Silver Producer with $12 Costs at $35+ Prices Stands Strong While Building New Project in Ecuador

• Silvercorp Metals operates as a profitable silver producer with nearly 20 years of production history from mines in China, maintaining profitability and free cash flow generation even during lower silver price environments.
• The company's all-in sustaining costs of just over $12 per ounce of silver production positions it favorably in the current market environment where silver trades in the $35-36 range, creating substantial profit margins.
• Silvercorp is executing a growth strategy through construction of a new mine in Ecuador, targeting production start in 2027, funded by cash generated from existing profitable operations.
• Management believes silver fundamentals have shifted to a new paradigm where prices are unlikely to trade below $30 and are more likely to reach $40, supported by both investment demand and industrial consumption growth.
• The company maintains exposure to additional silver growth assets in Bolivia through its position in New Pacific Metals, providing potential future catalysts for production expansion.

Silvercorp Metals stands out in the precious metals sector as a company that has demonstrated consistent profitability across multiple market cycles. With nearly two decades of silver production experience from operations in China, the company has proven its ability to generate free cash flow even during periods of depressed silver prices. This operational resilience provides a foundation of stability that many junior mining companies lack.

The company's cost structure represents a significant competitive advantage. President Lon Shaver revealed that Silvercorp's all-in sustaining costs were just over $12 to produce an ounce of silver last year. With silver currently trading in the $35-36 range, this translates to robust profit margins that provide substantial cash generation capacity. This cost advantage stems from the maturity of their Chinese operations and operational efficiencies developed over two decades of production.

Strategic Growth Through Diversification

Silvercorp's growth strategy centers on geographic diversification while maintaining focus on precious metals production. The company is currently constructing a new mine in Ecuador, representing a strategic expansion beyond their established Chinese operations. This project, funded through internally generated cash flows, demonstrates the company's disciplined approach to growth without diluting existing shareholders through equity raises. Shaver explained,

"We've currently embarked on a growth project to grow and build the company and add new operating assets. Currently building a new mine in Ecuador and also continually on the hunt for new exciting opportunities."

"We're targeting to have it ready to go and switched on at the end of 2026. So, we'll start to see production coming out in 2027. We've signed the first of several major bid packages. That was late last year and that's what allowed us to get going at the beginning of this year."

The Ecuador project timeline targets production commencement in 2027, with construction activities already underway. Management has signed the first of several major bid packages and is progressing through road preparation, waste dump area development, and temporary camp establishment. The company's methodical approach to this development, including strategic hiring of local expertise and cultural adaptation, suggests a well-planned execution strategy.

Market Position in Favorable Silver Fundamentals

The current silver market environment presents compelling fundamentals for established producers like Silvercorp. Management's market assessment suggests a structural shift in silver pricing dynamics, with Shaver noting that "we're unlikely to see prices trade below $30 and it's more likely that we see them touch $40." This represents what the company views as a "new paradigm" for silver pricing, driven by both investment demand and industrial consumption growth.

The dual nature of silver demand, encompassing both precious metals investment characteristics and industrial applications, creates multiple demand drivers. Shaver noted,

"People are recognizing the fact that there are positive attributes to both elements of silver's dual nature and that's both the investment fundamentals and that precious metals store of value currency hedge aspect of silver, as well as the pure supply demand imbalance that exists in silver."

Interview with President, Lon Shaver

Financial Strength and Capital Allocation

Silvercorp's financial position reflects the benefits of sustained profitability from mature operations. The company has built a substantial cash position that enables strategic growth initiatives without external financing requirements. This financial strength provides flexibility in market timing and project development, allowing the company to pursue opportunities during favorable market conditions while maintaining operational continuity during challenging periods.

"We've built up this cash balance to be able to go out and grow the company... we are self-funding some initial growth programs to grow and build the productive capacity and output of those mines in China."

The company's capital allocation strategy demonstrates disciplined approach to growth. Rather than pursuing aggressive expansion that could strain financial resources, Silvercorp has focused on building cash reserves from profitable operations to fund measured growth initiatives. This approach reduces execution risk and maintains financial flexibility for future opportunities.

Management's Market Perspective

Management's perspective on industry dynamics reveals strategic thinking about market positioning and competitive advantages. Shaver emphasized the importance of fundamental analysis over ratio-based trading strategies, stating:

"It's more important to look at, is there a shift in the view of the two commodities, and, if you're looking at silver, what are its supply demand fundamentals and do they look better than they did before. We would argue yes."

This fundamental approach to market analysis, combined with operational expertise developed over two decades, positions Silvercorp to capitalize on favorable market conditions while maintaining profitability during challenging periods. The company's focus on controllable factors rather than market speculation demonstrates mature management approach to business operations.

Expansion Opportunities and Strategic Positioning

Beyond the Ecuador development project, Silvercorp maintains strategic positioning for additional growth through its investment in New Pacific Metals, providing exposure to silver growth assets in Bolivia. Shaver explained:

"We've got some excellent exposure to two great silver growth assets in Bolivia through our position in New Pacific. So that's something that could potentially be a catalyst for us down the road."

This investment structure allows the company to participate in potential future production growth while limiting direct development risks and capital requirements. The company's established relationships in international markets, particularly through silver concentrate sales to Chinese smelters, provide market access and pricing transparency. This global market presence, combined with production diversification across multiple jurisdictions, reduces operational and political risks associated with single-jurisdiction exposure.

Industry Consolidation and Competitive Dynamics

The silver mining sector has experienced significant consolidation activity, creating larger, more efficient operators. Silvercorp's position as an established producer with proven operational capabilities positions it favorably within this consolidating industry structure. The company's scale and operational expertise make it an attractive potential consolidator or strategic partner for smaller development projects. As Shaver noted,

"Our view is we've been able to be profitable at much lower silver prices, but now that we've hit into this band, we're trading in that $35-36 range."

Management's assessment of the project pipeline as "skinny" suggests limited new supply additions in the near term, potentially supporting favorable supply-demand dynamics for existing producers. The challenges associated with permitting, financing, and technical execution for new projects create barriers to entry that benefit established operators like Silvercorp.

The Investment Thesis for Silvercorp Metals

• Proven Profitability: Invest in a company with nearly 20 years of profitable silver production, demonstrating operational resilience across market cycles with all-in sustaining costs of just over $12 per ounce.
• Strong Margins: Capitalize on substantial profit margins with silver trading at $35-36 versus production costs of $12, providing significant cash generation capacity for growth funding.
• Growth Pipeline: Benefit from organic growth through the Ecuador mine development project targeting 2027 production start, funded through internal cash generation without shareholder dilution.
• Favorable Market Dynamics: Position for potential silver price appreciation driven by both investment demand and industrial consumption growth, particularly in electrification applications.
• Financial Strength: Invest in a company with strong cash position enabling strategic flexibility and opportunistic growth without external financing requirements.
• Geographic Diversification: Gain exposure to production diversification across multiple jurisdictions, reducing single-country operational and political risks.
• Strategic Optionality: Access potential future growth through strategic investments in additional silver assets, including Bolivia exposure through New Pacific Metals position.
• Management Expertise: Benefit from experienced management team with proven track record of profitable operations and disciplined capital allocation across multiple market cycles.
• Industry Consolidation: Participate in potential value creation through sector consolidation, with Silvercorp positioned as either consolidator or strategic partner given its operational scale and expertise.
• Supply-Demand Fundamentals: Capitalize on limited new supply additions due to permitting challenges and technical execution difficulties, while benefiting from growing industrial silver demand.

Silvercorp Metals represents a compelling investment opportunity within the precious metals sector, combining established operational profitability with strategic growth initiatives. The company's nearly two-decade track record of profitable silver production, maintained even during challenging market conditions, demonstrates operational resilience and management expertise. With all-in sustaining costs of just over $12 per ounce compared to current silver prices of $35-36, the company generates substantial cash flows that fund growth initiatives without requiring external financing.

The strategic expansion into Ecuador represents measured geographic diversification while maintaining focus on precious metals production. This growth project, targeting production commencement in 2027, is funded through internally generated cash flows and reflects disciplined capital allocation. Combined with favorable silver market fundamentals driven by both investment demand and industrial consumption growth, Silvercorp appears well-positioned to capitalize on what management views as a new paradigm for silver pricing.

Silver's Dual Nature Driving Fundamental Shift

Industrial applications for silver continue expanding across solar panels, electric vehicles, electronics, and renewable energy infrastructure. The metal's superior electrical conductivity and thermal properties make it irreplaceable in many advanced technologies. Simultaneously, monetary policy uncertainty and inflation concerns drive investment demand for precious metals, with silver offering more accessible entry points compared to gold.

Supply constraints compound these demand dynamics. New mine development faces increasing regulatory hurdles, extended permitting timelines, and technical challenges. The "skinny" project pipeline identified by industry participants suggests limited new supply additions in the near to medium term. Existing producers with established operations and proven technical capabilities hold significant advantages in this environment.

The convergence of investment and industrial demand, combined with supply constraints, creates what industry participants describe as a "new paradigm" for silver pricing. This fundamental shift suggests sustainable higher price levels as the market adjusts to structural changes in both demand composition and supply availability.

"A lot of things that we want to do as a society are going to mean more silver consumption." - Silvercorp President Lon Shaver

This observation encapsulates the thematic opportunity where societal trends toward electrification and technology adoption create sustained industrial demand for silver, providing fundamental support beyond traditional precious metals investment flows.

The silver market stands at an inflection point where traditional precious metals investment demand converges with accelerating industrial consumption driven by global electrification trends. This convergence creates a unique supply-demand dynamic that distinguishes silver from other precious metals, establishing multiple demand drivers that provide fundamental price support.