Gold Resource Corporation
Q4 2013 Earnings Call Transcript

Published: 2 Apr 2014

[Operator:]

Thank you for joining Gold Resource Corporation’s Fourth Quarter and Year End 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 period. As a reminder, today’s call is being recorded and will be posted to the Company’s website within 3 to 5 business days. Please go ahead, Mr. Reid.

[Jason Reid:]

Thank you. Good morning and thank you for joining Gold Resource Corporation’s 2013 year-end and fourth quarter conference call. We have a lot of ground to cover this morning on the difficult but successful 2013 year so let’s begin. First, I want to apologize for the delayed filing. We needed more time to finish the report which I will explain in detail in a few moments. It has been great to see gold and silver prices strengthen in 2014 though still very volatile given the dramatic precious metal bare market over the last two years. As a Company, we plan to emerge from this market volatility as a much 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 metal market resumes their longer term bull market trend. And as a Company, we remain focused on building shareholder value, return on capital, and return on investment to include dividends as we grow the Company not growth for growth sake but smart growth for value creation. Today’s call will include a 2013 fourth quarter and year-end performance review past and future mine development and past and future exploration. I am pleased with our 2013 operating performance especially in light of all the construction that took place last year and in the context of the very difficult year for mining equities, but for those investors whose thesis to own gold remains intact, the metals market correction over the last year provides a opportunity. We are seeing new funds and investors take advantage of this opportunity in Gold Resource Corporation. 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 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, April 2, 2014, 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 just filed with the SEC for the fourth quarter and year-end December 31, 2013. Taxes especially international taxes are very complicated. The reason for the delay in filing was due to finalizing our taxes and completing our testing and assessment of the effectiveness of our internal controls. Two control deficiencies were identified and were determined to be material weaknesses in our internal controls over financial reporting process at year-end. The first control deficiency was a result of ineffective controls of the income tax provision process and our second was the result inadequate monitoring oversight of certain of our external service providers. We are taking this matter seriously and are undertaking the following remediation plans and actions; one, improving management oversight and monitoring of its independent service providers; two, replacing its independent Sarbanes-Oxley compliance provider to improve the design, documentation, monitoring and testing of its key controls to strengthen the Company’s internal control over financial reporting; three, improving management’s oversight and monitoring of its income tax provision process by enhancing its quarterly decisions, or excuse me discussions with our outside tax advisors to anticipate any business developments that could affect the termination or presentation of income tax expense. As we implement these plans, we may determine that additional steps maybe necessary to remediate the material weaknesses. Working with KPMG as our auditor has been helpful to our organization. We knew that stepping up to a big four firm would bring a much higher level of scrutiny to our processes and procedures. However we are confident, we will remediate these issues and have greater control and confidence with respect to the income tax provision process going forward. I will make additional comments in this regard later on during the call. An overview of our year-end 2013 production totaled 84,835 ounces of precious metal equivalent of which 20,687 ounces were produced during the fourth quarter successfully achieving our 2013 annual production target range of 80,000 to 100,000 ounces of precious metal gold equivalent. We processed an aggregate of 316,270 tonnes of mineralized material with an average grade of 3.72 grams per tonne gold and 326 grams per tonne silver. During the same period, we sold 82,935 precious metal gold equivalent ounces recorded revenues of $125.8 million, mine gross profit of $58.3 million and net income of $0.1 million. In 2013, we are proud that dividends distributed to shareholders totaled $25.5 million or $0.43 per share. In late 2013, we completed our mill expansion project which increased our nominal processing capacity of the El Aguila mills flotation circuit to 1,500 tonnes per day. To be clear, 1,500 tonnes per day is the new nominal mill capacity. We have not yet reached that level of throughput and don’t plan to reach it in 2014 but at some point in the future we do. The mill expansion included the installation of a second ball mill and additional flotation cells. We anticipate optimization of the newly expanded mill to continue into 2014 and our focus turns to the continued advancement of the Arista underground mine targeting increased tonnages to feed the expanded the mill. Utilization of the expanded mill capacity is contingent on our ability to mine sufficient additional mineralized material from our El Aguila mine. I will be more specific on mine development later in the call. We spent approximately $7.5 million during 2013 on the El Aguila mill expansion project which was delivered on time. Our annual precious metal production in 2013 decreased 6.2% over the prior year due to several factors impacting our operations, significant volatility and declining metal market prices during 2013 unfavorably impacted the gold to silver ratio at which we used to calculate precious metal gold equivalent ounces produced. We also experienced the total of 22 days downtime in the mill facility, 10 days directly attributed to the construction of our mill expansion and a further 12 days for normal preventative maintenance. These along with typical mining challenges, which I will touch on later on in the call, were the reasons for the decrease. The dividend remains a focus of the Company and we are pleased that throughout the difficult metals market downturn, tighter operating margins and our 2013 mill expansion being paid for with cash flow, we were still able to distribute a meaningful monthly dividend. It is important to us that we continue to try to achieve our long-term goal of distributing one-third mine gross profit. However, there are times such as these that we have to fiscally prudent and make sure the Company maintains its financial health. We are proud of our dividends and take it a step further by offering shareholders the option to convert their cash dividend into physical gold and silver and take delivery. I believe in 2013, we were still the only mining Company offering this type of program to shareholders. The Company declared an aggregate of $0.43 per share in dividends during 2013, of which a total of $4.5 million were distributed during the fourth quarter. Our Board of Directors voted to decrease our monthly dividend twice during the year from $0.06 to $0.03 in April and from $0.03 to $0.01 per share per month in December. These dividend modifications were due primarily to the following gold and silver prices during 2013, tighter margins than expected because of these reduced metal prices, the new royalty tax imposed by the Mexican government late 2013, the conservation of cash and the flexibility for other business opportunities. Our long-term goal of distributing an approximate one-third ratio of our cash flow from mine site operations remains though the exact ratio will vary from time-to-time or be modified and is based on multiple factors. Looking back now at our first three full years of production our dividend ratio average exceeded our one-third target ratio based on cash flow from mine site operations. These ratios were as follows; in 2011 we distributed approximately 30%, in 2012 we distributed approximately 39.5% and in 2013 we distributed approximately 40%. The recent 7.5% royalty tax and 0.5% royalty fee imposed on precious metal producers by the Mexican government is estimated to negatively impact our dividend equation going forward into 2014. Early estimate suggest an approximate $4 million to $5 million impact on our margins from this new additional pack. We would rather have distributed that additional amount to shareholders instead of paying additional taxes. However it will take some time to determine the exact amount and the effective impact of this new royalty tax. We make no guarantees regarding distributions of dividends but our track record of distributing as much back to shareholders as quickly as possible speaks for itself. This week’s dividend marked our 44th consecutive monthly dividend paid and over $95 million distributed back to our shareholders since production began July of 2010. Or looked at another way our IPO price was $1 per share in September of 2006 and we have now distributed $1.82 in dividends to every shareholder, a commendable achievement. You may be asking yourselves why it took so much time talking about the dividend today. It is because we as a junior producer are comparable to and distribute more in dividends per share than many major producers. We are proud of that rare achievement in this industry and it speaks to our ongoing shareholder focused and shareholder friendly philosophy. It is unfortunate Mexico is losing its status as one of the friendliest mining jurisdictions in Latin America. In the 1980s a similar royalty imposed by the Mexican government on mining was cancelled one year after it was enacted. And there has been a strong push back to the current royalty tax. So there is hope the new tax could be decreased some day. Presumably less mining capital will be put to work in Mexico in response to the new royalty tax and that includes Gold Resource Corporation’s allocation of capital. We believe our potential margins should enable us to absorb this new tax better than most mining companies in Mexico and we plan to be mining our Oaxaca mining unit for a very long time. Having said that and in the future, we will focus far more attention and effort allocating capital toward projects located outside of Mexico in response to this new royalty tax. You have already seen us begin to allocate capital outside of Mexico with our recent investment in Canamex Resources. We took an approximate 18% stake for $1.8 million and a perspective TSX venture exchange junior exploration company which has a property we are interested in, in Nevada one of the best mining venues in the world today. It is very early stage but our investment will fund their next drill campaign. Depending on drill results we may sell, hold or increase our position. Whether it will ultimately be Canamex or another opportunity somewhere, this investment represents a longer term move toward diversification in our operations by ultimately obtaining a second mining unit and another mining friendly jurisdiction somewhere in the world. We continue to look for opportunities the bare market and gold provided us within 2013. Let’s turn our focus to the main allocation of capital, our Oaxaca mining unit. Our team at 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 did a great job in 2013. Their professionalism and abilities allowed us to achieve production results in line with the Company’s stated annual goals. This is no small achievement in the midst of the significant engineering, mill construction and mine development that took place on the El Aguila project during the year. Our team in Oaxaca is stronger than it has ever been. For the year ended December 31, 2013, we sold 82,935 ounces of precious metal gold equivalent consisting of 31,563 ounces of gold and 3,470,076 ounces of silver. Precious metal ounces sold in 2013 represented a 14.6% increase over precious metal gold equivalent ounces sold in 2012 which totaled 72,399. The more ounces were sold in 2013 over 2012 the lower metal prices in 2013 generated less revenue. Our 2013 total cash cost per precious metal gold equivalent ounce after byproduct credits was $626. We generated revenues our revenues are net of smelter charges of $125.8 million and had a mine gross profit of $58.3 million. Our average 2013 metal prices realized for gold was $1,388 per ounce and for silver was $24 per ounce. Realized gold and silver prices during 2013 decreased by 17.2% and 22.6% respectively over 2012 realized prices underscoring the rough year for precious metal prices. Let me comment on the taxes now. To give some contextual background taxes especially international taxes are very complex and difficult on their own. In addition we have some very complicated book and tax differences due to our accounting as a result of not having proven and probable reserves under the SEC’s Industry Guide 7 that we are required to follow. We must rely on tax experts with sizeable organizations with international experience and talent at their disposal. We’ve used outside consultants to assist us with preparation of the income tax provision for the past several years. Two of the providers we have previous relied on were actual big four accounting firms and other outside tax consultants. You can see we’ve never scrimped on these important aspects and used some of the best tax experts available at the time. Now the KPMG is auditing our financial statements they had a difference of opinion on portions of the tax provision. We have worked closely with KPMG to resolve the issue raised in the audit and we believe we are stronger going forward. You can imagine how frustrated we are as we have utilized several firms including some big four to assist us with our tax accounting and many professionals struggle with the complexity. We will continue to seek out the right balance between external and internal services to make sure we no longer have deficiencies in this area and we appreciate that KPMG helped us identify where we can improve moving forward. I want to take a few moments to go back over two topics that are caused for continued questions as it relates to the aforementioned ounces sold and average metal prices realized. As for ounces produced and sold, our mill production ounces and our ounces sold are not the same and will not be the same when we are selling concentrates. Mill production is straight forward as that is the estimate of what the mill actually produces in the form of concentrates and as what we ship to the buyer. However under U.S. GAAP our sales of concentrates are reported net or after smelter charges so the ounces sold will be less than the ounces produced when selling concentrates. As for ounces produced and sold related to revenue, we deliver 100% of our concentrates to buyer but we will only be paid approximately 90% due to the payable metal deductions from the buyer. Footnotes three and four below the production and sales statistics table on the MD&A section of our 10-K further clarify this common question. As for the average metal prices realized in our statistic table on the MD&A the offered award is realized prices. These prices are not exclusively related to the current spot metal market prices. For instance our realized silver price for 2013 was $24 per ounce. The reason for this goes back to the fact we are selling concentrates on a provisional basis and the fact that our concentrate contracts provide for final settlement on a future date. At the time of the delivery we received based on estimates 90% of the provisional invoice amount, the final amount will be adjusted based on final assays at a future date typically a month or two month later although those that go to umpire can take much longer. Because of the provisional pricing mechanism, the final settlement amount may go up or down depending on final assay and final metal prices. So the final settlement adjustment realized metal price will not near market spot prices due to the in period and outer period settlement adjustment pricing for weight and assay factors when closing these final invoices. Turning back to the financials, we showed a net income for the year of $0.1 million. We are considered an exploration stage company under the SEC criteria since we have not demonstrated the existence of proven and probable reserves and our El Aguila project in Oaxaca, Mexico or any of other projects or properties. Accordingly as it required under the SEC guidelines, see note one on the consolidated financial statements in our Form 10-K substantially all of our investment in mining properties to-date including construction of the mill mine facility and mine construction expenditures have been expensed as incurred and therefore do not appear as an asset on our balance sheet. Certain expenditures, such as expenses for rolling stock and other general purpose equipment may be capitalized subject to our evaluation of the possible impairment of the asset. Our characterization as an exploration stage company has resulted in the classification of our facilities and mine construction expenditures as operating expenses rather than capital expenditures, and may cause us to report lower net income or higher net losses than if we had capitalized the expenditures. In addition, our production cost do not reflect a corresponding depreciation or amortization expense for our facilities and mine construction costs since they are expensed as incurred rather than capitalized and our inventory does not include an allocable share of depreciation and depletion expense, had we capitalized our construction costs. We are targeting during 2014 to have proven and probable reserves as defined by the SEC guide 7 on a large portion of the Arista deposit. If we successfully complete an SEC Compliant Reserve Report, we believe our financials should be on a more equal footing with similar precious metal producing companies. It could be positive to not show lesser gains or greater losses as we often incur on our financial statements due to our current lack of P&P reserves and therefore being required by the SEC to write off almost everything. Though we have been in production for three and 1.5 years now without P&P reserves, I view this move toward P&P reserves as continued evaluation and growth of our company and a move toward a more mainstream gold and silver producer. Tonnes per mill per day averaged 906 for the fourth quarter and 866 tonnes per day for the year-end 2013 with the following average head grades and recoveries for the year-end 2013; gold 3.72 grams per tonne, 90% recovery; silver, 326 grams per tonne, 91% recovery; copper, 0.38%, 78% recovery; lead, 1.24%, 70% recovery; and zinc, 2.95%, 80% recovery. Though our 2013 mill expansion was completed during the year, we continue to incur all the fixed cost associated with the increased production plans but have yet to see the full benefit of the new mill’s future higher rate of production. Having said that, our 2013 fourth quarter total cash cost per ounce decreased to $684 from the previous third quarter’s $756 cash cost per ounce, this quarter-on-quarter cash cost decrease is primarily due to various cost reduction measures undertaken during the second half of 2013. We target the cost per ounce and cost per tonne to continue to go down in the future as additional cost reduction measures take effect and the tonnage rate to the mill goes up. We along with many other producers saw our all in sustaining cash cost increased substantially in 2013. Ours went from $994 in 2012 to $1263 per ounce in 2013. With the construction in mill expansion of 2013 behind us, that had added to our cost for example we employed far more people than we needed in 2013 to ensure the mill expansion delivery and employees are our largest cost coupled with increased tonnage throughput targeted in the future and all our cost reduction measures in the second half of 2013, we expect our all in sustaining cash cost to decrease back to 2012 range of sub $1,000 per ounce in 2014. Additional cost cutting measures were taken during the fourth quarter which we expect to be reflected in lower production cost and in conservation of cash early 2014. With manpower and fuel being our top two largest costs, fourth quarter cost reduction measures included a second round of manpower reductions in total a 20% reduction in fulltime manpower was undertaken in 2013. Additional cost reduction efforts included diesel fuel efficiencies and an analysis of grid power installation to potentially reduce energy costs further in the future. In the case of manpower reductions, it may take a few more months to fully realize the benefit of the two reduction rounds as there is a required severance payment due to all departing workers. We have and plans for continue to streamline our operations in response to the precious metal market pullback as evidenced by the recent quarter-on-quarter cash cost decrease we saw in Q4. We continue to evaluate additional potential cost cutting measures on the operations side. We plan to continue to run a very lean and efficient corporate side for instance if you call the corporate office, you will either get our Vice President, Mr. Greg Patterson or myself on the phone as we do not have secretary. And coupled with the expected future increases to mill throughputs, my goal and task is to substantially drive down our cost per tonne and per ounce in 2014 while also increasing overall production. I am optimistic the strength in gold and silver prices in 2014 may be indicative of where precious metals are heading for the balance of the year and in the future. But since no one has a crystal ball, we are planning for the worst and optimistically hoping for the best while positioning the Company for lower cost growth under various market scenarios. We therefore set our 2014 annual production target range at 85,000 to 100,000 ounces of precious metal gold equivalent at a 63 to 1 silver to gold ratio. The silver to gold ratio will greatly influence our precious metal gold equivalent number. Keep in mind in 2011 our gold to silver ratio was 46 to 1 and in 2012 our ratio was 47 to 1. Our actual ratio fluctuates over the past three years can distort or change our production numbers by as much as 37%. Our 2014 production goal will be dependent upon items including continued project development and market metal prices. With the expanded El Aguila mill’s capacity to process 1,500 tonnes per day, we position the Company for increased future production and focus on continued development of the Arista underground mine in preparation for pulling increased tonnes to feed our expanded new mill. Operational challenges we faced in the underground mine during 2013 and those that we expect to continue to face during 2014 include mine advancements of the 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. Again, our team did an excellent job overcoming these challenges in 2013. The Company made a substantial investment developing the Arista underground mine during 2013 for increased long-haul open stoping which is the key to increasing tonnage and lowering our cost per tonne and cost per ounce going forward. Mine operations are presently producing from some 25 different working areas, distributing between Level 6 and 15 providing greater flexibility to mining and grade control. During 2014, a total of 11,415 meters of tunnel is scheduled for development to provide access to additional mineral between Levels 11 and 21. The main access ramp is currently below Level 18. Production is estimated to be approximately 50% long-haul stoping, 35% cut and fill and 15% development ore. We currently stope between 18 meter levels, we are using concrete and raise waste rock backfill to extract the valuable rib pillars after reviewing an SRK engineering analysis where rock competency allows, we have been able to stope strike links from 30 meters out to 60 meter distances between rib pillars to further optimize our stoping and ore extraction methods when able cut and fill mining method is being used as well on smaller veins. The Arista Deposit is an epithermal system, these systems need complex structure and good ground preparation for vein swarms to continue. We have both at Arista and during 2013, we have identified 20 veins in place, located within our El Aguila project, the Arista deposit situated along a trend running north of 70 degrees west, a very important geologic direction in this area with over 2 kilometers of mineralized stricture located so far with many exploration targets to test. We added to our Oaxaca mining unit during 2013 by acquiring claims from all in minerals as well as taking additional available ground. We now have approximately 55 kilometers of mineralized structural corridor between six properties on trend which speaks to our overall expansion potential. We remain optimistic we will continue to expand Arista deposit on strike and depth and potentially discover additional veins and splays; it is common for many underground mines to have only three to four years production in front of them at any given point in time, based on the difficulty of drilling with adequate whole spacing in advance of development. We began mining the Arista deposit in 2011 with two primary veins, the Baja and Arista. In less than three years we are now mining nine primary veins and splays and three minor veins and splays in this deposit and continue to grow with additional exploration potential. Our exploration team also has plans in 2014 to continue drilling below the original El Aguila open pit with hopes to discovering the original feeder vein. With six properties and so many drill targets to test we’re making a consorted effort to remain focused primarily on Arista deposit expansion and testing the immediate surrounding areas as not to get distracted. I am particularly excited about our VP of Exploration Mr. Barry Devlin’s discovery we call the Switchback. It is located approximately 500 meters to the Northeast of the Arista vein system. We believe the Switchback is either an extension of the Arista deposit for a parallel vein system 500 meters away. The Switchback has returned positive results including a 15 meter mineralized vein including 2.2 meters of 12.91 grams per tonne gold and 410 grams per tonne silver. Additional holes into the Switchback have now intercepted mineralization 450 meters on strike by 450 deep. Hopefully you all had a chance to review the Switchback press release from a few weeks ago. The mineralization of Switchback is very similar to that of our producing Arista deposit and that is contains both gold and silver as well as the base metals copper, lead and zinc. We have begun preliminary design to access the Switchback from our underground Arista mine and have also begun preliminary mine planning as continued drill results weren’t. It is estimated to take at least six months to reach the Switchback area from underground with tunnel development after we make a decision to proceed. We are drilling the Switchback target today with plans to continuing exploring this area to better define a potential economic resource. It is still early days but I am optimistic that Switchback could be our next economic deposit on the El Aguila project and I want to move this project forward on an accelerated basis. In 2013 we completed approximately 41,000 meters of surface drilling and 15,000 meters of underground drilling. In 2014 we are currently planning 17,500 meters of surface drilling and 16,500 meters of underground drilling, but those figures may change depending on drilled results and metal prices. To summarize 2013 into six bullet points; one, successfully achieved our 2013 stated production goal while overcoming various challenges a credit to our team. Two, our mill expansion to a nominal process rate of 1,500 tonnes per day capability was delivered on time using our cash flow. Three, Arista mine development of the now 20 plus veins and splays continues to focus on multiple working faces with a goal of delivering increased tonnages for 2014 production and beyond. Four, we continued to distribute a meaningful monthly dividend during a very difficult year in 2013 with CapEx demand on our cash and tighter margins demonstrating management’s commitment to shareholders and shareholder returns. Five, the Switchback discovery was made 500 meters northeast of our Arista deposit which may provide the company with its next economic deposit. And six, we continue to try to position ourselves to be leaner, more efficient, more profitable growth company that not only remains standing when the metals market does settles but are able to take advantage of the opportunity the correction provides. There is no doubt about it 2013 was a difficult year. It was an expansion year with associated construction costs and capital expenditures in a volatile marketplace. However the challenges of 2013 gave Gold Resource Corporation an opportunity to critically evaluate its operations and structure. Through this evaluation Gold Resource has made significant cost saving changes these past few months which I believe have put the company in a much stronger position. 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 this volatile market. A negative sentiment toward this space for the last year has been astounding which led to tremendous sell side supply for most all mining equities including Gold Resource Corporation adding to our sell side supply above and beyond the Brurud marketplace our largest and long time shareholder Oaxaca Mining continues to signal to the market that it may continue to sell their stake in GORO due to their liquidity needs. Large percentage shareholders and any stock are a double edge sword and can lead to disconnect or distortion in the marketplace through excess stock supply at times. During 2013 the company made efforts and continues to make an effort to minimize the effects of the overhang on the stock but unfortunately we have not yet found success in doing so. I believe this overhang once cleared will be very positive for shareholder value in GORO and I am committed to continue to work on this issue. In my opinion Gold Resource Corporation offers gold mining equity investors great exposure to the potential continuation of the long-term gold and silver bull market trend. Many investors have and will utilize the distress selling by others to their advantage. It is just in the last several months however that we have seen some very positive momentum in both the gold and silver price and the increase in our share price though both are still very volatile. The reason to own gold and silver are more prevalent today than they were a year or two ago and I believe all the mixed messages in the media maybe creating fatigue on those that believe the governments around the world actually have a real viable plan and accurate handle on the issues and will do the right thing to strengthen the economy. The mining industry’s mantra of growth for growth sake was dismantled in 2013 and we at Gold Resource Corporation embrace its dismantling. Precious metal investors want prudent growth and return on investment while they wait and share price appreciation they want exploration upside and the option for exposure to physical gold and silver. Gold Resource Corporation returns cash back monthly on a monthly basis to owners, the shareholders. After our mill expansion, we are positioned for prudent production growth. We have excellent exploration upside in our six properties and specifically on potential expansion of our known deposits and discovering new ones like the one we now call the Switchback. We are the only company I am aware of that offer shareholders the ability to convert their cash dividend into physical gold and silver and take delivery. So when the dust finally settles in the mining equity space and the momentum turns in our favor Gold Resource Corporation plans to not only be the one of the companies less standing but in far better shape than the rest of the pack. I would like to thank all our long-term shareholders for their continued support of Gold Resource Corporation during these volatile times. I would also like to welcome the shareholders as we have acquired many during the last year and I want to also thank everyone for their time today that joined the call. In an effort to efficiently address the Q&A portion of the call, any distracting or antagonist to calls will be terminated and I will simply move onto the next productive caller. With that I would like to welcome our CFO, Mr. Joe Rodriguez and open up the lines for our Q&A. Good morning Joe.

[Joe Rodriguez:]

Good morning Jason.

[Jason Reid:]

Operator, please take our first caller and question. Question-and-Answer Session

[Operator:]

Yes. (Operator Instructions) We will take our first question. Josh Elving - Dougherty & Company Hi. Good morning guys. Can you hear me?

[Jason Reid:]

Yes. Josh Elving - Dougherty & Company This is Josh Elving calling from Dougherty. So couple of questions, first regarding your cash position cash has come down significantly over the past few years and we’re now down to 15 million. I guess you’ve tried to reduce your cash burn by reducing the dividend and cutting exploration at Arista and I’m not sure if you’re doing much as far as some of the other targets on trend. I guess just kind of looking into 2014 do you feel comfortable with the cash at the current level and what is your kind of view towards building that treasury throughout the year?

[Jason Reid:]

Sure. No, it’s a great question it’s something we watch very closely obviously being a dividend payor we watch it I think even closer than most others. Keep in mind and to put in the context we went through a pretty major mill expansion and we did that with cash flow. We knew that was going to deplete our cash much faster than usual we’re done with that now. So that’s a big portion of this. The second part of this is the fact that we became a much higher cost producer than we needed to and we went in and took a really hard look at our cost and we made some pretty dramatic cost cutting measures of which I believe we’ve already seen some of the turn where cash is stabilizing and we are optimistic it will start increasing, but believe me we watch it very closely and it’s always balancing act -- you have CapEx, you have OpEx, you have dividends, I think we do pretty good balancing act given our track record over the last three years. It’s a good question. Josh Elving - Dougherty & Company So you think you can return to your cash generation in ’14?

[Jason Reid:]

Yes. I mean, that’s the goal. Now, I am sure, I recognized your name. You’ve been around while I’m sure you follow me at the mining companies. I think we did quite well given the year that was handed to us last year and yes given the fact we did all the cost cutting measures and what not I think we’re going to see where the turn in and the cash treasure increases. Josh Elving - Dougherty & Company Just one additional question regarding the guidance you did provide for ’14. So I guess I was a little surprised that we weren’t planning on ramping to 1,500 tonnes per day in ’14. With the 85 to 100 gold equivalent ounces for guidance, can you give us a sense for what kind of average throughput we might expect for the year? I recognized it will probably ramp throughout the year but maybe an average for the year.

[Jason Reid:]

Generally speaking it will be around 1,200 to 1,300 more or less. Obviously we’re going potentially try to push more but given the mine plan that’s in place that’s what we’re looking at. Josh Elving - Dougherty & Company Jeff that seeing to me we have to work through some lower grade or before…

[Jason Reid:]

The grade always varies depending on the exact the range you on where you’re on the deposit in the long run, it’s, we’re showing this is a high-grade deposit and that’s the most important this. But yes one of the things -- one of the approaches were taking here is, after the fallout of the last two years and nobody knows where the metal prices are going. Like I said in the conference call, we’re trying to prepare for the worse and hope for the best and so we’re not going to get too aggressive on trying to push more through that strains us and so we think that’s a good range to be at and we’re obviously going to push toward the high end of that range. We will see if we can get it done. Yes, that’s the more or less the tonnage we’ll be looking at. Josh Elving - Dougherty & Company Thank you for taking my questions.

[Jason Reid:]

Good talking with you Josh. Thanks.

[Operator:]

And we’ll our take next question.

[Unidentified Analyst:]

Hi, my name is Jonathan Meagher. I am a private investor and I have two questions for you. The first has to do with an updated resource statement what the mine life is? And when we’ll be getting an updated resource statement? And how many meters of drilling will be incorporated in that report?

[Jason Reid:]

Okay, as I mentioned in the call, we are going to be pursuing proven and probable reserves under industry guide 7 with the SEC. This year, I don’t want to give any exact time but we’re pushing to get that done as soon as possible. And as for the specifics of that, you have to wait for that to actually come out. But I can tell you it will be the bulk of the least deposit as we know at now, but there is still a lot that won’t be included just out of drill spacing. And it won’t include the switch back and things like that. So that’s all I can tell you on that.

[Unidentified Analyst:]

Great, thank you, and next question is. Can we assume that the Q4 tax rate will be the tax rate to be expected going forward or will that change?

[Jason Reid:]

I’ll turn that question over to Joe.

[Joe Rodriguez:]

I think that’s going to change. We had some unusual circumstances going through this year and you can go back and look at the reconciliation in the – now it reconciles the statutory toward tax rate back to the tax provision. We don’t anticipate having some of these temporary and primary difference going through hopefully going forward, so I’m looking for the tax rate to come down to the reasonable rates.

[Unidentified Analyst:]

Okay great thanks guys.

[Jason Reid:]

Thanks Jonathan.

[Operator:]

There are no further questions at this time.

[Jason Reid:]

There, we do have an email question I want to get to and then we’ll close the call out. This one is from Joe Nordgaard. He asked, is the Switchback still open at the strike at the both? Yes, it is. He also asked, is it being drilled from the surface? No, everything is being underground at this point, being drilled from underground. And then he asked about, estimate on tonnage? We’re working on that as we speak, so I don’t have any specifics for you on that. But with that we’ll and we’re pretty much of time, we will disclose the callout.

[Joe Rodriguez:]

I would like to thank everybody for joining the call. And we appreciate your support.

[Operator:]

This does conclude today’s conference. Thank you for your participation.