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Silvercorp Metal (SVM)

Silvercorp Metal (SVM). Recommendation: Buy. Stock Price(trade in NYSE as of 10/15/10): $9.20. Power Xue Matt Modlin David Groechel Yu Liu Alex Rogers. Overview. Industry: Metals, Commodities Why is the commodity market fascinating to us?

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Silvercorp Metal (SVM)

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  1. Silvercorp Metal(SVM) Recommendation: Buy Stock Price(trade in NYSE as of 10/15/10): $9.20 Power Xue Matt Modlin David Groechel Yu Liu Alex Rogers

  2. Overview • Industry: Metals, Commodities • Why is the commodity market fascinating to us? • Low Nominal interest rate and high inflation rate lead to Negative growing of Real Interest Rate (Stuff are more valuable than Cash) • To pay off large amount of debt, Fed weakens the Dollar. Commodities will go up for sure

  3. Company Intro • Company info: • New Company, entered the market at 2003(IPO at 2005) • Canadian-based primary silver producer • Head-quarters in Canada and China • Combine Mining and producing(Mainly in China) • Other Products: Lead and Zinc • Management Info: • CEO: RuiFeng, Ph. D., Geology, University of Saskatchewan in Canada in 1992 • CFO: Maria Tang, C.A, C.P.A

  4. What’s on the News? SVM: Silver production increased 18% to a record 1.4 million ounces, compared to the first quarter of fiscal year 2010 ("Q1 2010");-- Net earnings increased 88% to $14.1 million, or $0.09 per share;-- Sales increased 63% to a record $36.7 million, driven by increased quantities of silver, lead and zinc sold combined with higher realized selling prices;-- Cash flow from operations increased 123% to $23.2 million, or $0.14 per share;-- Total production cost of $5.21 per ounce of silver and cash cost of $6.31 per ounce of silver positions Silvercorp as an industry leading low cost silver producer;-- Received the Environmental Permit for the GC Project from the Department of Environmental Protection of Guangdong Province, a key requirement for the mining permit application to the Ministry of Land and Resources of China;-- Dividend payment of $3.2 million, or CAD$0.02 per share;-- Total cash, cash equivalents and short term investments increased to $106.1 million.

  5. Financials • Traded both in NYSE and TSE(Toronto) • Total Share outstanding: 164,673,791 (as of June 30, 2010) • Major Holders: • Royce & Associates, • U.S. Global Investors, Inc. • MFC Global Investment Management • UBS Securities, LLC • Market Cap: 1.53B (small Cap)

  6. Key Stats figures • Current ratio: 5.49 • P/E ratio: 31 • EBITAL: 77.35M • Enterprise Value/EBITA: 17.10x • Cash can almost pay off all debts and payables once • High Current ratio • Low Cap, High Earnings High Growth

  7. Financials and Key Stats

  8. Development • Major Acquisitions • Feb 26, 2010 SVM acquired Standard-SilverTip from Silver Standard Resources Inc • July, 2009. SilvercorpMetals announced offer to acquire all the outstanding shares of Klondex Mines Ltd. • June, 2008. SVM acquires Yangtze Mining Ltd from Yangtze Gold Ltd. $61.95 million Deal

  9. 5 year Chart

  10. Major competitors

  11. Fed Policy and Benefits for commodities • Interest rate • Still too much slack in the economy • Keep near-zero interest rate for an extended period • Continue to use payments from its Treasury purchase • Currency • Holding Large amount of Debt • To payoff, the Fed will lower the exchange rate • Beneficial for commodity investment in the US

  12. Risk Factors for Commodities • Very volatile(Especially for leverage trading) • Fluctuate with changes in: • Weather • Political Instability • Interest Rates • Value of Dollar • Companies develop more efficient methods

  13. Industry trend(Metals) Gold, YTD, nearly 30% growth

  14. Industry trend(metals) Silver: YTD 30% growth

  15. Industry trend(Crude Oil)

  16. Industry trend(Wheat)

  17. Why Metals, not others • Good conductors of heat and electricity • Making jewelry and coins • Making utensils and furniture • construction of heavy machinery, tools, transport vehicles and many in the manufacturing of other equipments • drawn into sheets or pulled into wires, have high densities and high tensile strength

  18. Silver Commodity Market • Worldwide market demand for silver is growing, while supplies of silver are quickly disappearing. • the long term forecast for silver has been increased from $10.50/oz to $12/oz. •   The price of silver increased more than 200% from 2003 to 2006

  19. Silver Commodity Market • The U.S. government, once the largest stockpiler of silver on the planet, dumped billions and billions of ounces of silver onto the world market over the years, resulting in depressed silver prices. Today, that government silver hoard is gone, and now the U.S. government is a buyer of silver at prevailing world silver prices.

  20. Major Substitutions(Cons) Plastics • Heat Resistant Plastics in Engine Construction • Carbon Nanotubes make Plastics Conductive • With high Chemical Resistance

  21. Future for SVM • Fast Growth(ROA and ROE) • Lower Cost(Outsourcing in China) • Large amount of Free Cash Flow( Acquisition could be underway) • Medium Market Cap(Large space for strong development)

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