Silvercorp metals is a Canadian-based mining company that mines silver, zinc, and lead from mines located in China. Silvercorp metals is an interlisted company that trades under the ticker symbol SVM on the Toronto stock exchange (TSE: SVM) and SVM on the NYSEAMERICAN (SVM: NYSEAMERICAN). Silvercorp’s mining operations are based in China, and their goal is to capitalize on the “country’s vastly underexplored geological potential” to produce strong returns to their shareholders. Their current operations are in only two districts in China: the Ying Mining District in Henan Province and the GC Mine in Guangdong Province. Their premier asset, the Ying Mine, produced the second most ounces of silver in 2020 and is expected to continue operations until 2036. Silvercorps recently acquired the rights to Zhonghe Silver Project, and their drilling campaign is expected to be completed in 2022 to make mineral resource estimates. Despite having a solid 2020 year, Silvercorp Metals is significantly underperforming the market with a near 50% year-to-date decrease in their stock price.
Why Silvercorp’s Strong Balance Will Help the Company Maximize Financial Performance
In order to support a company’s strategic operations, the company must have a strong balance sheet. Silvercorp Metals check this box as their cash position not only covers all their short-term liabilities but also their long-term liabilities. Silvercorp has a current debt-to-equity ratio of 0%, which means that the company does not have to worry about making interest payments to finance its operations and can potentially take on debt to finance future operations if they choose to do so. Furthermore, the image below shows that Silvercorp continues to grow its assets, which is mainly due to its large increase in cash and the minerals rights and properties assets on the balance sheet. By having a strong balance sheet, Silvercorp can achieve its long-term strategy characterized by three steps: acquire projects, undertake mining operations to generate profits before the mine is exhausted, and use the positive cash flows from operations to further exploration and acquire new projects.
Does Silvercorp Metals have Positive Cash Flow?
It is often said that cash is the lifeblood of an organization. Fortunately for Silvercorp’s investors, the company has a solid history of producing positive cash flow from operations. Over the last four years, Silvercorp’s cash flow from operations have increased year-over-year. Having a high positive cash flow from operations that continues to increase suggests that the company’s core operations are thriving. Silvercorp’s large positive cash flow year-over-year will allow them to build a cash position that will provide them with the ability to be able to invest in any projects which will provide future economic benefit to the company.
Are there any Areas of Value to Target Based on the Technicals?
The chart above shows Silvercorp’s stock movements since September. Investors in Silvercorp Metals have lost 13.26% since September and almost 50% if they had been holding since January. Over the past month, Silvercorp’s stock has been trading within a bearish price channel. The bearish price channel has been formed by two downward-sloping trend lines: the main trendline being the resistance and the channel trendline acting as the support. A bearish price channel suggests to investors that there is excess supply for that security, which means participants in the market are more willing to sell Silvercorp than buying it. In the chart below, I circled a spot where Silvercorp hit the resistance trendline and bounced off. This is a signal to market participants that Silvercorp will likely continue to trade within this bearish price channel moving forward. Additionally, Silvercorp’s stock has been primarily trading in the 30-60 range for the RSI. Fidelity suggests that during a downward trend, the RSI tends to stay between 10-60, with the 60-zone acting as the resistance. Within this period, every time Silvercorp breaks the 60-zone for the RSI, it falls back down to trading below the 50 range. Therefore, the RSI supports the bearish price channel that Silvercorp continues to trade within. Moving forward, potential investors in Silvercorp could establish a position if they see the company make two higher highs and two lower levels. If they can spot this pattern, a new price channel may form, suggesting a bullish movement forward for the stock. However, investors should confirm reversals using other characteristics of technical analysis such as the RSI and moving averages.
What are the Risks Moving Forward for Silvercorp?
Silvercorp metals have vastly underperformed the Global X Silver Miners ETF; Silvercorp is down 46.46% year-to-date, while the Global X Silver Miners ETF is down 26.57%. Approximately 60% of all Silvercorp’s revenue comes from silver production. As a result, Silvercorp’s stock price will likely be highly correlated to the price of silver. Furthermore, investments in precious metals are often considered safe-haven assets. As a result, during times of growing stock prices, investors generally exit these safe-haven investments and turn towards other industries in the stock market, leading to less demand for precious metal stocks. Moreover, Silvercorp’s main operation in China exposes the company to foreign risks associated with maintaining government approvals, licenses, and licenses overseas. Lastly, Silvercorp Metals will need to find potential new exploration sites rich in metals before their current mines are exhausted. If they cannot find new exploration sites while their current mines are operational, Silvercorp Metals will have major issues moving forward. In conclusion, potential investors in Silvercorp Metals should be fully aware of the risks associated with investing in this company ranging from the stock’s dependency on the price of silver and the risks of foreign operations in China.
Comments