If Gold Resource (NYSEMKT: GORO) is quite finished shooting itself in the foot, investors would no doubt like to get back to the important matters of the day.
As if to fan the flames of discontent that precipitated a barrage of lawsuits and investigations over the past couple of weeks, Gold Resource announced a pending restatement of filings from the first two quarters of 2012 and announced that third-quarter results will be delayed accordingly. In a nutshell, GORO has settled a dispute with the buyer of its precious-metal concentrates, cutting its losses on 1,800 ounces of contained gold-equivalent (78% of the total disputed amount of 2,300 ounces).
GORO states that its own investigation of the matter uncovered "significant issues with controls and security at the buyer's concentrate yard that may have compromised and affected various concentrate samples" but then adds the excessively vague caveat: "the buyer has asserted defenses that other unrelated factors may have affected the Company's concentrate samples," Unfortunately, the investor is left in the dark with an unsatisfactory explanation of the underlying events.
Additionally, GORO disclosed Friday that the company has identified "an internal control deficiency in its concentrate sales process that did not prevent or detect on a timely basis the material variance between preliminary assay samples of the concentrates taken at the mine site with those assay samples taken at the buyer's warehouse." According to the release, "this deficiency constitutes a material weakness in the Company's controls over financial reporting." Although GORO claims that the deficiency has since been remediated, things are spiraling out of control in a hurry here for this once-popular dividend payer.
Assuming the smoke does swiftly clear from this unfortunate string of administrative mishaps, the next step for GORO is to provide investors with a detailed update of operations at El Aguila. Trust has been damaged by the totality of recent developments, and it is primarily through the fastest-possible achievement of previously envisioned production rates, cash costs, and average ore grades that GORO stands to regain that eroded trust from investors. For now, I'm keeping GORO's management on a short leash -- just as the market has done with Coeur d'Alene Mines (NYSE:CDE) -- until I see strong signs that the miner's administrative and operational houses are each returned to a semblance of order.
The mining industry offers a never-ending array of challenges to operators of all shapes and sizes. Even the top management teams in the business -- as in the case of Goldcorp (NYSE:GG) -- will inevitably have their share of rough patches thrown their way. Fortunately, well-run standouts like Yamana Gold (NYSE:AUY) and New Gold (NYSEMKT:NGD) offer investors some notably headache-free trajectories (knock on wood!) to offset the seemingly ceaseless supply of setbacks. I'll keep watching GORO for signs that the company has regained control over its trailing challenges, but in the meantime I encourage investors to approach with caution.