2011-09-14 (raymond james ltd. (canada)) svm_ weathering the storm.i8c88a3a204d442389f281c96e9e9d55d
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Canada ResearchPublished 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, 2011
SVM-NYSE | SVM.T-TSX Company CommenBrad Humphrey | 416.777.4917 | [email protected]
Phil Russo (Associate) | 416.777.7084 | [email protected]
Tracy Reynolds (Associate) | 416.777.7042 | [email protected]
Precious Metals | Silver
Weathering the Storm
EventSilvercorp was the subject of a second report, this one from a website called
Alfredlittle.com. This report accused the company of several additional
fraudulent issues and rehashed some old ones. This follows the earlier
allegation of accounting fraud from an Anonymous Letter directed at the
company 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.
ActionWe reiterate our Outperform rating and 12-month target price of $16. The
continued allegations, of course, add to the uncertainty already surrounding
companies, such as Silvercorp, with Chinese assets. These reports appear, to
us, to be opportunistic and in the short-term are driving the share price
weakness. Given what we know at this time, we suspect SVM will weather this
storm and suggest that the company continue to move forward with its
operations and development projects, focusing on its strong margins and cash
flow, which will ultimately lead to an outperformance. We will continue to
watch any new developments closely.
AnalysisWe continue to view these allegations as unfortunate and opportunistic. We
also maintain our view that the SGX mine is a high quality asset that has been
and should continue to generate positive returns at current and much lower
metal prices for many years to come. We also believe when you cut through all
of the noise it really comes down to the fact that since 2004 the company has
raised just over $200 mln, paid some $40 mln in dividends, ~$30 mln in share
buybacks, spent more than $175 mln acquiring, developing, expanding and
exploring (both in China and Canada) and still have roughly $220 mln in the
bank. This, along with our site visits and the VAT receipts give us the comfort
we need to maintain our view.
ValuationWe apply a 1.8x multiple to our $9.22 NAVPS estimate, largely based on the
high grade, low cost Ying mine. SVM is currently trading at a P/NAV of 0.7x vs.
the peer group at 1.1x.
EPS 1Q 2Q 3Q 4Q Full Revenue NAV
Mar Jun Sep Dec Year (mln)
2011A US$0.09 US$0.07 US$0.13 US$0.08 US$0.37 US$176
Old 2012E 0.16A 0.15 0.17 0.12 0.59 279 9.22
New 2012E 0.16A 0.14 0.16 0.12 0.59 276 9.22
Old 2013E 0.15 0.15 0.15 0.14 0.58 293 NA
New 2013E 0.15 0.15 0.15 0.14 0.58 293 NA
Source: Raymond James Ltd., Thomson One. Fiscal Year End March 31st . Fiscal years ending before May
are treated as previous year.
Rating & Target
Outperform 2
Target Price (6-12 mos): US$16.00
Current Price ( Sep-13-11 ) US$6.30Total Return to Target 154%
52-Week Range US$16.32 - US$6.45
Market Data
Market Capitalization (mln) US$1,103
Current Net Debt (mln) -US$230
Enterprise Value (mln) US$872
Shares Outstanding (mln, f.d.) 175.0
Average Daily Volume (000s) 3,439
Dividend/Yield US$0.08/1.3%
Key Financial Metrics
2011A 2012E 2013E
P/E
25.0x 11.0x 10.8x
P/NAV 0.7x 0.0x
Ag Price (US$/oz)
Old US$23.96 US$39.79 US$37.63
New US$23.96 US$39.79 US$37.63
Ag Production (mln oz)
Old 5.0 5.6 6.4
New 5.0 5.6 6.4
Ag Cash Cost (US$/oz)
Old US$(6.59) US$(6.58) US$(5.57)
New US$(6.59) US$(6.15) US$(5.57)
CFPS
Old US$0.55 US$0.91 US$0.88
New US$0.55 US$0.90 US$0.88
P/CFPS
18.7x 7.0x 7.2xEBITDA (mln)
Old US$97 US$163 US$173
New US$97 US$161 US$173
EV/EBITDA
16.1x 5.4x 5.1x
Company Description
Silvercorp is a producer, developer and explore
focused on silver assets in China (albeit with significan
by-products). The company's key producing asset is the
high-grade SGX Silver project.
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Canada Research | Page 2 of 13 Silvercorp Metals Inc
Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Fresh Accusations
As we stated in our previous Company Comment published on September 6 entitled
Under Attack, outsiders can never state with absolute certainty that something is not
a fraud, this is why such allegations are particularly challenging to refute. This still holds
true. It is unfortunate that in todays current market environment companies appear to
be guilty before proven innocent.
Before we dive into the fresh slate of allegations against Silvercorp we wanted to review
our thoughts again, and break down what it is that continues to, at the end of the day,
give us comfort to maintain our Outperform rating and $16.00 12-month target price.
First, as with every company we cover, we perform a certain amount of due diligence; it
varies slightly from company to company - reviewing the assets, disclosures,
management meetings, third party studies, etc. Often we visit the assets several times,
we focus on permitting and various other asset or region specific issues or risks. Once all
of this is complete, we decide whether or not to officially cover the companys shares. In
the case of Silvercorp, we went through our typical procedure, gaining comfort that yes,
the assets exist, have good potential and that we trust management.
In mining there are a number of aspects where we need to rely on, our experience, third
party reports and management, which is why trusting management is truly a key featurein our analysis. We need to trust not only that they are truthful but also that they can
actually accomplish successfully, what we believe is the potential of the various assets
to be.
What are the key issues when reviewing a mining company (after establishing a level of
good faith with management to be truthful and are competent)?
1. Quality of an asset, i.e. grades, widths, size, mine life, etc. 2. Economics of an asset, i.e., can the asset generate positive cash flow sustainably?Quality of the Asset
Once we have established this trust, we then focus, in more detail, on the specifics of
the asset, whether in the exploration, development or production phase and then
decide whether it is under, over or fairly valued in the market. When we first started to
review Silvercorp it was in the exploration/development stage, quickly moving to the
production stage. Once in production, and through the typical ramp up issues that all
mining companies grind through, we are better able to re-assess whether or not the
asset is actually economic and have a much better idea if our original assessment, as to
the ultimate potential of the asset, still holds.
We focused on SGX, as it was and still is Silvercorps key asset. The issue for us with the
SGX mine was not whether it was high grade or if it was likely going to be in operation
for several decades - we have been to the mine several times and believe both to be
true - our concern was whether or not, given its narrow widths, it could be mined
economically. Now of course our original work was done in a much lower metal price
environment and given todays prices we would likely have focused a little less on this,however given these recent events, we are glad we did.
Initially Silvercorp did have some challenges with the mining methods, and dilution rates
were quite high. After a lot of test work and training the company was able to develop a
method that maximized the grade mined by minimizing the dilution. We visited the
mine both before this was put in place and afterward. So given we believe the asset to
be high grade and believe it has a long future ahead of it, albeit will always be a
relatively small mine, we were now able to gain comfort that it could in fact be mined
economically.
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Silvercorp Metals Inc. Canada Research | Page 3 of 13
Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
We are not necessarily overly concerned about the allegations regarding the currently
reported size of the asset or its grades (we will touch on this later); as we know,
consultants and geologists can take the same information and depending on cutoffs,
mining widths (dilution) and several other inputs can come up with a variety of results.
In fact, the reported grade in the NI 43-101 report is often not the grade actually mined.
When a company lays out its mining blocks it takes into account current metal prices
and costs and adjusts its plans accordingly. If the prices are high, it can mine lower grade
zones, if the prices are low it can focus on higher grade areas. It can even focus on
specific metals that might be trading at higher levels, if for example lead prices are
elevated a company may choose to mine a zone that has a high lead grade but a lower
silver grade.
On the size of an asset, investors in companies with high grade narrow vein style
deposits need to be comfortable with the fact that it is far too expensive and in some
cases difficult to prove up an entire deposit. History is full of examples of mines that
have been in operation for multiple decades with no more than 5 years of proven
reserves at any one point in time.
Economics
Some would assume the quality of an asset goes hand in hand with its economics.
Sometimes this is true, but not always. A high grade asset can be uneconomic for any
number of reasons. So this is always a key determinant when reviewing a companys
assets. There are a number of ways to look at it, the old back of the envelope method
where you take the current metal prices, the reported grades and calculate what a
tonne of rock is worth and compare that to what you believe the cost per tonne will be.
Or you can build full DCF valuations (as we do). Or, and likely the most accurate way, is
to analyze whether or not the company is generating positive cash flow. Yes, so here
again we are required to review our view of management. And again, we believe the
company provided bank statements and financials to be accurate. Silvercorp did make
this analysis slightly easier by providing a lot of back up documentation, which for us,
the VAT receipts from concentrate sales and its current bank statements were the key.
Accountants can argue the validity of different accounting treatments all day long, but
as long as sales of concentrate are being made and cash balances are growing, assets
are generating cash. We review in more detail cash inflows and outflows in Appendix A.
Our Take in Short
We continue to view these allegations as unfortunate and opportunistic. We also
maintain our view that the Ying property and more specifically the SGX mine is a high
quality asset that should generate positive returns at current and much lower metal
prices for many years to come. We also believe when you cut through all of the noise,
related to the quality of the asset or whether it is economic, it really comes down to the
fact that since 2004 the company has raised just over $200 mln, paid some $40 mln in
dividends, ~$30 mln in share buybacks, spent more than $175 mln acquiring,
developing, expanding and exploring (both in China and Canada) and still have roughly
$220 mln in the bank (according to current bank statements note if you dont believe
the Chinese bank statements they hold roughly $90 mln outside of China). This, alongwith our site visits and the VAT receipts give us the comfort we need to maintain our
view.
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Canada Research | Page 4 of 13 Silvercorp Metals Inc
Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
New Allegations
As mentioned, there were new allegations provided in a report from Alfredlittle.com
which we summarized below along with our thoughts. Admittedly we are still working
through some of details but here is what we have at this time.
Henan Provincial Land & Resource Bureau mining reports contradict theproduction, quality and resource estimates of SVMs key SGX (Ying) mine as
shown in its 40-F and independent NI 43-101 reports that rely heavily upon dataprovided by management. No independent geologists have visited SVMs SGX
mine since 2008.
There are several allegations made within this statement; we focus on a few below.
The author quotes the Henan Provincial Land & Resource Bureau (L&R) throughout
the report. We have not yet been able to confirm or deny the accuracy of this data
and more importantly what the methodology is behind the data. But going under
the assumption that the L&R statements could be correct, there could be any
number of reasons for the differences between the tonnes reported in Silvercorps
NI43-101 and the L&Rs statements. We do not know if the L&R statements include
material from the same area or a subset of it and we do not know what the
different standards or requirements are, (and we will continue to look into it), but
at this time on its face value, this is not something that we are concerned about.
On the different grade calculations; again we do not have the official statements,
however we do know that in China there tends to be a standard cutoff that is
applied to various metals and deposit types. Although we are still attempting to
confirm this, it is our understanding (through various conversations) that the SGX
deposit type and style is required to use roughly a 50g/t cutoff in the L&R filings,
versus Silvercorps current NI43-101 which is based on a 300+g/t cutoff. This in
itself could potentially account for the difference in grade calculations. But there
are a number of other determinants and required standards that could also lead to
differences in grade.
Regardless of what grade is reported in the statements, the grade that counts is the
one that is in the mine plan and ultimately mined. We know each quarter what
grade was actually mined to generate revenue and Silvercorp further supported this
by providing 2010s VAT receipts and by showing their increasing cash balances.
The author also claimed to have counted trucks for two weeks and by their
calculation Silvercorp should have had 63 trucks per day. However by their count
there were only 44 trucks per day. First, in our view, this is not an accurate way to
figure out tonnage and throughput. Yes, they are 30tonne trucks, but we would
suggest it is highly likely that the trucks are regularly overloaded and note that 30
tonnes of lead ore likely would not fill a typical 30 tonne truck box. The trucks
pictured in the report are full, suggesting that there was something more than 30
tonnes in each truck. Regardless, over a two week period it is not possible to pro-
rate to a full quarter or full year, there are any number of reasons why one day
tonnage would be higher or lower than the next, and these loads do not count the
material that is direct shipped to the refiners or that is potentially stockpiled at the
mill.
As for the independent consultant that authored the NI43-101, we believe none of
the issues stated are really that uncommon for a typical producing asset. If the
company reported a wild increase in ounces year over year we may flag it, but we
are not concerned at this point. We are curious however, who the independent
consultants quoted in the report are, and would like to have been able to discuss
some of these issues with them but their identity is also unknown at this time.
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Silvercorp Metals Inc. Canada Research | Page 5 of 13
Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
The author also states The SGX mine has calculated reserves that are only 68M Oz
of equivalent silver. This is worrisome for a 100M market cap company let alone a
$1,000M market cap company. They should have more resources. SGX does have
more resources. Possibly just an oversight, but the author neglected to mention
that SGX also has an additional 182Moz (silver equivalent) in global resources as per
their May 2011 NI 43-101 technical report.
The last point in of this allegation that we are going to discuss at this time relates to
their inference that narrow vein mines tend to require a higher amount ofsustaining capital. This can be correct, especially for underground operations versus
open pit. That said, the author went on and listed what it believes the sustaining
capital figures of a number of Silvercorps peers are and stated that Silvercorps
sustaining capital is the highest at US$436 mln. We are unable to recreate any of
the numbers in the authors chart and although the author claims the number for
Silvercorp is from its NI43-101, we were not able to calculate anything close to it.
From our review we get roughly $44 mln in sustaining capital estimated over the
LOM for SGX.
Outside Tests of Ore Obtained from the SGX Mine Reveal Low Silver Content.We will not dwell on this point much, but in our view gathering ore that has fallen
off the back of a haul truck and having it assayed cannot be used to infer anything
other than what the assays are of the rocks collected off the road. The author states
that their own independent testing from a local laboratory determined the silver
content to be only 30 g/t (from 2 samples we assume 2 rocks?). The author does
not know where the material is from, and the high grade material is hand cobbed
onsite and shipped directly to the smelter (by-passing the mill altogether).
98% of Henan Founds Sales Growth in 2010 came from Two QuestionableCustomers. Management Failed to Disclose SVMs Largest Customer is a Related
Party.
We are not entirely clear about what the issue is here, Silvercorp does own a 15%
non-controlling interest in the Luoyang Yongning Smelter, this ownership was
previously disclosed and when Silvercorp first announced its participation in this
smelter project it stated as a reason for its participation was to try and improve theprices it was getting for its concentrate (as a side note we visited this smelter in
2009). This is by no means uncommon, particularly in base metals; in fact a recent
trend in the zinc sector is for smelters to acquire mines and mining companies.
In the end, all that concerns us is that Silvercorps assets produce a product and
then sell that product generating positive cash flow. This is shown by the VAT
receipts and its expanding cash balance.
Recent Auction Sale of 5% of Henan Found Values it at a 90% Discount to SVMsMarket Value.
We refuted this claim in detail in our previous Company Comment. We would only
add that it is incorrect to say that if it was worth more than the roughly $7 mln it
was transferred at (5% of book value) someone else would have bid for it, becauseSilvercorp holds a right of first refusal on any sale other than to an affiliate and
would have, we suspect, jumped at the chance to acquire the additional interest if it
was truly for sale.
SVM Acquired Yangtze Gold from Chairman Rui Fengs Relative Giving Him a1500% Gain in Six Months.
In April 2008, Silvercorp did complete a transaction to acquire Yangtze Gold Ltd., a
private company for cash (40%) and equity (60%) totaling $61.95 mln. The equity
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Canada Research | Page 6 of 13 Silvercorp Metals Inc
Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
portion of the transaction was issued at a closing price of $8.20 per share for a total
of 4.5 mln shares.
Prior to the transaction, an independent NI 43-101 technical report completed by
SRK Consulting China Ltd. dated January 2008, reported a measured and indicated
resource for the GC Permit (owned by Yangtze Gold Ltd.), of 1,829,700 tonnes
grading 129g/t silver, 1.45% lead, 2.79% zinc and 0.14% zinc and inferred resources
of 7,381,300 tonnes grading 125g/t silver, 1.38% lead, 3.00% zinc and 0.13% tin.
While the transaction was indeed with a relative of Mr. Fengs (his father), this was
disclosed and the transaction was approved by the independent directors of
Silvercorp in accordance with applicable regulations. A fairness opinion was also
given at the time as being in line with previous transaction of that type and nature.
Our analysis of the value of the transaction also suggests that the value was
reasonable for that period.
Since this time, the silver price has increased some 100% and Silvercorp has proven
up an additional ~20Moz of measured and indicated resources. This asset will soon
be Silvercorps next leg up in production and it cost just $62 mln to acquire and is
expected to cost around $30-40mln in initial capital to construct. We do not believe
that Silvercorp shareholders should feel this was a poor acquisition (we have also
visited the GC project).
Investigation by the BCSC
We note that the British Columbia Securities Commission (BCSC) announced their
intention to investigate the allegations made previously against Silvercorp and that it is
seeking out the identity of the Anonymous writer. It is common practice for these types
of investigations to be kept confidential but given the allegations have been made
anonymously, BCSC have made public their decision in the hope the author comes
forward. We view any investigation from the BCSC as positive given the circumstances,
and hope that it positions the company to have them eventually exonerated of any
wrongdoing and remove the overhang on the companys share price caused by the
events of the recent weeks.
Valuation
We continue to suspect that this will be a short-term event and are maintaining our
current Outperform rating and 12-month target price of $16. We will continue to watch
any new developments closely.
We apply a 1.8x multiple to our $9.22 NAVPS estimate, largely based on the high grade,
low cost Ying mine. Silvercorp is currently trading at a P/NAV of 0.7x vs. the primary
silver producer group at 1.1x.
Exhibit 2: Silvercorp NAV Estimate Summary
Mining Assets
SGX Mine 753.1 4.23
Other Assets 699.2 3.93
Investments 36.4 0.20
Total Mining Assets 1488.7 8.37
Other Assets 150.6 0.85
Total NAV 1639.4 9.22
Source: Company Reports, Raymond James Ltd.
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Silvercorp Metals Inc. Canada Research | Page 7 of 13
Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Appendix A
Silvercorp's Historical Cash Flow Statement from 2006 to 2011 (in US$mln)
Cash Flow Statement F2006A F2007A F2008A F2009A F2010E F2011E
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Gain (loss) (6.3) 25.1 59.9 (16.0) 38.5 68.8
Add (deduct) noncas h items:
Accretion of asset retirement obligations - 0.1 0.1 0.1 0.1 0.2
Equity income (loss) 0.2 0.3 0.3 1.5 0.4 (1.9)
Future income tax - - 0.1 (7.9) 0.8 1.6
Gain on disposal of subsidiary - 0.0 - - - (1.9)
Non-cash other income (0.3) (4.4) (4.4) - - -
Loss on disposal of mineral properties 1.7 0.0 (0.6) 0.8 - -
Stock-based compensation 2.3 2.2 2.5 2.1 1.9 2.3
Non-controll ing interest (0.1) 7.2 19.2 1.5 13.3 20.6
Depreciation 0.1 1.5 3.7 7.2 4.8 7.1
Other - 0.0 0.0 55.4 1.1 (4.5)
CF - before WC changes (2.5) 32.0 80.9 44.7 61.1 92.4
CASH USED IN OPERATING ACTIVITIES (1.6) 34.2 79.8 47.0 66.0 104.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Mineral rights and properties
Acquisition and capital expenditures (7.2) (13.4) (36.6) (37.1) (21.2) (25.6)
Proceeds on disposal 5.5 - 0.6 0.8 - 0.5Plant a nd equipment
Acquisition (0.8) (7.2) (7.5) (12.7) (5.0) (9.5)
Proceeds on disposal - 0.0 0.2 0.0 0.1 0.0
Equity Investments
Marketable securities - - - - (1.4) -
Luoyang Yongning Gold and Lead Smelting Co. Ltd - - (5.6) (0.3) 0.0 -
Sale of (purchase of) investments (4.5) 0.5 (29.5) 13.0 (14.3) (31.4)
Prepayments to acquire plant and equipment - - (3.4) (0.4) (0.5) (14.3)
Reclamation deposit paid - - - 0.0 (0.1) -
Cash transferred in on acquisi tion of Ying Project 1.9 - - - - -
Payment to Joint Venture partner for acquisition of Henan Found (1.8) - - - - -
Other (0.4) (1.3) - - - (23.4)
CASH USED IN INVESTING ACTIVITIES (7.3) (21.3) (81.8) (36.7) (42.3) (103.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance to related parties, net of repayments received (0.24) 1.8 (1.4) (0.0) (0.1) 0.2
Bank loan and notes payableProceeds - - - 0.7 2.9 -
Repayments - - - - (2.1) (1.5)
Non-controlling interest
Contribution - - - 0.2 - -
Distribution - - (3.4) (13.2) (7.2) (10.6)
Cash dividends distributed - - (6.9) (5.5) (12.0) (13.1)
Capital stock
Proceeds from issuance of common share 10.69 47.8 2.3 22.7 1.3 115.8
Share cancellation - (5.5) - (9.5) - -
CASH USED IN FINANCING ACTIVITIES 10.4 44.1 (9.4) (4.6) (17.2) 90.8
Effects of exchange rate on cash (0.1) 0.6 5.1 (11.3) 2.7 5.1
EOY cash and equivalents + short term investments 12.6 66.9 82.9 64.1 93.3 204.9
In 2010, purchasedtheSilvertip property in BC forUS$7.5mln cash and$7.5ml n of SVM shares fortotal consideration of$15mln.
In F2008, purchasedthe LM & TLP
properties for
US$25.5mln.
In 2011 , purchased the BYP
prope rty for US$33mln.
In 2006, spent$6mln on
initial 1,000tpd mill to
process ore from the Yingmine.
In 2008, spent $12mln to
expand mill capacity to
1,500t pd at the Ying mine.
For F2012,SVM plans to
spend $18.5mln at the Ying
mine on mine
development, whichincl udes shafts, declines,
exploration drilling, ramps
and tailings facility.
In F2008 , acquired interest
in HPG project for
US$6.3mln.
In F2008, paid $0.05 per
share dividend.
In F2010, paid $0.08 per
share dividend.
In F2011, paid $0.08 pershare dividend.
In F2009, paid $0.08 pershare dividend.
In 2009, purchasedthe GCprope rty for US$61.95mln,split 4 0% cash, 60% equityof SVM shares @ $8.20 p ershare.
Source: Company Reports, Raymond James Ltd.
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Canada Research | Page 8 of 13 Silvercorp Metals Inc
Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Important Investor Disclosures
Raymond James is the global brand name for Raymond James & Associates (RJA) and its non-US affiliates worldwide.
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Analyst Information
Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus
system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall
productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Indexand/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail
sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analysts efforts, v)
net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment
dealers.
Analyst Stock Holdings: Effective September 2002, Raymond James equity research analysts and associates or members of
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permitted to hold long positions in the securities of companies they cover which were in place prior to September 2002 but
are only permitted to sell those positions five days after the rating has been lowered to Underperform.
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Silvercorp Metals Inc. Canada Research | Page 9 of 13
Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No
part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
contained in this research report. In addition, said analyst has not received compensation from any subject company in the
last 12 months.
Ratings and Definitions
Raymond James Ltd. (Canada) definitions
Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the
S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and
outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to
perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of
funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX
Composite Index or its sector over the next six to twelve months and should be sold.
Raymond James & Associates (U.S.) definitions
Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next
six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at
least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform
the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain
MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend andexpect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected
to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform
the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have
been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply
with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing
investment banking services to the company. The previous rating and price target are no longer in effect for this security
and should not be relied upon.
Raymond James Latin American rating definitions
Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months.
Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve
months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4)
Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspendedtemporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable
regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking
services to the company. The previous rating and price target are no longer in effect for this security and should not be
relied upon. In transacting in any security, investors should be aware that other securities in the Raymond James research
coverage universe might carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to
discuss the merits of other available investments.
Raymond James European Equities rating definitions
Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6
to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months. Market
Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4) Expected
to underperform the Stoxx 600 or its sector over the next 6 to 12 months.
Suitability Categories (SR)
For stocks rated by Raymond James & Associates only, the following Suitability Categories provide an assessment of
potential risk factors for investors. Suitability ratings are not assigned to stocks rated Underperform (Sell). Projected 12-
month price targets are assigned only to stocks rated Strong Buy or Outperform.
Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.
Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, possibly a small dividend,
and the potential for long-term price appreciation.
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Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less
predictable earnings and acceptable, but possibly more leveraged balance sheets.
High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and
competitive issues, higher price volatility (beta), and risk of principal.
Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high
risk associated with success, and a substantial risk of principal.
Rating Distributions
Coverage Universe Rating Distribution Investment Banking Distribution
RJL RJA RJ LatAm RJL RJA RJ LatAm
Strong Buy and Outperform (Buy) 78% 58% 35% 58% 16% 47%
Market Perform (Hold) 21% 38% 56% 38% 5% 0%
Underperform (Sell) 1% 5% 9% 0% 2% 0%
Raymond James Relationship Disclosures
Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking servicesfrom all companies under research coverage within the next three months.
Company Name Disclosure
Silvercorp Metals Inc. Within the last 12 months, Silvercorp Metals Inc. has paid for all or a material portion of the
travel costs associated with a site visit by the Analyst and/or Associate.
Raymond James Ltd. has managed or co-managed a public offering of securities within the
last 12 months with respect to Silvercorp Metals Inc.
Raymond James Ltd. has provided investment banking services within the last 12 months
with respect to Silvercorp Metals Inc.
Raymond James Ltd. has received compensation for investment banking services within the
last 12 months with respect to Silvercorp Metals Inc.
Stock Charts, Target Prices, and Valuation Methodologies
Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of
qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall
attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among
other factors. These factors are subject to change depending on overall economic conditions or industry- or company-
specific occurrences.
Target Prices: The information below indicates our target price and rating changes for SVM stock over the past three years.
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Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Price RatingChange Target PriceChange
CoverageSuspended Target PriceandRatingChange Split Adjustment
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Sep-15-08
Oct-13-08
Nov-10-08
Dec-08-08
Jan-05-09
Feb-02-09
Mar-02-09
Mar-30-09
Apr-27-09
May-25-09
Jun-22-09
Jul-20-09
Aug-17-09
Sep-14-09
Oct-12-09
Nov-09-09
Dec-07-09
Jan-04-10
Feb-01-10
Mar-01-10
Mar-29-10
Apr-26-10
May-24-10
Jun-21-10
Jul-19-10
Aug-16-10
Sep-13-10
Oct-11-10
Nov-08-10
Dec-04-10
Dec-31-10
Jan-25-11
Feb-17-11
Mar-17-11
Apr-14-11
May-12-11
Jun-07-11
Jul-02-11
Jul-27-11
Aug-23-11
SecurityPrice(US$)
SilvercorpMetals Inc. (SVM) 3 yr. Stock PerformanceSilvercorpMetals Inc. (SVM) 3 yr. Stock Performance
Date: September 122011
MO2$7.2 MO2$6.50
MO2$6.00
MO2$5.00
MO2$6.75
MO2$9.50
MO2$9.75 MO2$10.15 MO2$13.00
RR
MO2$13.00
MO2$16.50
MO2$16.80 MO2$16.00
Analyst Recommendations & 12 Month Price ObjectivSB1: Strong Buy MO2: OutperformMP3: Market Perform MU4: UnderperformNR : Not Rated R: Restricted
Text
Update
Date
Closing
Price
Target
Price
Rating
Aug-03-11 10.23 16.00 2
Apr-26-11 13.89 16.80 2
Jan-26-11 9.96 16.50 2
Jan-04-11 12.37 15.65 2
Jan-04-11 13.04 13.00 2
Dec-11-10 12.93 R RNov-11-10 12.23 13.00 2
Aug-13-10 7.14 10.15 2
May-14-10 8.49 9.75 2
Dec-01-09 8.07 9.50 2
Oct-28-09 4.90 6.75 2
Mar-16-09 2.73 5.00 2
Ja n-21-09 2.50 6.00 2
Ja n-02-09 2.60 6.50 2
Oct-23-08 2.05 7.20 2
Valuation Methodology: Our valuation methodology for the company considers the stock's valuation as it compares to
our estimate of Net Asset Value (NAV).
Risk Factors
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on
Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could
change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or
new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments
with respect to the management, financial condition or accounting policies or practices could alter the prospective
valuation.
Risks - Precious Metals
Acquisition Risks Mining is very competitive when it comes to acquiring additional properties or projects. This could
negatively impact companies that overpay for assets or purchase assets that fail to meet expectations.
Asset Ownership The validity of most mining and exploration titles can be contested, resulting in disruptions, increasedexpenses, and potentially the loss of the asset.
Commodity Prices All mining companies are impacted to varying degrees by changes in commodity prices. Rising or falling
commodity prices have a direct impact on earnings, cash flow, and NAV estimates. Commodity prices also impact operating,
capital spending, and exploration decisions, which may have longer term effects.
Currency Risk Any mines or projects operating in countries that are not US dollar denominated will have some exposure
to currency risk. Any dramatic strengthening or weakening will impact capital and operating costs at these mines and/or
projects.
Development Risk During the development phase, certain events can lead to unforeseen delays or costs overruns, which
could dramatically change the economics of a project.
Energy Prices Energy typically accounts for a material amount of the cost involved in producing precious metals. Some
processes are more energy-intensive than others, but a trend in rising energy prices would have a negative impact on
margins, all else being equal.Environmental Risks Environmental regulation is continuously becoming stricter and requiring greater capital
expenditures or guarantees. Companies could be negatively impacted if regulations in the areas in which they are active
become more stringent or expensive.
Infrastructure Risk Although improving, there is a lack of qualified professionals and a shortage of services in the mining
industry as a whole. In todays robust environment, securing services such as drill rigs, consultants and assaying facilities
can prove difficult, leading to delays and an increase in capital requirements.
Operational Risk Operating issues are inherent with all mining activities. Changes in ground conditions, as an example, can
lead to production shortfalls, cost increases, and/or resource reductions (temporary or permanent). The impact on our
estimates would depend on the nature, as well as the severity, of the operating issue.
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Raymond James Ltd. | 2200 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Permitting Risk Permits are essential to all development projects and mining operations; delays in obtaining or refusal of
critical permits can significantly impact the valuation of a project.
Political/Country Risk Each country poses unique risks. Governments can change mining and/or environmental laws and
can implement tax or royalty changes, which could potentially have a negative impact on company earnings, cash flow, and
NAV estimates. There is also the risk of asset expropriation or nationalization without compensation and political regimes
can change, along with the attitude towards mining activities.
Risks - Silvercorp Metal
Mining is an inherently risky business. Key industry wide risks include the political environment, operating issues and metalprices. More company-specific risks relating to Silvercorp include: 1) Silvercorp derives 100% of its asset value from
properties in China - higher political risk. 2) We make a number of assumptions relating to two of Silvercorps assets, which
adds to our valuation risk. 3) Silvercorp also derives a significant amount of its revenue from by-product lead and zinc
production. If lead or zinc prices were to drop significantly below our price assumptions our estimates would be negatively
impacted.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available for Raymond James at rjcapitalmarkets.com/SearchForDisclosures_main.asp and for Raymond James
Limited at www.raymondjames.ca/researchdisclosures.
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