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(UPDATED) Famous last words, Gold Resource Corp (GORO) edition

There were many words and thoughts in IKN228, out last Sunday, but this short line is how it ended (ok, 2nd last thing to be exactly exact).

That was with GORO at U$8.30, which was a price available to short yesterday, too. I’ve just seen $6.50 printed, so that’s 21.7% since the weekend. 
On Sunday I also mused about making the current short position into a Top Pick. Just sayin’

UPDATED: By request, here’s the main write-up piece on GORO from IKN228 dated Sunday September 15th. Looks like the only thing wrong was the last sentence; you had 24 hours, not two weeks:

Gold Resource Corp (GORO): Am I allowed to make a short into a Top Pick? Would you people out there complain if I did? It’s not really about the way that Reid pere has passed the baton on to Reid fils, as seen last week (8), because the corporate style (both operational and promotional) isn’t about to change, we know that the news last week isn’t some sort of harbinger of new brooms or a change towards a serious attitude at the company. What’s more, I do get that a speculative junior gold name with a fanclub following and promotional pump from the anal yst community will see the type of rebound move we saw in it on Friday, so that’s not the issue here. 

The issue it its fundamentals, and GORO is about to hit some serious headwinds that not even its biggest promo artists will be able to ignore.  

1)      In two and a bit weeks’ time, Hochschild (HOC.L) will be allowed by SEC rules to dump another large tranche of the GORO shares it owns onto the market. It will do so,  and sooner rather than later. 

2)      At the current price for silver (and gold, but Ag is the main revenue generator) GORO is not making a profit on its operations. Let’s be clear about what that means; it means before it pays any dividends to shareholders and before it pays tax, the combination of operating costs, necessary development, necessary exploration and G&A mean that GORO makes a loss. Silver under $23/oz means GORO is a lossmaking mining company, period. 

3)      At some point the company will have to make the decision to lower its dividend payments, else the depletion of treasury will continue. That’s not opinion, that’s basic mathematics. 

4)      Mid October will see GORO releasing its 3q13 production numbers, which are unlikely to be anything else but in-line. 

 As per Friday’s close, GORO is running a market cap of $442m and I doubt it’s worth even half of that, but I’m happy enough in keeping with the $5 downside share price target. That’s a 40% upside to this short position from here and unless silver and gold put in a serious rally, we’ll see $5 printed on this stock. Today’s GORO, especially after that Friday rally, is screaming value at me and there’s perhaps two weeks of window in which to position yourself to the downside. 

Oh, we hear that the dumpage today is due to a “big newsletter” sell call. The only surprise on receiving that mail from a contact was to read that there are still big newsletters left out there. And oh yeah, the other thing, we note that GORO is now only 16% down on the day. Well, bet that’s a relief for longs. 

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