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Over time, I will try to pick my best articles and research that I did in the past at DCSB (the old blog/site). Here is one of my all time favorites. It's notes I made during my nearly 1 hour long talk with the person in charge of Investor Relations at Silvercorp, Cathy Fong. Enjoy!

Just two days after my bashing of Silvercorp IR for not phoning me back, I get a call this morning from someone wanting to speak to me. What do you know, it's Ms. Fong from Silvercorp IR!

She said she'd been trying to call me many times but that either my phone was busy or my answering machine wasn't working (both highly likely, I have to fix that stupid answering machine).

Ms. Fong ended up being very nice and answering all my questions and more about everything to do with Silvercorp. She even admitted to me she was phoning directly from New York on her Cellphone. She said she had some meetings planned with investment firms. [On a side note, she said that she received a call from a gentleman in Pasedena California a few months ago who wanted more information about Silvercorp. Ms. Fong said that if he could gather a large enough amount of people, she would come personally to make a presentation. Sure enough he 40 people together and she flew down to make her presentation including core samples etc.]

If you remember, I was very happy with Nova Uranium's IR compared to other junior exploration companies. Well, right now I have to say that Ms. Fong was even better than Nova. I talked to her for at least 40 minutes pestering her with question after question and I never even got the slightest hint that she wanted to get my call over or that I asked a stupid or irrelevant question. Honestly, top marks in effort, patience and quality of information.

Now let's get to the information that makes or breaks investments:

First of all, I asked about the status of the license they need to begin production at their Ying Silver property. Ms. Fong said there are 3 major submissions which among them is an environmental one. The previous 2 have been conditionally approved but the last environmental one is still being looked at. She expects a decision by the end of February with the eventual permit being granted March 31st.

She noted that the decision must be made by the Provincial Government there. Even if the application is not accepted, it's not the end of the world. She said Silvercorp would simply look at the changes needed to be done and do them. This would cause delays but the project would eventually go on. She did mention that through all the steps Silvercorp worked very closely with Government officials to ensure everything was done to their liking.

Next, Ms. Fong told me that Silvercorp wants 2006 to be a signature year for them. Here are the 3 objectives they want to achieve:
1. Of course they want to get their mine permit approved for the Ying Silver project.
2. They want to increase their resource estimates through several drill tests.
3. They want to be granted an American Listing on the AMEX.

Numbers 1 & 2 are obvious for any resource company. However, #3 excites me so much. This will give Silvercorp an American exposure and more proof that Silvercorp is serious about making investors rich. The preliminary steps have already been taken and the applications have already been sent. There will not be any new shares created for the Amex listing. The shares will trade ADR. After telling me all this she mentioned that any dilution is of course not good.

Next Ms. Fong told me that Silvercorp is quite busy looking for an acountant that understands Chinese. An interesting fact is that Silvercorp has hired 10 geologists whose only job is to scour all of China to try to find more properties similar to their Ying property that could be major silver discoveries.

Why? Isn't that a waste of money? No, says Ms. Fung because Silvercorp feels that there is a 5 year window of opportunity right now to buy up Silver properties for fair prices in China. In 5 years, mining properties will be too expensive for Silvercorp's motto of "spend a dime, earn a dollar".

Getting into more detail about the Ying project, Ms. Fong confirmed that according to all drill tests, it will produce 5 million ounces of silver, 30,000 lbs of lead and 9,500 lbs of zinc. This is the equivalent of 10 million ounces of pure silver.

If the permit is succesful, Silvercorp aims to make a $50 million profit in the 2006 fiscal year (which runs from April 1, 2006-March 31, 2007). Of this 22.5% would be transferred to the government because it owns that share in the project. Therefore after all costs (salaries etc.), $34.7 million would be available to give to shareholders (if chosen to do so).

Ms. Fung said that they would be looking at spending about $4.5 million of those profits to make another $50 million. However, she admitted that Silvercorp is considering how best to reward shareholders. She said a dividend, a share buyback or acquisitions are all posibilities management is strongly looking into.

I then asked Ms. Fong how they came up with a silver production cost of less than $0.01. She said that their total cash cost of production is actually $6.50. However, you can minus $4.50 off that price because of the Zinc and Lead. There are a few other deductions (sorry I can't remember them all) which bring you to a real cash production cost of $0.55.

Silvercorp will choose not to smelter and refine their silver themselves so they will give up 24% of the price of silver to pay someone else to do it.

To sum up how much money they will make: Silver corp will be paid at the time of shipment 76% of the spot price. Their cost is $0.55/ounce so you deduct that. If they were to ship silver today, they would make $6.72 profit on every ounce of silver. However, I'm very bullish on the price of silver so it should be much higher in the years ahead.

I then asked the direct question of why does she think Silvercorp is so undervalued compared to its peers. Ms. Fong was direct and said she agreed with me and gave me a few possible reasons. First of all, she said Silvercorp is still an unknown brand and entity. People just haven't heard of it enough. Next Ms. Fung (suprisingly) admitted that she is not from a marketing background but from a geology one. Although a marketing person might get the word out better, she said they chose her because she actually knows what she is talking about when referring to core samples, material grades etc. I take this as a huge opportunity for us early investors because this company is still undiscovered. But it won't last forever...

Additionally, she told me that currently there are only 3 people working full time for the company. The CEO, director and herself. All others are only consultants. This is smart because there are only 3 permanent salaries and the rest of the people are only paid if they are needed keeping costs under control.

That's everything I scribbled on my note sheet. Ms. Fong reassured me that if I have any questions at all in the future to contact her through email cfong@silvercorp.ca. She said she has a Blackberry so she can often respond very quickly no matter where she is on earth promoting Silvercorp.

Here is some extra info you should know before investing in Silvercorp:

-listed on TSX symbol SVM
-has 48.1 million shares outstanding fully diluted
-has about $8.1 million in cash at hand
-current market cap of 275,673,072
-insiders own 5,946,256 shares/options according to most recent Sedi fillings
-that is 12.4% of shares outstanding
-Official website: Link
-Chart:

Conclusion: I was honestly extremely impressed with Ms. Fong and her effort in educating only one investor about Silvercorp. I had a small position in Silvercorp prior to today but you can be sure that I will be increasing it substantially over the next year. Any price below $6 is a strong buy and if it ever approaches $5 you have to buy hand over fist!

I have a price target of $17 on Silvercorp. Isn't that too high? No, let me use Silver Wheaton as comparison. SLW's current market cap is 1,353,092,950. This is nearly 5 times larger than Silvercorp. Silver wheaton will produce 11.5 million ounces of Silver in 2006 at a cash cost of $3.90. Remember silvercorp will sell the equivalent of 10 million ounces silver (76% of spot price) at a cash cost of $0.55. Based on these simple assumptions, slw could make about $65 million (a p/e of 20.7).

If silvercorp was to make $34.7 million in 2006 based on a price of $17/shares, their p/e ratio would also be 21.

I know this is extremely rudimentary and inexact but I am just using it to show you how undervalued Silvercorp is.

Buy it, especially on dips!

This was originally posted on January 28, 2006. Silvercorp closed that week at $6.32. Today's close was $12.64. That makes for an exact double in a very short period of time. 

Some of you may be thinking you missed the SVM train but I don't think so. This company is so undervalued, I just cannot believe it. It will be much higher by the end of the year. As I said in January I have a $17 price target but I may adjust this in the coming months.