WALLACE – Christmas came early for Silvercorp (NYSE: SVM), the Vancouver-based miner of silver, lead and zinc in the Chinese central province of Henan.
As one of the first round-eyes ever to visit Silvercorp's flagship Ying Mine there, when the underground property was still under development and the mill foundations were barely poured, we've continued to follow this operation with interest – beginning, actually, when at the 2005 Silver Summit confab, Silvercorp founder Rui Feng likened his find to a Sullivan-type deposit similar in scale to northern Idaho's own Bunker Hill.
Our B.S. detectors went up. Dr. Feng invited us to China for a look so in November of 2005 we went. And those two-foot-thick black and grey veins running throughout the Ying Mine sure did look familiar. Nevermind that the 1,000 tonne/day concentrator hadn't been built yet; Silvercorp was already getting handsomely paid for its high-grade, smelter-friendly raw muck.
There was nothing highfalutin about Silvercorp's management style. The mine construction site was all business, and Dr. Feng flies coach. (He just recently stepped down as CEO, relinquishing the post to Myles Gao, who headed up Ying's development and early production. Feng remains as chairman of the board; both Feng and Gao are no-nonsense geologists.) There are no banksters or promoters on Silvercorp's board – just bean-counters and rock-rabbits.
The market told the success story well. Silvercorp shot from the $1.30 per share it was trading at when we visited to $7 two months later when its final permits came in, to a peak of $16 in April 2011 with five years steady production under its belt. Then three things happened: the silver price took a 20 percent hit, and Silvercorp crashed to $8 – a 50 percent drubbing.
The third thing was, some then-anonymous poisoned pen drew a bead on Silvercorp, hinting he had visited the mine (he hadn't) and claiming to his readers' horror that the Ying mine had only a few years left (which is the same five years' reserves any underground mine whose veins are open at depth ever carries on its books).
Anyone who's ever visited a stope would have seen through this huckster's little poison-pen game: he was preying on an ignorant investing public. And he succeeded. Silver has had its ups and downs since then, but Silvercorp is all the way down to $2.22 now – just a hair more than one-eighth its peak value 30 months ago and a drop far more precipitous than other silver producers experienced over that time.
Why would somebody want to smear a silver mining company? To make money, of course. And that, late last week, is precisely what the British Columbia Securities Commission accused one Jon Carnes, a.k.a. Alfred Little, and his hedge fund, EOS Holdings, of doing to Silvercorp.
The weekly rag Barron's, which detests mining companies of all flavors, even felt compelled to report last Friday that:
“The British Columbia Securities Commission said that in 2011 Jon Carnes published falsely negative reports about the Chinese mining operations of Silvercorp Metals, a company whose shares are listed in Toronto and New York. Silvercorp had been sold short by EOS Holdings, the hedge fund that Carnes managed. As Barron’s reported, Carnes disguised his authorship of the critical reports by using the pseudonym Alfred Little. After his Sept. 13, 2011 report questioned the quality of the miner’s silver resources, the stock of the Vancouver-based Silvercorp dropped 20% in a day, earning EOS Holdings almost $2.8 million on its short sale and option trades.”
The egg-yolk stuck on Barrons's face may have something to do with the fact that they were among the first to publish Carnes' bogus “findings” about Silvercorp. And, in the “where have I heard that story before” department, it was written by the same hack who wrote a Barrons hatchet-job on Seabridge Gold (NYSE:SA) in February 2010 shortly after another hedge fund shorted Seabridge stock to the tune of 8 percent of its entire market capitalization.
Our friend William Calhoun of Osburn, former CEO of Day Mines, was a Seabridge director at the time. Barron's not only grossly underestimated Seabridge's gold reserves, they also falsely reported that Seabridge officers were selling their own stock when in fact they were net buyers.
And now one of Carnes' Silvercorp “researchers” – who allegedly picked up a rock near the mine and found it to contain a lot of lead (typical of a Sullivan deposit) is stewing in a Chinese jail.
Sounds like a good place to spend the holiday season for all the short artists who get rich hammering silver stocks – and for the ignorant cretins who publish their conclusions. Merry Christmas, Silvercorp, and keep those quarterly cash dividends coming.
