Wednesday, April 30, 2008

One possible reason for the Y/E delay

The Sigma o/p closure is probably not a typical closure for a mine location, as the pit itself will continue to have a life (post o/p mining) and will need to act as a “catch basin” for u/g mining during the early stages (first couple/few years). As such, there may have been lengthy discussions between the BCSC and Century’s auditors/Century’s management with regards to the timing of the $23M write-down. From the auditor's perspective, it would simply be a matter of getting it right (from a GAAP accounting standpoint) - this supersedes whatever viewpoint the BCSC may have. Of course, it would be in everyone’s interests to both educate and satisfy the BCSC as best they can.

From an investor’s perspective, it is obviously better to perform a complete one time write-down in Q4’07 (of the entire $23M), and then move forward with only future expenditures from u/g. However, that’s not how it works either. It’s not a matter of what is good for shareholders at certain points in time. It’s about establishing whether the work done on the pit in the past (and the associated past expenditures, i.e. deferred stripping costs) will provide a benefit to underground mining in the future. Everything goes back to GAAP (Generally Accepted Account Principles). The GAAP principle relevant now (and also when companies choose to defer costs in the first place) is the Matching Principle. The auditors need to objectively establish if the current (cleared) status of the pit will provide benefits (i.e. less transportation expenditures) for underground mining. If the answer is “yes” then some of the Sigma capitalized costs should be released into the Income Statement (P&L) in future periods, in order to match the u/g revenues (and subsequent profits) that are benefiting from the Sigma open work that was performed in 2005, 2006 and 2007.

The Sigma pit will act as a key access and exit point, and as a crucial transportation area for u/g mining over (at least) the next 2 to 3 years:

*the haulage drift (primary access/exit point from u/g for the next 2-3 yrs) is directly in the Sigma o/p – the ore will be transported through the pit in order to reach the mill for processing (pit is vital for transportation purposes in the early years)

*the portal to access the Bedard Dyke on the Sigma pit wall – the ore will be transported through the pit, to the mill

Again, in my view, it is not about what is best for investors or what is best for the BCSC, but rather it’s about what fairly matches the benefits that will be gained from utilizing the Sigma pit as a “catch basin” and a key transportation route with future revenues / profits that will be generated from entire u/g operation.

I have no clue if this is what was discussed by the parties involved. I also have no clue if these discussions have truly delayed the normal course audit process. However, I am suggesting that this is a possibility. I am also suggesting that these are key points I would have brought up if I was involved in such meetings, as I see them as being essential to ensuring GAAP standards are being considered.

Either way, my guess is that the majority of the $23M will be released in 2007 as the core functionality of the Sigma o/p is no more.

8 comments:

production05 said...

The only other possibility that immediately comes to mind is that the BCSC could be wanting them to go back and load in some of the 2007 write-down amounts into the Q3'07 financials, as that was the only quarter they highlighted as having an issue with.

I really hope they don't do that as that would be a complete waste of time, resources and money, IMO. The Y/E statements already fully captures net results within a given year, and that is absolutely all that matters - adjusting quarterly numbers will not change the annual figures. I can understand going back to re-state annual results (if that was necessary), but going back to adjust quarterly financial results adds absolutely no value. Differences in future quarterly comparisons to historical quarters can always be noted - companies do that all the time.

Anonymous said...

A few questions: if Sulliden makes a deal with Algamarca is there a chance that the Shahuindo property could be taken over by the government? Why did Wega stop selling, is there something they were told that we do not know?

Anonymous said...

Anonymous - yes to Q1. Anything is possible in Peru, but S-P are under investgation now. They weren't when they sold to CMM. They have some laws that cover the scenario you described.


No to Q2. If they were told something then they would be an insider, which they told the BCSC they were not. They are, that is why the BCSC pulled the rug on plug on them again.

nino said...

Seems to be some rumors going around, if anyone of them were half true I don’t think we would be trading in the low .20 cent area.
I hope I’m wrong, but when I told my shoeshine boy he wouldn’t even believe them.

nino said...

AGM at the Royal York Hotel in Toronto, Canada, on May 29, not sure of the time. It should be a doosy.

Anonymous said...

Nino

I really hope you don't want to just inflict doubt, right? You don't want to give us atleast a tiny clue about the happenings behind the scenes?

Anonymous said...

Nino, The junior market is all about rumours - the oil in the engine. Some of them will come true with Century; some won't. Tell your shoeshine boy that if he was a risk taker he might own a slew of shoeshine franchises. On the other hand, he might be happy shining shoes.

Anonymous said...

For a couple of weeks I've been noticing the lineups on the 'buy' side. A lot of someones seem to know something, I thought. Now I read that there are rumours. In the Jr. Stockmarket, and especially with CMM at this price, I say buy first and ask questions later! Guess risktaker is somwhere out there.