Silvercorp Metals Inc. (TSX: SVM) is a mineral mining company that acquires, explores, develops, and mines precious and base metal mineral properties across various exploration and development projects in China.

Key updates:

• Healthy balance sheet: Being a capital-intensive business, the company has zero debt in its balance sheet, and reported a Debt/Equity ratio of zero in Q4FY21, as compared to the industry median of 0.23x. This will help the company to use its cash flows for alternative projects, while the lower everage will help the company to utpace its peers during the rising interest rates environment.

• Increase in cash from operations: The company reported higher cash from operations of USD 95.9 million in 9MFY22, higher than USD 83.6 million in pcp. A higher cash flow denotes increased liquidity, which is a key positive.

• Construction update: On February 24, 2022, the company provided updates on its flotation mill and tailings storage facility at the Ying Mining District, Henan Province, China wherein, the company made progress agreements to lease 123.46 hectares of land to build the facility. Moreover, the company also conducted seven drilling rigs on the site and completed 1,738 of 3,300 meters of foundation engineering survey drilling activities. Further, the company allocated USD 29.8 million for the New Mill and USD 38.0 million, respectively, for the tailings storage facility, respectively. 

Risks associated with Investment

The income of the company is related to international commodity prices, and price volatility could fluctuate the operations in terms of the average realized rate which could sway the financials in the near term in any direction. 

Q3FY22 Financial Highlights (Expressed in Thousands of USD)

Income Statement Highlights (Source: Company Reports) 

• SVM announced its quarterly result, wherein the company posted its revenue of USD 59.0 million, as compared to USD 53.2 million in pcp. The surge was primarily driven by the increase in the net realized Lead and Zinc selling prices.
• The cost of mine operations stood higher at USD 37.6 million, as compared to USD 28.4 million, which resulted in a slide in income from mine operations at USD 21.4 million v/s USD 24.8 million in pcp.
• The quarter was marked by lower corporate general and administrative costs, along with a foreign exchange gain v/s foreign exchange loss in pcp. Income from operations improved to USD 19.1 million from USD 18.6 million in pcp.
• Net income was reported at USD 7.9 million, as compared to USD 12.2 million in pcp. The decline was primarily due to higher finance costs of USD 9.6 million v/s USD 1.4 million in pcp.

Valuation Methodology (Illustrative): Price to CF-based

Analysis By Kaline Group

Stock Recommendation:

In 9MFY22, the company reported an increase in the total dividend payment of USD 4.4 million, slightly higher than USD 4.3 million in pcp. This is impressive as most of the companies are lowering their dividend distribution to retain liquidity.  The stock has been valued the stock using the Price to CF-based relative valuation method and has arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like MAG Silver Corp, Pan American Silver Corp etc. Considering the aforesaid facts, we recommend a 'Hold' rating on the stock of SVM on the closing price of CAD 4.70 on February 28, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on February 28, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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