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Silvercorp Metals at its debut on the New York Stock Exchange in 2010. Started in 2004, the Vancouver-based company today is China's largest primary silver producer.Mark Lennihan/Associated Press

Silvercorp Metals Inc. said its latest quarterly profit rose 49 per cent on higher metal prices, but was stunted in part by fees needed to fight short-seller allegations of wrongdoing.

Vancouver-based Silvercorp, which has four mines in China, reported profit of $18.5-million (U.S.), or 11 cents a share, in the second quarter ended Sept. 30, up from a profit of $12.4-million, or 8 cents a share, for the same quarter last year.

The company took a $1.5-million hit for costs incurred to battle what it called a "short and distort" scheme, where two sets of short-sellers alleged wrongdoing, including overstating revenues.

The company denied the allegations and shot back saying the motive behind the short-selling was to drive down the stock to make a profit. (A short sale occurs when the seller borrows stock from a brokerage, and sells it, expecting the price to fall. If it does, the seller will buy stock at the lower price to replace the stock that was borrowed, and pocket the difference.) Silvercorp also filed a lawsuit against the two websites behind the accusations – and – and several individuals, alleging defamation and "deceptive acts and practices."

Excluding those extra fees to fight the allegations, as well as $3.6-million in China dividend withholding taxes, Silvercorp said adjusted earnings in the quarter were $23.6-million or 14 cents per share.

Revenue rose 71 per cent to $62.1-million. Silver production rose 4 per cent to 1.4 million ounces, while the average realized silver sales price more than doubled to $30.48, versus $14.63 for the same period last year.

Sales were in line with BMO Nesbitt Burns estimates, but earnings per share were below its forecast of 15 cents per share.

BMO analyst Andrew Kaip said the difference, aside from the fees to fight the accusations from short-sellers, were due to lower zinc and lead sales, down about 9-per-cent below estimates.

Mining rates at the Ying mine fell as the company updated hauling facilities and replaced shaft cages, and suffered labour shortages, Mr. Kaip said in a note to clients.

Silvercorp shares have recovered after plunging by about 30 per cent to below $6 in September as some investors fled the stock, fearing the fallout from allegations that a second Toronto-listed company operating in China had accounting issues.

Earlier this year, short-seller Carson Block of research firm Muddy Waters LLC accused forestry firm Sino-Forest Corp. of accounting fraud. Regulators in Ontario have halted trading in Sino-Forest securities, citing evidence of fraud, and are looking into allegations that the company may have misrepresented some of its revenue and exaggerated some of its timber holdings.

Last month, an independent review of Silvercorp's financials by KPMG Forensics cleared the company of many of the anonymous allegations levelled against it.

The allegations against Silvercorp, as well as the short-sellers who made them, are still being investigated by police and regulators in both Canada and the U.S.