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Even as most gold stocks stayed firm through March, shares of gold and silver miner Gold Resource Corporation (NYSEMKT: GORO) turned out to be one of the worst performers, losing as much as 11.5% of its value during the month. Ironically, Gold Resource announced a couple of positive drill updates last month, with multiple drill holes hitting high-grade gold mineralization at its Mina and Gold Mesa mines in Nevada. So what gives?
The bearish sentiments around Gold Resource can be traced back to the end of February when the company announced its fourth quarter and full-year numbers. On the face of it, the 43% jump in the company's 2016 net income looked great, but when you struck off a big one-time expense that it incurred last year, Gold Resource's operating income was almost 33% lower in 2016.
Image source: Getty images.
To make matters worse, Gold Resource's production has been on a downward trajectory in recent years: Its 2017 guidance translates into 7% and 26% drops in gold and silver production, respectively, compared to 2015. Meanwhile, the miner's all-in-sustaining costs hit an incredibly high level of $1,215 per gold equivalent ounce in Q4. For the full year, though, its gold AISC of $970 an ounce was roughly 5% lower from 2015 but is still at the higher end of the industry cost curve. For instance, similar-sized miner Asanko Gold (NYSEMKT: AKG) is guiding for higher production and an AISC range of $880-$920 per ounce for 2017.
Gold Resource's growth depends entirely on how fast it can expand production. The company broadly operates two mining units, one at Oaxaca, Mexico, and another at Nevada, within which it is exploring more gold deposits. It aims to bring its second mine at Oaxaca online this year even as it advances another in Nevada. If plans go as scheduled, Gold Resource's prospects could improve substantially in a year or two.
It's not that the miner is otherwise in a dire state. It has been profitable for six consecutive years and has been paying a monthly dividend regularly since 2010. Gold Resource is also a pretty diversified miner: Only about 62% of its revenue in 2016 came from gold and silver. Zinc accounted for 26% of its revenue while copper and lead contributed the rest.
Gold Resource might have some more downside left as it's trading at pretty steep valuations today, but any big drop going forward might be an opportunity for long-term investors.
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