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  5. SVM: Hello to 5 i's. [Silvercorp Metals Inc.]
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Q: Hello to 5 i's. I have a small position in SVM (silver crest metals) which was nicely in the green until recently and then late last week it took a big hit to the downside with the announcement of some financing to build out a new mine and a new juristriction (equador). The financing is convertible debt due in 2030 at 4.75 per cent. The stock has to go up about 30 per cent until it can convert to equity. It doesn't seem too bad for me but it seems there are people much smarter than me who sold with that announcement. Do you think the debt that SVM secured is not appropriate/or there is a better way to finance? Or are people selling for another reason, such as , exposure to Equador is too risky/SVM has built 8 mines and 3 processing plants only in China and have no experience in Latin America/ less bullish on precious metal pricing on a go forward basis, or some else? I am tempted to double my small position since the company has no debt (actually they are net cash on the balance sheet and minority equity position in New Pacific Metals, and they operate profitably. does 5 i think SVM, at current share price, is a good option for silver mining exposure?
Asked by Paul on November 25, 2024
5i Research Answer:

It is extremely common for stocks to take a hit when they do a convertible financing. Investors sell shares, knowing they can buy the bond, earn interest and still have stock exposure. Short sellers will sell the stock and hedged the position with the convertible. We would always prefer a 'straight' equity issue for these reasons, but they are not always doable. We do not like the obligations that a debenture has (the interest). But  with the low valuation of the stock we can see why management did not want to sell stock at 9X earnings also. The stock is also still up 39% this year, so SVM likely saw good demand. We are fine with Ecuador, generally. It is not perfect, but we would consider it much better than China overall, and the diversification of countries we think will ultimately be good for the stock. 

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