Silvercorp Metals Inc. (NYSE:SVM) is a Canadian-based silver miner that operates multiple mines in China. Just like other silver miners, Silvercorp Metals has faced mounting pressure this year. Its stock is down 46% year-to-date. The company has recently released its quarterly results, which gives us a chance to evaluate its performance.
Silvercorp Metals Inc. (NYSE:SVM) reported fiscal 2013 fourth-quarter net income of $6.4 million, or $0.04 per share, inline with analysts’ expectations. The company reported a decrease in silver production. Silvercorp has mined 4.9 million ounces of silver in fiscal 2013, 12% less than in fiscal 2012. This move seems to be a reaction to lower silver prices. The net-realized selling price in the fourth quarter of fiscal 2013 was $30.51 per ounce.
What can drive the stock price up?
Let’s examine what can lead to the appreciation of the stock price. First, we should determine what has led to such a fast drop in the stock price. The usual suspects are internal company problems and pricing problems. Silvercorp Metals Inc. (NYSE:SVM) operates a diversified portfolio of mines. The fact that those mines are situated in China allows the company to be a low-cost producer. The main reason for this is lower labor costs.
Silvercorp’s growth strategy is to use the money generated by the company to finance new projects. It is focused on the acquisition of small-scale projects. The company has zero debt, which is important in the current environment. Silvercorp Metals Inc. (NYSE:SVM)’s current ratio, a gauge of a company’s liquidity, is approximately 2.8. This means that the company has no liquidity problems. Cash and cash equivalents account for 12.5% of total assets. I do not see major internal company problems at Silvercorp, so let’s turn to the second variable – prices.
Silvercorp Metals Inc. (NYSE:SVM) cannot influence the most important factor of its revenue – silver prices. Prices for the precious metal remain way below the $30.51 that was averaged in the fourth quarter of fiscal 2013. Analysts’ earnings estimates for the fiscal year 2014 have dropped 42% during the last 90 days. If silver prices do not rise, Silvercorp Metals Inc. (NYSE:SVM) will not rise, either.
Silver prices are down 25% this year. The main source of the drop has been the outflow from silver ETFs. The industrial demand for silver remains stable. As silver prices have dropped, retail investors have shown an interest in purchasing physical silver, as well as gold.
The US Mint has had problems with the lack of small silver and gold coins. Silver is a volatile commodity that is subject to speculation. Little changes in physical demand could cause big movements in price. I think that the silver sell-off has been overdone, and the metal should rise after a period of stabilizing at current levels.
Alternatives
Silvercorp Metals Inc. (NYSE:SVM) is a way to play silver. What are your alternatives if you are bullish on silver? I would recommend a closer look at the world’s largest silver-streaming company, Silver Wheaton Corp. (NYSE:SLW) . Silver Wheaton does not operate silver mines. The company purchases the rights to buy silver at predefined prices. It has contracts with Goldcorp, Barrick Gold, Vale, Hudbay Minerals.
The company has a well-diversified portfolio of assets. It has gained exposure to gold with a recent Vale deal. Silver Wheaton has acquired rights to purchase 25% of gold production from the Salobo mine in Brazil and 70% of gold production from the Sudbury mine in Canada. Salobo will add 60,000 ounces of gold annually, while Sudbury will bring 50,000 ounces. With the help of these two mines, Silver Wheaton more than doubles its gold exposure. Silver Wheaton Corp. (NYSE:SLW) trades at 14.1 trailing P/E and slightly less than 12.0 forward P/E. Its unique business model makes the company an interesting addition to an investor’s portfolio.
Silver Standard Resources Inc. (USA) (NASDAQ:SSRI) is the most punished silver stock. It is down 53% year-to-date. Often, the stocks that were punished the most lead the rebound. Silver Standard Resources Inc. (USA) (NASDAQ:SSRI) missed analysts’ estimates in the most recent quarter. The company reported a loss of $0.06 per share compared with an estimate of $0.02 per share. The company is projected to post a loss of $0.04 per share in the second quarter of 2012. Silver Standard Resources Inc. (USA) (NASDAQ:SSRI) is a risky play, as the company is expected to post a loss in 2014. In its first quarter earnings call, the company stated that it plans to continue to battle costs, as they are the source of the problem. Analysts would like to see more on the cost-front from the company before changing their estimates.
Bottom line
Silvercorp Metals Inc. (NYSE:SVM) presents an interesting way to play silver. The company is free of debt, and is expected to report profit for the fiscal 2014. The stock trades at a 17.2 P/E and an attractive 9.4 forward P/E. It is important to mention that the stock is risky because it is cheap. It is very easy for the stock to move 10% up or down in just one day. The fact that silver prices are volatile now adds to the volatility of the stock. If you are comfortable with that, you can consider adding Silvercorp Metals Inc. (NYSE:SVM) to your portfolio.
Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Can This Punished Silver Miner Rise? originally appeared on Fool.com.
Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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