1) How do we get the rights to mine and take out minerals in China?
China established a Mineral Resource law in 1997 which enabled foreign companies to establish joint ventures with Chinese companies that held exploration licenses in an area of interest (usually this is one of the geological team/brigades that were created by the government to explore the country in the 1980s). The resulting sino-foreign cooperative joint venture can secure exploration and mining permits through the completion of geological reports and title appraisals. Mining permits are issued after reserve calculations are completed by a certified Chinese mining engineering firm. Other reports required include Environmental Impact Studies, Geological Hazard Studies, Labour Safety Review and Soil & Conservation Reports.
2) What are the fundamentals of working in China?
Working in China requires a detailed knowledge of the culture of doing business there. It is extremely important to be sensitive to the main concerns of the local government and the local communities in the areas that we are interested in. It is also important for senior management to be on the ground and dealing directly with the local officials so that any potential problems can be nipped in the bud. It is also important for the company to work within the mining framework and, most importantly, make proper tax payment and adhere to high safety and environmental standards.
3) Who are the other silver producers in China?
China is the third largest silver producer in the World and Silvercorp is the largest primary producer in China. Most other primary producers in China are small operations run by local Chinese companies. This has actually represented a challenge for the Chinese government as it is a difficult task to regulate such an immense number of operations. This has been why there have been opportunities for Silvercorp to consolidate the mines in the Ying district.
4) Are we concerned about having our projects taken away by the government?
We have been operating successfully in China since 2004 and have good long-term relationships with our Chinese joint venture partners. As with any other jurisdiction in the world, there is always the risk. However, to our knowledge this has not happened to a foreign mining company and no Sino-foreign joint venture has ever been formally denied a mining permit. As China’s economic investments outside of China continue to grow we expect that such risks, while never disappearing should decline.
5) What is the taxation regime on mining projects?
China has a 17% Value Added Tax (VAT) on sales of concentrates and on articles such as materials and supplies. The 17% VAT paid on materials purchased for mining is returned to the company as an incentive to mine in China. There is no VAT on labor or services. According to China’s mining law, a 2% resources tax is payable by companies as a royalty to the government. Income tax rate is 25%. In addition the Company pays a VAT surtax which amounts to approximately 1.6% of sales. Other taxes such as Business, City Construction, and school taxes are exempted for foreign invested companies. Further information is available in our Annual Information formal, and most recent Financial Statements and Management Discussion and Analysis.
6) Who purchases Silvercorp’s concentrates and at what price?
Silvercorp produces a premium concentrate at its mill, which is located within only 160km from three smelters. The payable prices for lead and silver range depend on the spot prices on the Shanghai Metal Exchange minus smelter charges. Based on commodity prices, smelters may choose to charge at a fixed rate or a percentage of spot metal prices.
Each quarter in our Management Discussion and Analysis we provide a reconciliation between the spot metal price and the price we receive after smelter charges and value-added taxes.
7) What is the safety situation at your operations?
Silvercorp has a safety superintendent as well as a team of 20 people who provide contract workers with safety training. We also have a system of bonuses and penalties in place. If safety measures are breached, our mine contractors may be fined.
Ying Mine safety is practiced as per Chinese health and safety laws and regulations, with all associated requirements followed during operation. The Occupational Health and Safety (OHS) department’s role is to provide safety training, enforce OHS policies and procedures, make mine safety recommendations and carry out daily inspections of the underground workings and explosive usages. Each of the mining contractors is required to appoint one or two safety officers. A ten-member safety committee is maintained for each of the SGX, HPG and TLP/LM mines. The committees are led by the Henan Found general manager and include deputy general manager, mine manager, safety department supervisor, and mining contractor representatives. The committees are coordinated by each mine’s safety department, and the mine management and the safety officers are required to have valid mine safety training certificates issued by the Provincial Bureau of Safe Production and Inspection.
8) How do we plan to grow the company going forward?
Silvercorp plans to grow in three ways:
Exploration – There is still a lot of growth potential in our existing deposits as we have not fully drilled off our projects. To date, we have mined out over 44 million ounces of Silver, yet our measured and inferred resources today are larger than they were when we first started production in 2007.
Acquisition – In 2008 we acquired the GC/SMT projects in Guangdong province, which increased our silver resource by 30%. In 2011 we also acquired the X mine projects, nearby in Henan Province and the BYP Gold mine in Hunan Province. We will continue to seek new projects to acquire which meet our criteria. Ideally, we would like to repeat the success of the Ying mine where we were able to start making profits while developing our mine infrastructure.
Cost Reduction – We are focusing on optimizing our selected mining methods to reduce cost and increase profitability. We are also focusing greater attention on dilution control.