A growing silver producer in China

It takes patience and hard work for any foreign firm to succeed in China's mining sector. Although that company may rely on its extensive experience and expertise in the field, it would need to adjust its orientation and operations due to the different regulations and culture.

Recently, Vancouver-based Silvercorp has experienced an impressive period of growth following positive news about its Ying Silver Mine in Henan Province. Over the past two years, share price has witnessed a nearly 10-fold increase and net income in August 2007 grew more than 300 percent over the same period of last year.

At the heart of this success story is the intensive work underway at the mine. At the site, 45 geologists, surveyors and engineers mark areas to blast; while more than 800 miners dig and hand-sort silver ore, assisted merely by rudimentary three-wheel trucks.

The pace of the company's growth has amazed observers. Three years ago, it just had five employees.

"They have really turned this thing inside out and made it into what appears to be a sustainable operation that will be highly profitable because of the cost structure and the grades," said Jim Mustard, a mining analyst at Haywood Securities who visited the mine two years ago.

Traditionally, junior mining companies focus on just drilling in the hope of later selling the discovery to a major company. But, Silvercorp got its edge by immediately engaging in production upon getting its mining permit in April 2007.

Amid very high demand for silver, lead and zinc, Chinese smelters have been ready to purchase output from mines in advance and pay cash for them.

"We are using the cash flow from this to fund exploration and development," said Silvercorp CEO Rui Feng, a Chinese-born entrepreneur and trained geologist who moved to Canada in 1988.

That business model has allowed the company to spend about $25 million in developing the Ying Mine, of which $5 million came directly from the Silvercorp coffers.

While the company may be Canadian, its methods are Chinese, according to Feng.

"Our model is the Chinese peasant miner. Other Canadian companies have gone in and said 'This is silly.' We need big trucks like we have in North America," he said.

But Feng has been smart enough to embrace the local approach instead of imposing the Western mining approach.

"We work closely with the local government. They appreciate the effort we put into ensuring that our mines are clean and environmentally friendly, just as mine sites are expected to be in North America," said Feng.

"The local government officials often invite local mining companies to see our properties and help them understand why we use the best practices. We use the Canadian standard that is seen as being socially and environmentally responsible," he added.

Silvercorp also holds an interest in TSX-listed New Pacific Metals, a company that explores for metals in China.

"As one of the largest primary silver producers in China, we are in a good situation and we want to consolidate our position in the Chinese silver mining sector. There are many opportunities in China as the country has not yet been explored as North America has been," said Feng.

"We are looking to find more world class deposits and are investing heavily in exploring new silver properties in China," he added.

www.silvercorp.ca; www.newpacificmetals.com

(China Daily 11/13/2007 page25)