Gold Resource Corp (GORO) 2023 Q3 法說會逐字稿

Good morning, and welcome to the Gold Resource Corporation third-quarter 2023 financial and operating results conference call. (Operator Instructions). I would like to remind everyone that this conference call is being recorded today, Wednesday, today Tuesday, November 7, 2023.

I will now turn the conference over to Chet Holyoak Gold Resource Corporation's Chief Financial Officer, Mr. Holyoak, you may proceed.

Thank you, Julie, and good morning to everyone. On behalf of the Gold Resource team, I would like to welcome you to our conference call covering our third-quarter 2023 results.

Before we begin the call, there are a couple of housekeeping matters I would like to address, please note that certain statements to be made today are forward-looking in nature and as such, are subject to numerous risks and uncertainties as described in our 2022 Annual Report on Form 10K and other SEC filings. Please note all amounts referenced during this presentation are in US dollars unless otherwise stated.

Joining me on the call today is Allen Palmiere, our President and CEO; and Alberto Reyes, our Chief Operating Officer. Following Allen, Alberto, and my prepared remarks, we will be available to answer questions.

This conference call is being webcast. For those of you joining us on the webcast, you can download a PDF copy of the conference call slides. The event will also be available for replay on our website later today.

Yesterday's news release that was issued following the close of the market and the accompanying form 10K have been filed with the SEC on EDGAR and are also available on our website at www.goldresource.com.

I will now turn the call over to Allen.

Thank you, Chet, and good morning, everyone. I would like to thank you for joining us on our third-quarter conference call. I would like to address a few points first, and then Alberto will address operations followed by Chet with the financial results following their remarks, I will then make a few closing comments and we will take questions.

Third quarter, as you've observed was a difficult one for us. As previously guided mine sequencing resulted in lower ore grades. While this was always in the plan for the latter part of this year. The unexpected strengthening at the Mexican peso hurdles and a lower than forecast price of zinc adversely affected our by-product revenues.

While commodity prices and foreign exchange rates are beyond our control. We are very focused on those factors. We can control costs and productivity. We have reduced our workforce by 10% and are looking at further reductions. We have renegotiated certain supply and service contracts that will have a material impact next year.

We have changed certain practices underground to reduce cost, reduce dilution and increase productivity. We are also doing test work to attempt to improve recovery while maintaining concentrate quality. That being said, cash continues to be tight and remains our primary focus. We published preliminary and economic analysis for the back 40 project, which demonstrates the robust nature of the project and confirming our assumptions when we first acquired it.

Net present value using a 6% discount rate of $215 million and an initial capital requirement of $325 million demonstrate economic viability. And we have identified additional opportunities to further reduced capital, improved capital intensity.

This was a result of a great deal of hard and creative work by our technical team over the past year. The new approach to the project eliminates any direct impact on wetlands utilized as dry stacking as opposed to conventional tailings dam.

Decreases the size of the open pit and increases the amount of annual underground mining due to the use of cemented tailings as backfill underground, the quantity of tailings at surface is significantly reduced. All of these changes should make the project easier to permanent than the original concept.

Needs to be noted that VMS deposits. VMS stands for volcanogenic massive sulfide, of which the back 40 is a classic example typically extend at depth. We believe based on the few deep drill intercepts that there is significant potential for the deposit to increase in terms of quantity and depth that's increasing the mine life and economics.

Now if you would turn to Slide 7. I will provide an update on our Q3 exploration results. Our exploration program, which has been our primary use of cash over the last 2.5 years continues to produce good results, which will result in a growth in reserves and resources increasing the mine life.

In the past year and a half we have discovered areas of mineralization all announced the three sisters Gloria, Marena and a continuation of Splay 31, which was hitherto unknown, all of which contain high-grade intercepts and will be part of the future Don David.

As I said, exploration has been the major use of cash over the past two-plus years, but the results are more than sufficient to justify the expense and point to the need and desirability of additional drilling in the future.

I'll now turn the call over to Alberto for an update on the operations.

Thank you, Allen, and also good morning to all. In keeping with our long-standing tradition, I would like to begin by addressing the permanent importance of our team's safety. Our collective dedication has led to a commendable achievement. With DDGM successfully reaching over 1 million work hours with zero LTI's complemented by a low LTIFR of 0.11. This reflects our team's solid commitment to enhancing our safety practices, fostering discipline, and integrating a culture of safety that adheres to the highest international standards.

The third-quarter presented its share of challenges exacerbated by the prevailing inflationary pressures, volatile exchange rates, increase in labor costs and response. We have strategically reduced our headcount by an additional 10% while implementing various cost savings measures to alleviate financial strength.

On a positive note, we are actively exploring technological solutions at our processing plant to adapt to the shifts in order type. Preliminary results from our study on the copper concentrate have shown promise, particularly in improving gold recoveries. Rest assure we are diligently following our management of change protocols to seamlessly integrate this find leads and capitalize on the potential benefits.

Our production results I'm pleased to report that production for Q3 reached approximately 117,000 tonnes of ore sold approximately 4,000 ounces of gold and 209,000 ounces of silver, equating to over 6,500 gold ounces. In addition, we sold 245 tonnes of copper approximately 947 tonnes of lead and more than 2,500 tonnes of zinc.

For the year to date to September 30t, we processed nearly 347,000 tonnes of ore sold approximately 14,800 ounces of gold and 778,000 ounces of silver, equating to over 24,300 gold ounces. We further sold over 900 tonnes of copper, approximately 3,700 tonnes of lead and over 8,700 tons of zinc.

Turning to slide 5, DDGM a strategic cost revision has led to adjustments in our underground capital development and sustaining CapEx, resulting in a reduction to approximately 460 meters of development. This adjustment is strategic and ensures that our production remains on target adhering to our guidance. We have integrated promising new mine development exploration result into operational plan effectively replacing ore zones that initially require extensive development work.

In the third-quarter our export exploration initiatives yielded impressive results. However, we entered the fourth-quarter we will be scaling back this exploration efforts. Our financial commitment to exploration on sustaining capital expenditures is now approximately $300,000, while our sustaining CapEx is around $460,000. This in addition to underground development brings our total CapEx for Q4 to an estimated $1.8 million. This reflects our judicious allocation of resources, allowing us to operate below our initial budget of $2.3 million for the same quarter.

This changes have necessitated significant adjustments within our team and operational processes, showcasing the remarkable resilience and adaptability of the DDGM workforce, our employees have demonstrated a solid commitment to excellence, ensuring the continue success and sustainability of our operations.

I'll now pass the presentation over to Chet to discuss the financial results.

Thank you, Alberto. If we go to slide 8, the third-quarter has seen a decrease in our cash balance and we ended the quarter with $6.7 million. The decline in cash is primarily due to increase this cash cost and DDGM, which we'll discuss in just a moment and to our exploration program. Cash used in operating activities of $7 million year to date and this includes $4 million spent on exploration in Mexico and over $1 million spent in Michigan related to the back 40 studies.

For the third-quarter 2023, we reported net losses of $7.3 million or $0.08 per share and for the full nine months, we reported net losses of $13 million or $0.15 per share. For the quarter net sales of $21 million were 14% lower than the same period in 2022 due to both lower volumes of all metals sold and significantly lower metal price for zinc.

Year to date, net sales of $76.6 million were 20% lower than the same period in 2022, also due to both lower volumes of all metals sold with the exception of silver and lower base metal prices. The lower base metal prices are also impacting cash cost per ounce, which we discuss on the next page.

While production costs for the quarter and year to date of approximately $19 million and $59 million are in line with the production cost for the same period in 2022. This is resulting in an unfavorable impact on unit costs such as cost per tonne process and cost per gold equivalent ounce sold. We will discuss this a bit on the next page. Depreciation for the period is largely in line with the depreciation for the same period in 2022. Finally, mining gross profit is lower in 2023, primarily due to the lower sales not being offset by lower production costs.

Turning to slide 9, we will discuss cash costs for the quarter and year to date. For the quarter Don David Gold Mine total cash cost after product credits was $1,839 per gold equivalent ounce and total all-in sustaining cost for gold equivalent ounce sold were $2,669 per ounce. For the year to date Don David total cash cost after co-product credits was $1,210 per gold equivalent an ounce and total all-in sustaining cost per gold equivalent ounce sold were $1,852 per ounce.

There are five key drivers related to the increase in cash costs; first, reduction in gold equivalent ounces sold, second, a reduction in co-product credits, third the strengthening Mexican peso, fourth treatment charges and fifth other production cost increases such as power and transportation.

The gold equivalent ounces are due are lower due to the lower grade ore and lower recoveries realized during the quarter and year to date. The lower co-product credits were the result of lower copper lead and zinc tons being sold as compared to the respective 2022 periods, the lower realized metal price of zinc during the quarter and lower base metal prices for the concentrates year to date. The Mexican peso has strengthened in 2023 with approximately 60% of our production costs originating in the peso. That is at larger than planned impact on our year to date costs.

While the above mentioned drivers have had a negative impact and have resulted in the company's missing guidance on several key performance measures. We have made good strides in managing the costs that we can control and stay within guidance on other measures such as safety, production, mine development and exploration.

Allen, back to you.

Thank you, Chet. Our share price, along with most of our peer group continues to languish. A producing mine in Mexico, which should have better operating results next year. And a project having a $200 million-plus NPV in Michigan are trading. We consider to be totally unacceptable values. We aren't getting any market recognition for the intrinsic value of our assets, relatively strong balance sheet. We have no doubt and excellent technical and operating teams.

The current market environment has and likely will persist for an indeterminate period of time. The Board of Directors and management have decided to be proactive and engaged the services of Cormark Securities Inc. as a financial advisor to explore and evaluate strategic alternatives to unlock value for our shareholders. This process will begin immediately and while there's no certainty around the outcome, we are confident that the process is in the best interest of all stakeholders.

With that, I'll turn the call over to the operator for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions)

Jake Sekelsky, Alliance Global Partners.

Hi, Alan and team. Thanks for taking my questions.

Thanks, Jake.

So you mentioned that costs are impacted and by a variety of factors, mainly lower byproduct credits and then the strengthening peso. Can you just touch a bit on your exposure to both of those going forward? Do you expect to remain fully exposed? Or do you have any plans for hedging programs? Any color there would be helpful.

Well, in terms of the peso about 60% of our operating costs are denominated in Mexican pesos. So as the peso fluctuates against USD, we are a fairly significant impact. Put it in context, the peso about a year ago was [221, right now, it's 821] . That's almost a 20% swing and this my bounce rates are a bit sluggish, 10% swing in the value of the peso increase in our operating costs by 10%, and it's totally non-controllable. The ability to hedge the peso at these prices is there, but these are certainly not exchange rates that we would want to lock in.

In terms of the other major impacts, again, zinc, a year ago was sitting at $1.45. Today $17 or $18. But in Q3 went down as low as $5. And again, at the bottom Well, what we hope is the bottom of the market is not an appropriate time to look at hedge. And we are, in fact continually evaluating the potential for hedges and a stronger environment as we have done in the past, we would definitely hedge some of our byproduct revenues, copper and zinc. In terms of the peso, it moves back up towards $221 we would consider putting in a hedge there, but at the current time, we don't have any plans to do subjects.

Okay that's helpful. And then just from a near term capital standpoint, you touched on scaling back some sustaining capital items a bit in Q4. I'm just curious what was most of this related to exploration work or were there some development dollars thrown into that scale back as well?

Primarily what we call exploration we're continuing with infill and some definition drilling step-out drilling for long-dated resource expansion that we've cut back on. In terms of our sustaining CapEx, most of it relates to the underground development costs, and we haven't touched those. That would not be productive. You've got to maintain your development ahead of your working areas, either by not going to be an operation very long.

Fair enough. Okay, that's all for me. Thanks again.

Thanks, Jake. Appreciate it.

Heiko Ihle, H.C. Wainwright.

-- Apologies if you hinted at anything, I want to ask about three or four minutes late for the call. I'm going to build on Jake's question here a little bit. Some of the challenges you're facing are obviously completely out of your control, but some can also be hedged, albeit at unfavorable rates, as you already pointed out you answer to the last question. However having some longer term fixed fees will provide certainty, right?

So maybe not hedging but have you considered entering some longer-term contracts for things like treatment charges, power supplies, et cetera. Mean from what I hear is some treatment charges have finally started to actually improve a little bit depending on the counterparty, but any consideration of doing longer-term agreements with counterparties?

What answer -- Heiko, is that we are in fact looking at a number of things, if I can address some of the measures that we have already achieved, we've negotiated significant reductions with some of our major suppliers and that will have a fairly significant, it'll have a material impact going forward into next year.

That's for things like concentrate haulage cement supply, camp services. When it comes to things like power, unfortunately, our energy is provided by Mexican utility and there's no ability to fix those rates. So I wish there were, but because they have been a source of very significant cost increase.

In terms of TC, while the other thing I should touch on, I indicated my initial remarks, you may not have been on the call, but in September, we actually took a 10% reduction in our total workforce in Mexico that after severance costs we will start to show up in decreased operating costs in Q1 of next year. And we are evaluating the remaining workforce to determine whether its right size. There may in fact be potential for further reductions without compromising our ability to produce.

In terms of TCs all of our contracts are up this year. Copper, lead, and zinc. Copper and lead were one-year contracts last year, zinc was 2023, it's the last year of a three-year contract entered into with by prior management.

As a result, we are looking at and are going out for tender within the next two weeks for new contracts on all of our TCs. I will tell you that one of the things we're looking at is not only the TCs, but what kind of participation can we get on transport charges, what can we get in terms of advance payments with respect to offtake, et cetera.

And we're evaluating all of it. Market currently does not allow you to lock in a TC, the best you're going to do is get something that would lock into a benchmark for direction the anywhere from 40% to 60% of your production and then the balance would float with spot. So we're always going to be to a fair degree exposed to spot prices for TCs.

That's a long-winded answer, Heiko, but I think I covered most of your questions.

No, you did. I appreciate that. And then just as a clarification and to confirm something that I am pretty sure I know the answer, but I'm asking this in part because of the share price performance today. Initiation of your strategic review process is not an indicator of what you've seen in Q4 thus far right? It's just a general statement as to what you feel the year and the challenges that have been like thus far, correct?

Heiko, I will tell you that Q4, my expectation that Q4 will be an improvement over Q3. It's not a function of what we anticipate Q4 or for next year. It really is a function of our inability to unlock value for our apparent inability to unlock value for our shareholders. If you throw our reasonable valuation for Don David added to what we've got for Back Forty, we're trading at 10% of now as a producing company which makes no sense whatsoever from a fundamental point of view.

Now we recognize that we're not being treated any differently than a lot of our peers, but at the same time, we can't be complacent and say, just because everybody else is suffering, we should be happy with what we're doing. So we've entered into this engagement with Core-Mark with a view to trying to unlock value. What's the possible outcomes are, you know as well as I do, there's merger, there's us outright sale, there's acquisitions it's the entire gamut that we're looking at.

You would normally assume that a company like with a market cap like ours can't be acquisitive, but the reality is the entire sector are trading at multiples that make absolutely no sense, at least to me. So there's a lot of very undervalued assets out there. So when I say we don't have any idea what the outcome is we're just exploring the entire range of potential alternatives to determine what would be, if anything would be the best for us to pursue to create value for our shareholders.

Fantastic. Thank you very much, and go ahead-- .

Anything else, Heiko, I'd be happy to address. Otherwise, we will be talking soon.

Excellent, and I'll get back in queue. Thank you very much.

Thanks, Heiko.

[Bradley Johnson, Silver City].

Hi. Thank you for taking my call. -- Thank you. I'm most interested in the Back Forty project, I guess most of my information from the internet, I think unfortunately, we all do so there's an opportunity to ask this question directly. One of the things that I see that there's some value that's been unrealized is when a gold resource sold the projects that you had in Wisconsin, which were part of [Aquila] and you accepted paper for that transaction. And then basically then you forgave that transaction in exchange for a percentage of gold metals or green light metals, sorry.

And I'm questioning how that could happen because at one point you owned all of it and then you now own what is a 28% of the gold medal stock, Green Light Metals-- any way to back that up and actually get paid for that because that infusion of cash would go a long ways to, I think of bridging the gap from where you are today to where you need to be, say in Q2 of next year. And I'll hang up, I'm not hanging up or I'll just mute and listen to the answer probably.

Probably, You have obviously done your homework. It's a very good question. The sale by Aquila of certain assets to a newly incorporated company called Green Light Metals was entered into before we acquired a Aquila and in fact, the transaction had closed before we acquired it. So we had no influence over the sale of those assets in Wisconsin to Green Light.

The terms of the sale contemplated a significant cash payment to be made, I can't remember the exact timeframe, I think it was the end of last year, although it could have been Q1 of this year and GreenLight has been unable to raise any money in the current economic environment, the current market environment.

The debt that we had was unsecured, and that was, as I said, negotiated by prior management of Aquila and the options available to us were very limited. GreenLight continues to try and raise money, although I will say that in today's market, it's unlikely they'll do so. But what we chose to do is convert the debt obligation to equity because otherwise it was just going to be a bad debt. If in fact, there ever were able to take that company by public at a reasonable market value, we would have be able to get our cash out through sale and shares potentially.

Yes, it's not a situation I'm completely comfortable with. But when we were faced with the fact that they could not pay the cash, we have no real alternatives. Again, something we inherited. We've made the best of it. I tend to agree with you. I would rather have the cash and shares, but that wasn't an option. Hopefully, I've addressed your question appropriately, Bradley.

What we did and I'll be candid, I mean, this is what these calls are for, is that, again reading the Internet I strongly I don't want to know the answer specifically, but I do believe that what you just described to me because the person that GreenLight Metals, I won't mention his name was also the person who orchestrated the deal and by our definition at self dealing.

And I know that I'm not an attorney, but at some point, this is one of the I'm going to call it a albatross around the neck of Gold Resources Corporation is what I consider to be the credibility factor and I think if that deal hadn't taken place the way it was, I think that people would look at the Back Forty project.

There's probably been more viable and more worthwhile. So I'll leave it at that. But I think that you've probably given that a lot of thought. But from the investor standpoint, I think it would be certainly good to readdress that issue and how that came about because I think that's what the investor public is really looking for is some solid answers as to why and how things happened. So again, -- and thank you for your time.

Bradley, I know you didn't specifically ask me to address that statement, but I'm I will anyway. When we acquired Aquila as part of our due diligence, we obviously looked at the transaction and whether or not it was done in accordance with securities laws in Canada, it was as a state of fact it was.

The Board of Directors, the independent Board of Directors, excluding any related parties, voted on the transaction and approved it. And by doing so, they at least tick the boxes. I don't disagree that on the surface of it. It looks as though there was perhaps preferential treatment to insiders. However, they did in fact, at a time when Aquila desperately needed money, they did provide some cash at the time of closing.

So it's not as though Aquila did not obtain some benefits and certainly they went through all of the requirements of the Securities legislation to ensure that the transaction was appropriate and appropriately approved. So we did look at it whether or not we agree with the transaction is irrelevant because it closed before we acquired Aquila. I hear what you say. I understand it, but we did do our appropriate due diligence.

Thank you.

Thanks, Bradley

[David Top, Top Holdings]

-- Thank you for taking my questions. I have a few questions, which is basically all going in one direction. So I'll just shoot of my first question, you don't have to answer it fully, just a tammy, if I'm getting things right. As an investor, I way I see the entire company is it looks like a computer which has a lot of assets, but is very low on working capital. Is it just general perspective right or wrong?

Our current working capital is between $14 million and $15 million. So we do have working capital where were our cash $6 million-plus is lower than I would like to see. But our working capital is more than adequate for a company like this.

Okay. So I'll tell you why I'm asking this question because in the past a four-quarters, the company is losing money. And as you can see, there are the grade of all the mines and minerals are going down and it seems to be getting worse and worse, as happened in all mines where the grids become lower and lower and becomes less and less profitable. So we're putting aside for other projects and all other properties. Is there any way that Gold Resources is going to be profitable in the near future?

And not speaking about, the projects that can be done. Just continuing what's going on right now getting to mine, the mine is being mined right now. Is there any way Gold Resources, which is going to be profitable in the near future?

Let me answer the question a couple of different ways. One in my prepared remarks, I talked about our exploration results when we got involved with management of this company, almost three years ago, we recognized that there had been very little drilling done and that's in the absence of drilling, we are facing a depleting resource.

The residual resources that had been identified were lower grade. However, we have spent on over the last 2.5 years, so over $25 million on drilling. As a result of that as we've identified areas that I talked about, the three sisters, Gloria, Splay 31, and Marena. All of these are new discoveries and all of those have higher grades then the historic resource.

So in answer to your question, my anticipation is that you will see next year higher grades than you saw this year. Profitability is that's a double-edged sword. You tell me what commodity prices are going to be. You tell me what exchange rate is going to be for the peso. And I will tell you whether or not we'll be profitable.

But the objective at a very minimum is to generate free cash flow for the corporation, such that we will be rebuilding our cash balances. And that I think is something that I can state that we will be able to achieve. Profitability. That's I don't know.

Look, if a company has free cash flow, that's great. If you can continue working at the current situation. That's okay. Of course not everything dependent on, somethings uncontrollable.

Okay. I just wanted to get that clear. So you think the grade's going to be high in what quarter do you think this is going to happen in Q1, Q2 ?

You'll start seeing a little bit in Q4 of this year, you'll see some more and a continuation of that in Q2 or Q1, Q2, Q3 next year, you should see again an increase in grade.

And my next question is I just want to get a broader understanding of the entire company. As I understand right now, Gold Resource only mines, two of its properties out of six. So these four properties, which aren't, haven't been mined at all right?

We have a number of concession. Yeah. Property concessions in Mexico, most of which have never had any work done on them.

So my question is, if let's say, the company decides to start mining the other four properties. Does company to build a new facility to mine those properties, or is it close enough to the current facility, and we're all in this to be? I don't know exactly how it works. My question is how much would the company have to invest to utilize all the other four properties?

That's a really difficult question to answer. The way I'm going to address it is two or three of the concessions are close enough to our existing infrastructure that it would enable us to truck ore mine from those locations to our existing plant. But further the first concession away in a straight line is not that far, it's only about 40 miles. But by road it's twice sock. In fact, it's closer to 100 miles.

The road through that area is very twisting, windy, and slow. So it would depend on what kind of grade was discovered, whether or not we would have the ability to upgrade the ore at the mine portal. It's very difficult for me to answer that.

Certainly, two or three of the concession should we find economic or on them would be close enough to truck the ore to the existing infrastructure. I'm not trying to hedge, but there's too many variables there for me to give you a specific answer.

Yes, I understand. At the Back Forty project is a totally new project, which means everything, new infrastructure, and everything, I just wanted to know the other four properties, the exactly the Back Forty or it's something like that, not exactly that's I don't know that it's not exactly

It's not the same thing.

Okay. Another question I had about the maritime and the GreenLight Metals, is there any news about the mines, putting aside the company's interest in those mines, is there any actual news about the mines themselves actually found something that met about what Gold Resource has in those mines. Is there any actual news about the mines themselves?

But GreenLight Metals, it's got a number of properties in Wisconsin and they had a property in Nevada, their inability to raise any significant amount of capital has not allowed them to do any drilling. So the answer there is no.

Maritime resources, I don't know if you're familiar with Maritime. It has a property in Newfoundland, on the Beazer, Peninsula. In our opinion, they needed to do additional drilling to increase the identified improved resource amenable to mining before they move forward. They have done some drilling, but they still need to do more. They recently and by recently it was within the past three or four months they acquired a mill and some property from a company known as Century, -- it's not Century, I'm losing the name. another mining company that had a mill tailings facility, several potential resources about 100 kilometers north of where the Maritime property is located.

Maritime's feasibility and contemplate trucking or 140 kilometers, their acquisition of this new mill reduces the hall from 140 down to 100. But more importantly, the 100 kilometer segment is on very good highway as opposed to the last 40 kilometers, which was a gravel road that the subject to a lot of value potholes and beat up equipment timber supply.

So they are making some progress. But again, they're in and they're struggling raising money like everybody in the sector. So it's going, it's going quite slowly.

Okay. I have a general question, I'll try to break it up into a few pieces, but I'm trying to understand the company's path forward for the next year, as I understood from the report that the last thing that, the company believes has enough cash flow for the next 12 months.

And so if you just tried to explain to me like how you see the next year, panning out in from the cash flow perspective, from what is there any plans about the rest of the mines and rest of the properties in the DDGM or just in general, the plan for the next year from the companies perspective?

Well, I'm going to qualify my answer by saying we're in the budgeting process now. So we do not have definitive plans that I can articulate at this point. But really what we're looking at doing cash is tight, the equity markets are not supporting us, we need to generate cash internally to support all of our activities.

So as a result of that, our primary focus next year has to be on the Don David mine in Mexico. So we need to provide sufficient capital to allow the mine to maintain its productivity. We need to do additional infill and in near-mine exploration to continue to develop these new resources that we've identified, higher grade resources and we have to manage a bank account. So really our primary focus is going to be on Dan David in Mexico to ensure that we can rebuild our cash balances.

Once we do that and this is going to this is long. In today's environment you manage for your bank account, if you don't, you're doing the wrong thing. We're not going to commit to spending a bunch of money on exploration on those other concessions we have, we will not spend a lot of money on Back Forty next year. There are a couple of things that we could potentially do that we're evaluating, but the real focus is ensuring that Dan David is operating to the best of its ability to reestablish our bank accounts, and that is our focus for next year.

Okay. I know in the last report you don't want to comment too much on the Back Forty project. But I have a few questions, if you can be trying to figure out, the first technical question, the destock, the work of the process of getting a permit to the Back Forty project.

No. In theory, we could initiate it now, we would need to do some additional detailed engineering around water and design work around our tailings management and the waste storage facilities, that would be a cost of directionally $1 million to $2 million, and then we could begin the process of permitting, but we have not committed to doing that in the short term.

You have any plan when you are going to start this process?

It's a function availability of cash I would like to, what we produced a couple of last week or the week before it was a preliminary economic analysis. However, the amount of engineering that went into it far surpassed, what is normal for a study of that type. And we believe that we could upgrade that study to a preliminary feasibility study, a pre-feasibility study I should say.

For about $1 million to $1.5 million and if we decide to spend money on back Forty next year, it would be to take it up to that pre-feas level after which we would begin the permitting process. While fantastic, because then I would have all of the engineering complete to support the permit applications. Is that address your question.

Yes, no question has a perfect answer. Trying to figure out the direction. This comes back to my first general question is the way I see the company is has great assets, but I don't understand how the company's going to generate enough cash flow to finance the Back Forty project and everything else.

Am I missing something, the bigger picture about the current mines that could generate enough cash flow that is. According to your to the last report about the Back Forty project, so just 20,30, if we can just open up a facility over there. I just understand this. But for a company with a market capital of $35 million of doing $40 million, that's seems like something was impossible, so high-grade. Keep in mind what's the big picture for the company? That's my big question.

Well, you heard my closing comments. We've been engaged a financial adviser to evaluate those alternatives. Two years ago when we acquired the Back Forty, we had a market capitalization of directionally $200 million. It was feasible for us at that time to contemplate putting it in production, raising the money and putting it into production off the back of a $35 million or $36 million market cap.

In today's capital markets it's not practical. And we recognize that it's not practical. So we're exploring alternatives and it may be we merge with somebody else to create a larger company that I think is what one possible outcome, a larger company will get more attention in the marketplace and create an environment where the Back Forty becomes a viable to finance. And that's really one of the drivers between the behind the appointment of the financial advisor.

I understand that. I'm looking at everything from a investors perspective. And I'm thinking like what could the company do so issuing shares is out of the question, taking on debt that doesn't seem very reasonable. So it leaves mainly the option of selling off emerging, whatever all these different kinds of things.

So my question is in the current situation is the company planning on pursuing all these different options right now, while we are continuing to work on the DDGM or it's just like putting it aside for who knows when. So it's a huge question?

Thanks for that question because I need to clarify this. Everything that I've talked about, DDGM. is proceeding. We are not compromising on spending money there. We are moving forward with Trian and perhaps the profitability of that mine to the greatest extent possible. We have no certainty that this process will result in anything and it is a process we felt it was necessary to explore alternatives, but I'm not making the assumption that we're going to do anything.

We need to make John David generate very substantial cash flow, and that is our focus. It's not being put on the backburner. Historically, Don David has generated anywhere from $20 million to $40 million in a year. Different commodity environment, different exchange rate environment, different inflationary environment, but you know as well as I knew economic times change. And there's nothing to preclude Don David, from going back and generating those kinds of cash flows. we have to spend the money and time to get it ready to take advantage of a different economic environment.

What happens with the strategic review is totally separate that's going on in the background it may or may not result in anything, but it's not related to what we're focused on with Don David. Okay. Thank you very much for everything. You clarify a lot of things for me. Thank you very much.

Thank you. I appreciate your questions.

[Ron Hart, Ron Hart Investments]

Hi. How do you do. Obviously the key is to stop the bleeding of the cash, which you answered in the last few couple of calls and to maintain the cash as we've seen from $30 million down to what it is the $6 million there, beside the $14 million that you have to utilize.

So in all your responses, obviously something that we must do, but something that we must we consider what to do is the share price that we should not have a reverse split because once you have reverse split, that's the kiss of death no matter what even if it has to be delisted, the reverse split is over, but in everybody's interest. So that's something that you have to discount now.

Ron, we run we will not consider a reverse split.

Beautiful. I appreciate the response and everything else that you've said.

No, don't worry about that. You're right. Reverse split as suggested death. It's value destructive. It never achieves any kind of real objective. So and I've been in the industry long enough and been involved with the capital markets long enough to know that it is not something that should ever be considered, a 100%.

Okay. And we'll go along with your plan for next year as your confidence is, you know, well, respected. And I would assume that, you know better as I'm not in that field in the investment field. And let's hope the share price reflects everything that you said and takes that into consideration. And I do believe that you're into willingness to combine your company with another and to strengthen the company's assets in that respect. Would do us a great favor. I really appreciate that.

While I will show you that you do not have an entrenched management and board here. Our job is to create value and if the a merger or an outright sale is the best thing to do, we will do it.

Thank you very much. You have a nice day.

Thanks, Ron. You, too.

There are no further questions at this time. Please proceed.

Thank you, operator. I would like to thank everyone for participating today. We are obviously not happy with the Q3 results. But I will say that the month of October was the best month in terms of production of material so far this year and the benefits of the cost reductions that we have been working on. It will start to be felt in Q4 and will certainly take effect in Q1 of next year.

As I indicated earlier, we're expecting to see somewhat increased grades next year reporting to the mill, if we get any cooperation from commodity prices and exchange rates are, it will be a significantly different picture.

I thank you all for attending and we will be talking at this stage. We'll be talking when we issue our year-end results. If I don't talk to each one of you individually before that. Thank you very much and have a good afternoon.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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