Gold Resource Corp. (NYSEMKT:GORO) just announced its second quarter earnings. The company produced 24,000 ounces of gold and equivalents (gold and silver) while selling 21,000. It generated revenues of $33.7 million, operating cash-flow of $19.4 million, and earnings of $7.8 million. Gold equivalent production rose from 12,600 oz. last year to 14,000 oz., and cash-costs - net of by-products (base metals) - fell from $645/oz. to $438/oz.
These numbers look spectacular, and as expected cash-flow and earnings are up from last year - in fact cash-flow nearly tripled despite the fact that the company's average realized gold price fell by about $100/oz. However, the stock is still down 27% from when I suggested that investors sell their shares last July. The trouble with the company is that despite the fact that it is a very low-cost producer and a highly profitable company (I can't think of another gold miner with 25% net margins) it has limited resources - just over 3 years' worth of production. This was the impetus of my sell thesis, and unfortunately the company is a year closer to resource depletion. Because of this the stock traded as low as $3.52 just a few months ago, although it has since rebounded.
However, despite my past bearishness I am now willing to concede that there might be some speculative value here given the company's exploration potential. At current metal prices the shares probably trade at around 9-times earnings and 4 times operating cash-flow. Considering that the mine only has 3 years' worth of resources left this isn't cheap. But the company only needs to find a few more years of gold in order to make a speculative position in Gold Resource Corp. worthwhile, especially given the incredibly rich ore that the company has found, and given that the company has proven that it can mine it and generate such a wide profit margin.
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