What happened
Shares of Gatos Silver (GATO -0.21%) fell 15.5% at the open of trading on Thursday. That came on top of the stock losing nearly two-thirds of its value at the open yesterday, which itself can be traced back to a news release on Tuesday. Here's a recap of what's going on -- it isn't pretty.
So what
After the close of trading on Tuesday, the silver miner announced that there were errors in a recent report about its main asset, the Los Gatos Project in Mexico. This was not a small mistake, with the company explaining that the reserve estimates for the mine could be 30% to 50% lower than was estimated in the earlier report. It specifically stated that investors should no longer rely on the report, adding that it was still uncertain what the final estimates would be once the information is corrected. That is really bad news, and investors were probably correct in selling.
Image source: Getty Images.
Wall Street analysts were also quick to downgrade Gatos Silver's stock, and more downgrades hit the news this morning. The big problem here is that precious-metals miners are valued based on both their production and the metal still in the ground to be mined in the future. With the latter number in question, investors are dumping the stock because it likely won't be worth what was originally thought based on the erroneous report.
Now what
Gatos Silver is being punished by Wall Street, and perhaps rightly so given the mistake in the reserve estimates at the Los Gatos Project. But more concerning is the fact that it is hard to analyze the company without accurate reserve numbers. So uncertainty is very high right now. Most investors should probably stay on the sidelines until there's more clarity on this issue.
