-- Posted Friday, 18 July 2008 | Digg This Article | Source: GoldSeek.com
(OTC BB: GORO.OB)
By: Ian Cassel, Investor Voices LLC
July 17, 2008
Market Cap Fully Diluted: $178 Million
FD Shares Outstanding: 36.8 Million
Insider Ownership: 11.6 Million (32%)
Cash: $17 Million
1 Year Return (07/07 – 07/08): 10%
2 Year Return (09/06 – 07-08): 375%
Gold Resource Corporation's objective is to create shareholder value by establishing production and generating superior financial performance through the development of gold and silver projects that feature low operating costs and produce high returns on capital. The Reid’s have been preaching “Not all Ounces are Created Equal” since Gold Resource Corp IPO’d at $1, almost two years ago. The company has continued to execute its strategy to near perfection especially in an imperfect industry such as Mining. The company is targeting 70,000 oz of gold production in Year 1 which is expected to commence around the Q4 08’/Q1 09’. This might not sound that fantastic but when you add in the low cost nature of this project, targeting total cash costs of +/- $100/oz, you have a very rare and explosive situation brewing.
Summary of Accomplishments:
- “IPO” Sept.14, 2006 at $1.00 / share. Trading at +$5/share. Ave 3M vol +100k
- Experienced management put 6 mines into production with their previous company
- Disciplined capital structure 34MM shares outstanding
- 0 Warrants outstanding
- Institutional investors include Gold 2000, Tocqueville, Heemskirk, Pictet, Range Capital, etc
- Large / robust low sulphidation epithermal Au /Ag system in Southern Mexico
- High-grade; highest drilled 1.3M Au 142.5 g/t; highest 1M Ag 5000; widest vein intercept 19M
- Discovered three high-grade deposits (1 open pit deposit, 2 vein systems all open in strike and depth)
- 773K AuEq internal resource estimate (Oct 30, 2007 w/ many high-grade PR’s since)
- Exceptional multi million ounce potential
- 2 drills turning to expand know deposits and discover new ones
- Closed production funding Dec. 6, 2007 for +$21MM (Dec 6, 07 PR)
- Federal Road Permit granted Jan 15, 2008, Road Construction commenced (Feb 4, 08 PR)
- Federal Mill Permit granted (June 12, 2008 PR)
- Targeting production end of 2008 in low cost peer group
- Goal of paying a meaningful dividend (1/3 cash flow)
Due to GORO’s low cost nature it is hard to find a company that is more levered and unlevered to the price of gold. When I first looked at the company after its IPO I was drawn to it because of the fact GORO could make money even at $300 Gold, so with the price of Gold closing in on $1000, the future cash flows are off the charts with margins a tech software maker would love. I see several catalysts pre production that will lead to an ascending stock price.
The Mexican Government granting GORO the two remaining permits (Tailings and Open Pit) to commence production. Once these permits are granted there really isn’t anything holding GORO back from production. All of the paperwork for the remaining permits have been filed with the Mexican government.
The continued drilling success which has blessed the company since inception will all but insure increased production levels and/or increased mine life. The 773,000 AuEq internal resource estimate is almost a year old, and with many high grade intercepts since then, one can expect that GORO’s 1.3 million oz AuEq short term resource target will be reached in the coming months. Please view the companies drill intercept highlights dated 6/18/08 which showcases over 300 intercepts greater than 0.25 oz/ton AuEq: http://www.goldresourcecorp.com/drilling-data.php
Gold Resource Corp’s two drills have been turning non-stop at the La Arista Deposits. This area represents a very small portion of the company’s flagship El Aguila Project. “Delineation drilling of the La Arista deposit is focusing on two parallel veins, the Baja vein and the Arista vein, with infill and step out holes on approximately 50 meter grid spacing's along 300 meters of strike and 250 meters of vertical extent.”—July 10th PR. To show the potential resource in just one of these veins, let’s play with some numbers (see below). As the calculations below illustrate, just one of the three veins could have resources greater than 500,000 oz AuEq which goes to show that GORO’s long term resource target of 2 million oz AuEq is very achievable.
300m (Strike) x 250m (Depth) x 2.5 Density Value x 5m (Vein Width) x 0.5 oz/ton AuEq = 468,750 oz AuEq
300m (Strike) x 250m (Depth) x 2.5 Density Value x 5m (Vein Width) x 0.6 oz/ton AuEq = 562,500 oz AuEq
300m (Strike) x 250m (Depth) x 2.5 Density Value x 5m (Vein Width) x 0.75 oz/ton AuEq = 703,125 oz AuEq
The La Arista Veins are 60% precious metals and 40% base metals while the Baja Vein has been 90% precious metals and 10% base metals. With initial recoveries over 90% for precious and base metals it is hard to find a more profitable situation. Bill Reid Stated, “it appears that, on average, our base metal values should pay for all costs of production which will in essence make our gold and silver free.”
Gold Resource Corp’s El Rey property, though 90km away from the mill site, is also turning out to have some real potential. Recent Drill Intercepts include:
· 3m of 31.5g/t Gold Within 5m of 25.4g/t Gold
· 1.4m of 55.3g/t Gold Within 7.8m of 20.34g/t Gold
· 3m of 64.87g/t Gold, 118g/ton Silver Within 5m of 45.24 g/ton Gold, 122.8 g/ton Silver
With these types of grade within 65m of the surface, GORO has to decide whether this will be an open pit or underground project. The Reids have stated previously: “Though our main focus has been and will continue to be bringing the Company's flagship El Aguila Project into production, we are evaluating the possibility of blending El Rey's high-grade gold mineralization into our first year's production schedule." Investors can be sure to hear more progress on the El Rey property and its mine plan in the coming months.
Gold Resource Corp is an emerging low cost producer of gold, targeting production around the end of this year given timely delivery of the remaining permits. As I’ve outlined above the exploration potential is phenomenal, and when you combine this with a low cost operation and a production focused management team, GORO becomes one of the most exciting emerging producers you will find. As an investor in the company since IPO, it has been a privilege to watch this management team deliver on its promises unlike 99% of the mining industry. Low cost gold producers have always traded at a premium in the market place with multiples 3-4X higher on average when compared to average cost producers. Four years ago it wouldn’t have been economically feasible to recover gold if the cash costs were over $400/oz, but with gold approaching $1000/oz, the gap between average cost and low cost production has widened. With the average cost of production for the industry approaching $450/oz, the distinction of the elite class of low cost gold producers that Gold Resource Corporation targets as a peer group even becomes more evident and the multiples become more extreme. If Gold Resource Corp is successful in producing low cost ounces (low cost = sub $250 cash cost), the only obvious conclusion is that GORO will be many multiples higher than the current price.
Investor Voices LLC (IV) is a research driven corporate development adviser to later stage private and emerging public companies. IV provides a myriad of services not limited to: Growth, Funding, Management Strategy and Implementation as well as creating and disseminating the correct public message with the end goal of aggressive public market acceptance. http://www.InvestorVoices.com
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-- Posted Friday, 18 July 2008 | Digg This Article | Source: GoldSeek.com