Gold Resource Corporation is an established gold and silver miner with operational mines in Mexico and Nevada. Its Oaxaca mine has been operational since 2011, and as a polymetallic mine has been producing both gold and silver as well as other by-products like copper, zinc and lead (80-90,000 ounces per year).
GRC’s second mine in Nevada (Isabella Pearl) is a pure gold mining operation that is expected to produce about 40,000 ounces of gold a year. Combined, the company will be producing as much as 120,000 ounces of gold equivalent a year.
The company is unique in our view in that it has been able to put two mines into production without using any debt – GRC’s first mine was put into production using equity placements while the new mine was financed using cash flow from the existing operation.
Based on current metals prices, the Oaxaca facility generates between $20-$25 million per year in free cash flow. The free cash flow on a combined basis could be as much as $50-60 million a year. A large portion of that free cash flow is intended to be dividended out of to shareholders, according to company management.
How can a gold minder pay out dividends consistently?
But how can a mining operational like Gold Resource Corporation pay out dividends so consistently? The dividend policy has been supported by the production from the Mexican mine, which came into production just after gold had its big move in 2009-12.
The company pays a monthly dividend and as a shareholder you can take the dividend in either cash or in precious metals: GRC produces gold and silver ‘rounds’ which can be used to pay dividends.
The Mexican mining operation is less sensitive to swings in the precious metal prices, as it is poly-metallic and produces some base metals as well as gold and silver. With Isabella Pearl coming onstream, the company will be a little more sensitive to the gold price.
Gold Resource Corp trades on the New York Stock Exchange and is relatively liquid for a company of this size. It is a miner that can still return some value, even with a flat gold price, because of the management’s intention to continue to pay out dividends from free cash flow. Their plan is to increase the current dividend from 1% yield to as much as 5-6%.
The miner raised cash via equity private placement prior to opening the Mexican mine, peaking at $33/share over a four-year period. Investors seem to value the shares because of the miner’s established dividend policy.
Bear in mind that Gold Resource Corp has no debt. The downfall of many mining companies is holding too much debt on their books – a downturn in metals prices can impact many mining firms and the mining bear market has impacted a lot of companies – but investors in Gold Resource Corp will be taking less of a risk in this respect.
Like all miners focused on gold and silver, Gold Resource Corp is still susceptible to precious metals prices to a degree, but will likely be more robust than many.
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