Silvercorp Metals Inc.
TSX : SVM

Silvercorp Metals Inc.

November 13, 2008 19:29 ET

Silvercorp Announces Its Financial and Operating Results for the 2nd Quarter Ended September 30, 2008

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 13, 2008) - Silvercorp Metals Inc. (the "Company") (TSX:SVM) is pleased to announce the unaudited financial and operating results for the 2nd quarter ended September 30, 2008. The financial results in the following text are expressed in US dollars (US$) unless stated otherwise.

SECOND QUARTER HIGHLIGHTS

- Net income declined to $4.9 million from $16.8 million in the prior year period, impacted by power downtime in July and early August, lower metal prices, and reduced head grades

- Basic earnings per share of $0.03 compared to $0.11 in the prior year

- Cash provided by operating activities of $11.7 million

- Total cash cost per ounce of silver of negative $3.50

- Ended quarter with $48.6 million in cash and short term investments with no debt

- Began implementing cost cutting measures and controls

FINANCIAL HIGHLIGHTS

For the three months ended September 30, 2008, the Company achieved sales of $20.1 million, down 31% compared to $29.2 million for the same period last year. Gross profit from operations amounted to $10.2 million (three months ended September 30, 2007 - $23.2 million), a decrease of 56% and representing a gross margin of 51% (three months ended September 30, 2007 - 80%). Net earnings of $0.03 per share decreased $0.08 from $0.11 per share for the same period last year.

For the six months ended September 30, 2008, the Company achieved sales of $51.0 million, compared to $51.4 million for the same period last year. Gross profit from operations amounted to $31.6 million (six months ended September 30, 2007 - $40.6 million), a decrease of 28.5% and representing a gross margin of 62% (six months ended September 30, 2007 - 79%). Net earnings of $0.11 per share decreased $0.10 from $0.21 per share for the same period last year.

Although the Company achieved higher production levels in terms of tonnes of ore mined and milled compared to the same period last year, both revenues and earnings decreased mainly due to the following: (i) the Company mined lower grade areas during the first two months of the quarter resulting in less metals produced and higher unit production costs; (ii) TLP Mine and LM Mine are still in the early stages of mining and therefore experiencing higher operating costs; (iii) there was a significant drop in the selling price of lead (from $1.05 to $0.81 per pound) and zinc (from $1.03 to $0.41 per pound); (iv) there was a $1.2 million equity loss in investment due to an equity pickup of an impairment loss of $7.3 million of New Pacific Metals Corp.; (v) professional fees increased $0.7 million to improve the internal control to comply with the requirements of Sarbanes Oxley Act; (vi) no option income was recorded this quarter while $1.1 million in option income was recorded during the same period last year; and (vii) the Company's subsidiary, Henan Found Mining Company Ltd. ("Henan Found"), is now subject to 12.5% income tax rate.

Cash provided by operating activities was $11.7 million for the three months ended September 30, 2008, a decrease of 43% compared to $20.5 million during the same period last year. The Company ended the quarter with $48.6 million in cash and short term investments.

Cash provided by operating activities was $26.9 million for the six months ended September 30, 2008, a decrease of 32% compared to $39.4 million over the same period last year.

Capital expenditures during the six months ended September 30, 2008 amounted to $44.0 million (six months ended September 30, 2007- $7.3 million) representing the purchase of mineral rights and properties and deferred exploration costs totaling $35.4 million (six months ended September 30, 2007 - $5.1 million) and the purchase of equipment and construction of the new mill of $8.6 million (six months ended September 30, 2007 - $2.2 million).

OPERATION HIGHLIGHTS

Total sales and realized prices net of value added tax and smelter charges for the 2nd quarter ended September 30, 2008 as compared to the same period of 2007, are as follows:

- 849,245 (2007 - 1,001,992) ounces of silver sold for $10.1 million (2007 - $10.3 million) at an average selling price of $11.99 (2007 - $10.02) per ounce;

- 448 (2007 - 515) ounces of gold sold for $0.3 million (2007 - $0.3 million) at an average selling price of $620.76 (2007 - $479.02) per ounce;

- 10,664,570 (2007 - 12,879,642) pounds of lead sold for $8.7 million (2007 - $13.7 million) at an average selling price of $0.81 (2007 - $ 1.05) per pound; and

- 2,354,083 (2007 - 4,744,258) pounds of zinc sold for $1.0 million (2007 - $5.0 million) at an average selling price of $0.41 (2007 - $1.03) per pound.

During the quarter, the Company continued to conduct limited test production at the LM Mine and TLP Mine. A total of 124,534 (2007 - 74,717) tonnes of ores were mined, representing a 67% increase compared to the same period in 2007, from which 2,571 (2007 - 3,411) tonnes of direct smelting ores were hand sorted for direct shipment to smelters, and 121,963 (2007 - 71,306) tonnes of ores were shipped to mills for treatment to recover silver-lead and zinc concentrate.

The total mining cost per tonne of ore mined increased by 33% compared to the same period of 2007 to $69.94 per tonne (2007 - $52.70 per tonne) which comprised of cash unit mining cost of $52.33 and non-cash unit mining cost of $17.61 per tonne of ore. The increase is primarily caused by an increase of amortization and depletion of $11.22 per tonne and the increase of raw materials and utilities costs of $6.71 per tonne due to the price increase.

The total milling cost per tonne of ore milled has increased 7% to $12.45 in this quarter from $11.64 in the same period of 2007.

The total production cost per ounce of silver and total cash cost per ounce of silver were negative $0.91 (2007 - negative $12.71) and negative $3.50 (2007 - negative $14.17), respectively, after adjusting for byproduct credits. The increase of production cost as well as cash production cost was mainly caused by the reduction in by-product credits as lead prices fell 23% to $0.81 per pound, and zinc prices fell 60% to $0.41 per pound.

Ying Mine

The following table lists the grade changes over the last six quarters at Ying Mine:



For the Quarters Ended
-----------------------------------------------------------
Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008
30-Sep-08 30-Jun-08 31-Mar-07 31-Dec-07 30-Sep-07 30-Jun-07
---------------------------------------------------------------------------
Run of Mine
Ores (tonne)
Direct Smelting
Ores (tonne) 2,387 3,071 2,673 3,210 2,903 2,224
Ores Milled
(tonne) 69,492 74,691 51,996 64,635 64,282 64,574
-----------------------------------------------------------
71,880 77,762 54,669 67,845 67,185 66,798
-----------------------------------------------------------
Head Grades of
Run of Mine
Ores
Silver
(gram/tonne) 331.2 396.0 488.9 461.7 446.8 444.0
Lead (%) 6.0 6.7 8.1 7.5 7.0 7.3
Zinc (%) 2.5 3.3 3.8 3.6 3.9 3.5
---------------------------------------------------------------------------


As the mining process at the Ying Mine was going through certain lower grade pockets of ore zones in the first quarter and the first two months in this quarter, the head grades of run of mine ores were lower. In September 2008, higher grade pockets of ore zones were developed with head grades of run of mine ores at 405 gram/tonne for silver, 7.1% for lead and 2.8% for zinc. Higher grades run of mine ores are expected in the third quarter. Mining production was also impacted by interruptions to power supply in July and early August.

HPG Mine

The following table lists the grade changes over the last six quarters at HPG Mine:



For the Quarters Ended
-----------------------------------------------------------
Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008
30-Sep-08 30-Jun-08 31-Mar-07 31-Dec-07 30-Sep-07 30-Jun-07
---------------------------------------------------------------------------
Run of Mine
Ores (tonne)
Direct Smelting
Ores (tonne) 135 193 496 481 508 434
Ores Milled
(tonne) 19,233 13,163 12,645 16,434 9,155 8,378
-----------------------------------------------------------
19,368 13,356 13,141 16,915 9,663 8,812
-----------------------------------------------------------
Head Grades of
Run of Mine
Ores
Silver
(gram/tonne) 134.6 248.3 198.9 217.3 259.3 185.6
Lead (%) 4.2 9.7 7.9 6.5 7.7 7.9
Zinc (%) 0.9 0.6 1.1 0.7 1.3 1.7
---------------------------------------------------------------------------


LM Mine

The LM Mine is in its second quarter of test production. The following table lists the grade changes over the last two quarters at LM Mine:



For the Quarters Ended
-------------------------
Q2 2009 Q1 2009
30-Sep-08 30-Jun-08
---------------------------------------------------------------------------
Run of Mine Ores (tonne)
Direct Smelting Ores (tonne) 15 71
Ores Milled (tonne) 8,440 11,516
-------------------------
8,456 11,587
-------------------------
Head Grades of Run of Mine Ores
Silver (gram/tonne) 309.7 305.4
Lead (%) 2.4 2.0
---------------------------------------------------------------------------


TLP Mine

The TLP Mine is in its second quarter of test production. The following table lists the grade changes over the last two quarters at TLP Mine:



For the Quarters Ended
-------------------------
Q2 2009 Q1 2009
30-Sep-08 30-Jun-08
---------------------------------------------------------------------------
Run of Mine Ores (tonne)
Direct Smelting Ores (tonne) 34 53
Ores Milled (tonne) 28,532 23,404
-------------------------
28,566 23,457
-------------------------
Head Grades of Run of Mine Ores
Silver (gram/tonne) 140.3 183.0
Lead (%) 2.0 2.7
---------------------------------------------------------------------------


OUTLOOK

To adjust for the continued weakening in metal pricing and the current state of global financial markets, the Company will adopt a strategy of conserving capital to maintain a strong balance sheet for future growth. We are adjusting our expansion strategy to focus on maintaining mine profitability, including implementing a series of cost cutting measures and controls to address challenges of weak metal prices. The Company will be deferring some of its planned capital expenditures and development drilling programs planned for the second half of the fiscal year ended March 31, 2009 but will continue to move forward with the key development and exploration projects to maximize its ability to build future capital value.

Currently, the Company is operating and developing four Silver-Lead-Zinc mines at the Ying Mining Camp, Henan Province, owned through its subsidiaries in China.

For the Ying Mine, in the first two months of the quarter ended September 30, 2008, the mining process was working through certain lower grade areas as outlined in the 2007 resource upgrade. Higher grade ore zone pockets have been developed in September 2008, and it is expected that the head grade of run of mine ores from the Ying Mine will improve starting in the third quarter of fiscal year 2009. This will mitigate, to a degree, the impact from the lower metal prices the Company is now experiencing.

At the TLP mine, due to the lower grade nature, production will focus on those higher grade ores which are profitable, cutting back production in favor of profitability. The Company is still in the process of transferring the TLP mining permits from the previous owner to the Company's subsidiary Henan Found, which remains subject to receipt of all necessary approvals from the governmental departments of the Henan Province. Furthermore, the Company is in the process of completing a NI43-101 compliant resource estimate for the TLP Mine and the LM Mine.

In Guangdong Province, the Company is applying for a mining permit for the newly acquired GC/SMT property, held in a 95% owned subsidiary in China.

The Company is nearing completion of a new mill, with test production expected to begin within the next two months. Initial capacity with one flotation system installed is 1,500 tonnes per day. Once metal prices recover, the second flotation system will be installed.

The Company's Audited Annual and Unaudited Interim Consolidated Financial Statements and Management's Discussion and Analysis are available for review on our website at www.silvercorp.ca and through SEDAR at www.sedar.com.

Selected unaudited interim consolidated results for the three and six months ended September 30, 2008 (Canadian GAAP) are attached to this news release.

CONFERENCE CALL AND WEBCAST INFORMATION

A conference call and live audio webcast to discuss the results have been scheduled as follows:

Date: Monday, November 17, 2008

Time: 9:00 am PST (12:00 pm EST)

Dial-In Number: 1-612-332-0107

Live audio webcast: www.silvercorp.ca

Playback webcast can be accessed at: www.silvercorp.ca

About Silvercorp Metals Inc.

Silvercorp Metals Inc., China's largest primary silver producer, is engaged in the acquisition, exploration, and development of silver related mineral properties focusing in the People's Republic of China ("China"). Silvercorp Metals Inc. is operating and developing four Silver-Lead-Zinc mines at the highly profitable Ying Mining Camp, Henan Province, China. Silvercorp is also applying for a mining permit for the newly acquired 95% owned GC/SMT property to profitably mine and produce silver, lead and zinc metals in Guangdong Province, China. In addition, Silvercorp is also exploring the 82% owned Na-Bao Polymetallic Project in Qinghai Province, China.

The Company's common shares are included as a component of the S&P/TSX Composite and the S&P/TSX Global Mining Indexes.

CAUTIONARY DISCLAIMER -- FORWARD LOOKING STATEMENTS

Statements in this press release other than purely historical factual information, including statements relating to mineral resources and reserves, head grades, or the Company's future plans and objectives or expected production or results, constitute forward-looking statements. Forward-looking statements are based on numerous assumptions and are subject to all of the risks and uncertainties inherent in the Company's business, including risks inherent in mineral exploration, development, and mining. Production and revenue projections are based not on mineral reserves but on mineral resources which do not have demonstrated economic viability. As a result, actual results may vary materially from those described in the forward-looking statements. There can be no assurance that such forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on such statements. Except in accordance with applicable securities laws, the Company expressly disclaims any obligation to update any forward-looking statements or forward-looking statements that are incorporated by reference herein. We seek safe harbour.



SILVERCORP METALS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited - expressed in US Dollars)

September March
Notes 30, 2008 31, 2008
---------------------------------------------------------------------------
---------------------------------------------------------------------------
ASSETS

Current Assets
Cash and cash equivalents $ 36,493,693 $ 47,092,890
Short term investments 12,081,456 37,145,656
Accounts receivable and prepaids 5,246,838 5,259,699
Inventories 3 5,095,848 2,389,175
---------------------------------------------------------------------------
58,917,835 91,887,420
---------------------------------------------------------------------------

Long term prepaids 4,625,928 5,194,431
Long term investments 4 16,218,889 17,873,887
Property, plant and equipment 5 22,447,937 14,349,572
Mineral rights and properties 6 147,649,454 60,904,275
Reclamation deposits 9,435 9,729
---------------------------------------------------------------------------
$ 249,869,478 $ 190,219,314
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES

Current Liabilities
Accounts payable and accrued
liabilities $ 10,473,856 $ 7,026,628
Deposits received from customers 1,697,645 2,573,202
Dividends payable 2,864,742 -
Income tax payable - 719,557
Amounts due to related parties 11 3,897,336 12,070,732
---------------------------------------------------------------------------
18,933,579 22,390,119

Future income tax liabilities 6 25,329,518 6,345,898
Asset retirement obligation 7 2,101,137 1,225,829
---------------------------------------------------------------------------
46,364,234 29,961,846

Non-controlling interests 8 18,128,445 11,265,197

SHAREHOLDERS' EQUITY

Share capital 9 113,128,486 78,334,543
Contributed surplus 2,934,439 1,722,036
Reserves 10 11,059,771 2,077,628
Accumulated other comprehensive
income 8,315,410 14,121,627
Retained earnings 49,938,693 52,736,437
---------------------------------------------------------------------------
185,376,799 148,992,271
---------------------------------------------------------------------------

$ 249,869,478 $ 190,219,314
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Commitments 15



SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited - Expressed in US Dollars except for share figures)

--------------------------------------------------------------------------
--------------------------------------------------------------------------

Three months ended Six months ended
September 30, September 30,
-------------------------------------------------------
No-
tes 2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Sales $ 20,103,599 $ 29,174,202 $ 50,962,876 $ 51,427,488
--------------------------------------------------------------------------
Cost of sales 7,668,158 4,488,495 15,606,914 8,766,684
Amortization
and depletion 2,201,011 1,472,906 3,769,453 2,058,959
--------------------------------------------------------------------------
9,869,169 5,961,401 19,376,367 10,825,643
--------------------------------------------------------------------------

Gross profit 10,234,430 23,212,801 31,586,509 40,601,845
--------------------------------------------------------------------------

Expenses
Accretion of
asset
retirement
obligations 7 42,031 14,752 60,564 29,908
Amortization 147,411 112,184 440,092 202,565
Foreign
exchange loss
(gain) (3,149,952) 651,462 (3,029,536) 1,062,365
General
exploration
and property
investigation
expenses 1,150,280 319,738 1,629,531 550,477
Investor
relations 259,170 74,923 353,873 132,590
Office,
administration
and
miscellaneous 3&9(d) 2,298,706 1,449,844 5,247,173 2,828,450
Professional
fees 883,901 105,602 1,173,519 200,945
--------------------------------------------------------------------------
1,631,547 2,728,505 5,875,216 5,007,300
--------------------------------------------------------------------------
Earnings
before other
income and
expenses 8,602,883 20,484,296 25,711,293 35,594,545
Other income
and expenses
Equity income
(loss) in
investment 4 (1,239,606) 16,423 (1,444,337) (103,595)
Loss on
disposal of
property,
plant and
equipment 5 - - (9,504) (48,130)
Interest
income 243,153 618,017 1,020,102 1,088,929
Other income 87,279 1,153,638 115,825 3,067,244
--------------------------------------------------------------------------
(909,174) 1,788,078 (317,914) 4,004,448

Income before
income taxes
and
non-controlling
interests 7,693,709 22,272,374 25,393,379 39,598,993

Income tax
expense
(recovery)
Current 1,364,505 (36,559) 3,404,017 (1,503,550)
Future (234,841) 121,356 (387,711) 136,857
--------------------------------------------------------------------------
1,129,664 84,797 3,016,306 (1,366,693)

Income before
non-controlling
interests 6,564,045 22,187,577 22,377,073 40,965,686

Non-controlling
interests 8 (1,705,954) (5,417,568) (5,917,541) (9,668,654)
--------------------------------------------------------------------------

Net income 4,858,091 16,770,009 16,459,532 31,297,032

Retained
earnings,
beginning of
period 53,251,958 14,217,226 52,736,437 1,767,831
Appropriation
to reserves - - (8,982,143) (2,077,628)
Dividend
declared (2,990,467) (6,891,020) (2,990,467) (6,891,020)
Value charged
to retained
earnings upon
shares
acquired
under normal
course issuer
bid (5,180,889) - (7,284,666) -

--------------------------------------------------------------------------
Retained
earnings, end
of period $ 49,938,693 $ 24,096,215 $ 49,938,693 $ 24,096,215
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Basic earnings
per share $ 0.03 $ 0.11 $ 0.11 $ 0.21
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Diluted
earnings per
share $ 0.03 $ 0.11 $ 0.11 $ 0.21
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted
Average Number
of Shares
Outstanding -
Basic 152,954,124 147,173,085 151,796,726 146,809,083
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted
Average Number
of Shares
Outstanding -
Diluted 154,451,515 151,106,211 153,305,544 151,006,419
--------------------------------------------------------------------------
--------------------------------------------------------------------------



SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - expressed in US Dollars)

Three months ended Six months ended
September 30, September 30,
----------------------------------------------------------
2008 2007 2008 2007
--------------------------------------------------------------------------
Cash provided
by (used for)
Operating
activities
Net income for
the year $ 4,858,091 $ 16,770,009 $ 16,459,532 $ 31,297,032
Add (deduct)
items not
affecting
cash:
Accretion of
asset
retirement
obligations 42,031 14,752 60,564 29,908
Amortization 2,348,422 1,585,090 4,209,545 2,261,524
Equity
Investment
loss 1,239,606 (16,423) 1,444,337 103,595
Future income
tax (234,841) 121,356 (387,711) 136,857
Loss on
disposal of
property,
plant, and
equipment - - 9,504 48,130
Inventory
write-down 366,705 - 366,705 -
Mineral
property
option income - (1,138,830) - (3,051,903)
Non-
controlling
interests 1,705,954 5,417,568 5,917,541 9,668,654
Stock-based
compensation 701,112 530,461 1,268,147 1,127,367
--------------------------------------------------------------------------
11,027,080 23,283,983 29,348,164 41,621,164

Net change in
non-cash
working
capital
Accounts
receivable
and
prepaids 5,668,845 (4,048,312) 12,736 (4,521,982)
Inventory (393,836) 282,224 (2,419,040) 769,903
Accounts
payable and
accrued
liabilities (3,603,082) 2,148,783 1,520,832 3,402,881
Asset
retirement
obligation
discharged
upon payment - (268,724) - (364,139)
Income tax
payable (355,125) (38,091) (714,264) (1,566,591)
Deposits
received
from
customers (627,464) (818,546) (868,963) 82,109
--------------------------------------------------------------------------
Cash provided
by operating
activities 11,716,418 20,541,317 26,879,465 39,423,345
--------------------------------------------------------------------------

Investing
activities
Acquisition of
mineral rights
and properties (14,128,221) (2,239,433) (35,405,764) (5,063,618)
Acquisition of
property,
plant, and
equipment (4,936,753) (756,831) (8,609,647) (2,194,995)
Purchase of
long term
investments - (1,799,108) - (1,929,424)
Decrease
(increase) of
short term
investments 19,790,629 (15,580,516) 24,854,113 (31,617,342)
Decrease
(increase) in
long term
prepaids (2,380,984) (2,485,854) 575,841 (3,996,887)
Disposal of
property,
plant, and
equipment - - - 157,352
Distribution
to
non-
controlling
interest
shareholder (11,179,564) - (11,179,564) (3,371,257)
Advances to
joint venture
parties - 365,469 - -
--------------------------------------------------------------------------
Cash used in
investing
activities (12,834,893) (22,496,273) (29,765,021) (48,016,171)
--------------------------------------------------------------------------

Financing
activities
Repayment from
(advance to)
related
parties 1,160,962 (1,029,563) 1,268,898 (1,395,032)
Advance
(repayment)
under loans
payable - 2,229,419 - 2,229,419
Share
subscriptions
for cash, net
of commission
and expenses - 293,705 21,091 1,201,914
Shares
returned to
treasury for
cancellation (4,397,000) - (9,052,149) -
--------------------------------------------------------------------------
Cash provided
by (used in)
financing
activities (3,236,038) 1,493,561 (7,762,160) 2,036,301
--------------------------------------------------------------------------

Effect of
exchange rate
changes on
cash and cash
equivalents (1,744,290) 1,113,305 48,519 4,125,038

Increase
(decrease) in
cash (6,098,803) 651,910 (10,599,197) (2,431,487)

Cash and cash
equivalents,
beginning of
period 42,592,496 50,247,071 47,092,890 53,330,468
--------------------------------------------------------------------------

Cash and cash
equivalents,
end of period $ 36,493,693 $ 50,898,981 $ 36,493,693 $ 50,898,981
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Supplemental
information:
Interest paid $ 29,968 $ 16,520 $ 29,968 $ 16,520
Income tax
paid $ 2,109,341 $ - $ 4,148,853 $ -

Non-cash
investing
activities:
Common shares
issued for
mineral
rights
and
properties $ - $ - $ 36,484,591 $ -
Common shares
of New
Pacific
Metals
Corp.
received
as $ - $ 1,138,830 $ - $ 3,051,903
Capitalized
future
income
tax on
acquisiton
of mineral
rights
and
properties $ - $ - $ 19,220,433 $ 792,180
Capitalized
asset
retirement
obligation
as per
initial
measurement $ - $ - $ 726,460 $ 714,531
Construction
in process
transferred
to mineral
rights and
properties $ - $ - $ - $ 1,313,791


Contact Information

  • Silvercorp Metals Inc.
    Rui Feng
    Chairman & CEO
    (604) 669-9397
    or
    Silvercorp Metals Inc.
    Lorne Waldman
    Corporate Secretary
    (604) 669-9397
    (604) 669-9387 (FAX)
    Email: info@silvercorp.ca
    Website: www.silvercorp.ca