Friday, May 6, 2016

Gold Resource Corp (GORO) - Still Weak Fundamentals

In 1Q 2016 Gold Resource Corp (GORO) made no surprise. The company continued its underperformance, expressed in lower production, higher costs, negative working capital etc.

The table below summarizes the most important basic measures reported in 1Q 2016 (for comparison, I have plotted also 4Q 2015 and 1Q 2015). The yellow area marks a few relevant figures:

                                 source: Simple Digressions

As the table shows, despite the fact that GORO was selling its gold at nearly the same prices in 1Q 2016 and 1Q 2015, cash flow from operations was substantially lower this year. 
On the other hand the company is partly excused because silver prices were lower in 1Q 2016 than a year ago (the same thing was with copper and zinc prices, base metals produced by GORO). 

At this point let me note that the share of precious metals (gold and silver) in the company's revenue has changed throughout the years: 

                          source: Simple Digressions

In 2014 as much as 65.1% of sales was attributable to gold and silver. In 1Q 2016 it was only 61.2%.  I think that this trend is going to stay here. It looks that with the ongoing depletion of the Arista mine the company should be delivering more base metals.

Deterioration in the quality of the Arista deposit is expressed by lower grades and recovery ratios. Here the downward trend is particularly well visible.

As the company stated in its previous releases, in 1Q 2016 production was substantially lower than in the previous quarters. The chart below presents gold equivalent production, starting from 2011:

                              source: Simple Digressions

Last but not least. At the end of the last quarter GORO had negative working capital, defined as inventory plus receivable less payables: 

                        source: Simple Digressions

It does not necessarily mean that the company has financial problems. Not yet. The negative working capital is supported by cash reserves of $13.7 million so I cannot say that there are liquidity problems at the moment. However, cash has been also going down since the end of 2014 (that is why GORO had to cut its generous dividend).


I am definitely not recommending these shares as a buying opportunity. The company's performance is deteriorating and although during the last rally in the entire precious metals sector GORO shares went up significantly (more than, for example, GDX) the company's weak fundamentals have not changed (in my opinion). 

I think that the GORO investors should closely monitor the ongoing drilling campaign at the Gold Mesa property in Nevada. This company urgently needs new deposit / deposits so...maybe Gold Mesa?


  1. Agreed. However, re. the change in metals & lower PM grades: this was mentioned in the Q1 conference call and explained quickly: as you go deeper in the a vein mine like Arista, the PM content tends to decrease in relation to the base metals - this is a typical geological phenomenon. The answer to this is bringing the the Switchback and the Alta Gracia deposit (which is all gold & silver) on-line. It will probably be 2017 before they start performing well again but I don't look for serious trouble esp. with rising silver prices. They were sloppy in execution and waited too long to diversify. Lesson learned.

    1. Switchback - well, this is an old story. I am waiting for info when they want to start mining there. It is like waiting for Godot...

      In my opinion, the biggest management's mistake was to pay dividends, spending, over the years, more than $100 million. Quite a ridiculous policy when you have only one mine and the future in the mist...