Crystallex under review after earnings restated

Changes to accounting practices at Crystallex International (KRY-T) have obliged the company to restate its earnings for three quarters in 2002.

The restatements became necessary because of changes to Crystallex’s accounting treatment of its hedge book. As part of the project financing for the company’s San Gregorio gold mine in Uruguay and its Bolivar Goldfields and El Callao Mining assets in Venezuela, Crystallex had sold some gold forward and written call options on other production.

Both forward sales and written call options were being treated as normal revenue, but the calls will now be considered to be derivative investments, and valued in mark-to-market terms. For the first nine months of 2002, the mark-to-market value is a negative $14.6 million.

The result of the change increased the company’s loss for the first nine months of 2002 to $22 million from $7.3 million. Revenues remained at $33.7 million.

The comparable result in the first nine months of 2001 — using the new hedge accounting treatment — was a loss of $2.3 million on revenues of $38.7 million. Using the old accounting treatment, Crystallex had reported earnings of $900,824 on revenues of $42.2 million.

At the same time, Crystallex announced that its auditors, Davidson & Company, had resigned in favor of Deloitte & Touche.

Crystallex’s own statement said Davidson & Company had resigned without “disagreements, unresolved issues or other reportable events,” and that Crystallex only wanted to engage a Big Four accounting firm for future years. (Crystallex has also moved its head office to Toronto, and Davidson & Company maintains its only office in Vancouver.)

The Toronto Stock Exchange issued a statement that it had begun an “expedited” review of Crystallex’s status. Spokesman Steve Kee said the Exchange expected to have the review done within two weeks, but could not be specific about the reasons for the review.

Crystallex shares closed at $1.05 on the Toronto exchange, down 27 on the day and 43 from its close immediately before the announcement that earnings were being restated.