Congratulations are in order because, after more than two years, Gold Resource Corp has "grown up" and on Monday will be trading on the AMEX exchange where institutional investors are comfortable. When I'm investing in Jr miners I'm always looking for one which I can expect will "grow up". Growing up triggers, ordinarily, the revaluation of a miner to something closer to established mid-tier miners.
This post will be a little be retrospective because GORO represents a significant investing success for me. This is partly due to luck but also due to a key lesson I've learned: Only invest in Jrs which can "grow up". Here's what I wrote about growing up in August 2008 (when everything was falling apart in the Jr miner world): "the main hope for a Jr ... is to either "grow up" to the point where institutional money would consider buying the individual stock for its worth (having achieved mid-tier production levels and having left the Venture exchange for the TSX or the AMEX exchanges) or to have a resource big enough and valuable enough to be a major's takeover target. For production I reckon this to be more than 100K oz gold / year or 5 million oz / silver per year. I reckon 2 million gold oz is a "big enough" resource to be a takeover target."
I believe GORO has either achieved or is on the verge of achieving all of those criteria:
- Left the .OB for the AMEX exchange - happens Monday.
- Big enough to interest institutional money - much more institutional interest should follow the AMEX listing.
- Big enough resource to be a major's (in GORO's case Hochschild's) takeover target - Hochschild is doing what it can to takeover GORO. This is great price support.
- 100 oz gold /year production - coming "soon".
- 2 million gold oz resource - official proven / probable coming "soon".
Gold Resource Corp has been my biggest holding for quite some time. My earliest post referring to the company was Feb 24, 2008 and can be found here. It begins: "I consider Gold Resource Corp (GORO.OB) to be a hidden asset play. The hidden asset is high-grade gold-ore".
GORO.OB was trading at $4.17/share then and now, two and a half-years later, it closed Friday at $14.29. This is a roughly 240% gain. Wouldn't investing be boring if every stock you picked did that? You'd soon be spending more time deciding at which four-star restaurant to dine than analyzing the markets.
Here's a rich one from the 08 post: "GORO has targeted production at the El Aguila open pit mine to commencing before the end of 2008.". Actual commercial production was announced a year and a half behind schedule on July 1, 2010.
Here are my takeaways from the GORO experience:
- Great, undervalued rocks make up for missed schedules.
- Add in competent, stockholder friendly management and you've got a great combination.
- Being lucky or smart on the price of the underlying metal certainly helps.
In October of 2009 when GORO was trading at 9$, a news letter writer who I really respect cautioned me: "40% of your retirement money is way way way too much to have in an OB. I don't care if it's the next MSFT, it's still too much.". I try to maintain a teachable spirit so I sold about 25% of my holdings. After it kept going up I decided I would just ride what remained until I found an investment I liked better. I'm still riding even though GORO is back up to 36% of my retirement savings.
At this point there is a nice set of catalysts shaping up for GORO:
- Trading on the AMEX making it available to a much wider set of investors (most sensible people wouldn't touch a .OB stock).
- Trading above $15.00 per share opens it up to a much wider set of institutional investors (who often have $15/share as a lower limit on what they can buy).
- Several months of drill results.
- Actual Proven / Probable Reserves instead of the rather dubious "Mineralized Material" they currently tout.
- Actual production results and progress towards their 200K oz/year 3-year production goals.
- Continued dividend payouts.
- Continued price of gold and silver rises.
I guess I'll keep holding until it stops rising on good news, hits serious bad news (or until I find something I really like better).