Published by Raymond James Ltd
Please read domestic and foreign disclosure/risk information beginning on page 8 and Analyst Certification on page 9.
Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Silvercorp Metals Inc.
September 14, 2011SVM-NYSE | SVM.T-TSX Company Comment
| 416.777.4917 | firstname.lastname@example.org
(Associate) | 416.777.7084 | email@example.com
(Associate) | 416.777.7042 | firstname.lastname@example.org
Precious Metals | Silver
Weathering the StormEvent
Silvercorp was the subject of a second report, this one from a website calledAlfredlittle.com. This report accused the company of several additionalfraudulent issues and rehashed some old ones. This follows the earlierallegation of accounting fraud from an Anonymous Letter directed at thecompany on Sep-2-11. Please refer to our previous Company Comment(“Under Attack”, price $7.53, dated Sep-6-11) for our view on those allegations.
We reiterate our Outperform rating and 12-month target price of $16. Thecontinued allegations, of course, add to the uncertainty already surroundingcompanies, such as Silvercorp, with Chinese assets. These reports appear, tous, to be opportunistic and in the short-term are driving the share priceweakness. Given what we know at this time, we suspect SVM will weather thisstorm and suggest that the company continue to move forward with itsoperations and development projects, focusing on its strong margins and cashflow, which will ultimately lead to an outperformance. We will continue towatch any new developments closely.
We continue to view these allegations as unfortunate and opportunistic. Wealso maintain our view that the SGX mine is a high quality asset that has beenand should continue to generate positive returns at current and much lowermetal prices for many years to come. We also believe when you cut through allof the noise it really comes down to the fact that since 2004 the company hasraised just over $200 mln, paid some $40 mln in dividends, ~$30 mln in sharebuybacks, spent more than $175 mln acquiring, developing, expanding andexploring (both in China and Canada) and still have roughly $220 mln in thebank. This, along with our site visits and the VAT receipts give us the comfortwe need to maintain our view.
We apply a 1.8x multiple to our $9.22 NAVPS estimate, largely based on thehigh grade, low cost Ying mine. SVM is currently trading at a P/NAV of 0.7x vs.the peer group at 1.1x.
1Q 2Q 3Q 4Q Full
Mar Jun Sep Dec Year
2011A US$0.09 US$0.07 US$0.13 US$0.08 US$0.37US$176Old 2012E 0.16A 0.15 0.17 0.12 0.592799.22
New 2012E 0.16A 0.14 0.16 0.12 0.592769.22
Old 2013E 0.15 0.15 0.15 0.14 0.58293NA
New 2013E 0.15 0.15 0.15 0.14 0.58293NA
Source: Raymond James Ltd., Thomson One. Fiscal Year End March 31st . Fiscal years ending before Mayare treated as previous year.
Rating & Target
Outperform 2Target Price (6-12 mos): US$16.00Current Price ( Sep-13-11 ) US$6.30Total Return to Target 154%52-Week Range US$16.32 - US$6.45
Market Capitalization (mln) US$1,103Current Net Debt (mln) -US$230Enterprise Value (mln) US$872Shares Outstanding (mln, f.d.) 175.0Average Daily Volume (000s) 3,439Dividend/Yield US$0.08/1.3%
Key Financial Metrics
2011A 2012E2013EP/E25.0x 11.0x 10.8xP/NAV0.7x 0.0xAg Price (US$/oz)Old US$23.96 US$39.79 US$37.63New US$23.96 US$39.79 US$37.63Ag Production (mln oz)Old 5.0 5.6 6.4New 5.0 5.6 6.4Ag Cash Cost (US$/oz)Old US$(6.59) US$(6.58) US$(5.57)New US$(6.59) US$(6.15) US$(5.57)CFPSOld US$0.55 US$0.91 US$0.88New US$0.55 US$0.90 US$0.88P/CFPS18.7x 7.0x 7.2xEBITDA (mln)Old US$97 US$163 US$173New US$97 US$161 US$173EV/EBITDA16.1x 5.4x 5.1x
Silvercorp is a producer, developer and explorerfocused on silver assets in China (albeit with significantby-products). The company's key producing asset is thehigh-grade SGX Silver project.