Gold Resource (GORO) got off to a decent start in 2022, and investors responded by bidding the stock to a 52-week high above $2.50 in April; it has since fallen by about a third, notes Benj Gallander, editor of value investor and editor of Contra the Heard.

Production results are expected to be lower in the second half due to inferior grade. They still expect to achieve full-year guidance on costs and production of 900,000 – 1 million ounces of silver, and 24,000 - 26,000 ounces of gold.

This junior miner remains invested heavily in Mexico, which it sees as beneficial from an operational, financial and environmental standpoint. The completion of the filter plant and dry stack facility in late 2021 means it is processing 85 percent of tailings through the new plant.

A feasibility study is being conducted for the deposit in Michigan, but capital cost pressures, combined with lower commodity prices, have slowed things down. As has the process of gaining the relevant permits: the land of the “pleasant peninsula” is one of two states that have total authority over the permitting process.

The corporation’s best estimate is it will take 6 to 12 months to clear the regulatory hurdles, which sounds optimistic, particularly since the Michigan Historic Preservation Review Board voted to nominate the site to be added to the National Register of Historic Places. Should that be approved, the federal government and the Menominee Nation will have a say in whether the mine goes ahead.

In the second quarter, GORO said production at the Don David mine in Mexico was solid. Nearly 129,000 tonnes of ore were processed, leading to 9,000 ounces of gold and 232,000 ounces of silver. The company sold over 285 tonnes of copper, 1,800 tonnes of lead, and a 3,600-tonne heap of zinc, which the enterprise has hedged.

At the end of Q2, the cash balance was around $33 million and working capital had increased by $5 million. Net income was $2.7 million, and operating cash flows tallied $8 million. Net sales of over $37 million were 20 percent higher than the same period in 2021 due to improved gold sales.

Total production costs jumped 11 percent, to $21.7 million. Most notable was the almost $1 million increase in spare parts for heavy equipment repairs. Don David’s total cash cost was $247 per ounce, and total AISC per gold-equivalent ounce was $799.

President and CEO Allen Palmiere didn’t have a lot to say during the conference call. But he took the opportunity to analyze the “dramatic” change in economic climate in the past few months. New projects have become challenging for the whole industry. Costs of production and capital are rising at the same time that commodity prices are declining.

 The US dollar is unbelievably strong, and there are fears of a looming recession. Palmiere is aware that the times call for discipline in terms of growth and capital allocation. He is confident GORO will be able to maintain cash costs and asset flows “at least for the balance of this year.”

GORO was added to our portfolio in January of last year. Its focus is on industrial metals — zinc, lead and copper  — for which demand is tied to a healthy economy. No wonder, then, that the shares have been under pressure. Throw in some gold and silver, and it boasts a decent mix of exposures to different markets. It remains a Buy.

Subscribe to Contra the Heard here…