Q2 2020 Gold Resource Corp Earnings Call

Please standby.

Good day, ladies and gentlemen, and welcome to the Gold Resource Corporation second quarter 2020 earnings call.

After the presentation, there will be a question and answer session.

You should require assistance during the call. Please press star zero in an operator will assist you.

This time, it's my pleasure to turn the floor over to Mr., Jason Reid, CEO and president of gold resource Sir the floor is yours.

Thank you.

Good morning, everyone. Thank you for joining gold Resource Corporation, 2022nd quarter Conference call.

I expect my comments to run approximately 10 minutes, followed by a brief question and answer period.

Joining me on the call today for the Q and a portion will be Mr., John debate, 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. The current quarterly report on 10-Q, and other FCC filings, which could cause.

All results to differ materially from those and spread expressed in or implied by our comments.

Forward looking statements in the earnings release that we issued.

Yesterday, along with the comment on this call I made only as of today August 5th 2020, and we undertake no obligation to publicly update any of these forward looking statements as actual events unfold.

You can find a reconciliation of our non-GAAP financial measures referred to in our remarks in our form 10-K filed with the FCC for the year ended December 31st 2019 as well.

As this current quarterly report on 10-Q.

During the second quarter, the global pandemic negatively impacted most businesses around the world to varying degrees, our Nevada mining unit was less impacted while our hock of mining unit was shut down two of the three months of the quarter from the Mexican governments mandatory closure degree in response.

On to the Coburn 19 pandemic.

We last April and May production and associated revenue of approximately 15 million in revenues compared to the prior year, while sustaining most of the normal owner's costs of a mining unit like overhead and payroll.

Mining operation does not returned to full production immediately upon startup under normal circumstances. So you can imagine when we were allowed to restart operations under our new Kobin protocols that slowed the restart even more we're happy to have kept 100% of our team on the payroll during the shutdown and all.

So provided financial support to the local communities in which we operate to help offset the impacts of the pandemic, including food banks and children's charities.

Our overall production cost of production and financials suffered due to the shutdown.

We applied for and were given regulatory permission to restart our operations with a limited number of employees, while focusing on the health and safety of our team contractors in communities in which we operate by the end of June we were able to increase our workforce to 100% we continue to ramp up production and barring another unforeseen governor.

Mental shutdown, we expect Q3 to resemble a normal operating quarter.

During the quarter strong health screening protocols were put in place in response to the pandemic at both our while haka and Nevada mining units, we have encountered a few positive Cobra cases between both mining unit, our screening potent protocols and procedures were able to identify the affected individuals early enough to isolate them.

The spread of the virus throughout our operations, but also identifying and quarantining, others, who may have come in contact with them.

The cases, thus far seem to have originated from family or others outside the operational team or acquaintances employees and not from our site.

Since we intend anticipate the presence of coven 19 periodically in both Nevada and walk up for the foreseeable future. We remain vigilant with the goal of keeping everyone safe and healthy as the top priority.

During the quarter, the company's Nevada mining unit continued with its Isabela Pearl mine ramp up phase, which resulted in gold production increased increase of 41% over the first quarter 2020. As previously stated the ramp up has required us to move a significant amount of overburden to access to high grade Pro zone.

Well, we mine the Isabella zone of lower and varied gold grades during the quarter. We reached the top of the pearls zone and have been mining and processing significantly higher grade gold approximately 80% of this deposits gold is located in the Pearl zone.

As mining continues we expect our ramp up to continue into the second half targeting a bigger ramp up focus during Q4.

We've had some nice high grade gold surprises to the upside in the initial Pearl benches. The model predicted about 1.5 grams gold per ton.

But the grade was closer to two and a half grams.

We've also seen some small areas of unexpected grades of over seven grams gold I am not mentioning this to increase shareholders overall expectations of the project as you know exploration and delineation drilling allows for tons and great estimation, while the ultimate sample.

It is only known when mining the deposit.

Some deposits disappoint when compared to the model I think shareholders would appreciate knowing at this point at least that the parole zone of the Isabela Pearl deposit has exceeded our expectations at the top of the deposit.

We see this reflected in the crusher head grades of Pearl zone, or when we often experience two to four grams gold on days, when we crush Pearl or.

Well the available mineralized tons of this high grade ore is still limited at these higher elevations, we continued to mine deeper into lower Pearl benches in the future. We expect a continuation of not only high grade.

Gold with greater available tonnages.

Helping us execute on our targeted production ramp up the back half of the year.

During the quarter the company announced the acquisition of the Golden mile property in Nevada.

Golden mile is not only located along the Walker Lane mineral belt, but just up the road from or Isabela Pearl mine. We're very excited about this acquisition as it checks most all I required boxes as an acquisition target, including being located geographically within our mining unit surface and near surface high grade gold, 100% ownership.

Large district size property to known substantially drilled areas of mineralization completed by previous exploration companies potential to become an open pit heap leach operation and a reasonable 3% NSR.

Initial bottle roll tests commission during the due diligence process indicate mineralization is amicable to cyanide leaching with over 81% recovery patented ground encompass the larger of the two known mineralized zones, providing for potential permitting efficiency on both exploration and future development Optionality in that portion.

The property.

We remain committed to continuing to explore our exciting 10 kilometers of Isabela Pearl trend and the numerous known exploration targets.

We also are excited to commence the initial drill program at East Cam Doug as planned during the second half of 2020.

The Golden mild property is an advance stage exploration property.

With this acquisition we are evaluating it.

To a resource confirmation Andrew delineation stage, we're now targeting subject to drill permit timing the initiation of a golden mile drill campaign later this year as well.

Our focus is to confirm and delineate and expand on past exploration programs with the goal to define a maiden resource that ultimately warrants moving the project into a development stage project.

Our full team of exploration managers resource estimate there's.

Operation managers, environmental and permitting managers Engineers finance executive team recently held our first Golden mild conference call meeting to lay out strategy Optionality timelines and next steps to move the gold mile property forward as an on an expedited basis with the goal of making it. Our next mine it's still early in the properties evolution.

As we view it today it has all the earmarks to become our next operating mine and it is exciting to get the ball rolling to prove that to ourself.

We envision this project may have multiple open pit feeding or to a strategically located heap leach and processing facility. At this point, we plan to only take gold to a carbon stage and then trucks the carbon down the road to our Isabela Pearl is 80, our plant to be converted into doorway. This is targeted to keep project capital costs to a minimum.

Permitted processing facility to only a carbon stage, which could dramatically shorten the permitting process time, which is often held up by the additional time trying to permit the our hot side and leverage our existing Isabela Pearl plants 80 are for operational longevity.

Following up on last quarters conference call regarding the depresses inc. market prices at that time, the high zinc treatment charges experienced thus far in 2020 zinc prices as of this morning have rebounded by 32% since the lows in the second quarter initial reads on potential 2021 zinc treatment charge.

As a charge terms are looking to be far more favorable in 2021 than in 2020. These are good signs not to mention the dramatic rise in precious metals since the last conference call with goal hitting new record highs.

I mentioned on the last call to help counter the high 2020, zinc treatment charges and depressed metal base metal prices at that time. The company had revisited its walk of mining units mine plan to focus on areas with less think zinc rising to a dollar eight this morning, and if it looks like it will stay anywhere around there will be taking another look at mining option.

Let me to potentially bring more zinc into the fold.

While the pandemic has created various challenges we have met the challenges head on and are well positioned to emerge from the pandemic fall out to capitalize on a world awash in unsound, an unprecedented currencies by producing real money and producing real long term stores of value gold and silver and now with the prospect of doing so.

With this morning's new all time record gold price high of $2046 per ounce add leverage to the excitement of being a gold minor with that I would like to thank everyone for their time today on this conference call, let's move onto the question and answer portion of the call in an effort to efficiently address the Q and a portion of the call.

Without wasting anyone's time.

Any.

Antagonistic or distracting calls will be terminated and I will simply move onto the next productive caller's questions operator with that.

We do have any questions, let's open up the line. Thank you.

Thank you and ladies and gentlemen, if you'd like to ask a question at this time, but this star one on your Touchtone telephone if you're using a speaker phone we ask them on closing your question you pick up your phone to allow for say a favorable sound quality again, ladies and gentlemen that star one on your Touchtone telephone if you do have a question at this time.

Well go first to HEICO Elaine with H.C. Wainwright.

Good morning Heiko.

Thank you hear me.

We can.

Perfect. Okay I can overcome any question I thought you do a really good job with Mexico, given the suspension so world on on that.

Hey, Thank you.

Thinking about low gold mine I mean, clearly the whole thing was quite the border yen and especially since one generally here is right now the prices for early stage assets are just going through the roof, but you frankly seemed to have an extra getting things done and just thinking ahead, a little bit I mean would you consider come to you and acquiring more ask.

If you get the right price in the right locations.

Absolutely absolutely, it's all about timing on anything in my opinion.

Some properties that better at certain times than others, but obviously the property has to check all the boxes, we need to see.

The golden mile.

Is an incredible opportunity I think the fact that we offer a reasonable NSR helps us acquire some of these properties, where some of the bigger companies don't want to do that and for instance, that's how I believe we got east Cam Douglas I don't believe we ever would have got that had we not offered in NSR because I found it. After the fact, we are competing with too.

Major gold mining companies for that property and the differentiating factor with us being a junior and then being majors, we offered in NSR and they didnt and the people who have these properties whether it be part of because there. They believe in their properties themselves they want to be part of an operation.

So to speak going forward and NSR allows them to do that so golden mile exactly the same thing the exciting thing about golden mile. It has over 200 drill holes in it but to give you some perspective on that Isabela Pearl out over 200 drill holes in it when we looked at it initially and got it and we all know how that turned out so we have.

Confidence that there is a resource there.

Now we don't want to rely on third party. So we need to go in not only come from.

Let's start delineating and expanding that putting our arms around Oh resource of maiden resource and once we do that we are often running as will be the next project a lot optionality with patent grounded to huge land position. It ties land all the way from Golden mile All the way up into our.

An abrupt minor gold property sales can be a situation where they could be at least now three open pit between all three of those and with a strategically located a process facility and then truck carbon down the road and fee. The IDR plant. So it's perfect and now it's just a function of you heard me talk about the launch of.

This.

To be in my opinion, hopefully to be mine and now we just got to go proved to ourselves and obviously the shareholders, but I I think it's going to be the next one and it's really exciting.

Fair enough.

Hey, some completely different I mean, and just trying to weigh all small to call interesting things on the wanting insight I heard you talk about extensive precautionary cold it measures specialized training social distancing governmental guidelines all that stuff.

And in early on this call.

He also mentioned there's going to continue for the foreseeable future. In contrast can you provide a little bit or color on the expected impact on the.

Second half and this just a quotes from your lease you think precious metal production and cash costs are expected to improve the second task.

Much of an impact really is from the or is it because it's fair to say the actual financial impacts from cold and second pass is gonna be small given the higher grade ore from portal.

Well the that's.

Good questions, let me take the first one and that's what is the impact of deep cautionary extensive progression I measures and you in my opinion of done everything we possibly can.

To get in front of this as evidenced by the fact, we've actually identified covance situations very early in an early enough to isolate that not let any not allow anybody else to get it and we've kept it off our operations and doing so which is terrific the impact of that going forward I think in large part is over we have the precautionary measures in place and.

As long as we can keep it off our site.

So that it doesn't we don't have enough Oh.

You know.

Critical mass to have to be shut down either on our own accord or a governmental mandate.

We should be fine moving forward I want to caveat that that we all know it's all around us it's everywhere and so it's just a function of we have to stay at a high elevated.

Level as far as our protocols.

Now obviously the protocols impacted us starting back up when we applied for the start up back in Mexico, we weren't allowed to bring on or people, 100% of people onsite. We had only local people could help it's it first and then we had to quarantine people coming in and so you can imagine that it's not like cars.

And then turn to key drive no we had to build the cars to some extent at least maintain it before we could start going and it took a lot, but we're being that's behind us. So the impact I believe is behind us subject to as keeping it off our site and that would be a different story.

What was the second part what was the second question.

Well she had its launch on ready to your sorry.

Hi, just contract I think that Youre talking about lower cost. So I guess the impact can be on absolute basis, not that big right.

Right and the bigger picture now obviously, it hurt I mean, who wants to be shut down for two months that doesn't help but.

No not shut down again will be off and running.

Hi, I don't think anybody can actually look at our financials coming out of Mexico and think it's any semblance of what the future holds or what have you. How can you I mean costs and an underground operating mines like that you get your cost down by putting a lot of throughput through.

Debt, that's that's part and parcel with it. So when you are shut down yeah, you're it affects everything and like I said when you shut down and then you start back up and you can't start with 100% of your team that affects us that affects stuff but.

Well about you know we in my large part of bounce back completely from this I expect Q3 to just be a normal operating quarter, we'll move on.

Again subject to keeping cobot offer site. So again I don't think you can look at this quarter and that's why I didn't even go even people probably no notice I am going to any of the numbers. How can you know this is an anomalous situation and.

Let's move onto the third quarter and keep it up or site, we should be fine.

Hi, Thank you guys are doing a great job just keep doing what you're doing and thank you very much for taking my questions.

Hey, good to talk to you HEICO have a good day, thank you be safe.

And we'll take our next question from John Bear with Us and wealth.

Reserves.

Good morning.

Thank you.

First I want to say that gets a very commendable that.

Well maintained your staff and convenient paying them and supporting workforce in communities.

Well again.

I also want to say that you covered a lot of.

Questions in general that I had.

How you're handling the outbreak in evaluating.

You know the areas.

That you're working on and trying to mitigate and.

Evaluate the folks.

Had a time, so that you're not bring into them to into your operations.

One of my questions was going to be.

About the outbreak within your operating areas and I think you covered that very well.

Yeah, I can give you some additional color hadn't been that many it hasn't been that many people. We added a couple people in Mexico and one in Nevada.

And then Nevada situation it was a of.

Either a relative or family member came into that house with Cobot and then they came to work our screening process picked it up quickly.

It was a night shift situation. So we didn't have a lot of people exposed and those who were worked a nice shift next to him got quarantine tested.

You pull them off you're not allowed to bring them back to they have a couple of negative tests. So does that have an impact in Nevada sure does a little bit you're having to pull people out during the quarantine. That's why during that contain period, that's why I say as long as we can keep not habit come into our site, an immaterial waiter hurt us but listen this isn't.

Just a us this is the world I mean.

There's other mining companies, where their whole operations are getting overrun with with it. So our goal and task is to make sure that doesn't happen in Mexico, or we had some of the truckers Union small trucks didn't on trucks. Those some individual tested positive ended again it didn't come from site. It was a outside area people. So we are go.

Going above and beyond.

If you want to come to site.

And you don't have an absolute reason to be there you don't get it come to site and that yeah. If you can work from home you work from home.

We are doing everything we possibly can in that regard and that's what we have to do going forward is that make it easy no but it.

It's not going to indirect.

And the big picture as long as we can keep it off our sites. So we don't have to shutdown.

Right, that's good because I.

Well were of.

Situations within the hospital setting because of family members and very often.

I have heard that.

Healthcare workers that have been affected.

Not pick that up from being in units treating patients come from outside which is very much.

In line, what you have expressed here, but but nonetheless.

The real question I wanted to have.

Put out here is.

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With the Golden mile acquisition, you've got.

Obviously commodity prices going in the direction and out Isabela Pearl with increased production and higher grades.

What are your plans as far as.

Accelerating perhaps your exploration activity I mean did address that in your comments that that's great do you think that accelerates the potential or.

Bringing that property online further than what maybe you originally thought.

Yes.

Couple of things on exploration, obviously exploration in Mexico has taken I don't say back burner, but it back step to our primary focus has to be on keeping that operation covert free and operating are we still going to explore are we still exploring yes from underground, but we're not going to be doing it I mean, that's not the phone.

Focus for exploration in Mexico exploration in Nevada, you heard me talk about how we are drilling the trend, whereas abella Pearl said, we have locked up 10 kilometers of this trend off of a trend there for all historic open pit heap leaches. It on this trend Isabela Pearl is the next one and I believe.

Whether its scarlet or any of these others at some point will hit several more of these I believe because there is an obvious mineralized trend where the deposits are and we have it. So that is still at the top of our list and we're exploring it as we speak and as you heard me say exploration and East camp. We're so excited.

To drill East Cam East camp as you've heard me, maybe saying these other conference call. It is a home run potential massive little cap with all this high grade bleeding around the edges of this thing it could be a big one I see that is maybe being the arista equivalent of the Nevada mining unit. It's a huge area is going to take a lot of time.

Im a lot of money to explore it but we're starting.

Soon this year, so that's exciting but the acquisition of Golden mile has just elevated it.

End of the full to where it's now going to be with 200 holes in it a delineation drilling program is van stays exploration. So obviously can we ramped that up with gold at 2040, absolutely I mean more money is going to be coming in we can allocate more exploration capital at.

And off and running so yes, all the metal prices. This morning before I jumped on this call zinc at a dollar eight are you kidding, that's 15 million to our bottom line in Mexico, all being equal with the Crappy terms, we used to have 15 million every penny in zinc is a half a million dollars and are in that's working off of last conference call.

While we were close to 90 cents now at a dollar eight that's 15 million, let alone the millions in gold and silver.

All being equal so if the metals. It this is where the metal is gonna be next year look out Mexico is going to kill it and obviously, Nevada is going to kill it to a lesser degree, but we're trying to position not to ultimately be is as strong as Mexico. So yeah, it's going to help absolutely.

And any other questions.

Yep.

Well I do but I'll doom offline so.

Yes, please call Greg.

We're almost at a time, we're going to take one more call. Please.

Yeah, I'll get out thank you very much and good luck. Thank you John.

Well take our next question from Chen Lynn with wind asset management.

Hi, Jason Good morning Jen.

Well good job.

Difficult quarter, So I just I wonder.

The most.

Can you give us a little bit update this quarter I know, it's very difficult <unk>.

What kind of.

Mostly on the balance sheet on the ATM side.

So how much.

If you did I know you combo is what's your money.

It's a nice can be starting.

<unk> cash balance.

Yeah.

Yeah as I believe previously mentioned from the last call, we raised 10 million.

Yeah as soon as we realize that this covert pandemic was coming our way and.

Obviously that was a good move.

It gave us a little bit of a cushion 'cause startup yeah, you haven't lost any long term production. We've obviously lost you know.

Some revenue temporarily so.

We are glad we did that and that add to the cushion and if we have to tap it and then replaced that so to speak of the 10 million.

We did raise great finally habit, but going forward.

We should be fine even at the previous metal prices, but these new metal prices you know this guy's eliminate that there's recalibration by the minute lately this or at least this morning with gold being up $40 within like a 24 hour period.

Obviously, there should be some heli healthy pull backs in the metals prices, but I mean as they continue to set higher highs and higher LOE higher lows than yeah, we're we should be fine.

But caveating that you know you never know what's going to happen I mean, if that's why I emphasize so much that we have to keep cobot off our site, we don't want to be like one of the miners that.

Feel so bad form you know their whole operation.

Actively gets overtaken by enough to shut down whether they choose to where they have to you because the government forces them to we don't want that that's the last thing we need having gotten or teeth kicked in in that last quarter, having to shut down for two months. So that is the focus and as long as we do that were fine and this other metal price stuff is gravy.

Great. Thank you yeah that that's the most basically from the 10 million you described that's.

We fully understand the shareholder the 10 million.

Before.

Okay.

Anymore and looking for more.

Accumulating money on the balance sheet going forward.

That's the goal that is the goal yeah that is legal.

Great. Thank you so jobbing, there's a very difficult environment.

Hey, listen I appreciate that Jen I appreciate that I. Appreciate your comments, having said that I feel really bad for some of my heart goes out to some of the other mining companies, who I read about where their whole operations been overtaken that I feel you know our goes out to them. So yeah, it's been tough, but others have had a tougher but.

You will just stay focused and like I said, we're we're going to emerge from this and capitalize on this next.

Bull market, that's absolutely taken hold I mean look out we've had.

Had a great seven year run bull market years ago, and then a seven year bear market and now clearly we're back into it. So let's hope. This is another seven year bull market and boy or we position to capitalize on it so with that if you. If you have a question in the queue. Please reach out to Greg Patterson and directly and he'll go.

Your questions answered, but with that we need to close the call for today and.

Thank you very much we look forward updating you next quarter everybody be safe. Thank you.

Thank you ladies and gentlemen, this does conclude todays teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.

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