Silvercorp Metals Inc. (SVM), the Canadian miner accused of fraud in two anonymous reports, may be vulnerable to a takeover after its shares declined, Chief Executive Officer Rui Feng said.
“I’m worried our company will now become the target of a takeover,” Feng said yesterday in a telephone interview. “I’m very concerned because compared to our peers, our stock should be C$15 to C$16. Now we are about C$6 and people may take advantage of the situation.”
Silvercorp rose 44 cents, or 6.8 percent, to C$6.90 at 4:16 p.m. yesterday in Toronto Stock Exchange trading. The shares have dropped 19 percent this month. Silvercorp, which describes itself as China’s largest silver miner, denies the allegations and says it’s the victim of short sellers who are trying to drive the shares lower.
“Whether it’s a mining company, a hedge fund or a private equity firm that really knows for sure that everything is legit, they’ll cobble the coin together right now and put in a bid,” John Goldsmith, a Toronto-based money manager at Montrusco Bolton Investments Inc. who manages about C$500 million ($508 million), said in a telephone interview. He doesn’t hold Silvercorp shares. “The question then becomes, what’s the likelihood that Silvercorp’s shareholders would approve.”
On Sept. 2, Vancouver-based Silvercorp denied allegations contained in an anonymous report that was sent to Canadian regulators. The document, which was circulated by e-mail, alleged Silvercorp reported a profit in calendar 2010 to the U.S. Securities and Exchange Commission while posting a loss to regulators in China.
The second report was posted Sept. 13 on Alfredlittle.com, a website that publishes research about companies doing business in China. The report questioned the quality of Silvercorp’s ore and the volume of sales to a related party.
Muddy Waters LLC, the research firm founded by short seller Carson Block, said Sept. 13 it was betting Silvercorp would drop following the publication of the second report.
Sino-Forest Corp., a Chinese timber company, slid 74 percent in Toronto from June 1, the day before Muddy Waters published a report accusing it of fraud, through Aug. 25, the last day before regulators halted trading of the shares.
Silvercorp has acquired more than C$31 million of its shares since announcing June 17 a bid to buy back stock, it said today in a statement. The company said it plans to purchase more stock. Feng bought 100,000 shares at an average price of $7.87 apiece on Sept. 6, according to Canadian filings.
Feng declined to comment on whether he has received any indication a bid for Silvercorp is being prepared.
“I think a lot of people have figured out already that this company is real,” Feng said. “I didn’t run. I’ve been on the road to talk to my investors, the No. 1 and No. 2 big shareholders.”
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