The favourable precious metal pricing environment has been a boon for Silvercorp Metals [stock_market_widget type="inline" template="generic" color="default" assets="SVM.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"], whose stock price has doubled this year. But favourable silver prices are not the only reason behind Silvercorp’s impressive rally.
The miner has been making all the right moves to increase its output and take advantage of improving silver prices. Let’s take a look at why you should be holding on to Silvercorp shares despite its tremendous rally so far in 2019.
Silvercorp’s Production Shows It Is Moving in the Right Direction
In the first quarter of fiscal 2020, Silvercorp reported a 27% increase in silver production and sales on a year-over-year basis. The company also said that its gold production and sales increased 20% year over year.
However, weak silver pricing turned out to be a big problem for Silvercorp last quarter. The company’s top line increased only 1% to $45.6 million, driven by a 6% decline in silver prices. Also, Silvercorp witnessed a massive 25% decline in the price of lead and a 40% drop in the average realized price of zinc during the quarter.
But the good thing for Silvercorp was that it was able to keep a handle on its costs, and this allowed it to increase the bottom line despite a flat revenue performance. The company reported that its cash production cost per tonne of ore processed fell from $69.05 a year ago to $68.85 in the last reported quarter.
This allowed Silvercorp to deliver a net income of $12.6 million during the fiscal first quarter, up from $10.9 million in the prior-year period.
Better Times Ahead
As I have already pointed out, Silvercorp was hurt by tepid silver prices last quarter. In fact, the company recorded an average realized silver price of only $12.70 per ounce for the quarter. On the other hand, the realized price of gold was not very attractive either as it received $1,082 per ounce of gold.
Now, the price of both these precious metals has shot up impressively. The spot price of gold is currently at more than $1,500 an ounce, while that of silver is sitting pretty above $18 an ounce. Assuming that Silvercorp can get such prices for the gold and silver that it produces, it could deliver impressive financial growth in the future.
This is probably the reason why analysts expect the company’s top-line growth to pick up the pace in the next fiscal year. But the company is capable of surprising Wall Street as it recently reported an increase in reserves and resources at the GC mine in the Guangdong province of China.
The company says that there has been a 7% increase in proven and probable reserves at the mine, while measured and indicated mineral resources have increased to the tune of 42%. So, Silvercorp’s output can get better in the future, and when combined with a potential improvement in silver prices, its financial performance can also pick up the pace, making it a good idea for investors to keep holding Silvercorp Metals stock even though it has shot up big time this year.
