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Why Gold Resource Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of gold explorer Gold Resource (NYSE: GORO  ) plunged 14% today after revising its 2012 production outlook.

So what: Gold Resource managed to produce 22,300 ounces of gold equivalent in the third quarter -- a 64% increase over the year-ago period -- but downbeat production for the full year is forcing Wall Street to lower its valuation estimates yet again. Challenges in underground development at its El Aguila Mine continue give the company headaches, triggering even more uncertainty surrounding production.

Now what: Management now sees 2012 annual production of 85,000-100,000 ounces of gold equivalent, down from its most recent view of 100,000-120,000. "We are currently focused on reducing dilution in our long hole stoping methods, implementing cut and fill mining in certain zones to minimize dilution and working to improve overall operational efficiencies," President Jason Reid reassured investors. Given that today's revision is the second time in three months that management has dropped its 2012 production guidance, I'd be extremely cautious about buying into that optimism.

Interested in more info on Gold Resource? Add it to your watchlist.

Fool contributor Brian Pacampara has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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