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Due Diligence Report: Low Cost Producer Trying to Make a Move Skywards
Summary:
Gold Resource Corporation, incorporated on August 24, 1998, is a producer of metal concentrates that contain gold, silver, copper, lead and zinc, and Dore containing gold and silver at the Aguila Project in the southern state of Oaxaca, Mexico (Oaxaca). The Company has two units in North America, the Oaxaca Mining Unit and the Nevada Mining Unit. The majority of its assets are located at its Oaxaca Mining Unit, located on its Aguila Project, including its Aguila milling facility and Arista underground mine. The Aguila milling facility produces metal concentrates and Dore from ore mined from the Arista mine, which contains precious metal products of gold and silver, and by-products of copper, lead and zinc. The Company’s operations in Oaxaca are conducted through its Mexican subsidiary, Don David Gold Mexico S.A. de C.V. (DDGM). Its Nevada exploration is done through its subsidiary, GRC Nevada Inc.
The Company’s mineral properties are classified into various categories, such as Operating Properties and Exploration Properties. Operating Properties are properties on which the Company operates a producing mine and is considered a material property. The Company has an interest in approximately nine properties, where over six of its properties, including one Operating Property and approximately five Exploration Properties, are in its Oaxaca Mining Unit, which is located in the southern state of Oaxaca, Mexico. The Company has approximately three Exploration Properties within its Nevada Mining Unit located in south central Nevada’s Walker Lane Mineral Belt in the United States.
The properties of Oaxaca Mining Unit are located in Oaxaca, Mexico in what is known as the San Jose structural corridor, which runs north 70 degrees west. Its properties comprise over 55 continuous kilometers of this structural corridor, which spans three mining districts in Oaxaca. Its operating properties include Aguila Project, Margaritas property, Alta Gracia Property, Chamizo Property, Fuego Property and Rey property. The Aguila Project comprises approximately 20 mining concessions aggregating approximately 30,070 hectares. The Margaritas property consists of the La Tehuana concession. The Fuego property consists of approximately 2,554 hectares and is located south of its Alta Gracia and Chamizo properties. The Rey property consists of concessions on the far northwest end of its 55 kilometer mineralized corridor in the State of Oaxaca known as Rey, El Virrey, La Reyna and El Marquez.
The Nevada Mining Unit consists of Radar property, Goose property and Gold Mesa. The Radar property covers an area of approximately 3,550 acres and is made up of over 180 unpatented lode claims located in the Walker Lane Mineral Belt in central Nevada. The Goose property consists of five unpatented lode claims covering approximately 100 acres adjacent to Radar in the Walker Lane Mineral Belt. The claims comprising the Goose property cover Newman Ridge, a mountain located directly west of the past producing Paradise Peak mine, near the Round Mountain and Rawhide mines. Gold Mesa consists of approximately 1,780 acres with 89 unpatented claims and 3 patented claims in central Nevada’s Walker Lane Mineral Belt. The property is located 17 miles south-southeast of the Radar and Goose properties.
Gold Resource Corporation has a current market capitalization of $179.49 M with 54.27 M outstanding shares. Its daily average volume traded is 0.54 M shares.
Financial Highlights (Q4 2015):
Revenue: 21.62 M
Gross Profit: 4.93 M
Net Income: -2.33 M
Cash and Cash Equivalents: 12.82 M
Total Debt: 0.84 M
Recent News and Analysis:
The company recently reported preliminary production results for the first quarter ended March 31, 2016 of approximately 6,463 ounces of gold, 434,100 ounces of silver and significant base metals during the first quarter. Gold Resource Corporation is a gold and silver producer with operations in Oaxaca, Mexico and exploration in Nevada, USA. The Company has returned $108 million to shareholders in monthly dividends since commercial production commenced July 1, 2010, and offers shareholders the option to convert their cash dividends into physical gold and silver and take delivery. Preliminary first quarter production at the Company’s Arista mine totaled approximately 6,463 ounces of gold, 434,100 ounces of silver, 244 tonnes of copper, 838 tonnes of lead and 3,261 tonnes of zinc. The Company maintains its 2016 Outlook of 26,000 gold ounces and 1,900,000 silver ounces. Additionally the company declared its monthly instituted dividend of 1/6 of a cent per common share for April 2016 payable on May 23, 2016 to shareholders of record as of May 11, 2016. Gold Resource Corporation is a gold and silver producer with operations in Oaxaca, Mexico and exploration in Nevada, USA.
Conclusions:
To get more leverage for investors who are looking to take advantage of the gold ride, GORO is the most suitable example with a limited downside risk and a huge upside opportunity. GORO is a company with the lowest Equity Value/Sales metrics along with Harmony Resources. However, the latter has lower profit margins with higher debt/capital. GORO is among the lowest producers, with about $600 cash cost/ounce which is one of the lowest cost producers in the world. The problem with GORO is that it depends on only one mine, the Arista Mine. It’s currently exploring about 3 mines in Nevada and Mexico. That is why a strike or inability to find a mine with good producing capacity may be a headwind for this company. With upcoming earnings, and gold price appreciating as it has for the past 4 months, upside can be expected from this junior miner.
Sources:
- http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=GORO.K
- http://www.google.ca/finance?q=NYSEMKT%3AGORO&fstype=ii&hl=en&gl=ca&ei=qBYpV-n3LsTijAHCtIiQCw
- http://finance.yahoo.com/news/gold-corporation-reports-preliminary-first-123000454.html
- http://finance.yahoo.com/news/gold-corporation-declares-april-monthly-123000292.html
- http://seekingalpha.com/article/3970019-gold-resource-biggest-gold-opportunity
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