A few days ago Silvercorp released its 2015 financial statements. In my opinion, last year the company made significant progress. First of all, it cut its costs of production to $10.6 per silver equivalent sold (a decrease of 20% since 2013):
Note: accounting costs are defined as: cash cost of production plus depreciation plus general and administrative expenses plus government fees and other taxes
Further, since 2013 Silvercorp has increased its sales from 6.48 million ounces of silver equivalent to 8.97 million ounces of silver equivalent in 2015 (an increase of 38.4%):
Now it looks like the company's sales are levelling off at above 8.0 million ounces of silver equivalent. However, stable and high sales plus lower costs of production plus assumed higher silver prices make Silvercorp, in my opinion, an attractive miner.
Let me present a few main factors supporting my thesis:
Sales - although, assuming that Silvercorp 2016 sales are going to be equal to the company's production (I think that the company is able to sell even more metals than it is going to produce), the company should slightly increase its sales from $107.8 million to $116.3 million (due to higher silver prices - in my calculations I assume the silver price of $16.24 per ounce)
Production costs - assuming that:
- the Ying mine, the flagship property, will process 610 thousand tons of ore at cash cost of $74.3 per ton processed
- the GC mine will process 250 thousand tons of ore at cash cost of $47.0 per ton processed
the cash cost should stand at $57.1 million in 2016
Other costs - I assume that in 2016 Silvercorp will be able to keep its overhead at levels seen in 2015.
Taking these assumptions into account, in 2016 the company should deliver the EBITDA of around $36 million (in 2015 it was $30.3 million).
With such a projected EBITDA, at today's share price of $1.70 a piece, now the company is valued at a multiple of the future enterprise value / EBITDA of 9.1.
It is one of the lowest valuations among other silver miners:
Other catalysts and risks:
- share repurchase program - in December 2015 the company announced an extension to its formerly announced share repurchase program; as many as 16.3 million shares are to be acquired until December 2016. Unfortunately, Silvercorp is very unwilling to acquire its shares - since initiating the entire program (December 2014) it has acquired only 4 million shares
- the company has a lot of cash (at the end of March 2016 it had around $62 million in cash) - in my opinion, with such a large amount of cash it could be much more aggressive in its share buybacks