“Buy China’s secret silver stock before it doubles”

Silver teaser from Nicholas Vardy's Global Bull Market Alert

By Travis Johnson, Stock Gumshoe, January 19, 2011

Since there was such a spirited discussion following our look at the “treasure map” of hoarders who can sell you bags of “treasure”, this latest teaser from Nicholas Vardy also caught my eye.

Why? Well, because that “treasure map” bit was all about junk silver (old circulating silver currency), and the discussion was largely of the “hell in a handbasket” variety that we’ve also seen most aggressively from Porter Stansberry most recently with his “End of America” pitch about protecting yourself from hyperinflation, higher taxes, and dollar devaluation. And much of that relates to China, as the largest foreign holders of US debt and now our perceived rival for economic leadership, particularly with the recent baby steps toward making the Yuan an actual global currency.

So the little synapses in your Gumshoe’s brain jumped all over this — if silver is a hot topic, and China is a hot topic, wouldn’t the great Gumshoe Nation wish to hear about Chinese silver? Well, wish it or not, here it comes.

The pitch is that this stock has already gone gangbusters but isn’t about to stop:

“Why this stealth China stock tripled in 2009, doubled again in the last six months, and is poised to double again by Valentine’s Day”

And there’s nothing I like more than a stock that’s supposed to go crazy within a nice, short period of time — because then I have at least a small chance of remembering to check back in a month and see what happened, even if I never own the stock.

Plus, it’s just more fun — and more ridiculous — to promise a double within a month. Though, to be fair, it looks like Vardy has probably been pushing this idea for a little while — the teaser email that I’m looking at now was sent and received just this past weekend, but the text of the ad actually says that you have to get in “before December ends.”

(So perhaps he means next December so we have almost a year to think it over, and that it’s Valentine’s Day 2012 that will bring our “double?” Yeah, I don’t think so either, more likely just an overworked marketer forgot to update the dates in the ad.)

OK, so who is this “stealth China stock” that, we presume, should be doubling any minute now? Well, you can go subscribe to Vardy’s Global Bull Market Alert ($995) if you want the answer from the horse’s mouth … but I reckon we can give it to you for free if you prefer, you’ll just have to sit through a few more paragraphs of Gumshoe blather. Here’s some more from Vardy:

“If you’re ready to move fast, this silver mining stock can make your portfolio balloon to twice its size in the next two months. Just think of how your new year would look with a recently fattened wallet, stuffed with double your money!”

Oh, so there we go — so the text was written back in December and they’re just recirculating it, and we’re still expecting that double by February 14. I don’t want to spoil the surprise, but I can tell you that right now this pick is actually down about 15% since mid-December — so we’ll be generous and let Vardy get his double from now instead of from then, shall we? Never let it be said that we failed to be understanding about poorly timed investments, since we (OK, I mean “I”) make them with some regularity.

Here are the details about our silver miner, in Vardy’s words:

“You’ve heard of cheap Chinese labor, right? Well, this company does that one better. In the quarter ended June 30, 2010, this ‘China miracle’ company produced 1.4 million ounces of silver at a cash cost of negative $6.31 per ounce!

“Its ‘Overseas Chinese’ management just inked a joint venture to acquire 70% equity interest in the high-profit Yunxiang Mining Co. Ltd., a private company in China’s Hunan Province… a deal that will boost their bottom line skyward!

“January and February are traditionally strong markets for silver. But this stock will likely leave other silver stocks in the dust. It’s 5-year net profit margin has been 41.38%, compared to an industry average of just 1.09%.”

Vardy also uses many of the standard arguments for silver that we hear over and over again — he mentions that the silver-to-gold ratio is historically high (it’s about 47 right now), and implies that he thinks it will revert to the historical average of around 15/1. We hear that a lot, though do note that those low historic ratios that we often see (12/1, 15/1, etc. — meaning it takes 15 ounces of silver to buy an ounce of gold) are very historical, they include the centuries when silver and gold were essentially strapped together at almost monetary rates of exchange, and when one or the other backed most currencies (or were most currencies, since most currency was coinage).

Over the last 100+ years the silver/gold ratio has rarely dipped below 30, and for fairly brief periods of time, and has as often spiked to over 75, coming close to 100 a couple times. So be careful about your confidence that something will return to a long-term mean, if you’re talking about several thousand years of a 15/1 average ratio it could easily go to 200/1 before we’re all dead and still end up averaging 15/1 on these kinds of historic (almost prehistoric) charts. That’s not to say that silver is a bad investment, or that there aren’t other reasons why it might continue to outpace gold, as it has for the past decade and more recently, but to a non-expert like me that particular ratio of silver to gold prices doesn’t seem all that predictive in the short term (like, less than 50-100 years).

And yes, he also mentions the silver shortages that are often teased by investment newsletters — though it should be noted that although industrial demand is certainly a key driver of silver (and not gold), the main reason for these perceived “shortages” of coins is huge spikes in investor demand. You’ll see stories about the US mint running out of silver, for example, but that just means they’re not producing silver collectible coins to sell direct to collectors — they’re still buying up tons of silver and producing plenty of bullion coins that are sold through banks and dealers. (That’s a side-effect of the mint’s Congressional mandate: they’re required to produce bullion coins in sufficient quantity to meet demand, they are not required to produce collectible coins, so when investor demand spikes they have to turn over their production to bullion coins).

Demand for silver has certainly been rising, all you have to do is look at the price to see that, but since so much of it is investor demand it’s sometimes perceived to be less steadfast — swings in investor sentiment can be much faster than swings in the actual economy that might impact demand for silver for electronics, for example.

To be clear, I own silver personally and think it is a useful part of any portfolio, largely as a hedge to maintain purchasing power. I just like to throw out the other arguments since they’re not often a part of the teaser ads or newsletter soliloquizing.

But what you want is the name of this stock, right? Well, it will probably sound familiar to some of you — it’s been a favorite of a few newsletter guys for the past couple years, this is Silvercorp Metals (SVM).

And yes, Silvercorp is the biggest primary silver miner in China, though as with most silver mines there are significant secondary metals as well — in their case it’s mostly lead and zinc, which produce enough revenue for the mine that when they talk about their cost to produce silver it comes out negative after crediting for those “byproducts.” Vardy teases that they produced 1.4 million ounces at a cash cost of negative $6.31, and I can confirm that this basic performance level is continuing — in the quarter after that (the September quarter of last year, their second quarter) they report that they produced 1.34 million ounces at a cash surplus of $6.30 per ounce.

So it’s hard to argue with the combination of significant byproduct revenue and generally low operating costs in China, though it’s not all that unusual for silver miners to also depend substantially on copper, zinc, lead or nickel prices to subsidize their operations (which is part of why silver production falls sometimes when base metal prices fall — if nickel miners have to shut in production because demand drops, for example, the byproduct silver that they generated disappears from the market). But yes, Silvercorp is a special case in terms of the cash cost per ounce.

They’re also trying to expand and diversify away from their primary mining area, they are currently producing from four mines at the Ying Mining Camp in Henan Province, where they also continue to drill for more reserves, but are trying to develop mines in Hunan and Guangdong as well, and they’re also trying to diversify outside China and develop a mine in northern British Columbia.

The company is technically Canadian, though the Chinese operations are held in Chinese subsidiaries that they control (generally about 70% owned by SVM) but that are partnered with Chinese companies or quasi-governmental entities, so they do report reserves and resources and production data that will look familiar if you’re used to analyzing Vancouver mining companies — you can see their reserves numbers here if you like.

As a business, SVM generates numbers that look substantially better than some similarly sized non-Chinese peers like Coeur d’Alene (CDE) or Hecla Mining (HL), with particularly much better margins thanks to their low cost operations — but it’s also priced at a premium for the same reason. I wouldn’t argue against SVM and it has certainly been a spectacular performer, though I have no reason to think it will be over $20 in a month as Vardy teases.

And as I noted, several other newsletters have pitched SVM in the past, notably Matt Badiali about a year and a half ago (the stock has tripled since then) and, in an extremely aggressive and long-lived push, as the “silver under the great wall” stock teased by Sound Profits that began almost exactly a year ago (up about 60% since then). It’s an easy stock to pitch during a precious metals bull market, with the China connection and their low cash costs, so I’m sure there have been many others on board this train as well.

I don’t currently own these shares (or any other stock mentioned above, though as I noted I do own silver bullion), but I know many of the readers in the great Gumshoe Universe have been Silvercorp buyers in the past — are you still holding on? Expect a double from here? Or are the days of phenomenal growth behind them? Let us know what you think with a comment below.

We do not have any subscriber reviews for Vardy’s Global Bull Market Alert yet, so if you’ve ever subscribed I’m sure your fellow investors would like to hear your thoughts — just click here to review it for us today.


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57 Comments on "“Buy China’s secret silver stock before it doubles”"

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Evan
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Evan

I'm a big believer in this company, it's doubled since I've owned it and I have no intention of selling, since if they can keep negative cash costs while increasing production they should continue to outperform.

eanmdphd
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eanmdphd

"Since I've owned it" is not a useful parameter….a date would be useful. Thanks.

Dlst
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Dlst

>>If you’re ready to move fast, this silver mining stock can make your portfolio balloon to twice its size in the next two months.<<

Well, if you sold everything else and then invested 100% of your portfolio in the one stock, perhaps, but no one in their right mind is going to do that. If that's the sort of advice they dispense for $995/yr, I can state categorically that I WILL NEVER SUBSCRIBE TO THEIR NEWSLETTER. To be honest, I wouldn't anyway, but this clinches it.

hedy1234
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hedy1234

I owned it for about a year. It had a great run and I sold it this recent PM downturn along with some others that had done very well for me.

terencio
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terencio

I bought SVM 10/12/2009 for $7 and have seen it double and slip back to where it is now $10+

RC22
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RC22

I lucked in to SVM back in Dec 08 for under $2. Needless to say, it's one of my current favorites. I'm starting to think about getting out of it though, as I am questioning how much more it will run.

Myron Martin
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Myron Martin
If every stock I have owned for the past 3 years did as well as Silvercorp I would already be a millionaire. Or perhaps I should say, if I had split my inheritance between Silvercorp and Jinshan its Chinese gold cousin, and just sat on them, I would be set for life. As usual Travis presents a reasonably balanced picture. I say that because there are "traditionalists" out there who are constantly bad mouthing gold and silver because they do not pay dividends or pay interest, but then what fixed income investments today pays an interest rate that exceeds the… Read more »
Tom Freund
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Tom Freund

I'm with you, Myron.

GlobalMkt

Adrian
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Adrian
Excellent post Myron. Talking of inflation I noted this week that here in the UK our annual inflation rate of 3.7% is now higher than that of Zimbabwe, which went down to 3.2%. However, on this news the Pound actually went up! Go figure. Glad I've got my gold and silver. Back on topic, I had a fantastic ride out of Silvercorp from 2004 (when it was called SKN resources) riding it all the way from under 50c to $20 (before they did a 3:1 split). I held some of the position through thick and thin but finally dumped the… Read more »
Iikka K
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Iikka K
Myron: That's odd, I never noticed the price of all goods nearly doubling over the last year. It must be that I'm eating fiat food, wearing fiat clothes, living in a fiat apartment heated by fiat natural gas and powered by fiat electricity. Frankly, in real terms of purchasing power the dollar may have lost a couple of percent while silver has gained 70%. This makes silver a great speculative investment (if you got in a year or two ago), but it's in no way behaving like an inflation hedge. Even according to your own numbers silver price has gone… Read more »
eanmdphd
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eanmdphd

Reference inflation: More than a decade ago, when inflation was rather low, I thought otherwise. I thought there was a unique set of products that had very high inflation, especially relative to the 2-3% inflation people were citing. Think about it… what were those products?

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eanmdphd
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eanmdphd

The products that came to mind for me were
health insurance
college education
funeral costs

Now these have one interesting thing in common….

eanmdphd
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eanmdphd
What did the inflationary products have in common? FOR the most part, people purchased just one of them: one health insurance one college education (though it could be continuous, as in my own case for quite a few years — tho scholarships helped) one funeral. Most other products, people buy more than one of them: cars — more than one per family is frequent (consider all the rental cars out there… someone is buying them) houses — sometimes more than one per family (and consider the investment properties) certainly we all have more shoes, phones, TV's than we had in… Read more »
shredder
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shredder

SVW does pay a dividend….very unusual for jr resource stocks.
I've owned it inn the past, might be time to look at buying it again
SVM is also optionable….sweet

cynic
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cynic
SVM is one of my most important core holdings .It comes recommended by many precious metal stock newsletters,and for good reason. One of my newsletter experts says SVM will become the next Silver Wheaton. As a core holding I look to buy more at significant dips, like the one thats ongoing at 10 dollars a share,looking for it to fall to 9 and I'll add another tranche. The problem with these newsletter promo pitches,as always, the hard sell hits the public forum usually at a time when the stock is in danger of falling, I think they time it that… Read more »
Malcolm
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Malcolm
Wynn – "Confiscation" is the right winger word to describe Obama's effort, in a business-friendly way, to arrange medical expense care insurance for almost all of the 40 to 50 million Americans without health insurance. Of all advanced nations, we have by far the greatest percentage of folks depending on nothing by prayer to keep them from medical expense forced bankruptcy. Whatever you think of prayer, this is not the best of financial planning. Meanwhile, those with plenty of money beat their chests, claiming that the US has the best medical care system, and screaming for Obama to keep his… Read more »
eanmdphd
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eanmdphd

What did the inflationary products have in common?

They were all products that are purchased just once (or one at time) in a life time. One education, one health care, one funeral.

Richard Stone
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Richard Stone

I like gold , I like silver … they are both pretty and I can sit and hold them while watching our North American governments slip into the financial abyss on the news !

blackjack
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blackjack

have a look at other mines around the world as well
if theyre mining silver then they should go up as well

Peaceful Warrior
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Peaceful Warrior

SLX (Silvermex) is bound to have it's run soon. After merging with Genco Resources later last year, it currently has the best board of any silver junior with both production and exploration experience.

Completed a financing back in December 2010 and will be using the $$$ to put their La Guitarra mine in full production and generate cash flow. It is already producing 200 tones/day, with a very low cost given the proven reserves available since the Aztech times.

Here's a valuation: http://tinyurl.com/6lfpvhd

Stan
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Stan

Yes, I like SVM and have some long call options on it, but it's in a downtrend now, so I'm looking to hedge with some long puts to profit a little from the down turn.

Royalroi
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Royalroi

Being a near virgin to personal trading ,I find the diversity of opinion stated in a non-aggressive manner to be entertaining,enlightening and educational.Thanks

CarlB33
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CarlB33

I am a disabled Vet who is on a semi-fixed income. I am looking to change that within the next year or so. I would like to know, what are some good precious metal companies to buy into? Also does anyone know how to go about buying gold and siver, if so please share if you are willing. Thank You for your time.

K.E.
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K.E.

SVM lost $50 mio in FYE 2009 due to impairment charges. Why did SVM stop operations when silver prices dropped?

hedy1234
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hedy1234

We need to be careful to distiingush hold the precious metals and holding the miners. The PMs are an infiinite buy and hold, the miners are stocks that should have buy and sell points just like any other stock. This discipline is critical particularly as we go through corrections like we are having now. Sell or hedge.

Malcolm
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Malcolm
Mary Mohanan – It was this aspect of Wynn's rant about confiscation to which I was responding "Confiscation is already written into the health care bill. Yes, the health care bill. Do people really think the health care bill is about healthcare? It is about the outright destruction of the first amendment, written by a government aide. If the government tells you you MUST, under penalty of law, purchase something, then they can tell you which school you must send your children to, or which auto you must buy, or which brand of toilet paper you must purchase. The initial… Read more »
Boneafide
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Boneafide
SVM has had its big run since the time I bought it for a couple of bucks when it was called SKN until I sold some near $18 a few years later. Then I saw the profits melt as I watched the price all the way down to under $8 before bailing. Its an old story. Worthy candidates for the future could be: 1. Southern Silver (SSV) $0.25, an explorer joint ventured with a major producer and enjoying heavy insider buying at current stock price. 2. Aurcana (AUN) $0.62, a producer shooting for a six-fold increase in production. I own… Read more »
The Old Fashioned Way
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The Old Fashioned Way

Comment to Myron,
One of your best posts ever! Your post is right on the money (pun intended).
Comment to Travis,
When you are on vacation, consider having Myron fill in for you as a guest commentator.

james moylan
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I have a web site where I research stocks under five dollars. I would prefered to buy silver mining stocks in areas other than china the royalities for the metal claimed by a government like china could become very unfavorable that is american or other mining companies that do business their.

spreadtrader
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spreadtrader

So what's the website and what other mining stocks are you interested in?

AdamSmith37
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AdamSmith37
The reason that gold was confiscated during the early 1930's had to do with the fact that our currency was on the Gold Standard which allowed anyone to exchange paper currency for gold if they chose to. Since a lot of paper currency was systematically being acquired in large amounts by mostly foreign interests, the decision was made to stop the flow of gold out of the country. There really exists no comparable reasons today for a repeat of this based on the old rationale. However, as previously stated by many other posters here, a dictatorial leadership appears to be… Read more »
Sachin Tailor
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Just bought Silvercorp for 6.03 $ during the sudden and deep silver dip. I am sure silver goes up again soon. What makes me so confident is that lots of people could not deliver shares of ZSL for 73 days and AGQ for 2 days when short selling them. These guys were hit hard by the market manipulation and the lack of a clear trend.
Sometimes it pays just to wait…

maxie369
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maxie369

SVM is cuRrently around 6 bucks a share. It was as low as 5. If the Fed does not come thru with QE something then SVM will go back to 5. How’d that work out for all of you that bought at 10 , 8 , and for that matter 6…….

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