Gammon Gold (GRS) Ends Labor Disruption at El Cubo

After a drawn out affair, the battle between Gammon Gold (NYSE:GRS) and unions over its 100 percent owned El Cubo mine has been resolved.

Commenting on El Cubo, Rene Marion, President and CEO, said in a press release, "We have been steadfast in our view that to unlock the true value of El Cubo, significant amendments to the Collective Agreement would be required. We now look forward to rehiring our employees and operating and growing this asset to the benefit of Gammon Gold stakeholders under a Collective Agreement that supports enhanced operational and cost efficiencies that will benefit both the Company and our workforce and their families."

"As operations at the El Cubo mine have been suspended since June 2, 2010, the Company will initially focus on evaluating the underground conditions and mine facilities to develop an operations plan that will allow production to recommence as soon as possible. Production operations will be phased-in as management retrains employees and develops sufficient mining areas to allow the proper sequencing of underground mining activity as the mine ramps up to full scale production, added the company in the press release.

Gammon closed Wednesday at $9.08, falling $0.21, or 2.26 percent.

Gammon (NYSE:GRS) Earnings Rise on Increased Gold Prices and Production

Higher gold prices continue to be the story for most gold miners during the earnings reporting season, and Gammon Gold (NYSE:GRS) (TSE:GAM) also had earnings increases from higher gold prices, and from higher production as well.

Earnings from the quarter rose to $11.4 million, or 8 cents a share, an increase over the $3.4 million, or 3 cents a share last year in the same period.

Revenue for the quarter increased from $57 million, a gain of 32 percent. That was driven by the average price of silver and gold for the quarter.

Gold price averaged $1,201 an ounce, while silver had an average price of $18.47 an ounce.

Gold production in the quarter increased to 52,506 gold equivalent ounces, in contrast to 50,814 ounces in the same quarter last year.

The company did take a big hit from the suspension of their El Cubo mine in Mexico, taking a net loss of $180.3 million, or $1.30 a share on that.

Gammon Gold (AMEX:GRS) a Contender or Pretender?

How long can the narrative of potential be applied to Gammon Gold (NYSE:GRS)? It's not an easy question to answer, but the beating it's been taking lately shows investors aren't believing the story anymore, especially after completely shutting down their El Cubo mine from labor unrest.

Consequently, whether you use Toronto or New York as a measure, the stock has been hit hard and at similar levels at either exchange.

The P/E on Gammon is a huge 93.16 as well.

Interestingly, Scotia Capital upgraded the beleaguered stock from "Underperform" to "Sector Performer" last week, and the share price has risen a little since then.

One potential positive for the company is they can now focus primarily on their Ocampo mine, which had been generating 77 percent of the reserve base of the company, and which resources formally used at El Cuba have now been transferred there.

While this could be a buying opportunity after the stock has plunged, the overall story still must make sense, and Gammon has yet to prove their narrative and the reality are one and the same.

Gammon Gold (NYSE:GRS) Reduces Production Projections Again

Gammon Gold (NYSE:GRS) is taking a big hit on its production estimates for 2010, as closing the El Cubo project will result in approximately 25 percent less production for the company overall.

This is the second time in 2010 Gammon has had to downwardly revise their production estimates.

Before the turmoil, the mining company had estimated it would produce from 150,000 to 160,000 ounces of gold for the year, and about 6.1 million to 6.85 million ounces of silver.

Now they've lowered those estimates to 100,00 to 110,000 ounces of gold and 4.4 million to 4.95 million ounces of silver.

Rene Marion, Gammon CEO, said they'll focus primarily on their gold-silver Ocampo project in the near term, while increasing the pace of their exploration.

"Management focus for the balance of the year will be on expanding productivity at our Ocampo mine as well as bringing new discoveries into production in 2011 and the acceleration of exploration programs at our properties," said Marion.

Gammon Gold (NYSE:GRS) Fires Almost 400 in Mexico

Gammon Gold (NYSE:GRS) fired 397 low-producing union workers at its El Cubo mine in Mexico, while also filing criminal charges against seven union leaders.

Gammon has also suspended operations at the mine indefinitely until the consider which options it wants to take next.

Usual attempts from union members like those here to shake down the company, in this case - illegally, caused the decision to be made, as well as financial demands from these union workers that were described as “untenable.”

“Although the company continues to believe in the potential of this property, given its location in one of the most prolific mining districts in Mexico, the board and management have a fiduciary responsibility to invest in operations that provide a positive rate of return for its shareholders,” said Rene Marion, president and CEO of Gammon.

“The ongoing challenges caused by the relentless distractions of union labor disruptions and sub-optimal performance have rendered the El Cubo mine uneconomic and any further investments, including management's time and effort, are not justified.”

Shares of Gammon dropped almost 10 percent on the news, ending the session at $6.78 in New York, falling $0.74 cents on the day.