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July 3, 2010

Issue 103  -  GORO!

 
 
This week I wanted to focus on my largest stock holding as they had very exciting news this past week.  First off, congratulations to all of you who have bought some of this company because this past July 1st marked a huge step in the company's development.  (As always, this is not investment advice, as I am not a certified financial planner, just information so that you can make your own decision.)  In case you don't know anything about GORO, the company is called Gold Resources Corp and they are an emerging junior gold producer.  I have a previous blog entry discussing the general background here, so I won't go into the basics.  I want to focus on the new developments.
 
This week GORO announced full commercial production:

 

Gold Resource Corporation Announces Commercial Production

 

DENVER, CO--(Marketwire - 07/01/10) - Gold Resource Corporation (GRC) (OTC.BB:GORO- News) (Frankfurt:GIH- News) announces Commercial Production as of July 1, 2010 from its 100% owned El Aguila high-grade gold and silver project. The El Aguila Project is located in the southern state of Oaxaca, Mexico. The Company also announces effective July 1, 2010, the promotion of Mr. Jason Reid to Gold Resource Corporation's President.

Gold Resource Corporation's CEO William W. Reid stated, "It has been a successful team effort with a lot of hard work from our staff and subcontractors which has allowed us to declare Commercial Production three years and three months after making the decision to put the El Aguila Project into production. Support from our local Totolapam Ejido, including support from the three towns of Totolapam, San Jose de Gracia and Las Margaritas, and support from our strategic alliance partner, Hochschild Mining plc were also instrumental to our success."

Gold Resource Corporation made its production decision April of 2007, at that time, having only 3 to 4 years of projected mine life. The production decision was based on the excellent economics at El Aguila that indicated an estimated capital payback for the Project of less than one year. Today, the Company estimates the El Aguila Project's mine life at a minimum of 9 years, predominantly due to its Arista deposit discovered subsequent to its 2007 production decision. Gold Resource Corporation's management is confident that over time the Project's mine life could double or more by expansion of its known deposits alone and is encouraged by its exploration program's recent discoveries including a new high-grade gold and silver area (see Company's June 10, 2010 press release).

Mr. William Reid continued, "We have been consistent in our commitment to our strategy: seek low-cost, high margin projects, place such projects into production at the earliest point in time and keep a disciplined capital structure. This commitment has led to creating significant value to the owners of the Company, its shareholders."

Gold Resource Corporation's Board of Directors voted unanimously to promote Mr. Jason Reid to President of the Company effective July 1, 2010. Mr. Jason Reid previously served as GRC's Vice President of Corporate Development. William W. Reid steps down as President while remaining CEO of the Company.

Mr. William Reid stated, "It is with personal pride that I announce the Board's decision to promote Mr. Jason Reid to President of the Company. Jason has been with Gold Resource Corporation since it was a private company over 4 years ago and has been instrumental in its success. As a Company that demands a great deal of effort at the corporate level from just a few individuals, Jason has handled and assisted in multiple aspects of the Company as VP of Corporate Development. These included the execution of the Company's growth strategy, self underwritten IPO, decisions on operations, activities relative to equity funding, retail and institutional marketing and keeping shareholders informed on the Company's progress. We are confident Jason will take the Company into the next decade and beyond preserving our legacy and building on our unique approach to the business of mining."

Gold Resource Corporation's President Mr. Jason Reid stated, "We are very pleased to report Commercial Production which marks a major milestone for the Company and its shareholders as we emerge as a low cost gold producer. This milestone is a credit to all involved and particularly our Mexican subsidiary's dedicated staff. I am honored to be the new President of Gold Resource Corporation and honored to continue working with our competent, professional and hard working group of people. I am not only motivated, but committed to continue execution of the Company's business strategy for the benefit of its shareholders."

Mr. Jason Reid continued, "Many challenging aspects of the mining business, including deposit discovery, permitting, engineering, funding, construction, establishing a team of professionals and executing Commercial Production are now behind us. We have met these real and complex challenges but our work continues. We now enter a new phase focusing on our aggressive growth curve targeting to triple annual production to 200,000 precious metal gold equivalent ounces three years from today, at zero cash cost using industry standard base metal byproduct credits."

"With cash flow from successful operations we plan to accelerate our aggressive exploration program, target additional low-cost gold and silver ounces and remain focused on potential dividend distributions," stated Mr. Jason Reid.

This is very exciting and now clears the way for this company to turn into a cash cow.  The mine is now up and running at full planned capacity.  The speed with which they accomplished this is quite remarkable compared to other companies I have watched.  They have been producing concentrates for some time and have shipped over 200 tons.  Concentrates are the mined rock which has been processed so that the amount of gold in the "dirt and rock" is many times higher.  GORO has achieved concentrations of 150 times.  This means that each ton has at least 750 grams of gold which is about 24 ounces of gold.  At $1,200 gold, this is over $28,000 per sack of concentrate.  This means GORO has shipped $5 million dolIars of gold.  This has been in a very short time frame.  I would highly recommend looking at the corporate presentation which is located at their web site  http://www.goldresoucecorp.com.  I would also suggest you look at the photos section which is also on the home page, particularly slide 26.  This shows a large quantity of concentrates being scooped up for loading into large bags.  This is cold, hard cash.  I like that.
 
There were a couple other things that made the week even better for GORO.  First, the stock price reached an all time high of over $13.  It closed the week at $12.88.  If gold hadn't been trashed for $40 on the day of their announcement, the price would probably have topped $14.  This is not discouraging, as this gives the opportunity to buy more.  At this point I feel the company has a value of at least $20 a share.  Buying up to $15 should be fairly save now that production has commenced and money is pouring in. 
 
The second and most exciting thing that happened is the addition of a little image on the home page.  Look at the site and notice this:
 
 
 
This is confirmation that this company is going to do what they have promised from the beginning, pay a dividend.  Not that paying a dividend is unusual for a gold company, many top tier gold companies pay one, but the intention to pay a SUBSTANTIAL dividend.  This little box shows the term "special" dividend which is basically a nonrecurring one.  Microsoft did one of these back in 2004. 
 
GORO has pledged to issue a 1/3 of cash flow dividend back to shareholders.  This is without precedent.  If they follow through with this, and this little picture is pretty good evidence, this stock will fly.  Now you may say that the boxes are blank, and that is true, but they would not have put this picture on their site if they weren't going to have a dividend.  That would be pretty stupid. 
 
Another big positive is that this means no more stock issues.  They have had several stock issues to raise funds.  Distributing a dividend means they think no more external funding will be necessary.  This is huge.  This company is looking as good as gold.  If you watch their presentation, they have hypothetical stock valuations based on future fulfillment of their goals and the price is around $40 a share!   This also assumes $950 an ounce gold.  That is very conservative.
 
To be fair, now the possible negatives.  Obviously anything could happen from an earthquake to pandemic, but this is true for any company.  The two major possibilities I see are the Mexican government raising taxes and the Mexican drug cartel interfering.  The tax issue would merely lower the valuation of the stock, not destroy it, so I'm not too worried about that issue.  The drug cartel activities are primarily in the north and GORO's properties are located in Oaxaca:
 
 
Therefore, I view this as a low probability issue.  Overall, there are very few drawbacks to this company at this point.  I have been watching stocks for over 25 years and this is one of the best positioned companies I have found.  I have a significant position in GORO and have no intention of selling at this point.  If you have any questions about the company or investing in it, let me know.  PLEASE do your own due diligence and at least look at the pictures and company presentation.
 
One of the nicest things about GORO is that they are projecting a very low production cost of gold, less than $200 a ounce, so they don't need gold to sky rocket or even stay where it is.  Gold could drop significantly and GORO would still make lots of money.  With things like this happening, I just don't see the price of gold falling much:
 

South African gold output falls hard


Allan Seccombe | Wed, 02 Jun 2010 11:27
[miningmx.com] -- IN an all too familiar announcement in recent years, the South African Chamber of Mines reported the country's first quarter gold production fell 15% quarter-on-quarter, extending the downward slide in output. South Africa has fallen quickly from the top of the perch as the world's largest gold producer. It is now behind China, the United States and Australia. Its mines are becoming deeper and more expensive to mine and grades, which is the measurement of the amount of gold in each tonne of ore hauled to the surface for treatment, is dropping. The latest gold output data shows no signs of arresting the fall in production. South Africa produced 43,927.8kg of gold in the first three months of 2010, which is 15% less than the December quarter and 12.4% down on the same period a year ago. "Gold mining companies lost an average of about 18 days of production during the quarter as the impact of the latter part of the Christmas holidays affected production," the chamber said in a statement.
 
Or the price of silver:
 
Production of United States Mint American Eagle Silver Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Silver Bullion Coins. Currently, all available silver bullion blanks are being allocated to the American Eagle Silver Bullion Coin Program, as the United States Mint is required by Public Law 99-61 to produce these coins "in quantities sufficient to meet public demand . . . ."

The United States Mint will resume the American Eagle Silver Proof and Uncirculated Coin Programs once sufficient inventories of silver bullion blanks can be acquired to meet market demand for all three American Eagle Silver Coin products.

These things are happening more and more and yet the price seems to rise very slowly. (in the case of silver, fall)  Why?  Could this be a factor:
 
Was AIG, In Addition To Being The Riskiest Company In The World, Also A Precious Metals Manipulator?
Submitted by Tyler Durden on 06/30/2010 22:46 -0500
 
I didn't include the post as it's long and you can visit Zerohedge.com and read it yourself, but the gist is that AIG was allowing derivatives in the commodity market.  They were the counterparty on huge bets.  The question now, is, who has them?  Let's think.  Who bought AIG?  Oh, that's right the U.S. Government.  But wait, governments don't interfere in markets, right?  Not so much: (another one from Zerohedge)

 

German Economics Minister Confirms Fed Manipulates The FX Marketzero hedge


10-05-28 10:23 AM Tyler Durden Bank of England Ben Bernanke BOE Central Banks Federal Reserve Swiss National Bank
The German Economics Minister Rainer Bruederle has just confirmed precisely what many have known and said for years, namely that the US Federal Reserve is active in the secondary markets, in this particular case in FX. While not so much of a secret for some of the fringe players such as a the SNB, BOE and BOJ, the Fed has never had a formal statement on currency intervention, as, of course, it would have been seen as a sign of weakness (and allegedly could be considered an unconstitutional activity). And why would anybody dream of manipulating the world's strongest currency. Of course, if Bernanke manipulates currencies, as has now been confirmed, it is more than clear that he directly buys and sells stocks in the secondary market, and/or Treasuries in the primary. We wonder what other juicy disclosure Bernanke's trans-Atlantic CB colleagues will announce once they are cornered about their recent market manipulative conduct.
From Dow Jones:
The U.S. Federal Reserve is also active in currency markets, German Economics Minister Rainer Bruederle said Friday.
His comments come on the heels of remarks made by his Swiss counterpart who said that the Swiss National Bank purchased euros to buttress the single currency.
"It is a regular procedure of central banks," to intervene in currency markets, Bruederle said. "It is not a secret," that central banks have a foreign exchange rate target, he added.
Bruederle said "eruptive" movements have to be avoided. He previously said that China holds 25 percent of its foreign exchange reserves in euros.

 
The intervention is known by the foreign leaders and yet our media acts like you're wearing a tin foil hat to even suggest that the Fed is involved in the markets.  Wise up and stop listening to the financial talking heads.  They are useless, no worse than useless, they are dangerous to your financial well being.  One of the few left who actually gets it, and will say so:
 

MSNBC’s Ratigan: Stock market an ‘obviously corrupt’ fraud

 
By Daniel Tencer
 
 
 On his afternoon show Tuesday, MSNBC host Dylan Ratigan explained why he believes the usual explanations given in the media for why the stock market went up or down on a given day are nonsense.
"Seventy percent of the volume [of trades on the stock market] is computers that are run by the banks playing ping pong with stocks for 10 seconds at at time," Ratigan said.
"The stock market at this point, which used to be a reflection of the future value of actual businesses in this country, has been turned by our government and our banks into little more than a paper shredding facility [about which] we can make up reasons why it goes up and down," Ratigan said. "But when the computers ... at the banks are controlling the action, most everything else is kind of silly."
Ratigan concluded that it's time to create an "alternative investment structure" that would allow people to invest their money without putting it "into the obviously corrupt stock market in this country."
Ratigan was referring to the relatively new phenomenon known as high-frequency trading: High-speed computer programs that are able to "peek" at stock trades less than a second before the trades are made. If the computer sees that a trade about to be made will raise the price of a particular stock, it can purchase the stock in the split-second before that trade is made.
 
This is why I pulled out of the broad market a few weeks ago.  It is really a giant roulette table.  Not saying I won't jump back in, but I need to see it go a LOT lower before that happens.
 
Last week I showed the sign in Arizona from the Federal Government.  Here is the governor of Arizona, Jan Brewer, telling what she thinks of them:
 
 
 
Another video I saw this week is of the Speaker, Nancy Pelosi.  Now you would think that someone in that position would have two economic brain cells to rub together.  Maybe not:
 
 
Here is someone two steps from the presidency, and she thinks sending more unemployment checks out, to unemployed people, will increase the number of jobs?????  Is she on crack?  How can the government sending money they don't have to people without jobs, lower unemployment?  Mindboggling.    I'll finish this week with a video in honor of July 4th.  Have you ever strung a bunch of firecrackers together?  I bet you didn't have this many, have a great 4th!