Is This Silver Miner Cooking the Books?

It was another triple digit move for the Dow (NYSE:DIA) on Thursday as the blue chips fell 119 points.  Gold (NYSE:GLD) and silver (NYSE:SLV) climbed higher after showing some weakness earlier in the week.  Many investors are paying attention to precious metal (NYSE:DBP) miners as they start to perk up.  However, there is one silver miner (NYSE:SIL) that demands a closer look.

Last week, Silvercorp Metals Inc. (NYSE:SVM) announced some startling news.  The Chinese and Canadian miner was being accused of a $1.3 billion accounting fraud by an anonymous letter.  The letter, which was spread by email, claims Silvercorp reported a profit in 2010 to the SEC in the United States, but reported a loss to regulators in China.  Silvercorp shares on the Toronto Stock Exchange plummeted 16% on the news.  The author of the letter also wrote that he had taken a large short position in the company.  Silvercorp has since denied the allegations and even provided tax and other financial documents related to its Chinese silver mining operations to prove the allegations false.  The company did acknowledge that short positions in its stock increased to 23 million shares over the past two months.

CEO Dr. Rui Feng said, ” This type of manipulative scheme is baseless and which depresses our share price and harms our shareholders.  While we are fighting these manipulation schemes, we will continue with our ongoing share buyback program, increase our investor relations efforts, and mine development.  We are pleased with our current operations and look forward to reporting another profitable quarter.”

Although the Canadian federal police have contacted the company to offer help in finding the anonymous author, the company appears to be defending itself quite well.  In addition to posting documentation the shows the miner reporting profits in its Chinese subsidiaries, the company also offers proof to its cash position.  In response to the allegation that the company’s cash balances are overstated, Silvercorp posted 67 pages of bank statements and documents detailing its short-term investments and cash positions to the tune of $221.3 million.  The company also has no long-term debt.  In the end, shareholders will have to decide for themselves if Silvercorp belongs in their portfolio.  Last week, shares hit a low of $7.04, but closed at $9.07 on yesterday, representing a 29% increase.

Currency Wars:  Is China Buying Gold to Challenge the U.S. Dollar?

Investors looking to hold precious metals in their portfolio may want to consider gold plays such as AngloGold (NYSE:AU), Newmont Mining (NYSE:NEM), or Market Vectors Jr Gold Miners ETF (NYSE:GDXJ). Hot silver plays include First Majestic Silver (NYSE:AG), Endeavour Silver (AMEX:EXK), and Global X Silver Miners ETF (NYSE:SIL).

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Disclosure: Long AGQ