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DELIVERED VIA EDGAR AND COURIER
April 11, 2013
| United States Securities and Exchange Commission |
| Division of Corporation Finance |
| 100 F Street, N.E. |
| Washington, D.C. 20549 |
| U.S.A. |
| Attn: | Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverage, Apparel, and Mining |
RE: | Silvercorp Metals Inc. |
Dear Ms. Jenkins:
This letter is submitted on behalf of Silvercorp Metals Inc. (the“Company”or“we”) in response to the comments dated March 21, 2013 (the“Comment Letter”) with respect to the Company’s Annual Report on Form 40-F for the year ended March 31, 2012, which was filed on June 29, 2012 (the“Form 40-F”).
The text of the Comment Letter has been reproduced in this letter with their respective responses. For your convenience we have italicized each comment.
Form 40-F for the Fiscal Year Ended March 31, 2012
1. | We note that Exhibits 99.2 and 99.3,which relate to the Audited Annual Financial Statements and Management’s Discussion and Analysis, respectively, are incorporated by reference to a Form 6-K submitted on May 23, 2012. General Instructions B(5) to Form 40-F requires information incorporated by reference, that was not previously filed with the Commission, to be attached as an exhibit and filed with the Form 40-F. Information submitted on Form 6-K is considered furnished but not filed. Please refer to General Instruction B to Form 6-K. Accordingly, please amend your Form 40-F to attach and file your Audited Annual Financial Statements and Management’s Discussion and Analysis as exhibits. |
Response:We acknowledge your comments and we have advised our US legal counsel to amend and refile the Form 40-F such that our Audited Annual Financial Statements and Management’s Discussion and Analysis are included as exhibits.
Exhibit 99.1
Item 5 Mineral Properties, page 27
2. | In future filings please disclose your mineral reserves and mineral resources to correspond to your fiscal year end. |
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 2 |
Response:We believe that it is appropriate to disclose our mineral reserves and mineral resources corresponding to December 31, the calendar year-end, three months prior to the Company’s March 31 fiscal year-end. We respectfully request to continue this practice for the following reasons:
a) | we normally file our yearly Annual Information Form (“AIF”) each year in June for the year ended March 31. In our AIF disclosure, we refer to information of all NI 43-101 reports completed since the previous AIF in an effort to ensure that the most current information on our mineral reserves and resources are disclosed in the AIF. Our NI 43-101 reports typically require four to five months to prepare including the time an independent expert, such as AMC Mining Consultants Ltd. (“AMC”), would take to complete and certify; therefore technical report writing usual starts in January to meet the AIF deadline of June. As a result the reserve and resource data used in our technical reports are stated as at December 31, (which corresponds to the calendar year-end) and represents the most recent practicable date at which we are able to present such data; |
b) | within the Form 40-F and the NI 43-101 reports, we have conspicuously and clearly disclosed the cut-off date for reserves and resources. For example, in the Technical Report for Ying Gold-Silver- Lead-Zinc Property, Henan Province, China, dated May 1st, 2012 (the“Ying 2012 Technical Report”). Table 1, Table 2, and Table 3 clearly indicate that the reserves and resources are as of December 31, 2011; and |
c) | based on a review of quantitative and qualitative factors, we respectfully submit that the impact of three months production from January to March is not material to the total mineral reserves and resources presented. For example, at the Ying Mining District, we processed 136,609 tonnes of ore from January 2012 to March 2012, which represents only 1.5% of the 9.21 million tonnes of measured and indicated resources, and 1.4% of 9.79 million tonnes of reserves, respectively, as disclosed in the Ying 2012 Technical Report. |
3. | In future filings please clarify if your mineral resources and mineral reserves are reported on a one hundred percent basis or according to your attributable ownership. |
Response:We acknowledge your comment and we will disclose in future filings, beginning with our 2013 Annual Report on Form 40-F, that our mineral resources and mineral reserves are reported on a 100% basis.
4. | We note you disclose mineral resources on your company website that are not disclosed in your annual filing. In future filings please disclose mineral resources and mineral reserves for all properties. |
Response:We acknowledge your comment and will disclose in future filings, beginning with our 2013 Annual Report on Form 40-F, mineral resources and mineral reserves for all properties.
5. | Please explain to us why the cut-off grade for your SGX mineral reserve is lower than the resource cut-off grade. |
Response:A higher cut-off was adopted for the mineral resource estimate as a reasonable and appropriate measure in delineating resources because the resource estimate does not consider dilution, other than considering that the minimum extraction width will be at least 0.3 meter (“m”). On the other hand, the reserve estimate considers mining dilution. In its Ying 2012 Technical Report, the differences between the cut-off grades for mineral resources and mineral reserves were appropriate given the degree of compartmentalization of the two estimation processes within Silvercorp. After testing the
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 3 |
sensitivity of resource and reserve estimates to variations in cut-off grades, AMC found that relatively small changes in cut-off grades, such as those between our SGX mineral reserve and resource cut-off grades, had only an insignificant impact.1
6. | Considering dilution, losses, recoveries, and any other factor used to convert your mineral resources to mineral reserves, please provide a detailed reconciliation of your SGX mineral resources and reserves. |
Response:Table 1 below (which is a copy of Table 15.6 in the Ying 2012 Technical Report) is a summary comparison of Mineral Resources with Mineral Reserves.
Table 1. High Level Comparison of Mineral Resources with Mineral Reserves
| Mine | Tonnes | Au | Ag | Pb | Zn | Au | Ag | Pb | Zn | |
| t | g/t | g/t | % | % | koz | koz | t | t | ||
| SGX | Resource | 3,555,559 | 425 | 7.78 | 3.93 | 48,588 | 276,523 | 139,870 | ||
| Reserve | 3,722,791 | 345 | 6.31 | 3.00 | 41,238 | 234,855 | 111,558 | |||
| Conversion | ||||||||||
| percentage | 105 | 81 | 81 | 76 | 85 | 85 | 80 | |||
| HZG | Resource | 413,982 | 388 | 1.17 | 0.26 | 5,163 | 4,838 | 1,069 | ||
| Reserve | 382,437 | 327 | 0.96 | 0.22 | 4,026 | 3,657 | 825 | |||
| Conversion | ||||||||||
| percentage | 92 | 84 | 82 | 83 | 78 | 76 | 77 | |||
| HPG | Resource | 569,978 | 1.3 | 101 | 4.51 | 1.92 | 24 | 1,844 | 25,734 | 10,960 |
| Reserve | 630,065 | 0.9 | 79 | 3.67 | 1.58 | 19 | 1,609 | 23,155 | 9,957 | |
| Conversion | ||||||||||
| percentage | 111 | 72 | 79 | 81 | 82 | 80 | 87 | 90 | 91 | |
| TLP | Resource | 2,622,207 | 190 | 3.86 | 0.29 | 16,050 | 101,192 | 7,569 | ||
| Reserve | 2,554,243 | 126 | 2.98 | 0.25 | 10,349 | 76,011 | 6,390 | |||
| Conversion | ||||||||||
| percentage | 97 | 66 | 77 | 86 | 64 | 75 | 84 | |||
| LM | Resource | 2,033,669 | 371 | 3.19 | 0.46 | 24,234 | 64,932 | 9,293 | ||
| * | ||||||||||
| Reserve | 2,503,582 | 269 | 2.35 | 0.34 | 21,652 | 58,955 | 8,521 | |||
| Conversion | ||||||||||
| percentage | 123 | 73 | 74 | 74 | 89 | 91 | 92 | |||
| Total | Resource | 9,195,395 | 0.08 | 324 | 5.15 | 1.83 | 24 | 95,874 | 473,263 | 168,713 |
| Reserve | 9,793,118 | 0.06 | 251 | 4.05 | 1.40 | 19 | 78,873 | 396,633 | 137,251 | |
| Conversion | ||||||||||
| percentage | 107 | 74 | 77 | 79 | 76 | 80 | 82 | 84 | 81 |
Only Measured and Indicated Resources were used for Mineral Reserves estimation. To convert Mineral Resources to Mineral Reserves, the following factors were considered for each potential mining block: grade, location and accessibility in terms of economic mining viability, mining method (resuing or shrinkage), minimum mining width (0.3m resuing, 0.8m shrinkage), mining dilution (generally 0.08m and 0.15m respectively at zero grade on each side wall for resuing and shrinkage), mining recovery (95% resuing, 92% shrinkage); and mining cut-off grade.
Table 2 below shows the detailed conversion from Mineral Resources to Mineral Reserves for the SGX
| 1Page 189 of the Ying 2012 Technical Report | |
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 4 |
mine (SGX accounts for 52% of total silver contained in resource in the Ying Mining District).
Table 2. Conversion from Mineral Resources to Mineral Reserves, SGX Mine
| Tonnes | Ag | Pb | Zn | Ag | Pb | Zn | |
| t | g/t | % | % | koz | t | t | |
| Measured + Indicated Mineral Resources * | 3,555,559 | 425 | 7.78 | 3.93 | 48,588 | 276,523 | 139,870 |
| Less Resources below the current mining permit | 118,264 | 194 | 4.22 | 8.66 | 737 | 4,995 | 10,240 |
| Less currently inaccessible or non-viable Resources | 375,174 | 347 | 6.34 | 3.07 | 4,187 | 23,771 | 11,500 |
| Gives Resources currently available for mining * | 3,062,121 | 443 | 8.09 | 3.85 | 43,660 | 247,846 | 117,974 |
| Plus mining dilution (assumed zero grade) | 892,199 | 0 | 0 | 0 | 0 | 0 | 0 |
| Less mining recovery losses | 231,529 | 343 | 6.27 | 2.99 | 2,553 | 14,517 | 6,923 |
| Proven + Probable Mineral Reserves | 3,722,791 | 343 | 6.27 | 2.99 | 41,107 | 233,329 | 111,051 |
* Blocks less than 0.3m in width widened out to 0.3m
There are minor differences in Reserve grades from those reported in AMC’s Technical Report due to correction of some minor errors. Normally the tonnages and contained metal would be appropriately rounded. They have been left unrounded to show the detailed progress from Mineral Resources to Mineral Reserves.
7. | Please explain the decrease in your SGX measured mineral resource grade. In this regard we note your disclosure of 430 g/t as compared to the 845 g/t disclosed in your 40-F filing for the fiscal year ended March 31, 2011 and filed on June 3, 2011. |
Response:The decrease in the SGX measured mineral resource grade was as a result of substantially reduced cut-off grade based on updated metal prices and geological reinterpretations resulting from an extensive exploration program undertaken in 2011. The SGX mineral resources in the Form 40-F for the fiscal year ended March 31, 2011 (which was filed on June 3, 2011) used a cut-off of 300 g/t silver equivalent (“AgEq”), which was based on historical metal prices used in the Company’s NI 43-101 report on the SGX property in 2005, of which silver was $6.50 per ounce, lead was $0.40 per pound, and zinc was $0.45 per pound. In the Ying 2012 Technical Report, in comparison, the SGX mineral resource grade was estimated using a lower cut-off grade of 150 g/t AgEq, which was based on metal prices typically being used in the industry for resource estimation at the time, of which gold was $1,250 per ounce, silver was $19 per ounce, lead was $1.00 per pound, and zinc was $1.00 per pound.
Form 6-K filed May 23, 2012 Exhibit 99.2
Management’s Discussion and Analysis
4. Fiscal Year 2012 Operating Performance
(vi)Cash and Total Cost per Ounce of Silver (Gold for the BYP mine), page 4
8. | We note you present here non-IFRS measures: (a) total production cost per ounce of silver and (b) cash cost per ounce of silver. Tell us whether these measures are used in the industry and how your computation of these measures is comparable to other companies’ computation of these measures. |
Response:“Total production cost per ounce of silver” and “cash cost per ounce of silver” are non-IFRS measures that are widely used in the precious metal sector to demonstrate the profitability of mining operations. Investors can use these performance metrics to determine the cash profit and net profit before taxes using the following formulas:
Cash profit before taxes = silver ounces produced * (silver price – cash cost per ounce of silver) –administrative & other costs
Net profit before taxes = silver ounces produced * (silver price – total cost per ounce of silver) –
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 5 |
administrative & other costs
Based on our knowledge, there is no industry guidance on the above calculations; therefore, we cannot comment on whether our computation is comparable to other companies.
9. | We note you present here the non-IFRS measures of total production cost per ounce of silver of $(3.25) and cash cost per ounce of silver $(5.13) computed by deducting by-product lead, zinc and gold sales. Tell us: (a) the purpose of such measures, (b) how they are used by management, (c) how the presentation of negative cost per ounce is useful to investors, and (d) how such presentation is appropriate. |
Response:(a) As above-mentioned, these non-IFRS measures are performance metrics of profitability of a mining operation that are used widely by peers in the mining industry. These measures provide investors with another method to determine the profitability of a mine for a given period of time. (b) Management uses these measures as indicators of mine profitability. (c) Negative cost per ounce is useful to investors as it shows that revenue derived from by-products (i.e., lead, zinc and gold in our silver mines) have been more than sufficient to cover the production costs, which include mining, milling and shipping costs. (d) We believe the presentation of negative cost per ounce is appropriate because it aids investors in evaluating the profitability of our mining operations. It is our understanding that this non-IFRS measure is widely used by peers in the mining industry and it is not unusual that companies present negative cost per ounce from time to time, depending on the by-product portion and the profitability of the operations. For example, Hecla Mining, the largest primary silver producers in the U.S., has reported negative $2.81 cash cost per ounces in 2007 and negative $1.46 cash cost per ounce in 2010.
(vii)Operation Review, page 6
10. | We note your disclosure here of mining cost per tonne, milling cost per tonne and average production cost per ounce. To enhance an investor’s understanding of your business, provide us with, and confirm that in future filings you will include for all periods presented, (a) the computation of each cost measure, (b) a reconciliation of each cost measure per unit to the cost of sales, and (c) the methodology used in the computation of costs per unit. |
Response:As shown in Table 3 below, mining cost per tonne and milling cost per tonne are calculated using total mining costs and total milling costs divided by tonnage mined and milled, respectively.
| Table 3: Reconciliation of Mining Costs and Milling | Tonnage of ore | |||||||
| Costs to the Cost of Sales for the year ended March | Total costs mined/shipped/milled | Per tone costs | ||||||
| 31, 2012 | ('000 US$) | (tonne) | (USD/tonne) | |||||
| Cash mining costs | $ | 35,907 | 757,590 | $ | 47.40 | |||
| Non-cash mining costs | 10,691 | 757,590 | 14.11 | |||||
| Shipping costs | 2,533 | 757,590 | 3.34 | |||||
| Cash milling costs | 10,820 | 762,521 | 14.19 | |||||
| Non-cash milling costs | 1,263 | 762,521 | 1.66 | |||||
| Total | $ | 61,213 | $ | 80.70 | ||||
| Add: stockpile and concentrate inventory - Beginning | 1,582 | |||||||
| Minus: stockpile and concentrate inventory - Ending | (3,976 | ) | ||||||
| Adjustment for foreign exchange movement | 2,330 | �� | ||||||
| Cost of sales per consolidated financial statements | $ | 61,149 | ||||||
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 6 |
Average production per unit of metal is calculated as shown in Table 4:
| Table 4: Average production cost | Silver | Gold | Lead | Zinc | Total | ||||||||||
| a. % of sales generated by each metal | 65.6% | 4.6% | 25.9% | 3.9% | 100% | ||||||||||
| b. Total Cost of sales ('000$) | 61,149 | ||||||||||||||
| c = a * b for each metal ('000$) | $ | 40,109 | $ | 2,834 | $ | 15,810 | $ | 2,396 | $ | 61,149 | |||||
| d. Metal produced | 5,618 | 8,771 | 72,804 | 13,748 | |||||||||||
| ('000 oz | ) | (Ounces | ) | ('000 lb | ) | ('000 lb | ) | ||||||||
| e: Average production cost ($/unit) | $ | 7.14 | $ | 323 | $ | 0.22 | $ | 0.17 |
We confirm that in our future filings, we will provide the calculation methodology and reconciliations of non-IFRS measures to the corresponding IFRS measures in accordance to Item 10(e) of Regulation S-K.
11. | It appears that the tonnes and grade of ore milled for the year ended March 31, 2011 for the Ying, HPG & LM, and TLP operations do not correspond to the tonnage and grade figures presented in your technical report. In this regard we reference page 118 of your technical report for the Ying Gold- Silver-Lead-Zinc Property, Henan Province, China prepared by AMC Consultants and dated May 1, 2012. Please tell us why these numbers are different. In your response please also address any differences between the 2009 and 2010 production numbers disclosed in your technical report as compared to previous numbers disclosed in filings with the United States Securities and Exchange Commission. |
Response: The Ying Mines production data for 2009 to 2011 as set out in Table 16.11 in the Ying 2012 Technical Report only included milled ore tonnes and its related grades. It did not include the tonnage and grades from direct shipping ore that was sorted at the mine site and shipped/sold directly to smelters. Table 5 below is the revised run of mine ore production for 2009 to 2011 recently prepared by AMC that includes the direct shipping ore. Since the inclusion of the direct shipping ore results in a material change, (albeit a positive change) we are currently working with AMC to amend the Ying 2012 Technical Report with goal to file in on SEDAR and EDGAR within 30 days.
Other differences, such as the production data, (such as tonnes and grade of ore milled), set out in the Management’s Discussion and Analysis (the “MD&A”) is different than data set out in the Technical Reports because the“MD&A”is based on the fiscal year ended March 31 while the Technical Report is based on the calendar year ended December 31. Further difference occurs since tonnage in the Technical Report is measured in dry tonnes, while the MD&A uses the measurement of wet tonnes, which usually contains 2% to 3% moisture in comparison to dry tonnes.
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 7 |
Table 5: Ying Mine and Mill Production from 2009 to 2011
| Mine | Ore Type | Unit | 2009 | 2010 | 2011 | Total |
| Milled Ore | t | 281,374 | 373,602 | 395,747 | 1,050,724 | |
| Ag (g/t) | 403 | 358 | 325 | 357 | ||
| Grade | Pb (%) | 6.62 | 5.45 | 5.34 | 5.72 | |
| Zn (%) | 3.02 | 2.54 | 2.14 | 2.51 | ||
| Direct Shipping Ore | t | 13,290 | 12,412 | 12,365 | 38,068 | |
| SGX | Ag (g/t) | 2,075 | 1,915 | 1,728 | 1,910 | |
| Grade | Pb (%) | 55.06 | 52.12 | 51.21 | 52.85 | |
| Zn (%) | 5.8 | 5.62 | 4.88 | 5.44 | ||
| Total Ore Mined | t | 294,665 | 386,015 | 408,112 | 1,088,791 | |
| Ag (g/t) | 478 | 408 | 368 | 411 | ||
| Grade | Pb (%) | 8.8 | 6.95 | 6.73 | 7.37 | |
| Zn (%) | 3.15 | 2.64 | 2.22 | 2.61 | ||
| Milled Ore | t | - | - | 45,788 | 45,788 | |
| HZG | Ag (g/t) | - | - | 216 | 216 | |
| Grade | Pb (%) | - | - | 0.93 | 0.93 | |
| Zn (%) | - | - | - | 0 | ||
| Milled Ore | t | 24,111 | 32,704 | 42,399 | 99,213 | |
| Ag (g/t) | 155 | 133 | 111 | 129 | ||
| Grade | Pb (%) | 6.45 | 6.46 | 5.54 | 6.06 | |
| Zn (%) | 1.2 | 1.27 | 1.03 | 1.15 | ||
| Direct Shipping Ore | t | - | 260 | 193 | 453 | |
| HPG | Ag (g/t) | - | 710 | 456 | 602 | |
| Grade | Pb (%) | - | 61.29 | 61.65 | 61.44 | |
| Zn (%) | - | 1.53 | 1.42 | 1.48 | ||
| Total Ore Mined | t | 24,111 | 32,964 | 42,592 | 99,666 | |
| Ag (g/t) | 155 | 138 | 113 | 131 | ||
| Grade | Pb (%) | 6.45 | 6.89 | 5.79 | 6.31 | |
| Zn (%) | 1.2 | 1.27 | 1.03 | 1.15 | ||
| Milled Ore | t | 9,469 | 115,041 | 100,546 | 225,055 | |
| Ag (g/t) | 136 | 102 | 106 | 105 | ||
| Grade | Pb (%) | 2.64 | 2.99 | 2.86 | 2.92 | |
| Zn (%) | 0 | 0 | ||||
| Direct Shipping Ore | t | 7.86 | 6.08 | - | 14 | |
| TLP | Ag (g/t) | 2,084 | 1,265 | - | 1,727 | |
| Grade | Pb (%) | 54.59 | 59.78 | - | 56.85 | |
| Zn (%) | - | - | - | 0 | ||
| Total Ore Mined | t | 9,477 | 115,047 | 100,546 | 225,069 | |
| Ag (g/t) | 138 | 102 | 106 | 105 | ||
| Grade | Pb (%) | 2.68 | 2.99 | 2.86 | 2.92 | |
| Zn (%) | - | - | ||||
| Milled Ore | t | 11,569 | 46,150 | 49,871 | 107,590 | |
| LM | Ag (g/t) | 267 | 240 | 313 | 277 | |
| Grade | Pb (%) | 2.14 | 1.67 | 1.98 | 1.87 | |
| Zn (%) | - | - | - | - | ||
| Milled Ore | t | 326,523 | 567,497 | 634,350 | 1,528,370 | |
| Ag (g/t) | 372 | 283 | 267 | 295 | ||
| Grade | Pb (%) | 6.33 | 4.7 | 4.38 | 4.92 | |
| Zn (%) | 2.69 | 1.74 | 1.4 | 1.8 | ||
| Direct Shipping Ore | t | 13,298 | 12,678 | 12,559 | 38,535 | |
| Ying Mines | Ag (g/t) | 2,075 | 1,890 | 1,709 | 1,895 | |
| Grade | Pb (%) | 55.06 | 52.31 | 51.37 | 52.95 | |
| Zn (%) | 5.8 | 5.53 | 4.83 | 5.4 | ||
| Total Ore Mined | t | 339,821 | 580,175 | 646,909 | 1,566,905 | |
| Ag (g/t) | 439 | 318 | 295 | 335 | ||
| Grade | Pb (%) | 8.24 | 5.74 | 5.29 | 6.1 | |
| Zn (%) | 2.81 | 1.82 | 1.47 | 1.89 |
*Tonnes reported as dry tonnes
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 8 |
12. | In connection with the comment 11 above, please explain to us in detail (i) which production tonnage values were utilized to calculate depletion in your financial statements for each period presented and (ii) how the discrepancies in tonnes and grade of ore milled and production numbers noted in the above comment affected your financial statements for the periods presented. |
Response:To calculate depletion in our financial statements for each period presented, we used “silver equivalent” as the unit measure under the unit of production method. For any given period of time and for each mine, depletion expense is calculated using unamortized capitalized costs multiplied by actual metals contained in the ore extracted and divided by total metal contained in the un-mined proven and probable reserve. Please note that all metal produced and metal contained are measured as silver equivalents for the purpose of calculating depletion.
The calculation for depletion for accounting is based on metals contained in ore extracted based on production reports. The tonnage and grades as disclosed on Page 117 of the Ying 2012 Technical Report did not include one type of product sold, that being direct shipping ore (refer to our discussion in regards to direct shipping ore in comment 11); however, the direct shipping ore was included in the calculation of depletion. Minerals contained in the direct shipping ore are concentrated enough to sell directly to smelters, without being further processed in the mill (i.e., high metal content). As such, the calculated depletion in the financial statements for the periods presented was higher (as it included metal content in the direct shipping ore) than it would have been if the tonnage and grades disclosed on the original Ying 2012 Technical Report.
Exhibit 99.3 Financial Statements
Notes to Financial Statements
2. Significant Accounting Policies
(a)Statement of Compliance, page 6
13. | We note your disclosure that the policies applied to your financial statements are based on IFRS effective as of the date the Board of Directors approved these financial statements for issue or May 16, 2012. Please clarify for us whether you selected IFRS accounting policies from IFRS effective at the end of the first IFRS reporting period and applied those consistently for the years ended March 31, 2012 and 2011 and the opening balance sheet on April 1, 2010. Refer to IFRS 1 paragraphs 7 and 8. |
Response:Yes, we have selected IFRS accounting policies from IFRS effective at the end of first IFRS reporting period being March 31, 2012, and applied those consistently for the years ended March 31, 2012 and 2011 and the opening balance sheet on April 1, 2010, in accordance with IFRS 1, paragraph 7 and 8.
(f)Revenue Recognition, page 8
14. | We note sales of gold, lead and zinc represent 5%, 26% and 4% of your total sales, respectively, for the fiscal year ended March 31, 2012. Tell us and disclose in future filings how you account for and classify the income from non-silver sales. In addition, please revise Management’s Discussion and Analysis of future filings to include the following: (a) whether you expect historic trends of your non- silver revenue to continue and (b) discussion of the factors that have an effect on the amount of revenue from non-silver sales (i.e. commodity prices etc.). |
Response:The revenue recognition policy of the Company on non-silver sales is consistent with that of silver sales. The Company does not directly produce actual separate metals. Instead, we produce and sell four products to smelters: direct shipping ore, lead concentrate, zinc concentrate, and gold concentrate
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 9 |
(gold concentrate is only produced at the BYP mine). Smelters pay us, and we record revenue, based on the amount of metal content contained the products, with the prices determined by Shanghai metal prices, less smelter charges and 17% value added taxes (VAT exempted for gold). Metals contained in each product are shown in Table 6 below:
Table 6:
| Product | Major Metals | Comments |
| Direct shipping ore | silver, lead | Metals contained in the ore from mines are concentrated enough to sell directly to smelters, without being further processed in the mill. |
| Lead concentrate | silver, lead | Metals contained in the ore are not concentrated enough to be smelted. As such, the ore is further processed in the mill, to separate minerals from waste. |
| Zinc concentrate | zinc | |
| Gold concentrate | gold | The gold grade in gold concentrate is around 35 gram per tonne |
For lead and zinc concentrate, the source ore is the same. It goes through a milling process in which the ore is crushed and further concentrated by separating metal content from waste (non-metal containing rocks). This creates the concentrates that are sold to smelters. Therefore, the sales of non-silver metals occur at the same time of silver sales as the smelters pay for the metal content in the concentrate. As such, in producing any amounts of silver, the by-products, lead and zinc, will be produced as well. The relative content of the metals in the concentrate will depend on the head grade of the original ore. Therefore, we expect non-silver revenue will continue based on historic trends.
In response to your comment, we will include in the 2013 Annual Report on Form 40-F and in future MD&A, a discussion of whether we expect our non-silver revenue historic trends to continue and the factors that have an effect on the amount of revenue from non-silver sales.
k) Mineral Rights and Properties, page 9
15. | We note that you capitalize development costs at the earlier of establishing proven and probable reserves or obtaining a mining permit. The staff believes that mining costs typically are not determined to be economically recoverable until proven and probable reserves have been established. Please explain to us your basis for capitalizing costs at an earlier point, i.e., obtaining a mining permit. |
Response:The Company acknowledges your comment and respectfully submits that our accounting policy, note 2(k), states: “Upon determination that a mineral propertycan be economically developed, which occurs at the earlier of: completion of positive economic analysis of the mineral deposit by establishing proven and probable reserves; or obtaining a mining permit, the subsequent development costs incurred such as to further delineate the ore body and costs incurred during production to increase output by providing access to additional sources of mineral resources, are also capitalized.” Although this approach may differ slightly from your expectations, the apparent discrepancy is primarily in form only.
Specifically, obtaining a mining permit is an appropriate indicator that a mineral property can be economically developed because, under applicable Chinese law, a mining permit can be obtained only upon a showing of economic viability. Because our mines are located in China, our permitting and commissioning process must comply with Chinese mining law and regulations, which require the completion of a Resource Utilization Plan (the“RUP”), prepared by qualified engineering firms. As part of the RUP, an analysis is conducted to forecast the economic value of the mineral property. A mining permit will be granted only upon a demonstration that a mineral property can be economically developed.
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 10 |
Under these circumstances, obtaining a mining permit provides a definitive indication that the property can be economically developed. Therefore, we believe that our accounting policy is in accordance with IFRS and is appropriate.
25. Segmented Information
(c)Sales by Metal, page 36
16. | We note you disclose total sales for each mine. To enhance an investor’s understanding of your business, please provide us with, and confirm that you will include in future filings, the amount of revenues derived from silver, gold, lead and zinc on a mine-by-mine basis for each of the periods presented. |
Response:We acknowledge your comment and confirm that we did not disclose revenues derived from silver, gold, lead, and zinc on a mine-by-mine basis in the financial statements. We respectfully submit that those numbers were disclosed in our MD&A. For example, Page 6 of the MD&A for the year ended March 31, 2012 has disclosed metal quantity sold and metal sales for each metal on a mine-by-mine basis. For your convenience, that part of the table is reproduced below:
Table 7:
| Fiscal 2012 | Year ended March 31, 2012 | ||||||||||||||
| Henan Luoning | Henan Songxian | ||||||||||||||
| YING | HPG&LM | TLP | XBG | XHP | BYP | Total | |||||||||
| Sales Data | |||||||||||||||
Metal Sales | |||||||||||||||
Silver(in thousands of ounce) | 3,943 | 635 | 1,034 | 6 | - | 5,618 | |||||||||
Gold(in thousands of ounce) | 2.7 | 0.9 | - | 0.1 | - | 5.1 | 8.8 | ||||||||
Lead(in thousands of pound) | 52,216 | 7,004 | 13,140 | 444 | - | 72,804 | |||||||||
Zinc(in thousands of pound) | 10,834 | 591 | 2,075 | - | - | 249 | 13,749 | ||||||||
Metal Sales | |||||||||||||||
Silver(in thousands of $) | 109,592 | 17,500 | 28,869 | 124 | - | 156,085 | |||||||||
Gold(in thousands of $) | 3,077 | 1,046 | - | 155 | - | 6,749 | 11,027 | ||||||||
Lead(in thousands of $) | 44,192 | 5,830 | 11,142 | 362 | - | 61,526 | |||||||||
Zinc(in thousands of $) | 7,135 | 353 | 1,684 | - | - | 152 | 9,324 | ||||||||
| 163,996 | 24,729 | 41,695 | 641 | - | 6,901 | 237,962 | |||||||||
In the future, we will comply with your comment and include this information in the consolidated financial statements.
28. Transition to IFRS, page 39
17. | We note that you do not address the mandatory exceptions, as set forth in paragraphs 14-and Appendix B of IFRS 1, which you applied upon the adoption of IFRS. To the extent that your primary financial statements reflect the use of mandatory exceptions, please identify for us the items or class of items to which the exceptions were applied and describe the accounting principle that was used and how it was applied. In addition and to the extent material, also qualitatively describe for us the impact on the financial condition, changes in financial condition and results of operations that the treatment specified by IFRS would have had absent these mandatory exceptions. Refer to paragraph 23 of IFRS 1. |
Response:In preparation of our consolidated financial statements (the“2012 Financial Statements”) as of and ended March 31, 2012, we applied the mandatory exception for “non-controlling interest”, according to IFRS 1, Appendix B1(c) and B7(a). The 2012 Financial Statements were our first IFRS financial statements, with a transition date of April 1, 2010.
| Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverages, Apparel, and Mining |
| United States Securities and Exchange Commission |
| March 31, 2013 |
| Page 11 |
Note 28 (e) (vii) to the 2012 Financial Statements stated: “Canadian GAAP does not allow the debit balance of non-controlling interests, while IFRS requires picking up of the non-controlling interests’ share of changes in equity since the date of transition, even if the resulting non-controlling interest balance becomes debit. As a result, the non-controlling interests of the Company’s subsidiaries, Huawei and Qinghai Found, have been adjusted to reflect their portion of the changes in equity since the date of transition.” Excluding the effect of this mandatory exception under IFRS, Huawei and Qinghai would have had to attribute their respective portions of comprehensive loss to non-controlling interests. As a result, the equity components of the statements of financial position at each period presented would have been changed – accumulated other comprehensive income and retained earnings would have decreased; correspondingly, non-controlling interests would have increased by the same amount. There would have been no change on the financial condition and the results of operations.
We used April 1, 2010, the transition date, as the starting point to attribute gain/loss to all non-controlling interests.
Other mandatory exceptions under Appendix B1 of IFRS 1, which include (a) derecognition of financial assets and financial liabilities, (b) hedge accounting, and (f) government loans, were not applicable to the Company as we did not have such items.
Closing Comments
In connection with our responses in this letter, we acknowledge that:
the Company is responsible for the adequacy and accuracy of the disclosure in the filing;
your comments or changes to disclosure in response to your comments do not foreclose the Commission from taking any action with respect to the filing; and
the Company may not assert your comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We note that the Division of Enforcement has access to all information we provide to you in your review of our filing or in response to our comments on our filing.
If you have any questions or concerns, please feel free to contact us by telephone at 604-669-9397.
Sincerely,
/s/Rui Feng
Dr. Rui Feng
Chairman and Chief Executive Officer
cc: AMC Mining Consultants (Canada) Ltd
cc: Latham & Watkins LLP
cc: Deloitte LLP
cc: Ernst & Young LLP