Gammon discovers US$10-million accounting error

Gammon Gold (GAM-T, GRS-N), which operates two mines in Mexico, has had its fair share of problems over the last few years but the discovery of an accounting error in the company’s 2008 fiscal results has actually brought about some good news.

It turns out that Gammon earned about US$10 million more than it originally reported for the 2008 fiscal year.

As Gammon’s accountants prepared the financial statements for the second quarter of 2009, they realized errors had been made months earlier when they were calculating the final results for 2008.

Certain items in the company’s consolidated financial statements were converted into American dollars incorrectly.

Gammon says that the error occurred amidst the 2008 adoption of a new section of the Canadian Institute of Chartered Accountants Handbook relating to inventories.

In the process, a reversal should have been recorded for previously recognized net realizable value adjustments, the company said.

As a result of the error, Gammon’s net earnings were US$9.8 million, or US8¢ per share, higher than originally recorded. For all of 2008, Gammon’s actual net earnings were US$40 million, or US34¢ per share. Meanwhile, Gammon’s balance sheet inventory should have been US$10.8 million higher, at US$62.3 million.

The error does not affect the company’s bank account though. Gammon says the changes were of a non-cash nature and won’t have any impact on its cash position or operating activities.

Now Gammon has to re-file its consolidated financial statements for last year, and is revising other documents. It expects to have everything changed over by Aug. 12.

Gammon says that everything that was originally filed for 2008 should not be relied upon.

Gammon operates the Ocampo and El Cubo gold mines in Chihuahua and Guanajuato states, respectively.

The company expects to produce 333-367,000 gold equivalent oz. gold this year at a cash costs of US$360-395 per gold-equivalent oz. with a gold-silver equivalency ratio of 55:1.