Value Microcaps Junior Miners

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GORO- Another article to remind me why I should buy more shares.

http://seekingalpha.com/article/2483465-gold-resource-corp-profitable-gold-and-silver-production-with-a-monthly-dividend?app=1&uprof=44

Gold Resource Corp: Profitable Gold And Silver Production With A Monthly Dividend
Sep. 10, 2014 2:39 AM ET | 2 comments | About: Gold Resource Corporation (GORO), Includes: GDX
Disclosure: The author is long GORO. (More...)
Summary

Gold Resource Corp. is a profitable gold and silver producer based in Mexico.
The company's profitability means it can pay a solid monthly dividend to shareholders.
Huge exploration upside, an undervaluation of shares and a solid dividend make Gold Resource Corp. a strong buy at current levels.
Gold Resource Corp. (NYSEMKT:GORO) is a precious metals mining company which owns 100% in six potential high-grade gold and silver deposits in Mexico's southern state of Oaxaca. The company targets projects that feature low operating costs and high returns on capital, with a primary goal of producing cash flow and returning money back to shareholders via dividends.


Gold Resource Corp. first declared production in July of 2010 from a high-grade open pit at its El Aguila project. The following year, the company announced production from its polymetallic La Artista vein system.

With nearly $30 million in cash, low-cost, high-margin production from current operations, multi-million ounce gold potential on its properties, a tight share structure with 54 million shares outstanding, and a solid monthly dividend, I believe Gold Resource Corp. is poised to outperform the benchmark gold miners index (NYSEARCA:GDX) as the company continues to deliver on its objectives. Over the longer term, I think shares hold at least 100-200% upside potential, depending on where the price of gold and silver heads.

Gold Resource Corp. Key Statistics

Recent Stock Price: $5.41

Shares Outstanding: 54 million

Market Cap: $292 million

52-Week Range: $3.52 - $8.60

Net Cash Balance: $30 million

Debt: $3.1 million (capital equipment leases)

Enterprise Value: $264 million

(Credit: Yahoo Finance)

Why Gold Resource Corp?

Gold Resource Corp. is a gold and silver miner that is truly focused on profitability from operations and returning capital to shareholders via dividends.

The company's El Aguila project, located in Mexico, is highly profitable despite the big dip in gold and silver prices over the past 3 years. For the first 12 months in initial production, the project produced $36 million on starting capital of $34 million, according to the company. Even in recent times, the mine is still profitable, with cash flow from mine operations of $19.4 million in the second quarter of 2014.

The company has delivered consecutive monthly dividends since July 2010, for a total of $1.86 or $99 million in dividends returned to shareholders. This is huge for shareholders as the dividends can be re-invested and dollar cost averaged with a lower share price, providing downside protection. The company targets a 1/3 distribution of cash flow from miner site operations to dividends. Currently, the stock yields more than 2%.

In addition, the company has managed to maintain a very tight share structure of 54 million shares outstanding, not having to dilute shareholders during the drop in price of gold and silver. So if gold and silver were to take off in price and the company achieves its objective, shareholders can realize far greater gains than if the company had issued shares during the downturn. In addition, management owns 7% of the company.

Gold Resource is aiming to produce close to 125,000 gold equivalent ounces in 2015, which would be a 20-25% increase from 2014 levels. First-half 2014 all-in sustaining costs were impressive at $826 per ounce - far lower than 2013's total of $1,263, when the mill was being constructed. The company remains on track for 2014's production estimate of 85,000 to 100,000 ounces at sub-$850 all-in sustaining costs.

Second Quarter Results Impressive; Stock Appears Undervalued

Gold Resource Corp. reported solid Q2 2014 results. The company reported revenues of $33.7 million and net income of $7.8 million ($.14 EPS) on 24,172 ounces of gold equivalent production.

The net income was due to decrease in total cash cost per ounce of 32% year-over-year. With $.14 EPS on a yearly basis of $.56, and a current share price of $5.40 the company has a P/E ratio of 9.64. Even with full-year EPS of $.40, the stock would still have a low P/E ratio of 13.5.

Other key highlights include $19.4 million in cash flow from mine site operations, $1.6 million in dividends paid out ($.03 for the quarter, paid monthly), and a $438 total cash cost per ounce sold. With approximately $75 million in annual cash flow from mine operations and an enterprise value of $264 million, the stock is currently valued at just 3.52 EV/CashFlow.[color=red][color=red][/color][/color]

The company is also healthy financially; cash and equivalents for the quarter ended totaled $29.6 million increasing 98% during the first six months of 2014. These results were solid, even though the gold and silver prices realized decreased by 7.9% and 17.4%, respectively, year-over-year. Debt obligations are just $3.1 of capital equipment leases.

What are The Risks?

Gold Resource currently has just a 3 year mine life estimate at La Arista, based on a proven and probable reserve base of 381k gold equivalent ounces. This is a very small reserve base for any gold miner.

However, the deposit remains open for exploration on strike and depth and additional work is ongoing to potentially increase the resource estimate and extend the life of mine. I am very optimistic that the company will be successful in this regard. Drill results include super-high grades of 2,600 g/t silver and 27 g/t gold over 2.85 metres. Other results outside of the current resource include .85 metres at 6.98 g/t gold and 139 g/t silver, and .73 metres at 9.9 g/t gold and 598 g/t silver. Rock chip samples at the Las Margaritas property showed silver values as high as 4,150 g/t and 7.76 g/t gold.

The bottom line is that there very good potential to increase the life of the mine and resource base at Gold Resource Corp's properties.

I'm Buying Gold Resource Corp - Even at $1,250 Gold and $19 Silver

Gold Resource Corp. is profitable, undervalued and pays a nice-sized dividend for a company of its sized. With huge exploration potential at its properties, I also feel the company could at least double its life of mine and increase gold equivalent production to 150,000+ ounces. In the meantime, shareholders can re-invest the monthly dividend and wait until higher gold and silver prices come.

I am a buyer of shares below $6 and think investors shouldn't wait to initiate or add to their positions.