EX-99.1 2 a10-22468_3ex99d1.htm EX-99.1

Exhibit 99.1

 

GRAPHIC

 

SILVERCORP METALS INC.

 

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

 

(Expressed in thousands of US dollars, unless otherwise stated)

 


 

SILVERCORP METALS INC.

Unaudited Consolidated Balance Sheets

(Expressed in thousands of U.S. dollars)

 

 

 

Notes

 

September 30, 2010

 

March 31, 2010

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

66,263

 

$

50,618

 

Short term investments

 

 

 

43,926

 

44,041

 

Accounts receivable, prepaids and deposits

 

 

 

2,767

 

2,474

 

Inventories

 

3

 

3,070

 

3,175

 

Current portion of future income tax assets

 

 

 

419

 

112

 

Amounts due from related parties

 

11

 

54

 

138

 

 

 

 

 

116,499

 

100,558

 

 

 

 

 

 

 

 

 

Long term prepaids and deposits

 

 

 

1,272

 

505

 

Long term investments

 

4

 

19,866

 

14,838

 

Restricted cash

 

 

 

77

 

78

 

Plant and equipment

 

5

 

31,422

 

29,024

 

Mineral rights and properties

 

6

 

146,118

 

133,248

 

Future income tax assets

 

 

 

1,312

 

1,203

 

 

 

 

 

$

316,566

 

$

279,454

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

$

13,913

 

$

7,504

 

Deposits received

 

 

 

1,688

 

6,737

 

Bank loan and notes payable

 

7

 

—

 

1,465

 

Current portion of asset retirement obligations

 

8

 

306

 

292

 

Dividends payable

 

10

(c)

3,207

 

3,238

 

Income tax payable

 

 

 

1,208

 

1,658

 

Current portion of future income tax liabilities

 

 

 

1,781

 

—

 

Amounts due to related parties

 

11

 

5,380

 

—

 

 

 

 

 

27,483

 

20,894

 

 

 

 

 

 

 

 

 

Future income tax liabilities

 

 

 

19,865

 

19,475

 

Asset retirement obligations

 

8

 

2,477

 

2,357

 

 

 

 

 

49,825

 

42,726

 

 

 

 

 

 

 

 

 

Non-controlling interests

 

9

 

26,422

 

21,738

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

 

 

 

150,465

 

145,722

 

Contributed surplus

 

 

 

4,826

 

4,702

 

Reserves

 

 

 

31,893

 

31,893

 

Accumulated other comprehensive income

 

 

 

15,136

 

14,910

 

Retained earnings

 

 

 

37,999

 

17,763

 

 

 

 

 

240,319

 

214,990

 

 

 

 

 

 

 

 

 

 

 

 

 

$

316,566

 

$

279,454

 

Commitments

 

15

 

 

 

 

 

 

Approved on behalf of the Board:

 

(Signed) Robert Gayton

 

Director

 

 

 

(Signed) Rui Feng

 

Director

 

 

See accompanying notes to unaudited interim consolidated financial statements

 

1


 

SILVERCORP METALS INC.

Unaudited Consolidated Statements of Operations

(Expressed in thousands of U.S. dollars, except for share and per share figures)

 

 

 

 

 

Three months ended September 30,

 

Six months ended September 30,

 

 

 

Notes

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

$

36,338

 

$

25,085

 

$

73,067

 

$

47,657

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

8,235

 

5,173

 

16,899

 

10,145

 

Amortization and depletion

 

 

 

1,522

 

824

 

3,049

 

1,753

 

 

 

 

 

9,757

 

5,997

 

19,948

 

11,898

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

26,581

 

19,088

 

53,119

 

35,759

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Accretion of asset retirement obligations

 

8

 

40

 

31

 

80

 

62

 

Amortization

 

 

 

159

 

168

 

303

 

370

 

Foreign exchange loss (gain)

 

 

 

376

 

82

 

(168

)

(1,434

)

General exploration and property investigation expenses

 

 

 

1,110

 

959

 

2,435

 

3,266

 

Impairment charges and bad debt

 

 

 

—

 

(79

)

—

 

698

 

Investor relations

 

 

 

86

 

110

 

171

 

181

 

General and administrative

 

 

 

3,273

 

1,807

 

7,498

 

4,532

 

Professional fees

 

 

 

337

 

663

 

574

 

1,238

 

 

 

 

 

5,381

 

3,741

 

10,893

 

8,913

 

 

 

 

 

21,200

 

15,347

 

42,226

 

26,846

 

Other income and (expenses)

 

 

 

 

 

 

 

 

 

 

 

Equity loss on investment in NUX

 

4

(a)

(58

)

(136

)

(96

)

(218

)

Dilution gain on investment in NUX

 

4

(a)

1,394

 

—

 

1,394

 

—

 

Gain on disposal of mineral rights and properties

 

6

 

—

 

—

 

537

 

—

 

Loss on disposal of plant and equipment

 

 

 

(449

)

(871

)

(449

)

(1,127

)

Unrealized gain (loss) on held-for-trading securities

 

 

 

126

 

(11

)

77

 

(11

)

Interest expenses

 

 

 

(10

)

—

 

(30

)

—

 

Interest income

 

 

 

326

 

160

 

591

 

398

 

Other income

 

 

 

84

 

53

 

196

 

213

 

 

 

 

 

1,413

 

(805

)

2,220

 

(745

)

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and non-controlling interests

 

 

 

22,613

 

14,542

 

44,446

 

26,101

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

4,807

 

1,940

 

7,524

 

3,518

 

Future

 

 

 

807

 

412

 

1,341

 

226

 

 

 

 

 

5,614

 

2,352

 

8,865

 

3,744

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before non-controlling interests

 

 

 

16,999

 

12,190

 

35,581

 

22,357

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling interests

 

9

 

(4,548

)

(3,297

)

(9,029

)

(5,977

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

$

12,451

 

$

8,893

 

$

26,552

 

$

16,380

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

 

$

0.08

 

$

0.06

 

$

0.16

 

$

0.10

 

Diluted earnings per share

 

 

 

$

0.08

 

$

0.05

 

$

0.16

 

$

0.10

 

Weighted Average Number of Shares Outstanding - Basic

 

 

 

164,934,678

 

161,590,262

 

164,825,570

 

161,588,640

 

Weighted Average Number of Shares Outstanding - Diluted

 

 

 

165,703,536

 

163,359,824

 

165,642,570

 

162,923,835

 

 

See accompanying notes to unaudited interim consolidated financial statements

 

2


 

SILVERCORP METALS INC.

Unaudited Consolidated Statements of Comprehensive Income

(Expressed in thousands of U.S. dollars)

 

 

 

Three months ended September 30,

 

Six months ended September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net income for the period

 

$

12,451

 

$

8,893

 

$

26,552

 

$

16,380

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Unrealized gain on available for sale securities, net of taxes

 

1,442

 

34

 

1,149

 

34

 

Reclassification adjustment for loss included in income, net of taxes

 

—

 

—

 

—

 

195

 

Foreign exchange impact

 

4,823

 

9,235

 

(923

)

17,003

 

Other comprehensive income

 

6,265

 

9,269

 

226

 

17,232

 

Comprehensive income

 

$

18,716

 

$

18,162

 

$

26,778

 

$

33,612

 

 

See accompanying notes to unaudited interim consolidated financial statements

 

3


 

SILVERCORP METALS INC.

Unaudited Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

 

 

 

 

 

Three months ended September 30,

 

Six months ended September 30,

 

 

 

Notes

 

2010

 

2009

 

2010

 

2009

 

Cash provided by (used in)

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

Net income for the period

 

 

 

$

12,451

 

$

8,893

 

$

26,552

 

$

16,380

 

Add (deduct) items not affecting cash :

 

 

 

 

 

 

 

 

 

 

 

Accretion of asset retirement obligations

 

 

 

40

 

31

 

80

 

62

 

Amortization and depletion

 

 

 

1,681

 

992

 

3,352

 

2,123

 

Equity loss on investment in NUX

 

 

 

58

 

136

 

96

 

218

 

Dilution gain on investment in NUX

 

 

 

(1,394

)

—

 

(1,394

)

—

 

Future income tax expenses

 

 

 

807

 

412

 

1,341

 

226

 

Impairment charges and bad debt

 

 

 

—

 

(79

)

—

 

698

 

Unrealized loss (gain) on held-for-trading securities

 

 

 

(126

)

11

 

(77

)

11

 

Gain on disposal of mineral rights and properties

 

 

 

—

 

—

 

(537

)

—

 

Loss on disposal of plant and equipment

 

 

 

449

 

871

 

449

 

1,127

 

Non-controlling interests

 

 

 

4,548

 

3,297

 

9,029

 

5,977

 

Stock-based compensation

 

 

 

447

 

509

 

1,227

 

899

 

Unrealized foreign exchange loss (gain)

 

 

 

(135

)

498

 

193

 

(1,018

)

Changes in non-cash working capital

 

16

 

(4,131

)

345

 

(2,434

)

(403

)

Cash provided by operating activities

 

 

 

14,695

 

15,916

 

37,877

 

26,300

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Mineral rights and properties

 

 

 

 

 

 

 

 

 

 

 

Acquisition and capital expenditures

 

 

 

(6,263

)

(5,568

)

(11,918

)

(7,740

)

Proceeds on disposals

 

 

 

—

 

—

 

537

 

—

 

Plant and equipment

 

 

 

 

 

 

 

 

 

 

 

Acquisition

 

 

 

(2,624

)

(419

)

(3,407

)

(808

)

Proceeds on disposals

 

 

 

1

 

119

 

1

 

120

 

Long-term investments

 

 

 

 

 

 

 

 

 

 

 

Acquisition

 

 

 

(2,019

)

(1,323

)

(2,019

)

(1,323

)

Net redemption (purchase) of short term investments

 

 

 

15,585

 

(4,772

)

209

 

(720

)

Prepayments to acquire plant and equipment

 

 

 

(421

)

(1,579

)

(1,232

)

(1,999

)

Cash provided by (used in) investing activities

 

 

 

4,259

 

(13,542

)

(17,829

)

(12,470

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Advances to related parties, net of repayments received

 

 

 

318

 

(84

)

305

 

(104

)

Bank loan and notes payable

 

 

 

 

 

 

 

 

 

 

 

Proceeds

 

 

 

—

 

—

 

—

 

2,927

 

Repayments

 

 

 

—

 

—

 

(1,473

)

(658

)

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

 

 

—

 

(3,293

)

—

 

(3,293

)

Cash dividends distributed

 

 

 

(3,174

)

(2,762

)

(6,374

)

(5,532

)

Capital stock

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common shares

 

 

 

829

 

57

 

2,017

 

57

 

Cash used in financing activities

 

 

 

(2,027

)

(6,082

)

(5,525

)

(6,603

)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

 

1,840

 

(220

)

1,122

 

1,119

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

 

18,767

 

(3,928

)

15,645

 

8,346

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

 

47,496

 

53,744

 

50,618

 

41,470

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

 

 

$

66,263

 

$

49,816

 

$

66,263

 

$

49,816

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplementary cash flow information

 

16

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim consolidated financial statements

 

4


 

SILVERCORP METALS INC.

Unaudited Consolidated Statements of  Equity

(Expressed in thousands of U.S. dollars, except numbers for share figures)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Share capital

 

 

 

 

 

other

 

Retained

 

 

 

 

 

Number of

 

 

 

Contributed

 

 

 

comprehensive

 

earnings

 

 

 

 

 

shares

 

Amount

 

surplus

 

Reserves

 

income (loss)

 

(deficit)

 

Total equity

 

Balance, March 31, 2009

 

161,587,001

 

$

135,604

 

$

3,764

 

$

31,893

 

$

(10,167

)

$

(8,648

)

$

152,446

 

Options exercised

 

1,643,416

 

2,286

 

(976

)

—

 

—

 

—

 

1,310

 

Shares issued for property

 

1,200,000

 

7,832

 

—

 

—

 

—

 

—

 

7,832

 

Stock-based compensation

 

—

 

—

 

1,914

 

—

 

—

 

—

 

1,914

 

Unrealized gain on available for sale securities

 

—

 

—

 

—

 

—

 

328

 

—

 

328

 

Reclassification adjustment for losses included in income

 

—

 

—

 

—

 

—

 

195

 

—

 

195

 

Cash dividends declared and distributed

 

—

 

—

 

—

 

—

 

—

 

(12,136

)

(12,136

)

Net income for the year

 

—

 

—

 

—

 

—

 

—

 

38,547

 

38,547

 

Foreign exchange impact

 

—

 

—

 

—

 

—

 

24,554

 

—

 

24,554

 

Balance, March 31, 2010

 

164,430,417

 

145,722

 

4,702

 

31,893

 

14,910

 

17,763

 

214,990

 

Options exercised

 

465,411

 

3,273

 

(1,252

)

—

 

—

 

—

 

2,021

 

Shares issued for 10% interest of Henan Huawei (note 9)

 

163,916

 

1,127

 

(155

)

—

 

—

 

—

 

972

 

Shares issued for property (note 10)

 

50,000

 

328

 

—

 

—

 

—

 

—

 

328

 

Warrants issued for property (note 10)

 

—

 

—

 

181

 

—

 

—

 

—

 

181

 

Stock-based compensation

 

—

 

—

 

1,227

 

—

 

—

 

—

 

1,227

 

Unrealized gain on available for sale securities

 

—

 

—

 

—

 

—

 

1,149

 

—

 

1,149

 

Cash dividends declared and distributed

 

—

 

—

 

—

 

—

 

—

 

(6,316

)

(6,316

)

Net income for the period

 

—

 

—

 

—

 

—

 

—

 

26,552

 

26,552

 

Foreign exchange impact

 

—

 

15

 

123

 

—

 

(923

)

—

 

(785

)

Balance, September 30, 2010

 

165,109,744

 

$

150,465

 

$

4,826

 

$

31,893

 

$

15,136

 

$

37,999

 

$

240,319

 

 

See accompanying notes to unaudited interim consolidated financial statements

 

5


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

1.     NATURE OF OPERATIONS

 

Silvercorp Metals Inc., along with its subsidiary companies (collectively the “Company”), is engaged in the acquisition, exploration, development, and mining of precious and base metal mineral properties.

 

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)  Basis of Presentation and Principles of Consolidation

 

The Company’s consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) for interim financial information and follow the same accounting policies and methods set out in note 2 to the audited consolidated financial statements for the year ended March 31, 2010.  Accordingly, they do not include all the information and footnotes required by Canadian GAAP for complete financial statements.  The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2010.  In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows have been included.  Operating results for the six months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending March 31, 2011.

 

These unaudited consolidated financial statements include the accounts of Silvercorp Metals Inc. and its wholly owned subsidiaries: Silvercorp Metals China Inc., Fortune Mining Limited, Fortune Copper Limited, Fortress Mining Inc., Fortune Gold Mining Limited, Victor Resources Ltd., Victor Mining Ltd., Yangtze Mining Ltd., Yangtze Mining (H.K.) Ltd., 0875786 B.C. Ltd., 82% owned subsidiary, Qinghai Found Mining Company Ltd. (“Qinghai Found”), 80% owned subsidiary, Henan Huawei Mining Co. Ltd. (“Henan Huawei”, also see notes 6&9), 77.5% owned subsidiary, Henan Found Mining Co. Ltd. (“Henan Found”),  and 95% owned subsidiaries, Anhui Yangtze Mining Co. Ltd. and Guangdong Found Mining Co. Ltd.

 

All significant inter-company transactions and accounts have been eliminated upon consolidation.

 

(b)  New Canadian Accounting Pronouncements

 

(i) Convergence with IFRS

 

In February 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will be required to adopt International Financial Reporting Standards (“IFRS”) for fiscal years beginning on or after January 1, 2011, with early adoptions permitted.  Accordingly, the Company plans to adopt IFRS for fiscal year beginning April 1, 2011.  The Company’s first IFRS financial statements will be its

 

6


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

interim financial statements for the first quarter of 2012 with an opening balance sheet date of April 1, 2011, which will require restatement of comparative information presented.

 

The conversion to IFRS will impact the Company’s accounting policies, information technology and data systems, internal control over financial reporting, and disclosure controls and procedures. The transition may also impact business activities, such as certain contractual arrangements, debt covenants, capital requirements and compensation arrangements.

 

(ii) Business combinations and related sections

 

In January 2009, the CICA issued Section 1582 “Business Combinations” to replace Section 1581.  The new standard effectively harmonizes the business combinations standard under Canadian GAAP with IFRS.  The new standard revises guidance on the determination of the carrying amount of the assets acquired and liabilities assumed, goodwill and accounting for non-controlling interests at the time of a business combination.

 

The CICA concurrently issued Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-controlling Interests”, which replace Section 1600 “Consolidated Financial Statements”.  Section 1601 provides revised guidance on the preparation of consolidated financial statements and Section 1602 addresses accounting for non-controlling interests in consolidated financial statements subsequent to a business combination.

 

The new standards will become effective prospectively to business combination for which the acquisition date is on or after the beginning of the first annual reporting period on January 1, 2011 with early adoption available.  The Company did not early adopt these new standards but continues to evaluate the attributes of early adoption of these standards and their potential effects.

 

(iii) Multiple deliverable revenue arrangements

 

In December 2009, the EIC issued EIC Abstract 175, “Multiple Deliverable Revenue Arrangements”.  This EIC addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how such a multiple deliverable revenue arrangement consideration should be measured and allocated to the separate units of accounting.  This EIC should be applied prospectively and should be applied to revenue arrangements with multiple deliverables entered into or materially modified in the first annual fiscal period beginning on or after January 1, 2011.  Early adoption is permitted.  The Company did not early adopt this EIC and upon adoption does not expect it to have a material impact on the Company’s consolidated financial statements.

 

7


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

3.     INVENTORIES

 

Inventories consisted of the following:

 

 

 

September 30, 2010

 

March 31, 2010

 

Direct smelting ore and stockpile ore

 

$

530

 

$

585

 

Concentrate inventory

 

547

 

855

 

Total stockpile

 

1,077

 

1,440

 

Material and supplies

 

1,993

 

1,735

 

 

 

$

3,070

 

$

3,175

 

 

The amounts of inventory recognized as expenses during the three and six months ended September 30, 2010 and 2009 were equivalent to the sum of cost of sales and amortization and depletion in the respective periods.

 

4.     LONG TERM INVESTMENTS

 

 

 

 

 

September 30, 2010

 

March 31, 2010

 

Equity investments with significant influence

 

 

 

 

 

 

 

New Pacific Metals Corp.

 

(a)

 

$

7,321

 

$

6,103

 

 

 

 

 

 

 

 

 

Equity investments: Available-for-sale

 

 

 

 

 

 

 

Marketable securities

 

(b)

 

3,579

 

1,849

 

Luoyang Yongning Smelting Co. Ltd.

 

(c)

 

8,966

 

6,886

 

 

 

 

 

$

19,866

 

$

14,838

 

 

(a)  New Pacific Metals Corp. (“NUX”)

 

New Pacific Metals Corp. is a Canadian public company listed on the TSX Venture Exchange with a trading symbol “NUX”.  As at September 30, 2010, the Company owned 7,400,000 common shares (March 31, 2010 - 7,400,000 common shares) of NUX, representing an ownership interest of 16.4% (March 31, 2010 - 23.4%).  NUX is a related party of the Company by way of a common director and officers.  The dilution of the Company’s ownership in NUX during the period was a result of NUX issuing 13,261,499 of its common shares to acquire a mining property.  The Company recognized dilution gain of $1,394 from this transaction.

 

8


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

The Company accounts for its investment in NUX using the equity method, as the Company is able to exercise significant influence over NUX.  The summary of the investment in NUX and its market value as at respective balance sheet dates are as follows:

 

 

 

 

 

 

 

Value of NUX’s

 

 

 

 

 

 

 

common shares per

 

 

 

Number of shares

 

Amount

 

quoted market price

 

Balance, March 31, 2009

 

7,400,000

 

$

5,285

 

$

5,285

 

Equity in loss of investee company

 

 

 

(424

)

 

 

Impact of foreign currency translation

 

 

 

1,242

 

 

 

Balance, March 31, 2010

 

7,400,000

 

6,103

 

5,028

 

Equity in loss of investee company

 

 

 

(96

)

 

 

Dilution gain from investee company

 

 

 

1,394

 

 

 

Impact of foreign currency translation

 

 

 

(80

)

 

 

Balance, September 30, 2010

 

7,400,000

 

$

7,321

 

$

7,976

 

 

(b)  Available-for-sale marketable securities

 

Available-for-sale marketable securities represent the Company’s investments in publicly traded companies in which the Company has no significant influence.  The following schedule summarizes these marketable securities:

 

As at and for the period ended September 30, 2010:

 

 

 

Fair value

 

Cost

 

Accumulated changes in market value

 

Marketable securities

 

$

3,579

 

$

2,068

 

$

1,511

 

 

As at and for the period ended March 31, 2010:

 

 

 

Fair value

 

Cost

 

Accumulated changes in market value

 

Marketable securities

 

$

1,849

 

$

1,603

 

$

246

 

 

(c) Luoyang Yongning Smelting Co. Ltd. (“Yongning Smelting”)

 

In July 2010, the Company invested an additional $2,036 (RMB ¥13,000,000) in Yongning Smelting through its 77.5% owned subsidiary Henan Found.  The Company’s total investment in Yongning Smelting is $8,966 (RMB ¥60,000,000) which represents 15% of Yongning Smelting’s equity interest.  The investment was recorded using the cost method.

 

9


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

5.     PLANT AND EQUIPMENT

 

Plant and equipment consist of:

 

 

 

September 30, 2010

 

March 31, 2010

 

 

 

 

 

Accumulated

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Depreciation,

 

 

 

 

 

Depreciation,

 

 

 

 

 

 

 

Disposition and

 

Net Book

 

 

 

Disposition and

 

 

 

 

 

Cost

 

Impairment Charges

 

Value

 

Cost

 

Impairment Charges

 

Net Book Value

 

Building

 

$

21,660

 

$

(1,986

)

$

19,674

 

$

19,776

 

$

(1,510

)

$

18,266

 

Office equipment and furniture

 

1,703

 

(726

)

977

 

1,421

 

(652

)

769

 

Machinery

 

9,654

 

(2,064

)

7,590

 

8,759

 

(1,525

)

7,234

 

Motor vehicle

 

2,569

 

(1,057

)

1,512

 

1,979

 

(843

)

1,136

 

Land use right

 

968

 

(32

)

936

 

949

 

(22

)

927

 

Leasehold improvement

 

361

 

(144

)

217

 

335

 

(112

)

223

 

Construction in process

 

516

 

—

 

516

 

469

 

—

 

469

 

 

 

$

37,431

 

$

(6,009

)

$

31,422

 

$

33,688

 

$

(4,664

)

$

29,024

 

 

In July 2010, the Company’s Ying mining district was hit by a heavy storm.  The total damage to plant and equipment was estimated at $450 as of September 30, 2010.

 

6.     MINERAL RIGHTS AND PROPERTIES

 

Mineral rights and properties consist of:

 

 

 

Ying

 

HPG

 

TLP

 

LM

 

GC & SMT

 

Silvertip

 

Total

 

Balance, March 31, 2009

 

$

23,457

 

$

—

 

$

—

 

$

—

 

$

65,956

 

$

—

 

$

89,413

 

Acquisition

 

—

 

—

 

—

 

—

 

—

 

15,217

 

15,217

 

Capitalized expenditures

 

6,687

 

1,195

 

4,466

 

1,200

 

1,093

 

—

 

14,641

 

Depletion

 

(2,508

)

(45

)

(33

)

(23

)

—

 

—

 

(2,609

)

Impact of foreign currency translation

 

32

 

—

 

—

 

—

 

16,000

 

554

 

16,586

 

Balance, March 31, 2010

 

27,668

 

1,150

 

4,433

 

1,177

 

83,049

 

15,771

 

133,248

 

Acquisition

 

—

 

402

 

—

 

569

 

—

 

—

 

971

 

Capitalized expenditures

 

6,626

 

642

 

2,306

 

1,074

 

237

 

3,551

 

14,436

 

Depletion

 

(1,779

)

(64

)

(107

)

(73

)

—

 

—

 

(2,023

)

Impact of foreign currency translation

 

628

 

38

 

122

 

47

 

(1,144

)

(205

)

(514

)

Balance, September 30, 2010

 

$

33,143

 

$

2,168

 

$

6,754

 

$

2,794

 

$

82,142

 

$

19,117

 

$

146,118

 

 

Although the Company has taken steps to verify title to the mineral properties in which it, through its subsidiaries, has an interest, in accordance with industry standards for the stage of exploration of such properties, those procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements.

 

HPG and LM properties are held through the Company’s subsidiary Henan Huawei.  In May 2010, the Company acquired an additional 10% beneficial interest of Henan Huawei (also see note 9).  The transaction increased the Company’s interest in HPG and LM properties from 70% to 80%.

 

10


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

During the year ended March 31, 2010, the Company entered into an agreement to dispose of the Nabao project, consisting of three exploration permits, for $732 (RMB¥5.0 million) to a third party.  In May 2010, two of the three exploration permits were transferred to the buyer.  Cash payments of $586 (RMB¥4.0 million) were received as of September 30, 2010.  A total gain of $537 was recognized on the disposition of these two exploration permits.  The transfer of the third exploration permit was still in progress as at September 30, 2010.

 

7.              BANK LOAN AND NOTES PAYABLE

 

On June 16, 2010, the bank loan balance of $1,465 plus accrued interest was fully repaid.  As at September 30, 2010, the Company did not have any outstanding bank loan and notes payable balance.

 

8.              ASSET RETIREMENT OBLIGATIONS

 

The following table presents the reconciliation of the beginning and ending obligations associated with the site restoration of the mineral properties:

 

 

 

Current portion

 

Long term portion

 

Total

 

Balance, March 31, 2009

 

$

—

 

$

2,029

 

$

2,029

 

ARO revision

 

292

 

200

 

492

 

Accretion on ARO

 

—

 

125

 

125

 

Foreign exchange impact

 

—

 

3

 

3

 

Balance, March 31, 2010

 

292

 

2,357

 

2,649

 

Accretion on ARO

 

8

 

72

 

80

 

Foreign exchange impact

 

6

 

48

 

54

 

Balance, September 30, 2010

 

$

306

 

$

2,477

 

$

2,783

 

 

9.              NON-CONTROLLING INTERESTS

 

The continuity of non-controlling interests is summarized as follows:

 

 

 

 

 

Guangdong

 

 

 

 

 

Henan Found

 

Found

 

Total

 

Balance, March 31, 2009

 

$

7,225

 

$

385

 

$

7,610

 

Operation sharing for the year

 

13,189

 

149

 

13,338

 

Foreign exchange impact

 

128

 

662

 

790

 

Balance, March 31, 2010

 

20,542

 

1,196

 

21,738

 

Operation sharing for the period

 

9,060

 

(31

)

9,029

 

Dividend declared to non-controlling interest holder

 

(5,380

)

—

 

(5,380

)

Foreign exchange impact

 

961

 

74

 

1,035

 

Balance, September 30, 2010

 

$

25,183

 

$

1,239

 

$

26,422

 

 

11


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

In May 2010, the Company acquired an additional 10% beneficial interest in Henan Huawei from the non-controlling interest shareholder for consideration of $1,127 which was paid by the Company through the issuance of 163,916 of the Company’s common shares.  The common shares were valued at $6.876 per share, using the average closing price on the New York Stock Exchange for the two trading days before and two trading days after.

 

The increase of the Company’s ownership in Henan Huawei from 70% to 80% has been accounted for using the purchase method.  The allocation of the purchase cost to the assets acquired and liabilities assumed is based upon estimated fair values at the time of acquisition.  The actual fair value for the assets acquired and liabilities assumed will be determined in future periods.  As a result, the purchase price allocation may be subject to change.  The preliminary assessment of the fair value of the assets acquired and liabilities assumed as a result of the Company’s 10% increase in the ownership of Henan Huawei are as follows:

 

Purchase price comprised of:

 

 

 

163,916 shares issued at $6.876 per share

 

$

1,127

 

 

 

 

 

Net working capital

 

$

(151

)

Plant and equipment

 

144

 

Mineral rights and properties

 

1,229

 

Assets retirement obligations

 

(95

)

 

 

$

1,127

 

 

As at September 30, 2010, the non-controlling interests in Henan Found, Henan Huawei, Qinghai Found and Guangdong Found were 22.5%, 20%, 18% and 5%, respectively (March 31, 2010 — 22.5%, 30%, 18% and 5%, respectively).

 

10.       SHARE CAPITAL

 

(a) Authorized

 

Unlimited number of common shares without par value.

 

12


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

(b) Stock Options

 

The Company has a stock option plan which allows for the maximum number of common shares to be reserved for issuance on the exercise of options granted under the stock option plan to be a rolling 10% of the issued and outstanding common shares from time to time. The maximum exercise period may not exceed 10 years from the date of the grant of the options to employees, officers, and consultants. The following is a summary of option transactions:

 

 

 

 

 

Weighted average

 

 

 

Number of

 

exercise price per

 

 

 

shares

 

share CAD$

 

Balance, March 31, 2009

 

3,524,703

 

$

3.65

 

Options granted

 

1,546,500

 

3.95

 

Options exercised

 

(1,643,416

)

0.83

 

Options forfeited

 

(223,104

)

5.97

 

Balance, March 31, 2010

 

3,204,683

 

5.08

 

Options granted

 

262,000

 

7.40

 

Options exercised

 

(465,411

)

4.48

 

Options forfeited

 

(161,466

)

5.32

 

Options expired

 

(10,000

)

5.99

 

Balance, September 30, 2010

 

2,829,806

 

$

5.39

 

 

During the six months ended September 30, 2010, a total of 262,000 options with a life of five years were granted to directors, officers, and employees at an exercise price of CAD$7.40 per share subject to a vesting schedule over a three-year term with 8.333% of the options vesting every three months.

 

During the three months ended September 30, 2010, no stock options were granted.

 

The following is the summary of assumptions used to estimate the fair value of each option granted using the Black-Scholes option pricing model.

 

 

 

Six months ended September 30,

 

 

 

2010

 

2009

 

Risk free interest rate

 

2.18% to 3.20%

 

1.18% to 1.86%

 

Expected life of options in years

 

2 to 5 years

 

2 to 5 years

 

Expected volatility

 

72% to 85%

 

73% to 84%

 

Expected dividend yield

 

1%

 

3%

 

 

13


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

The weighted average grant date fair value of options granted during the six months ended September 30, 2010 was CAD$3.80 (six months ended September 30, 2009 - CAD$1.23). For the three and six months ended September 30, 2010, a total of $447 and $1,227, respectively (three and six months ended September 30, 2009 - $509 and $899, respectively) in stock-based compensation expenses was recorded and included in general and administrative expenses on the consolidated statements of operations.

 

The following table summarizes information about stock options outstanding as at September 30, 2010:

 

Exercise

 

Number of options

 

Weighted average

 

Weighted average

 

Number of options

 

Weighted average

 

price in

 

outstanding at

 

remaining contractual

 

exercise price in

 

exercisable at

 

exercise price in

 

CAD$

 

September 30, 2010

 

life (YRS)

 

CAD$

 

September 30, 2010

 

CAD$

 

$

4.32

 

90,799

 

0.81

 

$

4.32

 

90,799

 

$

4.32

 

6.74

 

547,700

 

1.53

 

6.74

 

547,700

 

6.74

 

6.95

 

90,000

 

2.00

 

6.95

 

90,000

 

6.95

 

9.05

 

101,700

 

2.30

 

9.05

 

84,749

 

9.05

 

7.54

 

50,000

 

2.62

 

7.54

 

37,500

 

7.54

 

5.99

 

337,500

 

2.75

 

5.99

 

200,832

 

5.99

 

3.05

 

88,000

 

3.00

 

3.05

 

50,500

 

3.05

 

2.65

 

875,149

 

3.55

 

2.65

 

299,983

 

2.65

 

7.00

 

397,166

 

4.27

 

7.00

 

61,332

 

7.00

 

7.40

 

251,792

 

4.55

 

7.40

 

18,500

 

7.40

 

2.65-9.05

 

2,829,806

 

3.04

 

5.39

 

1,481,895

 

5.72

 

 

(c)  Cash Dividends Declared and Distributed

 

The Company pays quarterly cash dividends of CAD$0.02 per share to its shareholders.  During the three and six months ended September 30, 2010, dividends of $3,207 and $6,316, respectively (three and six months ended September 30, 2009 - $2,770 and $5,790, respectively) were declared.  The two quarterly dividends declared were distributed on July 21, 2010 and October 21, 2010, respectively.

 

14


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

(d)  Share and warrants issued to acquire property

 

In connection with Silvertip project’s exploration and development activities, during the three months ended September 30, 2010, the Company issued 50,000 common shares and granted 50,000 warrants to a third party.  The shares were valued at market price of CAD $6.76 per share as at the settlement date, totaling $328.  The warrants were valued at $181 by using Black-Scholes pricing model with the following parameters:

 

 

 

July 30, 2010

 

Number of warrants

 

50,000

 

Exercise price (CAD) per unit

 

$

6.76

 

Expected life of the warrant

 

5.00

 

Stock price (CAD) at settlement date

 

$

6.76

 

Expected annual dividend yield

 

0.01

 

Volatility

 

71.00

%

Risk free interest rate

 

2.29

%

 

 

 

 

Fair value (CAD) per unit

 

$

3.72

 

 

 

 

 

Fair value of the warrants (USD)

 

$

181

 

 

The Company capitalized the total value of these shares and warrants into mineral rights and properties, with corresponding amounts to share capital and contributed surplus.

 

11. RELATED PARTY TRANSACTIONS

 

Related party transactions not disclosed elsewhere in the financial statements are as follows:

 

Amounts due from related parties

 

September 30, 2010

 

March 31, 2010

 

New Pacific Metals Corp. (a)

 

$

54

 

$

138

 

 

 

 

 

 

 

Amounts due to related parties

 

September 30, 2010

 

March 31, 2010

 

Henan Non-ferrous Geology Bureau (e)

 

$

5,380

 

$

—

 

 

 

 

Three months ended September 30,

 

Six months ended September 30,

 

Transactions with related parties

 

2010

 

2009

 

2010

 

2009

 

New Pacific Metals Corp. (a)

 

$

93

 

$

53

 

$

152

 

$

88

 

Quanfa Exploration Consulting Services Ltd. (b)

 

—

 

—

 

—

 

88

 

McBrighton Consulting Ltd.(c)

 

54

 

48

 

109

 

92

 

R. Feng Consulting Ltd. (d)

 

114

 

81

 

196

 

163

 

Henan Non-ferrous Geology Bureau (e)

 

5,380

 

3,292

 

5,380

 

3,292

 

 

 

$

5,641

 

$

3,474

 

$

5,837

 

$

3,723

 

 

15


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

(a)          New Pacific Metals Corp. is a publicly traded company with director and officers in common with the Company. Further to a services and administrative costs reallocation agreement between the Company and NUX, the Company will recover costs for services rendered to NUX and expenses incurred on behalf of NUX. During the three and six months ended September 30, 2010, the Company recovered $93 and $152, respectively (three and six months ended September 30, 2009 - $53 and $88, respectively) from NUX for services rendered and expenses incurred on behalf of NUX.  The costs recovered from NUX were recorded as a direct reduction of general and administrative expenses on the consolidated statements of operations.

 

The Company entered into a Credit Agreement (the “Agreement”) with NUX on July 2, 2010, subsequently amended on August 24, 2010.  Pursuant to the agreement, NUX is granted a line of credit with aggregated principal amount up to CAD $15 million.  The line of credit bears an interest rate at prime plus 7%, payable on the 1st day of each month and is secured by a first fixed charge on NUX’s assets.  On October 21, 2010, NUX used the line of credit the first time to draw CAD $2.35 million.

 

(b)         Quanfa Exploration Consulting Services Ltd. (“Quanfa”) is a private company with majority shareholders and management from the senior management of Henan Found and Henan Huawei. During the three and six months ended September 30, 2010, the Company paid $nil (three and six months ended September 30, 2009 - $nil and $88, respectively) to Quanfa for its consulting services provided.

 

(c)          During the three and six months ended September 30, 2010, the Company paid $54 and $109, respectively (three and six months ended September 30, 2009 - $48 and $92, respectively) to McBrighton Consulting Ltd., a private company controlled by a director of the Company for consulting services.

 

(d)         During the three and six months ended September 30, 2010, the Company paid $114 and $196, respectively (three and six months ended September 30, 2009 - $81 and $163, respectively) to R. Feng Consulting Ltd., a private company controlled by a director of the Company for consulting services.

 

(e)          Henan Non-ferrous Geology Bureau (“Henan Geology Bureau”) is a 22.5% equity interest holder of Henan Found. The balance of $5,380 (March 31, 2010 - $nil) owed to Henan Geology Bureau as at September 30, 2010 represented the dividend declared by Henan Found.  During the three and six months ended September 30, 2010, Henan Found declared dividend of $5,380 and $5,380, respectively (three and six months ended September 30, 2009 - $nil) to Henan Geology Bureau.

 

The transactions with related parties during the period were measured at the exchange amount, which was the amount of consideration established and agreed by the parties. The balances with related parties were unsecured, non-interest bearing, and due on demand.

 

16


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

12.  CAPITAL DISCLOSURES

 

The Company’s capital management objectives are intended to safeguard the Company’s normal operating requirements on an ongoing basis, continue the development and exploration of its mineral properties, and support any expansionary plans.

 

The capital of the Company consists of the items included in shareholders’ equity.  Risk and capital management are primarily the responsibility of the Company’s corporate finance function and is monitored by the Board of Directors. The Company manages the capital structure and makes adjustments depending on economic conditions.  Funds have been primarily secured through profitable operations and issuances of equity capital. The Company invests all capital that is surplus to its immediate needs in short-term, liquid and highly rated financial instruments, such as cash and other short-term deposits, all held with major financial institutions. Significant risks are monitored and actions are taken, when necessary, according to the Company’s approved policies.

 

13.  FINANCIAL INSTRUMENTS

 

The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, credit risk and equity price risk in accordance with its risk management framework. The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.

 

(a) Fair value

 

The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy. As at September 30, 2010, those financial assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement.

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,263

 

$

—

 

$

—

 

$

66,263

 

Short term investments: warrants

 

—

 

475

 

—

 

475

 

Short term investments: other than warrants

 

43,451

 

—

 

—

 

43,451

 

Receivables and deposits

 

2,767

 

—

 

—

 

2,767

 

Amounts due from related parties

 

54

 

—

 

—

 

54

 

Restricted cash

 

—

 

77

 

—

 

77

 

Available-for-sale marketable securities

 

3,579

 

—

 

—

 

3,579

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

—

 

$

13,913

 

$

—

 

$

13,913

 

Deposits received

 

—

 

1,688

 

—

 

1,688

 

Dividends payable

 

—

 

3,207

 

—

 

3,207

 

Amounts due to related parties

 

5,380

 

—

 

—

 

5,380

 

 

17


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

(b) Liquidity risk

 

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments.  The Company manages liquidity by maintaining adequate cash and cash equivalents and short term investment.

 

In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities.

 

 

 

September 30, 2010

 

 

 

 

 

Within a year

 

March 31, 2010

 

Accounts payable and accrued liabilities

 

$

13,913

 

$

7,504

 

Deposits received

 

1,688

 

6,737

 

Dividends payable

 

3,207

 

3,238

 

Amounts due to related parties

 

5,380

 

—

 

Bank loan and notes payable

 

—

 

1,465

 

 

 

$

24,188

 

$

18,944

 

 

(c) Foreign exchange risk

 

The Company undertakes transactions in various foreign currencies, and reports results of its operations in US dollars while the Canadian dollar is considered as its functional currency.  The Company is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency and the translation of functional currency to reporting currency.

 

The Company conducts its mining operations in China and thereby the majority of the Company’s assets, liabilities, revenues and expenses are denominated in RMB¥, which was tied to the US Dollar until July 2005, and is now tied to a basket of currencies of China’s largest trading partners. The RMB¥ is not a freely convertible currency.

 

The Company currently does not engage in foreign currency hedging, and the exposure of the Company’s financial assets and financial liabilities to foreign exchange risk is summarized as follows:

 

The amounts are expressed in US$ equivalents

 

September 30, 2010

 

March 31, 2010

 

Canadian dollars

 

$

25,434

 

$

27,125

 

United States dollars

 

20,794

 

29,808

 

Chinese renminbi

 

70,438

 

48,173

 

Hong Kong dollars

 

—

 

1

 

Total financial assets

 

$

116,666

 

$

105,107

 

 

 

 

 

 

 

Canadian dollars

 

$

5,495

 

$

3,799

 

United States dollars

 

—

 

5

 

Chinese renminbi

 

18,693

 

15,140

 

Total financial liabilities

 

$

24,188

 

$

18,944

 

 

18


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

As at September 30, 2010, with other variables unchanged, a 1% strengthening (weakening) of the Chinese RMB¥ against the Canadian dollar would have increased (decreased) net income (loss) by approximately $0.1 million and increased (decreased) other comprehensive income (loss) by $0.6 million.

 

As at September 30, 2010, with other variables unchanged, a 1% strengthening (weakening) of the Canadian dollar against the US dollar would have decreased (increased) net income by approximately $0.2 million and would have increased (decreased) other comprehensive income by approximately $0.4 million.

 

(d) Interest rate risk

 

Interest risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash equivalents and short term investments primarily includes highly liquid investments that earn interest at market rates that are fixed to maturity or at variable interest rates.  Because of the short-term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of September 30, 2010.

 

(e) Credit risk

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.  The Company is exposed to credit risk primarily associated to accounts receivable, cash and cash equivalents and short-term investments. The carrying amount of assets included on the balance sheet represents the maximum credit exposure.

 

The Company undertakes credit evaluations on counterparties as necessary and has monitoring processes intended to mitigate credit risks. The Company has accounts receivables from customers primarily in China engaged in the mining and milling of base and polymetallic metals industry. The historic level of customer defaults is zero and the aging of accounts receivable is less than 30 days, and, as a result, the credit risk associated with accounts receivable from customers at September 30, 2010 is considered to be immaterial.

 

 (f) Equity price risk

 

The Company holds certain marketable securities that will fluctuate in value as a result of trading on Canadian financial markets.  Furthermore, as the Company’s marketable securities are also common shares of mining companies, market values will fluctuate as commodity prices change.  Based upon the Company’s portfolio at September 30, 2010, a 10% increase (decrease) in the market price of the securities held, ignoring any foreign currency risk, would have resulted in an increase (decrease) to other comprehensive income of approximately $0.4 million.

 

19


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

14. SEGMENTED INFORMATION

 

The Company operates in one operating segment, being the acquisition, exploration, development, and operation of mineral properties.  Based on the internal reporting structure and the nature of the Company’s activities, significant projects within the same geographic area are aggregated for segment reporting purposes.  The corporate Head Office provides support to the mining and exploration activities with respect to financial and technical supports and its information is included in the Canada category.  Assets, incidental income and expenses in holding companies are presented under the category of other regions.  This structure reflects how the Company manages its business and how it classifies its operations for planning and measuring performance.

 

(a) Geographic information for certain long-term assets are as follows:

 

September 30, 2010

 

 

 

China

 

Canada

 

Other

 

 

 

Balance sheet items:

 

Henan

 

Guangdong

 

Other

 

Silvertip

 

Head Office

 

Regions

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mineral rights and properties

 

$

44,859

 

$

82,142

 

$

—

 

$

19,117

 

$

—

 

$

—

 

$

146,118

 

Plant and equipment

 

27,173

 

125

 

1,835

 

1,825

 

464

 

—

 

31,422

 

Long term investments

 

8,966

 

—

 

—

 

—

 

8,007

 

2,893

 

19,866

 

 

March 31, 2010

 

 

 

China

 

Canada

 

Other

 

 

 

Balance sheet items:

 

Henan

 

Guangdong

 

Other

 

Silvertip

 

Head Office

 

Regions

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mineral rights and properties

 

$

34,428

 

$

83,049

 

$

—

 

$

15,771

 

$

—

 

$

—

 

$

133,248

 

Plant and equipment

 

26,541

 

105

 

1,893

 

—

 

485

 

—

 

29,024

 

Long term investments

 

6,886

 

—

 

—

 

—

 

6,339

 

1,613

 

14,838

 

 

20


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

(b) Geographic information for operating results is as follows:

 

Three months period ended September 30, 2010

 

 

 

China

 

Canada

 

Other

 

 

 

Statement of operations items:

 

Henan

 

Guangdong

 

Other

 

Silvertip

 

Head Office

 

Regions

 

Total

 

Sales

 

$

36,338

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

36,338

 

Cost of sales

 

(8,235

)

—

 

—

 

—

 

—

 

—

 

(8,235

)

Amortization and depletion

 

(1,522

)

—

 

—

 

—

 

—

 

—

 

(1,522

)

Gross Profit

 

26,581

 

—

 

—

 

—

 

—

 

—

 

26,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

(2,363

)

(160

)

(186

)

(73

)

(2,221

)

(2

)

(5,005

)

Foreign exchange gain (loss)

 

—

 

(66

)

43

 

(5

)

(192

)

(156

)

(376

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest & other income

 

285

 

53

 

—

 

—

 

72

 

—

 

410

 

Gain (loss) on asset disposals and other expenses

 

(459

)

—

 

—

 

—

 

1,339

 

123

 

1,003

 

Non controlling interest

 

(4,557

)

9

 

—

 

—

 

—

 

—

 

(4,548

)

Income tax expenses

 

(5,614

)

—

 

—

 

—

 

—

 

—

 

(5,614

)

Net income (loss)

 

13,873

 

(164

)

(143

)

(78

)

(1,002

)

(35

)

12,451

 

 

Three months period ended September 30, 2009

 

 

 

China

 

Canada

 

Other

 

 

 

Statement of operations items:

 

Henan

 

Guangdong

 

Other

 

Silvertip

 

Head Office

 

Regions

 

Total

 

Sales

 

$

25,085

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

25,085

 

Cost of sales

 

(5,173

)

—

 

—

 

—

 

—

 

—

 

(5,173

)

Amortization and depletion

 

(824

)

—

 

—

 

—

 

—

 

—

 

(824

)

Gross Profit

 

19,088

 

—

 

—

 

—

 

—

 

—

 

19,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

(1,150

)

(956

)

(380

)

—

 

(2,088

)

836

 

(3,738

)

Foreign exchange gain (loss)

 

—

 

2,192

 

231

 

—

 

(1,858

)

(647

)

(82

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest & other income

 

250

 

—

 

(202

)

—

 

144

 

21

 

213

 

Impairment charges

 

—

 

—

 

—

 

—

 

—

 

79

 

79

 

Gain (loss) on asset disposals and other expenses

 

(882

)

—

 

25

 

—

 

(136

)

(25

)

(1,018

)

Non controlling interest

 

(3,340

)

43

 

—

 

—

 

—

 

—

 

(3,297

)

Income tax expenses

 

(2,352

)

—

 

—

 

—

 

—

 

—

 

(2,352

)

Net income (loss)

 

$

11,614

 

$

1,279

 

$

(326

)

$

—

 

$

(3,938

)

$

264

 

$

8,893

 

 

21


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

Six months period ended September 30, 2010

 

 

 

China

 

Canada

 

Other

 

 

 

Statement of operations items:

 

Henan

 

Guangdong

 

Other

 

Silvertip

 

Head Office

 

Regions

 

Total

 

Sales

 

$

 

73,067

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

73,067

 

Cost of sales

 

(16,899

)

—

 

—

 

—

 

—

 

—

 

(16,899

)

Amortization and depletion

 

(3,049

)

—

 

—

 

—

 

—

 

—

 

(3,049

)

Gross Profit

 

53,119

 

—

 

—

 

—

 

—

 

—

 

53,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

(4,512

)

(253

)

(608

)

(124

)

(5,556

)

(8

)

(11,061

)

Foreign exchange gain (loss)

 

—

 

(435

)

21

 

(5

)

317

 

270

 

168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest & other income

 

509

 

74

 

5

 

—

 

170

 

29

 

787

 

Gain (loss) on asset disposals and other expenses

 

(479

)

—

 

537

 

—

 

1,301

 

74

 

1,433

 

Non controlling interest

 

(9,060

)

31

 

—

 

—

 

—

 

—

 

(9,029

)

Income tax expenses

 

(8,865

)

—

 

—

 

—

 

—

 

—

 

(8,865

)

Net income (loss)

 

$

 

30,712

 

$

(583

)

$

(45

)

$

(129

)

$

(3,768

)

$

365

 

$

26,552

 

 

Six months period ended September 30, 2009

 

 

 

China

 

Canada

 

Other

 

 

 

Statement of operations items:

 

Henan

 

Guangdong

 

Other

 

Silvertip

 

Head Office

 

Regions

 

Total

 

Sales

 

$

47,657

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

$

47,657

 

Cost of sales

 

(10,145

)

—

 

—

 

—

 

—

 

—

 

(10,145

)

Amortization and depletion

 

(1,753

)

—

 

—

 

—

 

—

 

—

 

(1,753

)

Gross Profit

 

35,759

 

—

 

—

 

—

 

—

 

—

 

35,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

(4,930

)

(1,009

)

(38

)

—

 

(4,047

)

375

 

(9,649

)

Foreign exchange gain (loss)

 

—

 

3,511

 

(171

)

—

 

(1,927

)

21

 

1,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest & other income

 

472

 

—

 

(201

)

—

 

309

 

31

 

611

 

Impairment charges

 

—

 

—

 

—

 

—

 

(195

)

(503

)

(698

)

Gain (loss) on asset disposals and other expenses

 

(1,138

)

—

 

25

 

—

 

(218

)

(25

)

(1,356

)

Non controlling interest

 

(5,936

)

(41

)

—

 

—

 

—

 

—

 

(5,977

)

Income tax expenses

 

(3,744

)

—

 

—

 

—

 

—

 

—

 

(3,744

)

Net income (loss)

 

$

20,483

 

$

2,461

 

$

(385

)

$

—

 

$

(6,078

)

$

(101

)

$

16,380

 

 

22


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

(c) Sales by metals

 

The sales generated for the three and six months ended September 30, 2010 and 2009 comprised of:

 

 

 

Three months period ended September 30,

 

Six months period ended September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Silver (Ag)

 

$

19,642

 

$

12,635

 

$

38,950

 

$

24,259

 

Gold (Au)

 

246

 

188

 

1,110

 

362

 

Lead (Pb)

 

13,853

 

10,259

 

27,812

 

19,307

 

Zinc (Zn)

 

2,597

 

2,003

 

5,195

 

3,729

 

 

 

$

36,338

 

$

25,085

 

$

73,067

 

$

47,657

 

 

(d) Major customers

 

During the six months ended September 30, 2010, three major customers (six months ended September 30, 2009 - four) accounted for 16% to 41% each (six months ended September 30, 2009 - 11% to 26%) and collectively 79% (six months ended September 30, 2009 - 71%) of the total sales of the Company.

 

15. COMMITMENTS

 

Commitments, not disclosed elsewhere in these financial statements, are as follows:

 

The Company entered into office rental agreements with total rental expense of $1,166 over the next four years as follows:

 

 

 

2011

 

2012

 

2013

 

2014

 

Total

 

Rental expense

 

$

174

 

$

374

 

$

356

 

$

262

 

$

1,166

 

 

23


 

SILVERCORP METALS INC.

Notes to Unaudited Interim Consolidated Financial Statements

September 30, 2010

(Expressed in thousands of U.S. dollars)

 

16. SUPPLEMENTARY CASH FLOW INFORMATION

 

 

 

Three months ended September 30,

 

Six months ended September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Net change in non-cash working capital

 

 

 

 

 

 

 

 

 

Accounts receivable, prepaids and deposits

 

$

(543

)

$

(22

)

$

(422

)

$

111

 

Inventory

 

(311

)

(1,359

)

86

 

(2,308

)

Restricted cash

 

—

 

—

 

—

 

732

 

Accounts payable and accrued liabilities

 

(776

)

1,039

 

3,434

 

1,425

 

Income tax payable

 

(784

)

210

 

(425

)

(2,126

)

Deposits received

 

(1,717

)

477

 

(5,107

)

1,763

 

 

 

$

(4,131

)

$

345

 

$

(2,434

)

$

(403

)

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

 

Interest paid

 

$

10

 

$

137

 

$

25

 

$

139

 

Income tax paid

 

$

3,713

 

$

1,681

 

$

6,071

 

$

5,659

 

 

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

 

 

Common shares issued for 10% interest of Henan Huawei

 

$

—

 

$

—

 

$

1,127

 

$

—

 

Common shares issued for property

 

$

328

 

$

—

 

$

328

 

$

—

 

Warrants issued for property

 

$

181

 

$

—

 

$

181

 

$

—

 

Increase of plant and equipment from long-term prepaids

 

$

206

 

$

—

 

$

1,493

 

$

—

 

Increase of mineral rights and properties from long-term prepaids

 

$

1,333

 

$

4,993

 

$

2,886

 

$

9,961

 

 

17. SUBSEQUENT EVENTS

 

On November 8, 2010, the Company, through its wholly-owned subsidiary, signed a share purchase agreement and a Sino-Foreign cooperative joint venture contract to acquire a 70% equity interest in Yun Xiang Mining Co. Ltd. (“Yunxiang”), a private company in Hunan Province.  The total cost of share purchase and joint venture capital investment was approximately US$33 million cash.

 

24