Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
A day after reports that the Canadian federal police have joined the investigation into who may be behind an anonymous letter alleging fraud at Silvercorp Metals from an apparent short seller, shares in the company were racing ahead 10% in brisk noon trade on Thursday.
Silvercorp was forced last week Friday to make public the letter and at the same time disclosed that someone had built up a short position of 23 million shares – more than 13% of the number outstanding. The firm with projects in China and Canada plunged 10% after the news broke, but is now up a net 8.7%, helped along the way by an influential investment site that in rather dramatic fashion asks whether Silvercorp is the “perfect stock.”
The Vancouver company has 175 million shares outstanding and is worth $1.54 billion on the Toronto bourse. It was up 82c or 10% at $8.95 by midday after hitting lows of $6.97 in torrid trade last Friday. Just under 600,000 shares had changed hands compared to daily average of 1.3 million and 6 million shares last Friday. Silver for December delivery gained 91 cents, or 2.20%, to $42.51 an ounce on Thursday in New York trade.
Investment site Motley Fool asked on Wednesday whether Silvercorp is the perfect stock:
Silvercorp stands out from the crowd because of its low production costs. Unlike smaller companies such as Great Panther Silver (AMEX: GPL) and Endeavour Silver (NYSE: EXK), Silvercorp actually boasts negative cash production costs once you factor in the value of incidental gold and base metals obtained during the silver-mining process. That means every ounce Silvercorp mines is pure profit.
Silvercorp (TSE:SVM) is the latest in a string of Canadian companies with Chinese backing and operations being accused of fraud with TSX-listed forestry firm Sino-Forest the most striking example. It was accused by short seller Carson Block of overstating revenues and effectively being a massive Ponzi scheme. The company is fighting the allegations, but in the meantime, Sino-Forest shares have ceased trading on the TSX and CEO Allen Chan has resigned.
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Expositors
Probably the MOB. The MOB makes more money screwing with the market than they do with prostitution, drugs and extortion combined.