NOTE: Information released today (Sept. 13, 2011) at AlfredLittle.com negates much of the information here. It sounds like it might be time to dump SVM.
Sometimes allegations of fraud are a good thing, and that might be the case for Silvercorp Metals, Inc. (NYSE:SVM). Shares are starting to look like a bargain. The Vancouver-based silver mining company, which does most of it’s mining in China, got slammed on Friday falling more than 10 percent on four times the stock’s average trading volume.
Why did Silvercorp plunge?
On Friday, Silvercorp announced a dramatic increase in short positions in the company’s stock. Over the past two months, 23 million shares (fully 13 percent of the outstanding shares!) were sold short. On top of that, the company got its hand on an anonymous letter that was addressed to numerous governmental agencies and media sources. The letter was purportedly written by an investment firm that was shorting the stock, and the same firm said it planned to publicize wrongdoings at the company – namely a $1.3 billion accounting fraud.
Three reasons to invest in Silvercorp despite the allegations
You’ve got to make your own call on whether now’s the time to buy into Silvercorp, but I like what the company’s done. It’s fighting back aggressively against short-sellers and the anonymous firm that’s accused the company of wrongdoing. Here are three reasons why I’m still a bull:
1) They’re facing the allegations head on. First, Silvercorp proactively sent out a press release acknowledging the short sales and anonymous letter. In it, Silvercorp provides links to documents that refute the allegations against the company.
2) They’re going after the bad guys. Silvercorp’s set up an independent task force to find out who authored the anonymous letter. The task force has some heavyweights on board, too, including Canada’s former ambassador to China, Earl Drake. If they can uncover the source of the letter, Silvercorp has vowed to pursue “all legal options” in multiple jurisdictions to recover damages caused by the allegations.
3) They’re still buying back their stock. Silvercorp apparently thought the company’s shares were a bargain at roughly $8 a share when they first announced their stock buyback plans in June. On the heels of the anonymous allegations that surfaced on Friday, the stock dipped as low as $7.08 a share, and Silvercorp’s looking at the price move as another great opportunity to buy more shares.
“While we are fighting these manipulation schemes, we will continue with our ongoing share buyback program, increase our investor relations efforts, and continue to focus on growth through exploration, acquisitions, and mine development,” CEO Dr. Rui Feng said in the press release. “We are pleased with our current operations and look forward to reporting another profitable quarter.”
Of course, there’s still a lot of uncertainty surrounding accounting practices in China (just take a look at my recent story on Puda Coal), but this one has the feel of a rogue smear campaign. Once the market regains its senses, Silvercorp could soar to catch back up with the jump in silver prices we’ve seen of late. That’s good news for investors with the fortitude to stay long.
Related
|
FALSE GODS
|
METAL SEDUCTION
|
|
TOO LITTLE, TOO LATE?
|
GO WHERE THE GROWTH IS
|
|
FIGHT BACK
|
THINK AND GROW RICH
|
Tags: PUDA, silver price, SVM
