SILVERCORP METALS INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2007 AND 2006
(Expressed in Canadian Dollars, unless otherwise stated)
Management's Responsibility for Financial Reporting
Management of Silvercorp Metals Inc. is responsible for the integrity and fair presentation of the
financial information contained in the accompanying consolidated financial statements. Where
appropriate, the financial information, including financial statements, reflects amounts based on the
best estimates and judgments of management. The financial statements have been prepared in
accordance with accounting principles generally accepted in Canada. Other information contained in
this document has also been prepared by management and is consistent with the data contained in the
consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Any system of internal control over financial reporting, no matter how well designed, has
inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation.
The Board of Directors oversees management's responsibility for financial reporting and internal
control systems through an Audit Committee, which is composed entirely of independent directors.
The Audit Committee meets periodically with management and the auditors to review the scope and
results of the annual audit and to review the financial statements and related financial reporting and
internal control matters before the financial statements are approved by the Board of Directors and
submitted to the shareholders of the Company.
Ernst & Young LLP, Chartered Accountants, have audited the Company's financial statements in
accordance with Canadian generally accepted auditing standards and have expressed their opinion in
the auditors’ report.
(Signed) Rui Feng
(Signed) Grace Soo
Rui Feng
Grace Soo
Chairman and Chief Executive Officer
Chief Financial Officer
AUDITORS’ REPORT
To the Shareholders of
Silvercorp Metals Inc.
We have audited the consolidated balance sheets of Silvercorp Metals Inc. as at March 31, 2007
and 2006 and the consolidated statements of income (loss) and retained earnings (deficit) and
cash flows for the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the
financial position of the Company as at March 31, 2007 and 2006 and the results of its operations
and its cash flows for the years then ended in accordance with Canadian generally accepted
accounting principles.
Vancouver, Canada,
May 11, 2007.
Chartered Accountants
A Member of Ernst & Young Global
SILVERCORP METALS INC.
CONSOLIDATED BALANCE SHEETS
As at March 31, 2007 and 2006
(Express in Canadian Dollars)
$
$
$
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 14
Note 15 (a)
Note 11
Note 14
Note 15 (b)
Note 11
Note 12
Note 13
2007
2006
$
$
$
61,484,697
6,282,426
1,470,820
2,077,954
71,315,897
-
1,769,852
7,557,083
9,071,817
18,822,299
10,000
108,546,948
3,599,126
1,599,376
1,678,446
337,115
1,536,722
8,750,785
1,620,042
772,438
11,143,265
3,899,812
8,700,000
996,077
-
13,595,889
305,760
356,720
1,355,079
1,740,552
3,721,801
10,000
21,085,801
1,398,362
357,685
-
-
35,070
1,791,117
-
-
1,791,117
8,010,333
700,637
86,326,581
1,195,340
1,232,387
639,042
89,393,350
38,130,910
4,886,735
46,168
(24,469,766)
18,594,047
$
Notes 8, 18, and 19
108,546,948
$
21,085,801
-
ASSETS
Current Assets
Cash and cash equivalents
Short term investments
Accounts receivable and prepaids
Inventories
Advances to joint venture parties
Long term receivable
Long term investments
Property, plant and equipment
Mineral rights and properties
Reclamation deposits
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Deposits received from customers
Income tax payable
Current portion of asset retirement obligations
Amount due to related parties
Future income tax liabilities
Asset retirement obligations
Non-controlling interests
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Cumulative translation adjustment
Retained earnings (deficit)
Commitments and Contingencies
Approved on behalf of the Board:
(Signed) Greg Hall
Director
(Signed) Rui Feng
Director
The accompanying notes are an integral part of these consolidated financial statements.
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
For years ended March 31, 2007 and 2006
(Expressed in Canadian Dollars except for share figures)
2007
2006
Sales
Note 17
$
45,290,340
$
Cost of sales
Amortization and depletion
Earnings from mine operations
Expenses
Accretion of asset retirement obligations
Amortization
Foreign exchange loss (gain)
General exploration and property investigation expenses
Investor relations
Mineral properties written off
Office, administration and miscellaneous
Professional fees
Stock-based compensation expenses
Earnings before other income and expenses
Other income and expenses
Equity loss in investments
Loss on disposal of property, plant and equipment
Loss on disposal of long term investments
Mineral property option income
Interest income
Other income
Note 11
Note 10(a)
Note 14(a)
Note 14(a)
Note 12(d), 13
Note 8(b)
Note 9
Note 8(a)
Note 8(b)
8,810,829
1,354,667
10,165,496
35,124,844
70,478
139,727
(349)
919,639
856,856
-
2,581,496
515,788
2,226,425
7,310,060
27,814,784
(252,839)
(4,988)
(12,400)
4,387,748
1,952,313
37,891
6,107,725
-
-
-
-
-
-
73,707
50,056
685,697
312,503
1,714,491
1,405,883
335,325
2,295,591
6,873,253
(6,873,253)
(159,334)
-
-
342,376
164,369
135,899
483,310
Income (loss) before income taxes and non-controlling interests
33,922,509
(6,389,943)
Income tax expense
Note 15(a)
(1,623,286)
-
Income (loss) before non-controlling interests
32,299,223
(6,389,943)
Non-controlling interests
Net income (loss) for the year
Deficit, beginning of the year
Retained earning (deficit), end of year
Basic earnings (loss) per share
Diluted earnings (loss) per share
(7,190,415)
130,688
25,108,808
(6,259,255)
(24,469,766)
(18,210,511)
$
$
$
639,042
0.52
0.50
$
$
$
(24,469,766)
(0.15)
(0.15)
Weighted Average Number of Shares Outstanding - Basic
47,971,231
42,416,005
Weighted Average Number of Shares Outstanding - Diluted
49,891,352
42,416,005
The accompanying notes are an integral part of these consolidated financial statements.
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For years ended March 31, 2007 and 2006
(Expressed in Canadian Dollars)
Cash provided by (used for)
Operating activities
Net income (loss) for the year
Add (deduct) items not affecting cash :
Accretion of asset retirement obligations
Amortization and depletion
Equity loss in investments
Loss on disposal of long term investments
Loss on disposal of property, plant, and equipment
Mineral property option income
Mineral property written off
Non-controlling interests
Stock-based compensation
Net change in non-cash working capital
Acounts receivable and prepaids
Inventory
Accounts payable and accrued liabilities
Asset retirement obligation discharged upon payment
Deposits received from customers
Income tax payable
Cash provided by (used in) operating activities
Investing activities
Purchase of mineral rights and properties
Mineral rights and properties - cost recovery
Purchase of property, plant, and equipment
Purchase of long term investments
Advances to related parties
Cash transferred in on acquisition of Ying Project
Cash transferred in from JV partners
Redemption (purchase) of short term investments
Increased in long term receivable
Proceeds from disposal of long term investments
Proceeds from disposal of property, plant, and equipment
Payment to Joint Venture partner for acquisition of Henan Found
Cash used in investing activities
Financing activities
Advances from related parties
Advances to joint venture parties
Share issued for cash
Shares returned to Treasury for cancellation
Cash provided by financing activities
2007
2006
$
25,108,808
$
(6,259,255)
70,478
1,494,394
252,839
12,400
4,988
(4,387,748)
-
7,190,415
2,226,425
31,972,999
(474,743)
(1,944,852)
2,054,310
(260,925)
1,192,569
1,678,446
34,217,804
(13,380,876)
-
(7,201,641)
(2,317,095)
-
-
119,280
2,624,038
(1,413,132)
237,600
10,000
-
(21,321,826)
1,501,652
305,760
47,776,954
(5,499,104)
44,085,262
-
73,707
159,334
-
-
(342,376)
1,714,491
(130,688)
2,295,591
(2,489,196)
277,860
-
721,991
-
(75,676)
-
(1,565,021)
(7,171,631)
5,455,665
(814,486)
-
(8,714)
1,899,365
-
(4,500,000)
(356,720)
-
-
(1,767,652)
(7,264,173)
-
(244,106)
10,685,196
-
10,441,090
Effect of exchange rate changes on cash and cash equivalents
603,645
(83,966)
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental information:
Interest paid
Income tax paid
Non-cash investing activities:
Common shares of New Pacific Metals Corp. received as
partial consideration for the Option Agreement in
relation to the Kang Dian Project
Asset retirement obligations included in mineral rights and properties
57,584,885
3,899,812
1,527,930
2,371,882
61,484,697
$
3,899,812
319
-
$
$
21
-
4,387,748
$
342,376
1,300,000
$
-
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
Silvercorp Metals Inc., an exploration and development stage company, along with its subsidiary
companies and joint ventures (collectively the “Company”) are engaged in the acquisition,
exploration, development, and mining of precious and base metal mineral properties in the People’s
Republic of China (“China”). The Company existed from the exploration stage effective April 1, 2006
pursuant to ACG 11 “Enterprises in the Development Stage”. The Company is a reporting issuer in
British Columbia, Alberta, Ontario, Nova Scotia, New Brunswick, Manitoba and Saskatchewan and
trades on the TSX Exchange under the symbol SVM.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation and principles of consolidation
These consolidated financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (“GAAP”), and presented in Canadian dollars. They
include the accounts of the Company and its directly and indirectly owned subsidiaries Silvercorp
Metals China Inc., Fortune Mining Limited, Fortune Copper Limited, Fortress Mining Inc.,
Fortune Gold Mining Limited, Lachlan Gold Ltd., Victor Resources Ltd., Victor Mining Ltd.,
Yunnan Jin Chang Jiang Mining Co. Ltd. (“YJCJM”), 60% owned subsidiary, Huawei Mining
Co. Ltd., and 77.5% owned subsidiary, Henan Found Mining Co. Ltd. (“Henan Found”).
All significant inter-company transactions and accounts have been eliminated upon consolidation.
(b) Use of estimates
The preparation of financial statements in accordance with Canadian GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant areas
requiring the use of management estimates include assumptions and estimates relating to
determining defined ore bodies, reserves value beyond proven and probable mine life, fair values
for purposes of impairment analysis, reclamation obligations, non-cash stock-based compensation
and warrants, valuation allowances for future income tax assets, and future income tax liabilities.
Actual results could differ from these estimates.
(c) Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid investments having maturity dates of
three months or less from the date of acquisition that are readily convertible to cash.
(d) Inventories
Inventories include metals contained in concentrates, stockpile ores and operating materials and
supplies. The classification of inventory is determined by the stage at which the ore is in the
production process. Inventories of ore are sampled for metal content and are valued based on the
lower of actual production costs incurred or estimated net realizable value based upon the period
Notes to the Consolidated Financial Statements page 1
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
ending prices of contained metal. Material that does not contain a minimum quantity of metal to
cover estimated processing expense to recover the contained metal is not classified as inventory
and is assigned no value. All metal inventories are stated at the lower of cost or market, with cost
being determined using the moving average method. Supplies inventories are valued at the
average cost, net of obsolescence. Concentrate inventories are valued at lower of cost or market.
(e) Long-term investments
Long-term investments over which the Company has no control or for which it does not have
significant influence or control are valued at cost, less a provision for other than temporary
impairments in value.
Investments in which the Company has a significant influence are accounted for by the equity
method, whereby the Company records its proportionate share of the investee’s income or loss.
Quoted market values presented do not necessarily reflect the long-term net realizable value and
assume that the Company is able to dispose of all shares held at the closing trading price at year
end.
(f) Property, plant and equipment
Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-
line method at the following rates, calculated to amortize the cost of the assets less their residual
values over their estimated useful lives.
Building
Computer equipment
Computer software
Equipment and funiture
Machinery
Mining equipment
Motor vehicle
Leasehold improvement
(g) Mineral rights and properties
5%
20% - 50%
20% - 50%
20% - 50%
10% - 20%
10%
20%
20%
Mineral rights and properties include the acquisition costs, direct exploration and development
expenditures.
Upon commencement of commercial production, mineral properties and capitalized expenditures
are amortized over the mine's estimated life using the units of production method calculated on
the basis of estimated reserves.
The Company reviews the carrying value of each property that is in the exploration/development
stage by reference to the project economics including the timing of the exploration and/or
development work, the work programs and the exploration results experienced by the Company
Notes to the Consolidated Financial Statements page 2
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
and others. The review of the carrying value of each producing property will be made by
reference to the estimated future operating results and net cash flows. When the carrying value of
a property exceeds its estimated net realizable amount, provision will be made for the decline in
value. The carrying amount will be written off if the Company decides to abandon the property.
The recoverability of the amounts capitalized for the undeveloped mineral properties and deferred
exploration costs is dependent upon the determination of economically recoverable ore resources,
confirmation of the Company’s interest in the underlying mineral claims, the ability to obtain the
necessary financing to complete their exploration and development and future profitable
production or proceeds from the disposition thereof.
(h) Asset retirement obligations
Asset retirement obligations ("ARO") represent the estimated discounted net present value of
statutory, contractual or other legal obligations relating to site reclamation and restoration costs
that the Company will incur on the retirement of assets and abandonment of mine and exploration
sites. ARO are added to the carrying value of mineral rights and properties as such expenditures
are incurred and amortized against income over the useful life of the related asset. ARO are
determined in compliance with recognized standards for site closure and mine reclamation
established by governmental regulation.
Over the life of the asset, imputed interest on the ARO liability is charged to operations as
accretion of asset retirement obligations on the consolidated statements of income (loss) using the
discount rate used to establish the ARO. The offset of accretion expense is added to the balance of
the ARO.
Where information becomes available that indicates a recorded ARO is not sufficient to meet, or
exceeds, anticipated obligations, the obligation is adjusted accordingly and added to, or deducted
from, the ARO.
(i) Foreign currency translation
All the subsidiaries, except its 77.5% owned subsidiary Henan Found Mining Co. Ltd. (“Henan
Found”), are considered to be integrated foreign operation and their financial statements are
translated to Canadian dollars under temporal method. Monetary assets and liabilities
denominated in foreign currencies are translated at the exchange rate in effect at the balance sheet
date and non-monetary assets and liabilities at historical exchange rate. Revenues and expenses
are translated at the average exchange rate in effect during the period. Realized and unrealized
foreign exchange gains and losses are included in earnings.
Henan Found is considered to be a self-sustaining operation. The assets and liabilities of Henan
Found, which are dominated in Chinese Yuan (“RMB¥”), are translated into Canadian dollars using
current rate method at period-end exchange rates and resulting translation adjustments are
reflected as a separate component of shareholders’ equity. Revenues and expenses of Henan
Found are translated at average exchange rates for the year.
Notes to the Consolidated Financial Statements page 3
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
(j) Revenue Recognition
Revenue is recognized upon delivery when title and risk of ownership of metals or metals bearing
concentrate passes to the buyer and when collection is reasonably assured. The passing of title to
the customer is based on the terms of the sales contract. Product selling price is referenced to the
active and freely traded commodity markets.
(k) Stock-based compensation plan
The Company accounts for stock options using the fair value method. Under this method,
compensation expense for stock options granted to employees, officers, and directors is measured
at fair value at the date of the grant using the Black-Scholes valuation model and is expensed in
the statement of income (loss) over the vesting period of the options granted. Stock options
granted to consultants are measured at their fair value using the Black-Scholes valuation method.
Upon the exercise of the stock option, consideration received and the related amount transfer
from contributed surplus are recorded as share capital.
(l) Impairment of long-lived assets
Management of the Company regularly reviews the net carrying value of each long-lived asset.
Where information is available and conditions suggest impairment, estimated future net cash flows
are calculated using estimated future prices, proven and probable reserves, selling prices for
mineral ores and concentrates, and operating, capital and reclamation costs on an undiscounted
basis. Reductions in the carrying value of long-lived assets would be recorded to the extent the net
book value of the related assets exceeds the estimated undiscounted future cash flows. The
impairment amount would correspond to the excess of the carrying value over the fair value.
Where estimates of future net cash flows are not available and where other conditions suggest
impairment, management assesses if carrying value can be recovered. Management’s estimates
of mineral prices, recoverable proven and probable reserves, selling prices for ores and
concentrates, and operating, capital and reclamation costs are subject to certain risks and
uncertainties which may affect the recoverability of long-lived assets. Although management has
made its best estimate of these factors, it is possible that changes could occur in the near term,
which could adversely affect management’s estimate of the net cash flow to be generated from its
assets.
(m) Income taxes
The Company uses the liability method of accounting for income taxes. Future income taxes are
recognized for the future income tax consequences attributable to differences between the
carrying values of assets and liabilities and their respective income tax bases on the balance sheet
date. Future income tax assets and liabilities are measured using substantively enacted income tax
rates expected to apply in the years in which temporary differences are expected to be recovered
or settled. The effect on future tax assets and liabilities of a change in substantively enacted rates
is included in operations. A future income tax asset is recorded when the probability of the
realization is more likely than not.
Notes to the Consolidated Financial Statements page 4
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
(n) Earnings (loss) per share
Basic earnings per share is computed by dividing net income or loss by the weighted average
number of outstanding common shares for the year.
The computation of diluted earnings per share reflects the dilutive effect of the exercise of stock
options and warrants outstanding as at year-end using the treasury stock method whereby the
assumed proceeds upon the exercise of stock options and warrants are used to purchase common
shares at the average market price during the year. Diluted loss per share is equal to basic loss per
share for the year ended March 31, 2006 because common stock equivalents that were
outstanding at March 31, 2006 were anti-dilutive.
(o) Accounting developments
(i) Stripping costs
On March 2, 2006, the CICA issued EIC-160 Stripping Costs Incurred in the Production Phase
of a Mining Operation that requires adoption for fiscal year beginning on or after July 1, 2006
with early adoption encouraged. EIC-160 requires the costs associated with the removal of
overburden and other mine waste materials that are incurred in the production phase of mining
operations be charged to income in the period in which they are incurred, except when the
costs represent betterment to the mineral property. Stripping costs represent betterment to the
mineral property when the stripping activity provides access to reserves that will be produced
in future periods and that would otherwise not have been accessible without the stripping
activity. When stripping costs are deferred in relation to betterment, the costs are amortized to
operations over the reserve accessed by the stripping activity using the units of production
method.
The Company will adopt, on a prospective basis, EIC-160 beginning with fiscal year 2008.
The Company believes the application of this new accounting policy will not have a material
impact on the financial position or results of operations.
(ii) Financial instrument standards
During 2006, the CICA introduced financial instrument standards effective for fiscal years
beginning on or after October 1, 2006. These standards are Section 1530, Comprehensive
Income; Section 3855, Financial Instruments – Recognition and Measurement and Section
3865, Hedges. The Company will adopt these standards on April 1, 2007. Management is
currently assessing the impact of these new standards.
(iii) Accounting changes
In July 2006, the CICA revised Section 1506, “Accounting Changes”, which now requires
that: (a) a voluntary change in accounting principles can be made if, and only if, it is required
by a primary source of GAAP, or the changes result in more reliable and relevant information,
(b) changes in accounting policies are accompanied with disclosures of prior period amounts
and justification for the change, and (c) for changes in estimates, the nature and amount of the
change should be disclosed. The revised section is effective for the Company’s financial year
beginning April 1, 2007.
Notes to the Consolidated Financial Statements page 5
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
(p) Comparative figures
Certain comparative figures have been reclassified to conform with the current year’s
presentation.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents as at March 31, 2007 of $61,484,697 (March 31, 2006 - $3,899,812) consist
of cash, bank notes, and term deposits maturing within three months of the initial investment date. As
at March 31, 2007, the Company holds a bank discount note with a market value of $37,265,319
(March 31, 2006 - $nil) and a face value of $37,403,000 (March 31, 2006 - $nil) yielding 4.31%
(March 31, 2006 - $nil) per annum to maturity on April 30, 2007. The Company’s term deposits total
$8,851,017 (RMB¥59,362,955) (March 31, 2006 - $1,456,000), bear interest of 1.80% (March 31,
2006 – 1.71%) per annum, with maturity dates to June 01, 2007.
4. SHORT TERM INVESTMENTS
Short term investments as at March 31, 2007 of $6,282,426 (RMB¥42,135,656) are made up of term
deposits with maturity dates beyond three months. Short term investment as at March 31, 2006 of
$8,700,000 were made up of guarantee investment certificates and were disposed during the year. As
at March 31, 2007, the term deposits comprised the following:
Type of Deposit
Term Deposit
Term Deposit
Term Deposit
Total
C$ equivalent
$
1,958,526
1,341,900
2,982,000
6,282,426
$
Amount RMB ¥
13,135,655
9,000,000
20,000,000
42,135,655
Interest Rate
2.07%
2.25%
2.43%
Maturity Date
July 30, 2007
September 18, 2007
September 26, 2007
5. ACCOUNTS RECEIVABLE AND PREPAIDS
Accounts receivable and prepaids consist of the following:
Interest receivable
Prepaid expenses and deposits
Other receivables
March 31, 2007
45,818
1,425,002
-
1,470,820
$
$
March 31, 2006
101,057
825,248
69,772
996,077
$
$
Notes to the Consolidated Financial Statements page 6
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
6. INVENTORIES
Inventories consist of the following:
Direct smelting ore and stockpile ore
Concentrate inventory
Total stockpile
Material and supplies
7. LONG TERM RECEIVABLE
$
March 31, 2007
1,185,427
603,064
1,788,491
289,463
2,077,954
March 31, 2006
$
-
-
-
-
$
-
$
Long term receivable as at March 31, 2007 of $1,769,852 (2006 - $356,720) comprised of: $1,250,002
(2006 - $356,720) of advances or loans to contractors to purchase equipment to work on the Ying
Project or construct mill facilities for the Company as well as prepayments to suppliers to acquire
fixed assets; and $519,850 (2006 - $nil) of advances to third parties to assist the Company in the
exploration of potential mineral properties in other parts of China.
8. LONG TERM INVESTMENTS
Dajin Resources Corp. (a)
1,000,000 (2006 - 2,000,000) common shares
market value $260,000 (2006 - $500,000)
March 31, 2007 March 31, 2006
$
250,000
$
500,000
New Pacific Metals Inc. (b)
7,239,988
855,079
Investment in Luoning County Smelter (c)
67,095
7,557,083
$
-
1,355,079
$
(a) Dajin Resources Corp.
On June 22, 2006, the Company disposed of 1,000,000 (2006 – $nil) shares of Dajin for gross
proceeds of $237,600 (2006 – $nil) and a loss of $12,400 (2006 – $nil) was recorded.
(b) New Pacific Metals Inc.
In November 2003, the Company, through a wholly owned subsidiary SKN Nickel & Platinum
Ltd. (“SNP”), entered into a letter agreement with the holder of the permits and permit
applications comprising the Kang Dian Project, located in Sichuan Province, China, thereby
obtaining the rights to acquire a 75% interest in the exploration permits by contributing
$3,024,000 (US$2,500,000) to fund the exploration and development of the Project over a period
of four years and paying $96,768 (US$80,000) to a Chinese party within 10 days after obtaining
the approvals from China government. After SNP has earned its 75% interest, contributions to
fund the exploration and development of the Project will be made pro rata. The interest of the
Chinese property owners can be diluted to not less than 10% if they elect not to make cash
contributions.
Notes to the Consolidated Financial Statements page 7
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
On March 4, 2004, the Company entered into a letter agreement with New Pacific Metals Corp.
(“NUX”), a related party by way of a common director, whereby NUX has the option to acquire
SNP, by meeting the required capital commitment of SNP under the joint venture contract, and
thereby the Kang Dian Project through the issuance of a total of 6,500,000 common shares at
market price on the date of release. The common shares were issuable on the basis of 2,500,000
common shares on issuance of a Bulletin by the TSX Venture Exchange accepting the transaction
(issued); a further 2,000,000 shares were to be issued upon successful completion of the $452,390
(US$374,000) work program recommended under the Technical Report that has been completed
on the Project (issued); and 2,000,000 shares were to be issued upon completion of $1,209,600
(US$1,000,000) in funding obligations by SNP under the agreement (issued). The initial
2,500,000 common shares are subject to escrow with 650,000 common shares released upon
receipt of exchange approval and 154,167 every quarter over the 3 year escrow period. The first
and second tranches of 2,000,000 common shares issued are subject to escrow with a release of
250,000 common shares every three months. The common shares remaining in escrow are subject
to cancellation in the event NUX determines not to continue contributing to the joint venture
company to be created. The Company placed a representative on the NUX Board of Directors
pursuant to the terms of the agreement.
During the year ended March 31, 2007, NUX exercised its option to acquire SNP and issued
additional 2,000,000 (2006 - 4,500,000) common shares into escrow. The Company is entitled to
the voting rights attached to the escrow shares. As at March 31, 2007, a total of 4,087,501(2006 -
1,670,835) NUX’s common shares were released to the Company from escrow. The mineral
property option income was $4,387,748 representing the market value of 2,416,666 common
shares (2006 - $342,376 on 866,668 common shares) released from escrow in 2007.
In March 2007, the Company participated in NUX’s private placement and subscribed for a total
of 900,000 units at $2.50 per unit. Each unit was comprised of one common share and one-half of
one share purchase warrant. Each whole warrant entitles the Company to acquire on additional
common share at $3.00 for a period of one year until March 15, 2008.
Although the Company does not exercise control over NUX as the decision making process
requires majority board members’ approval, the Company has been considered to have the ability
to exercise significant influence on NUX. The Company thus accounts for its investment in NUX
on the equity basis, which is carried at cost, adjusted for the Company’s proportionate share of
their undistributed earnings or losses. For the year ended March 31, 2007, a total of $252,839
(2006 - $28,630) of equity loss had been recorded.
The following is the summary of the investment in NUX:
March 31, 2007
March 31, 2006
Cost of 4,987,501 (2006 - 1,670,835) shares of NUX
Equity in loss of investee company
Investment in NUX on equity basis
$
$
7,521,457
(281,469)
7,239,988
$
$
883,709
(28,630)
855,079
Notes to the Consolidated Financial Statements page 8
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
(c) Investment in Luoning Country Smelter
During the 2007 fiscal year, Henan Found entered into a joint venture agreement, for a 22.5%
participation interest, in a custom built 150,000-tonne/year lead-silver-gold smelter in Luoning
County, Luoyang City, Henan Province, China. Henan Found's share, 22.5% of the cost, will be
$6.71 million (RMB¥45 million) for the first phase and is expected to be financed by cash flow
from its Ying Silver Mine. The construction of the smelter has received preliminary approval
from the Henan provincial government and is subject to further approval by related Chinese
governmental authorities. As of March 31, 2007, Henan Found contributed its first installment of
$67,095 (RMB¥450,000) to set up the joint venture.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
March 31, 2007
March 31, 2006
Accumulated
Depreciation
Cost
Net Book
Value
Accumulated
Depreciation
Net Book
Value
Cost
Building
$
3,262,007
$
34,845
$
3,227,162
$
154,766
$
4,318
$
150,448
Computer equipment
Computer software
Equipment and funiture
Machinery
Mining equipment
Motor vehicle
Leasehold improvement
330,149
122,089
480,571
1,214,037
492,106
968,586
116,936
114,113
13,750
38,130
42,651
116,981
123,479
6,724
216,036
108,339
442,441
1,171,386
375,125
845,107
110,212
95,671
65,899
150,734
203,589
491,643
322,136
-
Construction in process
2,576,009
-
2,576,009
486,525
66,443
3,714
29,494
8,304
67,182
50,956
-
-
29,228
62,185
121,240
195,285
424,461
271,180
-
486,525
$
9,562,490
$
490,673
$
9,071,817
$
1,970,963
$
230,411
$
1,740,552
During the year ended March 31, 2007, the Company disposed equipment and furniture for proceeds
of $14,988 (2006 – $nil) due to the move of head office. A loss of $4,988 (2006 – $nil) was recorded.
Notes to the Consolidated Financial Statements page 9
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
10. MINERAL RIGHTS AND PROPERTIES
Mineral rights and properties are comprised of the following:
Balance, March 31, 2005
Additions during the year:
Acquisition of mineral rights and properties
Capitalized exploration and development costs
Consulting and management fees
Drilling, assay fee and reporting
Office and miscellaneous
Tunneling and trenching
Exploration and development cost recovery
Mineral interest written off
Balance, March 31, 2006
Additions during the year:
Acquisition of mineral rights and properties
Capitalized asset retirement obligation
Capitalized exploration and development costs
Consulting and management fees
Drilling, assay fee and reporting
Office and miscellaneous
Tunneling and trenching
Amortization
Balance, March 31, 2007
Tuobuka
Ying
HPG
NZ
Total
$
1,668,740
$
262,761
$
-
$
-
$
1,931,501
-
-
-
31,150
8,235
6,366
-
(1,714,491)
-
4,281,626
-
255,072
1,779,718
700,520
1,867,386
(5,425,282)
-
3,721,801
-
-
-
-
-
-
-
-
-
-
4,281,626
-
255,072
1,810,868
708,755
1,873,752
(5,425,282)
(1,714,491)
3,721,801
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,878,838
1,300,000
6,494,306
-
1,762,940
-
11,136,084
1,300,000
259,415
1,246,445
6,825
2,452,885
(1,301,156)
10,565,053
-
-
-
-
-
$
6,494,306
$
-
-
-
-
-
1,762,940
$
259,415
1,246,445
6,825
2,452,885
(1,301,156)
18,822,299
$
$
Although the Company has taken steps to verify title to the mineral properties in which it, through its
subsidiaries, has an interest, in accordance with industry standards for the stage of exploration of
such properties, those procedures do not guarantee the Company’s title. Property title may be subject
to unregistered prior agreements and non-compliance with regulatory requirements.
(a) Tuobuka Property
During the year ended March 31, 2006, the Company wrote off the mineral exploration expenses of
$1,714,491 capitalized in relation to the Tuobuka Property as the Company decided to suspend
carrying out any exploration work on the Tuobuka Property. No further work done on Tuobuka
Property for the year ended March 31, 2007.
(b) Ying Property
In May 2004, the Company, through its wholly owned subsidiary, Victor Mining Ltd., entered into
a cooperative joint venture agreement with a Chinese party to earn a 77.5% interest in the high
grade Ying Silver-Lead-Zinc Project located in Henan Province, China. Under the cooperative
agreement, the Company had the right to earn up to 77.5% of the Ying Project by funding
exploration and development of the Project in the amount of $4,445,121 (US$3,670,000) to the joint
venture company, Henan Found Mining Co. Ltd. (“Henan Found”), over a period of three years for
Notes to the Consolidated Financial Statements page 10
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
a 55% interest in Henan Found and paying $1,767,652 (US$1,500,000) to the Chinese party over a
period of three years to earn another 22.5% interest in Henan Found. In September 2005, the
Company reached an agreement with the Chinese partner to immediately earn its 77.5% interest in
the Ying Project through making the required cash contributions. Pursuant to the agreement, the
Chinese partner will maintain a fully carried 22.5% interest. The operating results of Henan Found
have been consolidated into the Company’s consolidated financial statements from October 1, 2005.
Since the commercial operation commenced on April 1, 2006, the Ying Property becomes the
major revenue and profit contributor of the Company.
During the year ended March 31, 2007 Henan Found acquired two additional exploration permits
adjacent to the existing boundary of Ying Project for cash consideration of $509,400
(RMB¥3,416,500), which was paid and capitalized as acquisition cost of mineral rights and
properties. The exploration permits were transferred to Henan Found during the year ended March
31, 2007.
In July 2006, Henan Found, reached a settlement with a third party by paying the third party a
total of $1,051,155 (RMB¥7.05 million), of which $1,013,880 (RMB¥6.8 million) was paid, to
stop its unauthorized mining activities on the Ying Property. The payment made by Henan Found
had been capitalized as acquisition cost of mineral rights and properties.
(c) HPG Silver-Gold-Lead Property
In May 2006, the Company, through its indirectly wholly owned subsidiary, Victor Resources
Ltd., entered into an agreement to acquire a 60% interest of the HPG silver-gold-lead operating
mine and property within the Ying Silver Project, Henan Province, China. The HPG gold-silver-
lead property consists of two adjacent mining licenses surrounded by one exploration permit
within the Ying Silver Project area in Henan, and a flotation mill and associated facilities. A joint
venture company, Henan Huawei Mining Co. Ltd. (“Huawei”), was established, with all
necessary governmental approvals, including approvals from the Ministry of Commerce, and
issuance of the business license, being received on January 15, 2007.
In January 2007, the Company and the Chinese joint venture partner have agreed to increase the
contributed capital of Huawei by $301,800 (RMB¥2 million) to $2,112,600 (RMB¥14 million)
and as a result the total payments required by the Company total $6,522,493 (RMB¥43.2 million).
In January 2007, the Company paid a total of $6,206,826 (US$5,271,286 or RMB¥41.1 million)
resulting in total payment of $6,839,600 (RMB¥45.3 million), under the HPG Project, of which
$317,107 (RMB¥2.1 million) was returned to the Company. The Company has made all required
payments to the vendor and has contributed the required investment to Huawei, to earn a 60%
interest in Huawei, which is the operator and 100% interest holder of HPG properties. Transfer of
the mining licenses and exploration permit from the vendor to the Huawei is currently in process.
On May 11, 2007, the Company, through its indirectly wholly owned subsidiary, Victor
Resources Ltd., signed an agreement to acquire a further 20% interest in Huawei from its joint
venture partner, in which 10% interest will be held in trust for a shareholder of the joint venture
partner. Total consideration for the 20% interest is $1,983,030 million (RMB¥13.3 million) with
the Company’s share of approximately $991,515 (RMB¥6.65 million) paid in full. While
Notes to the Consolidated Financial Statements page 11
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
government approval is expected to be received shortly, the Company is now entitled to a 70%
interest, in any future profit and funding requirements, of Huawei.
(d) NZ Gold- Silver Property
In October 2006, the Company, through its 77.5% owned subsidiary company, Henan Found,
entered into an agreement with a third party, related by common control, to acquire a 100%
interest in the NZ Gold-Silver property (the “ NZ Property”), on its behalf.
As at March 31, 2007, the third party has completed its acquisition of the NZ Property, by
payment of $1,267,350 (RMB¥8,500,000), and is in the process of transferring the ownership of
the NZ Property to Henan Found.
11. ASSET RETIREMENT OBLIGATIONS
.
The Company’s assets retirement obligations relate to the reclamation cost of the Ying property and
were calculated using a credit-adjusted risk-free discount rate of 6.0%. The total undiscounted
amount of cash flows required to settle the obligations is estimated at approximately $1.56 million
and is expected to be settled gradually over the estimated mine life of 6 years. These obligations will
be funded from the Company’s resources upon local government’s fee payment request.
The following table presented the reconciliation of the beginning and ending obligations associated
with the retirement of the properties:
Balance, March 31, 2006
Obligations incurred during the year
Obligations discharged upon payments to local government
Accretion of asset retirement obligations
Balance, March 31, 2007
Less: current portion of asset retirement obligations
Long term portion of asset retirement obligations
12. SHARE CAPITAL
(a) Authorized
Unlimited number of common shares without par value.
$
-
1,300,000
(260,925)
70,478
1,109,553
(337,115)
772,438
$
$
Notes to the Consolidated Financial Statements page 12
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
(b) Issued and outstanding
Changes in outstanding common shares were as follows:
Balance, March 31, 2005
Options exercised
Warrants exercised
Private Placement
Contributed surplus transferred as per options and warrants exercised
Share cancellation under the Normal Course Issuer Bid
Balance, March 31, 2006
Options exercised
Warrants exercised
Private Placement
Contributed surplus transferred as per options exercised
Contributed surplus transferred as per share cancellation
Share cancellation under the Normal Course Issuer Bid
Balance, March 31, 2007
Number of
Shares
40,595,407
1,189,250
1,477,500
2,000,000
-
(200,000)
45,062,157
987,239
522,500
2,501,250
-
-
(420,500)
48,652,646
$
$
Amount
27,211,096
516,575
3,806,500
6,362,121
335,709
(101,091)
38,130,910
889,160
2,403,500
44,484,295
1,151,459
4,766,361
(5,499,104)
86,326,581
$
In September 2005, the Company completed a non-brokered private placement of 2,000,000
Units at $3.20 per Unit for net proceeds of $6,362,121. Each Unit was comprised of one common
share and one-half share purchase warrant. Each whole warrant entitles the holder to acquire one
additional common share at a price of $4.60 per share. All warrants were exercised prior to their
expiry date of September 15, 2006. During the year of 2006, the Company acquired and cancelled
200,000 its common shares from the open market at cost of $101,091.
On April 26, 2006, the Company completed a short form prospectus financing which raised gross
proceeds of $47,773,875 through the sale of 2,501,250 units at a price of $19.10 per Unit. Each
Unit is comprised of one common share of the Company and one half share purchase warrant.
Each whole warrant is exercisable up to October 25, 2007 at a strike price of $24 per common
share.
On June 13, 2006, the Board of Directors approved another Normal Course Issuer Bid to acquire
up to 1,000,000 of its common shares, over a one year period. Purchases will be made at the
discretion of the Directors at prevailing market prices, through the facilities of the TSX Exchange.
The Company intends to hold for cancellation all shares acquired under the Normal Course Issuer
Bid. As at March 31, 2007, a total of 420,500 of its common shares were acquired and cancelled
under the Normal Course Issuer Bid at a cost of $5,499,104 and a total of $4,766,361 was
transferred from contributed surplus upon the share cancellations.
(c) Share Purchase Warrants
The Company adopted the Residual Approach in valuing the share purchase warrants attached to
private placement units issued. Under this approach, proceeds up to the Company’s share market
value are allocated to the shares and only the excess above the market value is allocated to the
Notes to the Consolidated Financial Statements page 13
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
attached share purchase warrants. No value has been allocated to these warrants as determined
under the Residual Approach.
The following is a summary of warrant transactions:
Number of
Warrants
Outstanding as at
March 31, 2006
Issued
during
the year
Balance of Exercised
Number of
Price
Warrants
Warrants
Per
Exercised Outstanding as at
during the year March 31, 2007 Warrant
Expiry Date
522,500
-
522,500
-
1,250,623
1,250,623
(522,500)
-
(522,500)
-
1,250,623
1,250,623
$
4.60
24.00
September 15, 2006
October 25, 2007
(d) Stock Options
The Company is able to grant stock options to acquire up to 6,500,000 shares. The options are
exercisable for a period of up to ten years from the date of grant, as determined by the Board of
Directors. The exercise price cannot be less than the last price on the TSX Exchange immediately
preceding the grant of the option. Options vest over a minimum period of eighteen months from
the date of grant.
Notes to the Consolidated Financial Statements page 14
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
The following is a summary of option transactions:
Balance, March 31, 2005
Options granted
Options exercised
Options cancelled
Balance, March 31, 2006
Options granted
Options exercised
Options cancelled
Balance, March 31, 2007
Weighted
Average
Exercise Price
Per Share
$
0.59
2.64
0.43
0.56
1.07
13.33
0.90
13.05
Number of
Shares
3,416,375
517,000
(1,189,250)
(107,500)
2,636,625
433,500
(987,239)
(26,250)
2,056,636
$
3.58
During the year ended March 31, 2007, the Company granted incentive stock options to directors,
employees, and consultants for 433,500 shares at a price ranging from $12.95 to $16.97 per share
and exercisable for five years. 200,000 options granted in the year were 8.333% vested on grant
date and 8.333% of the options are vested every three months after the date of grant for three
years while the remaining 233,500 options were 8.333% vested between one to four months from
the grant date and 8.333% of the options are vested every three months thereafter for three years.
The fair value of each option granted was estimated using the Black-Scholes option pricing model
with weighted average assumptions as follows:
Risk free interest rate
Expected life of options in years
Expected volatility
Dividend per share
2007
2006
4.01% to 4.23%
1 to 3 years
95% to 119%
$0.00
2.93% to 3.79%
1 to 5 years
105% to 147%
$0.00
The weighted average grant date fair value of options granted during the year was $9.46 (2006:
$2.06). For the year ended March 31, 2007, a total of $2,226,425 (2006 - $2,295,591) were
recorded as stock-based compensation expenses on the consolidated statements of income (loss).
Notes to the Consolidated Financial Statements page 15
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
The following table summarizes information about stock options outstanding at March 31, 2007:
Range of
Exercise
Prices
Number
Outstanding at
March 31
2007
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
Number
Exercisable at
March 31
2007
Weighted
Average
Exercise
Price
$
$
$
0.35
0.40
0.50
0.55
1.60
1.90
2.25
3.90
12.95
13.28
13.40
$0.35 - $13.40
275,000
25,000
200,000
550,000
33,334
300,000
112,802
150,000
200,000
82,000
128,500
2,056,636
0.71
0.49
1.29
2.54
1.10
2.92
1.19
1.69
4.29
4.38
4.42
2.41
0.35
0.40
0.50
0.55
1.60
1.90
2.25
3.90
12.95
13.28
13.40
3.58
275,000
25,000
20,000
550,000
-
300,000
112,802
75,000
53,000
13,670
27,253
1,451,725
0.35
0.40
0.50
0.55
1.60
1.90
2.25
3.90
12.95
13.28
13.40
1.91
$
$
Subsequent to March 31, 2007, a total of 260,900 options were granted to directors, officers,
employees, and consultants at a price of $20.21 per share vesting 8.333% six months after the
grant date and a further 8.333% every three months thereafter with an expiry date of April 10,
2012.
Subsequent to March 31, 2007, a total of 259,804 options were exercised at strike prices ranging
from $0.35 to $13.40 per share for total proceeds of $855,847 and a total of 75,001 options were
cancelled.
(e) Shareholders Right Plan
At the Annual General Meeting held on August 4, 2005, a Shareholders Rights Plan has been
approved by shareholders for implementation. The Rights Plan is designed to encourage the fair
treatment of shareholders in the event of any take-over offer for the Company. The Rights Plan
will provide the Board of Directors and the shareholders with more time than the 35 days
provided by statute, to fully consider any unsolicited take-over bid for the Company without
undue pressure, and allow the Board of Directors to pursue, if appropriate, other alternatives to
maximize shareholder value and to allow additional time for competing bids to emerge. Under the
Rights Plan, a bidder making a Permitted Bid (as defined in the Plan) for the common shares of
the Company may not take up any shares before the close of business on the 60th day after the
date of the bid and unless at least 50% of the Company's common shares not beneficially owned
by the person making the bid and certain related parties are deposited, in which case the bid must
be extended for 10 business days on the same terms to allow other shareholders to deposit to the
Bid. The Rights Plan will encourage an offeror to proceed by way of Permitted Bid or to approach
the Board of Directors with a view to negotiation by creating the potential for substantial dilution
Notes to the Consolidated Financial Statements page 16
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
of the offeror's position if a non-Permitted Bid is attempted. The Permitted Bid provisions of the
Rights Plan are designed to ensure that, in any take-over bid, all shareholders are treated equally,
receive the maximum available value for their investment and are given adequate time to properly
assess the bid on a fully informed basis
13. CONTRIBUTED SURPLUS
The schedule of contributed surplus as at March 31, 2007 is as follows:
Amount
Balance, March 31, 2005
Stock based compensation
Transferred to share capital per options exercised
Balance, March 31, 2006
Stock based compensation
Contributed surplus transferred as per shares cancellation
Contributed surplus transferred as per options exercised
Balance, March 31, 2007
14. RELATED PARTY TRANSACTIONS
$
$
2,926,853
2,295,591
(335,709)
4,886,735
2,226,425
(4,766,361)
(1,151,459)
1,195,340
$
In addition to related party transactions disclosed elsewhere in the financial statements, the Company
had the following related party transactions during the period:
(a) During year ended March 31, 2007, the Company incurred:
(i) consulting fees of $173,750 (2006 - $174,000) payable to a company owned by an officer and
director of the Company and to an officer of the Company;
(ii)
legal fees of $87,642 (2006 - $77,546) payable to a law firm controlled by a director of the
Company;
(iii) management fees of $143,518 (2006 - $128,801) payable to company owned by an officer and
director of the Company, and to an officer and director of the Company;
(iv) accounting fees of $88,066 (2006 - $69,614) payable to an accounting firm controlled by a
former officer of the Company;
(v) directors’ fees of $41,404 (2006 - $nil); and,
(vi) expenses and exploration costs recovery of $366,550 (2006 – $nil) from NUX.
(b) As of March 31, 2007, the related transaction balances included the following:
(i) $nil (2006 - $22,085, which was included in accounts payable) due to a law firm controlled by
a director of the Company;
Notes to the Consolidated Financial Statements page 17
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
(ii) $nil (2006 - $32,843, which was included in accounts payable) due to three directors for their
services provided;
(iii) $nil (2006 - $8,246, which was included in accounts payable) due to an accounting firm
controlled by a former officer of the Company;
(iv) $nil (2006 - $5,812) due to two directors for expenses incurred on behalf of the Company;
(v) $nil (2006 - $14,199) due to a company with a former director in common for expense
incurred on behalf the Company;
(vi) $39,750 (2006 - $17,130) due to a company controlled by a director of the Company for its
services provided;
(vii) $151,769 (2006 - $nil) due to the joint venture partner of Huawei for funds advanced by
Huawei; and
(viii) $32,660 (2006 - $nil) due from a Chinese company related by common control; and
(ix) $1,377,863 (2006 - $nil) due to NUX for funds advanced from NUX and services rendered
and costs incurred on behalf of NUX by the Company.
On December 8, 2006, NUX entered into a Declaration of Trust Agreement (the “Trust
Agreement”) with Yunnan Jin Chang Jiang Mining Co. Ltd. (“YJCJM” and the “Trustee”), an
indirectly wholly owned subsidiary of the Company, to hold in trust for NUX, two exploration
permits (“Guangdong Project”) located in Guangdong Province, China. Pursuant to the
agreement, NUX paid $35,331 (US$30,000) to the Company as the handling fee and NUX is
responsible for all costs in relation to the exploration permits.
On January 25, 2007, NUX advanced $1,461,092 (US$1,240,000) to the Company. The loan
is unsecured, non-interest bearing, and due on demand. The loan will be paid by offsetting the
Guangdong Project exploration expenditures incurred by YJCJM on behalf of NUX.
On March 15, 2007, the Company participated in NUX’s private placement and acquired 900,000
units at $2.50 per unit with warrants to acquire a further 450,000 units at $3.00 per unit per a period
of one year to expire on March 15, 2008. As at the date of this report, the Company owns 4,987,501
common shares of NUX representing an equity interest of 17.7%.
The transactions with related parties during the year are measured at the exchange amount, which is
the amount of consideration established and agreed by the parties.
The balances with related parties are unsecured, non-interest bearing, and due on demand.
Notes to the Consolidated Financial Statements page 18
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
15. INCOME TAXES
(a) Income tax expense
The Company’s wholly-owned subsidiary, YJCJM, 77.5% owned subsidiary, Henan Found, and 60%
owned subsidiary, Huawei, are considered as Foreign Investment Enterprises (a “FIE”) in China.
Under current Chinese income taxes laws, a qualified FIE is entitled to tax incentives of a five-year
tax holiday (year one and two are tax exempt with years three to five at a reduced tax rate of 15%)
commencing with the first year the FIE records a net profit or commencing January 1, 2008 for FIE
that have yet achieved a profit.
YJCJM and Huawei have not yet recorded a net profit to date and thereby have not filed for any tax
exemptions.
Based on the past two years’ sale revenue of Henan Found, management believes that Henan Found
is a qualified FIE and is entitled to the tax holiday. Henan Found has not paid any income tax
installment for calendar years 2006 and 2007. Henan Found has filed with the local tax authorities to
apply for a certificate of the tax holiday, and the local tax authorities have reviewed the financial
statements of Henan Found, and Henan Found is waiting for the final result. While management is
confident that Henan Found is a qualified FIE, the local tax authorities may challenge the loss
therefore, management
reported
conservatively provided for the event the tax holiday commences with calendar year 2005. As a
result, based on Henan Found’s financial results for the first calendar quarter of 2007, the Company
recorded an income tax provision of $1,623,286. The computation for the Henan Found tax provision
is as follows:
in Henan Found’s 2005 calendar year financial results;
Income before non-controlling interest for three months ended March 31, 2007
Less: non-deductible and non-taxable items
Adjusted Income before non-controlling interest for three months ended March 31, 2007
Income tax rate
Income tax expense
Effects on foreign exchange translation
Income tax payable
2007
10,968,191
(146,287)
10,821,904
15%
1,623,286
55,160
1,678,446
$
$
Notes to the Consolidated Financial Statements page 19
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
The provision for income taxes differs from the amount computed by applying the cumulative
Canadian federal and provincial income tax rates to the loss before income tax provision due to the
following:
Income (loss) before non-controlling interest
Canadian combined federal and provincial income tax rate
Expected income tax recovery (expense)
Difference in foreign tax rates
Non-deductible stock based compensation
Non-taxable mineral property option income
Others
Changes due to foreign exchange
Benefits of losses not recognized
(b) Future income tax
$
2007
33,922,509
34.12%
(11,574,360)
9,752,683
759,656
(748,550)
330,085
(11,018)
(131,782)
(1,623,286)
$
2006
(6,389,943)
34.50%
2,204,530
152,638
791,979
(59,060)
(1,756,562)
-
(1,333,525)
-
$
The approximate tax effect of each type of temporary difference that gives rise to the Company’s
future tax assets is as follows:
Future income tax assets arising from tax loss carryforwards
Addition (utilization) of unused cumulative exploration and
development expenses
Excess of tax value of captial asset over the book value
Share issued costs
Capital loss
Utilization of unused non-capital loss
Others
Valuation allowance
Excess of accounting base over tax base relating
mineral rights and properties
Net future income taxes liabilities
2007
3,235,965
$
2006
2,278,655
$
(96,080)
8,087
838,605
(1,089)
(894,658)
43,628
3,134,458
(3,134,458)
$
957,310
-
-
-
-
-
3,235,965
(3,235,965)
1,620,042
1,620,042
$
$
-
-
The Company has Canadian non-capital losses of approximately $3.8 million expiring in periods
ranging from 2 to 20 years available to be applied against future Canadian income for Canadian tax
purposes. In addition, the Company also has capital losses of approximately $28,400 in Canada
available to apply against future capital gains for Canadian tax purposes. The management of the
Company believes it is unlikely the benefit of the future income tax assets will be realized against
future Canadian income for Canadian tax purposes. As a result, a full revaluation was recorded
against the future tax assets.
16. FINANCIAL INSTRUMENTS
The fair values of the Company’s cash and cash equivalents, short term investments, accounts
receivable and prepaids, accounts payable and accrued liabilities, deposits received from customers,
Notes to the Consolidated Financial Statements page 20
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
and amount due to related parties are estimated to approximate their carrying values as they are short
term in nature. The fair value of the long term investments is estimated using the lower of carrying
value and market price as disclosed in Note 8.
The Company undertakes transactions denominated in foreign currencies and as such is exposed to
risk due to fluctuations in foreign exchange rates. The Company does not use derivative instruments
to reduce its exposure to foreign currency and metal price volatility risks.
Credit risks may potentially arise if counterparty fails to perform its obligations. The Company
invests its cash balances in money market instruments with financial institutions that enjoy high
credit standing.
The majority of the Company’s assets, liabilities, revenues and expenses are denominated in Chinese
Yuan (“RMB¥”), which was tied to the U.S. Dollar until July 2005 and is now tied to a basket of
currencies of China’s largest trading partners. The RMB¥ is not a freely convertible currency. As at
March 31, 2007, approximately $21,405,140 (March 31, 2006 - $3,206,632) of cash and cash
equivalents, and short term investments were held in RMB¥.
17. SEGMENTED INFORMATION
(a) Industry information
The Company operates in one reportable operating segment, being the acquisition, exploration,
development, and operation of mineral properties.
Notes to the Consolidated Financial Statements page 21
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
(b) Geographic information
March 31, 2007
Balance sheet items
Mineral rights and properties
Property, plant and equipment
Investment at equity
Long term investments
Operation results
Sales
Cost of sales
Earnings from mine operation
$
$
Canada
China
BVI
Total
$
$
-
375,934
-
250,000
-
-
-
$
$
18,822,299
8,695,883
-
67,095
45,290,340
(10,165,496)
35,124,844
-
-
7,239,988
-
-
-
-
$
$
18,822,299
9,071,817
7,239,988
317,095
45,290,340
(10,165,496)
35,124,844
Expenses
(5,384,068)
(1,916,864)
(9,128)
(7,310,060)
Interest, option and other income
Loss and other expenses
Non controlling interest
Income tax expenses
1,852,655
(245,489)
-
137,549
(33,727)
(7,190,415)
(1,623,286)
4,387,748
8,989
-
6,377,952
(270,227)
(7,190,415)
(1,623,286)
Net income (loss)
$
(3,776,902)
$
24,498,101
$
4,387,609
$
25,108,808
March 31, 2006
Balance sheet items
Mineral rights and properties
Property, plant and equipment
Investment at equity
Long term investments
Operation results
Sales
Cost of sales
Earnings from mine operation
$
$
$
$
-
39,540
-
500,000
-
-
-
$
$
3,721,801
1,701,012
-
-
-
-
-
$
$
-
-
855,079
-
-
-
-
3,721,801
1,740,552
855,079
500,000
-
-
-
Expenses
(4,295,488)
(2,573,523)
(4,242)
(6,873,253)
Interest, option and other income
Loss and other expenses
Non controlling interest
151,114
(159,334)
-
148,403
-
130,688
343,127
-
-
642,644
(159,334)
130,688
Net income (loss)
$
(4,303,708)
$
(2,294,432)
$
338,885
$
(6,259,255)
Notes to the Consolidated Financial Statements page 22
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2007 and 2006
(Expressed in Canadian dollars, unless otherwise stated)
(c) Sales by metal
For the year ended March 31, 2007, the Company generated sales of $45,290,340 (2006 - $nil)
which comprised of the following:
Silver (Ag)
Gold (Au)
Lead (Pb)
Zinc (Zn)
Other
(d) Major customers
2007
20,493,069
78,384
16,019,484
8,694,166
5,237
45,290,340
$
$
During the year ended March 31, 2007, there were four customers (2006 – nil) who individually
accounted for 14% to 23% and collectively, 72% of the total revenue of the Company.
18. Commitments
(a) Commitments on smelter investment - Note 8(c).
(b) With respect to its leasehold obligations, the Company has commitments totaling $581,048 over
5 years (2008 – 2011: $162,153 per year, 2012: $94,589).
19. Contingencies
The Company’s interest in the NZ Property, is held through a third party (see Note 10(d)).
Subsequent to the year ended March 31, 2007, the third party has commenced the transferring of the
ownership of the property to Henan Found.
Notes to the Consolidated Financial Statements page 23