A Gory Moment for Gold's GORO
Oct 18th 2012 2:18PM
Updated Oct 18th 2012 2:32PM
If there can be no glory without guts, Gold Resource (ASE: GORO) investors are getting the guts part out of the way today.
Shares of the dividend-friendly miner suffered a gory decline of 16% Thursday following a second downward revision of initial 2012 production guidance. From the company's original target of at least 120,000 gold-equivalent ounces, or GEOs, envisioned at the start of the year, the expected tally has now slipped to between 85,000 and 100,000 GEOs.
Despite proceeding through many of the underground development activities that yielded an acute shortfall in the previous quarter's output, GORO continues to face a "near-term challenge of ore dilution for the remainder of 2012" as the company works to hone its blend of mining methods and make the most of the higher-grade ore. To help ensure that this challenging set of growing pains transitions smoothly into a resumption of the company's ambitious growth plans, GORO has hired Jesus Rivera as general manager of the Oaxaca mining unit, replacing outgoing manager Juan Manuel Flores. Rivera served as operations manager for Yamana Gold (NYS: AUY) at its newly commissioned Mercedes mine, and will now coordinate a team of newly hired unit managers at GORO's El Aguila mine.
For investors who may have been intrigued by GORO's compelling growth story, but found the share valuation a little too rich for their liking, this week's sharp decline may serve as a golden invitation to go long on the shares. I often find that the mining industry's greatest prizes are snatched from the jaws of some of the more crushing near-term retreats, since operational setbacks like those experienced recently at El Aguila do not necessarily alter the long-term investment thesis. Liking the company's chances of forging its way back into growth-mode next year after these near-term challenges are resolved, I have initiated a bullish CAPScall in my Motley Fool CAPS portfolio in the midst of this gory pullback.
For a glimpse of just such a recovery process in action, look no further than GORO's fellow Oaxaca miner Fortuna Silver Mines (NYS: FSM) . Fortuna suffered a bloodbath of its own earlier this year, and a few weeks later this bargain-hunting Fool was touting a powerful opportunity in the shares as Fortuna dug to find its footing. From a share price of $3.77 on the day that article appeared, Fortuna surged nearly 60% over the ensuing months to touch $6 per share by mid-September. I'm not suggesting that GORO's shares will bounce back in precisely the same way, but suffice to say these sorts of dramatic news-driven declines can make for some attractive entry points in those cases where the miner's longer-term growth outlook remains solidly intact.
Hecla Mining (NYS: HL) offers another fine example, where the acute hangover suffered by the iconic miner's shares following the temporary closure of the Lucky Friday mine can now be seen to have presented a terrific opportunity to participate in the stock's inevitable recovery. To monitor Gold Resources as the company looks to recapture its prior growth momentum, while scouring the resource space for similarly compelling opportunities, I invite Fools to track all my mining industry coverage by bookmarking my article list or following me on Twitter.
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The article A Gory Moment for Gold's GORO originally appeared on Fool.com.Fool contributor Christopher Barker owns shares of Hecla Mining Company. The Motley Fool owns shares of Hecla Mining Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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