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Independent audit vindicates Silvercorp

The group has written a report on Silvercorp.

Silvercorp Metals Inc. , the China-focused miner battling allegations of wrongdoing, says an independent audit has cleared its name, but the company won't claim victory until the anonymous short sellers behind the accusations are punished.

A KPMG Forensics Inc. audit released on Monday vindicates Vancouver-based Silvercorp's claims that it has not overstated revenues, as alleged in two sets of reports that surfaced last month.

"It confirms our business is real … There is no fraud," Silvercorp chairman and chief executive officer Rui Feng said in an interview from Hong Kong on Monday.

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KPMG was hired by a special committee of the Silvercorp board to investigate the accusations and found its recent cash and short-term investment balances were "substantially correct" and that revenues were not exaggerated.

The findings "support the integrity" of Silvercorp's accounting system and financial reporting in China and North America, the special committee said. While the review had limitations, including an inability to talk to anonymous accusers, that wasn't considered to have a big impact on its conclusions.

Silvercorp shares surged more than 20 per cent on the Toronto Stock Exchange on Monday, before ending the day up 17.4 per cent, its biggest one-day gain in more than two years.

Still, Mr. Feng is not calling the report a win given the time and about $2-million it has spent so far fighting the accusations. The have also dealt a severe blow to the company's stock price and investors that include some Canadian pension funds and large North American mutual funds.

Silvercorp shares plunged by about 30 per cent to below $6 last month as some investors fled, fearing the fallout from allegations that a second Toronto-listed company operating in China had accounting issues.

Earlier this year, short seller Carson Block of research firm Muddy Waters accused forestry firm Sino-Forest Corp. of accounting fraud. Regulators in Ontario have halted trading in Sino-Forest securities, citing evidence of fraud, and are looking into allegations that the company may have misrepresented some of its revenue and exaggerated some of its timber holdings.

Although Silvercorp shares are now trading well above their value before the allegations became public, Mr. Feng said the stock is still performing below its industry peers.

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"I don't win. The day I win is when … regulators make those people responsible because they can use the same tactics to hurt other people," he said.

Mr. Feng maintained all along that his company, China's largest primary silver producer with mines at the Ying Mining Camp in Henan province, had done nothing wrong. In fact, Mr. Feng insists it's the short sellers who should be investigated.

The company has launched a lawsuit against the two websites behind the allegations – and – and several individuals, alleging defamation and "deceptive acts and practices."

Silvercorp is also working with police and regulators in the United States and Canada, including the Federal Bureau of Investigation, to help determine who is behind the anonymous reports that caused its share price to drop sharply. The B.C. Securities Commission has said it is investigating both the allegations and their source.

In response to the KPMG report, said the results relate to allegations from the second set of anonymous short sellers at It denies the two groups are working together.

" would like to point out that while our contributors raised a number of concerns about SVM, none of our contributors' reports ever challenged any of the items covered by KPMG's forensic audit. We therefore see no reason to ask our contributors to amend or withdraw their reports at this time," managing editor Simon Moore said in an e-mail statement to The Globe.

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More

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