Judging from the reaction by investors on Monday, they love the results of the Silvercorp Metals Inc.'s forensic audit of its books. Shares were up 15 per cent in mid-morning trading after the audit stood by the company's accounting system and financial reporting in North America and China, apparently refuting short sellers' allegations from earlier this year.
Silvercorp certainly hasn't taken these allegations sitting down. As colleague Brenda Bouw reported, the company filed a lawsuit last month against two websites and the people behind them, alleging defamation and "deceptive acts and practices." But no doubt the most important element to Silvercorp's defensive arsenal was its decision to buy back its own stock through a normal course issuer bid in June.
That bid allowed the company to buy back as many as 10 million shares, to help it prove to investors that it stood by its credibility. About a month ago, it reported that it has in fact been following through on the course issuer bid, buying about 4.5 million shares valued at $35-million. The average purchase price was $7.82, or considerably lower than its current share price – meaning that the company actually capitalized on its falling stock at the same time that it bolstered its defence.
This strikes quite a contrast with Sino-Forest Corp. in its attempt to fight back against short-seller Carson Block earlier this year. The company, whose shares have been frozen by the Ontario Securities Commission, said in June that despite its tumbling share price, it could not buy back shares: "The Company has heard from many investors encouraging it to buy back shares given the current prices," Sino-Forest said in a statement. "The Company has been advised by counsel that it and its directors and officers are precluded from purchasing stock in the current circumstances."
According to Bloomberg, no shares have been bought back by the company.
David Berman