A Must Read - Setting the Record Straight
If you're going to swing a bat, you'd better be sure it's not made of rubber. Otherwise, it's likely to bounce off the intended target and smack you right in the face.
It was recently brought to my attention that some blogger named Otto has been swinging a bat my way with respect to my coverage of Great Panther Silver. Because I value my time, I will go only so far as I need to in my rebuttal to discredit his careless claims, since the facts speak for themselves. As an undeserved courtesy, I might suggest that this Otto character keep one arm raised in a defensive stance, since the bat he's been swinging is about to backfire very badly.
On April 14, 2011, the blogger in question stated: "Comparing the GPR cash cost metric to the PAAS cash cost metric is stupidity squared, because one of them is a fair representation of what goes on in the mining world and the other one is just laughable. PAAS may have its faults, but it's not trying to [BS] the market via its quarterlies."
Fact: the methods by which Great Panther Silver and Pan American Silver calculated their cash costs, which is the metric I reported for both companies respectively in the article he sought to ridicule, are 100% identical! Page 44 of this document outlines Pan American's method for calculating the non-GAAP metric for 2010, and pages 42-43 of Great Panther's 2010 Annual Report permit a side-by-side analysis revealing identical procedures. For both companies, cash operating costs are subject to adjustments by smelting, refining and transportation charges, by-product credits, and then small incidentals including royalties for PAAS and custom milling for Great Panther. The sole salient difference between the two is that Pan American gave both cash costs and total costs, while Great Panther omitted total costs as it is their right to do. The point is, the two cost metrics discussed for the two companies within my article were 100% comparable metrics. Later in his tirade, he blasts Great Panther for not including depreciation & amortization within its cost of sales, when neither does major miner Pan American! It appears Otto neglected to really compare filings between the two companies before wielding his rubber bat.
On April 14, 2011, the blogger in question stated: "Well the problem is that Christopher Barker has absolutely no idea on what he's talking about when it comes to "cash costs" and is simply taking the [expletive] GPR.to figures and stats to back up his case. The reality of GPR is that its costs of production (a MUCH better way of measuring efficiency than a non-GAAP metric such as cash cost that is prone to really nasty attacks of scammy company [expletive]) are way higher per ounce than PAAS, or serious mining companies or the kind of [expletive] propaganda that GPR puts out to pull the wool over the eyes of the marketplace."
Fact: No one in the industry looks principally to "cost of sales" (which he presumably intends with "cost of production" given his subsequent look at Great Panther's data) when assessing the profitability or attractiveness of mining operations. And nowhere will you ever encounter any informed person discussing cost of sales per ounce of payable silver. Perhaps someone can show me where anyone, anywhere in a professional and credible setting, discussed Hecla Mining's $59.77 million cost of sales (including DD&A) for the fourth quarter of 2010 in relation to its 2.74m ounces of silver production (amounting to $21.81 per ounce!). That's a meaningless construct for assessing the profitability of mining operations.
On April 14, 2011, the blogger in question stated: "Yes, you read that right. When GPR touts its "cash cost" figure, what it doesn't explain is that it only covers less than half of its real costs."
Fact: Again... there's nothing to see there! The blogger reveals his poor understanding of the nature of the relationship between cash operating costs and cost of sales throughout the mining industry. So he blasts GPL for having a cost of sales that is 2X its cash operating cost, but fails to recognize that Pan American Silver's comparable ratio for the full year 2010 is 2.31X! Massive divides between cost of sales and cash operating costs are the norm for the entire industry, regardless of where DD&A adjustments enter the picture.
On April 14, 2011, the blogger in question asks: "How on earth can 1) A company claim $3.111m in "cash costs" on $13.809m in gross revenues but then only deliver a $782,000 net profit on a quarter? Because that's exactly what GPR did in 4q10, its last reported quarter. Don't ask me that question, ask Christopher Barker of The Motley [Expletive] and when he's failed to explain why, tell him to....[Expletive].
Fact: Well, that's an entirely different question from anything else he previously discussed, but let's have a look. For starters, note that the blogger moves freely between CAD and USD figures without batting an eye! Careless! Furthermore, it's clear the blogger does not understand the nature of by-product credits nor how they are accounted for by the mining industry at large. Byproduct credits reduce the notional cash cost incurred to yield payable silver, yielding a useful metric for evaluating the performance of mine operations in exclusive relation to the targerted product. But revenue is not a product of silver alone, so when bridging the gap between revenue and net earnings, that is when cost of sales does come into play. And here again, there is absolutely nothing here that is unique to Great Panther in any way, shape, or form, rendering the blogger's tirade all the more unfounded. But to answer the inane question anyway, for Great Panther's Q42010 (all figures in CAD): $13.81m revenue - 6.36m cost of sales = 7.45m - 2m exploration expenditure - 2m G&A - 1m forex loss - 0.6m A&D - 0.6m stock-based compensation - 0.2m derivative loss - 0.1m tax expense = close-a-frickin-nuff!
Without even delving into the myriad ways in which the blogger fails to understand Great Panther's broader growth story or the fundamental justification for the stocks long-overdue advance after being frozen in obscurity beneath the $1 mark, I have more-than-adequately shown that his allegations of deceptive cost accounting leveled against Great Panther are 100% unfounded and illustrative of the accuser's profound lack of expertise in the basic principles applied when evalutating mining stocks. Finding one clear fault in his rampage would have been sufficient to discredit the Especially in light of the bloggers nasty personal attack packaged in a barrage of expletives, I also believe the blogger's conduct toward me speaks volumes about the nature of his attack against Great Panther.
Worse yet, Otto is a repeat offender, attacking me yet again in a post that followed GPL's recent Q2 earnings release. I will be happy to discuss GPL's quarterly result with the community, but my present purpose remains the clearing of the record with respect to the baseless allegations leveled against Great Panther by the blogger in question:
On August 12, 2011, the blogger states: "the interesting bit is that GPR seems to have swallowed the honesty pill and is now reporting its cash costs in a more open and transparent way"
Fact: Nothing whatsoever changed in the way Great Panther conducted its cost accounting between Q42010 and Q22011. Nothing! Zilch! Every single aspect of the way in which GPL calculated its cash costs in the release that spawned the blogger's original tirade remained 100% identical to the calculations behind the metric this time around. I'm not sure how much more clearly I can state that fact. Worse yet, the blogger is looking for cash costs to match cost of sales, further underscoring an incredible failure to grasp even the most basic elements of cost accounting within the mining industry. That the two figures nearly match in Q2 is not, as he wrongly presumes, a result of a change in accounting methodology. More likely, the nearly matched figures underscore an unusual quarter of operations during which realized sales significantly lagged mining capacity due to technical issues with a nearby mining smelter. Note the resulting disparity between silver produced and payable silver ... that is primarily what caused the cost of sales and cash costs to converge. Of course, 2011 costs will come in well above plan, but challenges of the sort are rampant throughout the industry.
On August 8, 2011, the blogger posted the following data:
2q11 silver production: 386,210 oz
2q11 cash cost: $11.84
Total of above: $4.57m
Reported cost of sales in 2q11 report: $4.61m
Fact: Cash cost is based upon payable silver production. The difference between mine production and payable production becomes particularly poignant in a quarter like this one where concentrate deliveries are delayed en masse. GPL's cash cost of $11.84 is based upon payable silver production of 193,914 ounces.
Hmmm ... who was it that had "absolutely no idea on what he's talking about when it comes to "cash costs""?
Needless to say, I also reject out of hand the blogger's wholly unsubstantiated insinuation that GPL's trouble with a third-party smelter had anything to do with the company's concentrates. That's a ludicrous notion, and a spurious insinuation that lacks any manner of merit!
And finally, in what has to be one of the more hilarious self-contradictions I've seen in some time, he actually paired the following two phrases within the same blog post: 1.) "Feeling stupid yet, Christopher Barker of the Motley [Expletive]?", and 2.) "And if Christopher Barker (aka TMFsinchiruna) is resorting to Ad Hom attacks instead of addressing his own obvious failings he so totally fails. Ego = poverty in this game, dumb[expletive]." And with that, his rubber bat just transitioned from recoil mode to self-inflicted blows.
This guy gets $40 a month for a subscription???