Mining Company research board

[1manband]

GORO was well-known for possible stock manipulation and certainly for incorrect, possibly fraudulent, disclosure. GORO was not telling the entire truth about their operations. They ran into significant difficulty with the SEC regarding the disclosure about their mining without proven reserves. Once those were corrected, the stock ceased to be a high flyer. There is a lesson there.

The SEC comment letters are quite interesting. In particular, this comment:

2. We note that you have recorded increasing revenue over the past three years and have also recognized net income in each of the past two years. We further note the disclosures throughout your Form 10-K in which you indicate that you have reached commercial production in July 2010, as well as the statements on your website that your “El Aguila Project commenced commercial production July 1, 2010” and you are “focused on production and pursing development…” Since you have not yet demonstrated the existence of proven and probable reserves, as defined by Industry Guide 7, you continue be in the exploration stage and thus are an exploration stage company. In addition, your current presentation of income earned during the exploration stage as revenue with corresponding mine cost of sales and mine gross profit depicts your exploration stage operations as being in the production stage. This presentation creates a presumption that you have established proven and probable reserves and as a result any prior income earned from your exploration activities is indicative of continued future income. Please amend your Form 10-K to make the following revisions:
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Given that you are not in either the production or development stage, please remove all references to commencing production, commercial production or development throughout your Form 10-K that may give the impression that you have reached either the development or production stage. Alternatively, define for us your use of production and commercial production throughout your filings, explain to us the basis for your conclusion that you have reached commercial production and tell us why you believe that the inclusion of these references is appropriate.
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Revise all references to “sales of metals concentrate, net” or “revenue” in your filing to instead label as “income earned from exploration activities.”
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Revise your consolidated statement of operations to present an unclassified income statement that does not include mine cost of sales or mine gross profit.

https://www.sec.gov/Archives/edgar/data/1160791/000000000013024135/filename1.pdf

GORO tried to dance around their comments, but the SEC was firm. When they didn't correct the problem, the SEC reissued the comment. Twice.

We note your response to comment two of our letter dated May 2, 2013. Since you have not yet demonstrated the existence of proven and probable reserves, as defined by Industry Guide 7, you continue be in the exploration stage and thus are an exploration stage company. We continue to believe your current presentation of sales of metals concentrate as revenue with corresponding mine cost of sales and mine gross profit depicts your exploration stage operations as being in the production stage. Although inventory is recorded on your balance sheet, you are not capitalizing any other costs but instead expensing them as incurred. Therefore, your mine cost of sales is not capturing depreciation, depletion or any other costs related sale of inventory. Please amend your Form 10-K to make the following revisions:
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Revise your consolidated statement of operations to report all income and costs related to your exploration activities as Other Income, net in the operating expense section.
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Include footnote disclosure to quantify and describe the items comprising Other Income, net, along with a clear discussion of what is and is not included in the cost of sales component of this line item.
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Please provide us with draft changes to your financial statements in your response letter.

https://www.sec.gov/Archives/edgar/data/1160791/000000000013037894/filename1.pdf

We note in your response to comment six of our letter dated May 2, 2013 that the concentrate sale settlement adjustments of $3.1 million (2012) and $0.6 million (2011) are not reflected in the smelter refining fees, treatment charges and penalties. As such, it appears that these concentrate sale settlement adjustments are not included in you cash cost per gold equivalent ounce sold calculation on page 35. Please confirm our understanding and, if so, explain to us why you have not included these settlement adjustments in your cash cost per gold equivalent ounce sold calculation.

And then when GORO continued to distort the costs, the SEC hit them again:

We note you present the non-GAAP measures of total cash cost per gold equivalent ounce sold of $419 and $269 for fiscal years ending 2012 and 2011, respectively, both computed by deducting by-product copper, lead and zinc sales (the “non-GAAP measures”). In calculating these non-GAAP measures, we believe the reduction for by-product revenues is not appropriate because it materially distorts your actual production costs.

And then they argued with the SEC. Over and over. In the end, the SEC won.

GORO is an incredibly poor choice for comparison purposes, unless you are comparing it with a stock scam or pump and dump. In those cases, GORO would look pretty good. But not in comparison to another reporting company that follows the rules.