Is Silvercorp In The Midst Of A Bear Raid?
January 24, 2013 | 17 comments | about: SVM, includes: GDXJ
Disclosure: I am long SVM. (More...)
Silvercorp Metals (SVM) appears to be the target of a bear raid. The silver miner has declined by over 20 percent since the start of January, and over 16 percent in the last five days. During this period of time, no new fundamental or material information has been reported by the company, and silver itself has increased in price. See a chart comparing the 2013-to-date performance of SVM and the iShares Silver Trust ETF (SLV): (click to enlarge)
The only information that has come to the market in the last three weeks is that numerous law firms have initiated class actions against Silvercorp, alleging that Silvercorp overstated the level of silver production at its mines, as well as the quality and quantity of its ore reserves. Though these lawsuits are all less than one month old, the allegations upon which they are based were first brought to the attention of the market well over a year ago.
In September of 2011, Silvercorp sued Anthion Management, Chinastockwatch.com, Alfredlittle.com and related entities, accusing them sites of intentionally publishing false information in order to lower the company's share price and profit on short sales. In March of 2012, Anthion filed a counterclaim, while also admitting it was the author of a report on Silvercorp that was anonymously sent to securities regulators, auditors and journalists on August 29, 2011. That report was also published on Chinastockwatch.com, which was run by Anthion and which is now defunct.
In July of 2012, Anthion's counterclaim was dismissed, and in August of 2012, Silvercorp's defamation lawsuit was dismissed. The court concluded that the defendants raised questions of potential accounting fraud and/or other possible asset misstatements. According to the decision, the claim was dismissed because the statements were constitutionally protected opinions that were stated as possibilities rather than certainty, and that the author probably believed they were true. The court also indicated fraud was stated merely a possibility and not an absolute certainty, and that the anonymous publishing likely reduced the perceived veracity.
In essence, the court concluded that a reasonable reader of the statements at issue would perceive them to be the author's opinion and not known or definitive facts. This distinction makes a defamation claim non-actionable. This is a technical distinction, because such opinion is protected speech that cannot be restrained or be actionable as defamation. Another way of stating this is that one can state almost anything about another and not be sued for defamation provided they preface it by stating that they are not sure that it is true, but that it is their opinion that it is possibly true. Moreover, cowardly hiding your identity strengthens your defense.
Silvercorp has since noted that the proved and probable reserves in SVM's flagship property increased since the alleged short and distort defamation, but its opinionated critics have also noted that Silvercorp may have funded Chinese officials in order to initiate and expedite investigations against the publishers of the claims against the company. While Silvercorp is a Canadian company, its assets are primarily in China. The Anti-Corruption Unit of the Royal Canadian Mounted Police is apparently investigating this matter to gauge whether Silvercorp violated the nation's Corruption of Foreign Public Officials Act.
It seems quite clear that the battle between Silvercorp and its critics is not yet over, but it may be nearing its end. This most recent onslaught of lawsuits appears to be coordinated with a bear raid upon shares. Moreover, it also appears that the potential value of the claims, which will most likely be settled, is less than the value to be obtained by covering a substantial short position.
As of the last update, there were 8,191,918 shares short, which means that the total short position has recognized about an $8 million gain since the start of 2013. Given Silvercorp's volume, it would take one to two weeks for all short shares to cover. Right now, the activity in Silvercorp indicates that there are three probable reasons for the company's recent poor performance: (1) someone with inside knowledge selling a significant position due a material fact that is yet to be released; (2) a large fund is exiting the position; or (3) a bear raid to cover a large short position.
It is also worth noting that Silvercorp is in the Market Vectors Junior Gold Miner ETF (GDXJ), and is actually one of the larger components of the currently 79-member index ETF, representing about 2.4 percent of the ETF's total portfolio. The Junior Gold Miner ETF last reported holding 11,780,809, which was a decline of 1,587,120 shares compared to its prior reporting. Given that Silvercorp is not a gold miner, this ETF's position is slightly confusing, but hopefully speaks to GDXJ's management's strong opinion regarding Silvercorp's legitimacy and prospects. Of course, it is also entirely possible that GDXJ management may have opted to eliminate the position, either because SVM is not a gold miner or because of a revised risk analysis.
Which of these three potential causes behind Silvercorp's massive sell-off so far this year is the case should become evident in the next month or two, but at this point it does appear most probable that it is a coordinated attack. If that is the case, the short position should soon cover and shares of SVM should then begin to climb.
car le jeu en vaut la chandelle, vu le potentiel de ce titre : de 50 à 150 % sur le MT.
