Gammon Gold in for a couple of tough years
When you consider we're in one of the most significant bull markets in history, the performance of Gammon Gold (NYSE: GRS), say, over the last five years, reveals an enormous amount of weaknesses in the company, and none of them bode well for them going forward.
The primary short-term problem has been the results of its drilling, which caused estimated gold reserves to plunge by 18 percent last year. That seems to be the primary reason TD Newcrest analyst Steven Green slashed his 12-month target on the share price to $7. He originally had it at $9. As of this writing shares are at $7.19.
Gold mining isn't rocket science as far as understanding it goes. You find gold in the ground and extract it for less than you can sell it for; the end result is profits or losses, like any other business.
The decline in reserves came from the disappointing results at the Ocampo mine in Mexico where drilling over a range of over 115 meters left reserves less than before they started.
Another problem is the reserves they do had has been upwardly revised as to the costs to extract the gold, bringing production guidance down 24 percent in 2010 and 18 percent in 2011.
It's going to be a tough couple of years for Gammon Gold, and other than better cost management, there doesn't seem to be much they can do about it to turn it around.
One thing the company asserts it's going to do is increase production going forward. They'll have to do more than say that though, and come through on the promise.
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