Gold Resource - Preliminary 2015 Production Results And The Negative Effect Of The Recent Dividend Cut

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On January 14, 2016, Gold Resource announced preliminary 2015 fourth quarter and year-end mill production. 2015 year was approximately 29,644 gold ounces and 2,506,000 silver ounces.

However, the big event that will characterize the fourth quarter is the decision to cut the dividend, on December 28, from $0.12 to $0.02 per year.

At $1.26, I find the GORO quite attractive and I bought a small position on Friday, I could not resist.

Gold Resource (NYSEMKT:GORO) mines in Mexico.

This article is an update to my preceding article on Gold Resource published on December 4, 2015.

On January 14, 2016, Gold Resource announced preliminary 2015 fourth quarter and year-end mill production.

Preliminary production for the 2015 year was approximately 29,644 gold ounces and 2,506,000 silver ounces, meeting its revised annual production targets of 29,600 gold ounces and 2,500,000 silver ounces. Fourth quarter gold and silver production totaled approximately 7,684 ounces and 573,726 ounces respectively. Production on a precious metal gold equivalent (AuEq) basis was approximately 15,548 AuEq ounces for the fourth quarter at an actual 73.0 silver to gold ratio and 63,963 AuEq ounces for the year ended December 31, 2015 at an actual 73.1 silver to gold ratio. Annual base metal production included approximately 1,310 tonnes of copper, 4,174 tonnes of lead and 13,900 tonnes of zinc.

M. Jason Reid, CEO, stated:

2015 was another challenging year for metal markets, the industry and the Company. Although management and the Board recently made the decision to reduce the dividend as average metal prices continue to fall year-over-year, we are proud to continue paying our shareholders a monthly dividend throughout this tumultuous metals market all the while not raising capital or diluting shareholders. The Company is currently finalizing its 2016 production Outlook again with the goal to conservatively weather what could be another difficult year for metals. It has been positive to see gold and silver prices move up the first few weeks of 2016 and we are optimistically positioning the Company to prosper when metal prices strengthen.

GORO 2015 preliminary production results.

Gold and Silver production snapshot:

2015 Q4 2015 Q3 2015 Q2 2015 Q1 2015
Ration gold to silver 73.1 73 77 72 72
Production TPD (Tonne per day) - - 1,143 1,127 1,026
Production of gold (Mill production) Oz. 29,644 7,684 6,825 6,788 8,348
Production of Silver (Mill production) Oz. 34,231 7,864 7,308 8,060 10,999
Production of gold/silver (Mill production) Oz Equivalent 63,963 15,548 14,133 14,858 19,347
AISC /Oz - N/a N/a N/a 995
Total cash cost after by-product credits - - 603 533 -
Gold g/t - - 2.25 2.25 3.13
Silver g/t - - 180 189 287
Copper % - - 0.41 0.35 0.42
Lead % - - 1.41 1.24 1.46
Zinc % - - 4.02 3.59 3.71
Price of gold/oz - 1,104~ 1,115 1,201 1,203
Price of Silver/oz - 14.75~ 14.50 16.70 16.74
Copper (By-product) per T - 4.325~ 4.883 6.022 5.532
Lead (By-product) per T - 1,630~ 1.619 1.908 1.731
Zinc (By-product) per T - 1,481~ 1.701 2.275 2.008

Tab 1 - 2015 Balance sheet (4 quarters comparison).

4Q'15 Est. 3Q'15 2Q'15 1Q'15
Cash and cash equivalent $ million - 14.405 21.023 21.444
Gold and Silver bullion $ million - 3.160 3.358 3.440
Total Assets $ million - 114.862 112.745 116.252
Total Liabilities $ million - 20.972 18.141 21.682
Revenues $ million 17.16~ 19.437 23.273 28.372
Total mine cost of sale $ million 15.2~ 14.996 16.348 14.349
G&A $ million 2.7~ 2.913 2.388 2.731
Operating income $ million (2.80)~ (0.282) 1.643 9.580
Net Income $ million (3.75)~ (0.469) 0.812 5.053
EPS $/share (0.07)~ (0.01) 0.01 0.09
Dividend $/share/month 0.0016667 0.01 0.01 0.01
Shares outstanding in million 54.266 54.179 54.179 54.179


Gold resource announced its 2015 production results and they were slightly better quarter over quarter. However, down 19.6% compared to 1Q'15.

These numbers are indicating that the company is still struggling in La Arista mine, probably because the grade per ton, in gold and silver, is weakening further -- with a high dilution as well -- and the company may face further water and labor issues. We will know the details at the next conference call.

However, the main topic is obviously the dividend cut announced on December 28, 2015.

The Company is modifying its instituted monthly dividend from one cent per share per month to 1/6 of a cent per share per month (or two cents per share per year) beginning with this December dividend.

It was a terrible blow for a number of shareholders that have interpreted this dividend cut as a clear mismanagement and lack of long-term strategy. The board indicated:

The Company's instituted monthly dividend after weighing multiple factors, including continued weakness in precious and base metal commodity prices, future flexibility to advance corporate strategies and reallocation of capital to include its new Gold Mesa property.

This dividend cut will result in approximately $5.4 million in savings which is not negligible due to the actual gold and silver price environment and may contribute to the early development of the Nevada assets.

This news triggered immediately a sell off, as expected, and as the chart below indicates:

At $1.26, I find GORO quite attractive, and I bought a small position on Friday, I could not resist. Problems still persist, nonetheless, and the company will have to accelerate its diversification effort (Nevada). The next earning results will show a loss again, and I expect another PPS weakness below 1.20, at which point, I will definitely add.

As I have often written, Gold Resource is still a single mine operator in Mexico. It is really the main fundamental problem for GORO and the company is aware of the situation, finally now.

Gold Resource relies on solely one mine called La Arista in Mexico, and has no room to maneuver. When operations are not successfully optimized, troubles translate to significant losses, immediately, in the balance sheet, as we have seen in 2015.

I would like to know the progress made to reach and produce from the Switchback prospect, which is about 300-500 m East of the La Arista mine?

The second problem is a depressed gold and silver market, that may continue well into 2016. This is of a paramount importance for GORO, which is, by the way, more a silver mine than a gold mine.

On a final note, the company reduced dividend by 83%, however, nothing has been said about reducing corporate expense and retrofitting compensation for management, more in-line with the actual financial situation? When the company is experiencing tough headwinds, it is normal that the entire business adopts a more frugal attitude, don't you think M. Reid?

Disclosure: I am/we are long GORO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Very recent position due to valuation

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