Gold Resource Corporation
Q1 2015 Earnings Call Transcript

Published: 11 May 2015

[Operator:]

Good day, and thank you for joining Gold Resource Corporation First Quarter Conference. Mr. Jason Reid, CEO, will be hosting today's conference. Following Mr. Reid's opening remarks, there will be a question-and-answer period. And just a reminder, today's call is being recorded. Mr. Reid, please go ahead, sir.

[Jason D. Reid:]

Thank you. Good morning, everyone, and thank you for joining Gold Resource Corporation's 2015 First Quarter Conference Call. Today's call will include the first quarter overview of operations and exploration, followed briefly by a corporate matter and a few comments on gold and silver. Joining me on the call today for the Q&A portion will be Mr. Joe Rodriguez, 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, May 11, 2015, 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, 2014. Precious metal prices continue to be under pressure with first quarter prices weakening year-over-year with the realized gold price dropping 7.2% and the realized silver price dropping 17.5%. Even with this continued price pressure, the company is pleased to deliver a strong quarter of profitability with production results in line with annual production targets. Q1 production from the Arista Mine totaled 19,347 ounces of precious metal gold equivalent at a realized 72

[Joe A. Rodriguez:]

Good morning Jason.

[Jason D. Reid:]

Operator, please take our first caller and question if there is one.

[Operator:]

[Operator Instructions] Caller, please go ahead.

[Unknown Shareholder:]

My name is Mark Smith [ph]. I'm definitely a long shareholder here. I liked the quarter. I have a couple of questions.

[Jason D. Reid:]

Sure.

[Unknown Shareholder:]

The -- I think you touched on it, Jason. The tonnes per day milled was due to sort of a -- the new mining contractor getting its feed into the mine and getting up to speed, if that's correct? And then a second question, I guess, for Joe. Noticed the $2.4 million increase in the accounts payable. Could you comment on that, please?

[Jason D. Reid:]

Yes, Mark [ph], let me jump in here first before Joe addresses the $2.4 million increase. As far as the tonnes per day, we as a company do our mining. The Dumas is our development contractor and they do all the development work and we pay them on a meter basis. Now we did have kind of a rough transition from our past mine contractor to this one for the development portion. But coming back to the tonnes, they will vary quarter-on-quarter just as they function of the type of mining we are doing. The more long haul stoping we can do, the more tonnage we can pull. But every quarter will vary some, and what we're trying to do, though, is that at the end of the year have it all average out. So I wouldn't focus as much on the tonnes on a quarter-by-quarter basis just as long as we can pull enough to reach our year-end goals. So I just want to clarify that because Dumas does not do our mining, they just do our development.

[Unknown Shareholder:]

Okay, I misunderstood that.

[Jason D. Reid:]

No problem. No, it's a great question, Mark. I appreciate it, and I'm glad that we were able to clarify it for you and anybody else. And Joe, I'll let you address the $2.4 million.

[Joe A. Rodriguez:]

Yes. Yes, Mark, good question on your part. I think most of the increase is due to a timing. Sometimes, we have a lot of payables coming in at the same time and it's just a timing thing. So it just happened to be that in this quarter, we ended the quarter with some unpaid payables at the time. But it'll cycle through and I think we will come back to normal amounts.

[Operator:]

[Operator Instructions] Gentlemen, it appears I have no further -- oh, I'm sorry, we do have another question.

[Unknown Shareholder:]

My name is Jim Miller [ph]. I'm a long shareholder. I'm just curious about El Rey. Is there any kind of report on it?

[Jason D. Reid:]

Yes, no, good question. El Rey is a very exciting property. It's on our far northwest end of our trend. We have very high-grade gold there. We're optimistic at some point we'll be back there moving that forward. However, at this point, we're still working with the communities to gain access to it. If you'll recall, this was quite a while ago, we had some issues with community pushback. And it had less to do with our company and more to do with one of our neighbors, who I think, coincidentally, their actions caused some pushback in mining in general over in that area. And so we've been trying to overcome that. Rather than force our hand and say, "Look, we have the right to be here, move." We've taken the approach of, no, let's step back and get everybody comfortable, and that's what we're doing. So unfortunately, I don't have any update, Jim. But we're still working with them to gain access and we just want to do it in the most amiable terms possible. So that's what we're doing. So I don't have an update, but we're optimistic at some point we'll be back there pushing that forward.

[Operator:]

We'll take the next question.

[Anthony Chiarenza:]

My name is Anthony Chiarenza, with Key Equity Investors. I have a question on the production level.

[Jason D. Reid:]

Are you a long or short, Tony?

[Anthony Chiarenza:]

I am long now. I'm long.

[Anthony Chiarenza:]

We don't short.

[Jason D. Reid:]

We get short callers, that's why I ask. Okay.

[Anthony Chiarenza:]

No problem, no, no, no. No interest in that. The question I have is on the production levels. So you had about -- a little bit over 19,000 in the first quarter, and you're projecting 80,000 to 90,000-level production for the year. What makes you confident that you're going to get in that level? Because the first quarter in general, I have spoken to people and they've kind of found it was a little bit low relative to what the expectations are. So what gives you the confidence that you're going to be in that 80,000 to 90,000?

[Jason D. Reid:]

Right. Well, first, we set out in the beginning of every year with a budget, and we look at the mine plan and we come up with our estimates from that. Now on the 80,000 to 90,000, that's based on a ratio and -- though unfortunately, or fortunately, right? The ratio varies day to day. And so we can't -- we don't have a crystal ball. So when we look forward, we put a 64 ratio on it. Now -- right now the ratio is closer to 67. Or actually, it's 72, is it not, Joe, I think? So...

[Joe A. Rodriguez:]

Yes, 72

[Jason D. Reid:]

Yes, 72

[Anthony Chiarenza:]

Sure, sure. No, no. Now I just wanted to get a little bit of thought on Nevada and how -- and what your progress is at that point to actually getting some production at some point over the next several years?

[Jason D. Reid:]

Right. It's way too early to talk about production in Nevada. We are just getting our feet wet in Nevada, and we've picked up a couple of properties, and we're doing early exploration on them. This is a long-lead-time industry. On average, you're talking years and years from discovery to production. But we operate a little different than the norm in the industry, and we've fast-tracked. For instance, we put our El Aguila project in production in 3 years and 3 months from the date we made our production decision, which is lightning fast for this industry, and including the fact we had a year longer with permit delays than we thought or we would have done it even faster. So as far as Nevada is concerned, this is just all early exploration and it's too early to talk about any kind of production. We have to find something first. This is just early days.

[Operator:]

And we do have one final question.

[Unknown Shareholder:]

Jason, this is Chris Lewis [ph]. Obviously, I am long. Got a couple of things. Obviously, with the manipulation that's going on in the marketplace, and it is obvious, I've seen the articles and I think I've forwarded a couple to you, Greg, in fact, what are you guys -- or what can you do to further lower your costs, number one? And number two, what can you guys do to align the executive compensation to achieving those goals?

[Jason D. Reid:]

Okay. Okay, first of all, on the costs, now you're absolutely right, Chris [ph], that all we -- we just have to focus on getting our costs down so that we can sustain any metal price. We have had a lot of success in lowering our costs. We continue to strive to lower our costs, and there's 2 things we're looking at right now. One is where we truck our concentrates to and the other is power. So the first one, if we're able to truck our concentrates to a closer port -- and this port is much closer. In fact, it's less than half of the distance as the other one. The other one takes 2 days to get to its location. We could substantially lower our cost if we can get into that port. That's a big if. I want to caveat that. This has not been easy. We've been working on this for over a year. But if we can get into this new port, we could see our trucking costs hopefully go down substantially because of that. The other is power. We currently are -- as far as our operations are concerned, are 100% on diesel-generated power. We have 2 independent diesel generating power plants. We are working right now with the federal commission of electricity in Mexico, in Oaxaca, to try to get the power grid with an increased power line brought to our site. This is early days in this process, but we've been working on this for over a year as well. If we can get this power line hooked up, we could potentially cut our power cost, I'm going to just arm wave here, by potentially half just from our back of the envelope calculations thus far. So between power and trucking to this other port, if we can get one or both of those, I believe we could substantially lower our costs further. To be clear, this is not -- neither of these are guaranteed to happen. We're -- we've been working on them a long time, but things take a long time in this business. But I'm optimistic we will get both. And if the costs drop further and -- or, excuse me, the prices drop further in precious metals, this could counter that as well. So that's the cost piece. The comp piece, I want to first address the comp piece with this. ISS is one of the voting services that a lot of shareholders and predominantly institutional shareholders look at to get guidance on how to vote their shares. The last one I saw was 2013. In 2013, the ISS report, and this is the full report that I've seen, showed that Gold Resource Corporation, I believe, was -- paid its executives lower than 93% of this industry. We are on the low end of compensation. So if you were to compare our compensation with the rest of this industry, I think we're on the low end, first and foremost. But how we align our pay, we already do that from several different metrics. And in fact, there was an article written in The Gazette, Colorado Springs Gazette, actually addressing this issue when it came out Sunday. I can steer everyone toward that and you can read some of my comments in that regard because we do -- the board does look at -- the compensation does -- the Compensation Committee does look at various different metrics. But one of the things that the article in the gazette points out is that there's this TSR metric that they're trying to impose upon companies to say this is the only metric you should use when evaluating compensation to your executives. There are so many shortfalls to that TSR metric. If you just use that TSR metric, you ignore many of the other aspects that you have to take into account when you're dealing with compensation-related issues, and I called those into attention and this is -- and the article speaks specifically to this. We increased our revenue by 190 not percent but a 190-fold basically from the previous year, up to 6 -- up to like $12 million -- I think it's $12 million or $16 million, $16 million. The TSR metric would never pick that up. So if you'll look solely on the TSR metric, there's a lot of shortfalls in that and that's one of the reason why there's a divide in the SEC saying there's a 2 to 3 vote, 2 people saying, no, it's a bad metric to be using. So the long and short of this is that, a, I think we're compensated on the low end, just generally speaking. We highly motivate our people with stock options so that the company has to do well for them to be worth something. And that's the case. And furthermore, we have many different metrics to take in to -- everything into account. In 2013, there were no bonuses given because that was a rough year. In 2014, bonuses were given at the 6-month point because we had an excellent 6 months. The back half was a little rough and nobody got bonuses. So I think we're more than fair as far as our compensation and we incentivize so that the company does well, all shareholders do well. And I think we're doing quite well on that front.

[Operator:]

And there are no further questions at this time. Gentlemen, I'll turn the program back over to you for any additional or concluding remarks.

[Jason D. Reid:]

No, that's it. Thank you very much for the -- your attendance on this conference call. If you have any additional questions and your call did not make it in, please feel free to call myself or Greg at the office and we will be happy to take those calls. Thank you, have a good day.

[Operator:]

Ladies and gentlemen, once again, that does conclude our conference for today. And again, thank you for joining us.