SILVERCORP METALS INC.
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009
(Expressed in thousands of 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. Financial information
appearing throughout our management’s discussion and analysis is consistent with 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, they can only provide
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 the Standards of the Public
Company Accounting Oversight Board (the United States) and have expressed their opinion in the
auditors’ report.
(Signed) Rui Feng
(Signed) Maria Tang
Rui Feng
Maria Tang
Chairman and Chief Executive Officer
Interim Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Silvercorp Metals Inc.
We have audited the consolidated balance sheets of Silvercorp Metals Inc. (the “Company”) as
at March 31, 2009 and 2008 and the consolidated statements of operations, comprehensive
income (loss), cash flows and shareholders’ equity for each of the years in the three-year period
ended March 31, 2009. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and
the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the
consolidated financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on
financial
the Company’s
reporting. Accordingly, we express no such opinion. 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. We believe that our audits
provide a reasonable basis for our opinion.
internal control over
the effectiveness of
In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of the Company as at March 31, 2009 and 2008 and the results of its
operations and its cash flows for each of the years in the three-year period ended March 31, 2009
in conformity with Canadian generally accepted accounting principles.
As discussed in Note 2(b) to the consolidated financial statements for the year ended March 31,
2008, the Company changed its reporting currency to U.S. dollars and as discussed in Note 2(c),
the Company changed its method of accounting for comprehensive income and financial
instruments during the year ended March 31, 2008.
Vancouver, Canada
June 3, 2009
Chartered Accountants
SILVERCORP METALS INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of US dollars)
Notes
March 31, 2009
March 31, 2008
5
4
6
3
17
15
7
8
4
9
10
17
4
14
17
15
17
11
12
14
13
$
41,470
23,962
732
2,933
1,529
143
249
71,018
1,058
12,186
293
29,072
89,413
2,162
205,202
$
$
8,533
1,290
658
2,564
3,041
7,353
23,439
$
47,093
37,146
-
5,260
2,389
-
47
91,935
5,204
17,874
-
14,349
60,905
-
190,267
$
$
7,027
2,573
-
-
720
12,118
22,438
19,678
2,029
45,146
7,610
135,604
3,764
31,893
(10,167)
(8,648)
152,446
6,346
1,226
30,010
11,265
78,334
1,722
2,078
14,122
52,736
148,992
$
205,202
-
$
190,267
-
ASSETS
Current Assets
Cash and cash equivalents
Short term investments
Restricted cash
Accounts receivable, prepaids and deposits
Inventories
Current portion of future income tax assets
Amounts due from related parties
Long term prepaids
Long term investments
Restricted cash
Property, plant and equipment
Mineral rights and properties
Future income tax assets
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Deposits received from customers
Notes payable
Dividends payable
Income tax payable
Amounts due to related parties
Future income tax liabilities
Asset retirement obligations
Non-controlling interests
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Reserves
Accumulated other comprehensive income (loss)
Retained earnings
Approved on behalf of the Board:
(Signed) Robert Gayton
Director
(Signed) Rui Feng
Director
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of US dollars, except for share and per share figures)
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
Impairment charges
Investor relations
General and administrative
Professional fees
Other income and expenses
Equity loss in investment
Gain (loss) 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 (loss) before income taxes and non-controlling interests
Income tax expense (recovery)
Current
Future
Income (loss) before non-controlling interests
Non-controlling interests
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Weighted Average Number of Shares Outstanding - Basic
Weighted Average Number of Shares Outstanding - Diluted
Years ended March 31,
Notes
2009
2008
2007
$
83,523
$
108,363
$
39,777
11
3,7,8,9&10
8
10
9
17
17
12
29,322
6,365
35,687
47,836
123
817
(2,872)
2,325
50,707
550
9,319
1,488
62,457
(14,621)
(1,455)
(819)
(328)
-
1,342
478
(782)
20,114
3,208
23,322
7,738
1,190
8,928
85,041
30,849
62
517
612
1,817
-
284
7,254
2,134
12,680
72,361
(250)
563
(48)
-
2,585
4,474
7,324
61
123
-
808
-
752
4,223
454
6,421
24,428
(222)
-
(4)
(11)
1,715
3,858
5,336
(15,403)
79,685
29,764
6,988
(7,925)
(937)
441
110
551
1,426
-
1,426
(14,466)
79,134
28,338
(1,531)
(19,197)
(6,315)
$
(15,997)
$
59,937
$
22,023
$
$
(0.11)
(0.11)
152,350,041
152,350,041
$
$
0.41
0.40
147,660,730
150,954,072
$
$
0.15
0.15
143,913,693
149,674,056
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Expressed in thousands of US dollars)
Net income (loss) for the year
Other comprehensive income (loss), net of taxes:
Transition adjustment to opening balance upon adoption of new standards
Unrealized loss on available for sale securities
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 (loss)
Comprehensive income (loss)
Years ended March 31,
2009
2008
2007
$
(15,997)
$
59,937
$
22,023
-
(155)
11,270
(35,404)
(24,289)
9
(48)
3,972
9,709
13,642
-
-
1,042
(920)
122
$
(40,286)
$
73,579
$
22,145
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of US 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 investment loss
Future income tax expenses (recovery)
Impairment charges
Loss on disposal of long term investments
Loss (gain) on disposal of mineral property
Loss on disposal of property plant and equipment
Non-cash other income
Non-controlling interests
Stock-based compensation
Unrealized foreign exchange loss
Net change in non-cash working capital
Accounts receivable, prepaids and deposits
Inventory
Restricted cash
Accounts payable and accrued liabilities
Asset retirement obligations discharged upon payments
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
Proceeds from disposal of long term investments
Proceeds from disposal of mineral rights and properties
Proceeds from disposal of property, plant and equipment
Non-controlling interest shareholder's contribution
Cash used in investing activities
Financing activities
Repayment from (advance to) related parties
Advance under notes payable
Distribution to non-controlling interest shareholder
Cash dividends distributed
Share subscriptions for cash, net of commission and expenses
Repurchase of shares to treasury for cancellation
Cash provided (used) by financing activities
Years ended March 31,
Notes
2009
2008
2007
$
(15,997)
$
59,937
$
22,023
122
7,182
1,455
(7,925)
50,707
-
819
328
-
1,531
2,103
4,378
44,703
2,513
496
(1,020)
(734)
-
2,300
(1,272)
46,986
(37,115)
(12,697)
(291)
12,982
(354)
-
814
2
215
62
3,725
250
110
-
-
(563)
48
(4,388)
19,197
2,473
-
80,851
(3,627)
(342)
-
3,413
(514)
(950)
955
79,786
(36,583)
(7,452)
(5,552)
(29,489)
(3,397)
-
563
157
-
62
1,312
222
-
-
11
-
4
(3,824)
6,315
1,956
-
28,081
(417)
(1,708)
-
1,804
(229)
1,474
1,047
30,052
(11,752)
(6,325)
(2,035)
2,304
(1,241)
209
-
9
-
(36,444)
(81,753)
(18,831)
(37)
656
(13,173)
(5,466)
22,655
(9,473)
(4,838)
(1,429)
-
(3,371)
(6,891)
2,294
-
(9,397)
1,692
-
-
-
42,396
(4,890)
39,198
10
14(e)
Effect of exchange rate changes on cash and cash equivalents
(11,327)
5,128
(430)
Increased (decrease) in cash and cash equivalents
(5,623)
(6,237)
49,989
Cash and cash equivalents, beginning of year
47,093
53,330
3,341
Cash and cash equivalents, end of year
Supplemental information:
Interest paid
Income tax paid
Non-cash investing activities:
$
41,470
$
47,093
$
53,330
$
30
$
87
$
45
$
4,796
$
1,274
$
-
Common shares issued for mineral rights and properties
$
36,484
$
-
$
-
Common shares of New Pacific Metals Corp. received as partial
consideration for the Option Agreement related to Kang Dian Project
$
-
$
4,388
$
3,824
Construction in process transferred to mineral rights and properties
$
-
$
1,314
$
-
SILVERCORP METALS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in thousands of US dollars, except for share figures)
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 gain 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 loss on available for sale securities
Appropriation to reserves
Cash dividends declared and distributed
Earnings of the year
Unrealized gain on translation of self-sustaining operation
Unrealized gain on translation functional currency to reporting
currency
Balance, March 31, 2008
Options exercised
Shares issued for property
Financing
Share issuance costs
Cancellation of shares under normal course issuer bid
Value of options transferred upon exercised
Stock based compensation
Unrealized loss on available for sale securities
Appropriation to reserves
Cash dividends declared and distributed
Loss of the year
Unrealized gain on translation of self-sustaining operation
Unrealized loss on translation functional currency to reporting
currency
Balance, March 31, 2009
Share capital
Number of
shares
Amount
Contributed
surplus
135,186,471
2,961,717
1,567,500
7,503,750
-
-
(1,261,500)
-
-
$
31,752
781
2,144
39,471
1,010
4,068
(4,890)
-
-
$
4,076
-
-
-
(1,010)
(4,068)
-
1,956
-
Reserves
(Note 13)
$
-
-
-
-
-
-
-
-
-
-
-
-
-
- -
74,336
-
2,225
68
-
1,705
-
-
-
-
-
-
145,957,938
-
3,448,896
9,750
(108)
-
-
-
-
-
-
-
-
954
-
-
-
-
(1,705)
2,473
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,078
-
-
-
- -
78,334
22
36,485
24,205
(1,570)
(1,885)
13
-
-
-
-
-
-
149,416,476
4,482
4,532,543
10,000,000
-
(2,366,500)
-
-
-
-
-
-
-
-
1,722
-
-
-
-
(47)
(13)
2,102
-
-
-
-
-
-
2,078
-
-
-
-
-
-
-
-
29,815
-
-
-
Accumulated
other
comprehensive
income (loss)
Retained
earnings
(deficit)
Total
shareholders'
equity
$
358
-
-
-
-
-
-
-
-
1,042
(920)
480
9
-
-
-
-
-
(48)
-
-
-
3,972
$
(20,255)
-
-
-
-
-
-
-
22,023
$
15,931
781
2,144
39,471
-
-
(4,890)
1,956
22,023
-
1,042
-
1,768
-
-
-
-
-
-
-
(2,078)
(6,891)
59,937
-
9,709
14,122
-
-
-
-
-
-
-
(155)
-
-
-
11,270
-
52,736
-
-
-
-
(7,542)
-
-
-
(29,815)
(8,030)
(15,997)
-
(920)
77,538
9
2,225
68
-
-
2,473
(48)
-
(6,891)
59,937
3,972
9,709
148,992
22
36,485
24,205
(1,570)
(9,474)
-
2,102
(155)
-
(8,030)
(15,997)
11,270
-
161,587,001
-
$
135,604
-
$
3,764
-
$
31,893
(35,404)
(10,167)
$
-
$
(8,648)
(35,404)
152,446
$
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
Silvercorp Metals Inc., along with its subsidiary companies (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”).
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 are presented in
thousands of US dollars. Note 21 reconciles the consolidated financial statements
prepared in accordance with Canadian GAAP to financial statements prepared in
accordance with United States generally accepted accounting principles (“US GAAP”).
These consolidated financial statements include the accounts of Silvercorp Metals Inc.
and its wholly owned subsidiaries: Silvercorp Metals China Inc., Fortune Mining Limited,
Fortune Copper Limited, Fortress Mining Inc., Fortune Gold Mining Limited, Victor
Resources Ltd., Victor Mining Ltd., Yangtze Mining Ltd., Yangtze Mining (H.K.) Ltd.,
82% owned subsidiary, Qinghai Found Mining Company Ltd. (“Qinghai Found”), 70%
(March 31, 2007 - 60%) owned subsidiary, Henan Huawei Mining Co. Ltd. (“Henan
Huawei”), 77.5% owned subsidiary, Henan Found Mining Co. Ltd. (“Henan Found”),
95% owned subsidiary, Anhui Yangtze Mining Co. Ltd. and 95% owned subsidiary,
Guangdong Found Mining Co. Ltd.
All significant inter-company transactions and accounts have been eliminated upon
consolidation.
In the notes to these consolidated financial statements, “joint venture” is in the context of
“the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures”,
which governs business conducted by foreigners in China. None of the Company’s
subsidiary is currently accounted for using proportionate consolidation method in
accordance with CICA Section 3055, “Interest in Joint Ventures”
(b) Significant Accounting Policies
(i) Use of estimates and measurement uncertainty
The preparation of consolidated 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 but not limited to, the recoverability of
amounts receivable and investments, the determining of defined ore bodies, mineral
Page 1
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
resources, fair values for purposes of impairment analysis, reclamation obligations,
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 dollars. Effective April 1, 2007, the
Company changed its reporting currency from Canadian dollars to the US dollars. The
financial statements for all years presented have been translated into the US dollars using
the current rate method. Under this method, the statements of operations and cash flows
have been translated into the reporting currency using the average exchange rate
prevailing during each reporting period. All assets and liabilities have been translated
using the exchange rate prevailing at the balance sheet dates. Shareholders’ equity
transactions since April 1, 2006 have been translated using the exchange rates 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 from the translation are recorded as exchange gain (loss) in
a separate component of accumulated other comprehensive income (“AOCI”). All
comparative financial information has been restated to reflect the Company’s results as if
they had been reported in the US dollars.
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. 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 AOCI. Revenues and expenses of Henan Found and Henan Huawei are
translated at average exchange rates for the period.
(iii) Financial instruments
The Company recognizes financial assets and liabilities on the balance sheets when
becoming a party to the contractual provisions of the instrument.
Page 2
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
Cash and cash equivalents, which are designated as held-for-trading financial assets and
measured at fair value, 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.
Short term investments and restricted cash which are designated as held-for-trading
financial assets and measured at fair value, include bank notes, guaranteed investment
certificates and term deposits with maturities of greater than three months, but less than
one year, from the date of acquisition.
Accounts receivables and amounts due from related parties 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.
Long term investments for which the Company has no significant influence over investees
are classified as available-for-sale securities and recorded at fair value. Fair value is
determined by reference to quoted market prices at the balance sheet dates. Unrealized
gains and losses on available-for-sale investments are recognized in other comprehensive
income until investments are disposed of or when an other-than-temporary decline in
value occurs. Realized gains or losses, including unrealized gains and losses previously
recorded in other comprehensive income, on the available-for-sale securities are
recognized in other income. Investment transactions are recognized on the transaction
date with transaction costs included in the underlying balance.
Accounts payable and accrued liabilities, deposits received from customers, dividends
payable, amounts due to related parties and notes payable are classified as other financial
liabilities. They are initially measured at their fair value and subsequently measured at
amortized cost using the effective interest rate method. The amortized premium or
discount is charged to the statements of operations.
It is impractical to determine the fair value of the amounts due from and due to related
parties with sufficient reliability due to the nature of the financial instruments, the absence
of secondary markets and the significant cost of obtaining outside appraisals.
(iv) Inventories
Inventories include metals contained in concentrates, direct smelting ores, stockpile ores
and operating materials and supplies. The classification of metals 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.
Mined 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.
Page 3
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
Material and supplies are valued at the lower of cost, determined on a weighted average
cost basis, and net realizable value. Direct smelting ores and stockpiled ores are valued at
the lower of mining cost and net realizable value. Mining cost includes the cost of raw
material, mining contractor cost, direct labour costs, and applicable production overheads,
based on normal operating capacity. Concentrate inventories are valued at the lower of
cost and net realizable value. The cost of concentrate inventories includes the mining cost
for stockpiled ores milled, freight charges to ship stockpile ores to mill sites from mine
sites, and milling cost. Milling cost includes cost of materials and supplies, direct labour
costs, and applicable production overheads cost, based on normal operation capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary to make the sale.
(v) 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
Office equipment and furniture
Land use right
Leasehold improvement
Machinery and equipment
Motor vehicle
5%
20%
2%
20%
10% - 20%
20%
(vi) Mineral rights and properties
Acquisition costs, direct exploration and development expenditures, including costs
incurred during production to increase future output by providing access to additional
sources of mineral resource, are capitalized where these costs relate to specific properties
for which resources exist, and it is expected that the expenditure can be recovered by
future exploitation or sale.
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.
The Company reviews the carrying value of each property that is in the exploration and/or
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. The carrying amount will be written off if the Company decides to
abandon the property.
Page 4
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(vii) Impairment of long-lived assets
Management of the Company regularly reviews the 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, resources, 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 carrying value of the related assets exceeds their fair value,
determined using discounted future cash flows. The impairment amount would
correspond to the excess of the carrying value over the fair value. Management’s
estimates of fair value are based on internal estimates of discounted future cash flows and
the estimate of salvage value.
(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 balance.
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 in the accounts when the significant risks and rewards of
ownership have passed. This is when persuasive evidence of an arrangement exists, upon
delivery when title and risk of ownership of metals or metals bearing concentrate passes
to the buyer, when amount can be reasonably determined and when collection is
reasonably assured. The passing of title to the customer is based on the terms of the sales
contract.
(x) Stock-based compensation
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
Page 5
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
and is expensed in the consolidated statements of operations over the vesting period of the
options granted. The fair value of stock options granted to consultants is measured at the
performance commitment date or the date that the service is delivered using the Black-
Scholes valuation method. Forfeitures are accounted for as they occur.
Upon the exercise of the stock option, consideration received and the related amount
transferred from contributed surplus are recorded as share capital.
(xi) 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.
The Company records a valuation allowance against a portion of those future income tax
assets that management believes will, more likely than not, fail to be realized.
(xii) 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.
(xiii) Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing net income or loss by the
weighted average number of outstanding common shares for the year.
The diluted earnings (loss) per share calculation are based on the weighted average
number of common shares outstanding during the period, plus the effects of dilutive
common share equivalents. This method requires that the dilutive effect of outstanding
options and warrants issued should be calculated using the treasury stock method. This
method assumes that all common share equivalents have been exercised at the beginning
of the period (or at the time of issuance, if later), and that the funds obtained thereby were
used to purchase common shares of the Company at the average trading price of common
shares during the period, but only if dilutive.
Page 6
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(xiv) Investments in entities subject to significant influence
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. At each balance sheet date, the Company assess for any impairment in
investment that is considered to be other than temporary, and records such impairment in
the consolidated statements of operations for the year.
(xv) Comparative figures
Certain comparative figures have been reclassified to conform with the presentation
adopted for the current year.
(c) Adoption of New Accounting Standards
On April 1, 2008, the Company adopted the recommendations included in the following
Sections of the Canadian Institute of Chartered Accountants Handbook: Section 1400
(amended), “General Standards of Financial Statement Presentation”, Section 3862, Financial
Instruments - Disclosure”, Section 3863, “Financial Instruments - Presentation”, Section 3031,
“Inventories”, and Section 1535, “Capital Disclosures”. These new standards have no material
impact on the classification and measurement in the Company’s consolidated financial
statements.
(i) General standards of financial statement presentation
The Company has adopted amendments to CICA Handbook Section 1400, “General
Standards of Financial Statement Presentation”, which was amended to include requirements
to assess and disclose an entity’s ability to continue as a going concern. The adoption of this
standard has no impact on the consolidated financial statements.
(ii) Financial instrument standards
Section 3862, “Financial Instruments - Disclosure” and Section 3863 “Financial
Instruments - Presentation”, replace Section 3861 “Financial Instruments - Disclosure and
Presentation”. Section 3862 Financial Instruments - Disclosure contains the required
disclosures related to the significance of the financial instruments on the Company’s
financial position and performance and the nature and extent of risks arising from
financial instruments to which the Company is exposed and how the Company manages
those risks. Section 3863 Financial Instruments - Presentation, describes the standards for
presentation of financial instruments and non-financial derivatives and carries forward the
presentation requirements of Section 3861 Financial Instruments - Disclosure and
Presentation. Additional disclosure has been provided in Note 18 to the consolidated
financial statements.
Page 7
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(iii) Inventories
Section 3031, “Inventories”, replaces the existing inventories standard. The new standard
requires inventory to be valued on a first-in, first-out or weighted average basis, which is
consistent with the Company’s current treatment. The adoption of this standard does not
have a material impact on the Company’s consolidated Financial Statements.
(iv) Capital disclosures
Section 1535, “Capital Disclosures”, establishes standards for disclosing information
about an entity’s capital and how it is managed. These standards require a company to
disclose their objectives, policies, and processes for managing capital along with
summary quantitative data about what it manages as capital. In addition, disclosures are to
include whether companies have complied with externally imposed capital requirements
and when a company has not complied with capital requirements, the consequences of
such non-compliance. Additional disclosures have been provided in Note 16 to the
Company’s consolidated financial statements.
(v) Credit risk and the fair value of financial assets and financial liabilities
On January 20, 2009, the Emerging Issues Committee of the CICA issued EIC-173,
“Credit Risk and Fair Value of Financial Assets and Financial Liabilities”, which
establishes that an entity’s own credit risk and the credit risk of the counterparty should be
taken into account in determining the fair value of financial assets and financial liabilities,
including derivative instruments. EIC-173 should be applied retrospectively without
restatement of prior years to all financial assets and liabilities measured at fair value in
interim and annual financial statements for periods ending on or after January 20, 2009.
The Company has applied this new abstract for the year ended March 31, 2009. There was
no impact on the consolidated financial statements as a result of applying this abstract.
(vi) Mining exploration costs
On March 27, 2009, the Emerging Issues Committee of the CICA issued EIC-174,
“Mining Exploration Costs", which provides guidance on capitalization of exploration
costs related to mining properties in particular, and on impairment of long-lived assets in
general. The Company has applied this new abstract for the year ended March 31, 2009.
There was no impact on the consolidated financial statements as a result of applying this
abstract.
Page 8
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(d) New Canadian Accounting Pronouncements
(i) Convergence with IFRS
In February 2008, the Canadian Accounting Standards Board confirmed that publicly
accountable enterprises will be required to adopt International Financial Reporting
Standards (“IFRS”) for fiscal years beginning on or after January 1, 2011, with earlier
adoption permitted. Accordingly, the conversion to IFRS will be applicable to the
Company’s reporting no later than in the first quarter ending June 30, 2011, with
restatement of comparative information presented. The conversion to IFRS will impact
the Company’s accounting policies, information technology and data systems, internal
control over financial reporting, and disclosure controls and procedures. A diagnostic
assessment of the Company’s current accounting policies, systems and processes to
identify the differences between current Canadian GAAP and IFRS has been completed
but the impact on our consolidated financial position and results of operations has not yet
been determined. The Company intends to update the critical accounting policies and
procedures to incorporate the changes required by converting to IFRS and the impact of
these changes on its financial disclosures.
(ii) 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”. Section 3064 clarifies that costs can be deferred only
when they relate to an item that meets the definition of an asset. This new Section, which
is applicable to the Company’s consolidated financial statements for its fiscal year
beginning April 1, 2009, is not expected to materially impact our consolidated financial
position or results of operations.
(iii) Business Combinations and Related Sections
In January 2009, the CICA issued Section 1582 “Business Combinations” to replace
Section 1581. Prospective application of the standard is effective April 1, 2011, with
early adoption permitted. This new standard effectively harmonizes the business
combinations standard under Canadian GAAP with IFRS. The new standard revises
guidance on the determination of the carrying amount of the assets acquired and liabilities
assumed, goodwill and accounting for non-controlling interests at the time of a business
combination.
The CICA concurrently issued Section 1601 “Consolidated Financial Statements” and
Section 1602 “Non-controlling Interests”, which replace Section 1600 “Consolidated
Financial Statements”. Section 1601 provides revised guidance on the preparation of
consolidated financial statements and Section 1602 addresses accounting for non-
controlling interests in consolidated financial statements subsequent to a business
combination. These standards are effective April 1, 2011, unless they are early adopted at
the same time as Section 1582 “Business Combinations”.
Page 9
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
The Company is currently assessing the impacts to its consolidated financial statements
upon adoption of this new accounting guidance.
3. INVENTORIES
Inventories consist of the following:
Direct smelting ore and stockpile ore
Concentrate inventory
Total stockpile
Material and supplies
March 31, 2009
$ 396
154
550
979
$ 1,529
March 31, 2008
$ 952
468
1,420
969
$ 2,389
For the year ended March 31, 2009, a total of $493 (year ended March 31, 2008 - $nil) was
charged to consolidated statements of operations and included in the impairment charges for
inventory write-down relating to zinc concentrates.
4. RESTRICTED CASH
As at March 31, 2009, a restricted cash of $732 (RMB¥5.0 million) (2008 - $nil) was pledged
as a collateral for a bankers acceptance issued by the Company to a mining contractor. The
bankers acceptance is non interest bearing, with face value of $658 (RMB¥4.5 million) (2008 -
$nil) and maturing on June 4, 2009. The fair value of this bankers acceptance approximates
their respective face value due to its short term nature.
As at March 31, 2009, $293 (RMB¥2.0 million) term deposits are restricted for future utility
charges.
5. SHORT TERM INVESTMENTS
Short term investments consisted of bank notes, guaranteed investment certificates (“GIC”)
and term deposits with maturity dates, from the date of acquisition, beyond three months, but
less than one year.
Page 10
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
As at March 31, 2009, short term investments consisted of the following:
GIC
Carrying value
$ 23,962
Rate
Maturity
1.80%-3.12% June 3, 2009- March 26, 2010
As at March 31, 2008, short term investments consisted of the following:
Bank note
GIC
Term deposits
Carrying value
$ 3,288
2,444
31,414
$ 37,146
Rates
3.57%
4.10%
3.33% - 3.78%
Maturity
April 8, 2008
March 4, 2009
September 18, 2008
The fair value approximates their respective carrying value due to their short term nature.
6. ACCOUNTS RECEIVABLE, PREPAIDS AND DEPOSITS
Accounts receivable, prepaids and deposits consisted of the following:
Accounts receivable
Interest receivable
Deposits to contractors
Prepaid expenses and deposits
7. LONG TERM PREPAIDS
March 31, 2009
800
145
1,268
720
2,933
$
$
March 31, 2008
3,143
251
335
1,531
5,260
$
$
As of March 31, 2009, long term prepaids of $1,058 represented the prepayments for
equipment.
As of March 31, 2008, long term prepaid balance of $5,204 consisted of:
(a) $1,973 prepayment for equipment;
(b) $1,637 advanced to third parties to assist the Company in searching for potential mineral
properties in China. This amount was written off and recorded as impairment charges on
the consolidated statements of operations for the year ended march 31, 2009, and;
(c) $1,594 of prepayment for acquiring an office apartment in Beijing, China. The apartment
has been acquired and its cost was included in property, plant and equipment in the
consolidated balance sheet as at March 31, 2009.
Page 11
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
8. LONG TERM INVESTMENTS
Investments in companies subject to significant influence
(a)(i)
New Pacific Metals Inc.
(a)(ii)
Luoyang Yongning Smelting Co. Ltd.
$ 5,285 $ 11,252
6,418
6,877
March 31, 2009 March 31, 2008
Investments “available for sale”
Dajin Resources Corp.
(b)
204
24
$ 12,186 $ 17,874
(a) Investment in companies subject to significant influence
(i) New Pacific Metals Inc. (“NUX”)
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 previously wholly owned subsidiary SKN Nickel & Platinum Ltd.
(“SNP”), by meeting SNP’s registered capital commitment of $2.5 million to a joint venture,
funding an exploration project in the joint venture and issuance to the Company of 6.5 million
common shares, which were subject to a three year escrow period with a portion of shares
released quarterly.
During the fiscal year 2007, NUX exercised its option to acquire 100% interest in SNP by
fully contributing $2.5 million to SNP’s joint venture, fulfilling required funding to the
exploration project and the issuance of the 6.5 million shares to the Company. During the
fiscal year 2008, all of the 6,500,000 (March 31, 2007 - 4,087,501) NUX’s common shares
were released to the Company from escrow.
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. On March 15, 2009, these warrants
expired unexercised.
As at March 31, 2009, the Company owned 7,400,000 common shares (March 31, 2008 -
7,400,000 common shares) of NUX, representing an ownership interest of 23.4% (March 31,
2008 - 23.4%). A $2,707 impairment charge was taken to write down the investment to the
quoted market price of NUX’s common shares as the decline of value was considered as
other than temporary decline.
Page 12
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
The following is the summary of the investment in NUX and its market value:
Balance, March 31, 2006
Shares released from escrow
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
Equity in loss of investee company
Impairment charge
Foreign translation impact
Balance, March 31, 2009
Number of
shares
1,670,835
2,416,666
900,000
4,987,501
2,412,499
7,400,000
7,400,000
Amount
$ 733
3,824
1,952
(222)
(7)
6,280
4,388
(250)
834
11,252
(1,455)
(2,707)
(1,805)
$ 5,285
Value of NUX’s
common shares
per quoted
market price
$ 2,462
3,824
1,952
14,925
4,388
14,758
$ 5,285
(ii) Luoyang Yongning Smelting Co. Ltd. (“Yongning”)
Henan Found entered into an agreement in April 2007, subsequently amended in September,
2007, with two 3rd party partners, to custom built a 150,000 tonne per year lead-silver-gold
smelter in Luoning County, Luoyang City, Henan Province, China.
During fiscal year 2008, Yongning was incorporated, with a registered capital requirement of
$21.4 million (RMB¥150 million) for this project. Henan Found earned its 30% equity
interest in Yongning through contributing $6.6 million (RMB¥45 million).
During the fiscal year 2009, the controlling shareholders of Yongning proposed to increase
the registered capital to $58.6 million (RMB¥400 million) from $21.4 million (RMB¥150
million). Henan Found decided not to further participate in the proportionate capital
contribution, except for paying an additional $0.3 million (RMB¥2 million) to Yongning.
As at March 31, 2009, a total of $37.6 million (RMB¥257 million) was invested by the joint
venture partners, of which $6.9 million (RMB¥47 million) was by Henan Found. The
Company’s equity interest in Yonging was thus diluted to 18%.
Page 13
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(b) Available for sale investments
March 31, 2009
Unrealized Gain (loss)
March 31, 2008
Unrealized gain (loss)
Cost basis
Decline in
market value
Foreign
exchange
Fair value
Cost basis
Decline in
market value
Foreign
exchange
Fair value
Dajin Resources Corp.
$
217
(200)
7
$
24
$
217
(40)
27
$
204
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
March 31, 2009
$
$
$
$
$
Accumulated
Depreciation,
Disposition and
Impairment Charges
(835)
(414)
(760)
(444)
(10)
(39)
-
(2,502)
Cost
13,912
1,203
7,804
1,272
822
236
6,325
31,574
Net Book
Value
13,077
789
7,044
828
812
197
6,325
29,072
March 31, 2008
Accumulated
Depreciation,
Disposition and
Impairment Charges
(264)
$
(358)
(357)
(302)
-
(29)
-
(1,310)
$
Cost
8,237
1,738
3,132
1,269
496
114
673
15,659
Net Book
Value
7,973
1,380
2,775
967
496
85
673
14,349
$
$
$
$
$
Building
Office equipment and furniture
Machinery
Motor vehicle
Land use right
Leasehold improvement
Construction in process
Construction in process balance mainly represented capital expenditures in building a new mill
at Henan Found.
Page 14
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
10. MINERAL RIGHTS AND PROPERTIES
Mineral rights and properties are comprised of the following:
Balance, March 31, 2006
Acquisition
Capitalized expenditures
Amortization
Translation impact
Balance, March 31, 2007
Acquisition
Capitalized expenditures
Amortization
Translation impact
Balance, March 31, 2008
Acquisition
Capitalized expenditures
Disposal
Amortization
Impairment charges
Translation impact
Ying
$ 3,189
2,497
4,567
(1,128)
39
9,164
-
9,664
(1,527)
1,002
18,303
-
6,914
-
(2,336)
-
576
HPG
$ -
5,633
-
-
-
5,633
1,603
3,356
(1,515)
656
9,733
-
1,835
-
(1,352)
(10,337)
121
NZ
$ -
1,529
-
-
-
1,529
-
353
-
165
2,047
-
-
(1,819)
-
-
(228)
Nabao
$ -
-
-
-
-
-
-
1058
-
-
1,058
-
1,141
-
-
(2,005)
(194)
TLP
$ -
-
-
-
-
-
19,109
906
-
-
20,015
-
2,533
-
(311)
(22,796)
559
GC
&SMT
LM
$ - $ -
-
-
-
-
-
-
-
-
-
7,176
2,573
-
-
9,749
-
1,808
-
(1,247)
(10,556)
246
-
-
-
-
-
-
80,044
1,251
-
-
-
(15,339)
Total
$ 3,189
9,659
4,567
(1,128)
$39
16,326
27,888
17,910
(3,042)
1,823
60,905
80,044
15,482
(1,819)
(5,246)
(45,694)
(14,259)
Balance, March 31, 2009
$23,457
$ -
$ -
$ -
$ -
$ -
$ 65,956
$ 89,413
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
Ying property is held through its 77.5% interest subsidiary, Henan Found. Production of
ore from Ying commenced on April 1, 2006.
The land use 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. The application for transferring of the land title is
currently in process.
(b) HPG 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
total consideration of approximately $5.7 million (RMB¥43.2 million). Henan Huawei
Page 15
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
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 $3.9 million (RMB¥30 million) to the joint
venture partner directly while the remaining of $1.7 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 a 60%
interest in HPG and a total of $5,633 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 $1.9 million (RMB¥13.3 million) with the Company’s share of
approximately $950 (RMB¥6.65 million) paid in full. A total of $723 was capitalized as
the acquisition cost of mineral rights and properties after offsetting against the non-
controlling interest.
As a result of a review of all mining and exploration assets in light of the global economic
downturn and the associated declines in the outlook for metal prices, a total of $10,337
impairment charges were recorded during the year ended March 31, 2009. In March 2009,
in response to the improving commodity price, the HPG mine operation was partially
resumed.
(c) NZ Property
During the fiscal year 2007, the Company, through its 77.5% owned subsidiary, Henan
Found, acquired NZ Gold-Silver property (the “NZ project”), for cash consideration of
$1,099 (RMB¥8.5 million). The payment was capitalized as the acquisition of mineral
rights and properties.
In March 2009, the Company disposed of the NZ project to a third party for a total
consideration of $1.0 million and a loss of $0.8 million (March 31, 2008 - $nil) was
recorded. The disposition was conducted through selling the equity interest of an 100%
owned subsidiary of Henan Found, in which there had been no significant activity other
than holding NZ project.
(d) Nabao Project
In June 2007, the Company, through its wholly owned subsidiary, Fortress Mining Inc.,
entered into a collaborative development agreement with a Chinese party to form Qinghai
Found Mining Company Ltd. ("Qinghai Found"), a joint venture, to explore and develop
the Nabao silver-polymetallic Project (“Nabao Project”) in Qinghai Province, China.
Under the development agreement, the Company has an 82% interest in Qinghai Found
by investing approximately $4.0 million to fund exploration and development. The
Page 16
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
Chinese party retains an 18% interest in Qinghai Found in exchange for transferring the
three Nabao permits to Qinghai Found.
During the year ended March 31, 2009, as a result of the unfavorable exploration results,
and diminishing prospective of the property due to high elevation and decline metal price,
the Company wrote off the Nabao Project with total of $2,005 impairment charge being
recorded in the consolidate statements of operations. In May 2009, the Nabao Project was
put into care and maintenance.
(e) LM Mine
In October 2007, the Company’s 70% owned subsidiary, Henan Huawei, entered into
agreements to acquire 100% interest in the 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. $7.2 million was capitalized as the acquisition cost
of mineral rights and properties.
During the fiscal year 2009, a total of $10,556 impairment charges were made to LM
Mine as a result of a review of its mining and exploration results in light of the economic
events and the associated declines in the outlook for metal prices. In May 2009, in
response to the improving commodity price, the LM mine operation was partially
resumed.
(f) TLP 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 winding down of certain leasing agreements. The total acquisition cost of
TLP Mine was at $19 million.
During the fiscal year 2009, a total of $22,796 impairment charges were made to TLP
Mine as a result of a review of its mining and exploration results in light of the economic
events and the associated declines in the outlook for metal prices. In May 2009, in
response to the improving commodity price, the TLP mine operation was partially
resumed.
Page 17
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(g) GC & SMT Projects
Pursuant to a share purchase agreement dated April 24, 2008, on June 6, 2008, the
Company acquired a 95% interest in the Gaocheng and Shimentou silver, lead and zinc
exploration permits (the “GC & SMT projects”) as well as certain assets associated with
these two projects, for $60.8 million (CAD$61.95 million) through the acquisition of an
100% interest of Yangtze Mining Ltd. (“Yangtze Mining”) from Yangtze Gold Ltd.
(“Yangtze Gold”). Both Yangtze Mining and Yangtze Gold are private companies and
are related parties of the Company through common directorship. The consideration
included a cash payments of $24.3 million and issuance of 4,532,543 common shares of
the Company at a price of CAD$8.20 per share, which represented 60% of the purchase
price, or $36.5 million, as agreed by both parties.
Prior to the acquisition, Yangtze Mining held 95% of the equity interest in Anhui Yangtze
Mining Co. Ltd. (“Anhui Yangtze”), which owns 100% of the GC & SMT projects
located in Guangdong Province, China. Other than the GC & SMT projects and
associated assets, certain other net assets (“Remaining Assets”) still remained in Anhui
Yangtze, including Tong Shan Pai Copper Mine (“TSP Mine”). An Indemnification
Agreement dated June 6, 2008 was executed between the Company and Yangtze Gold to
the effect that Yangtze Gold would use its best efforts to transfer the TSP Mine. Also,
effective June 6, 2008, Yangtze Gold and Anhui Yangtze entered into a declaration of
trust wherein Anhui Yangtze (the “Trustee”) holds in trust all of the Remaining Assets for
the benefit of Yangtze Gold. Based on the Indemnification Agreement and the
Declaration of Trust, the Company is indemnified against any obligations that would arise
subsequent to June 6, 2008, relating to the Remaining Assets.
In December 2008, a joint venture, Guangdong Found Mining Co. Ltd. (“Guangdong
Found”), designated as the operating company of the GC & SMT projects, was
established in Guangdong Province. Guangdong Found owns 100% mineral properties
and associated assets for the GC & SMT projects. Total required registered capital of
Guangdong Found is $22 million (RMB¥150 million), which will be fully contributed by
the Company (RMB¥ 142.5 million) and a third party (RMB¥ 7.5 million) over a two-
year period. In the course of the reorganization, the Company is continually owning a
95% equity interest in Guangdong Found, while the third partly obtains 5%.
As of March 31, 2009, the Company has fulfilled its first phase registered capital
contribution obligation by funding $5.5 million to Guangdong Found.
Upon the acquisition of the GC & SMT projects, a total of $19.2 million in future income
tax liabilities were recognized and included in mineral rights and properties by applying a
25% tax rate to the excess of book value over tax basis of the mineral interest acquired.
Page 18
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
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
Obligation incurred
Obligation discharged
Accretion on ARO
ARO reclassification
Balance, March 31, 2007
Obligation incurred
Obligation discharged
ARO revision
Accretion on ARO
ARO reclassification
Foreign exchange impact
Balance, March 31, 2008
Obligation incurred
ARO revision
Accretion on ARO
Foreign exchange impact
Balance, March 31, 2009
Current portion
$ -
-
-
-
292
292
253
(516)
-
11
(76)
36
-
-
-
-
-
$ -
Long term portion
Total
$ -
$ -
1,127
1,127
(226)
(226)
61
61
-
(292)
962
670
694
441
(516)
-
(94)
(94)
62
51
-
76
118
82
1,226
1,226
729
729
(139)
(139)
123
123
90
90
$ 2,029 $ 2,029
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 $3.11 million
as at March 31, 2009 (March 31, 2008 - $1.74 million ), assuming the cash outflow will be at
the end of mine lives, which range from 6 to 10 years.
The aggregate accrued obligation as at March 31, 2009, representing the fair value of the
future reclamation costs, was $2,029 (March 31, 2008 - $1,226). The fair value was estimated
using a credit risk free discount rate of six percent.
Page 19
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
12. NON CONTROLLING INTERESTS
The continuity of non controlling interests is summarized as follows:
Balance, March 31, 2006
Non-controlling interest shareholder’s
contribution
Operation sharing for the year
Foreign exchange impact
Balance, March 31, 2007
Ownership transferred
Operation sharing for the year
Dividend declared
Foreign exchange impact
Balance, March 31, 2008
Addition upon acquisition
Operation sharing for the year
Dividend declared
Non-controlling interest shareholder’s
contribution
Foreign exchange impact
Henan Found
$ 600
Huawei
$ -
Guangdong
Found
$ -
Total
$ 600
-
6,369
(71)
6898
-
16,810
(15,489)
779
8,998
-
3,975
(7,145)
-
1,397
103
(54)
1
50
(186)
2,387
-
16
2,267
-
(2,432)
-
-
165
-
-
-
-
-
-
-
-
-
172
(12)
-
219
6
103
6,315
(70)
6,948
(186)
19,197
(15,489)
795
11,265
172
1,531
(7,145)
219
1,568
Balance, March 31, 2009
$ 7,225
$ -
$ 385
$ 7,610
As at March 31, 2008, non-controlling interest in Henan Found, Henan Huawei and
Guangdong Found were 22.5%, 30% and 5%, respectively.
In June 2007, Henan Found declared dividends of $14,983 (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 (RMB¥86 million), and a total of $3,371
(RMB¥25 million) was paid to the non-controlling interests.
In February 2008, Henan Found’s Board of Directors declared a dividend of $50,617
(RMB¥400 million) to its shareholders. Dividend payments were made during the year
ended March 31, 2008. Victor Mining Ltd. received $38,499 (RMB¥310 million), and
amount of $12,118 (RMB¥90 million) was paid to the non-controlling subsidiary shareholder.
In February 2009, Henan Found’s Board of Directors declared a dividend of $31,594
(RMB¥218 million) to its shareholders. The distribution date has not been determined yet,
and an amount of $7,145 (RMB¥49 million) distributable to the non-controlling subsidiary
shareholder was recorded as due to related parties on the balance sheet as of March 31, 2009.
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
Page 20
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
shareholder is not responsible for any of the associated costs. As at March 31, 2009, Qinghai
Found is still in the exploration stage and has not generated any revenue.
13. RESERVES
Pursuant to Chinese company law applicable to foreign investment companies, the
Company’s Chinese subsidiaries are required to maintain dedicated reserves, which include
an Enterprise Reserve Fund and an Enterprise Expansion Fund. The amounts are appropriated
at a percentage, at the discretion of the Board of Directors of each Chinese subsidiary, of their
respective after tax net income. The dedicated reserves are recorded as a component of
shareholders’ equity, and they are not available for distribution to shareholders other than in
liquidation.
Pursuant to the same Chinese company law, the Company’s Chinese subsidiaries are required
to transfer, at the discretion of their Board of Directors, a certain amount of their respective
after taxes net income to an Employee Welfare Fund, which shall be utilized for collective
employee benefits. The amount was charged against income and the related provision was
reflected as accrued liabilities in the consolidated balance sheets.
Up to March 31, 2009, only Henan Found has appropriated the dedicated reserves and
Employee Welfare Fund. The dedicated reserves and Employee Welfare Fund appropriated
by Henan Found for the years ended March 31, 2009, 2008 and 2007, respectively, are as
follows:
Enterprise
Reserve
-
415
415
1,796
2,211
Enterprise
Expansion
-
1,663
1,663
28,019
29,682
Total dedicated
reserves
-
2,078
2,078
29,815
31,893
Employee
Welfare Fund
-
17
17
100
117
March 31, 2007
Addition
March 31, 2008
Addition
March 31, 2009
14. SHARE CAPITAL
(a) Authorized
Unlimited number of common shares without par value.
(b) Normal Course Issuer Bid
On June 13, 2006, the Board of Directors approved a Normal Course Issuer Bid (“NCIB”)
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 of March 31, 2007, a total of 1,261,500 of its common shares were
acquired and cancelled under this NCIB at a cost of $4,890 (CAD$5,499). This NCIB
expired on June 12, 2007.
Page 21
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
On March 20, 2008, the Company announced another NCIB to acquire up to 2,988,029 of
its common shares. On October 20, 2008, the Company increased the maximum number of
shares that may be acquired under this NCIB from 2,988,029 to 10,601,212 shares. As of
March 31, 2009, a total of 2,366,500 of its common shares were acquired and cancelled
under this NCIB at a cost of $9,474(CAD$9,947). This NCIB expired on March 27, 2009.
(c) Equity Financing
On April 26, 2006, the Company completed a short form prospectus financing which raised
net proceeds of $39,471 (CAD$44,484) 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 was exercisable up to October 25, 2007
at a strike price of CAD$8 per common share. As of March 31, 2009, all warrants expired
unexercised.
On March 11, 2009, the Company completed a short form prospectus financing which
raised net proceeds of $22,635 (CAD$29,235) through the sale of 10 million common
shares, at a price of CAD$3.10 per share.
(d) Stock Options
The following is a summary of option transactions:
Balance, March 31, 2006
Options granted
Option exercised
Options forfeited
Balance, March 31, 2007
Options granted
Option exercised
Options forfeited
Balance, March 31, 2008
Option granted
Option exercised
Option expired
Option forfeited
Balance, March 31, 2009
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
745,000
(4,482)
(31,875)
(418,625)
3,524,703
$
Weighted average
exercise price per
share CAD$
0.36
4.44
0.30
4.35
1.19
7.11
0.73
2.60
3.42
5.46
4.81
0.75
5.31
3.65
$
During the year ended March 31, 2009, a total of 745,000 options were granted to
directors, officers, employees, and consultants at exercise prices of CAD$3.05 - $9.05 per
share subject to various vesting schedules. Of the 745,000 options granted, 10,000 options
were granted to a consultant at an exercise price of CAD$5.99 per share with a life of two
years and vesting entirely on January 2, 2010, while the remaining 735,000 options have a
life of five years and are subject to a vesting schedule over a three year term with 8.333%
options vesting every three months.
Page 22
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
The following is the summary of assumptions used to estimate the fair value of each
option granted using the Black-Scholes option pricing model.
Year ended March 31,
Risk free interest rate
Expected life of option in years
Expected volatility
Expected dividend yield
2009
2008
0.95% to 2.95% 2.58% to 4.31%
2 to 5 years
52% to 117%
1%
2 to 5 years
55% to 90%
1% to 3%
2007
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 ended
March 31, 2009 was CAD$3.05 (year ended March 31, 2008 - CAD$3.53). For the year
ended March 31, 2009, a total of $2,103 (year ended March 31, 2008 and 2007 - $2,473
and $1,956, respectively) in stock-based compensation expenses was recorded and
included in the general and administrative expenses on the consolidated statements of
operations.
The following table summarizes information about stock options outstanding at March 31,
2009:
Exercise price in
CAD$
$ 0.18
0.63
4.32
4.43
6.74
6.95
9.05
7.54
5.99
5.99
3.05
$ 0.18-9.05
Number of options
outstanding at March
31, 2009
990,000
450,000
414,999
42,000
735,204
90,000
127,500
50,000
10,000
465,000
150,000
3,524,703
Weighted average
remaining
contractual life
(YRS)
0.57
0.92
2.31
2.41
3.03
3.54
3.80
4.12
1.25
4.25
4.50
2.76
Weighted
average exercise
price in CAD$
$ 0.18
0.63
4.32
4.43
6.74
6.95
9.05
7.54
5.99
5.99
3.05
3.65
$
Number of
options
exercisable at
March 31, 2009
Weighted
average
exercisable
price in CAD$
990,000 $ 0.18
0.63
450,000
4.32
345,831
4.43
35,000
6.74
490,134
6.95
44,998
9.05
42,498
7.54
12,500
5.99
–
5.99
77,497
3.05
13,333
2.68
2,501,791
$
Subsequent to March 31, 2009, a total of 1,081,000 options with an exercise price of
CAD$2.65 were granted to directors, officers, employees and consultants.
(e) Cash Dividends Declared and Distributed
During the year ended March 31, 2008, a cash dividend of $6,891 or $0.05 per share
(CAD$0.05 per share) (March 31, 2007 - $nil) was declared and distributed to
shareholders of the Company.
During the year ended March 31, 2009, quarterly cash dividends of CAD$0.02 per share,
totaling $8,030 was declared, of which, $5,466 was paid during the year and $2,564 was
paid in April 2009.
Page 23
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
Subsequent to March 31, 2009, a quarterly cash dividend of CAD$0.02 per share, totaling
$2,700 (CAD$3.22 million) was declared and will be paid in July 2009.
All dividends declared were eligible dividends for Canadian tax purpose.
(f) Stock split
On September 28, 2007, shareholders approved a three-for-one stock split for its common
shares. The record date for the stock split was set at the close of business on October 31,
2007.
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.
15. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the financial statements are as follows:
Amount due from related parties
New Pacific Metals Corp. (a)
Qinghai Non-ferrous Geology Bureau (c)
Weigemingda Mining Co. Ltd.(i)
Quanfa Exploration Consulting Services Ltd. (d)
Amount due to related parties
Henan Non-ferrous Geology Bureau (b)
Quanfa Exploration Consulting Services Ltd. (d)
R. Feng Consulting Ltd. (g )
Transactions with related parties
New Pacific Metals Corp. (a)
Henan Non-ferrous Geology Bureau (b)
Qinghai Non-ferrous Geology Bureau (c)
Quanfa Exploration Consulting Services Ltd. (d)
Gao Consulting Ltd.(e)
McBrighton Consulting Ltd.(f)
R. Feng Consulting Ltd. (g)
Directors (h)
Weigemingda Mining Co. Ltd. (i)
$
$
$
$
March 31, 2009
30
-
219
-
249
March 31, 2009
7,187
117
49
7,353
March 31, 2008
18
17
-
12
47
March 31, 2008
12,118
-
-
12,118
$
$
$
$
2009
Year ended March 31,
2007
2008
$
$
$
2,080
19,263
17
66
114
108
334
99
219
22,300
302
12,118
17
66
202
-
271
94
-
13,070
322
-
-
28
126
-
153
36
-
665
Page 24
$
$
$
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(a) New Pacific Metals Corp. is a publicly traded company with a director and officer in
common with the Company. Further to a services and cost reallocation agreement
between the Company and NUX, the Company will recover costs for services rendered to
NUX and expenses incurred on behalf of NUX. During the year ended March 31, 2009,
the Company recovered $209 (years ended March 31, 2008 and 2007 - $302 and $322,
respectively) from NUX for services rendered and expenses incurred on behalf of NUX.
The costs recovered from NUX were recorded as a direct reduction of general and
administrative expenses on the consolidated statements of operations.
On December 8, 2006, NUX entered into a Declaration of Trust Agreement (the “Trust
Agreement”) with Yunnan JCJ, a formerly indirectly wholly owned subsidiary of the
Company, to hold in trust for NUX, two exploration permits (“Huaiji Project”) located in
Guangdong Province, China. Under the Trust Agreement, NUX was to advance cash to
Yunnan JCJ to fund the exploration programs at the Huaji Project. During the year ended
March 31, 2009, Yunnan JCJ incurred exploration expenditures of $1,841 (year ended
March 31, 2008 - $38).
On March 20, 2009, the Company entered agreement to dispose 100% shares of Lachlan
Gold Ltd., the parent company of Yunnan JCJ, to NUX for $30 and terminated the Trust
Agreement. The disposal was completed on March 31, 2009 and no gain or loss was
recorded.
(b) Henan Non-ferrous Geology Bureau (“Henan Geology Bureau”) is a 22.5% equity
interest holder of Henan Found. During the year ended March 31, 2009, Henan Found
paid $12.1 million dividend declared in 2008 to Henan Geology Bureau. During the year
ended March 31, 2009, Henan Found’s Board of Directors declared a dividend of
approximately $31.9 million (RMB¥218 million), of which $7.1 million (RMB¥49
million) was payable to Henan Geology Bureau.
(c) Qinghai Non-ferrous Geology Bureau is an 18% equity interest holder of Qinghai Found.
During the year ended March 31, 2009, Qinghai Non-ferrous Geology Bureau repaid $17
previously owed to the Company.
(d) Quanfa Exploration Consulting Services Ltd. (“Quanfa”) is a private company with
majority shareholders and management from the senior management of Henan Found and
Henan Huawei. During the year ended March 31, 2009, the Company paid $66 (years
ended March 31, 2008 and 2007 - $66 and $28, respectively) to Quanfa for its consulting
services provided.
During the year ended March 31, 2009, the Company also received mining consulting
services for $204 (year ended March 31, 2008 - $nil).
(e) During the year ended March 31, 2009, the Company paid $114 (years ended March 31,
2008 and 2007 - $202 and $126, respectively) to Gao Consulting Ltd., a private company
controlled by a director of the Company for consulting services.
Page 25
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(f) During year ended March 31, 2009, the Company paid $108 (year ended March 31, 2008
- $nil) to McBrighton Consulting Ltd., a private company controlled by a director of the
Company for consulting services.
(g) During the year ended March 31, 2009, the Company paid $334 (years ended March 31,
2008 and 2007 - $271 and $153, respectively) to R. Feng Consulting Ltd., a private
company controlled by a director of the Company for consulting services.
(h) During the year ended March 31, 2009, the Company incurred director fees of $99 (years
ended March 31, 2008 and 2007 - $94 and $36, respectively) payable to four independent
directors of the Company.
(i) During the year ended March 31, 2009, the Company advanced $219 to Weigemingda
Mining Co. Ltd., a minority shareholder of Gaungdong Found.
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. CAPITAL DISCLOSURES
The Company’s objectives of capital management are intended to safeguard the entity’s
ability to support the Company’s normal operating requirement on an ongoing basis, continue
the development and exploration of its mineral properties, and support any expansionary
plans.
The capital of the Company consists of the items included in shareholders’ equity. The Board
of Directors does not establish a quantitative return on capital criteria for management but
promotes year-over-year sustainable earnings growth targets. The Company manages the
capital structure and makes adjustments to it in light of changes in economic conditions and
the risk characteristics of the underlying assets.
The Company is not subject to externally imposed capital requirements.
17. INCOME TAXES
(a) Income tax expense
The Company’s 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.
Page 26
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
Henan Huawei enjoys 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.
Qinghai Found, Anhui Yangtze, and Guangdong Found are not entitled to any tax holiday
under the current Chinese income tax laws.
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 prior year tax provision
Withholding taxes
Non-deductible items
Non-taxable mineral property option income
Change in valuation allowance
Impact of tax rate change
Impact of foreign exchange translation
Others
$
$
$
2009
(15,403)
30.75%
4,737
1,015
-
(1,585)
(3,159)
-
(4,481)
3,037
1,339
34
937
2008
79,685
33.47%
(26,667)
25,675
1,426
-
(1,670)
743
554
(554)
-
(58)
(551)
2007
29,764
34.12%
(10,155)
8,855
-
-
(677)
657
-
-
-
(106)
(1,426)
$
$
$
Page 27
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(b) Future income tax
The approximate tax effect of each type of temporary difference that gives rise to the
Company’s future income tax assets is as follows:
Non-capital loss carry forward
Capital loss carry forward
Excess tax value of assets over book value
Share issued costs
Asset retirement obligation and others
Valuation allowance
$
$
2009
2,841
699
3,664
604
424
8,232
(5,927)
2008
1,287
7
1,132
663
211
3,300
(3,300)
$
2007
1,075
4
931
737
-
2,747
(2,747)
$
Future income tax assets - current
Future income tax assets - non current
Total future income tax assets
143
2,162
2,305
$
-
-
$
-
-
-
-
$
Excess of accounting base over tax base relating
mineral rights and properties
Future income taxes liabilities
19,678
19,678
$
(6,346)
(6,346)
$
(1,405)
(1,405)
$
The Company has Canadian non-capital losses of approximately $7.5 million expiring from
2010 to 2029 if not applied against future Canadian income for Canadian tax purposes, and a
Chinese non-capital losses of approximately $3.5 million expiring 2012 to 2013 if not applied
against future Chinese income for Chinese tax purposes. The management of the Company
believes it is unlikely the benefit of the future income tax assets arising from the non-capital
losses in both Canada and China will be realized against future income for tax purposes. As a
result, a valuation allowance was recorded against the future tax assets arising from the non-
capital losses.
18. FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk, foreign
exchange rate risk, interest rate risk, and credit risk in accordance with its risk management
framework. The Company’s Board of Directors has overall responsibility for the
establishment and oversight of the Company’s risk management framework and reviews the
Company’s policies on an ongoing basis.
Page 28
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(a) Fair value
The fair values of financial instruments at March 31, 2009 and March 31, 2008 are
summarized as follows:
Financial Assets
Held for trading
Cash and cash equivalents
Short term investments
Restricted cash
Loans and receivables
Accounts receivables
Amounts due from related parties
Available for sale
Long term investments
Dajin Resources Corp.
Financial Liabilities
Other financial liabilities
March 31, 2009
March 31, 2008
Carrying amount
$
Fair value
$
Carrying amount
$
Fair value
$
41,470
23,962
293
2,213
249
41,470
23,962
293
2,213
249
47,093
37,146
-
3,393
47
47,093
37,146
-
3,393
47
24
24
204
204
Accounts payable and accrued liabilities
Deposits received from customers
Dividends payable
Amounts due to related parties
Notes payable
8,533
1,290
2,564
7,353
658
8,533
1,290
2,564
7,353
658
7,027
2,573
-
12,118
-
7,027
2,573
-
12,118
-
The fair value of financial instruments represents the amounts that would have been
received from or paid to counterparties to settle these instruments. The carrying amount
of all financial instruments classified as current approximates their fair value because of
the short maturities and normal trade term of these instruments. The fair value of the long
term investment in Dajin Resources Corp. was based on the quoted market prices.
(b) Liquidity risk
The Company has in place a planning process to help determine the funds required to
support the Company’s normal operating requirements on an ongoing basis and its
expansion plans. The Company ensures that there are sufficient funds to meet its short-
term business requirements, taking into account its anticipated cash flows from operations
and its holdings of cash and cash equivalents and short term investments.
Page 29
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
In the normal course of business, the Company enters into contracts that give rise to
commitments for future minimum payments. The following summarizes the remaining
contractual maturities of the Company’s financial liabilities.
March 31, 2009
March 31, 2008
Accounts payable and accrued liabilities
Deposits received from customers
Dividends payable
Amount due to related parties
Notes payable
(c) Exchange risk
$
$
$
Within a year
8,533
1,290
2,564
7,353
658
20,398
Total
8,533
1,290
2,564
7,353
658
20,398
7,027
2,573
-
12,118
-
21,718
$
$
$
The Company undertakes transactions in various foreign currencies, and reports its results
of its operations in US Dollars while the Canadian dollar is considered its functional
currency, and is therefore exposed to foreign exchange risk arising from transactions
denominated in a foreign currency and the translation of functional currency to reporting
currency.
The Company conducts its mining operations in China and thereby the majority of the
Company’s assets, liabilities, revenues and expenses are denominated in RMB, which was
tied to the US 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.
The Company currently does not engage in foreign currency hedging, and the exposure of
the Company’s financial assets and financial liabilities to foreign exchange risk is
summarized as follows:
The amounts are expressed in US$ equivalents
Canadian dollars
March 31, 2009
43,111
$
$
March 31, 2008
39,232
United States dollars
Chinese renminbi
Hong Kong dollars
Total financial assets
Canadian dollars
United States dollars
Chinese renminbi
Total financial liabilities
9,498
15,600
2
1,019
47,631
1
$
68,211
$
87,883
$
3,092
$
334
14
17,292
183
21,201
$
20,398
$
21,718
As at March 31, 2009, with other variables unchanged, a 1% strengthening (weakening)
of the Chinese RMB against the Canadian dollar would have increased (decreased) net
loss by approximately $0.2 million and increased (decreased) other comprehensive
income (loss) by $0.2 million.
Page 30
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
As at March 31, 2009, with other variables unchanged, a 1% strengthening (weakening)
of the Canadian dollar against the US dollar would have increased (decreased) other
comprehensive loss by $0.4 million.
(d) Interest rate risk
Interest risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate due to changes in market interest rates. The Company’s cash equivalents
and short term investments primarily includes highly liquid investments that earn interests
at market rates that are fixed to maturity. The Company also holds a portion of cash and
cash equivalents in bank accounts that earn variable interest rates. Because of the short-
term nature of these financial instruments, fluctuations in market rates do not have
significant impact on the fair values of the financial instruments as of March 31, 2009.
(e) Credit risk
The Company is exposed to credit risk primarily associated to accounts receivable from
customers, cash and cash equivalents and short-term investments. The carrying amount of
assets included on the balance sheet represents the maximum credit exposure.
The Company undertakes credit evaluations on customers as necessary and has
monitoring processes intended to mitigate credit risks. The Company has accounts
receivables from clients primarily in China engaged in the mining and milling of base and
polymetallic metals industry. The historical level of customer defaults is zero and aging of
accounts receivable are less than 30 days, and, as a result, the credit risk associated with
accounts receivable at March 31, 2009 is considered to be immaterial.
19. SEGMENTED INFORMATION
(a) Industry information
The Company operates in one reportable operating segment, being the acquisition,
exploration, development, and operation of mineral properties.
Page 31
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(b) Geographic information
(i) The following is the summary of certain long-term assets of each geographic segment:
Balance sheet items:
Canada
March 31, 2009
China
Ying
HPG
TLP
LM
GC & SMT
Other
Total
Mineral rights and properties
Property, plant and equipment
Long term investments
-
$
414
5,308
$
23,457
21,404
6,878
-
$
1,132
-
-
$
3,863
-
-
$
273
-
$
65,956
320
-
-
$
1,666
-
$
89,413
29,072
12,186
Balance sheet items:
Canada
March 31, 2008
Ying
HPG
China
TLP
LM
GC & SMT
Other
Total
Mineral rights and properties
$
-
$
18,303
$
9,732
$
20,015
$
9,749
$
-
$
3,106
$
60,905
Property, plant and equipment
Long term investments
439
11,456
12,329
6,418
956
-
-
-
-
-
-
-
625
-
14,349
17,874
Page 32
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(ii) The following is a summary of operations for each geographic segment:
Year ended March 31, 2009
Sales
Cost of sales
Amortization and depletion
Gross Profit
Canada
-
$
-
-
-
$
Ying
67,504
(19,891)
(3,434)
44,179
$
HPG
7,249
(3,670)
(1,601)
1,978
$
China
TLP
4,780
(3,303)
(977)
500
$
LM GC & SMT
-
$
-
-
-
3,990
(2,458)
(353)
1,179
Other
-
$
(78)
-
(78)
BVI
-
$
-
-
-
$
Total
83,523
(29,322)
(6,365)
47,836
Expenses
(7,748)
(3,692)
(912)
(481)
(976)
(4,928)
(507)
7,494
(11,750)
Interest, option & other income
Impairment charges
Loss and other expenses
Non controlling interest
Income tax recovery (expenses)
Net income (loss)
516
(2,707)
(1,455)
-
-
(11,394)
$
615
-
(1,129)
913
(3,823)
37,063
572
(10,544)
-
2,432
813
(5,661)
$
107
(23,053)
-
(4,889)
3,104
(24,712)
2
(10,583)
-
-
2,428
(7,950)
$
$
14
-
-
13
-
(4,901)
(172)
(3,820)
(18)
-
-
(4,595)
$
166
-
-
-
(1,585)
6,075
$
1,820
(50,707)
(2,602)
(1,531)
937
(15,997)
$
$
$
Sales
Cost of sales
Amortization and depletion
Gross Profit
Canada
-
$
-
-
-
$
Ying
96,329
(17,389)
(1,703)
77,237
$
HPG
12,034
(2,725)
(1,505)
7,804
China
TLP
-
$
-
-
-
LM
-
$
-
-
-
GC & SMT
-
$
-
-
-
Other
-
$
-
-
-
BVI
-
$
-
-
-
$
Total
108,363
(20,114)
(3,208)
85,041
Year ended March 31, 2008
Expenses
(10,892)
(452)
(645)
Interest, option & other income
Loss and other expenses
Non controlling interest
Income tax recovery (expenses)
Net income (loss)
6,166
-
-
-
(4,726)
$
900
-
(16,810)
(508)
60,367
$
11
-
(2,387)
(43)
4,740
$
$
-
-
-
-
-
-
-
-
(285)
(406)
(12,680)
-
-
-
-
$
-
-
-
-
-
$
-
534
-
-
-
249
$
11
(298)
-
-
(693)
$
7,622
(298)
(19,197)
(551)
59,937
$
Sales
Cost of sales
Amortization and depletion
Gross Profit
Canada
-
$
-
-
-
$
Ying
39,777
(7,738)
(1,190)
30,849
HPG
-
$
-
-
-
China
TLP
-
$
-
-
-
LM
-
$
-
-
-
GC & SMT
-
$
-
-
-
Other
-
$
-
-
-
BVI
-
$
-
-
-
$
Total
39,777
(7,738)
(1,190)
30,849
Year ended March 31, 2007
Expenses
(4,729)
(1,359)
(133)
Interest, option & other income
Loss and other expenses
Non controlling interest
Income tax recovery (expenses)
Net income (loss)
5,481
(216)
-
-
536
$
139
(30)
(6,369)
(1,426)
21,804
-
-
54
-
(79)
$
$
$
-
-
-
-
-
-
-
-
(192)
(8)
(6,421)
-
-
-
-
$
-
-
-
-
-
$
-
(18)
-
-
-
(210)
$
-
(20)
-
-
(28)
$
5,602
(266)
(6,315)
(1,426)
22,023
$
Page 33
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(c) Sales by metal
The sales generated for the years ended March 31, 2009, 2008, and 2007 comprised of:
Silver (Ag)
Gold (Au)
Lead (Pb)
Zinc (Zn)
Other
(d) Major customers
Years ended March 31,
2009
2008
2007
$ 42,583
1,154
34,424
5,362
-
$ 83,523
$ 44,678
1,190
48,433
14,062
-
$ 108,363
$ 17,998
69
14,069
7,636
5
$ 39,777
During the year ended March 31, 2008, there were four (year ended March 31, 2007 - four)
major customers which individually accounted for 8% to 32% (year ended March 31,
2007 - 14% to 23%) and collectively, 76% (year ended March 31, 2007 - 72%) of the total
sales of the Company.
During the year ended March 31, 2009, three major customers accounted for 11% to 50%
and collectively 82% of the total sales of the Company.
20. COMMITMENTS
Commitments, not disclosed elsewhere in these financial statements, are as follows:
The Company entered into two office rental agreements (the “Rental Agreements”), with
total rental expense of $981 over the next five years as the follows: for years ending 2010:
$188; 2011: $188; 2012: $205; 2013: $233; and 2014: $167. In connection with one of these
Rental Agreements, the Company signed a sublease agreement commencing April 15, 2009
and expiring September 29, 2013, with annual rental income of $62.
21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
These financial statements are prepared in accordance with accounting principles generally
accepted in Canada (“Canadian GAAP”) which differ in certain material respects from
accounting principles generally accepted in the United States (“US GAAP”). Material
differences between Canadian and US GAAP and their effect on the Company’s consolidated
financial statements are summarized in the following tables.
Page 34
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
Consolidated summarized balance sheet
Total assets under Canadian GAAP
Mark to market adjustment to short term investment (c)
Expense exploration and development expenditures (a)
Adjust accumulated depletion of mineral rights and properties (b)
Adjust impairment charges (d)
Adjust equity investment (c)
Adjust future income tax (g)
Total assets under US GAAP
Total liabilities under Canadian GAAP
Adjust future income tax (g)
Total liabilities under US GAAP
Non-controlling interest under Canadian GAAP
Minority interest effect of US GAAP adjustments (h)
Minority Interest and Other Comprehensive Income Under US GAAP
Shareholders' equity under Canadian GAAP
Expense exploration and development expenditures (a)
Adjust accumulated depletion of mineral rights and properties (b)
Adjust future income tax (g)
Increase equity investment loss (c)
Adjust impairment charges (d)
Adjustment to loss on disposal of mineral rights and properties (e)
Adjustment to foreign exchange (f)
Mark to market adjustment to short term investment (c)
Minority interest effect of US GAAP adjustments (h)
Adjustment to Accumulated other comprehensive income (l)
Shareholders' equity under US GAAP
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2009
205,202
-
(16,874)
2,013
7,035
(123)
1,435
198,688
45,146
(334)
44,812
7,610
(1,912)
5,698
152,446
(17,300)
2,003
1,771
(1,035)
8,233
353
(270)
(314)
1,920
371
148,178
2008
190,267
101
(7,824)
1,045
-
(852)
-
182,737
30,010
(1,081)
28,929
11,265
(1,156)
10,109
148,992
(7,849)
1,039
1,085
(544)
-
-
-
(214)
1,162
28
143,699
$
$
Page 35
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
Consolidated summarized statements of operations
Net Income (loss) under Canadian GAAP
Expense exploration and development expenditures (a)
Adjust accumulated depletion of mineral rights and properties (b)
Adjust future income tax (g)
Increase equity investment loss (c)
Adjust impairment charges (d)
Adjustment to loss on disposal of mineral rights and properties (e)
Adjustment to foreign exchange (f)
Mark to market adjustment to short term investment (c)
Minority interest effect of US GAAP adjustments (h)
Adjustment to stock based compensation (k)
Net income (loss) under US GAAP
2009
(15,997)
(9,451)
964
686
(491)
8,233
353
(270)
(101)
758
(6)
(15,322)
$
$
2008
59,937
(7,400)
439
1,108
(513)
-
-
-
(404)
1,196
197
2007
22,023
(923)
600
(23)
(18)
-
-
-
191
73
59
$ 54,560 $ 21,982
$
$
Basic income per share in accordance with US GAAP
Diluted income per share in accordance with US GAAP
$
$
(0.10)
(0.10)
$ 0.37 $ 0.15
$ 0.36 $ 0.15
Consolidated summarized statement of cash flows
Operating activities
Operating activities under Canadian GAAP
Expense exploration and development expenditures (a)
Operating activities under US GAAP
Investing activities
Investing activities under Canadian GAAP
Expense exploration and development expenditures (a)
Investing activities under US GAAP
Financing activities
Financing activities under Canadian GAAP
Financing activities under US GAAP
2009
2008
2007
$
$
46,986
(9,451)
37,535
$
$
79,786
(7,824)
71,962
$
$
30,052
(455)
29,597
$
$
(36,444)
9,451
(26,993)
$
$
(81,753)
7,824
(73,929)
$
$
(18,831)
455
(18,376)
$
$
(4,838)
(4,838)
$
$
(9,397)
(9,397)
$
$
39,198
39,198
(a) Exploration and development expenditures - in accordance with Canadian GAAP,
exploration and development costs and costs of acquiring mineral rights are capitalized
during the search for a commercially mineable body of ore. For US GAAP purposes,
exploration and development expenditures, including incidental cost recoveries can only
be deferred subsequent to the establishment of proven and probable reserves. For US
GAAP purposes, the Company has therefore expensed its exploration and development
expenditures.
(b) Depletion of mineral rights and properties - The impact of the depletion of mineral rights
and properties is mainly due to the GAAP differences discussed in adjustment (a) above
related to the accounting for mineral rights and properties of.
(c) Equity method investments - The equity investments include exploration costs incurred by
NUX that have been capitalized during the search for a commercially mineable body of
ore and start-up costs incurred by Yongning that have been capitalized during the pre-
Page 36
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
operating period. For US GAAP purposes, the Company has therefore expensed the
exploration and development expenditures and the start-up costs of its equity investments.
Under US GAAP, the Company’s investment in NUX contained a free standing derivative
(NUX’s warrants) which is required to be measured at fair value. Consequently, a total of
$314, the fair value of the 450,000 NUX warrants to which the Company subscribed
during NUX’s private placement in March 2007, was adjusted from the equity method
investments to short term investments and a loss of $101 (2008 - a loss of $404 and 2007 -
a gain of $191) was recorded as mark to market on the consolidated statements of
operations.
(d) Impairment charges - The impact on the impairment charges is mainly due to the carrying
value differences of each asset immediately before the impairment arising from the
GAAP differences discussed in adjustments (a), (b) and (c) above.
(e) Loss on disposal of mineral rights and properties - The impact on the loss on disposal of
mineral rights and properties is due to the carrying value difference of the NZ project
immediately before the disposal arising from the GAAP differences discussed in
adjustment (a) above.
(f) Foreign exchange - Under Canadian GAAP, when a self-sustaining foreign operation
subsidiary pays a dividend to the parent company and there has been a reduction in the net
investment, a gain or loss equivalent to a proportionate amount of the exchange gain or
loss accumulated in the accumulated other comprehensive income (loss) is recognized in
the statements of operations. Under US GAAP, the foreign exchange gain or loss
accumulated in the accumulated other comprehensive income is only recognized in
income when the foreign subsidiary is sold, or the parent completely or substantially
liquidates its investment.
(g) Income tax effects - The impact on income tax expense of the GAAP differences
discussed in adjustments (a), (b), and (d) above.
(h) Minority interest adjustments - The impact on the minority interest expenses and balances
of the GAAP differences related to the Company’s 77.5% owned subsidiary of Henan
Found, 70% owned subsidiary of Henan Huawei, and 95% interest in the GC & SMT
projects.
Page 37
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(i) Share purchase warrants - Under Canadian GAAP, residual approach was adopted to
value the share purchase warrants attached to private placements issued. Under US GAAP,
the share purchase warrants should be valued at fair value and the value should be
recorded as an additional paid in capital under the shareholder equity section. Upon
exercise, the value of the warrants exercised would be transferred to share capital from
additional paid in capital. There is no impact on the shareholder equity section as a whole
but individual accounts under the shareholder equity section are affected. The balances in
the shareholders’ equity sections under US GAAP are as follows:
Share capital
Additional paid in capital
Contributed surplus
Reserves
Accumulated other comprehensive income
Retained earnings
Total shareholders' equity under US GAAP
$
$
2009
130,490
7,485
3,502
31,893
(9,795)
(15,397)
148,178
2008
73,221
7,485
1,453
2,078
14,149
45,313
143,699
$
$
(j) Uncertain tax positions - In June 2006, FASB issued Accounting for Uncertain Tax
Positions - an Interpretation of FASB Statement No. 109, FIN 48 which prescribes a
recognition and measurement model for uncertain tax positions taken or expected to be
taken in the Company’s tax returns. FIN 48 provides guidance on recognition,
classification, presentation and disclosure of unrecognized tax benefits. The adoption of
this interpretation did not have a material impact on the Company’s Consolidated
Financial Statements. The Company has not recorded any tax amounts as a result of this
standard in the 2009 fiscal year.
(k) Stock based compensation - Stock options are required to be accounted for using the fair
value method under both Canadian GAAP and US GAAP. Canadian GAAP allows
forfeitures to be estimated in advance or to be accounted for as they occur. The Company
accounts for forfeitures as they occur. Under US GAAP, the compensation expense
recognized for stock-based compensation awards must reflect an estimate of award
forfeitures at the time of grant, which estimate is revised in subsequent periods, if
necessary.
(l) Accumulated other comprehensive income - The impact on the accumulated other
comprehensive income is mainly due to difference discussed in adjustment (f) and the
different exchange rates used to convert the adjustments on the consolidated balance sheet
and the adjustments on consolidated statements of operations from functional currency to
reporting currency using current rate method.
Page 38
SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
(m) Recently adopted accounting pronouncements
Fair value accounting
In February 2007, the FASB issued Statement of Financial Accounting Standard ("SFAS")
No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including
an Amendment of FASB Statement No. 115." SFAS No. 159 provides companies with an
option to measure, at specified election dates, financial instruments and certain other
items at fair value that are not currently measured at fair value. For those items for which
the fair value option is elected, unrealized gains and losses will be recognized in earnings
for each subsequent reporting period. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities. This standard is
effective for the Company’s fiscal year beginning April 1, 2008. The adoption of SFAS
No. 159 did not have a material impact on the Company’s consolidated financial results.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands fair value disclosures. This standard is effective for
the Company’s fiscal year beginning April 1, 2008. The adoption of this SFAS No. 157
did not have a material impact on the Company’s consolidated financial results.
In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”, which clarifies the
application of FASB No. 157, “Fair Value Measurements”. FSP No. FAS 157-3 states
that determining fair value in an inactive market depends on the facts and circumstances,
requires the use of significant judgment and in some cases, observable inputs may require
significant adjustments based on unobservable data. Regardless of the valuation technique
used, and entity must include appropriate risk adjustments that market participants would
make for nonperformance and liquidity risks when determining fair value of an asset in an
inactive market. FSP No. FAS 157-3 was effective upon issuance. The Company has
incorporated the principles of FSP No. FAS 157-3 in determining the fair value of
financial assets.
There are three levels of fair value hierarchy under FAS No. 157 that prioritize the inputs
to valuation techniques used to measure fair value, with level 1 inputs having the highest
priority. The levels and the valuation techniques used to value our financial assets and
liabilities are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
Level 2 - Quoted prices in markets that are not active, quoted prices for similar assets or
liabilities in active markets, or inputs that are observable, either directly or indirectly, for
substantially the full term of the asset or liabilities.
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SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
Level 3 - Unobservable (supported by little or no market activity).
The following table sets forth the Company’s financial assets and liabilities that are
measured at fair value on a recurring basis by level within the fair value hierarchy. Those
financial assets and liabilities are classified in their entirety based on the level of input that
is significant to the fair value measurement.
Cash and cash equivalents
Short term investments
Investment in Dajin Resources Corp.
Investment in Yongning Smelting Co. Ltd.
Fair value at March 31, 2009
Level 1
41,470
23,962
24
-
$65,456
Level 2
-
-
-
6,877
$6,877
Total
Level 3
41,470
-
23,962
-
24
-
6,877
-
$ - $72,333
The Company’s cash equivalents and short term investments, which comprised of bank
notes, GIC and term deposits, are classified within Level 1 of the fair value hierarchy
because they are valued using quoted market prices.
The Company’s long term investment in Dajin Resources Corp. is valued using quoted
market prices in active markets and such are classified within Level 1 of the fair value
hierarchy. The fair value of the investment is calculated as the quoted market price of the
investment equity security multiplied by the quantity of share held by the Company.
The Company’s long term investment in Yongning Smelting Co. Ltd. is included in Level
2 of the fair value hierarchy as they are valued using discounted cash flow model. This
model require a variety of inputs, including, but not limited to, contractual terms, market
prices, yield curves, inflation rates, and credit spreads. These inputs are obtained from or
corroborated with the market where possible.
The amount of unrealized losses on Available for Sale Securities for the year was
included in accumulated other comprehensive income as a result of changes in market
values and foreign exchange rates from April 1, 2008.
(n) Recent accounting pronouncements
SFAS 141R, Business combinations - In December 2007, the FASB issued SFAS No.
141(R), "Business Combination", which replaces SFAS No. 141 prospectively for
business combinations consummated in the fiscal year commencing after the effective
date of December 15, 2008. Early adoption is not permitted. Under SFAS No 141(R),
business acquisitions are accounted for under the “acquisition method”, compared to the
“purchase method” mandated by SFAS No. 141. SFAS No. 141(R) also presents revised
guidance for recognizing and measuring identifiable assets and goodwill acquired,
liabilities assumed, and any non-controlling interest in the acquiree. It also provides
disclosure requirements to enable users of the financial statement to evaluate the nature
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SILVERCORP METALS INC.
Notes to the Consolidated Financial Statements
For years ended March 31, 2009, 2008 and 2007
(Expressed in thousands of US dollars, unless otherwise stated)
and financial effects of the business combination. SFAS No. 141(R) is effective for the
Company’s fiscal year beginning April 1, 2009 and is to be applied prospectively.
SFAS 160, Non-controlling interests - In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statements - an amendment of
Accounting Research Bulletin No. 51 (“SFAS No.160”). SFAS No. 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the parent and
to the non-controlling interest, changes in a parent’s ownership interest, and the valuation
of retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS
No. 160 also establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling owners. SFAS
No. 160 is effective for the Company’s fiscal years beginning April 1, 2009. The
Company is currently evaluating the potential impact of adopting this standard on the
Company’s consolidated financial statements.
SFAS 161, Disclosures about derivative instruments and hedging activities - In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS No. 161”). SFAS No. 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. SAFS No.161 is effective for the
Company’s fiscal year beginning April 1, 2009. The Company does not expect the
adoption of SFAS No. 161 has any impact on the Company’s consolidated financial
statements as the Company currently is not holding any derivative instrument and
conducting hedging activities.
SFAS 162, the hierarchy of generally accepted accounting principles - In May 2008, the
FASB issued SFAS No. 162. The Hierarchy of Generally Accepted Accounting
Principles (“SFAS No. 162”). SFAS No. 162 is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting principles to
be used in preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles (GAAP) for nongovernmental entities. SFAS
No. 162 is effective 60 days following the SEC's approval of the Public Company
Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles. The
Company does not expect the adoption of SFAS No. 162 to have any impact on the
Company’s consolidated financial statements.
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