Gold Resource Corp (GORO) 2017 Q2 法說會逐字稿

Thank you for joining the Gold Resource Corporation's 2017 Q2 Earnings Conference Call. Mr. Jason Reid, President and Chief Executive Officer, will be hosting today's call. (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 Second 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, August 2, 2017, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in our Form 10-K filed with the SEC for the year ended December 31, 2016.

Second quarter highlights include net income of almost $1 million or earnings of $0.02 per share, mine gross profit from our Oaxaca Mina unit of $5.2 million. Our cash balance held steady from first quarter at over $16 million, which is still an increase of over $2 million compared to the same quarter of 2016. We extended the strike link of our Arista mine's Switchback vein system by another 50 meters with high-grade gold intercepts, expanding its total strike link to over 625 meters. This exciting vein system remains open in strike and depth. Mine development at our Alta Gracia's Mirador mine advanced by the end of the quarter to achieve consistent ore feed, and we expect that to be reflected in the third quarter production. At our Nevada mining unit, we continue to intercept high-grade gold at our Gold Mesa property and continue to await mine permits for our Isabella Pearl project.

Second quarter production from our Oaxaca mining unit totaled 5,696 gold ounces, 397,670 silver ounces, 294 tonnes of copper, 1,207 tonnes of lead and 4,176 tonnes of zinc before payable metal deductions. Calculating the gold and silver as precious metal gold equivalent, we produced 11,133 ounces at a realized 73.2:1 silver to gold ratio. We milled an average of 1,293 tonnes per day or 113,790 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 $272 per ounce. We continue to see the positive impact of our base metal production on our costs, which I'll discuss in a moment. Our all-in sustaining cash cost per ounce, a non-GAAP measure, for the second quarter totaled $770.

During the quarter, we sold 4,716 gold ounces, 329,881 silver ounces, 216 tonnes of copper, 1,071 tonnes of lead and 2,977 tonnes of zinc. Average grades and recoveries at the Oaxaca mining unit for Q2 included gold graded 1.82 grams per tonne, with 85% recovery; silver graded 118 grams per tonne, with 92% recovery; copper grade at 0.33%, with 78% recovery; lead grade at 1.41%, with 77% recovery; and a zinc grade of 4.34%, with an 85% recovery. Gold and silver grades decreased while base metal grades increased during the period, primarily due to specific areas of the Arista deposit being mined during the quarter.

During the quarter, we generated revenues which are net of smelter charges of $21.4 million. We generated mine gross profit of $5.2 million, and net income of $864,000 or $0.02 per share. Q2 average metal prices realized were $1,300 per ounce gold and $17.77 per ounce on silver. Please note, our -- 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 maintains its 2017 outlook range with ranges based on plus or minus 5% of approximately 27,500 gold ounces and $1,850,000 ounces of silver, along with significant base metal production. We continue to focus on margin, while mining tonnes based on net smelter return, or NSR values per tonne, of all the 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 were the primary driver in holding our low cash cost and all-in sustaining cost per ounce for the quarter.

During the second quarter, the majority of the mining at the Arista Mine took place below level 17 in the Arista vein system. Approximately 20% of Arista Mine or production was provided from our Switchback vein system development ore that was diluted during the development process. Development of the Switchback for bulk mining has exceeded our expectations, with the main ramp access to the vein -- to the Switchback veins advancing ahead of schedule and presently complete between levels 22 and 26. During the quarter, our goal was to finish the installation of the newly-purchased mine ventilation fans and related infrastructure in preparation for Switchback bulk tonnage production.

By the end of the second quarter, mine development at the Alta Gracia's project Mirador mine, advanced to the point where consistent ore feed can be trucked to our Aguila mill's newly refurbished agitated leach circuit. Our initial target is 150 tonnes per day. You might recall that we had issues with a past mine contractor that delayed our progress at Mirador, but have since brought the mine development in-house and are pleased with our advancement thus far, and to this point, where we consistently mine, truck and feed Mirador ore to the mill. Operations at our Nevada mining unit included opening our Nevada office and hiring our Nevada Projects/General Manager. In addition, we have signed purchase agreements for long lead time processing equipment, including the crushing plant, and a radial stacker and conveyer system designed for the Isabella Pearl project. Although, we are still working and waiting on final permit approval for the project, we are optimistic and comfortable in ordering key pieces of equipment so that we may transition from the permitting phase to the construction phase as soon as possible upon final permit -- project approval.

The accounts payable and other liabilities line on our balance sheet for this quarter reflects approximately $3.4 million related to these efforts. In addition, we made significant cash down payments so that construction of these key pieces of equipment could commence.

Turning to exploration. Our Oaxaca mining unit's Arista Mine was expended by another 50 meters during the second quarter, bringing the total strike length of the Switchback vein system to over 625 meters. It remains open on strike and depth. Drill intercepts at the Switchback included Hole 517106, at 2.3 meters of 6.16 grams per tonne gold, 452 grams per tonne silver and 9.29% zinc. Step out intercepts at Switchback included 5.01 meters of 3.98 grams per tonne gold, within a wider intercept of 5 meters of 3.2 grams per tonne gold, 261 grams per tonne silver and 11.85% zinc. Other notable Switchback high-grade intercepts announced during the quarter included 4.3 meters of 9.97 grams 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 continues to grow, and has potential to become as large or larger than the Arista vein system. It is exciting to watch our Arista Mine continue to grow and expand.

Exploration at our Nevada mining unit focused on Gold Mesa drill intercepts, including 6.1 meters of 2.09 grams per tonne gold, starting at just 10.67 meters downhole. With surface and near surface high-grade gold on all 4 of our properties, our pipeline of potential projects in our Nevada mining unit is very exciting.

With that, I would like to thank everyone for their time today on the conference call. Let's move onto the question-and-answer portion of the call. (Operator Instructions)

Operator, please open up the lines for the Q&A and take any questions if there are any.

(Operator Instructions) We'll go ahead with our first question.

Jason, it's [Harvey Wallen]. I have 2 questions. I'm noticing that the grades are decreasing from last year. Question one is, do you expect that to continue or to turn around as we move into the next few quarters? And secondly, since you're holding to your original range of precious metal production for the year, that would imply that you expect an increase in production through -- from now through the end of the year. Can you comment on that?

Sure. Thanks for your questions. The first one regarding grade. You've seen quarter-on-quarter grades vary, and that's just is what it is depending on where we're mining. This quarter, we had a lot of development ore, and that was highly diluted from the development process coming out of Switchback, that lowered our grade. Do I expect grades to continue to decline or increase? I listed numerous drill intercepts from the Switchback vein system and those grades are very much like the grades higher up that we mined years ago in the upper portion of the Arista vein system. So I am optimistic, we're going to go back to seeing those higher grades. Once we start bulk tonnage mining this, I expect the grades to come up. So that's kind of the short answer of where I expect grades to go. Generally speaking, in these type of deposits, you have a gradation where over time you see lower precious metal grades, the deeper you go, and that's just a function of these epithermal systems. What's unique about what we're dealing with right now is that the Switchback vein system is actually deeper than the Arista vein system, yet the grade from the drilling anyway, indicates it's much higher grade, much higher than the equivalent elevation of the Arista vein system in this mine. So we're unsure whether this was ultimately faulted -- and this was put in place all at the same time, same place and it faulted, and this block of what we're calling the Switchback vein system was put in a lower elevation at that point or if it's a different boiling zone. I'm getting a little complicated on you, but the long and short, it doesn't matter which answer of those two, it is. The most important thing is, I think we're going back to higher grades once we're bulk tonnage mining the Switchback, given the drill results, and hence I read those in this call. As far as your production question. Yes, we fully intend to meet our target that we came into the year with. We're very close to that range right now, and we have overcome some challenges of which -- we mentioned in the past, with, for instance, a mine contractor that slowed down our Mirador development. That, obviously, slowed us down. We would have much rather had a full -- all of last quarter, Mirador ore. But we didn't. So it is what it is, but we think we're going to hit our range. And at this point, we're continuing to target that. So does that answer your questions?

Yes.

We'll go ahead with our next question.

This is Vijay Marolia, Regal Point Capital. Quick question. I noticed that cost of production was a little bit lower, but there was a big drop in the margins. So does that have to do with scale? Or does that have to do with the grade? Can you add some color?

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

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

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

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

Okay, if you looking on a global scale for the company, you're talking about bringing in Nevada as well, right? Is that where you're coming from?

Yes.

Okay, yes. At Nevada, generally speaking, we're targeting 40,000 ounces a year. There's obviously going to be a ramp up to that, but that's a target of about 40,000 ounces a year is our initial target, and then we'll grow from there. We are moving forward with the Isabella Pearl project, and we're waiting on our final permits. They will dictate when we can move forward, and we're still waiting on those. So we need those to come in pretty soon if we're going to have the bulk of 2018 being a production year for Nevada. So if we come back to your original question, can we look at a double? It all depends on when those permits drop in and how quickly we can get the Isabella Pearl under production. But when it does come in, if we look at a full 4-year -- full year from the Nevada mining unit, and let's say for the moment, the Oaxaca unit holds or maybe grows a bit, you're looking at a 100% increase to our gold production, which is material for us. So yes, the long and short is, we're in a growth phase, and in the future, we fully intend to grow. 2018 is hopefully the start of that growth phase. But coming back to your original comment, can you look at it as a double, that might be pretty aggressive, depending on when we can get our permits from our Nevada mining units project.

(Operator Instructions) We'll go ahead with our next question.

This is [Rex Jones]. Been hearing a lot of optimism about when we might get the permits in Nevada. What are the holdups? And what boxes do we still have left to check off as far as getting those permits?

Sure, good question. Okay, let's step back a moment and look at what we're doing in Nevada. About a year ago, we acquired the asset in Nevada of Isabella Pearl that we're trying to put into production. So from that aspect, we're moving quite quickly to be talking about finalizing permit. Now it took us over 6 months to get our ducks in a row, reengineer, rework, remine schedule this project to fit our way of mining and doing business. And then we've submitted to the authorities, being the Nevada Department of Environmental Protection, which we call the NDEP, and the Bureau of Land Management, or the BLM. Now we have been back and forth with our permitting applications and what we're supposed to turn in with both of these groups, and we've made great headway with the NDEP. And now we're focused on the BLM, and satiating all the requirements that they need. You know what, they're on a different time schedule than we are. So obviously, I would like to have them today, but things just move at a little bit of different phase, right, for them. But knowing that -- that's why I made those comments early on. Knowing that we really haven't been pursuing these permits for very long, and yet, we are already feeling comfortable enough to order equipment, should tell you that we're optimistic, it's going to come in soon. I mean, we've allocated a lot of cash and are ready to equipment, so that it can be started and being built, such as the crushing and the stackers, radial stacker, conveyor system. That should tell you that we're pretty confident it's going to come in the near future. Could that be a month, could that be -- sure. Could it be 3 months? Sure. Could it be 6 months? Absolutely. But I hope it's not 6 months. I hope it's on the lower side of those time frames. But I just -- I -- we don't dictate that. Ultimately they do. So we're doing everything we can to provide them with additional information when they ask. We continue to go back and forth with them. My team and I were just in Nevada, sitting with the BLM to further nail down some of the remaining items, and -- yes, that's where we are. So we're -- we feel we're awful close. But timewise, it's just out of our hands. And I'm optimistic, hopefully, in 2 or 3 months, we're having a whole different conversation, talking about when we can get in -- when we can move forward in production et cetera. But ultimately, they call the shots on the timing.

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

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

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

Yes, of course.

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

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

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

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

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