Gold Resource Corporation
Q1 2014 Earnings Call Transcript

Published: 13 May 2014

[Operator:]

Thank you for joining Gold Resource Corporation’s First Quarter Conference Call. Mr. Jason Reid, CEO, will be hosting today’s call. Following Mr. Reed’s opening remarks there will be a question-and-answer session. As a reminder, today’s conference is being recorded. Please go ahead, Mr. Reid.

[Jason Reid:]

Thank you. Good morning and thank you for joining Gold Resource Corporation’s 2014 first quarter conference call. I am very pleased and proud of our first quarter results and operating performance with regard to both increased production of precious metals while substantially lowering our production costs. As you will hear throughout this conference call, we delivered an excellent operating and financial quarter. I will go in the specific details of the quarter after a few brief housekeeping comments. Gold and silver prices continued to be volatile during the quarter with a bare market over the last two years holding its course. In the last two conference calls, I referenced our company’s plan to emerge from this market volatility as a leaner, stronger, efficient and more profitable company, well-positioned to generate cash at these current metal prices and an even stronger position to generate more when the metals market resume their longer term bull market trend. I'm pleased to report that during the first quarter of 2014, we delivered results in line with the plan being a leaner, stronger, more efficient and profitable company. And as a company, we remained focused on building shareholder value, return on capital and return on investment to include dividends as we grow the company not by growth for gross sake but smart growth for value creation. Today’s call will include a 2014 first quarter performance review, a review of our company's growth strategy along with an Arista mine development update and an exploration update. I will also comment on the recent trading pressure on the stock. Joining me on the call today for the Q&A portion will be Mr. Joe Rodriguez, our Chief Financial Officer. Before going any further, 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 uncertainty 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, May 13, 2014, and we undertake no obligations 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 just filed with the SEC for the first quarter ending March 31, 2014. To review the first quarter of 2014, mill production totaled 23,734 ounces of precious metal gold equivalent or 9,958 ounces of gold and 878,958 ounces of silver. We processed an aggregate of 104,349 tonnes of mineralized material with an average grade of 3.25 grams per tonne gold and 285 gram per tonne silver. During the quarter we sold 20,600 precious metal gold equivalent ounces or 8,586 ounces of gold and 766,535 ounces of silver at a total cash cost after byproduct credits and including royalties of $422 per precious metal gold equivalent ounce sold. Our all-in sustaining cash cost totaled $816 per ounce. We reported revenue of $31.2 million mine gross profit of $16.2 million and a net income of $7.1 million or $0.13 per share. We had $19.5 million cash and cash equivalents at the end of the quarter, total monthly dividend distributed to shareholders totaled $1.6 million or $0.03 per share during the first quarter. During the same period the average gold price realized was $1,296 per ounce and silver was $20 per ounce. The following statistics I will walk you through now includes some important quarter-on-quarter trend, the financials of the year-over-year trends which are also very good. Tonnes milled per day increased by approximately 28% to 1,159 in the first quarter over the 906 tonnes milled for the prior quarter, that being Q4 2013 and a 37% increase when compared to 846 or tonnes per day milled for the three months ended March 31, 2013. Average grade and recoveries for the first quarter included gold grade at 3.25 grams per tonne gold with 91% recovery, silver grade at 285 grams per tonne with 92% recovery, copper grade at 0.35% with 80% recovery, lead grade at 1.23% with 72% recovery and zinc grade at 3.43% with an 82% recovery. Our precious metal production of 23,734 ounces during the prior -- during the period increased by approximately 15% over the prior quarter of 20,687 ounces. We had a 38% reduction in our total cash cost per ounce sold quarter-on-quarter to $422 from $684 in Q4 of 2013. Furthermore, our cost on a per tonne basis decreased by 33% to $143 from $212. During the first quarter, we distributed $0.03 per share or $0.01 per month in dividend equating to $1.6 million. We also paid $4.2 million in capital expenditures and invested $1.8 million in the Canadian Junior Explorer, Canamex Resources. We achieved the increased production and decreased costs while increasing our treasury by 30% to $19.5 million from $15 million the prior quarter. Our first quarter 2014 production is in line with and keeps us on track to reach our targeted annual production outlook range of 85,000 to 100,000 ounces of precious metal gold equivalent at an estimated 63 to 1 ratio. Our financials clearly show the first quarter of 2014 was a very good quarter operationally. We increased production, increased our tonnes mine, increased our tonnes milled, increased our treasury while driving down our cost of production both on a per ounce and per tonne basis. The company continues to be positioned among the low-cost producers. First quarter results demonstrate a leaner, more efficient, more profitable and stronger company. I could not be happier with the operation will result in the first quarter as they give the company a solid start to the 2014 year, in spite of the continued metal market volatility. Though we have been in production for over three and one-half years now, for accounting purposes beginning January 1, 2014, the company transition from an Exploration Stage Enterprise to a Production Stage Enterprise as defined by Security and Exchange Commission, SEC Industry Guide 7 rules and regulations. On April 30, 2014, the company released a report on its reserve estimate for the La Arista underground mine at the El Aguila project effective as of December 31, 2013. The company no longer considers itself to be an Exploration Stage Company as defined in Accounting Standards Codification 915 - Development Stage Entities or ASC 915. And accordingly cumulative and other disclosures required by ASC 915 are no longer included in the company's financial statements. Prior to January 1, 2014, we were considered an Exploration Stage Company under SEC criteria since we had not yet demonstrated proven and probable reserves at our El Aguila Project in Oaxaca, Mexico or any of our other properties. Accordingly as required under the SEC guidelines substantially all of our investment in mining property up to December 31, 2013, including construction of El Aguila mill, Arista mine facilities and mine construction expenditures, were expensed as incurred and therefore do not appear as assets on our balance sheet. Our characterization as an exploration stage company resulted in the classification of our facilities and mine construction expenditures as operating expenses rather than capital expenditures and may have caused us to report lower net income than if we had capitalized these expenditures. In addition, prior to January 1, 2014, our financial statements did not reflect the corresponding depreciation or amortization expense for our facilities and mine construction costs since they were expensed as incurred rather than capitalized. The change in our accounting presentation as a result of the transition to production stage enterprise as defined by the SEC may make certain period-over-period comparisons in this quarterly report less meaningful than otherwise since we capitalized mine development related to expenditures that would have been expensed under prior accounting presentation. I see the completion of the reserve report as the evolution and progression of our company. In an effort to achieve production at the earliest point in time, we ran our own models and estimated in-house resources to justify our production decision. This allowed the company to by-pass the extra time, costs and capital expense in determining proven and probable reserves at that time. By doing so, we reached production far sooner, for less expense and sustained less dilution to our capital structure than had we gone the traditional route of determining reserves prior to production. As a result, we fast-tracked the company into a precious metal dividend paying producer with only 54 million shares outstanding in an industry, where hundreds of millions of shares outstanding is commonplace for producing companies. I believe the completion of the reserve study now moves the company into the mainstream and make it more comparable with other producers that report reserves. So let's look at our maiden reserve report which is located on our website. We are pleased to not only announce our maiden SEC reserve report on a large portion of the Arista deposit, but very satisfied with the outcomes as well. The 1,354,400 tonnes at an estimated average grade of 8.76 grams per tonne precious metal gold equivalent containing 381,400 precious metal gold equivalent ounces represents over a three years mine life, depending on future production levels. As our company ramps up from last year’s annual 2013 production level of 84,835 precious metal gold equivalent ounces. In addition to the reserve report’s estimate of precious metals, the company estimates the recovery of 4,226 tonnes or 9.32 million pounds of copper, 16,117 tonnes or 35.53 million pounds of lead and 42,225 tonnes or 93.16 million pounds of zinc based on 2013 average recoveries of copper, lead and zinc of 78%, 70% and 80% respectively. We are very fortunate to have deposit with high-grade gold and silver along with the base metals of copper, lead and zinc. To put this into perspective, base metal sales in 2013 generated $25.5 million, which accounted for 20% of the company's annual revenue. The revenue generated from these base metals is use to offset the company’s gold and silver production costs and help us position ourselves in the low-cost peer group of precious metal producers. December 31, 2013 was the cut-off date for data inclusion in the reserve report. All drilling, sampling and data collected starting January 1, 2014, was excluded from the report. Our company’s press releases dated March 12, 2014 regarding the Arista deposit drill results update and April 22, 2014 regarding additional Arista deposit high-grade drill intercepts were not included in the reserve report, but are planned to be included in a future update for this first reserve report, targeted at this point to be on an annual basis. Additionally, the new Switchback discovery located 500 meter northeast of the Arista deposit is not included in the reserve report. Switchback mineralization has been intercepted on over a 450 meter strike length and 415 meter depth and is either an expansion of the Arista system or more likely a parallel system, 500 meters to the Northeast. Though the reserve report does not include the aforementioned mineralization, it does focus on a large portion of the Arista deposit which remains open along strike and depth. The company expects to add additional ounces in the future and therefore additional mine life above and beyond the reserve report estimate within in-fills, step out and exploration drilling. We believe our exploration upside potential of adding ounces at the Arista deposit as well as the potential of new discoveries on our six high-grade properties is huge. This first reserve report translates into a three to four year mine life from Arista. Three to four years is a respectable underground mine life, given the time and expense it takes to drill a vein deposit out in front of an operating underground mine to the specifications necessary to be put into a reserve report. We expect to add far more ounces and be in production far longer than the current three to four year estimate in the reserve report. Keep in mind, we have been in production for over three and one half years without a reserve report. We plan to update the report on an annual basis. Going forward we not only target sustaining 3 to 4-year mine life in front of us at any point in time but at the highest average grade possible. We have chosen not to lower the cut-off grade to add additional ounces and longevity at this point as we target quality, high-grade ounces that make money, as opposed to a larger number of lower-grade ounces that trade dollars. You can probably see this in the 9.39 grams per tonne proven and 7.25 grams per tonne probable high-grade mineralization in the reserve report. We are very pleased with the reserve report’s results. Turning to our company’s growth strategy, our targeted growth strategy focuses on production and exploration. Organic growth through production increases over time and exploration success of expanding non-mineralization coupled with new discoveries remain our focus. However, a third piece to our growth strategy is the opportunity in the current depressed metals environment of potentially securing a second mining unit. We are actively looking for such acquisition opportunities where many mining companies are on the edge and struggling at current metal market prices coupled with rising costs. Looking first to the production piece of our growth strategy, our future growth goals stem from our successful mill expansion last year to the current 1500 tonnes per day nominal mill capacity. Though to be clear, we have not yet reached that level of throughput and don’t expect to reach in 2014. During the first quarter of 2014, we milled 1,159 tonnes per day, an approximate 28% increase in the average daily tonnage milled over the prior quarter’s 906 tonnes per day. This targeted production ramp-up towards 1500 tonnes per day, including optimization at increased tonnage levels is expected to continue until the new nominal mill capacities reached in the future. The timing of which is contingent upon the continued advancement of the Arista underground mine and our ability to mine increase tonnages capable of feeding those increased throughput goals. During the first quarter, the Arista underground mine totaled approximately 3,164 meters of horizontal development. This equates to prepared mineralization ready to bestow of approximately 188,000 tonnes, which for the company is a healthy number of prepared tonnes. At the end of the quarter, mine operations were developing on level 18 towards the Baja new veins. Currently, there is a minimum of 20 working areas in ore ranging from levels 8 to 17 spanning the Arista’s systems numerous veins. During the quarter long-haul mining method accounted for approximately 45% of production followed by drifting at 33 and cut and fill at 22. The main decline ramp has advanced to level 19. Operating costs during the first quarter were drastically cut. Potential additional cost cutting measures at the operations have been identified, including the potential to connect to the power grid with an estimated $3.5 million annual savings to our current energy cost, which could further drive down our cost per tonne and cost per ounce metrics. The exact power line CapEx is still under review, but the order of magnitude thus far is estimated at approximately $5 million, which would be less than a two-year payback on investment. Additional cost cutting means undervaluation include potential installation of remote control instruments on high-powered mine equipment -- high horsepower mine equipment and higher operating efficiency water pumps, which could potentially allow for greater energy efficiencies in our operations. Energy is our second highest cost after manpower. Though we successfully drove down cost significantly in the first quarter of 2014, we continue to look for ways to lower our cost further and operate more efficiently. With the continued metal price volatility, we are preparing for the worst and hoping for the best in regards to the market price of gold and silver and our ability to continue to mine at a profit at these levels as well as at lower precious metals prices, if that happens to transpire. During the quarter, we positioned the company as a much stronger company for the reasons mentioned thus far in the conference call than we were in prior quarters. Operational challenges we faced in our underground mine during the first quarter that we expect to continue during 2014 year include mine advancements of infrastructure as we go deeper in the mine, dewatering of the mine, management of carbon dioxide gas, limiting dilution of mineralized material while mining, and variable mineral grades depending on the location and particular veins of the deposit being mined at any point in time. Our mining team takes a proactive approach to mitigating these challenges as we improve and optimize our mining techniques targeting production growth. As we did last year, our team continues to do an excellent job during the first quarter, managing development and overcoming these challenges and other mining challenges. The second piece of our growth strategy is exploration. Our primary exploration focus in Q1 was the Arista vein system. We drill 29 diamond drill holes totaling 2,003 meters. Drilling consisted above infill and step-out hole, testing the mineralized vein extensions of the Arista underground mine. Drilling principally targeted the northwest and southeast extensions of the Baja, Candelaria, Luz, Splay 66 veins currently in production. Arista surface drilling highlights during the quarter included 127 meters grading 6.16 grams per tonne gold, 321 grams per tonne silver, 0.97% copper, 2.1% lead, 4.3% zinc for the Luz vein and 3 meters grading 9.5 grams per tonne gold, 2,700 grams per tonne silver, 0.35% copper, 0.75% lead, 1.31% zinc for the Candelaria vein. Keep in mind, those were in the reserve report. Underground drilling also targeted the newly discovered Arista system. Vein system called the Santa Lucia, that’s a vein but in the Arista system. High-grade mineralization was intercepted on a Santa Lucia vein during the first quarter, including 2.6 meters, grading 13.9 grams gold, 3.2 kilo silver, 1.3% copper, 0.9% lead, 1.6% zinc. The Santa Lucia vein has a parallel vein structure located approximately 60 meters northeast of the Arista vein on Level 14. Santa Lucia vein structures remain open on strike and depth. In addition underground drilling during the quarter, continued to target the Switchback discovery. Preliminary mine design to access the Switchback is well underway. I'm optimistic that Switchback could be our next economic deposit on the El Aguila project and we are moving this potential project forward on an accelerated basis. We’re beginning to drift on Level 14 targeting approximately 250 meters towards Switchback to set up an underground drill station. This development is planned to reduce the drilling distance to intercept the Switchback mineralization and should improve the drilling angles for our exploration team as we target the area. The targeted drill station should put development about halfway toward the Switchback and in better position when and if we make production decision. Our exploration team thus far has defined Switchback mineralization 450 meters on strike, 450 meters on depth. Additional infill and step-out holes will assist with our model and mine planning in Switchback. During the second quarter in addition to focusing on our recent deposit expansion, we are scheduled to commence surface drill testing but down deep extension of the El Aguila mantle vein below the El Aguila open pit. We targeted the feeder vein, which originally set the deposit. We also plan to test veins in mantle target in the Chacal Red Zone area, located west of the El Aguila open pit by approximately 3 kilometers. We want to follow-up on a few interesting reconnaissance holes that we drilled prior. Our plan is to have two surface drills and two underground drills working in the second quarter. Other activities at the El Aguila during Q1 included detailed geologic mapping, sampling and review of existing geological and geophysical data to identify priority exploration targets for future service drilling. In the first quarter, we state and we’re granted the 3,000 hectare El Aguila 3 claim from the Mexican government. This claim adjoins the El Aguila project to the southeastern covers possible extension of the La Arista and Switchback vein system. Surface expression of these structures denoted by strong alteration zone that have been identified on the El Aguila 3 claims, preliminary field investigation are planned for the El Aguila 3 during the second quarter. Detailed geologic mapping, sampling and review of existing geological and geophysical data took place in the first quarter on a Las Margaritas property. Drilling is currently plan to commence on the property by the end of the second quarter. Preliminary field investigations are planned at the Cerro Colorado and El Fuego properties acquired from Almaden Minerals last year. Preliminary field investigations are also plan for the Lachiguiri property, which is a 4,000 hectare claim located 55 kilometers east of El Aguila. We state this claim last year to cover zones of interesting gold, silver base metal mineralization occurring in limestone conglomerates affected by intense fracturing oxidation and solidified zone. The company's Board of Directors recently approved an increase of the 2014 exploration budget with an additional 10,000 meters, equating the $2.2 million. This brings the total 2014 exploration budget to $7.9 million. This expanded drill budget puts our exploration program in a much stronger position to find additional ounces, test more of the numerous drill targets we have generated and better position us to potentially make additional discoveries. The third piece of our growth involves opportunities this bare market has provided us. Our investment during the quarter in Canamex Resources with an approximate 18% ownership stake or $1.8 million is helping to fund their drill program. Depending on drill results we may sell, hold or increase our position, whether it will ultimately be Canamex or other opportunities we are currently evaluating or others we may find in the future, the Canamex investment represents a longer term move toward diversification in our operations to ultimately obtain a second mining unit in another mining-friendly jurisdiction outside of Mexico. I would like to take a moment to give our condolences to family and friends of Canamex’s CEO, Mr. Bob Kramer who unexpectedly past last week. He will be missed. We as a junior producer are comparable to and distribute more in dividends per share to date than many major producers. Most recent dividend in April marks our 46th consecutive monthly dividend. Since commercial production July of 2010 we have now returned $1.83 per share, that’s returning over $96 million to date. This has not been an easy task to accomplish, while balancing the capital needs of our operations, all the capital expenditures, paying taxes in the newly enacted Mexico royalty tax. We are very proud of our rare achievement in this industry and believe it’s speaks to our ongoing shareholder focused and shareholder-friendly philosophy. Our philosophy is unique in the industry and that we offer shareholders the ability to convert their cash dividend in the physical gold and silver and take delivery. The success during the first quarter are a combination of our entire team working well together especially those at the El Aguila project led by our Chief Operating Officer, Mr. Rick Irvine; our VP of Exploration, Mr. Barry Devlin; and our General Manager, Mr. Jesus Rivera. Our team is strong. As I mentioned during the conference call last quarter of 2013, we expected our all-in sustaining cash cost per ounce to decrease back to the 2012 range of sub $1000 per ounce early 2014. We along with many other miners saw all-in sustaining cash cost balloon in 2013. Ours went to $1,263 per ounce. But with our no expansion of last year behind us additional mill throughput underway and many of our cost reduction measures taking hold, a leaner operation has emerged in the first quarter of 2014. We are very pleased to see our all-in sustaining cash cost per ounce dropped below the $1,000 per ounce level. During the first quarter of 2014, our all-in sustaining cash cost per ounce decreased to $816. This is well below the 2012 average of $994. We expect our all-in sustaining cash cost per ounce to fluctuate up or down a bit but our goal is to keep it well below the $1,000 per ounce target for as long as possible in the face of the longer-term mining space cost trend which are on the rise. So to summarize the successful first quarter of 2014 into six bullet points, one, we increased production over the prior quarter, while continuing to overcome various challenges, a credit to our team. Two, we lowered our per ounce and per tonne cost of production attributable the tough decisions we made for the efficiency and health of the company. Three, we grew our treasury by approximately 30% over the last quarter on top of our investing activities and other capital expenses. Four, we continued to distribute a meaningful monthly dividend as a junior producer having returned $1.83 per share back to shareholders since commercial production commenced. Five, with our mill reserve report we further substantiate our operations while allowing for more equal treatment in our financial as other producing miners. We positioned ourselves to be leaner, more efficient more profitable growth company in Q1, while identifying other areas in which we can improve. As I previously stated, I want 2014 to be a year of low cost production growth, building our treasury, continued dividend distributions and perhaps finding additional opportunities to capitalize on in this volatile metals market. In the first quarter we made great strides in all these fronts and many others. I also remained committed to eliminating the continued overhang on our stock from our largest shareholder, Hochschild Mining, who has sold in previous quarters. Due to their own liquidity needs, I have entered into an agreement with Hochschild that will help develop an orderly exit strategy. For this agreement, we plan to register a portion of the shares they hold with the SEC so the shares can freely trade both with a Lock-Up and Leak-Out agreement attached to minimize market pressure on the stock. I believe that registering these shares will allow Gold Resource and Hochschild more flexibility to possibly place some or all of the registered shares into friendly hands. We have previously seen interest in large blocks of Hochschild Holdings of Gold Resource but the restricted nature of Hochschild shares was a gating factor. Registering a portion of these shares should eliminate that hurdle for potential buyers. Hochschild’s past selling of GORO again on their -- for their own liquidity needs in the stock market illustrates the double-edged sword of having large investors in a junior mining stock that I believe expediting a more orderly exit could alleviate the overhang much sooner. I would also like to comment on the recent downward pressure the stock has sustained over the last few months above and beyond the general ongoing metals market pressure and continued negative metals market sentiment. What we do factually know is that the selling pressure over the last few weeks was not from Hochschild Mining as they are required to file any stock sales in a timely manner with the SEC and they have -- as they have done in prior quarters. We also know our short interest grew by approximately 61% or by 1.8 million shares from January 15th through April 30th totaling 4.8 million shares. The reason for the added pressure in short interest increases, we can only speculate on. But the disconnect between our stock price and our operational performance is neither rationale nor justified. The result of last quarter including increased production, increased tonnages mined, increased tonnages milled, 30% increase to our treasury, continued monthly dividend all was substantially lowering our cost of production, does not justify the heavy selling pressure on our stock. Speculation could include another large institutional holder that is being forced to sell for redemption purposes or continued short interest whose agenda is not in line with shareholders interest or interested in seeing the company succeed. The fact of matter is we don't know why we are currently sustaining such market pressure. But having seen this morning’s trading, one might presume a short squeeze. What is important for the long-term share price though is achieving the company's business plan as a low-cost dividend paying precious metal producer. Gold Resource Corporation's first quarter was one as a low-cost precious metal producer with an all-in sustaining cash cost of just $816. We have one of the tightest capital structures for producer in the space of only 54 million shares outstanding. As it falls with the industry norm where hundreds of millions of shares outstanding are typical and serial dilution of shareholders is common. Unlike many juniors, we are cash flow positive. Unlike many of our peers, we increased our treasury and grew organically while looking for opportunities for second mining unit outside of Mexico. And top of all that, we as a junior producer paid a substantial monthly dividend similar to many major producers dividend that this successful execution of our business plan underscored by the first quarter want such selling pressure on our stock, I don't believe so. Operationally and financially we had an excellent quarter and the best way to combat future selling pressure is to continue to execute on future quarters like we did in Q1. I am not a big baseball analogy fan but we knocked it out of the park this quarter in spite of the current depressed metal price environment where many of our peers continued to struggle. To conclude I am confident that the market will ultimately value our company based on operational success in financial performance. Operationally and financially, we had an excellent quarter and on that basis alone, I could not be more pleased with the company's result from the first quarter. On behalf of the Board of Directors and the rest of the team of Gold Resource, I would like to thank all of our long-term shareholders for their continued support of the company during these volatile times into the marketplace. I would also like to welcome the new shareholders as we continue to acquire many and I would also like to thank everyone on this call for their time. Let’s move on to the Q&A portion of the call. In an effort to efficiently address the Q&A portion of the call without wasting anyone's time, any distracting or antagonistic calls will be terminated and I will simply move onto the next caller. With that, I would like to welcome our CFO, Mr. Joe Rodriguez, and open up the lines for Q&A. Good morning Joe.

[Joe Rodriguez:]

Good morning, Jason. Operator, please take our first caller.

[Operator:]

(Operator Instructions) And we will now take our first caller.

[Josh Elving:]

Hi. Good morning. It’s Josh Elving from Dougherty.

[Jason Reid:]

Good morning, Josh. How are you?

[Joe Rodriguez:]

Hi, Josh.

[Josh Elving:]

Doing well. Hey, couple of questions. First, congratulations on the improvement in the cost structure, specifically on the production cost line. One question I did have. I know that with the reserve report, some of the accounting changed. And I was trying to get a sense for, on an apples-to-apples basis, what was the construction of the development costs in the first quarter that was most likely capitalized? So, construction in the development was running at around $5 million a quarter. I know that was zero in the prior quarter. So was there a comparable amount and then where was that capitalized on the balance sheet?

[Jason Reid:]

Yeah. It wasn’t a comparable amount. It was slightly lower than the $5 million we had in the prior period. I believe that came in at about a little under $4 million and that was capitalized on the balance sheet, so most of it was mine development costs. And we had a little bit of construction in progress related to some of our fixed assets.

[Josh Elving:]

Okay. And so is that similar levels expected throughout the course of 2014, or is that number going to continue to trend lower?

[Jason Reid:]

No, I think at similar levels, as long as we continue with the current cost program we have and our CapEx remains the same. I’m anticipating it being the same.

[Josh Elving:]

Okay. And then I guess, still a question I had was just trying to understand the components of revenue a little bit better. My understanding was that primarily revenue was generated from gold and silver sales. But if I look at gold and silver sales, ounces and prices I get to around $26 million in revenue. And I know there is some kind of moving parts there. But I was just wondering if you could maybe add a little color there, can you bridge the difference between $26 million and $31 million that was reported?

[Jason Reid:]

I think we also have to consider our base metal sales. They are included in there as well in the $31 million. So you can’t just only look at the gold and silver. You also have to include the base metal sales.

[Josh Elving:]

Has that always been the case because as soon as I recall, base metals were not included in previous quarters and is that true or not?

[Jason Reid:]

No, that’s not true, that’s always been the case. We’ve always included our sales from all of our metals in the revenue.

[Josh Elving:]

Okay. Great. Well, congratulations. Thank you

[Joe Rodriguez:]

Yeah. Josh, one of the questions you had or concerns you had in the last quarter that you brought up was the trend of decreasing treasury and we turned that pretty strong this quarter. So, I hope you noticed that.

[Josh Elving:]

Yeah. Thank you.

[Jason Reid:]

Thanks, Josh.

[Operator:]

And we’ll take our next question.

[Unidentified Analyst:]

Hi. This is [Chris Weatherglenn] (ph). I have a question about -- what’s the possibility perhaps you can discuss the possibility of gold repurchasing for those Hochschild shares that may become available?

[Jason Reid:]

That’s a possibility. Keep in mind, for any buybacks from the company, we're in blackout periods most of the time, given the fact that we are sitting on certain press releases or for instance, right in front of the quarter. I would've loved to be buying back shares right and left at perhaps even these levels. But that’s a possibility. We are just going to see how it goes.

[Unidentified Analyst:]

Okay. All right. Thank you very much.

[Operator:]

And we will take our next questions.

[Unidentified Analyst:]

Yeah. This is [Harvey Rollin] (ph).

[Jason Reid:]

Hi, Harvey. How are you?

[Unidentified Analyst:]

Good. I have a question about the PR. Item 4 talks about the difference between production and sales and notes that part of the difference was due to the buyer processing deductions of approximately 2,123 gold equivalent ounces. That seems like a very high number for me. So, I wonder what the story is there.

[Joe Rodriguez:]

I will go ahead and take that one, Jason. That typically is a payable metal deduction that we have to incur based on the negotiated contracts we have with our seller. It’s very typically in the industry to have a payable metal deduction on the one that delivers 100% and gets paid 100% of their metal. So that is the amount that we’ve negotiated and that’s what we pay in our contract.

[Unidentified Analyst:]

So you're saying each time that same -- that or similar deduction occurs?

[Jason Reid:]

That’s correct.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

And we will take our next question.

[Unidentified Analyst:]

Yes. Hi, Jason. This is [Chen Lin] (ph). How are you?

[Jason Reid:]

Good. How are you, [Chin] (ph)? I believe I have -- I know you right?

[Unidentified Analyst:]

Yes.

[Jason Reid:]

Long time ago.

[Unidentified Analyst:]

We talk like seven, eight years ago, yes. We met each other on many occasions.

[Jason Reid:]

We were trying to give introduction the last time I spoke to you I think.

[Unidentified Analyst:]

Yes, long time. So yes, congratulations for the great quarter. And we’re impressed with you’re able to ramp up the underground production. So what -- you didn’t -- and you mentioned you probably won’t fill the 1500 production -- tonne per day production this year. So, what’s your expectation to do the continue ramp up of the underground?

[Jason Reid:]

Yes, I do. I am specifically camping down expectations so to speak. I’m not -- I’m going to limit the forecast. I want people to look at the quarter-on-quarter and how we performed. We won’t -- we know we won't hit the 1500, we don't expect to this year. I guess this is possible, but we don't expect to potentially next year. But the point I want everybody to focus on is that this is going to be a ramp up and it’s very much dependent on our ability to put on that underground and we have multiple veins, multiple working faces from which to do that. And we expect to ramp up over time. I just want to not be nailed to a certain timeframe on when we actually hit the 1500.

[Unidentified Analyst:]

Great. Thank you, Jason. Great quarter. Just on the grade side, I see some fractuation, like last quarter actually it was a little bit lower than a quarter before. Do you see the grade may move up and down, more on the upside?

[Jason Reid:]

Absolutely. Keep in mind, the deposit is not just homogenous uniform grade. You go through various areas of the deposit, different elevations, different veins, different bandwidths, etcetera that will have different grades associated to them. So yes, we will be see times in which our grade is higher and lower on a quarterly basis, but on average we expect it to come in close to the overall estimates.

[Unidentified Analyst:]

Great. Thank you. Again congratulations.

[Jason Reid:]

Thanks. Good to talk to you, [Chen] (ph).

[Operator:]

Okay. And due to time constraints, we will take our final question.

[Unidentified Analyst:]

Hi, this is [Bill DiFonzo] (ph), Private Investor. How are you doing guys today?

[Jason Reid:]

Fine, Bill. How are you?

[Unidentified Analyst:]

I am doing well. Thank you. And congratulations on just the terrific quarter. My question regard to dividend. And is the goal still to give back one-third of the net income and dividend, and if so, do you foresee over the next couple of quarters or so bumping that up a little bit from penny to say a couple cents?

[Jason Reid:]

Bill, it’s a good question. This company was created to pay a dividend. So we take it very seriously and with 46 consecutive monthly dividends I think the market does to. As it relates to one-third, that is a goal, it’s a general goal, it’s very hard to know exactly how the numbers to play out. But when you look at our last full three years, we were just under a third the first full year, we are over third the second year, and we are well over the third last year. We have a new tax imposed on us by the Mexican government. It’s going to make it very hard for us to reach that exact one-third goal in the long term we sure want to try. This is not a guarantee. This is not a promise. I love when shareholders throw at my fact that you promise this, you promise that, this is not a promise, it is a goal. Our track record shows that we come close and we are going to continue to try, but it’s going to be much harder to do a third. To your point is, will they increase? And an ideal was, yes, I want them to increase, but I can’t guarantee anything. We would like to see some metal price movement upwards to give us a little more breathing room as well, but in the future, the goal would be to increase our dividend absolutely. The time and how much -- timeframe and how much, I don’t know, that’s the next factor. But let me tell you I am watching the majors and some recent news out even this morning where majors are lowering their dividend. So Gold Resource is a junior producer, I think our yield is going to shine better than coming up here against even the majors and that's something that I can underscore enough that differentiate gold resource from the rest of the pack. Me as a junior can pay a substantial monthly dividend where even the majors can't. So, good question on the dividend. I know I didn’t answered probably to your liking but I hope you get the point that its very much important to us and we’re going to try to come in close to I thought as we can. We may not make it with the new taxes, but at the end of the day we want to return as much back to the shareholders as soon as possible. Thank you very much. And since we are out of time, if there is any other questions please feel free to call into the office or myself. And thank you very much and let’s look forward to you next quarter. Thank you.