Silvercorp Metals Positions for Growth and Value Creation Through Acqusition

• Silvercorp is pursuing a three-pronged growth strategy focused on optimizing operations at its Ying mine in China.
• Optimization plans include adopting new mining methods and technologies to increase production capacity and overcome labor challenges.
• Silvercorp remains committed to acquiring OreCorp and its Nyanzaga project in Tanzania despite a competing bid from Perseus Mining.
• Silvercorp will continue evaluating other M&A opportunities while benefiting from a gain on its existing OreCorp shareholding.
• Silvercorp has successfully operated in China for 18 years and sees jurisdictional risk as more perception than reality compared to permitting challenges in Western countries.

Silvercorp's Growth Strategy Focus

Silvercorp Metals, an established silver producer with a track record of profitability and dividend payments, is pursuing an ambitious three-pronged growth strategy to take the company to the next level. In a recent interview, Silvercorp president Lon Shaver provided insights into the company's plans to optimize its flagship Ying mine in China, shared an update on its pursuit of Tanzanian gold developer OreCorp, and discussed the company's disciplined approach to evaluating other potential acquisitions.

Interview with Vice President Lon Shaver

Optimizing the Ying Mine

The first prong of Silvercorp's growth strategy focuses on its existing operations at the Ying mine. Despite the mine's strong performance since commencing production in 2006, Silvercorp has identified several opportunities to enhance its productivity and longevity.

As Shaver explained, "At Ying, we've identified both some opportunities and we also have some changing fundamentals that we're going to address going forward in the operation, which will take it to a new level."

Key initiatives include:

• Shifting to more mechanized mining methods to overcome labor availability challenges
• Bringing in X-ray Transmission (XRT) ore sorting technology to upgrade mill feed
• Expanding mill capacity by 1,500 tonnes more per day through incremental low-cost improvements

Shaver emphasized that these changes will be implemented gradually across Ying's seven individual mines, each with its own unique characteristics. By reallocating human and equipment resources, Silvercorp expects to unlock the full potential of Ying, including newly identified gold and copper zones that will complement its core silver-lead-zinc production.

The OreCorp Opportunity

The second prong of Silvercorp's growth strategy revolves around its ongoing pursuit of Tanzanian gold developer OreCorp and its flagship Nyanzaga project. Silvercorp's initial attempt to acquire OreCorp through a friendly deal that would have seen OreCorp shareholders vote on the transaction in December was disrupted by the emergence of a competing bid from Australian miner Perseus Mining.

Undeterred, Silvercorp revised its offer in January, maintaining the same consideration but switching to a tender structure that would allow it to gain a majority stake in OreCorp if certain conditions are met. As Shaver noted, this would enable Silvercorp to direct OreCorp's affairs and fund the continued development of Nyanzaga.

Disciplined M&A Approach

While the outcome of the OreCorp situation remains to be seen, Shaver emphasized that Silvercorp's growth strategy does not hinge on this single transaction. The company's third prong is having built a strong cash position precisely to pursue new assets and growth opportunities, and it will continue evaluating other projects even if the OreCorp deal succeeds.

"The strategy remains intact," Shaver affirmed. "We've got an active review process of other projects and other ideas."

Silvercorp's disciplined approach to M&A involves carefully assessing the technical merits of each project, the likelihood of securing permits and stakeholder support, and the reasonableness of the seller's transaction terms. While this rigorous process means the company may have to turn down opportunities that don't fully align, Shaver sees it as key to creating long-term shareholder value.

Shaver also pushed back against the perception that Silvercorp's experience operating in China might lead it to take on undue jurisdictional risk in other parts of the world. "There's a perception of risk, but really, we've operated 18 years in China without issue," Shaver said, arguing that assets in presumably safer jurisdictions like Canada or the US can often face significant permitting hurdles that impede development timelines and erode economic returns.

With a clear growth strategy focused on optimizing its existing operations, pursuing disciplined M&A, and leveraging its jurisdictional experience, Silvercorp Metals appears well-positioned to create value for shareholders in the years ahead. While the outcome of its pursuit of OreCorp remains uncertain, the company's strong balance sheet and active project pipeline provide multiple avenues for growth. As the market sentiment turns increasingly bullish on precious metals, Silvercorp's track record of profitable production and its exposure to both silver and gold make it a compelling investment opportunity in the mining sector.

The Investment Thesis for Silvercorp

• Silvercorp offers exposure to both silver and gold through its producing assets in China and its pursuit of the Nyanzaga gold project in Tanzania
• The company's strong balance sheet, track record of profitability, and dividend payments provide downside protection
• Optimization initiatives at the Ying mine, including new mining methods, XRT ore sorting, and a low-cost mill expansion, offer potential for incremental production growth and improved margins
• Silvercorp's disciplined approach to M&A mitigates risk while providing multiple avenues for further growth
• The company's long operating history in China demonstrates its ability to successfully navigate perceived jurisdictional risk

Silvercorp Metals offers investors a compelling mix of downside protection and growth potential. With a producing asset base in China, a strong balance sheet, and a disciplined approach to M&A, the company is well-positioned to create shareholder value through optimization initiatives and new project development. As market sentiment turns increasingly bullish on precious metals, particularly silver, Silvercorp's leverage to the metal and its attractive jurisdiction make it a mining stock to watch in the years ahead.

The macro-environment appears increasingly supportive of precious metals prices, particularly silver. Expectations of a Federal Reserve pivot towards interest rate cuts later in 2024 are fueling investor interest in precious metals as a hedge against potential inflation and currency debasement.

At the same time, silver is benefiting from strengthening industrial demand, particularly for use in solar panels. As Silvercorp president Lon Shaver noted in the interview, "The supply-demand fundamentals are driving the price of silver in China higher."

This combination of investor interest and industrial demand bodes well for silver prices and for producers like Silvercorp that offer leverage to the metal. As Shaver put it,

"We're seeing some of that in the silver market… the market's getting tighter because they've figured out what to do with it, and it's making solar panels."

While gold remains the more high-profile precious metal, silver's strengthening fundamentals and its historically high beta to gold prices make it an attractive option for investors seeking outsize returns in a bull market for monetary metals. Silvercorp's production profile and growth pipeline position it to benefit from this macro backdrop.