An Informal Q&A With The New Silvercorp President Lon Shaver

Lon Shaver has over 25 years of capital markets and corporate finance experience, mainly focused on the mining sector. He held investment banking roles with Raymond James and Merrill Lynch, assisting corporate issuers with numerous financing and M&A transactions. Lon began his career in equity research with an institutional sell-side firm and his previous corporate experience includes CFO roles with a publicly listed mining company and a private technology company.

Most recently, he acted as a consultant and advisor providing corporate development and capital markets support to a number of companies in the resource sector. He has a B.Comm. degree, with a major in finance, and is a CFA charterholder.

Silvercorp has gone through significant developments this year, notably your acquisition news and foray into gold. What prompted the shift in strategy?

Shaver: While there have been a number of news items, our core strategy remains unchanged. It's the consistent execution of our strategy that has led to a lot of new developments this year.

As it relates to acquisitions, we've been looking for our next step in external growth. We have internal growth but we've been looking to deploy our cash on new development and production opportunities to grow the company.

Those who have been following our trajectory will recognize that this is what we have been working on for the last few years.

Could you provide an update on the agreement you announced with OreCorp back in August? It seems there may be some complications.

Shaver: Well, our deal included a share component and like many of our peers in the sector, our share price came under pressure this fall. This resulted in the share component of the consideration being lower than what it was when we launched. Leading up to the planned shareholder vote on December 8th, we were hearing noise in the Australian media and mining community about OreCorp shareholders becoming dissatisfied.

To address this, we increased our cash consideration, as disclosed in our news release on November 23, 2023. Only a few days later, we saw a pair of news releases from Perseus - first, indicating that they had acquired a 15% interest in OreCorp and intended to vote against our deal. This was followed by another news release announcing that they had bumped their position up to 19.9%.

How are you and OreCorp responding to this implication?

Shaver: In response, OreCorp put out a news release postponing the shareholder vote to January 18, 2024. Since then, we have been considering our options and can assure Silvercorp shareholders that our decisions going forward will be governed by our overarching strategy - to increase shareholder value.

Silvercorp has always been known as a solid, mid-tier silver company. Why the addition of gold?

Shaver: Yes, that has been the case – we were fortunate to obtain some outstanding silver projects, bring them into production, and be profitable. We were also smart – or lucky by backstopping a great silver explorer and developer in Bolivia (New Pacific Metals).

But we have maintained an open-minded approach towards commodities and identifying outstanding projects that align with our expertise in creating efficient operations, regardless of the jurisdiction.

Copper is an interesting commodity and complements our silver story as it relates to electrification. Gold is a precious metal like silver and carries inherent value. Additionally, there are a lot more gold deposits available for development. Our interest in gold is a natural progression for Silvercorp, something we indicated in our 2020 attempted acquisition of Guyana Goldfields.

There is also an added piece of the gold story from the Ying mine. In 2020, our Chairman and CEO, Dr. Rui Feng, a geologist, was underground at Ying and noticed something in a recently excavated tunnel. This kicked off a detailed geology review into different mineralized structures and previously overlooked areas, and we began examining the potential for gold deposits at the Ying Mine. Having poured our first doré this past quarter, we have transitioned into a primary gold producer. It’s early days but we are steadily expanding and have identified different mineralized structures from varying mineralization phases within some of the Ying mines.

This is kind of like a side hustle we built while we continue to operate our silver mines. So even before the Nyanzaga acquisition, we expected to see growing gold production in our profile.

What is your role now as president?

Shaver: I’ve been a part of the executive team as Vice President for over five years and have responsibility for corporate development and investor relations activities.

While I still have the same responsibilities, I’ve also been involved in shaping our corporate strategy and messaging. These additional responsibilities allow me to contribute more to the overall vision and growth trajectory of Silvercorp and the new title is a recognition of that.

Silvercorp has benefited from working in China. Tell us about that.

Shaver: I think there are a lot of misconceptions about our situation. First and foremost, there is no state ownership behind us. We are a Canadian company, so we are not controlled, dictated or managed by the Chinese government.

From the standpoint of the rules that apply to us operating as a foreign investor in China, we have been operating for 17 years and everything has worked smoothly.

The important point is that there are lots of other foreign companies that invest in China to build manufacturing capacity because China is where you can get things done. It’s brands we all know like Nike, Apple, General Motors, GE and Tesla. They are all manufacturers in China, alongside Silvercorp.

The market doesn't seem bothered by those companies operating there, but for some reason, there is a fear or misunderstanding about mining in China. Now, that doesn't mean it's an easy environment to operate in, like anywhere else actually, but we have thrived and succeeded in China and will continue to do so. In fact, the authorities at different levels of government have welcomed and encouraged our investment and growth.

There is an understanding and acknowledgement of the industrial output, job creation, taxes paid, and our contribution to the downstream metals, refining, and manufacturing businesses that China is focused on.

During our site visit in October accompanied by a couple of analysts, we visited one of our important smelter customers in the same province as Ying. Witnessing their operations firsthand, we were impressed by the sheer scale and the pristine, modern, and well-organized facilities. We have been working with them since the outset, even before the mills were operational, and we directly shipped ores.

This smelter group has a storied history and have grown and modernized to become the largest smelter in Asia and potentially the largest lead smelter in the world. Given our role in delivering ore to them to process and produce downstream products, I think China supports our contribution as an important domestic supplier of these metals.

What is SVM doing on the social-environment side to be a good global operator?

Shaver: Our operations are classified as green mines, a designation granted through a government program where an independent agency conducts on-site audits, reviews criteria, and determines whether you get a passing grade or not. We are proud to have received that green mine designation at both the provincial and central government level.

We’ve got a number of sustainable development initiatives for tackling waste streams that reduce our waste management costs and liabilities while bringing economic benefits to the local community. We funded the construction of the aggregate plant at Ying, now owned and run by a local cooperative. The plant crushes our waste rock and turns it into aggregate products to be utilized locally. Instead of having to store, stockpile, and deal with this waste later, we are turning it into a value-added product, which can be sold into the market to support ongoing growth and infrastructure development.

We are always thinking about new things we can do. We have a program of putting up rooftop solar and we’re considering electric vehicles. Another big project that we are looking to do involves the planned conversion of one of our tailings dams that is to be reclaimed into a big solar field as part of the reclamation.

There is a circular irony in this idea – we could potentially take a tailings dam, which is the waste rock of the mine, and put solar panels on it that contain silver, some of which may have come out of our mines, and then use that solar field to generate electricity to power our mine to mine more silver.

There is certainly a little bit of elegance in that story. By putting solar panels on a former tailings dam which would otherwise be a reclaimed industrial site, adds a meaningful dimension to its purpose.

Meanwhile, we are continuously looking to minimize our environmental impact through reducing energy consumption, preserving biodiversity, recycling wastewater, and transitioning to more efficient equipment.

What one thing do you want potential and existing shareholders to know?

Shaver: With Silvercorp, you are banking on a company with a solid track record that consistently delivers on its promises and strategy.

Over the years, we’ve built a strong foundation from finding our ounces and turning them into profitable mines, setting us up with a strong cash position. Our focus remains on identifying other high-margin projects that we can fold into the company, while continuing with our value creation with the mines that are the foundation of our success. This is the strategy that drives our continuous growth and delivers long-term shareholder value.

I don’t think we are being rewarded enough in the marketplace for what we have done, are doing, and can do. It's not as though we are undervalued for having been ineffective. We have been very effective AND we are undervalued, so, this is an excellent time for investors to look at Silvercorp.