September 21, 2010 - 9:55pm EST by
2010 2011
Price: 18.15 EPS $0.00 $0.00
Shares Out. (in M): 53 P/E 0.0x 0.0x
Market Cap (in $M): 969 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 915 TEV/EBIT 0.0x 0.0x
Borrow Cost: NA

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I believe Gold Resource Corporation (Ticker: GORO) is simply overpriced.  Investors in the current market environment seem to prefer speculating on gold and silver miners.  GORO appears to be no exception to this.  Rather it appears to trade at valuation levels that are speculative and unsustainably high  -- it has no EPS, EBITDA, sales, multiple or  proven & probable reserves.  I view an investment in this company's stock as a lottery ticket that is unlikely to pay out.  The risk to the short thesis is if the company begins a significantly profitable production effort and successful exploration drilling effort.


Gold Resource Corporation stock was previously on the OTC Bulletin Board.  It recently moved to the AMEX market.


On September 19, 2010 GORO announced a $55.6mm PIPE offering.  Given the difficulty of locating shares to borrow this could provide a catalyst for shares to drop as PIPE buyers sell their stock after it becomes registered.


I spent a lot of time trying to uncover anything untoward about GORO.  I could not find anything untoward.  I did, however, find many red flags that, when taken together with its current valuation, make it a good short: 


  1. GORO doesn't have a single ounce of proven/probable/inferred reserves or resources.  The Form 8-k filed on September 20, 2010 says (emphasis added):
    U.S. investors should be aware that the Company has no "reserves" as defined by Guide 7 adopted by the United States Securities and Exchange Commission (SEC) and are cautioned not to assume that any part or all of the mineralization will ever be confirmed or converted into Guide 7 compliant "reserves."
  2. Their auditor appears to be an "unknown" in the realm of public company accounting.  Their auditor does not appear to have a single other public company client.
  3. Management (Reid family) owns 20% of the stock at a near-zero cost basis.
  4. The company has raised $163 million since inception via stock sales, and has yet to earn a single dollar of revenue.
  5. The company has just filed a proxy that asks shareholders to approve increasing the number of shares outstanding, and the number of options/RSU's in the compensation plan by nearly 70%.
  6. The company only talks about "mineralizations."  To me this is a meaningless term.
  7. The risk section of its most recent 10-K, filing dated March 15, 2010, says (emphasis added): 

    We have no proven or probable reserves, and the probability of an individual prospect having reserves is extremely remote. Therefore, in all likelihood, our properties do not contain any reserves, and any funds spent by us on exploration or development could be lost. We have not established the presence of any proven or probable mineral reserves, as defined by the SEC, at any of our properties. The SEC has defined a "reserve" as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Any mineralized material discovered by us should not be considered proven or probable reserves. 

Establishing reserves requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically extracted and produced. We have not completed a feasibility study with regard to all or a portion of any of our properties, nor do we intend to perform such feasibility study at this time.

  1. GORO has been burning $6 million per quarter and funding itself via private placements to Hochschild.  Hochschild, an early backer, has recently said that they are not going to fund outside investments (in lieu of organic projects).
  2. The company doesn't have a single sell-side analyst who covers its stock.  This seems odd for a company with close to a $1 billion market capitalization.  In an unscientific survey I found several billion dollar companies with 5-15 analysts covering them. 
  3. GORO doesn't hold conference calls to report results to the buy and sell sides, nor does it issue any press releases to announce quarterly results.
  4. As of June 30, 2010 GORO had $22 million of assets.
  5. GORO has never sold a single dollar of gold. 
  6. The company is paying its investor relations consultant by selling it discounted blocks of GORO shares (page 11 of 10-Q dated August 8, 2010). The non-cash expense associated with a recent May 1, 2010 discounted stock sale was $307,000.



In summary, I believe GORO's valuation is too high given the the aforementioned issues taken in conjunction with its lack of earnings, cash flow, assets and reserves.  The PIPE transaction is the first major stock sale to the public by GORO and could be a major headwind for the stock going forward.











 The author of this posting and related persons or entities ("Author") currently hold a short position in this security. The Author makes no representation that it will continue to hold positions in the securities of GORO.  In fact the Author is likely to buy or sell long or short securities of this issuer and makes no representation or undertaking that Author will inform Value Investors Club, the reader or anyone else prior to or after making such transactions.  Additionally, because the Author has these current positions the reader may assume that the Author is biased in favor of his investment view and may also be mistaken.  While the Author has tried to present facts it believes are accurate, the Author makes no representation as to the accuracy or completeness of any information contained in this note.  The reader agrees not to invest based on this note and to perform his or her own due diligence and research before taking a position in securities of this issuer.  Reader agrees to hold Author harmless and hereby waives any causes of action against Author related to the above note.




Decline in interest for Gold stocks
Realization that it appears GORO will never produce gold
registration (and subsequent sale) of PIPE shares
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