Silvercorp Metals Inc. battled fresh accusations of wrongdoing from short sellers on Monday and said it’s gearing up for more of the attacks it describes as “baseless and designed to be manipulative.”
The Vancouver-based company was responding to new allegations posted on the research firm website AlfredLittle.com that accused the company of inflating earnings.
Alfred Little, commissioned by anonymous short sellers to help gather and distribute information about Silvercorp, also provided more details on earlier allegations that the miner overstated production and misrepresented the quality of its Chinese mines.
Silvercorp shares fell 8 per cent on the Toronto market early Monday after the updated report was released, but recovered after the company released its rebuttal, ending the day up 1 per cent at $6.88.
Still, the stock is down about 16 per cent since the first of two sets of allegations against the miner surfaced this month. Short sellers benefit when the price of the stock drops.
Silvercorp is the latest Toronto-listed company with operations in China to be targeted by short sellers in recent months. Regulators in Ontario halted trading in securities of Sino-Forest Corp. last month and are reviewing allegations of fraud made by short seller Carson Block of research firm Muddy Waters.
On Monday, Silvercorp criticized its accusers for remaining anonymous. That includes those behind the Alfred Little report, as well as an anonymous letter dated Aug. 29 that was sent to the company, its auditors and some media.
“Anonymous shorters and Alfred Little and others members of the short industry who are assisting clandestinely are promoting a distorted form of discrimination against companies with operations in China,” Silvercorp chairman and chief executive officer Rui Feng said in his letter to shareholders.
“There is a growing pattern of attacking Chinese companies with manipulative schemes.”
The company claims some of those have been vindicated, citing the example of Spreadtrum Communications, Inc., which it said was targeted by short sellers who drove down its share price but were proven wrong.
Silvercorp has appointed an independent committee of its board to investigate the allegations. The company is also working with police and securities regulators to investigate the source and nature of the allegations.
In its updated report, Alfred Little said Silvercorp has “only selectively and inadequately” addressed its findings, and characterized its reaction to date as typical of companies defending themselves against such allegations.
“The repeatedly announced share buybacks, uploads of hundreds of paper documents (all easily forged), and fist-pounding conference calls categorically denying all allegations have all been done before by many proven frauds,” Alfred Little said in its latest report, which also criticized Silvercorp’s board.
“Management should not be allowed to simply brush aside this report as false, misleading or defamatory. Nor should management try to escape the facts by attacking the messenger. … We seek only to profit from the truth.”