GORO - Gold Resource Corporation: A Decent Gamble At This Price

2023-06-19 08:29:26 ET

Summary

• Gold Resource reported a loss per share of $0.01 on revenue of $31.23 million, compared with an income of $0.05 on revenue of $45.42 million last year.
• GEOs produced in 1Q23 were 10,518 GEOs, and GORO sold 10,055 GEOs.
• I recommend buying GORO Between $0.77 and $0.74 with lower support at $0.72.

Introduction

Colorado Springs-based Gold Resource ( GORO ) released the first quarter 2023 results on April 25, 2023.

Note: This article updates my article published on March 7, 2023. I have followed GORO on Seeking Alpha since March 2014.

1 - Investment Thesis

Gold Resource produces from one single mine called the Don David Gold mine in Mexico, a significant risk factor you should consider when investing in this tiny producer.

Also, the company acquired a controversial gold project in Michigan called the Back Forty for $23 million with an uncertain outcome and CapEx of $8.8 million spent in 2022.

This acquisition has been quite a puzzle using precious cash that seems missing now and could be why the company stopped paying dividends because of a huge drop in stock price.

Furthermore, the stock may have tumbled after investors realized that the DDGM was struggling more than previously expected.

Note: For those interested in the Back Forty project, I recommend reading my recent article published on October 10, 2022, discussing the Back Forty and the different issues attached to this controversial project.

Also, on September 26, 2022, Gold Re source invested ~$1.7 million in Maritime Resources Corporation ( MRTMF ).

CEO Allen Palmiere said in the first quarter conference call:

With the Back Forty project, we remain optimistic. We made significant progress. As discussed before, the initial capital and operating cost estimates were influenced by inflation and supply chain issues in 2021 and 2022 and resulted in higher costs than we felt were acceptable. We made the decision to slow down work on the formal study to evaluate alternative mining approaches and process flow sheets as well as site infrastructure layouts, all in an effort to reduce capital and operating costs.

Thus, I recommend cautiously investing a small amount in this company after the stock has re-adjusted enough due to management's recent financial decisions and lower 2023 guidance deeply affecting the stock valuation.

Thus, I highly recommend regularly trading short-term LIFO for about 75% of your long position and keeping only a minimum for a potential rebound down the road.

2 - Stock Performance. GORO Found a New Lower Support.

GORO significantly dropped after the news regarding the dividend suspension and lower grades in 2023. GORO is now down a whopping 53% on a one-year basis.

Gold Production For The First Quarter Of 2023

1 - Gold Equivalent Production

Note: The production company's presentation is very confusing and should be improved. Production in GEO and Production sold in GEO are not presented clearly, which could be confusing. In 1Q23, GORO Produced 7,171 Au Oz and sold 6,508 Au Oz. All the other metals are the same amount sold and produced. Hence, GEO Oz produced in 1Q23 are 10,518 GEOs , and GORO sold 10,055 GEOs.

Gold Resource produced 7,171 ounces of gold, 294,815 ounces of silver, or production in Au equivalent ounces of 10,518 GEOs and sold 10,055 GEOs. Output for the 1Q23 was improving.

Gold was sold at $1,915 per ounce , and Silver at $23.04 per ounce .

The entire metal production came from the Don David Gold Mine in Mexico.

2 - All-in sustaining costs, AISC/GEO (co-product), and Cash Costs.

The AISC per GEO in the first quarter of 2023 was $1,221 per ounce , well above the 1Q22 of $499 per GEO. However, AISC is not outrageously elevated and allows a fair profit margin, with Gold now around $1,950 per ounce.

Balance Sheet And Production History Until 1Q23. The Raw Numbers

Source: Company 10Q and from personal files.

Balance Sheet Discussion

1 - Revenues were $31.23 million in 1Q23

Note: Fortitude ( FTCO ) was spun off in 4Q20.

The gold and silver producer reported a loss per share of $0.01 on revenue of $31.23 million, compared with an income of $0.05 on revenue of $45.42 million in the last year's first quarter (please look at the table above for more financial details).

Note: GORO's Mexican assets are also called the Don David Gold Mine complex, or DDGM for short.

The company posted a net loss of $1.035 million during the first quarter, compared to an income of $4.02 million a year ago. Overall, it was a decent quarter.

After by-product credits, Don David Gold Mine's all-in-sustaining costs were $1,221 per equivalent gold ounce sold.

CEO Allen Palmiere said in the first quarter conference call:

We faced several challenges in the first quarter, which we had anticipated. However, we're pleased with the results to date. While our production is down year-over-year, our metal production in Q1 2023 has remained strong due to higher grades continuing on from the fourth quarter of 2022.

2 - Gold Resource's Free Cash Flow was a Loss of $2.11 Million in 1Q23

The company's free cash flow for Q1 is a loss of $2.11 million , and the trailing 12-month free cash flow was a loss of $4.47 million.

Gold Resource decided to suspend the dividend payout on February 13, 2023.

3 - Cash is Now $21.42 Million, and The Company has no Debt

Gold Resource has a good cash position of $21.42 million in 1Q23 and no long-term debt.

However, assuming the company gets all permits for the Back Forty project and decides to proceed, it must secure financing for its completion, and the debt profile will change significantly.

CFO Kim Perry said in the conference call:

Q1 activities, our balance sheet remains solid with over $21 million in cash. While our cash balance declined $2 million, our working capital increased by $3 million as a result of a reduction in payables.

4 - Lower Gold Production Expected in 2023.