by Travis Johnson, Stock Gumshoe | January 18, 2010 4:05 pm
Today’s holiday look is at a silver mining company with a mother lode strike in China … this time, the tease is from the Sound Profits newsletter by the Investors Daily Edge folks, and they would, of course, be delighted to have you subscribe to their newsletter to find out who this “Silver Striker” company is. Here’s how they tease the stock:
“Strike runs hundreds of miles… contains up to 30 billion ounces worth $514 billion…
“Could send shares of this American miner soaring 4,662% starting next month…
“Hundreds of miles south of Beijing…
“Deep in the remote foothills beneath the Great Wall of China…
“An American junior mining company has made an amazing discovery.
“This silver strike stretches 186 miles. It could contain, by our estimates, 30.2 billion ounces of silver.
“That’s enough to feed world demand for the next 32 years, according to the World Silver Survey…
“Enough to double current global stockpiles… 214 times.
“And enough to make one tiny mining company $514 billion richer…
“For now, the company trades around $7. But that could change, very quickly.”
So who could it be? We get a few other clues as we troll through the email …
“So not long ago, the Striker decided to pour the bulk of its exploration budget into the Great Wall strike – (It’s plans to spend $8 million in the first half of 2010, and another $8 million in the second half.)
“Geologists continued to swarm the strike zone’s 50 square kilometers of foothills.
“And they spared no expense. They created seismic geo-maps. They used computers to analyze chemicals in streambeds. They used special cameras to gather data – at the atomic level. Miners blasted 78,581 meters of trenches. They drilled 280 test holes.
“Meanwhile, outside firms were called in to verify all the findings.
“They included private companies like SRK Consultants China and BK Exploration Associates.”
OK, so that’s actually enough — the mine they must be referring to with the 78,581 meters of drilling and 280 holes is the Ying mine, which is the flagship property of and is roughly three-quarters owned by …
SilverCorp Metals (SVM in both NY and Toronto)
SilverCorp is not an American company, but they are US-listed (they’re Canadian, with the actual operating businesses all being Chinese subsidiaries) — but otherwise it matches the clues pretty much perfectly, including the $8 million in capital expenditures planned for the second half of this fiscal year, and the 300 km (186 mile) long silver zone. And they did use SRK Consultants China and BK Exploration in their resource estimate work.
SilverCorp is a new favorite of many, many newsletters — I saw a video with Martin Hutchinson where he alluded to his favorite Chinese silver miner and was clearly hinting around SilverCorp, and Matt Badiali touted the shares last Summer (I wrote about it at the time, and owned shares for a while last year as well — I don’t currently own SVM stock or have any other interest in the shares).
SilverCorp gets attention not only for being the biggest silver miner in China, with a tight relationship with the government and plenty of opportunity for additional exploration, but for being one of the lowest cost miners in the world. Thanks to significant output of both lead and zinc as “byproducts” at the Ying mine they’re able to mine silver at an effective price of something like negative $6 per ounce (meaning they make money even before they sell the silver).
Does their strike really run under the Great Wall of China? That I’m not so sure about — it’s certainly possible, the Ying mine is near the Luo River and from what I can tell from browsing a few maps the mining site is fairly close to sections of the wall. Close enough for me.
So what do you think? SilverCorp took a nice ride in the second half of last year as silver heated up, and it is a well-capitalized silver miner that is making money and paying a teensy dividend, it’s clearly not a junior miner that’s at huge risk of failing to discover silver, but it is, of course, in China and subject to Chinese regulatory and ownership risks (and in their favor they also enjoy lower Chinese operating costs, and lighter environmental regulations). If you’re willing to own a company that has to partner with the government to do well, and you think silver prices are likely to climb, SilverCorp is probably at least worth a look — plus, if the last few months are any indication, it seems likely that if we get a silver price spike the newsletters will probably tout the heck out of the shares, which tends to drive them up as well.
Got any opinion on SilverCorp? Feel free to share it with a comment below.
And I’ve written very little about Sound Profits before, though Steve McDonald, who helms that newsletter, has gotten some press here as a bond guy (his Bond Trader is in the top ten newsletters right now, though choosing investment-grade corporate bonds is of course different than recommending a small Chinese silver miner). If you’ve subscribed to Sound Profits, please click here to let us know what you thought.
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