Silvercorp Metals SVM had a challenging month, plunging 34.7%, significantly underperforming the industry’s decline of 6.2%. Meanwhile, the Zacks Basic Materials sector has slipped 3.4%, while the S&P 500 has risen 3.3%.
The SVM stock first witnessed a 10% fall in a day following SVM’s second-quarter fiscal 2025 results on Nov. 7. This also coincided with the Fed announcing a rate cut that weighed on commodity prices. Disappointing stimulus measures from China might also have affected the stock’s performance. On Nov. 20, the SVM stock took another major hit, falling 12% (its steepest single-day drop in 2024) after announcing a private placement offering of convertible senior notes on Nov. 19, 2024.
However, SVM had its ups as well. On Nov. 15, Silvercorp announced that the Provincial Court of Bolivar dismissed the appeal challenging El Domo’s environmental license. SVM can now advance the project's construction, resolving a significant concern and boosting the stock by 5%. The high-margin, advanced El Domo project is expected to enhance Silvercorp’s near-term production profile.
SVM Lags Industry, Sector & S&P 500
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Image Source: Zacks Investment Research
The SVM stock is currently trading below its 50-day moving average, indicating a bearish trend.
SVM Trades Below the 50-Day Moving Average
Zacks Investment Research
Image Source: Zacks Investment Research
Despite this drop in the past month, Silvercorp stock has managed to yield an 18.2% gain in the past year, faring better than the industry’s 7.5% decline. Is the current market reaction to SVM’s fiscal second-quarter results overdone? Does this pullback in SVM prices present a buying opportunity? Let us find out.
Analyzing Silvercorp’s 2Q25 Results
Silvercorp reported adjusted earnings per share of 9 cents in the second quarter of fiscal 2025 compared with 7 cents in the prior-year quarter. Revenues improved 26% year over year to $68 million. While earnings beat the Zacks Consensus Estimate, revenues were in line.
Top-line growth was driven by higher realized selling prices for gold (20%), silver (34%), lead (15%) and zinc (43%). Silver and zinc sales rose 29% and 4% year over year, respectively. This was, however, offset by a decline in gold and lead sales volumes of 51% and 13%, respectively, due to lower production. SVM produced 1.75 million ounces of silver (down 4% year-over-year), 13.2 million pounds of lead (down 18%), 5.8 million pounds of zinc (up 26%) and 1,183 ounces of gold (down 52%). This lagged expectations, with the shortfall attributed to lower milling rates at Ying.
We believe that the decline in gold output limited Silvercorp’s ability to fully benefit from the solid rally in gold prices in the quarter, which would have otherwise further boosted revenues.
SVM Buys Adventus to Diversify Assets, Geography & Metals
In July, Silvercorp acquired Adventus Mining Corporation, a Canada-based company focused on exploring and developing its mineral properties in Ecuador. Through the acquisition, SVM gained access to 75% interest in the El Domo project, a permitted, pre-construction stage copper-gold project, and a 98.7% interest in the Condor project, a development stage gold project.
El Domo has a 10-year mine life, with an average annual production of 10,463 tons per annum of copper and 21,390 tons of copper equivalent over the life of the mine. However, a litigation brought by a group of plaintiffs concerning the environmental license for the El Domo Project had been a major concern for Silvercorp. Now that it has been cleared, SVM can advance the project.
This buyout will help SVM diversify its mining assets and enhance its market presence in Latin America. Currently, the company’s only two producing properties are in China — the Ying Mining District and GC Mine. This subjects Silvercorp to higher risks than companies with assets in more developed jurisdictions like the United States and Canada. Bringing El Domo and Condor to production will help the company mitigate this risk.
Estimate Trend for Silvercorp Instills Optimism
The Zacks Consensus Estimate for SVM’s earnings for fiscal 2024 and fiscal 2024 has moved north over the past 60 days, as shown in the chart below.
Zacks Investment Research
Image Source: Zacks Investment Research
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SVM’s Investment in Projects to Drive Growth
The company has been spending heavily on underground development, constructing the third tailings storage facility and mill expansion activities at Ying, and the newly acquired El Domo and Condor projects.
As of the end of second-quarter fiscal 2025, the company had $209.5 million in cash and cash equivalents, and short-term investments. It holds a portfolio of equity investment in associates and other companies, with a total market value of $84.4 million as of Sept. 30, 2024. The company’s total debt-to-total capital was 0.1% as of Sept. 30, 2024, much lower than the industry’s 18%.
To boost productivity at the Ying Mining District, the company will continue its planned tunneling development program by adding various ramps and other development tunnels to connect mining areas and facilitate improved access throughout the mine. At the El Domo Project, SVM expects to finalize the project execution planning and detailed engineering, and engage contractors to begin the road access and site construction work in the next two quarters.
The company closed the above-mentioned offering of $150-million aggregate principal amount of 4.75% convertible senior notes due 2029 on Nov. 25. Silvercorp intends to use the proceeds for the construction of copper-gold mining projects outside China; the exploration and development of other projects; and generating working capital.
SVM expects to increase production to 8 million silver equivalent ("AgEq") ounces in 2025. Lead and Zinc output is expected to be 95 million pounds.
Silvercorp Set to Gain on Higher Metal Prices
The silver market is set to see a sizeable structural deficit in 2024 for the fourth consecutive year. Exchange-traded products are on track for their first annual inflows in three years as expectations of Fed rate cuts, periods of dollar weakness and falling yields have raised silver’s investment appeal. Gold is also expected to trend higher.
Copper prices have increased lately on expectations of stronger demand from China’s appliance and automotive sectors. Investors are hopeful that Beijing will introduce more stimulus measures to bolster economic growth and offset the impacts of Trump’s tariff policies, further lending support to copper prices. Global decarbonization and electrification are anticipated to fuel demand for silver and copper. Upbeat prospects for metal prices bode well for SVM’s results.
SVM’s Margins & Returns Ahead of Peers
Silvercorp operates low-cost mines that generate consistent cash flow. SVM’s trailing EBITDA margin is at 41.53%, way ahead of its peers.
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Image Source: Zacks Investment Research
SVM’s return on equity (ROE) — a profitability measure of how prudently the company utilizes its shareholders’ funds — is 8.12%, higher than the industry’s 1.65%.
Zacks Investment Research
Image Source: Zacks Investment Research
Average Target Price for SVM Suggests Solid Upside
Based on short-term price targets offered by five analysts, the average price target is $5.42 per share. The average suggests a 63.2% upside from yesterday’s closing price.
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Image Source: Zacks Investment Research
SVM’s Valuation Attractive
Silvercorp is currently trading at forward price/earnings of 10.24X compared with the industry's 13.01X. It also has a Value Score of A.
Zacks Investment Research
Image Source: Zacks Investment Research
The company is also less expensive than peers like Pan American Silver PAAS, Hecla Mining HL and Endeavour Silver EXK, which are trading at forward price/earnings of 15.42X, 19.45 and 12.45, respectively.
Final Thoughts on SVM Stock
We believe that the recent decline in the SVM stock reflected the anticipated impacts of the ongoing litigation of the El Domo project, lower than the expected production in the fiscal second quarter. With the appeal being dismissed and SVM set to advance the El Domo project, it is expected to be a key growth driver. Since the company’s production is currently based in China, developing projects in other regions will help mitigate risks. Retaining this Zacks Rank #3 (Hold) stock in your portfolios will be prudent now.
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