SEC Company Response from SILVERCORP METALS (SVM) — Apr 12, 2013
SILVERCORP METALS INC
Date: April 12, 2013 · CIK: 0001340677 · Accession: 0001176256-13-000231
AI Filing Summary & Sentiment
File numbers found in text: 001-34184
Referenced dates: March 21, 2013
Letter
United States Securities and Exchange Commission Division of Corporation Finance Attn: Tia L. Jenkins, Senior Assistant Chief Accountant Office of Beverage, Apparel, and Mining RE: Silvercorp Metals Inc. Form 40-F for the Fiscal Year Ended March 31, 2012 Filed June 29, 2012 File No. 001-34184
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
7.78
3.93
48,588
276,523
139,870
Reserve
3,722,791
6.31
3.00
41,238
234,855
111,558
Conversion
percentage
HZG
Resource
413,982
1.17
0.26
5,163
4,838
1,069
Reserve
382,437
0.96
0.22
4,026
3,657
Conversion
percentage
HPG
Resource
569,978
1.3
4.51
1.92
1,844
25,734
10,960
Reserve
630,065
0.9
3.67
1.58
1,609
23,155
9,957
Conversion
percentage
TLP
Resource
2,622,207
3.86
0.29
16,050
101,192
7,569
Reserve
2,554,243
2.98
0.25
10,349
76,011
6,390
Conversion
percentage
LM
Resource
2,033,669
3.19
0.46
24,234
64,932
9,293
*
Reserve
2,503,582
2.35
0.34
21,652
58,955
8,521
Conversion
percentage
Total
Resource
9,195,395
0.08
5.15
1.83
95,874
473,263
168,713
Reserve
9,793,118
0.06
4.05
1.40
78,873
396,633
137,251
Conversion
percentage
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
1 Page 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
7.78
3.93
48,588
276,523
139,870
Less Resources below the current mining permit
118,264
4.22
8.66
4,995
10,240
Less currently inaccessible or non-viable Resources
375,174
6.34
3.07
4,187
23,771
11,500
Gives Resources currently available for mining *
3,062,121
8.09
3.85
43,660
247,846
117,974
Plus mining dilution (assumed zero grade)
892,199
Less mining recovery losses
231,529
6.27
2.99
2,553
14,517
6,923
Proven + Probable Mineral Reserves
3,722,791
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
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CORRESP 1 filename1.htm Filed by E3 Filing, Computershare 1-800-973-3274 - Silvercorp Metals Inc. - Correspondence 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. Form 40-F for the Fiscal Year Ended March 31, 2012 Filed June 29, 2012 File No. 001-34184 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 1 Page 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