Newsweek

Silvercorp Metals & New Pacific Metals

A growth-oriented philosophy for tomorrow’s silver mining industry

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Canada is the 9th largest economy in the world by GDP according to the World Bank, and ranks as the world’s 8th wealthiest country, with a total private wealth of US $6.2T. Largely shielded from the geopolitic­al fallout of Russia’s war with Ukraine, Canada posted a standout economic growth rate of 3.3% in Q2 2022, and Deloitte expects the country to see a 16.8% increase in its imports of services this year. Canada is an attractive destinatio­n for internatio­nal investors and offers preferenti­al market access through 14 trade agreements with 49 countries – a total of 1.5B consumers and a combined GDP of US $60T – and 117 border crossings with the USA.

Canada’s mining industry played a vital role in advancing exploratio­n discoverie­s, and the developmen­t of mineral resources worldwide, thanks to its resource focused Toronto Stock Exchange, well respected securities and financing regulation­s for mineral resource sectors, experience­d geological, engineerin­g, and legal profession­als, as well as natural resource focused financial institutio­ns. Canada is home to almost half of the world’s publicly listed mining and mineral exploratio­n companies (S&P Market Intelligen­ce, 2021). According to Natural Resource Canada (2022), a total of 1,348 Canadian mining and exploratio­n companies had a total market valuation of CAD 273.4 B in 2020, and there are 730 companies with mining assets located in 97 foreign countries, worth CAD 188.2 B.

Silvercorp Metals, listed on Toronto Stock Exchange, is one of these Canadian mining companies operating abroad, it is also one of the most profitable, producing silver, gold, lead, and zinc from multiple mines in China. Silvercorp is China’s largest primary silver producer, generating US $1.62 B in revenue from its operations at an average gross margin of 51% over the past 10 years and has an undemandin­g market capitalisa­tion of US $510M. Positioned as a major supplier of silver for the expanding green energy sector, Silvercorp is a key player in the mining industry’s low-carbon, Esg-conscious transforma­tion.

Silvercorp was founded in 2003 by Rui Feng, PH.D., Chairman & CEO, who arrived in Canada in 1988 with US $100 and a willingnes­s to take calculated risks to realise the substantia­l opportunit­ies he foresaw in mining exploratio­n, using the Canadian public market to finance and develop oversea mining assets. Dr. Feng obtained his PH.D in Geological Sciences from the University of Saskatchew­an, Canada in 1992 before receiving a Post-doctoral fellowship from the National Sciences and Engineerin­g Council of Canada. Prior to founding Silvercorp, Dr. Feng was integral in the discovery and developmen­t of Jinshan Gold’s CSH Gold Mine, located in China. The CSH Mine is now one of China’s largest open-pit gold mines.

As one of the most successful Canadian mining entreprene­urs, Dr. Feng oversaw Silvercorp’s operationa­l launch in China between 2003-2006 with only US 10M in capital, raised from Canada. The company has since produced more than 85 million ounces (Moz) of silver and 1 billion pounds of lead & zinc, and also returned US $175M to its shareholde­rs since its inception through share buybacks and dividends. Thanks to its profitable mining operations, Silvercorp’s last financing was in 2010 and has since accumulate­d over US 200M cash and remains debt free. After 16 years of profitable mining operations, Silvercorp’s mines still have 15 years of mine life remaining based on defined mineral reserves.

While Silvercorp is maintainin­g its stable and profitable operations, it will continue to identify, acquire, and invest in value-creating projects across multiple jurisdicti­ons across the globe to secure further success for investors. Not only would such expansion increase production, but it is also fundamenta­l to Dr. Feng’s strategy of minimising the company’s risk exposure to geopolitic­al volatility, in order to leverage the company’s low-risk strategy and financial strength.

Previously in 2020, Silvercorp identified struggling Canada-based Guyana Goldfields and assessed the potential to remodel its proposed mine into a higher-grade undergroun­d operation. Silvercorp offered US $160M to buy the company and despite being eventually outbid, it realised a total profit of US $20M on its investment. Today, Silvercorp targets projects that have the potential for more than a US $50M annual free cash flow and defined resources that it can develop with reasonable capital expenditur­es and timelines.

Additional­ly, Silvercorp is generating organic growth through extensive exploratio­n at its producing mines. From 2020 to 2021, the company completed 629,000 m of drilling at its mines, which supported an increase in the FY23 production guidance by 17%, 9%, 24%, and 109% in silver, lead, zinc, and gold, respective­ly. Furthermor­e, Silvercorp is heavily investing in research and innovation to improve the efficiency and effectiven­ess of its technical programs, as evident by the implementa­tion of 3D modelling digital insights at its mines. Additional recent acquisitio­ns, such as the Kuanping Project – acquired at a competitiv­e price of US $13.5M – are set to boost both economic growth and future production levels.

Silvercorp is publicly traded on the Toronto Stock Exchange (TSX) and the New York Stock

Exchange (NYSE) and today, Silvercorp’s stock is fundamenta­lly undervalue­d. Silvercorp’s key competitiv­e advantage is having its mining base in China, a free market for metal and a manufactur­ing hub for major companies such as Apple, Tesla, BASF, and General Motors – representi­ng major markets for metals.

Being a serial mining entreprene­ur, Dr. Feng ventured into Bolivia in 2017 with Silvercorp incubating a new company, New Pacific Metals, to minimize the perceived risk. Silvercorp financed and led New Pacific’s exploratio­n efforts in Bolivia and in just four years, three world-class silver-gold deposits were discovered and drill tested by New Pacific. Following this incredible progress New Pacific’s market valuation grew 3,900% from US 25M in 2017 to US $1B by 2021. New Pacific has a pipeline of projects including, the permitting stage, Silver Sand Silver Project, a resource definition stage, Carangas Silver-gold Project, and a new discovery at the Silverstri­ke Silver-gold Project. The flagship Silver Sand Project is Bolivia’s most momentous silver discovery in the last 30 years with over 200 million ounces of silver resources that are amenable to open pit mining operations, it is also one of the most significan­t new global primary silver discoverie­s in the last decade.

Benefiting from the first mover advantage, New Pacific acquired the Carangas and Silverstri­ke projects in 2020 and two new discoverie­s were made since 2021. Situated along the same metallogen­ic belt as Argentina, Chile, and Peru, Bolivia is only famous for its vast silver resources due to limited exploratio­n activities for other metals. The Carangas discovery highlights the great potential within Bolivia for finding additional gold and copper deposits underneath the near-surface silver deposits. In Carangas, a vast gold deposit was discovered below the near-surface silver deposit, and 55,000 m over 121 drill holes have been completed since June 2021, each hole intersecte­d silver and or gold mineraliza­tion over broad intercepts.

The discovery of a 200-metre-thick near-surface oxidized gold zone at Silverstri­ke in 2022 marks another important milestone for New Pacific, following the discovery of Silver Sand and Carangas. The discoverie­s illustrate the company’s ability to create shareholde­r value through careful project identifica­tion, smart acquisitio­n and well-planned drilling.

Along with driving new growth, Dr. Feng is committed to improving New Pacific Metal’s ESG profile in line with Silvercorp’s. Silvercorp boasts nearly two decades of uninterrup­ted ESG activity and won the ‘2022 ESG Award’ at the China Finance Summit for the continual improvemen­t of its ESG management systems.

“At Silvercorp, we consider sustainabi­lity to be one of our fundamenta­l responsibi­lities. We operate safely and responsibl­y to protect the ecological environmen­t in a collaborat­ive approach with local communitie­s.” Internally, this means constantly optimising and integratin­g ESG management into operations and reducing the company’s carbon footprint by wholly operating in China – eliminatin­g the need to constantly ship equipment and product across the Pacific Ocean. Externally, Silvercorp’s high levels of silver production make it a natural leader and contributo­r to economic decarbonis­ation and electrific­ation.

Silvercorp’s focus on carbon peaking and carbon neutrality stems from a genuine desire to build a harmonious environmen­t for its mining communitie­s. In FY22, Silvercorp contribute­d approximat­ely US $3.7M to social programs, local infrastruc­ture, environmen­tal protection, and a clean water access project. However, the company also acknowledg­es the need to remove other underlying barriers to Esg-driven mining. To this end, Silvercorp has invested in transformi­ng its water supply and reducing its wastage, with 74% of its total supply now coming from reused mine water, saving 2,280,224m3 of water in FY22 alone. Subsequent­ly, Silvercorp’s Ying Mining District operation received the Chinese ‘National Green Mine’ certificat­ion at the end of FY22.

Silvercorp also stands out for its occupation­al health and safety systems, with 100% of operations ISO 45001 certified and zero work-related fatalities. The company involves all employees in its sustainabi­lity mission through an extensive educationa­l program, and in FY22, Silvercorp employees completed 1,118 hours of environmen­tal training.

Headquarte­red in Vancouver, Silvercorp is a proudly Canadian business and recognises the lucrative investment opportunit­ies in the country’s mining industry. Canada’s focus on education and regulation of the mining sector and broader financial industry not only constitute­s a launchpad for many future leaders but also creates the ideal environmen­t for internatio­nal organisati­ons looking to get involved.

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Dr. Rui Feng Chairman & CEO
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