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Letter From Chairman - Key Points
VANCOUVER � September 19, 2011 � Silvercorp
Metals Inc., a Canadian based company, (�Silvercorp�
or the �Company�), following yet another false and misleading internet posting today by
the fictitious and anonymous Alfred Little, posted an open letter today to
its shareholders that addresses recent allegations made about the Company.
�All of the allegations made against Silvercorp
have been anonymous. All of the allegations are baseless and designed to be
manipulative�, said Rui Feng,
Chairman of Silvercorp. �While new attacks will
keep coming, as is the past practice within the short and distort industry,
with this open letter we are turning the corner and putting these allegations
behind us�, said Rui Feng.
Dear Shareholders,
Over the last two weeks, Silvercorp has been attacked by a group of well-organized
and well planned illegal short sellers trying to profit by manipulating Silvercorp�s share price with false and selective
statements, fabrications, and rumors.
On September 1, 2011, the
Company was forwarded a copy of an anonymous letter (�Anonymous Letter V1�)
dated August 29, 2011, maliciously alleging a "Potential $1.3 Billion
Accounting Fraud at Silvercorp". On
September 13, 2011, a second set of anonymous allegations against the Company
was published on the internet �alfredlittle.com� (�Alfred
Little"). On September 14, 2011, the Anonymous Letter V1 writers
(�Anonymous Shorters�) posted their much shorter
and tone-downed version on the internet �Chinastockwatch.com� (�Anonymous
Letter V2�). It was also couriered to Silvercorp
on September 15, 2011.
These allegations and
rumors have caused loss and concern among our investors and employees and to
the financial market as a whole. Silvercorp
has responded by issuing news releases (September 2 and 14, 2011)
pro-actively and with the utmost of transparency with respect to the
facts.
The attack on Silvercorp started on June 3, 2011. On that date,
short interest in Silvercorp share increased by 2
to 3 folds. Shortly thereafter, a false �Alert� warning that Silvercorp would miss its quarterly revenue was mysteriously
and wrongly issued by an undiscovered third party through Reuters and
subsequently withdrawn by Reuters on June 6, 2011. In fact, on July 14,
2011, Silvercorp announced a quarterly revenue
increase of 90%.
Who are these people who fabricate Anonymous Letters
and postings on untraceable internet sites like �Alfredlittle.com�?
They are nefarious short
sellers utilizing the internet, fictitious names, and distributing false
allegations with no, or false return addresses. These individuals are taking
advantage of shortcomings in the regulatory environment and orchestrating
�Short and Distort� or �Reverse Pump and Dump� schemes to their benefit.
We regret having to
respond to these anonymous short sellers who have refused the regulator�s
request for them to come forward. They avoid liability or
accountability for spreading false statements, defaming the company and
engaging in market manipulation. Having said that, should there be any
doubt about Silvercorp as a result of allegations,
particularly those in the fictitious Alfred Little posting and the Anonymous
Letters V1 & V2, the Company has prepared detailed rebuttals to Alfred
Little and to the Anonymous Letters posted on our website today.
Silvercorp will vigorously pursue all legal
actions to protect our shareholders' value. We thank our shareholders
for their loyalty. We regret that they have unfairly suffered as a
result of this short attack, and we remind them that they need to make sure
that they are in full control of the economic benefits of their ownership in
our Company and should discuss this with their broker.
- Who
are Alfred Little and Anonymous Shorters?
To date, Alfred Little
and the anonymous shorter sellers have not been identified. As such, they
avoid legal responsibility for the rumors and fabrications that have been
circulated. Is there any credibility to the International Financial Research
& Analysis Group (�IFRA�), hired by Alfred Little or hedge funds, to
fabricate rumors on Silvercorp? We determined that
IFRA is an organization with no registration and no address? The IFRA�s
Dino Huang also has no clearly defined credentials.
Anonymous Shorters and Alfred Little have not contacted Silvercorp or visited our site as many other responsible
analysts and investors have done. No opportunity was given to Silvercorp to answer allegations before they were
made. Those analysts that have engaged Silvercorp
have determined that it is a substantial company, with real earnings, and a
considerable pipeline of growth projects.
Anonymous Shorters and Alfred Little and others members of the
short industry who are assisting clandestinely are promoting a distorted form
of discrimination against companies with operations in China. There is
a growing pattern of attacking Chinese companies with manipulative schemes, but
the results have been mixed.
In case of Spreadtrum Communications, Inc. (NASDAQ: SPRD), short
sellers shorted SPRD first, and then issued misleading reports and drove down
share price to $9. But they were proved wrong as the stock is now at
$20.
In case of Harbin
Electric, Inc. ("NASDAQ: HRBN), short sellers spread rumors and false
information and drove down HRBN from US$20 to US$6. At present, Harbin
is in the process of completing a going private transaction at $24 per share
in cash, advised by Goldman Sachs, Morgan Stanley and Lazard Freres & Co. Harbin has been on the NASDAQ's
Reg. SHO list for the last 70 days, indicating naked short sellers have
failed to deliver shares on settlement dates in blatant violation of U.S.
securities laws.
Other examples include,
Deer Consumer Products (NASDAQ:DEER), which issued a news release on
September 6, 2011 about their progress in holding short sellers accountable:
�On August 29, 2011, the
New York Supreme Court granted Deer's motion to serve "Alfred
Little" with the summons and complaint in the New York Litigation by
e-mail and "Alfred Little" was served the following day. A
default judgment may be granted against "Alfred Little" if this
defendant does not show up in court. Deer is represented by highly
credible and competent legal counsel against the short seller defendants.�
Deer also has court
permission to serve document subpoenas on various parties related to the
lawsuit to identify the anonymous defendants and Deer will conduct all
necessary inquiries relating to the apparent stock manipulation scheme
against it. We look forward to co-operating with Deer and all other
victims of Alfred Little.
According to a news
release by Deer on September 16, 2011; "Alfred Little" offered to
issue retractions of various articles in exchange for Deer dropping its
ongoing subpoena and discovery efforts in the Superior Court of the State of
New York�.
- Alfred
Little and Anonymous Shorters are not entities
registered or approved by the SEC, OSC, or BCSC ?
We note that the short
seller publications by Alfred Little and the Anonymous Shorters,
involve recommendation of securities traded in the United States and Canada.
Alfred Little and the Anonymous Shorters are not
however entities registered with or approved by the SEC, FINRA or any other
regulatory authorities in Canada. They are unknown individuals without any
regulatory validation of their qualifications. They are providing
recommendations without any means to check their records or identify any
conflicts of interest.
- Basic
Rule and Regulations Silvercorp Follows
Technical reporting for
mining companies listed in Canada is governed by National Instrument 43-101
or NI43-101. According to NI43-101, only a Qualified Person (�QP�) (an
engineer or geologist belonging to a professional engineering or geologist
association of a province) can sign off on assaying results, resource
calculations, and a technical report. A QP can be independent or
non�independent (company QP).
National Instrument
43-101 - Standards of Disclosure for Mineral Projects, states in Section
5.2(2) �A technical report required to be filed by a producing issuer under
paragraph (c) of subsection (1) is not required to be prepared by or under
the supervision of an independent qualified person.�
According to this
regulation, since Silvercorp is a producing issuer,
its resource or technical reports or assay results are not required to be
prepared by or under the supervision of an independent QP. That means Silvercorp�s own QPs, such as Myles Gao,
P. Geo. can prepare all the technical reports and assays. In order to
give investors comfort, Silvercorp has actually
exceeded NI43-101 requirements by retaining independent QPs to prepare all
its technical reports before these allegations arose.
As Silvercorp�s
subsidiary, Henan Found is a private company operating in China,
it complies with the regulations, requirements and standards of China, which
are completely different from those in NI43-101 and those in Canada or
USA. It is unprofessional to simply compare these two sets of
data, like Anonymous Shorters and Alfred Little
have done. In Canada, when this kind of comparison is done, it is
usually done by a QP, not by unqualified anonymous authors.
Financial reporting for
mining companies listed in Canada and the United States are required to be
audited independently by a Chartered Accountant (CA). Ernst &
Young has been Silvercorp�s auditor since
2006. All of Silvercorp�s financial
statements filed on SEDAR have been reviewed by Silvercorp�s
audit committee which is made up of independent directors and have been independently
audited by Ernst & Young. Every quarter, and at year end, myself
and our CFO, certify, among other things, that our financial statements
contain no misrepresentations. We are putting our names forward and are
willing to be held responsible.
Again, Henan Found
follows China accounting rules and tax rules. It is not possible to
simply match financial statement with US or Canada GAAP. A detailed
reconciliation is usually done and verified by a firm like Ernst & Young.
- Source
Of Information And Qualification For Alfred Little�s Report And
Allegation
Anonymous Shorters and Alfred Little have made accusations that Silvercorp�s information is not reliable or not
independent. Our disclosed technical reports are above the NI43-101 standard
requirement, having been prepared by independent QPs, and our
financial statements were audited by Ernst & Young.
What is the accuracy and
reliability of Anonymous Shorters and Alfred
Little�s data? They said in their letters or report, they
�believe all the information is accurate and sources quoted are reliable�,
but who are they? How can they demonstrate that? Why should we
trust an anonymous person with a vested interest? The main source quoted,
IFRA, only has a phone number and email, but is not a registered Company in
Hong Kong as it claims on its website.
Who is Dino Huang, the
author who prepared Alfred Little�s research report and has purportedly
sampled our ores �dropped� from a truck? We doubt that Mr. Huang is a
QP, a CPA, a CA, or an analyst belonging to any professional association in
China or any Country. What are his credentials to analyze Silvercorp from financial to mining and to geological
results? If Alfred Little does not provide IFRA or Huang�s credentials
and certifications, then what degree of credibility can their reports have?
In the Anonymous Shorters Anonymous Letter V1, they state that �financial
data from the Chinese State Administration of Industry and Commerce (SAIC)
shows Silvercorp actually has a consolidated loss
of US$0.5 million. In their later, tone-downed version, Anonymous
Letter V2, they kept using this distortion, even after we proved it false in
our September 2, 2011 news release.
Our lawyers in China were
informed that the calendar 2010 financial statements are not available for ANY company
from SAIC other than those summary data as we have shown in the Attachment A
of our September 2, 2011 news release, as the SAIC has not completed or
archived such material yet. The only information available for sale is
dated prior to the calendar 2010 year. This fact further evidences that
the Anonymous Letter V1 and V2 were pure fabrications and all reference to
2010 financial statements were false.
One thing we may give
Alfred Little credit for is that when the Globe and Mail interviewed one of
the authors, Dino Huang, he said that �we never said in the report that the
company was a scam, or cooked its books�. This directly contradicts the
Anonymous Shorters accusation that there was
accounting fraud.
In summary from all of
our news release, TV and radio interviews, public presentations, and phone
communications:
- We have dealt with the
allegations made about Silvercorp. Detailed,
complete and accurate information that refutes all of the allegations
made about Silvercorp is public and available
on our web site; and
- An independent committee of
our Board, lawyers, KPMG and regulatory authorities are looking into the
anonymous reports and allegations made about Silvercorp.
We are confident that they will determine that Silvercorp
has been targeted unfairly.
Thank you for all your
understanding and support. Silvercorp will
weather through this storm and emerge as a stronger company!
Rui Feng
(Ph. D.)
Chairman and CEO
Silvercorp Metals Inc.
The full version of this letter is available at www.silvercorp.ca.
About Silvercorp Metals
Inc.
Silvercorp Metals Inc. is engaged in the
acquisition, exploration, development and mining of high-grade silver-related
mineral properties in China and Canada. Silvercorp
is the largest primary silver producer in China through the operation of the
four silver-lead-zinc mines at the Ying Mining Camp in the Henan Province of
China. The Company is developing its GC silver-lead-zinc mine in the
Guangdong Province and recently acquired the BYP gold-lead-zinc mine in Hunan
province. In Canada, Silvercorp is preparing to
apply for a Small Mine Permit for the Silvertip high grade silver-lead-zinc
mine project in northern British Columbia to provide a further platform for
growth and geographic diversification. The Company�s shares are traded on the
New York Stock Exchange and Toronto Stock Exchange and are included as a
component of the S&P/TSX Composite and the S&P/TSX Global Mining
Indexes.
For further information:
SILVERCORP METALS INC. Rui Feng, Chairman/CEO &
Lorne Waldman, Corporate Secretary Phone: (604) 669-9397, Toll Free Phone:
1-888-224-1881 Fax: (604) 669-9387, Email: info@silvercorp.ca, website: www.silvercorp.ca.
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