Short-Sellers Hit Silvercorp; Stock Slumps

Tuesday, 13 Sep 2011 08:29 PM

 

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Shares of China-focused miner Silvercorp slumped further on Tuesday as short-sellers publicized their activities against the company, which continues to dismiss all fraud allegations leveled against it.

The stock tumbled as much as 21 percent after Carson Block and his firm Muddy Waters confirmed they were shorting shares of Silvercorp in light of a fresh set of fraud allegations posted online.

The new allegations were posted on the alfredlittle.com website. The site, like Block's own Muddy Waters website, says it "publishes cutting-edge long and short investment ideas and research focusing on companies operating and doing business in China."

Muddy Waters hit the headlines earlier this year with a number of short-selling bets against North American-listed companies that are active in China. Its report on Sino-Forest has led to a regulatory probe and a collapse in the forest plantation operator's stock price.

Alfred Little, who has also posted articles on popular investment website Seeking Alpha, has in the past taken aim at other Chinese companies such as Puda Coal Inc and Deer Consumer Products. Both companies now face possible class action lawsuits and have seen their share prices crumble this year.

Alfred Little questioned several aspects of Silvercorp's operations, including its disclosures, its customer base and related party issues similar to those Block leveled against Sino-Forest, once Canada's largest-listed forestry company.

"We do confirm that we read the Alfred Little report upon its release, and it supports some concerns we developed when researching Silvercorp," said Block in an email to Reuters.

"We have in the past tweeted the news of reports others prepared if we think the reports would be of interest to our followers. Consistent with that practice, this morning we tweeted a link to the Alfred Little report along with a disclosure that we were short."

Silvercorp said earlier this month that it had obtained an anonymous letter accusing it of a $1.3 billion fraud. The company has denied any wrongdoing and it has threatened legal action to recover damages.

Although there is some overlap between the allegations in the anonymous letter and the report posted on Alfred Little, the website says there is no link between the two.

"The contributors are not aware of the identity nor have they collaborated with the anonymous author mentioned in SVM's press release," said the report on the Alfred Little website.

A Silvercorp spokeswoman was not immediately available for comment, but the company's corporate secretary, Lorne Waldman, who was presenting at the Rodman & Renshaw conference in New York, slammed the new set of allegations.

"Ours is about as clean and as simple of a business, as you can get," said Waldman. "I really encourage everybody here to find out the truth for themselves.

"This is an exceptional Canadian junior exploration success story - a company that was one of those lottery ticket companies that you see out there, but that was made real and now somebody is trying to spread lies about them. Don't believe them, find out for yourself and act accordingly," he said.

"What you'll notice is that people are raising questions that are separate from the main allegation."

The anonymous allegation that was made against Silvercorp was that the company committed a $1.3 billion fraud, said Waldman, noting that the new allegations center on related party transactions.

"One of them they are pointing out is that our CEO, rather than taking his salary as employment income, takes it through a consulting company. But that's fully disclosed and that's not a crime. But it is being brought up to try to give merit to false allegations based on fabricated documents and that's a crime."

UBS in a research note on Monday said it had seen no indication of fraud at Silvercorp.

"We have toured Silvercorp's mines in China and have had regular meetings/conversations with senior management and have no reason to believe Silvercorp has conducted fraud," said UBS analyst Chris Lichtenheldt.

Silvercorp shares slumped on Tuesday and ended the day down 20 percent at C$6.20 on the Toronto Stock Exchange. The stock has fallen more than 60 percent since touching a lifetime high of C$15.60 in April. (US$1=$0.99 Canadian.)

© 2014 Thomson/Reuters. All rights reserved.

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