Gold Resource Corp (GORO) 2017 Q1 法說會逐字稿

Thank you for joining Gold Resource Corporation's 2017 Q1 Earnings Conference Call. Mr. Jason Reid, President and Chief Executive Officer, will be hosting today's call. (Operator Instructions) As a reminder, today's call is being recorded.

Please go ahead, Mr. Reid.

Thank you. Good morning, everyone, and thank you for joining Gold Resource Corporation's 2017 First Quarter Conference Call. I expect my brief comments to run approximately 10 minutes, followed by a question-and-answer period. Joining me on the call today for the Q&A portion will be Mr. John Labate, our Chief Financial Officer.

Let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued yesterday, along with the comments on this call are made only as of today, May 3, 2017, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks and our Form 10-K filed with the SEC for the year ended December 31, 2016.

First quarter highlights include net income of $4.4 million or earnings of $0.08 per share. Mine gross profit from our Oaxaca mining unit of $10.4 million, our cash balance increased by $2.5 million. During the quarter, we released our strongest year-end reserve report to date by increasing our proven and probable reserves, replacing the previous year's mined tonnage and added to it approximately 1 year of mine life. We extended the strike length of our Switchback vein system by over 275 meters with high-grade gold intercepts. Please note, this massive strike extension was not included in the latest year-end 2016 reserve report.

At our Nevada mining unit, we acquired district scale exploration potential of surface and near surface high-grade gold with the East Camp Douglas property and also acquired additional claims surrounding and consolidating our Isabella Pearl project.

First quarter production from the Oaxaca mining unit totaled 6,747 gold ounces, 427,890 silver ounces, 220 tonnes of copper and 927 tonnes of lead and 2,644 tonnes of zinc before payable metal deductions. Calculating the gold and silver as a precious metal gold equivalent, we produced 12,837 ounces at a realized 70.3:1 silver-to-gold ratio. We milled an average of 1,206 tonnes per day or 101,330 total milled tonnes for the quarter.

Our total cash cost after base metal byproduct credits per precious metal gold equivalent ounce sold, and including royalties, during the quarter totaled $263 per ounce. Our all-in sustaining cash cost per ounce, a non-GAAP measure, for first quarter totaled $744. During the quarter, we sold 7,133 gold ounces, 420,236 silver ounces, 225 tonnes of copper, 839 tonnes of lead and 2,179 tonnes of zinc. Average grades and recoveries at the Oaxaca mining unit for Q1 included gold grade at 2.42 grams per tonne with 86% recovery, silver grade at 143 grams per tonne with 92% recovery, copper grade at 0.28% with 78% recovery, lead grade at 1.16% with 76% recovery and a zinc grade at 3.07% with an 85% recovery. Gold, silver and lead grades increased during the period primarily due to the specific areas of the Arista Mine being mined during the quarter.

During the quarter, we generated revenues, our revenues are net of smelter charges of $24.3 million, generated mine gross profit of $10.4 million and a net income of $4.4 million or $0.08 per share. Q1 average metal prices realized were $1,215 per ounce gold and $17.29 per ounce silver.

Please note, because our metal sales include an embedded derivative, quarterly realized sales prices may be higher or lower than average quarterly metal prices.

The company maintained its 2017 outlook range with ranges based on plus or minus 5% of approximately 27,500 gold ounces and 1.85 million silver ounces, along with significant base metals. We continue to focus on margin, while mining tonnes based on net smelter return or NSR values per tonne of all metals to maximize cash flow. Base metal production generally results in lower production cost per tonne and per ounce when used as a credit against precious metal production cost. Base metal sales along with other cost reduction measures was a primary driver in our lower cash cost and all-in sustaining cost per ounce for the quarter.

Turning to Oaxaca mining unit operations. During the first quarter, approximately 55% of production came from the Arista vein system principally between levels 16 and 20, with additional ounces from development of the Splay 31 vein on level 4. The balance was from open pit ore and a small amount of development ore from the Switchback vein system. Mine development of Switchback continues as per plan, access ramps reach the Switchback veins on 23 to 25 levels by quarter's end. The expansion of the pumping and ventilation systems in the Switchback also continues on schedule along with the completion of the new underground power grid. In addition, 600 meters of 10-foot diameter raised bore holes were completed to be used for fresh air ventilation. The arrival of new mining equipment consisting of the mechanized bolter, a 6-yard scoop and a 30 tonne truck was received to support ongoing mine development.

We remain committed to ongoing mine development at the Switchback vein system during the 2017 year before commencing bulk tonnage mining in that area of the mine, which is targeted for early 2018. As I have mentioned in the past, this plan should dramatically help us on numerous fronts, not the least of which is optionality in the future when we encounter challenging areas of the mine.

Having secured the final mine permit in late 2016 to commence mining operations at our Alta Gracia project in Mexico, we have since terminated our mine contractor and brought Mirador mine development in-house. While we have hauled a very modest amount of ore from the Mirador mine and processed it into Dore, our target to commence steady ore haulage to the Aguila mill by the end of Q1 has been pushed back to Q2 of 2017, because of this contractor change. We are excited to have 2 mines feeding ore to the Aguila mill.

Turning to our Nevada mining unit, Isabella Pearl project, we await the results of our permit applications and continue to work with the regulators overseeing the applications. We continue to fine-tune our project estimates of CapEx, OpEx and working capital. It's impossible to call a specific time frame for the project as we need the permits in hand first, but generally speaking, and at best guess at this point, it looks like it might be mid-2018 for first potential Nevada gold production. As we move the project forward, we remain focused on the potential in front of us to increase our company's gold production by 100%, which is a material percentage that should substantially increase shareholder value.

Turning to exploration. Our Oaxaca mining units, Arista Mine was dramatically expanded during the quarter with a series of high-grade drill intercepts including a 275-meter -- including a 275-meter on strike step-out drill hole at the Switchback vein system. Step-out intercepts included 5.01 meters of 3.98 grams gold. Additional Switchback infill drill intercepts completed by the end of the quarter with asset results released in early April included 4.3 meters of 9.97 per tonne gold, 5.8 meters of 4.87 grams per tonne gold and 7.7 meters of 3.87 grams per tonne gold. The Switchback vein system is growing fast and has potential to become as large or larger than the Arista vein system. We are pleased that the Arista Mine continues to grow and expand.

Exploration at our Nevada mining unit included Gold Mesa drill intercepts of 12.19 meters of 2.43 grams per tonne gold and Mina Gold drill intercepts including 15 meters of 2.34 grams per tonne gold and 24 meters of 1.97 grams per tonne gold. With surface and near surface high-grade gold on all 4 of our properties, our pipeline of potential projects at our Nevada mining unit is very exciting.

During the quarter, we announced our updated year-end 2016 Oaxaca mining unit proven and probable reserve update, in which we recorded the strongest Oaxaca mining unit P&P reserve report ever as a company. Proven and probable reserve tonnes increased by 15%, gold ounces increased by 31% and silver ounces increased by 17% over the prior year. The full reserve report is available on the company's website.

These were some of the highlights during the first quarter of 2017, and we are excited at the prospects of growing our Oaxaca and Nevada mining unit with continued exploration success. We are also excited to bring a new mine into production at each of our mining units with Alta Gracia's Mirador mine on the cusp of steady ore feed in Oaxaca and the Isabella Pearl project in Nevada, which is awaiting construction permits.

With that, I would like to thank everyone for their time today on the conference call. Let me move on to the question-and-answer portion of the call. In an effort to efficiently address the Q&A (Operator Instructions)

Operator, please open up the lines for Q&A and take a question if there is one.

(Operator Instructions)

I do have one e-mail question that I will go into now. It's from Joe Norgaard. Well, he has several questions. He said I would like to hear details about Alta Gracia's progress and when the second circuit at the mill will be running processing Alta Gracia ore.

I did give a brief update in my statements. But basically and unfortunately, we had to bring or get rid of a mine contractor. That slowed us down for the quarter. We still made some progress, and we did haul ore, we did produce Dore but it's not to the levels we want. So we brought that development in-house and that makes us more comfortable moving forward. So this quarter, we expect steady ore feeds. So that's good.

Second question is, how are we progressing on getting hooked up to the electric power grid? Yes, this is a -- has been a long lead time cost-saving effort that we continue to focus on. An update on this is, we have changed the direction in which we're trying to bring a power line in for various reasons. But this new direction we think we'll have success on, and we're making good traction.

So we're still working on it. It's still going to be a while, but it can -- we believe it can substantially reduce our cost when we get hooked to the power grid. So we're optimistic that we'll have some more solid news on that front in the future once we get regulatory approval on that.

And the third question was on Switchback, and I did touch on Switchback. Switchback is doing great. We're expanding it dramatically, 275-meter step-out is huge. We've then gone in and infilled with very high grade, higher grade than we're mining now. So we're all optimistic that when you look at the plan maps on our presentations, we've been at Arista for over 6 years and counting and its going to continue to grow the Switchback is our probably next 6 to 10 years.

So very exciting times. We expect to get back into some higher grade over there. The development's going well. We're taking a concerted effort not to just continue to live hand-to-mouth, so we're trying to develop it all this year, so that when we do turn the switch in 2018, we should have a lot more optionality than we've had as miners in the past. So I think I've gotten to all Joe's questions. Operator, do we have any questions on the line?

We'll go first to Mark Smith.

You used a term in your remarks that I've not heard you use with regard to sales. You said there's an embedded derivative in the sales. Could you expound on that, please?

Yes. I'm going to turn that one over to John. He'll explain it better than I can.

Sure. We have concentrate sales contracts that don't settle immediately and they are subject to final adjustment either in a 30 or a 60-day period depending upon which is chosen by the customer. So we have to mark-to-market based on...

Okay, I get it. Okay. Yes, that was enough. That was just enough on that. Well, that was a good quarter, Jason. I want to congratulate you on it. This whole rebalancing thing with the GDXJ and all that is really, I think at the crux of this stock price problem, but that was a good quarter and the exploration is showing it and go forth.

I appreciate it Mark. Yes, the GDXJ has been beating everybody up. We're not in isolation. I'm sure you follow a lot of the same mining companies that I follow, and my screen's been red more than it's been green for weeks ever since the GDXJ alluded to the fact that, it's going to modify its methodology and bring in larger companies that didn't previously fit the GDXJ criteria. In doing so, there's been a lot of speculation on how much they're going to sell of each of those companies -- each of the current companies, us included and put into these new companies, and that rebalance had just beaten everybody up.

It feels like when Hochschild was divesting all over again.

Yes, yes, boy, I remember -- you remember that, that was painful. But whenever you have a large shareholder and they choose to move out of your stock, it's painful. Then they choose to move in, it's great. But you got to take the bad with the good. And once we get them out, once they rebalance and we'll move on and I think, all the miners will go up. What's interesting to me though is, even the miners that they're adding to the GDXJ, yes, they moved up initially, but I'm watching them go down too. So I'm just scratching my head I think with everybody else.

I just know that that $0.08 a share really feels good. So go on, you're doing great.

(Operator Instructions) We'll go next to Vijay Marolia.

And so speaking of the rest of the year, just curious as to why not raise guidance? Are we just being conservative? Or is there something, maybe a potential hurdle that I didn't yet hear?

Yes -- no, we get that question occasionally and it's a valid question. There's a time and a place to do that and this year isn't the year in large part because we have to focus on developing the Switchback for the long-term.

And I think you're familiar with our story enough but maybe some of the call aren't. In that early days, we went straight into this deposit and just started mining and been living hand-to-mouth ever since. And we've been doing it and that's fine and well, but it's tough, especially when you hit areas of the mine that may have bad ground and it takes longer to get through and water and you have to pump that out and it slows you down.

So as we going into Switchback and Switchback being our long-term future, not that Arista vein system isn't continue to grow, it is. But the Switchback is just a game changer for us as a company. Even though, the market really hasn't given us credit for that.

I want to take the time to develop this. And so we're doing all this development over at Switchback, and we're really not getting the credit for it as production throughput. I could do that. We could just continue on with hand-to-mouth, and we probably could have seen a bump in outlook. I call it outlook instead of guidance, it's splitting hairs, but as a one-mine company, you're limited on guidance, so to speak.

But I -- and the long and short of it is, Vijay, is I want to make sure that we allocate enough capital, time, effort into developing the Switchback for our longer term and then focus on increased production for the Oaxaca mine here with Arista specific. Now we're also bringing on slowly Alta Gracia, which will help in the long term. But then the big kicker with the acquisitions of our Nevada mine unit, you want to talk about increased guidance. Now let's focus on the Isabella Pearl and getting that into production and having 100% increase to our gold production. That's huge.

So this I see, is just a really solid, we need to stay focused as a growth year, make sure we have enough development at Switchback and continue to push for Isabella Pearl permits and move that forward. There'll be a time and place for increased production.

We'll go next to [Lee Pargosh].

This is Lee. I had a question on the tonnes milled per day. Looks like they're down a little bit. Wondering here this next quarter we're going to get that closer to 1,500 tonnes per day?

Yes. Well, we're probably a while from consistently pushing 1,500 tonnes per day. And the tonnes per day and per quarter for that matter vary, and they will continue to vary. But as far as 1,500 tonnes, we're a bit out from that. It kind of dovetails into the last question and my response in taking the time to develop the Switchback adequately. So we have numerous levels, numerous working phases, so that when we do turn that on, we can maybe bump that up to 1,500, that would be the goal, right? So we think, we'll get there eventually, but yes, the tonnes are going to vary quarter-on-quarter.

So what you're saying is that, we don't have the feedstock to feed the mill at this point in time?

No. We fed everything that we mined. That is what we mined.

Okay, very good. I understand now.

Yes, but again, put that in the context that we could be pulling more ore out of Switchback than we are. We're trying to develop it and get away from the hand-to-mouth grind. Mining is doing it anyway and to get away from that we have to be disciplined and not.

We'll go next to [Harvey Valent].

Well, good numbers for a change as far as the quarter is concerned. I've got a question with respect to your -- what you say on the SEC filing on Page 17, and I'm going to read it, so you see where I'm coming from. You say, "For 2017, we plan to rely on the Arista vein system as the primary ore source, Alta Gracia secondary, open pit third and Switchback fourth." From what I can see, open pit is pretty much negligible at this point. So could you attach some percentages to those 4 categories as far as the rest of the year is concerned?

Yes, absolutely, the bulk is coming from the Arista. There is bulk tonnage -- and I don't have it -- I have it in spreadsheets, I just don't have it on the top of my head. I'm going to say maybe 10% to 20% coming from Alta Gracia. But the lion's share, absolutely, is coming from the Arista this year.

Well, you said earlier, I think, in your remarks that in first quarter, 55% came from Arista.

Yes, let me be clear on that. 55% came from Arista on those particular levels. And then in that next sentence, let me just pull it up here. I'm still talking about Arista adding to that 55%. During the first quarter, approximately 55% of production came from the Arista vein system principally between level 16 and 20. And then additional ounces from the development on Splay 31 on level 4 that goes beyond the 55%. We pulled a lot of tonnes from Splay 31. So probably north of 75% of our production is going to be coming from Arista.

Okay. So switching back ...

I could have worded that a little differently. It is not just 55% from Arista. It was 55% between the levels of 16 and 20.

Got it. So the -- it's going to be obviously, a higher percentage from Arista as you say and 10% to 20% from Alta Gracia. So does -- that leaves basically negligible from open pit and Switchback is going to be anything at all or just trivial?

Well, the only thing we're going to process in Switchback is development ore. So as we're developing numerous levels and access points, when we pierce or go through that ore, we're taking that for processing. But what we're not doing is then focusing on stoping out that ore, and we don't want to do that until 2018.

So there will be times in which we may need to develop along the vein, maybe to start preparing a stope for 2018 and we'll process that as we are developing on the vein, on maybe, let's say level 23 and level 24. And in 2018, we're going to try to stope in between there but we'll be processing in 2017 that development ore.

So it's only when you're developing it, and that's why we're specifically saying development ore, so it's not much. I'll probably get this wrong. But I think from -- thinking back in the budget, it's like only 8,000 tonnes. I mean, it's a small number. It's a very small number. And that -- we're doing that for a reason, because we need to develop, we want to have a year's worth of development. We've never in our lives had a year's worth of development on any portion of this mine.

So to be consistent with that and get a year under our belt or close to it, more or less, we just want to do that. So no, it's going to be very small amount, pretty negligible and the open pit's very small. Just some remaining stockpiles and then we're contouring the benches and some of that still has ore in it, so we'll throw that in. So the lion's share of this year is coming from the Arista vein system.

Now clearly this is a change in approach for the company as you indicated. Why are you doing it this way?

In large part because we've had years in the past, which any long-term shareholder is often quick to beat me over the head with of missed targets and rough years.

Now if you're living hand-to-mouth and you have a plan to go mine a certain area and you don't expect the watercourse -- that you hit a watercourse and it throws your game off and which you now you have to take all this time to pump it out, it slows development, now you're missing production. I don't necessarily want to keep living like that. I would do everything the same as we did from day 1 to race into this deposit to get the cash flow so we could keep a tight capital structure so we could pay a dividend, we've done that.

So now let's evolve to the next level and do a lot more development, so that we have optionality. So that we go into Switchback, which is a new area of this mine, and we fully expected heavy watercourses. We haven't hit any, which blows me away. So that helps our development as well. But someday we will and it'll slow us down so -- or we'll hit some bad ground and that will slow us down. In the past, we had to just work through it. With this plan, with a little more forward thinking plan, we don't have optionality to say, "You know what? On level 23 access 5, we have bad ground and we can't mine it, let's move over somewhere else." And we'll have the area to do it and the optionality to do it. So it's all about getting away from the hand-to-mouth. You hear me say that almost every conference call. I think shareholders are looking forward to that, I know I am.

Yes. No, it totally makes sense. It's a very -- it's a long-term outlook that probably pays dividends far greater than the short-term keep production going. I get it.

Absolutely, absolutely. And we're going to be here a long time. So -- well, I'm telling you, if you look on the presentations on the Switchback, people aren't putting this together as much as I think. Of course, you could come out with good news nowadays and the market would still beat you up.

But I've said it numerous times that, when you look at the strike length of Arista and it continues to grow and you look at in the short amount of time, a limited amount of drilling, we've found in the Switchback, it looks like it could be every bit as big as Arista, may be even bigger. So we're going to be here a long time. We need to plan to be here a long-term, and the more advanced development we can do, the better.

Yes. I had one more question. If one could extrapolate the first quarter's numbers to the year and I understand there's -- you can't do that really. But let's say..

Well, you can.

We could do that. What's the story with the dividend?

Yes. The dividend is more than likely not going to move this year and it'll have less to do with Mexico and the metal prices, which are usually the driver of it and more to do with the fact, we're getting ready to build a mine.

And so I want to keep the dividend where it is and be consistent to show shareholders we are serious and we are consistently with paying the dividend. But we need capital to build this mine. And so it doesn't make a lot of sense to the board or myself to go increase the dividend, which we could, if we weren't building a mine. But I want to increase our gold production by 100%.

So again, it's one of the things where's it's on the shorter term, sure, we could increase the dividend, but then it hurts us putting this Isabella Pearl into production. And I've said this, I think, in the K conference call that the variables are obviously production, metal prices and development are the big variables with development being Isabella Pearl. And so if metal prices shot through the roof and there's a lot of x-factors that could perhaps do that, I don't -- I'm not -- we're really counting on that. But if it did and we can build Isabella Pearl with cash flow and increase the dividend, we'll do that.

But yes, we just -- too many variables right now. I don't expect the dividend to move this year. Let's wait and see, once we get Isabella Pearl into production, we have 100% increase, we'll probably make more money at Isabella Pearl per year than we do in Mexico, just because it's an open pit heap leach shallow. I mean, the costs are just not going be there every year but the revenue is going to be there. So I think we'll really be able to increase the dividend once Isabella Pearl comes online.

So most of the cash flow this year is going to go toward Nevada development? Is that what you're saying?

Well, that's a balancing act we're doing. We have ongoing operations. We have development at Switchback that's just cost that we're incurring every day with the forethought of someday we'll be bulk tonnage mining it. We have taxes, a lot of mining companies don't ever pay taxes because they're not profitable. We have a dividend. We have this balancing act that we always have and we're fine to have that, that's what we want. But in an ideal world, it would be great to pay with Isabella Pearl with cash flow. I don't know if we can do that.

What I'm getting here, Jason, is, looking at the numbers for first quarter, obviously, you've got mine expenses in there and you've got dividend expenses in there and so on and so on and taxes and so on. And yet after all of that, there's still positive cash flow. So if I'm following you then you're suggesting that you're going to use that cash flow -- the continuing cash flow toward additional mine development. So that implies that the costs -- the mine development costs are going to go up more than first quarter's numbers as we go through the rest of 2017. Is that correct?

Not necessarily. When you say mine development, are you talking about Arista Mine? Because Arista Mine development...

I'm talking about Isabella and Arista. I'm talking about both of them.

Yes, they'll vary a little bit quarter-on-quarter, but I don't expect it to be a huge increase. We're doing a lot of development with what we did last quarter. So if we duplicate that, right, we'll continue to do a lot of development. The big development...

So that means that there is going to be excess cash flow?

There is excess cash flow, we had $2.5 million increase, right?

You're right.

We're putting a lot of the cash from the company to work in Nevada already by acquiring properties, we're paying cash and equity shares, we're drilling -- we drilled a $600,000-plus water well. There's all sorts of engineering costs, there's all sorts of costs that we're already incurring that are in these numbers in Nevada already. So we'll continue to put cash toward it. It's just -- as we've probably stated, we're still working on the exact amount, but $25 million, $30 million, more or less, CapEx on this, we can't take our balance to 0.

No, of course, not.

I mean, it's going to be tough to do this all with cash flow. The question is, can we bootstrap it and do it in payments along the way? Or do we have to look at alternatives? So everything -- those all 3 are all on the table, cash, equity, debt or combination of those to get the Isabella Pearl but we need to do both. That will be a huge driver. If were in Switchback in 2018, bulk tonnage mining that and we have Isabella Pearl come online, we're going to be a completely different company.

Yes, I would say so.

And wait a second. You said the numbers were good for a change. Let me just address that for a second. I want to highlight the fact that we've been profitable for 6 years as a company through 4 of which were bear markets and I can't say that enough. I don't know that there's another company in the mining space that can say, they've been profitable for the last 6 years, 4 of which in the bear market where we lost 5 to 6 of our competitor companies in Denver to that bear market. So I think our numbers are pretty good given the brutal market we've been in. But anyway, thanks, Harvey. Appreciate it.

We'll go next to Jim Thompson.

I've been a share -- I'm an old guy, so I've been a shareholder from early in the beginning, from 2008. And I -- so my questions are kind of related to maybe old news that doesn't exist anymore.

So one of them was just to get your comments was, this quarter, we made money, which is always good but it doesn't seem like we did that much production. When I -- you used to give us production in gold equivalent ounces every quarter but the last several years, I guess, it's been in gold and silver production. So I computed the silver ounce production at $70 -- an exchange of $70, and I come up with a production for the quarter of a little under 13,000 ounces, which annualized, is only 50,000-some, and I think our target was higher than that. So I wanted to comment on that.

And then like I say, I'm an old guy, I've been around for years. So the plant was increased several years ago to try to get the capacity to 200,000 gold equivalent ounces. It doesn't sound like that's anywhere coming anytime soon.

And then the last item is, it always used to be the stated objective of the company and you've touched on this in the last person's questions. But it was always the stated objective of the company to have the net profit pay 1/3 in taxes, 1/3 in dividends and 1/3 to fund growth. So it sounds like that's at least temporarily out of window, and I understand that. I'd rather have something paid for than have debt on it anyway.

But anyway, I was just kind of get your comments on, are we ever get to 200,000? Because we originally were going to get there in a couple years. Is our pace going to go higher than maybe 52,000 gold equivalent ounces this year? And then the futures of the dividend.

Okay. As it relates to production, we're going after our targeted range, which is similar to last year and that's what we're going after. We're not going after any more than that, and I think I've addressed that in several of the other questions that were answered and why that is.

As it relates to 1/3 cash flow -- 1/3 of the cash flow, 1/3 for taxes and 1/3 for dividend -- 1/3 for growth. We did that successfully for years. So I want be clear that we executed on that plan, but then the bear market hit us and really crashed companies. And we were no longer able to do that. I mean, when you don't make the money, you can't dividend that out. So we were making less money, so we had to step back from the 1/3, 1/3, 1/3. But I want to say it again, we successfully did that for years. So it's -- some of your insinuation is, if we don't do what we say, we absolutely do what we say.

No, no. I'm not saying that at all. I mean I appreciate everything that you all are doing.

The mining business being as tough as it is and in a bear market derails plans and that is just what it is. As it relates to...

No, I appreciate all that you've done, and you have been true to your word. I'm just looking forward is that -- and because as situations change like you say, so looking forward like would the plan one-day after we get through construction costs and the U.S. property like to go -- try to go back to a target of 1/3, 1/3, 1/3 and that type of thing.

Of course. I love the dividends. As a large shareholder, there's nothing better than collecting a dividend check every month, there's nothing better. And we've returned $109 million to shareholders in dividends and as a junior company, I'm not sure any other company in junior has done that, especially in the time frame for the ounces we produce. So we are very much committed to the dividend, are very shareholder friendly in that regard, and we absolutely want to go back to those levels.

But keep in mind, some of the numbers you were throwing out on the gold equivalent, that was back in a bull market where gold was hitting almost new highs. So that takes the gold equivalent numbers and launches them.

I'd step back from gold equivalent numbers. Let me specifically tell you why. I think it was 2014, it was either 2013 or 2014, we produced more gold, more silver, more copper, more lead and more zinc than we ever had as a company. But because we subscribe to the rest of the mining industry doing just a goal equivalent, I had to come out and say, we missed our target numbers. I mean what's up with that? And that was totally a function of the metal prices dropping completely out. And on a gold equivalent, that just crushed us.

So that's why you've seen us in the last couple years having lived more metals than we've ever done and had to say we missed our target, we are specifically calling out gold, silver and we do the calculation for you like I did in this call with 12,837 ounces on a gold equivalent basis, but we also are very specific to call out just gold and silver, because I don't want the gold equivalent to ever do that. I mean that was a shame to have the best year we've ever had and yet everybody said, you missed your outlook. It has nothing to do with us, nothing to do with us. It was all metals driven when you subscribe just to a gold equivalent.

So coming back to you, are we ever going to get to those numbers? You have to put in that context, what numbers, are you talking about previous highs in metals and then you're going to do your conversion into gold equivalent. If you're going to do that way, sure, but you got to pick your numbers. I don't want to go -- I don't really want to focus on that anymore. I want to focus on just gold, just silver. You can do whatever gold equivalent you want or whatever assumption you want for those levels.

But coming back to, are we going to go to a place where we have increased production? I said it in the last couple questions in that, when we get to Switchback, the goal is to have enough development so that we could perhaps increase production there. But the big kicker with Nevada is to have a 100% increase to our gold production. That's material for any mining company, irrespective of equivalent or not, that's huge.

So as Paul said, a lower cost and a lower cost to operate, like I said earlier, I think, we'll make more in Nevada per year than we do in Mexico. So having both operating will just be great. And then we can go back to the perhaps 1/3, 1/3, 1/3 like you're mentioning. And then again, we did execute on that for years until the rug got ripped out from under us.

So we're the same company and the same vision where we're shareholder friendly, we're focused on profitable mines, and we're going to continue to do that going forward and make cash and that's more important than impressing people with we produce millions of ounces, but we don't make any money.

Right, right. Well, that's very helpful. That helps me a lot. Could you make one more comment, it seems to me that the spread -- like it's now, I think today, it's almost 75 silver ounces to make 1 gold ounce. And I think I don't know what the historical number was, but I thought I read something once that it was in the mid-50s. Can you make a comment about that, like, why there's -- if there is such a disparity, why is it and if you think they may come back to the historic exchange rates?

Okay. You're talking about the gold equivalent spread, the rate spread?

Right. Because I think I read something once that over history on average it's like 55 ounces of silver to make an ounce of gold. But now it's 75. And I don't know what the reason for that would be, demand or supply or whatever. But can you make a comment about that?

Yes, in the end of the day, that's simply a function of where the metal prices sit. Gold is trading at X and silver is at Y and that differential, you can figure out that ratio. That we've seen in the history of our company, that swing dramatically. Like you're referring to.

Why that is? I don't have a crystal ball of why that is and whether silver is going to go back to historical ratios if it did, and you're trying to focus on a gold equivalent number? Yes, it's going to be a bigger gold equivalent number.

But yes, I don't -- since I don't have a crystal ball like anybody else does, I don't know where markets are going to take us. The most important thing for us is that we stay nimble, we make the cost cuts we have to stay profitable and grow. And so we're -- that's my focus. I can't -- I don't worry too much about where the metal prices are going to go or what the ratio is going to do, because that's out of my control. What's in my control is getting new mines into production and executing on current mines and making money.

Our next question comes from [Bill Pace].

Yes, so on the stock price recently declining, can you comment further on just what is the relationship in effect on that stock price from the GDXJ rebalancing and for how much longer do you expect this to be a factor?

Yes, it's -- thanks, Bill, that's a good question. Again, I don't have a crystal ball. What -- from my worldview in mid-April, the GDXJ came out and said they're going to change their methodology. And they are going to add, what is it, 20 some -- potentially 20 some additional mining companies that didn't typically or previously fit the mold for the GDXJ, so they're changing the whole structure of the GDXJ.

It's anybody's guess what's going on in the market in response to that. Our previous shareholders in the GDXJ say, "I am selling GDXJ, because I don't like the fact you're changing what that means. And since you're not going after juniors and just juniors and you're adding majors." That's anybody's guess. You know the shorts have had to have been on this right from the news of it happening and they're probably running it down -- front running the rebalance, which is supposed to take place Friday, June 16. So we have some time, I believe, of volatility until that rebalance happens.

Now I do believe some of the trading happens and hopefully most of that trading in rebalance happens prior to that date. And so, yes, I hope that happens. Sorry, I don't have any insight that anybody else has, I don't.

We'll go next to [Ron Sendrowski].

I was going to ask for a while there you were talking about transporting the ore to a port. Is that still progressing or is that going to take a while yet?

Yes. Before I get to your question, are you a shareholder, Ron?

Yes.

Great. I just like to ask occasionally. As far as transportation, we are still trying to get our cons to a port that's closer, and we believe it can help lower our costs and we continue to try.

In the long term I'm optimistic we'll do it. In the short term, yes, it's not going to happen in the short term. There's a lot of moving parts, moving pieces. This port was dormant for a while, it's opened back up. We're trying to encourage it to open back up. So I mean, it's a lot of moving pieces. So we continue to try.

Again, long term, I'm optimistic we'll get it done, but we have a lot hurdles to get over before that happens. But between that and the electrical power grid, if we can do one or both of those, I expect our cost to come down even more so, and possibly quite dramatically. So it's worth going after.

We'll go next to [Michael Buerk].

Yes, I have -- I think I missed the beginning. You talked about possibly doubling your production. What sort of time frame are you looking at with that?

Okay, I want to be clear. As far as doubling production, I was just referring to Isabella Pearl and we are very optimistic that the permits for that could drop in, in the near future and then we move that thing forward into production. That's just a gold deposit. It's got a little bit of silver and we won't recover much of it. So I mean generally, it's just gold. But the targets we would be going after at Isabella Pearl would be potentially more than the gold we produce right now.

So when I say double production, I want to be very clear, just gold. Just gold production, because there's not base metals in the deposit in Isabella Pearl. As far as the time frame on that, we have submitted to the NDEP, Nevada Department (sic - Division) of Environmental Protection, for our permits and we've had some back and forth with questions and we remain -- we are on standby for any additional questions they have.

Once we receive those permits, which could be a month, 2 months, 3 months, could be a lot longer, we don't know. But we're optimistic that it won't be too much longer. Then it's a function of how quick can we get it into production. The build on this, it was estimated about 9 months. And at that point, we'd be producing gold. And over the first year, we'd be targeting a range that would double our gold -- potentially double our gold production as a company.

So timing wise, I just -- I can't give you an exact time because we need the permits in hand to just kind of start the clock, so to speak. If they came in a couple months from now, we could potentially get it into production early 2018, if it's several months, or it's numerous months from now, it's going to be mid to late '18. I just -- I can't call the timing yet, because we need those permits.

But I want to stress, we're very focused on '18. We want to be in production in '18. And hopefully, earlier rather than later, but that time frame won't be up to us. That time frame is going to be up to when we get the permits. Things seem to be going well on that front. But you know, we're not in control of that timing.

All right. Now you mentioned the -- hooking up to the electric grid, et cetera. Is that something you expect to do this year? Or is that also something that would kick in next year possibly? Once again, with the uncertainties, but...

Sure. Yes, just to give you a little more color on that. We are -- our original route was going down, and we have to cross through so many different hitos or agrarian communities, so many different communities. And we had some pushback on one of the communities, it was the final holdout that said, "We already have electricity. We don't want this line coming across our land." So we've now gone a different direction to an area where they don't have electricity. So they're going to be -- they seem to be far more motivated to have this line come through, because it's a huge benefit for them.

So we have a lot of reasons to think this direction will work better. And we've already initiated discussions with new -- with these groups and we're getting positive feedback. So let's presume they say okay. We're working with the Federal Power Commission as we have been with the previous route. But with this new route, they have to do several months of studies. They get those studies done, they give us the green light, then we can move forward on the project. It's going to take at least 6 months to build.

So again, these are long lead time things but the fact that they can dramatically lower our cost, we absolutely want to keep after them. And this new direction that we're coming in from, we're very optimistic and it stands to reason, right? They don't have electricity there, so by us bringing this power line through they -- it changes their world. So...

So reasonably you would expect that to kick in next year sometime?

Yes, I hate to just give a timing because I don't know. I just don't know the timing. I was very optimistic going the other way. I didn't think we were going to have one holdout group that was just such a pain. It wasn't worth continuing at that point with that direction. So we're going this other direction. It's about the same distance, it's about the same cost.

But yes, I mean, I'm just hesitant to give timing because we don't even have permission yet. But once we have permission and get the greenlight and 6 months to build, I mean, yes, it's probably the best case scenario into 2018, if not 2019, early 2019 thing at this point. But just don't know.

And then we'll go lastly to [Chris Rutherglen].

Jason, this is Chris Rutherglen and my question relates to -- you mentioned open pit mining. Is this related to the Manto?

Yes, it is.

Okay, so you're already mining that?

Well, no. We mined it a long time ago and then we had stockpiles that we've pretty much burned through all of those over this last year. And there's some contouring we're doing as a part of reclamation. And in that, there's a little bit of gold in there. I mean, it's not a lot. But that's why it was mentioned.

It's not a -- at this point, a lot of our production. We've done some drilling, and we've found that this actually extends -- the Manto extends and so we're looking at this of whether it's feasible and makes sense because it's going to encroach on our mill a little bit, et cetera, not under it but toward it, whether it makes sense to go after the extension of that deposit. But that's not what we're doing. We're just doing a little bit of contouring.

Okay. Yes, that was my question because I noticed at a press release in 2015 regarding those drill results and I was curious if that's in the mine plan. It sounds like it's still a ways off.

Yes. That's not in the mine plan. In fact, the extension went underneath the stockpile. So we had to move the stockpile if we're ever going to go after it. And so we did that, and we're still evaluating when it makes sense.

And the stockpiles, is it depleted at this point? Or it is still remaining?

Pretty much. I believe they're pretty much depleted.

And my next question is regarding later last year, there was an F-3 filing regarding a financing -- presumably for financing the Nevada projects. How are you looking at that mix of financing between retained earnings, issuing common debt? And if it's related to the common, is there a share price that you would feel comfortable having it be above before you would proceed with that?

Yes, no, it's a good question and we as a board don't -- we discuss that at every board meeting lately on how we get Isabella Pearl into production and plan A is with cash flow. And like I mentioned earlier in the call, we have been funding everything we've been doing with cash flow from drilling wells to engineering and duh, duh, duh, I hope that can continue. A lot of that depends on where metal prices are going, and they're getting a little softer which makes it even tougher. But if metal prices stayed around this, how much can we do with cash flow? And so that's Plan A.

But Plan B would be how much can we do with cash flow and if we can't get there, what do we do? Do we do equity? Do we do debt? What -- we're looking at all the options. So there's not necessarily a stock price that says okay, we're here, we're now going to go do this, that or the other because, again, the plan is to try to do some or most of it with cash flow, which, if we do and can, then it would make any equity raise or debt that we take on much less.

So yes, it's just all those options are on the table. We fought tooth and nail to be a producer with the tight capital structure that we have, and we don't want to hurt that unjustly. We want to do everything we can to have the tightest capital structure. So...

So roughly, sort of ballpark figure, what are you expecting for the cost for developing the Nevada project? Maybe like $30 million? Is that...

Yes, that's what's on the presentation now. We're fine-tuning those numbers. I expect that to come down. In fact, I know it's going to come down. We just haven't publicly announced the finals because we're still finishing up some fine-tuning. But that's what is on our presentation now as far as the CapEx.

So it's not a huge CapEx, but that's the order of magnitude. But I wanted to get that out to shareholders so they knew when we took on Isabella Pearl that wasn't $100 million project kind of thing. That was important to us. So that was just kind of a broad, large number. But we've since done a lot of fine-tuning and I want that number and believe it will come down from that.

And we have another question from [Jermelle Hutchinson].

I am a fairly new shareholder and so I just wanted to ask -- I know you mentioned you can't put a time frame on when the new permits will be approved. But I was wondering what the likelihood of those permits being approved or disapproved would be like in the near future?

Yes, no, that's a great question, and I don't have the answer to that. Though I am optimistic. Of course, I'm an optimistic person, and I've been optimistic about things in the past that didn't happen the way I wanted.

But I believe we stand a good chance. It's just a chance, but a good chance perhaps within the next quarter. Might go longer, might be sooner. But I just don't know because at the end of the day the regulators decide what the time frame is. So we've been pushing -- I would have liked to have it in my hand by now, but we don't. And again, we just stand by for anything they need, any questions they have to get right back to them, but the ball's in their court and we're just waiting.

But once we get those then we'll have some clarity, okay, we have this, where do we stand, where are the metal prices, market prices, are we going to have enough cash flow to do it. If not, what are our options? All that -- but until they drop in, it's just really tough. I really would like to be in production by midyear next year or before, that's what I would like. But what I like and what actually happens may be 2 different things.

Okay. And are there certain factors that would weigh in favor of approval or against approval?

There are so many factors involved in this. I think the biggest thing going in our favor is that it had 3.5 years of back and forth with the regulatory bodies as a project, previously. And since that time, we've come in, we bought the project, we redesigned and engineered and re-mine scheduled it.

Just give you one piece of color. We made it a closed system, which means we're not going to have overflow ponds that are full of either pregnant or barren solution. And when you make it a closed system and you put that fluid in tanks, it's much -- it's viewed very positively by the regulators. They love to see that. We did that. So that helps. I mean those kind of things help.

So we've done a lot of those kind of reengineers and redesigns that we're optimistic that the regulators like to see that as opposed to what was being done. Not that, that was bad. It's just -- we think this is better. So that, we think, is in our favor doing -- of operating like that. So there's just so much to it and again, it's out of our hands at this point. It's in theirs.

And it appears we have no further questions at this time. I'd like to turn it back to you for any closing comments.

Well, thank you, everyone. This call actually surprised me. I didn't think we're going to have a single caller. I knew we had one e-mail question come in because the individual wasn't going to be around to call in. So I have to say, I'm pretty optimistic that maybe given the fact we had zero, I think, questions last time, people are maybe looking at the space and gold miners are too beaten up here. And who knows, maybe the turn is coming. I hope, for our sake, it all is and gold launches again.

But regardless, I'd like to thank everybody for their time today. Thank you for everybody staying on the line and asking questions. I love it. And look forward to any questions you may have the next quarter. Thank you.

This does conclude your teleconference for today. We appreciate your participation. You may disconnect at any time.