GORO - Gold Resource: Falling Off The Cliff Leaving Shareholders Stunned
2023-03-07 10:00:00 ET
Summary
- The gold and silver producer reported a loss per share of $0.04 on revenue of $32.37 million in 4Q22.
- The production sold in 4Q22 was 7,514 Au ounces, 335,168 Ag ounces, 372 Tonnes of Copper, 941 Tonnes of Lead, and 3,265 Tonnes of Zinc.
- The company warned about lower gold production in 2023 and suspended the dividend.
- I recommend buying GORO between $0.84 and $0.90 with lower support at $0.80.
Introduction
Colorado Springs-based Gold Resource (GORO) released the fourth and full-year 2022 quarter results on March 2, 2023.
Note: This article is an update of my article published on November 3, 2022. 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 small company. The recent events make this warning even more crucial.
Furthermore, the company acquired a controversial project in Michigan called the Back Forty for $23 million with an uncertain outcome and CapEx of $8.8 million spent in 2022. An acquisition that I never really understood which used precious cash that seems missing now.
GORO Back Forty Project Update 2022 (GORO Presentation)
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.
Note: Assuming the project gets approval, the company expects to start construction in 2024 and achieve commercial production in 2025.
GORO Back Forty project data (GORO Preceding Presentation)
Also, on September 26, 2022, Gold Resource invested ~$1.7 million in Maritime Resources Corporation ( OTCPK:MRTMF ).
Maritime Resources (TSX-V:MAE) has announced the closing of a non-brokered private placement of 74 million common shares at a price of $0.05 per common share for aggregate gross proceeds of C$3.7 million.
The net proceeds of the offering will be used for final permitting costs to be paid by the company on or prior to December 31, 2022, with respect to the Hammerdown gold mine located in the Baie Verte Mining District near the town of King's Point, Newfoundland and Labrador.
Finally, on February 13, 2023, the company announced it would suspend its dividend program and warn for a lower grade profile of the current mineral reserves. The stock fell off a cliff, and shareholders wondered how this dire situation happened. CEO Allen Palmiere said:
the 2022 market volatility, challenging economic conditions and the lower grade profile of our current Mineral Reserves and Mineral Resources, have collectively contributed to an adverse impact on our 2022 cash flows and consolidated earnings.
At this time, the Board of Directors and Management feel the best way to maximize shareholder value is to protect our balance sheet and focus our capital resources on exploration and growth opportunities.
Thus, I do not recommend investing in this company right now, with management taking financial decisions that have seriously affected the stock valuation. The investments in the Back Forty project and Maritime Resources were the primary cause of this cash crisis, leaving the company without a cash cushion when needed.
Thus, I recommend regularly trading short-term LIFO for about 90% of your long position and keeping only a minimum for a potential rebound.
2 - Stock performance. GORO Fell off a cliff.
GORO significantly dropped after the news regarding the dividend suspension and lower grades in 2023. GORO is now down 50% on a one-year basis.
Gold Production For The Fourth Quarter Of 2022
1 - Gold Equivalent Production
GORO Quarterly Production history in GEOs (Fun Trading)
Note: I have estimated the equivalent gold production using a ratio of 81.6:1. The company indicated production sold only, which is always confusing when analyzing the company output.
GORO Quarterly Gold and Silver production history (Fun Trading)
Gold Resource produced 6,933 ounces of gold, 265,829 ounces of silver, or an estimated production in Au equivalent ounces of 10,190 GEOs based on a ratio of 81.6 between Silver and gold.
Full-year production in 2022 was 33,298 Au Oz and 1,108,465 Ag Oz, representing 46,647 GEOs. By-product metals were 16,707 Tonnes of Zinc, 1,300 Tonnes of Copper, and 6,957 Tonnes of Lead.
Production for the 4Q22 was weak, but the company sold much more than it produced this quarter which helped the company meet the guidance.
The production sold in 4Q22 was 7,514 Au ounces, 335,168 Ag ounces, 372 Tonnes of Copper, 941 Tonnes of Lead, and 3,265 Tonnes of Zinc. The Don David Gold Mine production in Mexico ended the year above guidance.
Full-year production sold in 2022 was 30,119 Au Oz and 1,057,209 Ag Oz, representing 42,757 GEOs. By-product metals were 14,157 Tonnes of Zinc, 1,348 Tonnes of Copper, and 5,391 Tonnes of Lead.
The entire metal production came from the Don David Gold Mine in Mexico. Allen Palmiere, President and CEO, said in the conference call:
The forecast for 2023, while generating cash flow sufficient to [maintain] our capital needs in Mexico and cover our anticipated expenditures elsewhere is tight. We took a very difficult decision to pause the dividend to protect our debt free balance sheet. Admittedly, it is a conservative stance, but we are strongly in the belief the best way to create long-term value is to preserve our cash to ensure that we can unlock the value in the Don David Gold Mine.
The company sold 11,621 GEOs in 4Q22 compared to 9,855 GEOs sold in 4Q21. The company sold 6,119 gold ounces and 287,805 silver ounces.
| Average metal prices realized |
| 4Q22 |
| 4Q21 |
| 4Q20 |
| Gold ($ per oz.) |
| 1,734 |
| 1,811 |
| 1,867 |
| Silver ($ per oz.) |
| 21.25 |
| 23.51 |
| 24.18 |
| Copper ($ per Lb) |
| 3.73 |
| 4.43 |
| 3.34 |
| Lead ($ per Lb) |
| 0.89 |
| 1.06 |
| 0.85 |
| Zinc ($ per Lb) |
| 1.17 |
| 1.57 |
| 1.20 |
2 - All-in sustaining costs or AISC/GEO (co-product)
The AISC per GEO in the fourth quarter of 2022 was $1,226 per ounce, well above the 4Q21 of $922 per GEO. It was a huge jump due to the impact of lower co-product credits due to lower base metal prices.
GORO Quarterly AISC history (Fun Trading)
Balance Sheet And Production History Until 4Q22. The Raw Numbers
| Gold Resource |
| 4Q21 |
| 1Q22 |
| 2Q22 |
| 3Q22 |
| 4Q22 |
| Total Revenues in $ Million |
| 38.06 |
| 45.42 |
| 37.06 |
| 23.87 |
| 32.37 |
| Net Income in $ Million |
| 2.69 |
| 4.02 |
| 2.67 |
| -9.73 |
| -3.28 |
| EBITDA $ Million |
| 15.32 |
| 15.55 |
| 13.88 |
| -3.05 |
| 3.57 |
| EPS diluted in $/share |
| 0.04 |
| 0.05 |
| 0.03 |
| -0.11 |
| -0.04 |
| Cash from operating activities in $ Million |
| 12.91 |
| 4.23 |
| 7.98 |
| -4.30 |
| 6.28 |
| Capital Expenditure in $ Million |
| 5.39 |
| 5.95 |
| 4.57 |
| 3.60 |
| 0.64 |
| Free Cash Flow in $ Million |
| 7.52 |
| -1.72 |
| 3.41 |
| -7.90 |
| 5.64* |
| Cash and short-term investments (+Au/Ag bullion) $ Million |
| 34.3 |
| 31.18 |
| 33.34 |
| 22.53 |
| 23.70 |
| Long-term Debt in $ Million |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Quarterly Dividend per share in $ |
| 0.01 |
| 0.01 |
| 0.01 |
| 0.01 |
| Suspended |
| Shares outstanding (diluted) in Million |
| 77.91 |
| 88.62 |
| 88.79 |
| 88.39 |
| 88.50 |
Source: Company release and from personal files.
* Estimated by Fun Trading - Waiting for the 10K to be filed.
Balance Sheet Discussion
1 - Revenues were $32.37 million in 4Q22
GORO Quarterly Revenue history (Fun Trading)
Note: Fortitude ( OTCQB: FTCO ) was spun off in 4Q20.
The gold and silver producer reported a loss per share of $0.04 on revenue of $32.37 million compared with an income of $0.04 on revenue of $38.06 million in the last year's fourth 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 $3.28 million during the fourth quarter compared to an income of $2.69 million a year ago. Overall, it was a decent quarter, but we could feel trouble after scratching the outer layers.
After by-product credits, Don David Gold Mine's all-in-sustaining costs were $1,226 per equivalent gold ounce sold.
COO Alberto Reyes said in the conference call:
Regarding the operations, the team was able to achieve production targets despite the ground support needed during the construction of the ventilation rates between levels 22 and 27. Moreover, the completion of the last leg of the ventilation system has significantly improved working conditions, enabling the team to safely pursue new production targets and continuing exploration from drilling stations at the lower levels.
2 - Gold Resource's free cash flow is estimated at $5.64 million in 4Q22
GORO Quarterly Free cash flow history (Fun Trading)
The company estimated free cash flow for Q4 is $5.64 million, and the trailing 12-month free cash flow was a loss of $0.57 million.
Gold Resource decided to suspend the dividend payout on February 13, 2023.
3 - Cash is now $23.7 million, and the company has no debt
Gold Resource has a good cash position of $23.7 million in 4Q22 and no long-term debt. However, assuming the company gets all permits for the Back Forty project, it will have to secure financing for its completion, and the debt profile will probably change.
GORO Quarterly Cash versus Debt history (Fun Trading)
CFO Kim Perry said in the conference call:
Cash in 2022 decreased by $10 million, due to nearly $19 million in tax payments made for both 2021 and 2022, a $22 million investment in DDGM exploration and capital projects a nearly $9 million investment in the Back Forty Project and $1.7 million investment in Maritime Resources Corporation
4 - Lower Gold production expected in 2023.
GORO 2023 Guidance (GORO Presentation) The company indicated a payable production of 17k to 19K Au Oz and 900k-1,000K Ag Oz in 2023. Gold production in 2023 is expected to be lower by 28% year over year. AISC (co-product) is expected to be $1,250 to $1,350 per Au ounce. Consolidated between $1,650 and $1,750 per ounce.
Technical Analysis (Short Term) & C ommentary
GORO TA Chart short-term (Fun Trading StockCharts)
Note: The chart has been adjusted for the dividend.
GORO forms a descending triangle pattern with resistance at $1.03 and support at $0.86 after a dramatic breakdown in late February following the news of dividend interruption and weak 2023 gold production guidance.
The descending triangle is a bearish pattern that usually forms during a downtrend as a continuation pattern.
The stock fell off the cliff from $1.63 to $0.86 in a few days offering an opportunity to buy GORO at an attractive valuation despite the weak guidance announced. RSI fell to 18 and is still below 30, a buy signal.
As I regularly recommend to my subscribers in my marketplace, "The Gold and Oil Corner," I firmly suggest trading short-term LIFO for about 90% of your long-term position to take advantage of the volatility and unforeseen events.
Thus, I recommend selling GORO between $1 and $1.05 with higher resistance at $1.25. Conversely, I recommend buying GORO between $0.84 and $0.90 with lower support at $0.80.
Watch the gold price and the Fed like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Gold Resource: Falling Off The Cliff, Leaving Shareholders Stunned