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Why Rio Alto Shares Got Rocked

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of resource miner Rio Alto Mining (TSX: RIO) plunged as low as 9% today after its quarterly results and outlook disappointed Bay Street.

So what: The stock has slumped over the past year weak resource demand, and today’s Q2 results — net loss of $3.2 million or $0.02 per share — coupled with downbeat full-year guidance only confirm those operating headwinds. While gold production and sales of 48,467 ounces exceeded mine plan expectations by 11%, low gold prices continue to weigh heavily on the bottom line and, more importantly, management’s future development plans.

Now what: While Rio Alto expects to meet its year-end gold production guidance of 190,000-210,000 ounces, it also plans to cut back significantly on spending. “[G]iven the current lower gold price environment, we have reduced capital spending plans to those items with short payback periods or necessary for health, safety, environmental and community relations programs,” said President and CEO Alex Black. “We also continue to focus on cost reduction opportunities and improving efficiencies throughout our operations.” So while Rio Alto’s leverage to volatile gold and copper prices make it far too risky for average Fools, less risk-averse investors might want to use today’s plunge to buy into its still-tantalizing Latin American exposure.

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Fool contributor Brian Pacampara doesn’t owns shares in any of the companies mentioned.  The Motley Fool does not own shares in any companies mentioned at this time.

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