The inaugural ESG x Mining Investment Series event held on October 18, 2024, in collaboration with Silvercorp Metals (NYSE: SVM, market cap USD 1.07B as of 23 Oct 2024) provided a comprehensive look into SVM’s financial performance, mining projects, and its robust ESG practices.

Strong Financial Performance Amid Market Undervaluation

SVM has shown a strong financial footing, particularly benefiting from a favourable silver price environment. What stood out was the company’s ability to maintain margin growth over revenue, focusing on profitability rather than merely expanding its revenue.

However, despite this solid performance, SVM faces market undervaluation primarily due to its perceived exposure to China. Although SVM’s association with China offers operational advantages—such as proximity to smelters and suppliers—it presents a country risk to investors not familiar with China. Investors often associate geopolitical risks with China, including regulatory uncertainties, macroeconomic conditions, and potential policy shifts that could affect business operations. Investors view these risks as potentially destabilizing, which causes them to assign lower valuation multiples to SVM despite its strong financial performance.

ESG Philosophy and Excellent Performance

SVM’s commitment to sustainability was highlighted by its adherence to the internationally recognized ESG framework - United Nation’s SDGs and excellent ESG performance, which earned the company an 'A' ESG rating from MSCI.

During the Q&A session, Lon Shaver, President of SVM, addressed the question, “How do you incorporate ESG factors in regions with varying regulations?” Shaver emphasized that SVM consistently adheres to the highest global standards, regardless of regional regulatory differences. This approach ensures consistency in ESG performance and prepares the company to adapt to evolving regulations in any market it operates.

When asked about the ongoing challenge of balancing sustainability with profitability—particularly as practices like adopting renewable energy can increase costs—Shaver explained that while sustainable practices may raise expenses initially, they enable companies to adapt more effectively as regulations evolve. By implementing these practices early, SVM gains a competitive advantage over peers when stricter standards are enforced. Shaver emphasized the importance of taking a long-term view, focusing on future benefits rather than short-term profit margins. This perspective reflects SVM’s core philosophy on sustainable development.

Key ESG Metrics to Look at in the Mining Industry

When evaluating a company’s ESG performance, investors are often interested in the correlation between ESG metrics and overall company performance, as well as the key indicators they should use to make informed investment decisions.

According to Shaver, the correlation between ESG metrics and company performance can vary significantly across industries. Even within the mining sector, the relationship depends on the specific circumstances of each company. He emphasized that in-depth due diligence is essential to fully understand a company’s ESG performance, as superficial data may not accurately reflect its true impact or sustainability efforts.

For the indicators in the mining industry, Shaver advised that investors should focus on a company’s track record, historical achievements, and long-term commitment to sustainability. He highlighted the importance of a strong management team with proven success, as this is often a reliable indicator of future performance.

Global Expansion: Diversifying Geographies and Commodities

Besides SVM’s operations in China where it is focused on expanding its existing mines in the Ying Mining District and the GC Mine. SVM is advancing two gold projects in  Ecuador, including the El Domo Copper-Gold Project, which has already finished its Feasibility Study in 2021, showing promising resources and mine life, with secured financing for its development. Additionally, the Condor Project, a high-grade gold project in southern Ecuador, had its Preliminary Economic Assessment (PEA) released in 2021, indicating strong potential for future development.

In parallel with its core operations and Ecuadorian projects, SVM has strategically expanded its portfolio through acquisitions and investments in junior exploration companies. Notably, the company holds a 27.4% stake in New Pacific Metals Corp, providing it with significant exposure to two world-class silver deposits in Bolivia—Silver Sand and Carangas.

Through its global expansion strategy, SVM aims to reduce its reliance on China and silver prices, positioning itself as a more diversified player in the global mining market. While SVM’s current valuation may appear undervalued, its strategic global expansion will likely reduce concerns from investors over its China exposure, alleviating the undervaluation issue as the company continues to grow.

For more in-depth insights on SVM, explore our past research on the company. #silver