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Silvercorp CEO vows 'fight to the death' against short sellers

Independent research firm Alfred Little says its investigator took this picture of trucks near Silvercorp's SGX mine in August.

Silvercorp Metals Inc. is declaring war on anonymous short sellers that have accused it of impropriety, saying they are using "false, selective or ignorant statements and rumours" to drive down its share price.

Chief executive officer Rui Feng called for the investors, who have accused the Vancouver company of overstating its production and misrepresenting the quality of its mines, to "come out of the shadows." He also urged shareholders not to panic and to use "common sense" when assessing the accusations.

Silvercorp, which operates silver mines in China, said the company has called in 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 have caused its share price to sink sharply this month.

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"They picked the wrong company," Mr. Feng said in an interview from his Vancouver office. "I don't know who my enemy is, but we are a real company ... I am going to fight to the death."

Mr. Feng's combative remarks underscore the huge pressure his company has come under in an environment where Chinese companies are facing greater scrutiny than before.

The case of Sino-Forest Corp., the large TSX-listed forestry company that crashed following accusations of fraud by short sellers and regulators, has made investors more sensitive to the possibility of accounting problems at Chinese resource firms.

Silvercorp's rebuttal helped lift the company's share price by 20 per cent on the Toronto Stock Exchange early Wednesday, but it ended the day up just 4 per cent at $6.43.

In the interview, Mr. Feng likened the short sellers to bullies conducting a "short and distort" game to make a profit.

"They just want to short our stock and scare people," Mr. Feng said.

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 Sino-Forest may have misrepresented some of its revenue and exaggerated some of its timber holdings.

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"I don't believe that all Chinese companies that get nailed [by short sellers]are fraud," Mr. Feng said. "I have nothing to hide."

Silvercorp also issued a statement on Wednesday denying allegations of wrongdoing that came in a new short seller report released on Tuesday by a company called Alfred Little, a high-profile independent research firm that has zeroed in on public companies operating in China many times before. The allegations include claims that Silvercorp overstated its production, inflated the grade of silver it mines and failed to disclose that its largest customer is a related party. Silvercorp also said an independent committee it set up recently to examine the allegations has hired KPMG Forensic Inc. to do a report on its revenue, cash and tax payments in China.

Silvercorp shares have dropped 22 per cent since the first set of allegations against the company surfaced on Sept. 2.

The company released a letter sent to it, Canadian regulators and some media that accused it of engaging in an accounting fraud."

Silvercorp immediately denied those allegations, saying they came from a short seller trying to profit from a falling stock price.

Investors identifying themselves as authors of the initial anonymous letter posted a new report on the Internet Wednesday that detailed more of its allegations, which are in line with those in the Alfred Little report. The posting, which could not be verified, said the investors wished to remain anonymous because they feared "personal threats."

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Alfred Little said its report isn't related to the anonymous letter and doesn't know who wrote it.

In its statement Wednesday, Silvercorp responded to two of the five concerns raised in the Alfred Little report, which centres on Silvercorp's SGX mine in the Ying region of China's Henan province.

It said Silvercorp has paid $117-million (U.S.) in taxes to the Chinese government and dividends worth $152-million to shareholders that "reflect a total revenue stream that is in accordance with the mine production and sales revenues reported by the company during that period."

Silvercorp also addressed the alleged disparity between its grades of silver and the production numbers it reported in China and North America, as well as the allegations of sales to a related party.

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About the Authors

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

Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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