Silvercorp Metals Inc (TSE:SVM) (NYSEAMERICAN:SVM) got a jolt of analyst optimism Wednesday when Roth Capital Markets bumped its price target for the stock up to US$9.25 from US$8.25 and reiterated its Buy rating.
The firm was pleased to see Silvercorp increase the reserve and resource estimate for its Ying Mining District assets at the end of August.
Silver reserves increased 4% compared to the company's 2017 reserves update despite production of 21 million ounces of silver from July 2016 to December 2019, the firm said.
READ: Silvercorp Metals boosts mineral resource at Ying complex in a new technical report on the flagship property
Resource-wise, the company’s measure and indicated resource tonnage increased 23% and inferred resource tonnage increased 78%.
“We view this update as a significant positive for SVM,” Roth wrote. “Significant resources could drive effort to increase throughput. Based on Ying's current mine plan that runs through 2040 and the significant resource base that should drive further mine life extensions in the future, we believe Silvercorp's management will look for ways to increase throughput instead of extending mine life.”
The firm noted that the Ying mine, located in China’s Henan province, is not operating at full capacity due to concerns regarding underground access. If Silvercorp can create additional access or open new mining areas, throughput could increase substantially.
“As a result of the extended mine life at Ying and our expectations for further mine life extension over time, our [discounted cash flow] valuation increased significantly,” the firm wrote.
“This was partially offset by a reduction in our DCF premium from 35% to 30% as precious metals prices have retreated somewhat in recent weeks. Thus, we are increasing our price target from $8.25 to $9.25 and reiterating our Buy rating.”
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