SILVERCORP METALS INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2008 AND 2007
(Expressed in US 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, 2008 and
2007 and the consolidated statements of operations and retained earnings, comprehensive income, cash
flows and shareholders’ equity 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, 2008 and 2007 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
April 30, 2008
Chartered Accountants
SILVERCORP METALS INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in US Dollars, Note 2(b))
Notes
March 31, 2008
March 31, 2007
ASSETS
Current Assets
Cash and cash equivalents
Short term investments
Accounts receivable and prepaids
Inventories
Long term prepaids
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 obligation
Amounts due to related parties
Future income tax liabilities
Asset retirement obligation
Non-controlling interests
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Reserves
Accumulated other comprehensive income
Retained earnings
3
4
5
6
7
8
9
10
11
15
16(b)
11
13
12
14
Commitments and Contingencies
10 and 19
Approved on behalf of the Board:
(Signed) Greg Hall
Director
(Signed) Rui Feng
Director
$
$
$
$
$
$
47,092,890
37,145,656
5,259,699
2,389,175
91,887,420
5,194,431
17,873,887
14,349,572
60,904,275
9,729
190,219,314
7,026,628
2,573,202
719,557
-
12,070,732
22,390,119
6,345,898
1,225,829
29,961,846
53,330,468
5,449,238
1,275,757
1,802,371
61,857,834
1,535,131
6,554,847
7,868,694
16,326,046
8,674
94,151,226
3,121,802
1,387,263
1,455,847
292,406
1,332,919
7,590,237
1,405,189
669,996
9,665,422
11,265,197
6,947,986
78,334,543
1,722,036
2,077,628
14,121,627
52,736,437
148,992,271
74,336,151
954,041
-
479,795
1,767,831
77,537,818
$
190,219,314
$
94,151,226
-
-
52,736,437
The accompanying notes are an integral part of these consolidated financial statements
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Expressed in US Dollars except for share figures, Note 2(b))
Sales
Cost of sales
Amortization and depletion
Gross profit
Expenses
Accretion of asset retirement obligations
Amortization
Foreign exchange loss (gain)
General exploration and property investigation expenses
Investor relations
Office, administration and miscellaneous
Professional fees
Stock-based compensation expenses
Earnings before other income and expenses
Other income and expenses
Equity loss in investment
Gain on disposal of mineral rights and property
Loss on disposal of property, plant and equipment
Loss on disposal of long term investments
Interest income
Other income
Income before income taxes and non-controlling interests
Income tax expense
Current
Future
Income before non-controlling interests
Non-controlling interests
Net income
Retained earnings (deficit), beginning of year
Appropriation to reserves
Cash dividends declared and distributed
Notes
2008
2007
Years ended March 31
$
108,362,762
$
39,777,218
20,114,464
3,208,260
23,322,724
7,738,301
1,189,766
8,928,067
85,040,038
30,849,151
11
12(d)
8(b)
9
8(b)
16(a)
12(e)
61,688
516,814
612,481
1,816,544
283,561
4,781,381
2,133,783
2,472,685
12,678,937
72,361,101
(250,113)
563,147
(48,130)
-
2,585,192
4,473,779
7,323,875
61,899
122,718
(307)
807,693
752,552
2,267,255
453,002
1,955,545
6,420,357
24,428,794
(222,061)
-
(4,424)
(11,048)
1,714,661
3,857,560
5,334,688
79,684,976
29,763,482
(440,872)
(109,607)
(550,479)
(1,425,686)
-
(1,425,686)
79,134,497
28,337,796
(19,197,243)
(6,315,137)
59,937,254
22,022,659
1,767,831
(2,077,628)
(6,891,020)
(20,254,828)
-
-
Retained earnings, end of year
$
52,736,437
$
1,767,831
Basic earnings per share
Diluted earnings per share
Weighted Average Number of Shares Outstanding - Basic
Weighted Average Number of Shares Outstanding - Diluted
$
$
0.41
0.40
147,660,730
150,954,072
$
$
0.15
0.15
143,913,693
149,674,056
The accompanying notes are an integral part of these consolidated financial statements
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in US Dollars, Note 2(b))
Net income for the year
Other comprehensive income, net of tax:
Transition adjustment to the opening balance of investment in Dajin Resources Corp. as
per the initial adoption of new standards (note 2(c)), net of tax of $1,128
Unrealized loss on available for sale securities, net of tax recovery of $6,323
Unrealized exchange gain on translation of self-sustaining foreign operations
Unrealized exchange gain (loss) on translation of functional currency to reporting currency
Other comprehensive income
Comprehensive income
Year ended March 31,
2008
20072006
$
59,937,254
$
22,022,659
8,674
(48,643)
3,972,486
9,709,315
13,641,832
73,579,086
$
-
-
1,041,822
(919,849)
121,973
22,144,632
$
The accompanying notes are an integral part of these consolidated financial statements
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US Dollars, Note 2(b))
Cash provided by (used for)
Operating activities
Net income for the year
Add (deduct) items not affecting cash :
Accretion of asset retirement obligations
Amortization
Equity investment loss
Future income tax
Gain on disposal of mineral property
Loss on disposal of long term investments
Loss on disposal of property, plant, and equipment
Non-cash other income
Non-controlling interests
Stock-based compensation
Net change in non-cash working capital
Accounts receivable and prepaids
Inventory
Accounts payable and accrued liabilities
Asset retirement obligation discharged upon payment
Income tax payable
Deposits received from customers
Cash provided by operating activities
Investing activities
Acquisition of mineral rights and properties
Acquisition of property, plant, and equipment
Purchase of long term investments
Decrease (Increase) of short term investments
Increase in long term prepaids
Disposal of long term investments
Disposal of mineral rights and properties
Disposal of property, plant, and equipment
Distribution to non-controlling interest shareholder
Cash dividends declared and distributed
Advances to joint venture parties
Cash used in investing activities
Financing activities
Repayment from (advance to) related parties
Share subscriptions for cash, net of commission and expenses
Shares returned to treasury for cancellation
Cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (Decrease) in cash
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
Year ended March 31,
2008
2007
$
59,937,254
$
22,022,659
61,688
3,725,074
250,113
109,607
(563,147)
-
48,130
(4,388,267)
19,197,243
2,472,685
80,850,380
(3,626,740)
(342,635)
3,412,728
(513,831)
(949,607)
954,884
79,785,179
(36,583,262)
(7,451,952)
(5,552,310)
(29,489,423)
(3,397,197)
-
563,147
157,352
(3,371,257)
(6,891,020)
-
(92,015,922)
(1,428,710)
2,293,702
-
864,992
5,128,173
(6,237,578)
53,330,468
47,092,890
-
87,178
1,273,784
$
$
$
61,899
1,312,484
222,061
-
-
11,048
4,424
(3,824,281)
6,315,137
1,955,545
28,080,976
(416,953)
(1,708,108)
1,804,242
(229,163)
1,474,131
1,047,399
30,052,524
(11,752,043)
(6,324,996)
(2,035,039)
2,304,618
(1,241,114)
208,677
-
8,783
-
-
104,760
(18,726,354)
1,587,398
42,395,973
(4,890,169)
39,093,202
(430,359)
49,989,013
3,341,455
$
53,330,468
$
45
$
-
$
-
$
3,824,281
Construction in process transferred to mineral rights and properties
$
1,313,791
$
-
The accompanying notes are an integral part of these consolidated financial statements
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in US Dollars except for share figures, note 2(b))
Balances, March 31, 2006
Options exercised
Warrants exercised
Private placement, net of issuance cost
Value of options transferred upon exercised
Contributed surplus transferred as per share cancellation
Share cancellation under the Normal Course Issuer Bid
Stock based compensation
Earnings of the year
Unrealized loss on translation of self-sustaining operation
Unrealized loss on translation functional currency to reporting
currency
Balance, March 31, 2007
Transition adjustment to opening balance
Options exercised
Warrants exercised
Cancellation of fraction shares
Value of options transferred upon exercised
Stock based compensation
Unrealized gain on available for sale securities
Appropriation to reserves
Cash dividends declared and distributed
Earnings of the year
Unrealized loss on translation of self-sustaining operation
Unrealized loss on translation functional currency to reporting
currency
Balance, March 31, 2008
-
-
-
-
2(c)
14
12(e)
145,957,938
-
3,448,896
9,750
(108)
-
-
-
-
-
-
-
Share capital
Notes
Number of
shares
Amount
135,186,471
2,961,717
1,567,500
7,503,750
-
-
(1,261,500)
$
31,751,747
780,880
2,143,685
39,471,408
1,010,351
4,068,249
(4,890,169)
Accumulated
other
comprehensive
income (loss)
$
357,822
-
-
-
-
-
-
-
-
Retained earnings
(deficit)
$
(20,254,828)
-
-
-
-
-
-
-
22,022,659
Total
shareholders'
equity
$
15,931,837
780,880
2,143,685
39,471,408
-
-
(4,890,169)
1,955,545
22,022,659
Reserves
$
-
-
-
-
-
-
-
-
-
-
1,041,822
-
1,041,822
Contributed
surplus
$
4,077,096
-
-
-
(1,010,351)
(4,068,249)
-
1,955,545
-
-
-
-
-
- - -
74,336,151
-
2,225,239
68,463
-
1,704,690
-
-
-
-
-
-
954,041
-
-
-
-
(1,704,690)
2,472,685
-
-
-
-
-
-
-
-
-
-
-
-
-
2,077,628
-
-
-
(919,849)
479,795
8,674
-
-
-
-
-
(48,643)
-
-
-
3,972,486
- (919,849)
77,537,818
8,674
2,225,239
68,463
-
-
1,767,831
-
-
-
-
-
-
-
(2,077,628)
(6,891,020)
59,937,254
-
2,472,685
(48,643)
-
(6,891,020)
59,937,254
3,972,486
- - - -
149,416,476
$
78,334,543
$
1,722,036
$
2,077,628
9,709,315
14,121,627
$
-
$
52,736,437
9,709,315
148,992,271
$
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, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
Silvercorp Metals Inc. along with its subsidiary companies and joint ventures (collectively the
“Company”) is 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 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and principles of consolidation
The Company’s consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles (“GAAP”), and presented in US dollars.
Our consolidated financial statements include the accounts of the Company and its significantly
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. (“Yunnan JCJ”),
82% owned subsidiary, Qinghai Found Mining Company Ltd. (“Qinghai Found”), 70% (March
31, 2007 - 60%) owned subsidiary, Henan Huawei Mining Co. Ltd. (“Henan Huawei”), 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) Change in Reporting Currency
Effective April 1, 2007, the Company changed its reporting currency to the US dollar. The change
in reporting currency is to better reflect the Company’s business activities and to improve
investors’ ability to compare the Company’s financial results with other publicly traded
businesses in the mining industry. Prior to April 1, 2007, the Company reported its annual and
quarterly consolidated balance sheets and the related consolidated statements of operations and
cash flows in Canadian dollar (CAD). In making this change in reporting currency, the Company
followed the recommendations of the Emerging Issues Committee (EIC) of the Canadian Institute
of Chartered Accountants (CICA), set out in EIC-130, Translation Method when the Reporting
Currency Differs from the Measurement Currency or there is a Change in the Reporting
Currency. In accordance with EIC-130, the financial statements for all years and periods
presented have been translated in to the new reporting currency using the current rate method.
Under this method, the statements of operations and cash flows statements items for each year
and period have been translated into the reporting currency using the average exchange rates
prevailing during each reporting period. All assets and liabilities have been translated using the
exchange rate prevailing at the consolidated balance sheets dates. Shareholders’ equity
transactions since April 1, 2006 have been translated using the rates of exchange in effect as of
the dates of the various capital transactions, while shareholders’ equity balances on April 1, 2006
have been translated at the exchange rate on that date. All resulting exchange differences arising
Notes to the Consolidated Financial Statements page 1
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
from the translation are included as a separate component of other comprehensive income. All
comparative financial information has been restated to reflect the Company’s results as if they
had been historically reported in US dollars.
(c) Adoption of New Accounting Standards
(i) Financial instrument standards
On April 1, 2007, the Company prospectively adopted the recommendations included in the
following Sections of the Canadian Institute of Chartered Accountants Handbook: Section 1530,
“Comprehensive Income”; Section 3855, “Financial Instruments - Recognition and
Measurement”; Section 3865, “Hedges”; Section 3861, “Financial Instruments – Disclosure and
Presentation”, and Section 3251, “Equity”. As we have not previously undertaken hedging
activities, adoption of Section 3865 currently has no impact on us.
Section 3855 prescribes when a financial asset, financial liability or non-financial
derivative is to be recognized on the balance sheet and at what amount, requiring fair value or
cost-based measures under different circumstances. Under Section 3855, financial instruments
must be classified into one of five categories: held-for-trading, held-to-maturity, loans and
receivables, available-for-sale financial assets or other financial liabilities. Held-for-trading
financial assets and financial liabilities are financial assets and financial liabilities which are
acquired for resale prior to maturity or are financial assets and liabilities designated as
such by the Company. Held-to-maturity financial assets are non-derivative financial assets with
a fixed maturity which the Company intends to hold until maturity. Available-for-sale financial
assets are those non-derivative financial assets which are so designated by the Company or that
do not fall into another category.
CICA 3855 requires that all financial assets, except those classified as held to maturity, and loans
and receivables, must be measured at fair value. All financial liabilities must be measured at fair
value when they are classified as held-for trading; otherwise, they are measured at amortized cost.
Investments classified as available-for-sale are reported at fair market value based on quoted
market prices or at cost if a market value of equity instruments is not available, with unrealized
gains or losses excluded from earnings and reported as other comprehensive income or loss.
Those instruments classified as held-for-trading have gains or losses included in earnings in the
period in which they arise.
Comprehensive income is the change in our net assets that results from transactions, events and
circumstances from sources other than our shareholders and includes items that would not
normally be included in net earnings such as unrealized gains or losses on available-for-sale
investments. Other comprehensive income includes the holding gains and losses from available-
for-sale securities which are not included in net income (loss) until realized and foreign currency
translation gains or losses arising form the translation of the Company’s self-sustaining foreign
operations and the translation of the Company’s accounts into its reporting currency.
Notes to the Consolidated Financial Statements page 2
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
The Company has made the following classifications:
- Cash and cash equivalent, which includes high liquid term deposits and bank notes, and short
term investments are classified as held-for-trading financial assets and measured at fair value.
- Accounts receivables are classified as loans and receivables and are initially measured at fair
value. Subsequent measurements are recorded at amortized cost using the effective interest
method.
- The long term investment in the common shares of Dajin Resources Corp. is classified as
available-for-sale securities. Available for sale securities are initially recorded at cost, which
upon their initial measurement is equal to their fair value by reference to market price.
Subsequent changes in the market value of securities are recorded as changes to other
comprehensive income (loss). The investments in New Pacific Metals Corp. and Luoyang
Yongning Smelting Co. Ltd. are excluded from Section 3855 as they are accounted for using
the equity method.
- Accounts payable and accrued liabilities and deposits received from customers are classified
as other financial liabilities. They are initially measured at their fair value and subsequently
measured at amortized costs using the effective interest rate method. Amortized premium or
discount is charged to the statements of operations.
Transaction costs are included in the initial carrying amount of financial instruments except for
held-for- trading items in which case they are expensed as incurred.
Section 3855 also requires that the embedded derivatives be identified and separated from the
related host contract and be measured at fair value. Subsequent changes in fair value of embedded
derivatives are recognized in the consolidated statement of operations in the period the change
occurs.
Upon the adoption of these new standards as at April 1, 2007, the Company remeasured its
financial assets and liabilities. The investment in Dajin Resources Corp. was classified as
available for sale securities and its carrying value was adjusted to $225,518 with a credit of
$8,674 to the opening accumulated other comprehensive income. The cumulative foreign
translation adjustment of $479,795 for the year ended March 31, 2007 was reclassified as a
component of accumulated other comprehensive loss. The adoption of these new standards has no
impact on the Company’s cash flow.
(ii) Accounting changes
On April 1, 2007, the Company adopted the CICA revised Section 1506, “Accounting Changes”,
which 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 adoption of this standard has no impact on the Company’s
consolidated financial statements.
Notes to the Consolidated Financial Statements page 3
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
(d) Significant Accounting Policies
(i) 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.
(ii) Foreign currency translation
The Company’s functional currency is the Canadian dollar. Effective April 1, 2007, the Company
changed its reporting currency to the US dollar.
All subsidiaries, except its 77.5% owned subsidiary Henan Found and 70% owned subsidiary
Henan Huawei, are considered to be integrated foreign operations and their financial statements
are translated to Canadian dollars under the 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 rates. 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. During the year ended March 31,
2008, Henan Huawei was reclassified as a self-sustaining operation from an integrated foreign
operation and its financial statements are translated using the current rate method from temporal
method because of the significant changes in the economic facts and circumstances of Henan
Huawei. During the year ended March 31, 2008, Henan Huawei commenced commercial mine
production and cash generated from sales to the local Chinese customers is sufficient to cover
further exploration expenditure and other operation costs. Assets and liabilities of Henan Found
and Henan Huawei, which are dominated in Chinese Yuan (“RMB¥”), are translated into Canadian
dollars using the current rate method at period-end exchange rates and resulting translation
adjustments are reflected in comprehensive income. Revenues and expenses of Henan Found and
Henan Huawei are translated at average exchange rates for the period.
(iii) Cash and cash equivalents
Cash and cash equivalents include cash on account, demand deposits and money market
investments with maturities from the date of acquisition of three months or less, which are readily
convertible to known amounts of cash and are subject to insignificant changes in value.
Notes to the Consolidated Financial Statements page 4
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
(iv) 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
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.
(v) 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.
(vi) 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
Land use right
Leasehold improvement
Machinery
Mining equipment
Motor vehicle
(vii) Mineral rights and properties
5%
20% - 50%
20% - 50%
20% - 50%
2%
20%
10% - 20%
10%
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 measured and indicated resources.
Notes to the Consolidated Financial Statements page 5
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
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
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.
(viii) 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 operations 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.
(ix) 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.
(x) 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 consolidated statements of operations over the vesting period of the options granted. Stock
Notes to the Consolidated Financial Statements page 6
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
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 transferred
from contributed surplus are recorded as share capital.
(xi) 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, 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, 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.
(xii) 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.
(xiii) Non-controlling interests
Non-controlling interests exist in the less than wholly-owned subsidiaries of the Company and
represent the outside interest’s share of the carrying values of the subsidiaries. When the
subsidiary company issues its own shares to outside interests, a dilution gain or loss arises as a
result of the difference between the Company’s share of the proceeds and the carrying value of
the underlying equity.
Notes to the Consolidated Financial Statements page 7
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
(xiv) Earnings 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.
(xv) Comparative figures
Certain comparative figures have been reclassified to conform with the presentation adopted for
the current period.
(e) New Canadian Accounting Pronouncements
(i) Financial Instrument Standards
In December 2006, the CICA issued Section 3862, “Financial Instruments - Disclosure” and
Section 3863 “Financial Instruments - Presentation” to replace 3861 “Financial Instruments -
Disclosure and Presentation”. These new sections are effective for interim and annual financial
statements of the Company’s reporting period beginning on April 1, 2008. The Company is
currently evaluating the impact of the adoption of these new standards on its consolidated
financial statements.
(ii) Inventories
In June 2007, CICA issued Handbook Section 3031 “Inventories” which replaces Section 3030
“Inventories”. Under the new section, inventories are required to be measured at the “lower of
cost and net realizable value”, which is different from the existing guidance of the “lower of cost
and market”. The new section contains guidance on the determination of cost and also requires
the reversal of any write-downs previously recognized. Certain minimum disclosures are
required, including the accounting policies used, carrying amounts, amounts recognized as an
expense, write-downs, and the amount of any reversal of any write-downs recognized as a
reduction in expenses. The new standard will become effective on April 1, 2008 for the
Company. The Company is currently evaluating the impact of the adoption of this new section on
the consolidated financial statements.
(iii) Capital Disclosures
As of April 1, 2008, the Company will be required to adopt CICA Section 1535 “Capital
Disclosures”, which requires companies to disclose their objectives, policies and processes for
managing capital. In addition, disclosures are to include whether companies have complied with
Notes to the Consolidated Financial Statements page 8
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
externally imposed capital requirements. The new capital disclosure requirements were issued in
December 2006 and the Company is assessing the impact on its consolidated financial statements.
(iv) Convergence with IFRS
In January 2006, CICA Accounting Standards Board (“AcSB”) adopted a strategic plan for the
direction of accounting standards in Canada. As part of that plan, accounting standards in Canada
for public companies are expected to converge with International Financial Reporting Standards
(“IFRS”) for accounting periods commencing on or after January 1, 2011. The Company
continues to monitor and assess the impact of convergence of Canadian GAAP and IFRS.
(v) Goodwill and Intangible Assets
In February 2008, the CICA issued Section 3064, “Goodwill and Intangible Assets”, which
replaces Section 3062, “Goodwill and Other Intangible Assets” and Section 3450, “Research and
Development Costs”. Various changes have been made to other sections of the CICA Handbook
for consistency purposes. Section 3064 establishes standards for the recognition, measurement,
presentation and disclosure of goodwill subsequent to its initial recognition and of intangible
assets. The new Section will be applicable to the Company’s consolidated financial statements for
its fiscal year beginning April 1, 2009. The Company is currently evaluating the impact of the
adoption of this new Section on its consolidated financial statements.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents as at March 31, 2008 of $47,092,890 (March 31, 2007 - $53,330,468)
consists of cash, bank acceptances, bank discount notes, and term deposits maturing within three
months of the initial investment date. As at March 31, 2008, the Company holds bankers’ acceptance
and bank discount notes with a combined market value of $24,922,470 (March 31, 2007 -
$32,323,115) and a face value of $28,112,586 (March 31, 2007 - $32,442,536) with yields from
2.56% to 3.58% (March 31, 2007 – 4.31%) per annum with maturity dates to June 16, 2008. The
Company’s term deposits total $1,140,967 (March 31, 2007 - $7,677,177), bearing an interest rates of
2.88% (March 31, 2007 - 1.80%) per annum, with maturity dates to June 8, 2008.
None of the cash
equivalents were in asset backed commercial papers.
4. SHORT TERM INVESTMENTS
Short term investments as at March 31, 2008 of $37,145,656 (March 31, 2007 - $5,449,238) are made
up of a bank note of $3,288,303 (March 31, 2007 - $nil), guarantee investment certificates (“GIC”) of
$2,443,817 and term deposits of $31,413,535 (March 31, 2007 - $5,449,238) with maturity dates
beyond three months. The bank note with face value of $3,294,095 yields 3.57% per annum to
maturity on April 18, 2008. The GIC is bearing an interest rate of 4.1% per annum with maturity dates
to March 4, 2009; and the term deposits bearing interest rates ranging from 3.33% to 3.78% (March
31, 2007 - 2.07% to 2.43%) with maturity dates to September 18, 2008.
Notes to the Consolidated Financial Statements page 9
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
5. ACCOUNTS RECEIVABLE AND PREPAIDS
Accounts receivable and prepaids consist of the following:
As at
Accounts receivable
Interest receivable
Prepaid expenses and deposits
6. INVENTORIES
Inventories consist of the following:
As at
Direct smelting ore and stockpiled ore
Concentrate inventory
Total stockpiled
Material and supplies
7. LONG TERM PREPAIDS
$
March 31, 2008 March 31, 2007
$
-
39,742
1,236,015
1,275,757
3,142,878
250,609
1,866,212
5,259,699
$
$
$
$
March 31, 2008
951,635
467,776
1,419,411
969,764
2,389,175
March 31, 2007
1,028,213
523,084
1,551,297
251,074
1,802,371
$
$
Long term prepaids as at March 31, 2008 of $5,194,431 (March 31, 2007 - $1,535,131) is comprised
of: $1,919,310 (March 31, 2007 - $1,084,225) of advances or loans to contractors to purchase
equipment to work on the Company’s properties to construct mill facilities for the Company, and
prepayments to suppliers to acquire property, plant and equipments; $1,681,077 (March 31, 2007 -
$450,906) of advances to third parties to assist the Company in the exploration of potential mineral
properties in China, and $1,594,044 (March 31, 2007 - $nil) of prepayment for acquiring an office in
Beijing, China.
8. LONG TERM INVESTMENTS
As at
Dajin Resources Corp. (a)
March 31, 2008
March 31, 2007
1,000,000 (March 31, 2007 - 1,000,000) common shares
$
204,300
$
216,844
New Pacific Metals Inc. (b)
11,251,648
6,279,806
Luoyang Yongning Smelting Co. Ltd. (c)
6,417,939
58,197
$
17,873,887
$
6,554,847
Notes to the Consolidated Financial Statements page 10
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
(a) Dajin Resources Corp.
As a result of the adoption of CICA 3855 “Financial Instruments - Recognition and
Measurement” on April 1, 2007, the Company’s investment in Dajin Resources Corp., which was
classified as available-for-sale securities, its carrying value was adjusted to $225,518 with a credit
of $8,674 to the opening accumulated other comprehensive income. As at March 31, 2008, the
investment is carried at its estimated fair value of $204,300 by reference to market price and an
unrealized loss of $21,218 was recognized as other comprehensive income.
For year ended March 31, 2008, shares disposed were nil (March 31, 2007 - 1, 000,000) and no
loss (March 31, 2007 - $11,048) was recorded.
(b) New Pacific Metals Inc.
In 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 had the option to acquire the
Company’s previous wholly owned subsidiary SKN Nickel & Platinum Ltd. (“SNP”), by meeting
SNP’s registered capital commitment of $2.5 million to a Chinese joint venture and through the
issuance of 6.5 million common shares to the Company. The common shares were issuable on the
basis of 2.5 million shares on issuance of a Bulletin by the TSX Venture Exchanges accepting the
transaction (issued on December 13, 2004); a further 2 million shares were to be issued upon
successful funding of $374,000 to SNP’s Chinese joint venture (issued on February 2, 2006); and
another 2 million shares were to be issued upon completion the funding of $1 million to SNP’s
Chinese joint venture (issued on August 29, 2006). 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 Company is entitled to the voting rights attached to the escrow shares, but the shares
remaining in escrow are subject to cancellation in the event NUX determines not to continue
contributing to the Chinese joint venture. 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 100% interest in SNP
by fully contributing $2.5 million to SNP’s Chinese join venture and had issued all of the 6.5
million shares to the Company.
As at March 31, 2008, all of the 6,500,000 (March 31, 2007 - 4,087,501) NUX’s common shares
were released to the Company from escrow. The Company has recorded other income for the
year ended March 31, 2008 totaling $4,388,267, representing the market value of the 2,412,499
(March 31, 2007 - $3,824,281 on 2,416,666 common shares) NUX’s common shares released
from escrow during the year ended March 31, 2008.
In March 2007, the Company participated in NUX’s private placement and subscribed for a total
of 900,000 units at CAD$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 an
additional common share at CAD$3.00 for a period of one year until March 15, 2008. On
Notes to the Consolidated Financial Statements page 11
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
February 21, 2008, NUX obtained the approval from the TSX Venture Exchange to extend the
expiry date of its common share purchase warrants to March 15, 2009.
For the year ended March 31, 2008, a total of $250,113 (March 31, 2007 - $222,061), of equity
loss had been recorded.
As at March 31, 2008, the Company owns 7,400,000 common shares of NUX, representing an
ownership of 23.6% (2007 – 17.7%). The following is the summary of the investment in NUX
and its market value:
Balance, March 31, 2006
Shares released from escrow
Participation in NUX's private placement
Equity in loss of investee company
Foreign translation impact
Balance, March 31, 2007
Shares released from escrow
Equity in loss of investee company
Foreign translation impact
Balance, March 31, 2008
(c) Luoyang Yongning Smelting Co. Ltd.
Number of
shares
1,670,835
2,416,666
900,000
4,987,501
2,412,499
7,400,000
Book Value
732,653
3,824,281
1,951,600
( 222,061)
( 6,667)
6,279,806
4,388,267
( 250,113)
833,688
11,251,648
$
Market Value
of NUX's
common shares
2,462,373
3,824,281
1,951,600
-
-
14,924,866
4,388,267
-
-
14,758,245
$
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
$5.6 million (RMB¥45 million) for the first phase and is expected to be financed by cash flow
from its Ying property.
On September 5, 2007, the joint venture agreement was amended with the incorporation of
Luoyang Yongning Smelting Co. Ltd. (“Yongning”) to hold the smelter project. Under the
amended joint venture agreement, Henan Found can earn 30% interest in Yongning by
contributing $10.7 million (RMB¥75 million) of the total investment in Yongning of $35.7
million (RMB¥250 million) comprised of: $21.4 million (RMB¥150 million) towards the
registered capital with the balance of $14.3 million (RMB¥100 million) to finance the project
development cost which is required to be contributed within one year after the issuance of the
business license. On September 21, 2007, Yongning obtained approval from Chinese
governmental authorities and the business license was issued.
Notes to the Consolidated Financial Statements page 12
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
As at March 31, 2008, Henan Found fulfilled its registered capital requirement through a
contribution of approximately $5.6 million (RMB¥45 million) (March 31, 2007 - $58,197
(RMB¥450,000)) to Yongning, with the remaining commitment of approximately $4.3 million
(RMB¥30 million) due within one year from September 21, 2007. This investment is accounted
for using the equity method. No equity income (loss) had been recorded during the year ended
March 31, 2008.
As of March 31, 2008, the registered capital requirement of $21.4 million (RMB¥150 million)
has been fully contributed by all the joint venture parties.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
As at
March 31, 2008
March 31, 2007
Accumulated
Depreciation
Cost
Net Book
Value
Accumulated
Depreciation
Cost
Net Book
Value
Building
$
8,236,801
$
263,521
$
7,973,280
$
2,829,393
$
30,224
$
2,799,169
Computer equipment
Computer software
Equipment and funiture
Machinery
Mining equipment
Motor vehicle
Land use right
Leasehood improvement
Construction in process
570,784
191,211
976,584
2,650,059
482,115
1,268,900
496,373
113,674
672,773
179,022
37,371
141,772
200,017
156,994
301,735
-
29,270
-
391,762
153,840
834,812
286,364
105,897
416,837
2,450,042
1,053,029
325,121
967,165
496,373
84,404
672,773
426,842
840,130
-
101,428
2,234,373
98,979
11,926
33,073
36,995
101,467
107,103
-
5,832
187,385
93,971
383,764
1,016,034
325,375
733,027
-
95,596
-
2,234,373
$
15,659,274
$
1,309,702
$
14,349,572
$
8,294,293
$
425,599
$
7,868,694
During the year ended March 31, 2008, the Company disposed of motor vehicles with net book value
of $205,482 (March 31, 2008 - $13,207) and a loss of $48,130 (2007 - $4,424) was recorded. A total
of $1,313,791 (RMB ¥9,211,773) construction in process was reclassified to mineral rights and
properties during the year ended March 31, 2008.
Notes to the Consolidated Financial Statements page 13
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
10. MINERAL RIGHTS AND PROPERTIES
Mineral rights and properties are comprised of the following:
Balance, March 31, 2006
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
Foreign currency translation impact
Amortization
Balance, March 31, 2007
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
Shaft development
Foreign exchange impact
Foreign currecy translation impact
Amortization
Balance, March 31, 2008
$
Ying
3,188,931
2,497,041
1,127,591
HPG
$
-
5,633,018
-
NZ
$
-
1,529,135
-
Nabao
$
-
-
-
TLP
$
-
-
-
LM
$
-
-
-
$
Total
3,188,931
9,659,194
1,127,591
225,011
1,081,139
5,920
2,127,578
39,276
(1,128,594)
9,163,893
-
(94,009)
-
-
-
-
-
-
5,633,018
1,602,927
714,531
-
-
-
-
-
-
1,529,135
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,109,357
-
-
-
-
-
-
-
-
7,175,611
-
225,011
1,081,139
5,920
2,127,578
39,276
(1,128,594)
16,326,046
27,887,895
620,522
38,140
2,657,666
-
4,239,164
2,822,856
(111,789)
1,114,396
(1,527,567)
18,302,750
$
-
1,056,004
-
1,585,170
-
(29,186)
685,015
(1,515,086)
9,732,393
$
-
315,419
-
37,099
-
(20,673)
185,954
-
2,046,934
$
-
1,012,815
45,368
-
-
-
-
-
1,058,183
$
-
721,423
-
184,577
-
-
-
-
20,015,357
$
-
180,269
-
2,392,778
-
-
-
-
9,748,658
$
38,140
5,943,596
45,368
8,438,788
2,822,856
(161,648)
1,985,365
(3,042,653)
60,904,275
$
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) Ying Property
The Company, through its wholly owned subsidiary, Victor Mining Ltd., entered into an
agreement to acquire 77.5% interest in the high grade Ying Silver-Lead-Zinc Project (“Ying
Property”) located in Henan Province, China for a total consideration of approximately $3.7
million (paid). Henan Found was established in 2004 to hold the Ying property, and production of
ore commenced on April 1, 2006.
Notes to the Consolidated Financial Statements page 14
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
In July 2006, Henan Found reached a settlement with a third party to stop its unauthorized mining
activities on the Ying Property by paying the third party a total of $911,749, which was paid and
capitalized as acquisition cost of mineral rights and properties.
During the year ended March 31, 2007, Henan Found acquired two additional exploration permits
adjacent to the existing boundary of the Ying Property for cash consideration of $609,967, 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.
Henan Found is in the process of completing construction of the Ying Property according to its
approved design plan, and in particular completing the connection of three mine shafts for safety
reasons. While government authorities allow Henan Found to test run the mill and mine, it is
subject to final inspection by authorities for environmental and safety qualifications and it is
subject to receiving environmental and safety production permits.
The land usage right for Henan Found’s mine and mill has been purchased from the local owners,
rezoning of these lands from agricultural to industrial use has been approved by Henan Provincial
government, and transfer of the land title to Henan Found’s name has been submitted to the
government authorities and is pending final approval.
Pursuant to an update of estimates of the mineral resources on Ying Property, the mine life of
Ying property has been extended by two years to a total of nine years’ mining life. Consequently,
the calculation of depreciation and amortization of mineral rights and properties of Ying silver-
lead-zinc were revised prospectively and the amounts of asset retirement obligations are also
revised based on the extended mine life. The impact on this change in estimate resulted in lower
accretion of ARO of $94,009 for the year ended March 31, 2008.
(b) HPG Silver-Gold-Lead Property
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-Lead-Zinc Project, Henan Province, China for a total
consideration of approximately $5.7 million (RMB¥43.2 million). Henan Huawei was established
in January 2007 to hold the HPG gold-silver-lead property which consists of two adjacent mining
licenses surrounded by one exploration permit within the Ying Silver-Lead-Zinc Project area in
Henan, and a flotation mill and associated facilities. The Company was required to pay a total of
$3.93 million (RMB¥30 million) to the joint venture partner directly while the remaining of $1.73
million (RMB¥13.2 million) was paid to Henan Huawei as its registered capital.
During the year ended March 31, 2007, the Company fulfilled its obligation to earn 60% interest
in HPG and a total of $5,633,018 was capitalized as the acquisition cost of mineral rights and
properties.
On May 11, 2007, Victor Resources Ltd., signed an agreement to acquire a further 20% interest in
Henan 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 approximately
Notes to the Consolidated Financial Statements page 15
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
$1.9 million (RMB¥13.3 million) with the Company’s share of approximately $950,000
(RMB¥6.65 million) paid in full. A total of $722,544 was capitalized as the acquisition cost of
mineral rights and properties after offsetting against non-controlling interest.
(c) NZ Property
In October 2006, the Company, through its 77.5% owned subsidiary company, Henan Found,
entered into an agreement (the “Agreement”) with a third party, related by common control, to
acquire a 100% interest in the NZ Gold-Silver property (the “Property”), on its behalf. As at
March 31, 2007, the third party has completed its acquisition of the Property, by payment of
$1,099,271 (RMB¥8.5 million), and the payment was capitalized as the acquisition of mineral
rights and properties.
The Company’s interest in the NZ Property is held in trust through a third party for the Company.
(d) Nabao Project
In June 2007, the Company, through its wholly owned subsidiary, Fortress Mining Inc., entered
into a joint venture contract with a Chinese party to form Qinghai Found Mining Company Ltd.
("Qinghai Found"), a Sino-foreign cooperate joint venture company, to explore and develop the
Na-Bao silver-polymetalic Project (“Na-Bao Project”) in Qinghai Province, China. Under the
joint venture contract, the Company has an 82% interest in Qinghai Found by investing
approximately $4.0 million by funding exploration and development. The Chinese party retains
an 18% interest in Qinghai Found in exchange for transferring the three Na-Bao permits to
Qinghai Found.
(e) LM Silver-Lead Mine
In October 2007, the Company’s 70% owned subsidiary, Henan Huawei, entered into agreements
to acquire 100% interest in LM Silver-Lead Mine (“LM Mine”), which has a mining permit
located just southeast of the Ying silver project, through the acquisition of 100% interest of a
private Chinese company, Xinda Mineral Products Co. Ltd.(‘Xinda”), for approximately $3.6
million. The Company also agreed to compensate another $3.6 million (RMB¥25 million) to the
original shareholders of Xinda for their previous work done on the LM Mine. As at March 31, a
total of $6.5 million was paid and an approximately $7.2 million was capitalized as the
acquisition cost of mineral rights and properties.
As of March 31, 2008, the acquisition of LM silver-lead mine is pending government approval,
and concurrently Henan Huawei has taken control of LM Mine and production at LM Mine has
commenced.
(f) TLP Silver-Lead Mine
In December 2007, the Company’s 77.5% owned subsidiary, Henan Found, successfully
concluded contracts to acquire 100% interest of the TLP Silver-Lead Mine (“TLP Mine”) by
paying approximately $11.4 million (RMB¥80 million) plus assuming debts, obligations and
Notes to the Consolidated Financial Statements page 16
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
winding down of certain leasing agreements. The total acquisition cost of TLP Mine is estimated
at $22 million (RMB¥157 million). As of March 31, 2008, a total of $17.7 million (RMB¥124.2
million) was paid and capitalized as the acquisition cost of mineral rights and properties.
11. ASSET RETIREMENT OBLIGATIONS
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
Reclassification of current portion of the obligations
Balance, March 31, 2007
Obligations incurred during year
Obligations discharged upon payments during the year
Obigations reduction as per revision of ARO of Ying Property
Accretion of asset retirement obligations
Reclassification of current portion of ARO to long term
Foreign translation impacts
Balance, March 31, 2008
Current
portion
-
$
-
-
-
292,406
292,406
252,725
(515,980)
-
10,517
(75,226)
35,558
$
-
$
Long term
portion
$
-
1,127,591
(227,088)
61,899
(292,406)
669,996
440,699
-
(94,009)
51,171
75,226
82,746
1,225,829
$
$
$
Total
$
-
1,127,591
(227,088)
61,899
-
962,402
693,424
(515,980)
(94,009)
61,688
-
118,304
1,225,829
$
Although the ultimate reclamation costs to be incurred for the existing mines are uncertain, the
Company has estimated the undiscounted future values of these costs to be $1.74 million as at March
31, 2008 (2007 - $1.35 million ) in the next five to eight years.
The aggregate accrued obligation as at March 31, 2008, representing the fair value of the future
reclamation costs, was $1,225, 829 (2007 - $962,402). The fair value was estimated using a credit
risk free discount rate of six percent.
12. SHARE CAPITAL
(a) Authorized
Unlimited number of common shares without par value.
(b) Issued and outstanding
On April 26, 2006, the Company completed a short form prospectus financing which raised net
proceeds of $39,471,408 (CAD$44,484,295) through the sale of 7,503,750 units at a price of
CAD$6.37 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
Notes to the Consolidated Financial Statements page 17
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
price of CAD$8 per common share. In August 2007, the expiry date of the warrants was
extended to October 26, 2008.
On June 13, 2006, the Board of Directors approved a Normal Course Issuer Bid to acquire up to
3,000,000 of its common shares, over a one year period. Purchases were made at the discretion of
the Directors at prevailing market prices, through the facilities of the TSX Exchange. As at
March 31, 2007, a total of 1,261,500 of its common shares were acquired and cancelled under the
Normal Course Issuer Bid at a cost of $4,890,169 (CAD$5,499,104) and a total of $4,068,249
(CAD$4,766,361) was transferred from contributed surplus upon the share cancellations. The
Normal Course Issuer Bid expired at June 12, 2007.
On March 20, 2008, the Company announced another Normal Course Issuer Bid to acquire up to
2,988,029 of its common shares. The Normal Course Issuer Bid was approved By TSX Exchange
and commenced on March 28, 2008 and continues until no later than March 27, 2009. Purchases
will be made at the discretion of the Directors at prevailing market prices, through the facilities of
the TSX Exchange. The Company intends to cancel all shares acquired under the issuer bid. No
shares were acquired under this issuer bid during the year ended March 31, 2008.
(c) Share Purchase Warrants
The Company adopted the Residual Approach in valuing the share purchase warrants attached to
private placement units issued. Under this approach, proceeds up to the Company’s share market
value are allocated to the shares and only the excess above the market value is allocated to the
attached share purchase warrants. No value has been allocated to these warrants as determined
under the Residual Approach.
The following is a summary of warrant transactions:
Warrant Shares
Outstanding as at
Issued Warrant Shares
Exercised
during
March 31, 2007 the period during the period
Warrant Shares
Outstanding as at
March 31, 2008
Price per
Warrant
CAD$
Expiry Date
3,751,869
-
9,750
3,742,119
$
8.00
October 26, 2008
During the year ended March 31, 2008, the Company received approval from Toronto Stock
Exchange to extend the expiry date of the share purchase warrants to acquire 3,751,869 common
shares from October 26, 2007 to October 26, 2008. The exercise price of these warrants remains
unchanged at CAD$8.00. Effective on September 10, 2007, these common share purchase
warrants were listed on the Toronto Stock Exchange and trade under the symbol “SVM.WT”.
Notes to the Consolidated Financial Statements page 18
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
(d) Stock Options
The following is a summary of option transactions:
Balance, March 31, 2006
Options granted
Options exercised
Options forfeited
Balance, March 31, 2007
Options granted
Options exercised
Options forfeited
Balance, March 31, 2008
Weighted
Average
Exercise Price
Per Share
CAD$
$
0.36
4.44
0.30
4.35
$
1.19
7.11
0.73
2.60
Number of
Shares
7,909,875
1,300,500
(2,961,717)
(78,750)
6,169,908
1,081,200
(3,448,896)
(567,527)
3,234,685
$
3.42
During the year ended March 31, 2008, a total of 1,081,200 options were granted to directors,
officers, employees, and consultants exercisable at a weighted average exercise price of
CAD$7.11 per share for five years, subject to a vesting schedule over a three year term with
8.333% options vested every three months. During the year ended March 31, 2008 a total of
567,527 options were forfeited and cancelled.
The following is the summary assumptions to estimate the fair value of each option granted using
the Black-Scholes option pricing model.
Risk free interest rate
Expected life of options in years
Expected volatility
Expected dividend yield
2008
2007
2.58% to 4.31%
2 to 5 years
52% to 117%
1%
4.01% to 4.23%
1 to 3 years
95% to 119%
0%
The weighted average grant date fair value of options granted during the year was $3.53 (2007 -
$2.77). For the year ended March 31, 2008, a total of $2,472,685 (March 31, 2007 - $1,955,545)
were recorded as stock-based compensation expenses on the consolidated statements of income.
Notes to the Consolidated Financial Statements page 19
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
The following table summarizes information about stock options outstanding at March 31, 2008:
Exercise
Prices
in CAD$
$
0.18
0.63
0.75
4.32
4.43
4.47
6.74
6.95
9.05
$0.18 - $9.05
Number
Outstanding at
Average
Remaining
March 31 Contractual
Life (Years)
Weighted Weighted
Average
Number
Exercise Exercisable at
March 31
2008
Price
in CAD$
2008
990,000
450,000
31,875
432,399
216,999
54,708
780,204
135,000
143,500
3,234,685
1.54
1.92
0.18
3.29
3.41
3.38
4.03
4.51
4.80
2.64
0.18
0.63
0.75
4.32
4.43
4.47
6.74
6.95
9.05
3.42
$
990,000
450,000
31,875
197,400
93,999
7,458
127,938
18,750
-
1,917,420
Weighted
Average
Exercise
Price
in CAD$
0.18
0.63
0.75
4.32
4.43
4.47
6.74
6.95
9.05
1.45
$
(e) Cash Dividends Declared and Distributed
During the year ended March 31, 2008, an eligible cash dividend of $6,891,020 or $0.05 per share
(CAD$0.05 per share) (March 31, 2007 - $nil) was declared and distributed to shareholders of the
Company.
(f) Stock split
On September 28, 2007, shareholders approved a three-for-one share split for its common shares.
The record date for the stock split was set at the close of business on October 31, 2007.
On October 17, 2007, an aggregate of 108 (or 36 pre-split) common shares resulting from
rounding of previous capital consolidations were returned to treasury to reduce the accumulated
fractional shares held in the Company’s trustee account in connection with the share split.
All share and per share information included in the consolidated financial statements and
accompanying notes are presented on a post-split basis for all periods presented.
Notes to the Consolidated Financial Statements page 20
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
13. NON-CONTROLLING INTERESTS
The following is the summary of non-controlling interests:
Balance, March 31, 2006
Minority shareholder's contribution
Income (loss) sharing for the year
Foreign currency translation impact
Balance, March 31, 2007
Non-controlling interest reduction upon acquistion of additional
equity interest in Huawei (10(b))
Income sharing for the year
Non-controlling interest reduction upon distribution
Non-controlling interest reduction upon dividend declared
Foreign currency translation impact
Balance, March 31, 2008
Henan Found
600,323
$
-
6,369,493
( 71,610)
6,898,206
Huawei
$
-
103,461
( 54,356)
675
49,780
$
Total
600,323
103,461
6,315,137
( 70,935)
6,947,986
-
16,809,697
( 3,371,257)
( 12,117,910)
779,234
8,997,970
$
( 186,140)
2,387,546
-
-
16,041
2,267,227
$
( 186,140)
19,197,243
( 3,371,257)
( 12,117,910)
795,275
11,265,197
$
In June 2007, Henan Found distributed a total of $14,983,364 (RMB¥111 million) to its
shareholders. The Company’s wholly owned subsidiary, Victor Mining Ltd., received its share
(77.5%) of dividend payment of $11,612,107 (RMB¥86,025,000), and a total of $3,371,257
(RMB¥24,975,000) was paid to the non-controlling interests.
During the year ended March 31, 2008, Henan Found’s Board of Directors declared a dividend of
$50,616,759 (RMB¥400 million) to its shareholders. The distribution date has not been determined
yet, and amount of $12,117,910 (RMB¥90 million) distributable to the non-controlling subsidiary
shareholder was recorded as due to related parties on the balance sheet as of March 31, 2008.
The Company has not recorded non-controlling interest in Qinghai Found, as its ownership
percentage represents only the profit sharing and working interests and the minority shareholder is
not responsible for any of the associated costs. As at March 31, 2008, Qinghai Found is still in the
exploration stage and has not generated any revenue.
14. RESERVES
Pursuant to Chinese regulations, Henan Found may make appropriations to reserves funds,
comprising the Enterprise Reserve Fund, Enterprise Expansion Fund, and Employee Welfare Fund at
a percentage, at the discretion of the Board of Directors of Henan Found, of its after tax net income.
The Enterprise Reserve Fund is established for covering potential losses and could be used to
increase the registered capital if approved by the relevant Chinese authorities. The Enterprise
Expansion Fund is for expanding business operation. Both Enterprise Reserve Fund and Enterprise
Expansion Fund are recorded as part of shareholders’ equity but are not available for distribution to
shareholders other than in liquidation. Employee Welfare Fund is established for the purpose of
providing employee facilities and other collective benefits to employees and is recorded as an
expense.
Notes to the Consolidated Financial Statements page 21
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
During the year ended March 31, 2008, the Board of Directors of Henan Found appropriated reserves
of $2,077,628 (RMB¥16,418,499) (2007 - $nil) from its retained earnings for the calendar year ended
December 31, 2006. Of the reserves, a total of $415,526 (RMB¥3,283,700) (2007 - $nil) was
appropriated as Enterprise Reserve Fund and $1,662,102 (RMB¥13,134,799) (2007 - $nil) as
Enterprise Expansion Fund. Henan Found also contributed a total of $16,621 (RMB¥131,348) (2007
- $nil) to the Employee Welfare Fund. The contribution to Employee Welfare Fund was recorded as
accrued liabilities on the consolidated balance sheet and expensed on the consolidated statement of
income. As of March 31, 2008, the Board of Directors of Henan Found has not yet decided to
appropriate any reserve from its retained earning for the calendar year ended December 31, 2007.
15. RELATED PARTY TRANSACTIONS
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 the year ended March 31, 2008, the Company incurred:
(i) consulting fees of $270,695 (2007 - $152,599) payable to a company owned by an officer and
director of the Company and to an officer of the Company;
(ii)
legal fees of $nil (2007 - $76,974) payable to a law firm with a partner that is a director of the
Company;
(iii) management fees of $202,449 (2007 - $126,047) payable to a company owned by an officer
and director of the Company, and to an officer and director of the Company;
(iv) accounting fees of $498 (2007 - $77,346) payable to an accounting firm with a partner that is
former officer of the Company;
(v) directors’ fees of $93,731 (2007 - $36,363);
(vi) expenses recovered of $302,100 (2007 - $321,931) from New Pacific Metals Corp. (“NUX”).
(b) As at March 31, 2008, the related transaction balances included the following:
(i) $nil (March 31, 2007 - $34,478) due to a company controlled by a director of the Company
for services provided;
(ii) $nil (March 31, 2007 - $131,641) due to the joint venture partner of Henan Huawei;
(iii) $12,117,910 (March 31, 2007 - $nil) due to the joint venture partner of Henan Found for non-
controlling interest distributable as Henan Found declared dividend during the year;
(iv) $12,014 (March 31, 2007 - $28,329) due from a company related by common control;
(v) $17,113 (March 31, 2007 - $nil) due from the joint venture partner of Qinghai Found;
Notes to the Consolidated Financial Statements page 22
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
(vi) $18,051 (March 31, 2007 - $nil) due from NUX for expenses incurred and recoverable under
an inter-company services and cost allocation arrangement; and,
(vii) $nil (March 31, 2007 - $1,195,129) due to NUX for funds advanced from NUX.
On December 8, 2006, NUX entered into a Declaration of Trust Agreement (the “Trust
Agreement”) with Yunnan JCJ, an indirectly wholly owned subsidiary of the Company, to
hold in trust for NUX, two exploration permits (“Huaiji Project”) located in Guangdong
Province, China.
On January 25, 2007, NUX advanced $1.24 million to the Company to fund the Huaiji
Project. As at March 31, 2008, a total of $683,995 of cash held in trust by the Company for
the sole benefit of NUX is repayable upon demand, pursuant to a trust agreement dated
October 16, 2007.
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.
16. INCOME TAXES
(a) Income tax expense
The Company’s wholly-owned subsidiary, Yunnan JCJ, 77.5% owned subsidiary, Henan Found, and
70% owned subsidiary, Henan Huawei, are considered as qualified Foreign Investment Enterprises (a
“FIE”) in China and they are 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 12.5%).
Henan Found enjoyed a zero tax rate for the 2006 and 2007 calendar years. Starting from January 1,
2008 to December 31, 2010, a 12.5% income tax rate is applied. A tax provision of approximately
$1.9 million was provided for the fourth quarter ended March 31, 2008.
Henan Huawei can enjoy a zero income tax rate starting from January 1, 2007 and a 12.5% income
tax rate for January 1, 2009 to December 31, 2011.
Yunnan JCJ has not recorded a profit as of December 31, 2007, and as a result, its tax holiday is
deemed to commence from January 1, 2008 pursuant to the new Chinese corporate Income Tax Laws
effective January 1, 2008.
Qinghai Found is not entitled to any tax holiday under the current Chinese income tax laws.
Notes to the Consolidated Financial Statements page 23
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US 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:
Express in Cdn. $
Income (loss) before non-controlling interest
Canadian combined federal and provincial income tax rate
Expected income tax recovery (expense)
Difference in foreign tax rates
Taxes recovery from tax holiday
Non-deductible stock based compensation
Non-taxable mineral property option income
Non-deducitlbe foreign exchange losses
Change in valuation allowance
Impact of tax rate changed
Others
2008
79,684,976
33.47%
(26,666,577)
25,674,821
1,425,686
(913,186)
743,049
(198,314)
554,495
(554,495)
(615,958)
(550,479)
2007
29,763,482
34.12%
(10,155,300)
8,855,408
-
(667,184)
657,430
(9,677)
-
-
(106,363)
(1,425,686)
$
$
$
$
(b) Future income tax
The approximate tax effect of each type of temporary difference that gives rise to the Company’s
future tax assets is as follows:
Non - capital loss carry forward
Capital loss carry forward
Excess tax value of property, plant, and equipment over book value
Share issuance costs
Asset retirement obligation and others
Valuation allowance
Excess of accounting base over tax base relating
mineral rights and properties
Net future income taxes liabilities
$
$
2008
1,287,093
7,197
1,132,469
662,888
210,652
3,300,299
(3,300,299)
2007
1,074,631
3,890
930,760
736,523
-
2,745,804
(2,745,804)
$
$
6,345,898
6,345,898
$
1,405,189
1,405,189
$
The Company has Canadian non-capital losses of approximately $5.1 million expiring from 2009 to
2028 if not applied against future Canadian income for Canadian tax purposes. In addition, the
Company also has capital losses of approximately $28,000 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 valuation allowance was recorded against the future tax
assets.
17. FINANCIAL INSTRUMENTS
(a) Fair value
The fair values of the Company’s cash and cash equivalents, short term investments, accounts
receivables, accounts payable and accrued liabilities, deposits received from customers, and
Notes to the Consolidated Financial Statements page 24
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
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 reported based on quoted market
prices or at cost, if a market value is not available.
(b) Exchange risk
The Company undertakes transactions denominated in foreign currencies and as such is exposed
to risk due to fluctuations in foreign exchange rates.
The Company conducts its operations in Chinese Yuan and thereby the majority of the
Company’s assets, liabilities, revenues and expenses are denominated in 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, 2008, approximately $48.3 million (March 31, 2007 - approximately $18.6
million) of cash and cash equivalents and short term investments were held in RMB¥.
(c) Interest rate risk
The Company has no interest-bearing debt and so is not exposed to interest rate risk.
(d) Credit risk
The Company is exposed to credit risk with respect to accounts receivable from customers. The
Company undertakes credit evaluations on customers as necessary and has monitoring processes
intended to mitigate credit risks. The Company has accounts receivable from clients primarily in
China engaged in the mining and milling of base and polymetallic metals industry.
The Company is exposed to credit risk with respect to cash equivalents and accounts receivable.
The carrying amount of assets included on the balance sheet represents the maximum credit
exposure.
The cash equivalents consist mainly of short-term investments, such as money market deposits.
None of the cash equivalents were in asset backed financial instruments. The Company has
deposits of cash equivalents that meet minimum requirements for quality and liquidity as
stipulated by the Company’s Board of Directors. Management believes the risk of loss to be
remote.
The mining industry in China may be affected by economic factors that may impact accounts
receivable. Management does not believe that the mining industry or geographic region within
China represents a significant credit risk.
(e) Commodity price risk
The Company is subject to price risk from fluctuations in market prices of commodities, and the
Company has elected not to actively manage the exposure to the commodity price risk at this time.
Notes to the Consolidated Financial Statements page 25
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
18. SEGMENTED INFORMATION
(a) Industry information
The Company operates in one reportable operating segment, being the acquisition, exploration,
development, and operation of mineral properties.
(b) Geographic information
(i) The following is the summary of balance sheet items of each geographic segment:
As at
Balance sheet items:
Canada
March 31, 2008
BVI
China
Total
Canada
March 31, 2007
BVI
China
Total
Mineral rights and properties
Property, plant and equipment
Long term investments
$
-
438,723
4,472,953
$
60,904,275
13,910,849
6,417,939
$
-
-
6,982,995
$
60,904,275
14,349,572
17,873,887
$
-
326,077
216,844
$
16,326,046
7,542,617
58,197
$
-
-
6,279,806
$
16,326,046
7,868,694
6,554,847
(ii) The following is the operation summary of each geographic segment:
For the
Balance sheet items:
Sales
Cost of sales
Amortization and depletion
Gross Profit
Year ended March 31, 2008
Canada
$
-
-
-
-
Ying
China
HPG
$
96,328,947
(17,388,864)
(1,703,494)
77,236,589
$
12,033,815
(2,725,600)
(1,504,766)
7,803,449
Other
$
-
-
-
-
BVI
$
-
-
-
-
Total
$
108,362,762
(20,114,464)
(3,208,260)
85,040,038
Expenses
(10,892,245)
(451,848)
(644,926)
(284,933)
(404,984)
(12,678,936)
Interest, option & other income
Loss and other expenses
Non controlling interest
Income tax expenses
6,166,318
-
-
-
900,077
10,792
534,486
(16,809,697)
(507,874)
(2,387,546)
(42,605)
-
-
10,445
(298,244)
-
-
7,622,118
(298,244)
(19,197,243)
(550,479)
Net income (loss)
($
4,725,927)
$
60,367,247
$
4,739,164
$
249,553
($
692,783)
$
59,937,254
For the
Balance sheet items:
Sales
Cost of sales
Amortization and depletion
Gross Profit
Year ended March 31, 2007
Canada
-
$
-
-
-
Ying
$
39,777,218
(7,738,301)
(1,189,766)
30,849,151
China
HPG
-
$
-
-
-
Other
-
$
-
-
-
BVI
-
$
-
-
-
$
Total
39,777,218
(7,738,301)
(1,189,766)
30,849,151
Expenses
(4,728,813)
(1,358,851)
(132,904)
(191,772)
(8,017)
(6,420,357)
Interest, option & other income
Loss and other expenses
Non controlling interest
Income tax expenses
Net income (loss)
5,480,768
(215,807)
-
-
536,148
$
138,810
(29,621)
(6,369,493)
(1,425,686)
21,804,310
$
182
-
54,356
-
78,366)
($
(18,187)
-
-
-
209,959)
($
-
(21,457)
-
-
29,474)
($
5,601,573
(266,885)
(6,315,137)
(1,425,686)
22,022,659
$
Notes to the Consolidated Financial Statements page 26
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
(c) Sales by metal
For the year ended March 31, 2008, the Company generated sales of $108,362,762 (2007 -
$39,777,218) which comprised of the following:
Sales by metal:
Silver (Ag)
Gold (Au)
Lead (Pb)
Zinc (Zn)
Other
(d) Major customers
2008
$44,677,949
1,189,764
48,433,127
14,061,922
-
$108,362,762
2007
$17,998,480
68,842
14,069,457
7,635,839
4,600
$39,777,218
During the year ended March 31, 2008, there were four customers (2007 - four) who
individually accounted for 8% to 32% (2007 - 14% to 23%) and collectively, 76% (2007 - 72%)
of the total revenue of the Company.
19. COMMITMENTS
The Company’s leasehold obligation commitments total $962,617 over six years (years ending
March 31, 2009: $254,670; 2010: $256,853; 2011: $256,853; 2012: $85,117; 2013: $87,299; and
2014: $21,825).
20. SUBSEQUENT EVENTS
The Company, on April 24, 2008, entered into a share purchase agreement with Yangtze Gold Ltd.
(“Yangtze Gold”), a private BVI company, to acquire from Yangtze Gold all of the issued shares of
Yangtze Mining Ltd. (“Yangtze Mining”). Yangtze Mining owns a 95% interest in a Sino-Foreign
joint venture company, Anhui Yangtze Mining Co. Ltd. (“Anhui Yangtze”), which owns 100% of the
Gaocheng (“GC”) and Shimentou (“SMT”) silver, lead and zinc exploration permits located in
Guangdong Province, People’s Republic of China.
The purchase price for the shares of Yangtze Mining is approximately $60.27 million (CAD$61.95
million) and will be paid 40% in cash and 60% in common shares of the Company. The 40% cash
portion will be payable as to 20% at closing and 20% plus interest at 5.5% on that amount from the
date hereof payable when the Company receives its next dividend payment from its Chinese
subsidiary Company, or within 3 months, whichever is earlier. The 60% common share portion of
the purchase price will be payable by the issuance at the closing of 4,532,543 common shares of the
Company at a price of CAD$8.20 per share, being the volume weighted average trading price of the
shares of the Company during the 30 calendar days prior to the date of signing this agreement.
On April 28, 2008, the Company paid a deposit of $1.97 million (CAD$2.0 million) to Yangtze Gold,
which amount will be credited against the cash portion of the purchase price. The deposit is non-
Notes to the Consolidated Financial Statements page 27
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For Years ended March 31, 2008 and 2007
(Expressed in US dollars, unless otherwise stated)
refundable unless a breach of certain representations and warranties by Yangtze Gold or that the
Company’s financial advisor is unwilling or unable to deliver a written opinion that the transaction is
fair from a financial point of view to the Company’s shareholders. On April 29, 2008, the Company
advanced $2.7 million (RMB¥20 million) to Anhui Yangtze so that it can start the process of
applying for a mining permit and carry out further exploration program, including drilling.
Dr. Rui Feng, Chairman and CEO of the Company, is a Director of Yangtze Gold, Yangtze Mining,
and Anhui Yangtze, and Mr. J. Feng, a relative of Dr. Feng, controls Yangtze Gold. The transaction
has been approved by the independent directors of the Company in accordance with applicable
regulations. Closing of the transaction is subject to the Company’s due diligence, receipt of a fairness
opinion, and approval by required regulatory authorities. Closing is expected to occur on or before
June 8, 2008.
Notes to the Consolidated Financial Statements page 28