When your humble scribe saw ECU Silver (ECU.to) returning a loss in its 3q10 report yesterday it was a little strange because, after all, in this previous post that looked at the production numbers we'd ended up by anticipating a net profit for the quarter of $2m or so (guesstimated, of course). The culprit of the big difference between IKN's guess and the ECU report was quickly noted, however.
IKN had estimated sales revenues at $8.7m for gold and silver. We'd come to that number by simple multiplication of gold and silver sales as reported by ECU.to with the average spot prices for those metals in 3q10, according to the London Fixes. This is a method that usually works when anticipating sales revenues, but this time it came with a big big miss.
ECU silver (ECU.to) reported sales of $5.29m for the quarter.
That's a big difference and when seeing that low number it was "WTF?" time at IKN nerve centre, so this morning I found myself checking the ECU.to 3q10 MD&A to try and work out how this low figure came about. The answer seems to be in the sales of pyrite concentrate and what follows is based on guesstimates (because ECU.to disclosure is so pisspoor you need to assume here and there) but at least makes sense
First, this from the MDA
"During the quarter, the Company recorded sales of a portion of its gold pyrite material in process inventory. This resulted in a gain from the reversal of previous inventory cost write-offs in the amount of $1,049,111."
Now, according to ECU.to filings the total pyrite concentrate sales were 3999oz, and production of pyrite conc was 1740oz. This implies that ECU sold 2259 oz Au in the pyrite conc for $1.05m...less than $500 an ounce!
This also adds up in the estimates for all products. Check this simple table in which we make conservative estimates for the prices fetched for the other metals sales. We use doré gold U$1,150/oz, silver $18.50 (according to the London Fix, the quarter average was U$18.92) and then Zn and Pb at $1.00/lb. This leaves the gold-in-pyrite concentrate as the unknown variable (presented in blue)
|pyrite conc inventory||2259oz||$465?||$1,049,111|
|pyrite conc prod||1740oz||$465?||$809,100|
For me, the $5.7m rough total is close enough to the $5.29m ECU reported as sales...what with TCRC etc etc. So under the rough guess table, the produced pyrite conc, if given the same average price of the inventory conc revenues (as implied by the MDA, but not explicit), also fits that estimate of $465/oz Au
Is ECU Silver (ECU.to) really selling its ounces of gold-in-pyrite at U$465/oz or thereabouts? I'm not sure but on reverse engineering on the numbers it seems at this point the only logical answer. I know IKN isn't the flavour of the Month over at ECU.to and I'm unlikely to be able to get an answer from management, but those of you long ECU.to would be wise to write, phone, tweet or whatever the top people there and get an answer on this, because this quarter's sales number was weird compared to the ounces sold numbers.