Bloomberg News

Silvercorp Soars After Saying KPMG Review Counters Allegations

October 24, 2011

Oct. 25 (Bloomberg) -- Silvercorp Metals Inc., focused on mining in China, climbed the most in more than two years in Toronto after it said an investigation by accounting firm KPMG LLP found fraud allegations in two anonymous reports were untrue.

Silvercorp rose 17 percent to C$9.60 yesterday in Toronto, the biggest gain since Feb. 6, 2009.

The probe didn’t support the assertions that the company overstated its revenue and found the cash and short-term balances reported from December to August to be “substantially correct,” Silvercorp said yesterday in a statement.

Silvercorp’s board of directors created a special committee after the anonymous reports asserted wrongdoing at the Vancouver-based company. Its shares fell to as low as C$5.81 in September as investors increased scrutiny of Silvercorp and other companies that operate in China amid assertions of financial irregularities.

“The findings of the forensic review support the integrity of the company’s accounting system and financial reporting in China and North America,” the committee said in the statement. “The company’s processes were shown to be in accordance with good accounting practices.”

The full KPMG report will be delivered to the British Columbia Securities Commission, the Toronto Stock Exchange and the New York Stock Exchange, Silvercorp said.

Anonymous Letter

An anonymous letter dated Aug. 29 alleged the company reported a profit in calendar 2010 to the U.S. Securities and Exchange Commission while posting a loss to regulators in China, Silvercorp said in a Sept. 2 statement. Alfredlittle.com, a website that posts research on companies doing business in China, later alleged Silvercorp overstated the quality of ore from its silver mines in China.

“All the allegations are made up,” Silvercorp Chief Executive Officer Rui Feng said yesterday in a telephone interview from Hong Kong. “These guys are only in the game of manipulating the market.”

Investigation of the allegations has cost the company about C$2 million ($1.99 million), Feng said.

“And that doesn’t include our time and effort,” he said. “I have wasted almost two months on this nonsense.”

Silvercorp said last month it’s suing Alfredlittle.com, another website and their operators for allegedly spreading false information in an effort to drive down the stock price.

Chinastockwatch.com, a New York-based website that posts reports on public companies, and operator Jerry Katz published “false, defamatory and fraudulent statements,” Silvercorp said in the complaint filed Sept. 22 in New York State Supreme Court in Manhattan.

‘Nuts and Bolts’

Alfredlittle.com operator Alfred Little and an editor, Simon Moore, also were named as defendants in the lawsuit.

“The nuts and bolts of it are that KPMG and the committee were able to confirm what the company confirmed from the start,” Lorne Waldman, Silvercorp’s corporate secretary, said yesterday in a telephone interview.

KPMG clocked 1,800 hours on the investigation as of Oct. 13, Waldman said.

Trading in Sino-Forest Corp., a Chinese forestry company with headquarters in Mississauga, Ontario, and Hong Kong, was halted Aug. 26 by the Ontario Securities Commission, which said the company appeared to have committed fraud.

Short seller Carson Block’s Muddy Waters LLC published a report on June 2 alleging that Sino-Forest overstated its China timberland holdings. Sino-Forest executives have denied the allegations and established an independent committee of directors to examine and respond to the report.

--Editors: Steven Frank, Charles Siler.

To contact the reporters on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net; Christopher Donville in Vancouver at cjdonville@bloomberg.net.

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Simon Casey at scasey4@bloomberg.net.


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