The shares of Canadian miner Silvercorp Metals Inc. (NYSEMKT: SVM) fell 14% last month. But it wasn't the only silver and gold company to get hit, with names like Wheaton Precious Metals (NYSE:WPM) and Pan American Silver (NASDAQ:PAAS) both down nearly 10%. So, the question isn't what drove Silvercorp's stock lower, per se, but what was hitting precious metals miners.
Silvercorp's top line is driven by silver, which made up roughly 50% of first-quarter sales. Only about 2% of the top line came from gold. The rest was a mix of lead (34%) and zinc (12%). Silver prices started September on a positive note, but quickly shifted gears, spending most of the month heading lower. From peak to trough, silver fell around 8%, and investors reacted accordingly with regard to silver-focused Silvercorp and its peers.
Commodity moves aside, the news wasn't all bad last month, with the company providing an update on the progress of exploration programs at a number of its mines. The exploration efforts appeared to produce generally positive results, but it's worth noting that the drilling was centered on the company's Chinese mines. Silvercorp has significant mining operations in that giant nation, which is a clear differentiation between it and most of its peers. In fact, Silvercorp lays claim to being China's largest primary silver producer.
However, the exposure to China may have played a role last month, as well, since silver and the other metals Silvercorp mines are largely industrial metals. In mid-September, China released a number of economic reports that were relatively weak, leading some market watchers to worry about the country's growth prospects. Slower growth in China would likely lead to lower demand for industrial metals. Granted silver is a global commodity, but investors tend to paint in broad brush strokes, and Silvercorp's shares possibly got caught up in that news because of its regional focus.
The drop in Silvercorp's shares was just par for the course for a commodity-focused business. Still, the miner took a larger hit than some of its silver-focused peers -- which could have been a function of its exposure to China. Investors might want to look at more broadly diversified precious metals companies like Wheaton. It's not that Silvercorp's Chinese exposure is a bad thing, but it's a risk factor you can easily avoid if you want to.