Silvercorp Metals Inc. (TSX:SVM)(NYSE:SVM) today reported its unaudited financial and operating results for the third quarter ended December 31, 2011 (“Q3 2012″)…
The Company reported revenue of $61.9 million, operating cash flow of $31.6 million and net income attributable to shareholders of $20.0 million, or $0.12 per share, in the third quarter of fiscal 2012. The average net realized silver selling price, after smelter charges and value added taxes, was $25.10 per ounce.
For the nine months ended December 31, 2011, the Company recorded revenue of $193.7 million, a 55% increase from $124.9 million in the same period last year. Net income attributable to the shareholders for the same period is $64.1 million, or $0.37 per share, an increase of 15% over net income of $55.6 million, or $0.34 per share a year ago.
THIRD QUARTER HIGHLIGHTS AND SIGNIFICANT EVENTS
- Revenue of $61.9 million, up 19% from $51.8 million in the third quarter of fiscal year 2011 (“Q3 2011″);
- Silver production of 1.55 million ounces, a 2% increase compared to Q3 2011, gold production of 2,879 ounces, a 256% increase compared to Q3 2011. Silver and gold sales accounted for 69% of the total sales in the quarter, compared to 61% a year ago;
- Cash flow from operations of $31.6 million, or $0.18 per share, compared to $32.2 million, or $0.19 per share in Q3 2011;
- Income from operations increased 2% to $35.0 million from $34.3 million in Q3 2011.
- Net income attributable to shareholders of $20.0 million, or $0.12 per share, compared to $29.1 million, or $0.17 per share, in Q3 2011;
- Completed the acquisition of the high grade XHP silver-gold-lead-zinc mine in Henan Province, China;
- Continued to maintain low cost producer status with a cash production cost per ounce of silver of negative $4.56; and
- Increased quarterly dividends by 25%, from CAD$0.02 per share to CAD$0.025 per share.
Net income for the quarter decreased compared to Q3 2011 due to the following reasons: (1) lower production at the Ying mine of 75,710 tonnes of ore compared to 85,711 tonnes in Q3 2011 in part due to the Company’s management and employees being distracted by the “Short and Distort” attack; (2) income tax rate increased from 12.5% to 25% at our main operating subsidiary Henan Found Mining Co. Ltd.; (3) $1 million of additional costs were incurred fighting the “Short and Distort” scheme. The Company expects that it will continue to incur legal and other costs associated with its litigation efforts; (4) $2.8 million of dilution gain from the Company’s investment in New Pacific Metals Corp. was recognized in Q3 2011, which did not occur in Q3 2012; and (5) a $4.0 million unrealized gain on investments was recorded in Q3 2011, compared to a $1.5 million unrealized gain in Q3 2012.
Realized selling prices for lead and zinc are determined by Shanghai Metal Exchange (“SME”) and by Shanghai Gold Exchange (“SGE”) for silver and gold, (less: smelter charges (including all the deductions by smelters, such as smelter fees, recovery, etc.) and 17% value added taxes (exempted for gold)), as shown in Table 1 below:
Table 1: Silver) Gold Lead Zinc (in US$/ounce (in US$/ounce) (in US$/pound) (in US$/pound) Q3 2012 Q3 2011 Q3 2012 Q3 2011 Q3 2012 Q3 2011 Q3 2012 Q3 2011 SME or SGE quarterly average $33.01 $27.21 $1,690 $1,374 $1.08 $1.18 $1.07 $1.24 Less: Value added taxes (4.27) (3.46) - - (0.14) (0.15) (0.11) (0.12) SME or SGE price, net of VAT $28.74 $23.75 $1,690 $1,374 $0.94 $1.03 $0.96 $1.12 Less: Smelter charges (3.64) (3.39) (414) (427) (0.13) (0.14) (0.32) (0.42) Realized selling prices $25.10 $20.36 $1,276 $947 $0.81 $0.89 $0.64 $0.70 LME quarterly average $31.80 $26.43 $1,684 $1,370 $0.90 $1.08 $0.86 $1.05
In Q3 2012, income tax expenses increased to $11.6 million from $5.1 million in the same quarter last year. For the nine months ended December 31, 2011, income tax expenses increased to $38 million from $13.7 million in the same period last year. The increases of income tax expense were mainly due to higher taxable income and a higher tax rate compared to last year. The Chinese tax holiday, which allowed the Company’s most profitable Chinese subsidiary, Henan Found Mining Co. Ltd. (Ying and TLP mines) to have a preferential 12.5% income tax rate, expired on December 31, 2010, increasing the income tax rate to 25%. The Company’s other Chinese subsidiary, Henan Huawei Mining Co. Ltd. (HPG and LM mines), was subject to the preferential tax rate of 12.5% until December 31, 2011, after which it is 25%. In addition, $1.5 million of dividend withholding taxes in China was recorded this quarter as Silvercorp’s 77.5% subsidiary, Henan Found Mining Co. Ltd., declared its annual dividend during the quarter.
For the nine months ended December 31, 2011, cash flow from operations was $100.7 million, an increase from $70.0 million in the same period last year.
The Company ended the quarter with $168.8 million in cash and short term investments.
In Q3 2012, ore production at the Ying mine was 75,710 tonnes, up from 72,162 tonnes in Q2, but 12% less than the 85,741 tonnes in the same quarter last year. The decrease was due to: (1) the distraction caused by “Short and Distort” attack: and, (2) labour shortages which impacted our mining contractors at the Ying mine throughout October and November. The Company has been actively working with its mining contractors to introduce new measures to maintain a stable mining labour force and it is also in the process of establishing its own mining crews to carry out mining operations at the Ying mine. As a result the labour shortages were mostly resolved by December. The average daily mining capacity at the Ying mine is expected to continue to improve over the next few quarters.
At the BYP mine, during the nine months ended December 31, 2012, 74,763 tonnes of ore were mined and 60,185 tonnes was milled, yielding 4,043 ounces of gold. For fiscal 2012, BYP mine is now expected to mine 95,000 tonnes and mill 85,000 tonnes of ore, yielding 6,000 ounces of gold, at an average grade of 2.5g/t. This is 11,000 ounces below the production guidance which was to mine and mill 95,000 tonnes of ore at a grade of 6 g/t gold, yielding approximately 17,000 ounces of gold. Lower production was because the gold head grade is significantly lower than projected.