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Canadian analysts have been bullish on Silvercorp

Before short seller Alfred Little released a report on Tuesday that included allegations of impropriety related to Silvercorp Metals Inc. , the Canadian analysts that cover the name were bullish on the company.

Now that the new report has been released, at least one of them is standing by the firm. (The three others have not released anything new.)

Brad Humphrey at Raymond James Financial believes that Alfred Little's negative report is "opportunistic" and, for that reason, "we suspect SVM will weather this storm and suggest that the company continue to move forward with its operations and development projects, focusing on its strong margins and cash flow, which will ultimately lead to an outperformance."

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"We also maintain our view that the SGX mine is a high quality asset that has been and should continue to generate positive returns at current and much lower metal prices for many years to come" Mr. Humphrey wrote. "We also believe when you cut through all of the noise it really comes down to the fact that since 2004 the company has raised just over $200-million, paid some $40-million in dividends, $30-million in share buybacks, spent more than $175-million acquiring, developing, expanding and exploring (both in China and Canada) and still have roughly $220-million in the bank. This, along with our site visits and the VAT receipts give us the comfort we need to maintain our view."

While the other three analysts from BMO Nesbitt Burns, CIBC World Markets and Salman Partners have not released any reports since Alfred Little went public with its findings, BMO analyst Andrew Kaip did release a favourable report just before an anonymous letter writer also raised questions in August. Silvercorp denied the allegations in that letter.

"Unlike some North American-listed, China-focused companies, [Silvercorp] continues to report record profits and has begun deploying free cash flow toward acquiring new projects with potential for near-term production," Mr. Kaip wrote. "BMO highlights that SVM shares offer long-term investors compelling value, with a 123 per cent implied return to the C$17.50 target price."

BMO then reiterated this support after Silvercorp publicly responded to the anonymous letter writer.

I can't stress enough that the cases are entirely separate, but I do note that all seven of Sino-Forest's Canadian analysts had a buy rating on the company before Muddy Waters released its research report.

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About the Author
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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