The Chinese people have very few options left to invest their money. Due to the stock market decline, they aren’t interested in investing in stocks.
Today I’m speaking withDr. Rui Feng. Dr. Feng has been Chairman and Chief Executive Officer of Silvercorp Metals Inc. (TSX: T.SVM, Stock Forum) (NYSE: SVM, Stock Forum) since 2003. Dr. Feng is also the CEO and a director of New Pacific Metals Corp.
Dr. Feng is a Director of the Canada China Business Council - BC Chapter Board, and Vice President of the Canada China Business Association.
Rick: How fast is demand in the Chinese precious metal market climbing?
Rui: Growth is between 30% to 40% a year, in terms of Chinese gold and silver buying.
Rick: That’s nothing short of explosive, in your opinion why is this happening?
Rui: The Chinese people have very few options left to invest their money in. They used to be able to buy apartments, invest in property, but now, to control speculation, they are limited to just one or two apartments.
Of course the Chinese stock market has been dropping over the last several years so they aren’t interested in investing in stocks.
And they have very limited options in terms of investing offshore. They can buy a QDI fund but every person who bought up QD’s lost money after the market crash back in 2007-2008 so nobody’s touching those anymore.
Rick: The Chinese have an affinity for gold and silver that goes back thousands of years.
Rui: Yes, and the Chinese government has made it very easy for people to buy gold and silver, it’s so much easier for Chinese than North Americans. Literally, you can walk into any bank and convert your money into gold or silver.
Silver is money in China, it has always been a big part of everyone’s savings, but because gold is expensive a lot of ordinary people can’t afford gold so they turn to silver, like here in North America, silver is the poor man’s gold, and it’s been this way, as you said for millennia.
Rick: Can you tell us about yourself Rui, and your position at Silvercorp?
Rui: I am the chairman and CEO of Silvercorp Metals which is one of the largest primary silver miners in China. We originally built Silvercorp as a Chinese exploration company. In 2004 we made some discoveries; we converted those into a mining operation within two years. Since then we’ve been building on that success and last year Silvercorp made almost $60 million net profit, and the cash flow was over $100 million.
Rick: How many ounces of silver did you produce in 2011?
Rui: We produced 5.6 million ounces of silver plus almost 100 million pounds of lead and zinc and 4,000 ounces of gold. Silver equivalent would be over 10 million ounces of silver production per year.
Rick: Rui, you are also CEO and a director of New Pacific Metals Corp. (TSX: V.NUX, Stock Forum)How did NUX get its start?
Rui: Silvercorp had explored a lot of properties, for mostly silver, in China. In the mix were a few prospective for nickel-copper projects, they were spun off into New Pacific and the company went to work exploring these and other properties it acquired.
New Pacific spent about US$3 million and made a small gold discovery, a 1/2 million gold ounces in the inferred category, which the company sold for US$23 million cash in 2011.
Back in 2008 project prices started getting more expensive, it was getting very hard to find good value in China at the time so we decided to come to North America and look for quality opportunities here.
Rick: You came into North America looking for high quality assets; you had a lot of money in the treasury and based on your success with Silvercorp investors would have to believe you know a quality asset when you see one, what happened next?
Rui: We acquired 100 percent ownership of the Tagish Lake Gold Project in Canada’s Yukon Territory, in December 2010. Right after that we raised Cdn$24 million. So, in the treasury, we had the just raised $24 million plus the money we received from the Chinese asset sale. After spending roughly $10 million on Tagish Lake project last year, we still have $32 million in the bank.
Rick: Tell us about Tagish Lake and what was so attractive about it.
Rui: Over 130,000m of surface and underground drilling has been completed. There is over 5,000m of underground tunnels with a mill that needs to be refurbished. The mill was built in 1986 and produced roughly 80,000 ounces of gold from 1986 to 1988.
Besides having good access with all-weather roads, the project contains two advanced-stage gold-silver deposits and one historical producer, the Mt. Skukum Mine, which produced roughly 80,000 ounces of gold from 1986 to 1988.
It’s only a one hour drive to Whitehorse for supplies and a 2.5 hour drive to Skagway, a port in Alaska from which to ship our concentrates. The project hosts a reasonably high-grade deposit, with approximately 650,000 ounces gold-equivalent at an average grade better than nine grams gold equivalent and there exists great potential to add to this historical resource.
The mine site hadn’t operated for several years. Very little work has been carried out recently so the first thing we did was repair a lot of the roads and then we refurbished some of the most important tunnels. The original tailings facility, the waste containment area, is still there and it was constructed for 10 years of mining at 300 tonnes per day.
Of course we also managed to drill ~12,500m last year with many of the holes reporting reasonably good grades at better than 4-5 g/t gold, and several thicker intercepts with better than 10 g/t.
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