Denver, CO

Auditor of embattled Denver-area silver mining company resigns

Matt Whittaker

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A KPMG accounting and tax consulting office in Tempe, Ariz.Tony Webster / Flickr

By Matt Whittaker / NewsBreak Denver

(Greenwood Village, Colo.) International accounting firm KPMG this week resigned as the auditor for Gatos Silver, a Greenwood Village-based mining company in hot water after finding the amount of metal it can extract from a Mexican mine was overstated.

 The Big Four accounting firm told Gatos Wednesday it resigned as the company’s independent registered public accounting firm, the mining company announced Friday. 

KPMG told Gatos it couldn’t serve as principal auditor for 2021, according to the mining company.  

In January 2022, Gatos notified shareholders it found errors in a 2020 technical report and “indications that there is an overestimation” of the economically mineable silver, zinc, lead and gold at its Cerro Los Gatos joint venture with Japan-based Dowa Metals & Mining Co. 

Gatos said the potential reduction of the metal content of the mineral reserve of the mine ranged from 30% to 50% after factoring in the metal processed from July 2020 through the end of 2021.

The mining company added that it could not “accurately quantify the exact magnitude of the reduction, and the mineral resource and reserve estimates in the 2020 technical report should not be relied upon.”

In stock market trading the day after that announcement, Gatos’ shares lost more than two-thirds of their value, falling to $3.17 from $10.19. They closed Monday at $2.68 after months of general stock market losses. 

Investors filed a class action lawsuit, which is still working its way through Colorado district court, alleging that Gatos and others defrauded them based on its statement of the mineral content at the mine in documents accompanying the miner’s initial public offering (IPO) on the stock market. 

Gatos silver and other “defendants used the inflated resource and reserve figures to entice class members to purchase over $156 million in stock in Gatos’s October 2020 IPO,” the lawsuit claims. 

“Even after an expert confirmed for defendants in January 2021 that their resource and reserve statements were materially false, defendants deliberately chose not to disclose the truth,” the lawsuit reads. “Instead, defendants reiterated their false and misleading statements to drive up Gatos’s share price.”

Based on a review of court records, it appears Gatos has not made a formal response to the class action suit allegations. KPMG is not named as a defendant in the lawsuit.

In a management shakeup, Gatos in April announced a new chief executive officer, the retirement of its chief financial officer and new oversight of its exploration activities. 

It named Nicolas Vachon as vice president of finance in May. According to Vachon’s LinkedIn profile, the executive is located in the western Canadian province of British Columbia, one of the world’s main hubs for mining companies. 

In Friday’s statement Gatos said: “KPMG’s resignation was prompted by its conclusion that KPMG is unable to serve as the company’s principal auditor for the year-ended December 31, 2021, due to the previously announced changes in the composition and location of our executive team based on its understanding of the organization of Chartered Professional Accountants of British Columbia bylaws, which would require KPMG to be licensed in British Columbia.”

That statement isn’t entirely clear as KPMG has 11 offices in the western Canadian province that are registered with the British Columbia accounting group. 

The group, KPMG and Gatos Silver didn’t immediately respond to requests for comment on Friday afternoon. 

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Matt Whittaker writes about natural resources industries, including oil and gas, mining, renewable energy, agriculture and cannabis. He's been based in the Denver metro area since 2013. You can follow him on Twitter @mattswhittaker.

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