HudBay’s third quarter un-audited financial statement has been published and the 777 Mine continues to be its profit center and consequently, the profit centre for Callinan through its 6 2/3% NPI royalty interest in the HudBay operated mine. The third quarter results for Callinan should be strong.
As we become more aware that accounting is an art, not a science, one has to look closely to discern the true picture. The precise economic breakdown of the 777 Mine is somewhat obscured by HudBay’s focus on disclosure of write downs, expenses and losses in their “other” operations. Payment of the royalty was mentioned, although the amount was not explicit. Therefore, through the process of extrapolation and deduction, referring to HudBay’s numbers, including commodity prices received, historical mineral grades, and industry standard mining costs one can arrive at a reasonable conclusion that the 777 has had a very profitable quarter. Consequently, Callinan’s 6 2/3% NPI royalty payment should be considerable, we estimate approximately $2,750,000.
Since this revenue is generated with “no mining costs to Callinan”, it falls to Callinan’s bottom line. Callinan’s cash position continues to improve in this environment where cash is king. However, due to declining commodity prices, the revenue outlook for the fourth quarter is lower unless HudBay is able to enhance grades by increasing the amount of ‘high grade’ ore. Callinan’s financial position should remain strong due to the transfer of “withheld payments” from HudBay’s trust account to Callinan’s bank account.
Important Note: HudBay, in response to a Manitoba court order, has begun disclosing documents to Callinan regarding Callinan’s litigation against HudBay. Callinan alleges that they have not received their fair share of the 777 profits for previous years and have been denied access to the records.
