Gold Resource Corp (GORO) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thanks for joining Gold Resource Corporation's first quarter 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 2018 First Quarter Conference Call. I expect my 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 should yesterday, along with the comments on this call, are made only as of today, May 2, 2018, 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 on our remarks in our Form 10-K filed with the SEC for the year ended December 31, 2017.

As I noted on the year-end conference call in an effort to streamline quarterly conference calls while still being available to take shareholder questions, I'm taking a different approach to conference calls. I'm not going to just regurgitate the quarterly numbers that anyone can read in the 10-K or quarterly reports, I'm going to hit the highlights, give color to updates and address problems or issues that may need to be addressed and then return -- then turn the call over for questions. This hopefully will benefit everyone attending the calls by making them shorter and more efficient. Having said that, I have so much fun and exciting news for you today, you should buckle your seatbelt.

The first quarter of 2018 was another strong quarter for Gold Resource Corporation. We increased our cash balance by $6.2 million over the last quarter to $28.6 million. We had gross sales of $32.2 million and mine gross profit of $12.9 million. Our net income was $5.5 million or $0.10 per share for the quarter. We produced 6,647 gold ounces, 425,884 silver ounces before payable metal deductions. Our precious metal gold equivalent ounces sold totaled 10,275 at a negative cash cost of $316 per ounce after the strong base metal byproduct credits. These negative cash costs won't last forever, but they sure are fun while they last. Our Oaxaca Mining Unit's mill throughput, on a combined flotation and agitated leach basis, totaled 139,089 tonnes or 1,636 milled tonnes per day. This demonstrates success in our efforts to increase total mill throughput over time, and we have additional headroom as we further optimize both process and circuits. To put the quarters 1,636 tonnes per day of throughput into perspective for the 2017 year, we averaged 1,301 milled tonnes per day through the flotation circuit alone. Additional throughput could have additional positive impact on milling operations as we mine upwards at Switchback in the higher-grade areas and ore shoots.

Remember, we entered the Switchback with our development risk in the deepest known area of the vein system and plan to mine mostly upwards. This particular area has good precious metal grades, but very high base metal grades. As we mine laterally and upward, the grade will continue to vary quarter-on-quarter, but we expect higher precious metal grades in the long run and lower base metal grades when we get into ore shoots above our current location and into upper portions of the currently known vein system. This gradation, as previously mentioned on other conference calls, comports with epithermal systems and what we have historically experienced mining the Arista vein system. The Switchback vein system remains open on strike and vertical extent and continues to expand. The January 23 press release during the quarter highlighted the 200 meter step out of mineralized veins, including an exciting 11 meters of 4.18 grams per tonne gold and 117 grams per tonne silver along with many other high-grade intercepts.

Our Oaxaca Mining Unit highlights include continued progress albeit slower than we would like on the power grid. I can't give you an exact time frame on the completion, but progress in that regard is ongoing. We are also working on our tailings expansion and phase drill programs. These three 2018 budgeted projects are all moving forward.

At our Nevada mining Unit, we acquired our fifth property, the County Line gold property, which was announced in the March 12 press release. We added 939 hectares or 2,320 acres of prospective ground in the mining unit. The property has potential for high-grade gold open-pit heap leach operations and has a few small historic open pits on the site with exciting exploration potential for undrilled areas of the property.

Subsequent to the quarter, in April 19 press release, we announced our maiden, proven and probable reserve at our Nevada Mining Unit's Isabella Pearl Project. The reserve consists of 2.69 million tonnes of 2.22 grams per tonne gold containing 192,600 gold ounces. Metallurgical testing indicates 81% crushed rock recovery and 60% run-of-mine ore recovery. We are finalizing the report and associated feasibility study which should be up on our website shortly.

As for an exciting Isabella Pearl permitting update, the Bureau of Land Management put the Isabella Pearl Project's environmental assessment out to the required 30-day public comment period which concluded on Saturday, April 22. There were no public comments and only a few comments from the Nevada Department of Wildlife. We have already responded to the [Indel] comments and the ball is back in the BLM's court. The comment period is the final stage of the permit process, and we are excited to receive the official letter of finding of no significant impact and EA permit approval for the Isabella Pearl Project very soon. After this lengthy process and having finished the public comment period, we feel we are at the any day stage for the final permit to drop in. We continue to make monthly cash payments on the ADR processing plant for the Isabella Pearl Project. The ADR is the final stage of the process that produces gold dore. We have just one remaining payment of $300,000 to pay off this $4.3 million processing facility using our own cash. The ADR plant construction has been completed off-site is 100% complete and is ready to move to the site once the EA permit is delivered and the site preparation for the facility allows for its mobilization. We are pleased to be using cash to pay for the ADR plant all while materially increasing our cash balance by $6.2 million for the quarter.

The Isabella Pearl financing plan, Plan A, if you will, is for the project to remain financed through treasury cash, monthly cash flow and equipment financings as we have been doing up until this point, like cash for the ADR plant and equipment financing for the crusher and stackers. We do, however, continue to look at all our available funding options, including equity and high-yield unsecured debt, and may utilize any combination of these options or others if need be.

We put a shelf registration in place over a year ago -- 1.5 years ago and put an ATM, or at-the-market offering, in place about a month ago for additional optionality. With a substantial portion of the CapEx already accounted for, we are in a strong position to move this project forward as soon as we have permission.

We had a great first quarter hitting our production numbers at ultra-low cost; increased cash in the bank, posted earnings of $0.10 per share; we moved our Oaxaca Mining Unit forward with various projects and increased mill production tonnages; we expanded our Nevada Mining Unit with the acquisition of County Line; we announced our maiden, proven and probable reserve at Isabella Pearl; and made it through the BLM's public comment period for the permitting process, which is the final step. We are very excited of the prospect of receiving a EA and permission to begin construction of the Isabella Pearl mine. We are hedging our bet with many different financing options for the Isabella Pearl, but remain focused with the goal to build the entire project with cash and equipment financing, which would represent a 0 dilution to shareholders if we can pull it off. At this point, our advancements with current self-funding efforts have covered approximately 1/3 of the estimated $30 million CapEx with a cash balance at March 31 of $28 million. However, we ultimately fund the Isabella Pearl Project whether with cash, equity and/or debt. We have already dramatically decreased potential dilution as we remain committed to shareholders and the future potential of substantial monthly dividends once Isabella Pearl enters production. I am very proud of our excellent team that makes all these accomplishments possible.

With that, I would like to thank everyone for the time today on the conference call. Let's move on to the question-and-answer portion of the call. And in an effort to efficiently address the Q&A portion of the call without wasting anyone's time since we don't screen, filter or limit who can call in, any distracting or antagonistic calls will be terminated, and I will simply move on to the next productive caller's question.

Operator, please open up the lines for the Q&A. And if we have a first question, please take it.

(Operator Instructions) And we would now like to have our first question.

Jason, it's Harvey [Volan]. Yes, it was a knockout quarter at a -- and very, very impressive. So you guys get kudos for that for sure. So in reading the SEC filing, there was something in there about Mexico has a dividend withholding of 10%. Could you talk about that? And also the distribution of post 2013 earnings, what is that all about?

Sure. That was a great question. I'm going to turn this question over to John. He will probably explain it a lot more clearly than I will.

Good morning, Harvey. Back in 2014, Mexico put this new legislation in place regarding dividend withholding of 10%. Through a treaty, we qualify for a 5% withholding, which we have not had to date. But could occur sometime this year should we bring up more than, I think, it's around $5.5 million of withholdings. Now these dividends are not taxable in the U.S. anymore due to the new tax reform legislation, but we will incur a small dividend withholding on future dividends coming up from Mexico.

So is it -- does this -- is this money that the company has retained or next -- or the country of Mexico has retained and will be distributed somehow? I'm confused...

No. These are -- Yes. These are undistributed earnings of our Mexican subsidiary -- of our Mexican operation, basically. There are considerable amounts of undistributed earnings. And as we bring those earnings up going forward, we will be subject to a dividend withholding, which we have not had to incur in the past.

So this dividend withholding is for the company here in the U.S.?

No. It's actually paid in Mexico. It's a Mexican tax, and it will be paid by our subsidiary as they move dividends up to the U.S. parent.

Okay. So this has nothing to do with...

No. Go ahead.

This has nothing to do with stockholders.

No, no, no. This has to do with the Gold Resource Corporation as the stockholder of our Mexican subsidiary. And it's...

Ah, I got it. Okay.

That's tax paid in Mexico. It has nothing to do with GRC's shareholders.

Got it. Okay. That's very helpful. Well, it was really good to hear about Isabella Pearl moving forward because as you know, Jason, we've heard for months and months and months that it's in the BLM's court and the progress seems to be moving -- was -- seemed to be moving at a snail's pace, if that. And now to finally see the light of day is really good news. So we look forward to things starting.

Yes. Thanks, Harvey. And to put it in perspective, I mean, when most mining companies move forward with putting something into production and go through the permitting process. Nowadays, it can take 5 to 7 years. So in the big picture, we're moving quickly. But when we picked up this property, it had several years of permitting under its belt. We obviously rescheduled the mine, redesigned, reengineered a lot of things to it. But having said that, in -- yes, we're all wanting to have it today, but we're all going to look back and say wow. From the point in time in which you guys purchased the Isabella Pearl asset to when we reach production, I think, we'll all look back and say, "that was fast." But when you're in the weeds like we are now, it sure seems like it's taking forever. We were actually just speaking about that earlier this morning because we're right there. I mean, the 30-day comment period is very important and that is the final stage. And it's going to be fun. It's going to be a lot of fun.

(Operator Instructions) Mr. Reid, at this time, we have no further questions in the queue.

Great. Thank you very much. Thanks, everyone, for joining the conference call. We'll talk to you next quarter. Have a good day.

Ladies and gentlemen, that concludes today's presentation. You may disconnect your phone lines, and thank you for joining us this morning.