 predicted 21,390 tonnes of copper equivalent average annual production over 10 years of operation. This project has an internal rate of return of 32%, an initial capital cost of $248 million and a payback period of 2.6 years. The project has an after-tax net present value (discounted at 8%) of $259 million, which, given Silvercorp 75% stake in the joint venture and 217.56 million shares outstanding, the NPV/share is $0.89/share.
These investments bode well for the share price anyway, as they give the impression that the company is reducing risks by working to diversify its resources so as not to be solely dependent on China, where relations with the Westerns are a bit strained at the moment.
The Sprott ESG Mining Risk Heat Map 2024 rates China as an extreme risk country, mitigated by exposure to mining projects in Ecuador's moderate risk.
The balance sheet is solid as it had $209.505 million in cash and short-term investments up 13% year-on-year, with no debt but the potential to free up $162.320 million from working capital appreciating in the wake of bullish metal prices as the item also includes inventories.
An indication of the company's solid financial position is the Altman Z-score of 3.36, which suggests that bankruptcy within a few years is unlikely.
Recent Price Development: A Price Drop as a Buying Opportunity
On Tuesday, the US-listed shares of the Canadian mining company corrected by 12.10% or -$0.49/share to $3.56 per share at the end of the regular market.
On Tuesday, Silvercorp Metals also announced “$130M convertible senior notes offering”, potentially rising to $150 million, as the following day Niloofer Shaikh, Seeking Alpha News Editor, reported:
Silvercorp Metals (SVM) shares dropped nearly 12% after announcing a $130M private placement of convertible senior notes due 2029, with an option for initial purchasers to acquire an additional $20M within 20 days of closing. The notes, maturing on December 15, 2029, will accrue semi-annual interest, with terms such as the interest rate and conversion rate to be determined at pricing. Proceeds will fund copper-gold mining projects outside China, support exploration and development initiatives, and provide working capital.
While the scenario of lower earnings per share (“EPS”) than with 217.56 million shares currently outstanding might have had a somewhat negative impact on the stock, as EPS is a key driver of the share price and $150 million worth of convertible bonds could result in 42.13 million additional shares outstanding, we suspect that Wednesday's tumble likely had a different cause. Not to mention that the potential to collect an amount of up to $150 million adds substantially to an already strong financial position stemming from the H1 fiscal year 2025 (ended September 30, 2024).
Silvercorp Metals will use its solid financial condition to support its silver equivalent production in China and its portfolio diversification strategy through metal projects in Ecuador. As the market sees the convertible bond as a new lifeline for helping the growth projects, the share price should gain momentum for an upturn.
What Has Driven SVM to Oversold Levels More Likely
More likely, SVM shares are still in the wake of the significant decline silver has suffered over the past month, as evidenced by the Silver Spot Price(XAGUSD:CUR)-8.63%.
Source: Seeking Alpha
In our opinion, it was primarily the result of two drivers of market sentiment negativity:
- Investors' assessment of Donald Trump's return as president of the world's largest economy
- and markets' bracing for the Federal Reserve's policy stance, with central bankers possibly slowing the expected pace of their interest rate cuts in response to the new scenario that opens up with Trump's victory.
In fact, Arundhati Sarkar, SA News Editor, reported earlier this month:
“Concerns remain about potential higher tariffs on Chinese goods and a tit-for-tat trade war following Trump's victory in the U.S. presidential election and its implication on demand in the world's second-largest consumer.”
Although Silvercorp Metals' silver production and exploration takes place in China, the company is North American, not Chinese. Market sentiment has become perhaps even gloomier for SVM stock than for the average U.S.-listed stock, amid concerns about the potential negative impact if China responds to Trump's higher tariffs by boycotting North American companies on the mainland, including Silvercorp Metals.
But such concerns are of course unfounded:
If, as Statista estimates, “China will overtake the U.S. as the world's largest economy” by 2030 “with a GDP of 33.7 trillion dollars, compared to 30.5 trillion dollars;” and this $3.2 trillion gap “is predicted to increase to almost 13 trillion over the subsequent five-year period”, then the Chinese economy will be able to do so with the strong support of Western capital and North American companies, including Silvercorp Metals Inc.
Arundhati Sarkar, SA News Editor, added:
“Regarding interest rates, traders are betting that Trump's plan to cut taxes and raise tariffs will push up inflation and reduce the pace of interest rate cuts. Higher rates for longer mean a strong dollar, which makes commodities priced in greenback expensive for other currency holders, such as oil, gold.”
Concerns arising from the Trump Trade did not spare silver either, as the grey metal, alike its shinier cousin gold, does not yield any income and is priced in US dollars. Expectations of sticky inflation have led to concerns that interest rates could stay “higher for longer” or that the Fed will slow its easing rates policy. Because of this, investors have priced in a higher opportunity cost for holding non-yielding silver bullion than US Treasury bonds, affecting the price per ounce. Higher rates over longer periods translate into a stronger US dollar, and as US$-priced silver becomes more expensive abroad, lower foreign demand for the metal has also affected the price per ounce.
An Opportunity to Add Shares from Oversold Levels
The price decline provides an opportunity to add to the shares ahead of the positive forecast, as both silver prices and the company's financial condition, which are important drivers of the US stock market, are expected to improve.
At the time of writing, shares of Silvercorp Metals were trading under the symbol SVM at $3.56 apiece, giving it a market cap of $774.51 million. As you can see in this chart from TradingView, Silvercorp Metals' market price levels currently provide an opportunity to add shares and reinforce the bullish stance ahead of the expected further rise in silver prices.
Source: TradingView
Shares are currently fully below the MA Ribbon, the midpoint of $3.77/share of the 52-week range of $2.22-$5.32, and finally, the 14-day Relative Strength Indicator of 30.95x indicates oversold levels.
Conclusion
Silvercorp Metals is a silver equivalent mining company with mining operations in China.
The company's balance sheet benefits from a combination of consistent silver equivalent ounces, rising prices for the metals and low operating costs. The company also produces gold, zinc and lead, with silver and zinc production becoming particularly important as China's demand for these key metals increases as it moves forward in electrification, electric vehicles and renewable energy.
The company also focuses on diversifying its portfolio, which has a positive impact on the share price on the stock exchange, as it creates a perception that the company's risk profile is on the way to mitigating.
Recently, the stock price discounted negative gains in silver and other metals triggered by the Trump Trade outbreak. The Trump Trade has increased inflation fears, causing the US dollar to strengthen, and has led to lower expectations of a quick move by the Fed to cut interest rates. A strong US dollar has hit foreign demand for silver, and higher-for-longer interest rates have affected the investment demand for silver. These dynamics have created melancholy in silver prices, and Silvercorp has also felt the blow.
However, the SVM share price does offer an opportunity to add shares and increase exposure to the strong prospects highlighted in this analysis, as the company is making good progress in its business and metal prices are expected to trade higher and higher.