A reader asked for tips on parsing the jargon in company financial statements to get at what we really need to know. Seems like a good idea.

But first, I want to say that being able to get into workshop topics like this is one of the great benefits of going to conferences like the Sprott Natural Resource Symposium, July 30-August2, 2019. That’s my next public appearance, and I love helping people out on subjects like this. It’s also simply fun to meet and spend time with readers… as well as drag the occasional mining company CEO into the pit for a grilling. If you’re serious about making money in the resource sector, you should make a serious effort to be there.

Now, the first thing I’d say about company financial statements is that, yes, they are boring, but they can be sources of very important information. They’re written by lawyers and accountants to be precise, not fun. But if they should be comprehensible. Apart from property and plant descriptions that can be full of technical geo-jargon, the financial reporting itself should be clear. If it’s not, that’s a red flag.

Another basic is that I look at exploration companies quite differently from miners in production.

Pure exploration companies have no revenue—they add value by discovery, if at all—so there’s no earnings per share or other usual metrics to look at. But a producer should make money. Even is commodities are highly volatile, and that’s reflected in a miner’s financial results, a producer should deliver to the bottom line. If not, there’s a problem and all the standard financial metrics apply.

It would take a book to go through balance sheets, income statements, and all the rest line by line. Maybe someday I’ll write that book. For now, here are key points I look for…

Producers

Explorers & Developers

Finally, I want to say that you should look beyond the financial statements themselves, to the management discussion and analysis (MD&A) that comes with them. These can be a great source of information companies are required to disclose, but that they don’t want to highlight in their press releases. Each is different, so I can’t tell you exactly what to look for, nor where. Just be aware that sometimes things happen that the regulators force management to disclose to the public, but that they can argue are not so major as to require a press release. This stuff often shows up in the MD&A.

That’s my quick take. Come see me at my next public appearance, and I’ll be glad to get into more “how to” issues like this with you.

Thursday, May 9, 1:34pm, EDT, 2019