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3/16/15

More Argonaut (AR.to): The unintentional comedy gold that is its 4q14 MD&A

The more I look at Argonaut Gold (AR.to) 4q14 numbers the worse they get, to the point where I'm laughing out loud at some of the stupidities they've written in the 2014 year-end MD&A (get your copy from SEDAR, free download, guaranteed chortles and yoks for one and all). Here are two examples for your viewing pleasure.

First up, I can't for the life of me understand how they got costs to $33.065m for 4q14. That's not just high, that's crazy high:


That 4q14 cost figure is 40% higher than the 3q14. Forty percent. Forty. I mean, we all know they produced and sold more gold in 4q14 than in previous quarters...


...but that was all about high-grading their mines and stuffing their best rock through the machines, because they didn't move any more rock to do it:


So what happened here, they spend $8m on extra reagents or something? But the funnies on this part come when you try to get an explanation from the company because on 4q14 costs, this is what they wrote (your humble scribe highlights):
Production costs for the fourth quarter of 2014 were $33.1 million, an increase from $18.6 million in the fourth quarter of 2013. Cash cost per gold ounce sold (see Non-IFRS Measures section) increased to $801 in the fourth quarter of 2014 from $654 in the same period of 2013, principally due to an increase in mine operating costs.

And that's all she wrote! Nothing else on that wild costs number which means AR.to is telling us "Production costs increased due to an increase in mine operating costs". Buddha-like enlightenment, guys. 

Second up, down on pages 16 and 17 of the MD&A you get nearly a full page on why AR.to decided not to write down any of the asset values of its non-current assets (e.g. the asset value on their mines and projects).  I urge you to go read this marvel of comedy prose yourself, but if you can't shake the image of a CFO wearing a red nose and with one of those squirty plastic flowers in his lapel buttonhole once you're done, we're in the same boat. 

There is so much to love about this section, but consider just this as your lead-in example:
  • AR.to carries Magino at U$267m
  • AR.to currently has a market cap of CAD$207m (i.e. around U$166m).

Therefore what AR.to is trying to tell us with a straight face is that the project it bought in 4q12 (when gold was up at trading around U$1,700/oz) is still worth U$100m more than the whole of the company. Even with gold at U$1,150/oz, even after delivering an economic study on the project that shows it to be marginal at very very best (a polite way of saying that it'll never fly at sub $1,300/oz gold), even even the way it has scaled back development of the project to what's nothing more than care&maintenance. Seriously, this is not an IKN joke, we're not making this up, "Magino's worth U$267m" truly is what AR.to is telling us via its year-end documents. 

There are only three possible conclusions to be drawn from the above

1) Argonaut Gold thinks we're stupid
2) We think Argonaut Gold is stupid.
3) Both.

As AR.to is still trading above CAD$1.30 this morning, I plump for option three.