Great Panther Silver (GPL / GPR.TO)

I have a short position in Great Panther Silver because it seems like the company does not have strong cash flows.

Market cap:  US$156M
Great Panther is listed on both the AMEX/NYSE MKT (symbol: GPL) and the TSX (symbol: GPR).
Cost to borrow:  3.625%

For background reading on the ‘negative cash flow miners’ strategy, seem my post “My current thinking on mining stocks (Dec 2013)“.  You should do your own homework and come to your own conclusions as to what the cash flows of Great Panther’s producing mines are.

Cash flows

Net cash from operating activities was $8.618M.
Additions to mineral properties, plant and equipment, and evaluation assets were -$13.524M.
The two items combined total -$4.906M.

Note that the company is spending money on exploration of greenfield/brownfield projects.  The few million dollars spent on those activities should be added back because they have nothing to do with the company’s producing mines.

Additions to San Ignacio project: $1.177M.
Exploration and evaluation expenses: $2.306M.
Adjusted cash flow: -$1.423M.

Part of the reason why cash flow is low is due to the company’s corporate overhead.  For example, G&A travel expenses were $380K and $659K for 2013 and 2012.  Rent expenses were $600K and $532K for 2013 and 2013.  If the company’s $7.836M of overhead were lower, then my adjusted cash flow figure could turn positive.  Nonetheless, I think that management will stay in place so it is unlikely that overhead will dramatically decrease.

gpl-statement-of-cash-flows

Income statement

In my opinion, too many mining companies capitalize expenses that should really be expensed.  For example, most mine development costs (such as moving aside waste rock to access ore) should be expensed.  That is the reason why I like to focus on cash flow rather than IFRS/GAAP/cGAAP income.

Nevertheless, it seems like the company’s producing mines are not producing accounting profits.

Gross profit: $0.640M
G&A expenses:  -$7.836M
“Operating income”:  -$7.196M

gpl-income-statement

Here is where some of the G&A spending went:

gpl-investor-relations

Commodity price risk

There is some risk that uneconomic mines become profitable if commodity prices were to rise dramatically.  Great Panther is most sensitive to the prices of silver and gold, with very minor exposure to lead and zinc.  Their investor presentation ( greatpanther.com/files/doc_presentations/2014/july/Great-Panther-Silver-Limited_August-6-2014_Web.pdf ) provides the following figures:

Silver – 54%
Gold – 36%
Zinc – 5%
Lead – 5%

*Disclosure:  Short GPL common shares.

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One thought on “Great Panther Silver (GPL / GPR.TO)

  1. Pingback: Mining Shorts Roundup | Glenn Chan's Random Notes on Investing

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