Friday, April 15, 2011

The unbearable lightness of being a Great Panther Silver pumper ( (GPL)

The amount of brainless writings in the stock market is always a source of amusement for your author and, as is the way of these things, some subjects will always attract more than their fair share of dumbasses that swallow company lines whole, vomit them back at their sheep and have no idea what hit them afterwards when the whole trade goes haywire on them. Take for example Great Panther Silver ( (GPL), the sub-500tpd dog in Mexico that's currently riding its luck with the silver spot price. That it's run up a squillion percent or so isn't enough for its fans, because they're still predicting massive share price growth for the stock (note: anal ysts bang on tables only when they're fully bought in and desperate for the suckers to push their price up). However, the reasons they're now using are wearing thin. Take for example Christopher Barker at Motley Fool (emphasis on fool) who wrote this purple prose yesterday:

"But negative cash costs are certainly not required for a silver mining stock to yield phenomenal investment gains. A well-timed production growth spurt, combined with exciting potential for continued exploration success, is capable of propelling a silver stock with even greater force. In the case of my favorite silver miner -- Great Panther Silver (AMEX: GPL  ) -- issued guidance for 2011 production costs between $6.50 and $8 per ounce is not likely to interrupt a growth trajectory that has seen the shares quadruple in value over the past year. Moreover, with major producer Pan American Silver (Nasdaq: PAAS  ) forecasting 2011 cash costs between $7 and $7.50 per ounce, Great Panther's cost structure remains an impressive achievement given that its production scale is about 10% that of Pan American."

"So what's wrong with that, Otto?" I hear you ask. 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 bullshit 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 bullshittery) are way higher per ounce than PAAS, or serious mining companies or the kind of dumbass propaganda that GPR puts out to pull the wool over the eyes of the marketplace.

Some numbers.
In 4q10, GPR said that its "cash cost" was U$8.41 per ounce of silver sold. 

This means its "cash cost" total for the quarter added up to U$3.111m (and if you don't believe me, check the company filings on SEDAR, they're all there).

However, its "Cost of Sales" for the quarter was $6.36m!

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. And even then, GPR isn't telling the whole story as its filings for "costs of sales " don't include depreciation or amortization...which is like saying "Yeah well, we mined the silver out the rock and so the in-situ asset isn't there any more...but that's not going to change our asset position" It's asinine! It's bullshit! And people like Christopher Barker who hasn't got a single clue about balance sheet /P+L reading and simply prefers to blather out the company spin just perpetuates this stupidity.

Put simply: 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 Dumbass and when he's failed to explain why, tell him to....

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 bullshit the market via its quarterlies.