Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Hecla Mining Company (HL), BHP Billiton Limited (ADR) (BHP): Now It’s Silvercorp Metals Inc. (USA) (SVM)’s Turn to Gets Scammed

Page 1 of 2

Several years ago during a period when many small-cap Chinese stocks were routinely accused of being frauds, silver miner Silvercorp Metals Inc. (USA) (NYSE:SVM) fought back hard against allegations that it, too, was manipulating results to scam investors.

Still facing potential class action lawsuits from the fallout over those charges, the last thing it needs is to do something that brings into question corporate governance practices. But it recently announced that rather than scamming investors, it was the one being scammed — by its own contractors!

Silvercorp Metals Inc. (USA) (NYSE:SVM)

With four mines, Silvercorp Metals Inc. (USA) (NYSE:SVM) is China’s largest primary silver producer , and to maintain its position as a low-cost producer in an environment that has seen the precious metal fall sharply in value, it routinely reviews its operations to look for ways to squeeze additional savings out of them.

It was during one of these reviews that it discovered the scam being run by some of its contractors in the Ying mining district. The contractors had been paid on the basis of how much ore was mined and their trucks were weighed once at entry and once when exiting to determine the fees. What Silvercorp Metals Inc. (USA) (NYSE:SVM)’s investigation found was its contractors were loading up their trucks with waste rock from development tunnels in between the scales resulting in diluted ores and reduced head grades of silver. Needless to say, its operating costs rose, too.

In its first fiscal quarter for 2014 Silvercorp Metals Inc. (USA) (NYSE:SVM) reported it had mined 29% more ore than it did a year ago, but only produced 17% more silver. Production costs for silver in the Ying district rose from $9.20 per ounce to $9.63 while head grades for silver fell from 227 to 200 grams per tonne.

It’s not always scams that lead to higher costs. Hecla Mining Company (NYSE:HL) reported quarterly results last month that saw expenses rise due to its acquisition of Aurizon Mines leading the miner to report an adjusted loss of $10.2 million, or $0.03 per share. BHP Billiton Limited (ADR) (NYSE:BHP) produced 9% less silver last year than it did the year before, and Pan American Silver Corp. (USA) (NASDAQ:PAAS) produced 3% less as a result of production sequencing challenges at several mines. All were affected by lower silver prices.

Once Silvercorp Metals Inc. (USA) (NYSE:SVM) found out about the scam, the miner immediately changed the formula for how it paid its contractors. Now it uses assayed grades to determine the amount of ore to waste mined during the month and also dilutes by 10% to 30% the ore produced to account for waste materials that may be too difficult to measure accurately. In that way, it calculates the amount of ore extracted by the contractors and how much to pay them. While the ore continues to be weighed at the gates of the tunnels, it’s now only being used as a reference.

The result has been an immediate 35% improvement in silver head grades at Ying and 21% for lead. However, it’s also led to a 45% decline in ore production and 25% less silver as some drillers and miners left because it created uncertainty and volatility around their fees. I guess when you can’t game the system, it’s better to go elsewhere.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!