By Dr. Ryan D. Long
Over the past 10 years Silvercorp Metals Inc. (TSX: SVM, NYSE: SVM, Forum) has sold 56.1 million ounces of silver, 597.5 million pounds of lead, 181.9 million pounds of zinc and 55.9 thousand ounces of gold from the mines within Ying Property, located in Henan Province, China and the Gaocheng (“GC”) Property, located in Guangdong Province, China (Figure 1).
Figure 1: A Map of the Location of Silvercorp’s Operations
Source: Silvercorp
This has generated US$1.62 billion in revenue over those 10 years at an average gross margin of 51%, with an additional US$176.3 million generated in the first nine months of the current fiscal year. This has resulted in total operating cash flow of US$700 million over a ten-year period.
Figure 2 – Silvercorp’s 10-year Revenue Generation Chart
Source: Data from Silvercorp, compiled by MMRC
In addition to this decade long, strong operating and financial performance, the Company has returned US$101 million to shareholders through dividends and share buybacks, while continuing to organically fund and develop the ongoing evolution of its mining activities.
After over 16-years of operations at the Ying mines and over 7-years operating at the GC Mine, you would be forgiven for thinking that mining activities are starting to wind down, but that’s far from the case. Over the past 10 years, Silvercorp has invested over US$36 million on exploration drilling and completed over 1.6 million metres of drilling, at a very attractive cost of US$23 per meter.
As a result, the total resource base at these two properties has grown from 200 million ounces of silver in 2011 to 311 million ounces today, despite the Company extracting an additional 56.1 million ounces of silver over this period (Figure 3). The Ying mines total resource base (M, I & I) is now 85.5% larger than it was at the end of 2011, and the GC Mines has a resource base that is only 15.8% smaller than it was in 2011.
Figure 3 – Waterfall Chart of Silvercorp’s 10-year Change in Resource Base
Source: Data from Silvercorp, compiled by MMRC
This means that on average, Silvercorp’s drilling cost per ounce of silver resource is just 21 cents, which is staggeringly low! If we were to include the additional lead, zinc and gold mineralisation in this calculation, this number would be even lower.
Based on current proven and probable reserves for both properties of 111.5 million ounces of silver and the current production rate, we estimate that the Company has around 18 years of mine life remaining and additional drilling is likely to convert more of the larger resource base into reserves, further extending the mine life.
But Silvercorp doesn’t walk when it can run – this year it is undertaking over 300,000 metres of drilling, which is likely to further expand the size of the resource and reserve base.
Silvercorp is well positioned with no debt on its balance sheet and over US$211.6 million in cash and cash equivalents. This does not include the investments in associates and equity investment in other companies, which has a total market value of US$156.2 million as at December 31, 2021.
Alongside its resource expansion work, Silvercorp is investing in expanding its operations by constructing a new 3,000 tpd mill and 20 million m3 tailings storage facility. The Company is also seeking to obtain a mining permit for its BYP Gold Project, which has been on care and maintenance for some time. Production at BYP could add an additional 30,000 oz to 40,000 oz of gold per annum to the Company’s production profile.
The Company is also expanding its portfolio with targeted acquisitions, and acquired the Kuanping Property, located just 33km north of the Ying Property, for US$13.5 million in October last year. Previous operators of this project completed 1,458 metres of adits, 3,387 metres of trenching, and 11,759 metres of diamond drilling, in 52 diamond drill holes, between 2006 and 2013, defining six silver-lead-zinc veins and one gold-silver vein. Silvercorp is planning around 12,000 metres of drilling at this project during 2022.
In Fiscal 2023 (YE March 31), the Company expects to mine and process approximately 1,040,000 – 1,140,000 tonnes of ore across its portfolio, producing between:
- 7.0 million to 7.3 million ounces of silver,
- 68.4 million to 71.3 million pounds of lead,
- 32.0 million to 34.5 million pounds of zinc, and
- 6,300 to 7,900 ounces of gold.
This will be an anticipated increase of approximately 9% in ore, 14% to 19% in silver, 6% to 11% in lead, and 19% to 29% in zinc and 85% to 132% in gold compared to Fiscal 2022 production.
Prepared by Dr. Ryan D. Long, CEO of Mining and Metals Research Corporation Ltd., on behalf of Silvercorp Metals Inc., a Stockhouse Publishing client.
