Why the Doray Minerals Limited share price plunged 25% today

Unfortunately for its shareholders, in afternoon trade the Doray Minerals Limited (ASX: DRM) share price is one of the worst performing shares on the local share market.

At the time of writing the gold miner’s shares are down 25% to 22.7 cents.

What happened?

This morning Doray Minerals announced that production at its Andy Well underground mine in Western Australia will be suspended from November 2017.

According to today’s release, the miner has undertaken a number of studies to investigate the potential for combining the Andy Well underground mine and the Gnaweeda Project as a single operation in order to optimise cash flows and profitability.

Unfortunately as these studies progressed, underground mining at Andy Well revealed a reduction in strike length of both the Wilber and Judy ore bodies.

Ultimately, this has led to a reduction in production and means that the operation’s forecast unit costs remain uneconomically high.

What now?

Production at the Andy Well mine will be suspended on November 1 and placed on care and maintenance for the foreseeable future.

There is still a significant resource at lower levels, but until management can find an economical way of extracting it, the operation will remain suspended.

According to a recent investor update, Andy Well was expected to contribute approximately a quarter of the company’s gold production in FY 2017. So the loss of the operation will be a big blow for the company.

Pleasingly, management remains confident that this won’t impact its ongoing debt repayments under its existing facility with Westpac Banking Corp (ASX: WBC). At the last count, Doray’s net debt stood at $23.4 million.

Should you buy the dip?

As I’m bearish on the gold price you won’t find me buying the dip. But if you are bullish on gold then Doray Minerals could be worth a look following its sizeable decline. Though I would suggest investors consider Newcrest Mining Limited (ASX: NCM) ahead of it.

If you're a bit of a gold bear like me, then these growth shares might be better options.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking Corp. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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