Canaccord Genuity (TSX:CF, LSE:CF) has repeated a 'Buy' on Silvercorp Metals Inc (TSX:SVM, AMEX:SVM), saying it likes the China-focused miner's 'pure-play' silver exposure, as well as its strong margins, 'healthy' balance sheet, and emerging organic growth.
It comes after the release of the group's financial and operating results for the first quarter to June 30 this year, which showed the company has $150 million in cash and no debt.
In addition, the broker noted that the value of the company's 28.4% stake in New Pacific Metals (TSX:NUAG, NYSE:NEWP) is worth around $130 million currently, while, as well as the regular $2.2 million semi-annual dividend in the quarter, the company has recently bought back around 740,000 shares for a further $1.9 million.
READ: Silvercorp Metals posts first quarter financial and operating results showing an increase in revenue as mined ore tonnes and rolled rose significantly
"We believe SVM's balance sheet is well positioned for stronger capital returns or opportunistic acquisitions," said analysts at Canaccord.
Silvercorp posted first-quarter revenue of $63.6 million, up 8% compared to $58.8 million in the prior-year quarter, while the net income came in at $10.2 million, down from $12.2 million in the year-earlier quarter.
"Cash costs were slightly weaker than we had anticipated on lower realized by-product pricing. Full-year guidance is unchanged, and no meaningful update was provided on any of the projects," noted the analysts.
However, Canaccord analysts did point out that at the Ying mine complex, a new 3,000 tonnes per day (tpd) mill with a gravity gold circuit was set to be built by the end of 2023, following which Mill 1 (800tpd) will be decommissioned.
Total available capacity post the expansion will be 5,000tpd, up from 2,800tpd currently. In addition, the tailings storage facility (TSF) capacity will be expanded in two phases, with the first expected to be operational in 2024, said the analysts.
The total capex associated with the project is $63 million, with $25 million for the mill and the rest of the TSF. Silvercorp has budgeted $40 million for fiscal 2023, they added.
The broker also noted that as of June 30 this year, preliminary engineering and design on the mill had been completed, along with water and soil conservation studies and a feasibility study on the TSF.
"Construction permits for the mill have been received, and negotiations on major equipment purchases have commenced. Final approvals on engineering, environmental, and safety studies are expected this quarter," added the Canaccord analysts.
The broker targets C$3.75 for the shares (currently C$3.50).
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