Gold Resource Corporation
Q2 2017 Earnings Call Transcript

Published: 6 Aug 2017

[Operator:]

Thank you for joining the Gold Resource Corporation's 2017 Q2 earnings conference call. Mr. Jason Reid, President and Chief Executive Officer, will be hosting today's call. Following Mr. Reid's opening remarks, there will be a question-and-answer period. As a reminder, today's call is being recorded. Please go ahead, Mr. Reid.

[Jason Reid:]

Thank you. Good morning, everyone, and thank you for joining Gold Resource Corporation's 2017 second quarter conference call. I expect my brief comments to run approximately ten minutes, followed by a question-and-answer period. Joining me on the call today for the Q&A portion will be Mr. John Labate, our Chief Financial Officer. Let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday, along with the comments on this call, are made only as of today, August 2, 2017, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in our Form 10-K filed with the SEC for the year ended December 31, 2016. Second quarter highlights include net income of almost $1 million or earnings of $0.02 per share; mine gross profit from our Oaxaca Mining Unit of $5.2 million; our cash balance held steady from first quarter at over $16 million, which is still an increase of over $2 million compared to the same quarter of 2016. We extended the strike length of our Arista Mine’s Switchback vein system by another 50 meters with high-grade gold intercepts, expanding its total strike length to over 625 meters. This exciting vein system remains open in strike and depth. Mine development at our Alta Gracia's Mirador mine advanced by the end of the quarter to achieve consistent ore feed and we expect that to be reflected in the third quarter production. At our Nevada mining unit, we continue to intercept high-grade gold at our Gold Mesa property and continue to await mine permits for our Isabella Pearl Project. Second quarter production from our Oaxaca Mining Unit totaled 5,696 gold ounces, 397,670 silver ounces, 294 tonnes of copper, 1,207 tonnes of lead and 4,176 tonnes of zinc before payable metal deductions. Calculating the gold and silver as precious metal gold equivalent, we produced 11,133 ounces at a realized 73.2

[Operator:]

Thank you. [Operator Instructions]. We'll go ahead with our first question.

[Unidentified Analyst:]

Hi, Jason. It's Harvey Wallen [ph].

[Jason Reid:]

Hi, Harvey. How are you?

[Unidentified Analyst:]

I’m good. I have two questions. I am noticing that the grades are decreasing from last year. Question one is, do you expect that to continue or to turn around as we move into the next few quarters? And secondly, since you're holding to your original range of precious metal production for the year, that would imply that you expect an increase in production from now through the end of the year. Can you comment on that?

[Jason Reid:]

Sure. No, thanks for your questions. The first one regarding grade, you’ve seen quarter-on-quarter grades vary. And that's just is what it is depending on where we're mining. This quarter, we had a lot of development ore that was highly diluted from the development process coming out of Switchback that lowered our grade. Do I expect grades to continue to decline or increase? I listed numerous drill intercepts from the Switchback vein system. And those grades are very much like the grades higher up that we mined years ago in the upper portion of the Arista vein system. So, I'm optimistic we're going to go back to seeing those higher grades. Once we start bulk-tonnage-mining this, I expect the grades to come up. So, that's kind of the short answer of where I expect grades to go. Generally speaking, in these type of deposits, you have a gradation where, over time, you see lower precious metal grades the deeper you go, and that's just a function of these epithermal systems. What's unique about what we're dealing with right now is that the Switchback vein system is actually deeper than the Arista vein system, yet the grade from the drilling, any way, indicates it's much higher grade, much higher than the equivalent elevation of the Arista vein system in this mine. So, we're unsure of whether this was ultimately faulted and this was put in place all at the same time, same place and it faulted, and this block of what we're calling the Switchback vein system was put in a lower elevation at that point or if it's a different boiling zone. I'm getting a little complicated on you, but the long and short, it doesn't matter which answer of those two it is. The most important thing is, I think we're going back to higher grades once we're bulk-tonnage-mining the Switchback, given the drill results. And hence, I read those in this call. As far as your production question, yeah, we fully intend to meet our target that we came into the year with. We're very close to that range right now. And we've overcome some challenges, of which we mentioned in the past, with, for instance, a mine contractor that slowed down our Mirador development. That, obviously, slowed us down. We would have much rather had a full – all of last quarter, Mirador ore, but we didn't. So, it is what it is, but we think we're going to hit our range. And at this point, we're continuing to target that. So, does that answer your questions?

[Unidentified Analyst:]

Yes, thank you.

[Jason Reid:]

You're welcome. Thanks for the call.

[Operator:]

And we'll go ahead with our next question.

[Vijay Marolia:]

Hi. This is Vijay Marolia, Regal Point Capital. How are you doing, Jason?

[Jason Reid:]

Hey, good. Vijay, how are you?

[Vijay Marolia:]

Doing great. Quick question. I noticed that cost of production was a little bit lower, but there was a big drop in the margins. So, does that have to do with scale or does that have to do with the grade? Can you add some color?

[Jason Reid:]

Yeah. Again, quarter-on-quarter, we see variations. Several quarters back, we saw huge high grade. And we saw lower grade here, but we also are keeping a rein on our costs. We're also seeing base metals come in, heavier base metals. In a particular area in Arista, the deeper Arista, heavier base metals are helping offset that cost. So, a lot of variables at play there, but, yeah, it's just going to depend quarter-on-quarter on where we are. When you get back – or get over to bulk tonnage mining in the Switchback, I think we are going to see some pretty exciting production numbers, hopefully, and costs. So, does that answer your question?

[Vijay Marolia:]

It does. If I could just ask one more, it seems that, next year, we could have maybe a doubling of production. Am I being too optimistic?

[Jason Reid:]

Okay. If you're talking about just a doubling from the Arista Mine, yeah, I would say you're being pretty optimistic on that.

[Vijay Marolia:]

No, no. I'm talking about total. So, full year 2018, if we were to – I don't want to put the cart before the horse, but it seems as though there are some stars aligning for 2018. Do we need to maybe delay that or does that really seem like it's – that the timing is right?

[Jason Reid:]

Okay. If you're looking on a global scale for the company, you're talking about bringing in Nevada as well, right?

[Vijay Marolia:]

Yeah.

[Jason Reid:]

Is that where you're coming from? Okay, yeah. In Nevada, generally speaking, we're targeting 40,000 ounces a year. There's, obviously, going to be a ramp up to that, but that target of about 40,000 ounces a year is our initial target and then we'll grow from there. We are moving forward with the Isabella Pearl Project and we're waiting on our final permit. They will dictate when we can move forward and we're still waiting on those. So, we need those to come in pretty soon, if we're going to have the bulk of 2018 being a production year for Nevada. So, let me come back to your original question, can we look at a double? It all depends on when those permits drop in and how quickly we can get the Isabella Pearl under production. But when it does come in, if we look at a full year from the Nevada mining unit, and let's say for the moment the Oaxaca Mining Unit holds or maybe grows a bit, you're looking at a 100% increase to our gold production, which is material for us. So, yeah, the long and short is, we're in a growth phase. And in the future, we fully [indiscernible 17

[Vijay Marolia:]

Thanks, Jason.

[Jason Reid:]

Hey, thanks for your question.

[Operator:]

[Operator Instructions]. We'll go ahead with our next question.

[Unidentified Analyst:]

Good morning, Jason. Thanks for the report. This is Rex Jones [ph]. And I’ve been hearing a lot of optimism about when we might get the permits in Nevada. What are the hold-ups? And what boxes do we still have left to check off as far as getting those permits?

[Jason Reid:]

Sure, good question. Okay, let's step back a moment and look at what we're doing in Nevada. About a year ago, we acquired the asset in Nevada of Isabella Pearl that we're trying to put into production. So, from that aspect, we're moving quite quickly to be talking about finalizing permit. Now, it took us over six months to get our ducks in a row, re-engineer, re-work, re-mine schedule this project to fit our way of mining and doing business. And then, we've submitted to the authorities, being the Nevada Department of Environmental Protection, which we call the NDEP, and the Bureau of Land Management, or the BLM. Now, we have been back and forth with our permitting applications and what we're supposed to turn in with both of these groups and we've made great headway with the NDEP. And now, we're focused on the BLM and satiating all the requirements that they need. So, they're on a different time schedule than we are. So, obviously, I would like to have them today, but things just move at a little bit of different pace, right, for them. But knowing that – that's why I made those comments early on. Knowing that we really haven't been pursuing these permits for very long, and yet we're already feeling comfortable enough to order equipment, should tell you that we're optimistic it's going to come in soon. We've allocated a lot of cash and are ready to equipment, so that it can be started and be built, such as the crushing and the stackers, radial stacker conveyor system. That should tell you that we're pretty confident it's going to come in the near future. Could that be a month, could that be – sure. Could it be three months? Sure. Could it be 6 months? Absolutely. But I hope it's not six months. I hope it's on the lower side of those time frames. But I just – we don't dictate that. Ultimately, they do. So, we're doing everything we can to provide them with additional information when they ask. We continue to go back and forth with them. My team and I were just in Nevada, sitting with the BLM to further nail down some of the remaining items. And, yeah, that's where we are. So, we feel we're awful close. But timewise, it's just out of our hands. And I'm optimistic, hopefully, in two, three months, we're having a whole different conversation, talking about when we can get in – when we can move forward in production, et cetera. But, ultimately, they call the shots on the timing.

[Vijay Marolia:]

Okay. So, there's really nothing identifiable. It's just the bureaucracy and its natural state at this point in time?

[Jason Reid:]

Yeah. Now, having said that, they've been good to work with. We're not seeing anything that I would consider a red flag or problematic at this point. So, that's a good thing. But there is a lot of boxes that have to be checked and we're working really hard. We have a team on the ground, as we speak, in Nevada checking those boxes. If they come back with anything, we try to check them. That's what we're doing. So, we feel we're awfully close. So close enough that we're buying equipment to move this project.

[Vijay Marolia:]

I appreciate that very much. Could I ask another question about Alta Gracia, please?

[Jason Reid:]

Yeah, of course.

[Vijay Marolia:]

Can you kind of maybe outline where you see that progressing over the next 12 months? And longer term, what the resources we'll be able to access there?

[Jason Reid:]

Right. Alta Gracia, we've gone into some old workings that were done by artisanal miners long ago, some of which maybe in the 80s, they worked this, but much earlier than even that. And so, we were able – once we got our permits, we were able to move in there, and in the general time frame of mining, quite rapidly, because it's a long lead time industry, and already be to the point where we're now consistently feeding ore to the mill. We're targeting 150 tonnes initially. It doesn't sound like much, but it's a good start. And there's some really high-grade silver over there. There's some gold over there. That should really help with our production totals. And we'll move on from there. But when you look at – we haven't taken years to develop this. Move it forward, we're just going into and refurbishing some old access points and pulling tonnes. That's what we're going after – 150 tonnes is our target. As far as the resource, we fully haven't put our hands around the full resource. Alta Gracia is similar to how we approached the El Aguila Project in the first place. We don't have full-on proven and probable – although some of the mineralized material is in there, full-on proven and probable at Alta Gracia, yet we move forward on it because there was enough to justify the costs of mining and then trucking. But that, ultimately, is the beauty of our game plan, is that we can move forward on any of our properties because we don't have to justify building a mill, the CapEx associated with it, the timeframe associated with it. All we have to justify is mining and trucking and then we move forward with it. And that's what we've done with Alta Gracia. So, we don't have, to your last question – or your last portion of your question is, what can we expect there, we fully don't know what we're going to expect there. There's a lot of signs where that could we quite large, but we're just starting out pulling tonnes, pulling ore, and letting it pay for itself as it grows, similar to what we did at the Arista project. So, there's a lot of questions to be answered at Alta Gracia is the long and short of it. But what we do know is the CapEx we're putting forth to get into production will be paid back and then it's all going to be upside from there. So, we don't fully know the full potential of Alta Gracia, but we're happy that it is our second mine to come online in our Oaxaca Mining Unit.

[Unidentified Analyst:]

Thank you.

[Jason Reid:]

You're welcome. Thanks, Rex. Appreciate the question.

[Operator:]

Gentlemen, we have no further questions at this time. I'll hand it back over to Mr. Reid for closing.

[Jason Reid:]

Great. Well, thank you, everyone, who participated and appreciate the questions. We'll talk to you next quarter. Have a good day.

[Operator:]

And this concludes today's call. Thank you for your participation. You may now disconnect your lines at this time.