"Silvercorp Metals (NYSE: SVM) has gone through a rough spot," says Brien Lundin in Gold Newsletter. But, he adds, "An improving trend in commodity prices promises better days ahead."

"First, however, let’s look at the financials. For Q4, sales declined 35% from a year ago to $17.4 million, primarily because of falling metals prices. But that was still a 14% improvement over Q3 performance.

"Sales for the fiscal year also slipped, falling 23% to $83.5 million. Again, this was mainly because metals prices were in the tank — silver down 10%, lead 34% and zinc 53% from 2008 averages. These free-falling prices eventually lead to the temporary suspension of operations at three mines.

"For the fiscal year, the company reported a loss of $16 million, compared with net income of $60 million a year ago.

"Net income crossed the line into red numbers not because of plummeting metal prices, at least not directly. Instead, the company recorded an 'impairment charge' of $51 million on the write-down of its investment in New Pacific Metals to market value.

"As expected, Silvercorp continued to invest heavily, spending nearly $50 million in capital expenditures. Meanwhile, an improving trend in commodity prices promises better days. In fact, Silvercorp plans to partially resume production from its other mines.

"Silvercorp expects to generate cash flows from operations of $35 million to $40 million. Capital expenditures, meanwhile, are forecast to be considerably less in fiscal 2010, dropping nearly 70% to $16 million.

"Silvercorp’s share price has strengthened, along with silver, since late April. I expect that production improvements, along with stronger metals prices, will lead the share price even higher over the long term. Silvercorp is a buy."
 

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