AceofKY Posted October 8, 2007 Report Share Posted October 8, 2007 Gold Resource Corp. (GORO) UPDATE - 3/15/2019 GORO / Gold Resource Corp... All : 10-years : 5yr-W : 2yr-D : 6mo /10d : vs-etc - Last: $3.96 Sym : Price: MktCap EntVal : Ebitda : EV/eb.: Earns : PER-: Div. : Yield : BkVal : P/BV : Gold : 13.01: $22.7b : $29.4B: $3.06b: r:9.60 : (1.32): N/a- : $0.16 : 1.22%: $6.50: 200%: NEM : 33.15: $17.7b : $20.2B: $2.74b: r:7.36 : $0.64: 51.8 : $0.56 : 1.68%: 19.70 : 168%:Goro: $3.96: $243M: $239M: $33.2M r: 7.18 : $0.16: 24.8 : $0.02 : 0.51%: $2.16 : 183%: Ace of KY writing: (the following is an excerpt from an Update I have prepared for family and friends. GORO should be known already amongst GEI investors as it has been mentioned several times in the past on this forum - Ace) Introduction Gold Resource Corporation (ticker: “GORO”) is a junior gold exploration and development company headquartered out of Colorado, USA. GORO shares are currently trading on the over-the-counter bulletin board market. Their website address is: www.goldresourcecorp.com Capital Structure and Chart GORO currently has 28.2M shares outstanding, 2.6M unexercised options, and 0 warrants for a fully diluted 30.8M shares. Current market capitalization is approximately $107M. The company intends to list its shares on the AMEX exchange, but this will likely not happen for at least a year. <chart omitted in this forum due to author's incompetency with respect to adding images to a post > Management GORO was founded by and is managed by the Reid family which managed US Gold prior to being bought out by Rob McEwen. I have not personally met the Reids, although I did spend some time on the phone with Jason (the CEO Bill Reid’s son). He was very forthcoming and answered all questions professionally. The Reids are spoken highly of by <Frizzers>, and their recent activity and shareholder register indicate that they know how to raise money in London and the European capital markets. The Reids hold about 32% of the outstanding shares of GORO, so they will share their shareholders’ fortune (or pain). Also, Jason (and the latest GORO presentation) insists that they are committed to paying dividends as soon as they are able. Assets GORO’s primary assets are a group of gold/silver deposits in Oaxaca, Mexico. The most advanced of these is the El Aguila deposit. GORO made a positive production decision on El Aguila earlier this year. A feasibility study has not been commissioned on the El Aguila project, but an independent scoping study from 2004 is available by contacting Jason Reid. GORO insists that there are currently 3 years of mineable resource, although the lack of a feasibility study has prevented them from classifying any of the resource as reserves. Additional resources are currently being proven up by drilling, and an updated resource report is due any day now from their consultant. There have been several nice intercepts over the past few months, and Jason indicated that drilling will continue for the foreseeable future. Production is currently envisioned at 70k, 90k, and 100k ounces for the first three years, respectively. The scoping study indicated that the average cash cost of gold production would be approximately US$107/oz. Costs have escalated substantially since 2004, but it should also be noted that the project is very sensitive to ore grades and the drill results subsequent to 2004 indicate that the ore grade should be in the 11g/t gold equivalent area. The scoping study indicated $82.4/oz costs at these grades, so GORO’s forecasted $100/oz cash cost appears to be reasonable. Also, the scoping study was performed using a 750t/d production rate whereas GORO has decided to increase the capacity to 850t/d. Capital costs have increased significantly. The company is currently forecasting $20M in capital spending to bring the mine into production versus the $11M scoping study estimate. Unfortunately, this type of inflation has been experienced by all in the construction industry. Financing Jason indicated that the construction of El Aguila will be 100% equity financed (and that there is significant interest from existing institutional shareholders to participate in this financing.) Management believes that their first mine should be equity financed due to the terms required of a company with no current cashflow (such as hedging and high interest rates) and also to avoid any problems if startup delays are encountered. Future mines would include debt financing on better terms. My estimate is that GORO will need to raise at least $25M by the end of the year to finance the construction of El Aguila and continue drilling. Let’s assume $30M to be conservative and to account for any subsequent financing needed next year to carry them through to positive operational cash flows. Since their shares have been trading at around $4 for the past few months, my estimate is that approximately 8M shares will be issued along with 4M warrants. This would bring GORO’s fully diluted share count to 42.8M shares, which (with only 4M warrants) would still be very tight for a 100k oz gold producer. Valuation Since there has not been a formal feasibility study prepared for El Aguila, I created a valuation for the project based on the discounted cash flows (DCF) method. The valuation revealed that the first three years of production do not justify the current stock price on a DCF basis. They need to prove up approximately 500k more gold equivalent ounces to justify the current stock price on a DCF basis. This seems reasonably achievable with the drill results that have been released this year (there are multiple deposits that would supply feed to the El Aguila mill.) Most gold producers (especially low-cost producers) are valued at a significant premium to DCF or net asset value (NAV). Thus, it would not be unreasonable to expect a double in the stock price if and when GORO has proven it can produce low-cost gold and increases its resource (potentially by late next year). Assuming $700 gold and 42.8M shares, GORO is currently trading at about 3 times anticipated 2009 cash flow. Risks GORO is a risky investment for the following reasons: 1. GORO’s resources are non-NI-43-101 compliant. Thus, even though they have retained an independent consultant to evaluate the resources, it is unlikely that the deposit will attain the same market value that a 43-101 deposit would carry. It is obvious that the Reids are managing GORO to become a producer rather than a takeover target. 2. GORO only has one independent director. This concern is somewhat mitigated by the fact that management owns almost 1/3 of the outstanding shares. Jason did indicate, however, that they would likely bring on an additional independent director within the next year or two. 3. Permits and surface rights are not yet in place. This is a concern with all mining companies. GORO does not anticipate any problems obtaining their permits in a timely fashion, however. 4. Price of gold is currently at 30 year highs. A correction is likely as the central banks try to keep the price of gold under control. Depending on the price of gold, one may likely be able to purchase GORO at a lower price within the next few months prior to construction completion. Investment Decision I purchased a small position in GORO this past week. GORO has had a significant appreciation in share price this past year. I would like to see the share price correct some prior to securing a larger position. Unfortunately, with gold well over $700/oz it is difficult to find any good purchases in the sector. If we get a good correction in the price of gold over the next month or two, it may result in a better opportunity to purchase GORO. The primary reason for being careful with GORO, however, is the low quantity of in situ resource it currently has on the books. The upcoming resource report will give us a better picture of GORO’s future cash flows beyond the next three years. Link to comment Share on other sites More sharing options...
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