Gold Resource Corp, a small cap gold and silver miner with some base metals mining activities, was in great shape until last week. After their latest quarterly earnings report this precious metals stock got slammed: it lost 25 pct in one week. With the latest (presumably disappointing) earnings we try to answer the question if this is a gold stock to buy or sell.
Let us review the financials and chart of Gold Resource Corp, symbol GORO.
Gold Resource Corp: Financials suggest this gold stock is a buy
The top line and bottom line financials were indeed significantly lower than the last previous as well as the quarter a year ago. As per quarterly financials on MarketWatch:
- Q ending 30 Sept 2018: Revenue $26.21M, EBITDA $6.27M
- Q ending 30 Jun 2018: Revenue $33.07M, EBITDA $12.17M
- Q ending 30 Sept 2017: Revenue $31.12M, EBITDA $11.73M
That’s a 25 pct decrease in revenue and a 50 pct decline in EBITDA.
The underlying question is where the revenue decrease is coming from.
The quarterly earnings press release says:
During the third quarter of 2018, the Company sold 9,466 precious metal gold equivalent ounces at a total cash cost of $582 per ounce (after by-product credits). Average realized metal prices during the quarter included $1,183 per ounce gold and $14.69 per ounce silver*. The Company recorded a net loss of ($0.8 million), or ($0.01) per share, driven primarily by lower commodity prices and unfavorable price settlements of prior period sales. Declining metal prices during the prior four months caused adjustments under the provisional pricing mechanism in the Company’s sales contracts to aggregate a negative settlement of $3.2 million in final payments during the third quarter.
In the earnings call we found 2 quotes that stand out:
The third quarter of 2018 was a good quarter operationally and saw production levels in line with our targets and within striking distance of our annual production outlook. Metal price volatility, coupled with our CapEx expenditures, impacted our financial performance, resulting in a slight earnings loss for the quarter of $781,000.
The other quote, confirming the one above: “Third quarter production keeps us within striking distance of our annual production goals.”
So what really happened is that output from the company was great, and in line with expectations, but the real and only problem was the sell-off in prices of gold, silver and copper. This happened in the quarter June – September, and resulted is a decline in revenues (consequently also bottom-line profits).
Essentially, not a real problem as long as gold, silver and copper price start rising again. InvestingHaven’s research team forecasts rising prices in the first part of 2019 so our expectation is that the stock price of Gold Resource Corp will rise anytime soon (starting as precious metals prices start rising).
Our expectation is reflected in the very low short float rate of 2 pct in Gold Resoure Corp.
Gold Resource Corp: Weekly Chart
The weekly chart looked gorgeous until last week. With the sell-off the price of GORO dipped below its beautiful triangle pattern. It even dipped below its long term moving average.
There is still a possibility that the breakdown gets invalidated, but this will only happen if and once the price of gold and silver start rising again. If not anytime soon, we expect the triangle to turn into flat support / resistance lines before a recovery starts.
We believe GORO is a buy at current levels. Downside till $3.50 (short term) and upside target $7.50 (for the next 6 to 9 months).