Shares of Gato Silver (NYSE:GATO) fell 15.5% when markets opened on Thursday. This came on top of the stock losing nearly two-thirds of its value at yesterday’s open, which itself can be attributed to a press release on Tuesday. Here’s a rundown of what’s going on – it’s not pretty.
After markets closed on Tuesday, the silver miner announced that there were errors in a recent report on its main asset, the Los Gatos project in Mexico. That was no small mistake, with the company explaining that the mine’s reserve estimates could be 30-50% lower than those estimated in the previous report. He specifically said investors should no longer rely on the report, adding that he was still unsure what the final estimates would be once the information was corrected. This is really bad news, and investors were probably right to sell.
Wall Street analysts also quickly downgraded Gatos Silver’s stock, and further downgrades made headlines this morning. The big issue here is that precious metal miners are priced on both their production and the metal still in the ground to be mined in the future. With that last number in question, investors are abandoning the stock as it likely won’t be worth what was originally thought based on the erroneous report.
Gatos Silver is being punished by Wall Street, and perhaps rightly so given the error in the Los Gatos project’s reserve estimates. But more concerning is the fact that it is difficult to analyze the company without precise reserve figures. The uncertainty is therefore very high at the moment. Most investors should probably stay away until there is more clarity on this issue.
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