Thanks John for that lengthy but cogent response. I think I get it. I think you confirmed what I suspected that CMM is using accounting "methods" in order to show profits. Problem is that that if CMM needs institutional support are they going to get it with the very group that can understand this kind of detail? Reading various MBs it is clear that the average retail investor doesn't get it.
A few points or additional questions come to mind.
1. Adding to the BS Account "deferred stripping" is an interesting move in light of the fact that the Sigma Pit is now destined to extinction and the deferred stripping costs will now be charged against the Lamaque underground mine. How is THAT kosher?
2. But oh wait! I guess if one is "making too much profit" in a quarter, CMM could decide to take a write off of 'excess deferred stripping' costs in some quarter, which would help future profitability?
3. One would think that the deferred striping should show up on the operating activities section of the cash flow statement? Looking at the 2006 CFS it looks like CF from operations is $5 Million. However, if one backs out the 10 Million is capitalized stripping costs, the CF would be a negative $5 Million, no? What I don't understand is this treatment...after all the money was already spent on the stripping, the cash was paid for workers, equipment, fuel, maintenance, etc.
<edit>3.b I note that "cash flow" from operating activities was 2.9 Million in 1Q2007 and the 'capitalized stripping costs' was 3.09 million. So once again CMM was cash flow negative form operations. I also note that 1.8 Million of Capitalized mine development costs were charged. I am not sure where this comes from since CMM elected to declare commercial production at San Juan as of the first of the year. How does one book revenues and NOT book the associated expenses? Or do I misunderstand the accounting treatment?<end>
4. How do CFOs stand up and shovel out this stuff? I know I read somewhere (might have to refind the link) some FASB stuff that clearly states that once commercial production is declared all expenses, and particularly stripping costs, should be charged to operating costs and NOT capitalized!
5. While I understand the point made, I'm a bit confused with the debits and credits. The balance sheet account "reserve" is an asset account? asset accounts are normally debits? a debit to reserve should increase the balance in the account? expense accounts are normally credit accounts? a credit to an expense account increases the balance?
6. Now as far as San Juan is concerned....don't even get me started!
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