Silvercorp Metals Inc.

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:

• Growing Reserves to support upcoming performance: Over the years, the company has consistently increased its mining reserves and resources, supported by the regular addition of new prospective mines under its operations. An elevated mineral reserve is likely to support the future production of the company.

Source: Company Report

• Strong profitability margins: The company commands higher margins than the industry median, which states improved efficiencies, which is encouraging. Notably, its EBITDA and operating margins stood higher at 45.90% and 28.80%, respectively, in Q2FY22, higher than the industry median of 41.40% and 27.0%. In addition, its Q2FY22 net margin was 21.80%, significantly higher than the industry median of 13.30%.

• Construction of an additional Storage Facility: The group plans to construct a new 3,000 tonne per day flotation mill and tailings storage facility (TSF) besides its existing No. 2 mill located in the Ying Mining District. The above capacity expansion would complement SVM's growing mining operations and the recent successful drilling programs, leading to the addition of new resources.

Q2FY22 Financial Highlights:

• SVM announced its quarterly result, wherein the company posted revenue of USD 58.435 million, up from USD 56.372 million in pcp. The improvement was aided by improved income from the Lead and Zinc segments.
• Income from mine operations were recorded at USD 23.612 million, decreased from USD 26.672 million in pcp. The quarter witnessed higher production costs, increased mineral resource taxes and higher general & administrative expenses.
  

• The group reported an income from USD 16.855 million, lower than USD 24.777 million in pcp. The decline was primarily due to higher corporate general and administrative expenses, coupled with a loss on investments, partially offset by a foreign exchange gain compared to a foreign exchange loss in pcp.
• Its Q2FY22 net income amounted to USD 12.758 million, versus USD 19.557 million in pcp. The above was primarily due to a lower income from operations, partially offset by higher finance income and lower income tax expenses.

Q2FY22 Income Statement Highlights (Source: Company Report)

Risks : A decline in the precious metal prices would result in a lower realisation price and hence a slide in the overall performance of SVM. In addition, the company is witnessing a surge in its input costs, which could lead to an increase in cash costs and higher All-In Sustainable Costs (AISC). Continuation of the above trend might dampen the company's margins and profitability.

Valuation Methodolgy(Illustrative) : Price to Earnings

Stock Recommendation:

For FY22, the company expects its silver production to range between 6,300-6,600 koz, compared to a production of 6,330 koz in FY21. The corporation expects its Lead production in between 65,700-68,900 Klbs in FY22, while total zinc production is expected to be 26,900-28,500 Klbs, which are in line with the previous year production. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like MAG Silver Corp,  Great Panther Mining Ltd etc. Considering the aforesaid facts, we recommend a 'Buy' rating on the stock of SVM at the last traded price of CAD 4.84 on December 22, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary:

One-Year Technical Price Chart (as on December 22, 2021). Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.