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A Monster Rally for Silvercorp Metals

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Under the right conditions, incredible strides can be made by simply standing still.

Technically speaking, Silvercorp Metals (NYSE: SVM  ) has gone nowhere fast over the past few trading sessions. But when observed within the context of the sharp and destructive selloff that has battered silver stocks over that time, the ability of Silvercorp's shares to hold the line while those of its peers collapsed marks a truly noteworthy achievement.

The following five-day chart from Yahoo! Finance shows recent highflyer First Majestic Silver (NYSE: AG  ) shedding some 17%, Silver Wheaton (NYSE: SLW  ) and Endeavour Silver (NYSE: EXK  ) each careening lower by more than 20%, and Great Panther Silver (AMEX: GPL  ) faring slightly worse still. Needless to say, this long-term silver bull considers all four stocks outstanding values amid the selloff.

Meanwhile, an outlying 24% retreat for the iShares Silver Trust (NYSE: SLV  ) thus far distinguishes this correction from prior selloffs where mining equities had tended to fall farther and faster than prices for the underlying metal. Correspondingly, as of Friday the silver-bullion proxy had seen none of the significant outflows that one might expect to have accompanied such a severe and sudden price drop.

What makes the relatively stable performance by shares of Silvercorp Metals so very remarkable is that the company had recently been under concerted attack by anonymous individuals leveling serious allegations that briefly rattled the nerves of longstanding investors. I did my part to help set the record straight after the company revealed the existence of the first anonymous letter earlier this month, but of course the company itself deserves all the credit for mounting a rapid, transparent, and highly effective refutation of the various allegations on the company's website.

Having exhaustively reviewed the publicly available claims and supporting documents from both sides of the discussion, it is the concerted opinion of this Fool that Silvercorp Metals will continue to emerge from the allegations of these anonymous short traders with its reputation and credibility intact. I also note with interest the disclosure from the anonymous entity Alfred Little circulated last Thursday, stating that because of "a lack of ability to borrow SVM shares to sell short, contributors to today's report currently have no position in SVM but may initiate new positions at any time." That is certainly encouraging news for Silvercorp investors like myself, and it may help to explain the stock's noteworthy resilience in recent days -- although it doesn't necessarily mean the short-attack is yet complete.

I believe the longs will carry the day here, though the road ahead could be fraught with volatility. Although I reduced my own position slightly to favor silver stocks that are not in the crosshairs of vocal shorts, I must say … the stock's performance over the past few sessions thus far has me second-guessing that decision. But I'm more interested to know how you've reacted to this complex and fluid situation. Are you long, short, or sticking to the sidelines? Post your comments below, and to follow this developing story, be sure to add Silvercorp Metals to your Watchlist.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Endeavour Silver, First Majestic Silver, Great Panther Silver, Silvercorp Metals, and Silver Wheaton. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (11) | Recommend This Article (11)

Comments from our Foolish Readers

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  • Report this Comment On September 26, 2011, at 9:18 PM, richthegeek wrote:

    I jumped to the sidelines on this one. The Alfred Little article seemed to infer too much from what observations they could make, however I'm not willing to bet my money either way. You made very compelling arguments, but it looks like the risk here is a bit too high for me. I know...wimp. :-)

    Keep up the great work.


  • Report this Comment On September 26, 2011, at 9:29 PM, TaTrader999 wrote:

    I have been long SVM for several years. I bought my first 5000 shares when SVM was $3.30. I have been accumulating more shares on the dips up to $9. I really like this company.

    When the shorts started their attack I panicked but did not lose my position. Rather, I started digging deeper into this company. I read everything that was posted about SVM by the short bashers and read everything that I could find on the SVM site. Never have I known more about a company than I now know about SVM.

    I made my decision on who I thought had the more credible information.

    I studied every short volume report that I could lay my hands on and started following the money. I realized that the shorts were trapped. The professional shorts had started the scam but they were able to sucker in enough amateur shorts so that the pros could cover their positions.

    It is of my opinion that the shorts are in the hands of the amateurs now. The smell of a short squeeze is on the wind. In preparation I have almost doubled my long position with the new shares averaging under $7.

    On the break of every even dollar ($8, $9, $10, etc) to the upside I will add to my position. Like I said, I am a long term holder and I think that SVM can easily see $16 within 12 months (or less).

    Let the party begin...

  • Report this Comment On September 26, 2011, at 10:15 PM, rbixpix wrote:

    I was long only 3,000 shares of SVM when the short attack began. After doing DD I have been accumulating SVM on an aggressive basis, cost averaging in. I am now long 39,000 shares with an average cost of $8.42 per share. This company will 2x or 3x from this point in the next 2 years. Very bullish long.

  • Report this Comment On September 26, 2011, at 10:46 PM, esentrik wrote:

    I bought a few shares when it initially dropped, then quickly unloaded them as the allegations piled up and the stock dipped considerably. after a lot of DD i am very impressed with their response and the CEO. very bullish long here

  • Report this Comment On September 27, 2011, at 12:00 AM, eurobear wrote:

    I have been watching the Alfred - Little debacle and there is no question that this was nothing more than an attempt to extort money from investors.

    Silvercorp has had much of support from Canadian authorities, media and consultants. All consultants and some analysts have firmly backed the company. Mining Specialist's have been interviewed that have vouched for the geologists. Silvercorp has successfully rebutted every wrongful claim by Alfred little and have gone as far as to launch large court action against the people behind the short attack.

    In the short to medium term Long investors have the KPMG Forensic audit and a Mine tour and many other counter - short measures to look forward to in the near term.

    Silvercorp actions in response to the short attack have created a much stronger trust from investors than ever existed. Pegasus gallops with silvercorp ....Strong Buy

    Silvercorp has a huge upside in comparison to it's peers. Please view the chart below to compare the sell off of peers to silvercorp over the last few months.,SVM,PAAS,EDR...

  • Report this Comment On September 27, 2011, at 3:53 AM, reflector wrote:

    i had a small position in SVM earlier this year.

    a little while ago i started noticing a big increase in short interest, and then the anonymous letter came out. made me worried for a bit, but after doing some research, i decided it's unlikely there's a problem and it's probably a shorting scam, so i doubled down at the cheaper price.

    not long after that was the so-called "alfred little" letter, by this time i was pretty well convinced it was a hoax, and i bought some JAN '13 $16 calls on SVM.

  • Report this Comment On September 27, 2011, at 11:03 AM, TechTrade wrote:

    I've been in SVM for a couple of years as well, from about 5-5.50. Rode it to 11-12, sold some off, and bought back around 7-8. Wish I'd bought more on the pullback to 6-6.50. But I have been selling Sept., Oct and Dec $7 puts and collecting the premiums on them. Very profitable so far.

  • Report this Comment On September 27, 2011, at 11:09 AM, jesusfreakinco wrote:

    Long and strong SVM. Not for the faint of heart :-)

    Chris - great article!

    Picked up some more physical on this rally. Couldn't resist.


  • Report this Comment On September 27, 2011, at 5:25 PM, jayw999 wrote:

    Held firm on my long position. --Jay

  • Report this Comment On September 27, 2011, at 7:13 PM, dirtman07 wrote:

    I am long 3000 shares of SVM. I have approximately equal dollar value of SLW. Other silver companies I own are GPR and FVI. I have every confidence in Rui Feng, CEO of SVM.

    Keep your faith.

  • Report this Comment On September 27, 2011, at 10:50 PM, stef333 wrote:

    when the alfredlittle accusations came out I was long 600 shares. I sold them and instead bought 6 Calls $8 Jan 2011. On the dip two days ago I added a couple of Calls $7 Jan 2011. If SVM ever dipped really low ($5 or less) I would definitely buy some shares as well.

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