Update: Gran Colombia Gold Reports Q2 Results

| About: Gran Colombia (TPRFF)


Gran Colombia Gold announced second quarter 2014 results - revenue of $32.8 million, all-in sustaining costs of $1,203 per ounce and an adjusted net loss of $2.5 million.

The all-in sustaining costs were higher than I expected, but come from a one-time expense; a lower cash balance makes me more cautious on the company in the short term.

Gran Colombia Gold remains a speculative buy; I think shares possess huge upside potential and leverage to the gold price.

Gran Colombia Gold (OTCPK:TPRFF) just announced its second quarter 2014 earnings. The company reported gold production of 25,713 ounces, an adjusted net loss of $2.5 million, or $.17 per share, on revenues of $32.8 million. Cash costs came in high at $1,103 per ounce, with all-in sustaining costs of $1,203 per ounce; however, excluding a one-time provision for settlement of a long-term supplier contract, all-in sustaining costs would have reached all-time lows of $1,128 per ounce. The company continues to move forward with its Pampa Verde expansion project, with a goal of increasing gold production from 100,000 ounces to 150,000 ounces, lowering all-in sustaining costs to $950.

In my first article on the company, I argued that the market is placing little to no value on Gran Colombia assets, and the Pampa Verde expansion is key for the stock as the company increases gold production while lowering cash costs at the same time. The expansion aims to increase production to 150,000 ounces of gold, while lowering all-in sustaining costs to $950 an ounce or less. The project is expected to be completed in early 2015, with full production in mid-2015. Workforce reductions at Segovia should lead to further cost savings in 2014. With a market cap of just $30 million and an enterprise value of $170 million, I argued that Gran Colombia is undervalued as it has more than 15 million ounces of gold in reserves and resources and is producing more than 100,000 ounces annually in 2014.

Gran Colombia is on the right track, and second quarter results showed this in my opinion. The company reported all-in sustaining costs of $1,203 per ounce, but it would have been $1,128 per ounce if not for a one-time expense. This is down from Q1 2014 all-in sustaining costs of $1,197, and far lower than Q2 2013 all-in sustaining costs of $1,293 per ounce. The company's total margin per ounce was close to $70, with an average realized gold price of $1,271 in the second quarter. The Pampa Verde expansion project continues to advance, with construction in process. The bottom line is that Gran Colombia remains a speculative buy - one that comes with big risk, but big upside potential. As the company continues to reduce cash costs and increase production, margins should improve, leading to profitability and a potentially higher share price.

Disclosure: The author is long TPRFF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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