Update: Gold Resource Corp. Leases Its Second Walker Nevada Exploration Property

| About: Gold Resource (GORO)
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Summary

Gold Resource Corp. announced that it has optioned a second Nevada Walker Property adjacent to the first.

I had not anticipated this in my bearish article.

I am less bearish than I was given the 2/3rd price reduction, but this expansion makes little sense while the company can't get its El Aguila project running smoothly.

A speculative position may make sense if you think management can turn the El Aguila Project around, given the lousy price action.

Gold Resource Corp. (NYSEMKT:GORO) just announced that it is leasing another Walker Nevada Project - the "Goose" Property - from Nevada Eagle, which is adjacent to the company's Radar Property. The company owes a 2% NSR royalty on whatever gold it produces. It can buy the property outright for $175,000, and 1.5% of the NSR royalty for $1.4 million. It also has right of first refusal on the remaining 0.5% of the NSR royalty. The project has no known economically extractable resources, but management is confident in its geology.

This adds to the company's extensive portfolio of exploration projects, and given the minimal cost (it only has to pay up if it produces gold), the deal seems ideal.

However, I think management has to deal with its El Aguila Project - which is its flagship project and its only producer - given its recent lousy performance. The project also has rapidly dwindling resources that requires constant exploration, and this is an issue I brought up in my bearish article last year. The project has worsened, as the Q3 performance was nothing short of abysmal with production down and costs up. Gold Resource fired the mine's manager, but this isn't the first time we've seen this, and investors need to wonder where the problem lies.

So at this point, it seems to me that management is taking on too much in a tough market environment that makes any capital expenditure more costly on a relative basis, especially since the company is currently paying a 4% dividend. That isn't to say that this won't pay off, but I think the stock would jump if management were to announce a study intended to optimize the mine's performance rather than acquiring early-stage exploration properties that require millions in worth and that won't be generating any cash flow for years.

With that being said, the stock has fallen so much that it may make sense for investors to take a speculative position. After all, the El Aguila Project was able to support a $0.72/share annual dividend (~24% at today's $3 share price) at its prime. So, the risk-reward is very interesting if you believe in management.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.