AUQ - Investopedia article When companies have to deliver bad news, they sometimes turn to a professional group of publicists that work in investor relations (IR), a sort of public relations play for the Wall Street crowd. These IR pros are adept at spinning bad news into good news, but investors often see right through it. Perhaps the executives at AuRico Gold were hoping for a positive market reaction when they issued a press release noting that activity at a key mine will be stalled for "further development." No matter the explanation, investors spotted trouble, and have pushed shares down more than 20% this morning.
Dig past the press release, and you'll discover that AuRico has been beset by labor troubles at its all-important Ocampo mine, and the fresh delay appears to stem from an inability to find enough workers to staff operations. This is actually an issue dogging many mining firms: Mine workers have been pushing for improved working conditions and higher pay across the globe, and mine operators have been hesitant to meet all the workers' demands. Slowdowns and stoppages have been taking place throughout much of the past year.
Beyond the labor issues, AuRico is also spending more now to become a lower-cost producer down the road, and in the perverse logic of Wall Street, higher levels of near-term investments in the business are a punishable offense.
Irrespective of AuRico's near-term expense bulge, mining is still quite profitable, as long as commodity prices stay firm. And in all likelihood, the sudden $400 million haircut to AuRico's market value is likely larger than the actual long-term loss the company will suffer from mining delays. The nice thing about mining is that what you don't extract today, you can extract tomorrow.
And Barry Allan, who follows AuRico for Mackie Research, noted in mid-August that "AUQ is a company in full transition -- from a higher-cost producer, to a bigger lower-cost producer -- and in doing so, becomes a well-capitalized gold producer with excellent growth prospects. This transition over-hangs the share price." He sees shares eventually rebounding to $15, which represents the net asset value (NAV) of the company's mines.
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