Canada’s Silvercorp blames contractor for production dip at Chinese mines

Canadian silver producer Silvercorp Metals Inc. (TSX, NYSE:SVM) announced that production at its SGX silver mine in China tumbled 25% last month, after allegedly catching its contractors diluting ore to hike their compensations.

In a press release Thursday the company said mining contractors were adding waste rock from development tunnels to ore trucks before they were weighed, which is the basis for calculating contractor fees.

As a consequence, Silvercorp decided to change its fee-calculation method and noticed silver grades went quickly up by 35%. However this caused a sharp fall in the mine’s August production.

“The new method has eliminated significant waste rock resulting in less ore being produced,” said the firm, adding that a group of drillers and miners had left the mine sites as they feel the new method would make their pay uncertain, which also caused reduced ore production.

Silvercorp is not alien to controversy. Since late 2011 the company has been facing allegations of wrongdoing at its operations in China.

In January this year, the Vancouver-based miner was formally hit by a class-action lawsuit accusing Silvercorp of overstating its financial results from its flagship mine in the Ying district. According to New-York based The Rosen Law Firm P.A, Silvercorp’s misconduct caused investors to buy the stock at artificially inflated and distorted prices.

But the silver producer fired back saying those allegations had “no merit.”

“Allegations made in the class action suits are based on the accusations made by the blog site alfredlittle.com, which have already been established as entirely false,” Silvercorp said in a press release then.

The company added it believed “the allegations were solely intended to manipulate the market so that profits could be made from short selling.”

Silvercorp is not the only company operating in China that has come under increased scrutiny. Others have also been subject of probes from lawyers, auditors and investors since Sino-Forest Corp. (TSX:TRE) was accused of fraud in 2011.

None of the accusations against the Canadian silver producer have been confirmed.

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