Q3 2020 Gold Resource Corp Earnings Call
Good day, ladies and gentlemen, and welcome to your Gold Resource Corporation third quarter 2020 earnings call. All lines have been placed on a listen only mode and the floor will be opened for your questions and comments. Following the presentation. As a reminder, this conference is being recorded if you should require assistance throughout the conference. Please press Star zero.
To reach a live operator at this time it is my pleasure to turn the floor over to your host Jason Reid CEO of Gold Resource Corporation, Sir the floor is yours.
Thank you.
Good morning, everyone and thank you for joining gold resource Corporation's 2023rd quarter Conference call I extend my comments to run approximately 15 to 20 minutes followed by a question and answer period, joining me on the call today for the Q and a portion will be Mr., Kim Perry, our Chief Financial Officer.
We welcome him to the management team of Gold Resource Corporation as you know Kim transition from a board seat with the company to join the management team, which I believe speaks volumes for the company and its future.
Let me remind everyone that certain <unk> certain.
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 quarterly reports on 10-Q, 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 no.
Remember there are 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 his current quarterly reports on 10-Q.
We are very excited to embark on a new chapter of gold Resource Corporation with our announcement to spin off our Nevada mining unit, 100% to shareholders at a future date as Fortitude Gold Corporation.
But before jumping into that exciting news I will briefly summarize the third quarter results.
With both mining unit operating continuously during the third quarter. The company delivered strong quarterly earnings of $5 million or seven cents per share with positive cash flow from both Mexico, and Nevada delivering positive earnings for the year.
Strong gold and silver production in the third quarter totaled 12575 ounces.
And 333761 ounces, respectively, along with substantial base metals, Mexico production was up substantially coming off the prior quarter's mandatory two month shutdown with third quarter gold silver copper lead and zinc production increases of 94%, 85%, 74% 89%.
84% for each of those metals respectively.
We also recorded record gold production from the Nevada mining unit totaled 7847 ounces of gold he gold production increase of 51% over the prior quarter as the L. Isabella pull mine continues to demonstrate a strong production ramp up phase.
The third quarter was the first full quarter that the company was able to regularly access portion of the deposits high grade pools zone, well also mining the deposits lower grade Isabella zone.
Pro Zone is estimated to contain 80% of the gold ounces at Isabela Pearl deposit with an estimated average gold grade at four grams per tonne.
We remain on track for our targeted goal production ramp up into the fourth quarter positioning the mine for its 40000 ounces gold production targeting 2021.
We continued strong health screening protocols for COVID-19 prevention and mitigation, Nevada identified one positive employee Cobot case, well, Mexico identified 29 positive employee cases.
In addition to the 29 positive cases in Mexico 138, additional employees were quarantined, that's potentially exposed or otherwise is suspected cases, resulting in 1201 lost workdays for those individuals.
It is noteworthy that had the positive kobin tests only one individual resulted an illness warning hospitalization. Many of the positive cases reported asymptomatic as the individuals felt fine.
[laughter].
Well a lot of money in it.
Operate while our walk operations <unk>.
And running the entire quarter production was impacted as we manage through the covance screening testing in quarantined since we anticipate the president to COVID-19 periodically and both Nevada and lockup for this foreseeable future we remain vigilant with our protocols the safety and health as the top priority.
Following up on the zinc market comments from the last call continued indications of potential 2021 zinc treatment charge terms are looking to be far more favorable in 2021 compared to 2020 seed prices have also strengthened the back half of 2020 as more world economies continue to open after the mandated shutdowns.
These are good signs for 2021 not.
Not to mention the strong precious metal prices.
With a strong Q3 behind US we look to focus on both Q4 production and the upcoming spin off transaction and creation of 42 Gold Corporation.
We took the spin off decision very seriously after over one year of due diligence and analysis.
The impetus for the spin off was driven by the Haka mining unit.
Well, the Mexico operations, historically achieved both aggressive growth and aggressive dividends in the early years. It has grown into a large operation requiring a different approach.
I will walk you through some of the specifics later.
Well, how can mine units long term longevity efficiency and profitability, we must focus primarily on growth going forward and less on dividends.
This new focus in Mexico is irrespective of the spin off to be clear the walk of mine unit can and still plans to distribute dividends, but the primary focus for future cash flow allocation will be on putting more money into the ground targeting aggressive growth.
Focus is include increased exploration mine development and continued operational efficiency programs, a few of which were previously mentioned in the spinoff press release.
Over the years, we've done very well expanding their reach the mines Arista vein system, and then discovering switchback vein system.
We believe we can add to the known vein systems and also believe there are other vein systems, yet to be discovered in the near vicinity.
We are currently positioning our exploration programs to find them with dedicated exploration drift from which to set up drill pads to explore numerous untested targets.
Deploying more exploration capital should put us in position of expediting mineral expansions and accelerating new discoveries is.
It is very exciting to think about what discovering another reason to where switchback vein system and additional deposit discoveries and our other properties would do for gold resource Corporation's longevity production and overall shareholder value.
This transition of deploying more capital into the ground has slowly been building over several years and very recently reached the point, where the board made the correct decision do apply this new primary business strategy for the walk of mine unit.
In addition, the company will be evaluating merger and acquisition acquisitions focused on advanced age or bolt on regional acquisition opportunities.
With this required modification at our walk of mine unit, taking Mexico down the common business strategy at most all other mining companies comes an incredible opportunity for our Nevada mining unit.
An opportunity to convert to continue the business strategy. The company was originally built for.
That have aggressive dividends spinning off the Nevada mining unit into 42 gold corp., focusing focused on growth and dividends accomplishes the continuation of the original dividend strategy.
But in a much more efficient and strategic company vehicle to distribute dividends.
Many of our shareholders over the last decade had experienced substantial dividends and expect him in the future. We live to replicate girls success in its early years with market valuations based off yield due to substantial dividends.
Assuming the trajectory of 42 golds production with a 41% increase in gold production in Q2, and now 51% production increase in Q3, we look toward the potential deploying future cash flows of 42 gold towards exploration organic growth and substantial dividends.
Deploying these deliberate strategies will allow us to focus on our very large underexplored land position that are well haka mining unit, we have a 55 kilometer or 30 mile mineralized trend with known mineralization at each end and a long trend.
We have drilled less than 2% of our huge 560 square kilometer land position.
It would be a competing interest to exploration to continue to try to pull substantial dividend how to blocker.
Dedicating more to exploration budgets will put the block of mining unit back in position for exciting an aggressive growth.
Operationally you reached the mine started out small lean and mean and could distribute substantial dividends, which it did.
Over the last decade, it has grown into a larger mine with larger capital requirements.
Early in the minds evolution capital projects, including a paste plant wasn't warranted additional tailings facilities werent warranted any dry stack plant wasn't warranted. These large capital expenditures have taken place over the last few years with the latter dry stack projects still under way.
As the mine continues to grow so too will these projects and others like them in the future not to mention additional expenditures on mine development infrastructure asked the deposit grows.
If you read the mine is becoming a large mine and requires the mainstream mining industry approach toward capital allocation, which demands more capital put back into operations.
Sure a dividend still can be paid along the way, but in the future. Most of the next 115 million that had been previously paid in dividends will now go back into operation for more efficient and aggressive growth.
Walk in mining unit demanded and will be much better off in the long run for it.
To highlight the benefit of separating the mining units regarding aggressive dividends considered the deployment of any dividend amount over a tighter capital structure of approximately 20 million shares versus that same dividend amount over girls 72 million shares outstanding and market impact of a dividend with a tight capital structure is multiples of what could be a.
Cheap by deploying that same dividend amount over the larger capital structure, that's well over three times the impact in this case.
He substantial dividend for shares likely do attract as it did in the early years of Goro, a pool of new investment capital much larger than the gold investment space New.
New investors chasing large dividends and you know often look to a substantial dividend as an interest rate and purchase stock based on that rate of return.
Historic Gold resource yields in the first three to four years of operations reached two and 3% rate, which was one of the primary drivers of gold resource going from one dollar per share and reaching a high of $30 per share.
Probably half of that valuation was based on substantial dividends.
At that time, the market was rewarding the company with premium yield valuation metrics.
42 gold will be in a strong position to deliver a targeted future dividends substantial enough to.
Both reward current shareholders and attract new yield investors. This is a known path Weve walk before with great success maximizing shareholder value. We are confident we can walk the same path again.
What all of this highlights the strategic nature of continuing to deliver to shareholders. Both an aggressive growth strategy and an aggressive dividend strategy by separating the mining units. There are of course other ancillary benefits like isolating the batter within one of the world's premier mining jurisdictions.
Mark are regularly rewards companies as such with the market premium.
Each unit can also be better evaluated and valued in the marketplace for what it produces one is simply a go play while the other is a polymetallic gold and silver play with substantial base metals of copper lead and zinc and.
In addition by separating the units each unit is that free to be far more efficient and effective at each business strategy without juggling, the competing interests and opposite demands of resources, which detract from one another under the combined scenario.
It is management's job to maximize long term shareholder value.
After the spin off shareholders or who are content with both strategies continue to own them both.
For each strategy will be in a company vehicle far more suited to achieve their strategic business plan those shareholders that may want to strategy [laughter] those shareholders. They may want one strategy more than any other may now choose on their own accord with strategy they prefer.
Spinning off where did you go out of gold resource positions us to maximize future shareholder value at both mining units and continue to deliver on both business strategies shareholders have experience and continue to demand.
We have.
Had numerous shareholders expressed their excitement on the creation of Fortitude. This transition this transaction underscores our commitment to shareholders to continue to deliver on both a growth and dividend story, rather than to walk away from one or the other strategy.
We believe unleashing gold resources, while Haka mine unit at this stage in its evolution to achieve its full growth potential is in the best interest of our Mexico operations long term, which is ultimately in the best interest of all shareholders at the same time, creating four to two gold to walk a separate the well known path that previously demonstrated maximizing share.
The value is in the best interest of shareholders and Nevada mining unit I believe this is the best of both worlds history will be the judge, but I can't be more excited with each operation and its future prospects and we will continue to be a forgotten supporter of both companies.
It's been a challenging year for most everyone and most every company gold resource included as one supportive shareholder wrote me the other day between the unsettled zinc market and the mandatory mine closure due to coated both of which were out of your control. This management adjusted well to those challenges I appreciated those comments. Thank you that's what we do.
We solve challenges as evidenced by the solid third quarter results.
So to conclude the third quarter review, we delivered a strong production we delivered on strong production numbers are positive on earnings having bounced back from the previous quarter.
Achieved a record in Nevada, with a 51% gold production increase all while remaining and remain vigilant mitigating the impacts of COVID-19.
On a personal note. This is likely my last quarter call as CEO of gold resource depending on the timing of obtaining an effective registration statement and the spin off of 42 gold.
If it is the last time I speak as such I humbly. Thank all those colleagues and shareholders given their support over the last 14 years, which helped enabled the company milestones like the likes of which few other mining companies will ever achieve gold resource will remain in solid hands with experienced and dedicated mining professionals.
Poised to achieve additional industry milestones and I look forward to speaking with you again is 42 golds CEO when it officially launches after.
Her 42 golds registration statement is declared effective. Please note we will go into a mandatory 40 day quiet period. Please don't read anything into that temporary silence, we have exciting things in store for both gold resource and 42 gold.
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, but before opening up the like you would any lines I want to reiterate and address the most frequently asked questions on the spin off.
The most frequently asked questions include how long has the company been considering the transaction I.
I want to reiterate that the company has been evaluating the concept of the potential spin off for more than a year extensive due diligence and evaluation of the requirements and criteria for the spin off will review and satisfied over time with the Nevada mining is gold production and ramp up phase and final due diligence recently completed the board made the decision to move forward with the transaction.
Another question, we continually gets this girl's dividends.
The most common misconception is the goal is eliminating its dividend or some sort of show some shareholders assuming they go up not pay the future dividends yes.
The answer is that for the foreseeable future door intends to continue to pay a dividend and we'll be in a position to do so.
Another one is on owning the assets shareholders continue to voice their concerns that they were somehow losing a portion of the Nevada mining unit and the transaction. This couldn't be further from the truth.
The answer is that shareholders are not losing any part of the Nevada mining unit and the transaction at the time of the distribution of shares 100% of the Nevada mining unit will go to shareholders shareholders will own the exact same assets post spin off as they own pre spin off if you have 100 shares of girl pre spin.
<unk> you will have 100 shares of Goro post spin off and in addition, new shares afforded to gold will be issued to you at a specific ratio to be determined that the execution date.
Another one is on the LTC listing why not listed on a major exchange.
After spinning out in Nevada mining unit, it will become a junior gold producer with a yet to be determined market cap and share price market cap and share price or two of the primary factors of exchange listing thresholds and we do not want to run the risk of being delisted. If we do not hold these other these and other thresholds and requirements.
For a major exchange listing our goal is to start on the O.D.C. just like we did with go early on and once we consistently demonstrate we can hold minimum exchange threshold requirements consider uplisting to an exchange [laughter]. It is far better to Uplist to an exchange then to be forced to delist by trying to join an exchange before a company can continue.
Only meet the required exchange listings.
Another question is why the sell off was that unexpected in.
Any spin off where each company is going to take a different business strategy. We expect the sheer registry to change and we were advised as such in addition, certain institutional shareholders cannot own otcs stock and may sell due to the internal requirements of their own self imposed charters.
Adding to this are the high frequency traders pushing on the momentum some.
Some of the selling pressure could be shareholders that choose not to own Oh T C stock.
While spinco will be a U.S. company planning to listen the O. cheesy market. There is a reason why the majority of the Canadian Junior mining industry lists Oh Tc market. It is a good market for junior mining companies to start out on until they reached thresholds to uplist to major exchange, we've had numerous shareholders call us with concern.
Arnie their broker won't taken otcs share only to find out later after they speak with their broker that they can and will in fact, except though T C shares.
Why is the CEO, leaving gordo.
In order to satisfy certain requirements necessary to obtain tax free treatment or the transaction post separation there must be two independent companies, which generally requires separate management, specifically, the CEO and board of directors with little overlap.
In addition to the tax treatment issue overlapping executives may also create independent issues for each company.
For additional color on this I lobby to remain the CEO of both companies my arguments where that I'm. The CEO of each mining unit now I cannot be CEO of each company post then just because they are in separate companies. It's clearly not that I can't handle the work.
To which our FCC counsel advised that for a transaction to remain tax free it is imperative to demonstrate independence between the companies at the highest level, specifically CEO and board chairman the IRS would likely.
View, the same CEO and chairman of the board of each company has not being truly independent companies and I don't disagree with that advice is not worth the risk of potentially failing and independents test and triggering taxes. This is not a need this was not an easy revelation for me to Digest I had been with gold resource for almost 15 years and I love.
Of this company.
We were in deep due diligence and analysis of the spin off.
And we had already identified the strategic and positive reasons to consider moving forward with it subject to checking additional due diligence questions I put my ego aside and do the right thing for each mining unit and shareholders. This decision makes itself as to why I'm, a must move to the CEO and fortitude means.
Phil Kohn, rather the only remaining team members that were part of the GOR team executed on outsize dividends and garnered yield valuations for go early on we have walked out path. We know it we believe we can do it again it fortitude.
On an emotional level. This is very difficult for me, but we're a public company is not about me. It's about managements primary task of maximizing shareholder value. We are currently evaluating very qualified candidates for the CEO role at girl whomever the new CEO is they will be walking into a great company poised for continued.
Excess.
And then the question is is it the company being sold there is no plan to sell either company one requirement for the tax free nature of the spin off is that management must to test the spinoff will not be sold for at least one year.
Another question, we get or concerns over possible increase DNA expenses.
Each mining unit already has its own independent team for general management from the general manager down no overlapping expenses on the corporate side. There are about 10 total shared executives and managers that work on both mining units under the proposed annual management services agreement. This small management group will continue to work on both my.
Adding units post spin to the same extent as they were currently doing now this will actually lower the cost for each mining unit respectively. For this group of shared managers as an example, let's take a vice president in this group and look at what can transpire under the services agreement the Vice President will allocate Henry.
Toward their time as they do now between Mohawk in Nevada. For example, if if were hakan, 70% of the Vice President. It's time in Nevada is 30% Fortitude will pay gold resource for the 30% of the Vice Presidents time, this actually lowers gold resources overhead on the BP by 30% for the two gold is paying the third.
He present as opposed to 100% of the same time and work that would have been completed under no spin off the VP is doing the same job at the same pay as before but under the services agreement the allocation of time results in less cost to each company and no duplications of cost for the VP position a gold resource this is a way.
Win win scenario.
There are only two duplicative costs for management under the spinoff the CEO positions and one shared board member gold resource will hire a new CEO and add one board member for the two goal will have its own CEO Fortitude will only have two board members to start out one member is the CEO, which is a non paid position for board service in one as an independent.
Pendant.
This will keep initial costs to a minimum at first fortitude, we'll be looking to add additional board members or member member or members down the road at a later date, so duplicative costs.
Our one CEO and board member, they're not material cost and the larger picture of the transaction has proposed under the management services agreement.
As for infrastructure for instance on the corporate side Gold resource currently has two corporate offices post spin one office will go with go resource one office would those fortitude effectively lowering office overhead for each company by not having to offices.
Even if there was complete duplicity in this group of 10 managers the benefits of the transaction would still want the spinoff.
All considered nothing about the GE any of this transaction is concerning and under the services agreement. The duplicative costs are countered by the cost savings of time allocation mentioned in My example, the vice President.
And my last and most common question is why now.
It is a charge of the company's board of directors to maximize shareholder value.
Once all the analysis and due diligence questions were answered on the spin off the choices and decision became very clear.
We could keep the mining units combined but maximizing value would be hamstrung trying to be both an aggressive growth and aggressive dividend company for the after mentioned reasons given during the shareholder call to have a chance to maximizing shareholder value for each mine unit.
Mexico needs one strategy in Nevada needs another execute.
Executing on the spin off has a much greater opportunity to maximize shareholder value for each mining unit. The board we'd be remiss in waiting now that all the due diligence and analysis are complete and both mining units are cash flowing and positioned for success weighting would just prolong inevitable.
Several shareholders have asked US why don't you wait and see until a few more quarters or a year out to do the spin off my answer to that is we make that.
You make business decisions, when we deem appropriate and in the best interest of the company and its shareholders. We believe this is the perfect time to put this in perspective, one can always take the approach of wait and see or wait until a potentially better time exist in the future to wait ignores the need to separate the mining in it so they can be.
Going down the path to identify the best deliver long term value to me the view to wait and see is counter to most good business decisions and opportunities.
The question of why not wait for Nevada to grow another year. So it could potentially enable it to list on the exchanges oppose the LTC market.
That wait and see approach would delay what needs to happen now to try to maximize long term value. That's one full year of not allowing each company to begin down the path that needs to go that's identifying an opportunity and then for lawman prolonging. It let me give you the perfect example.
Take the wait for a better time rationale and apply it to the Nevada mining unit.
We built our Nevada mining unit during the last bear market. It was a difficult time and we didn't have much money doing everything to survive like all other mining companies back then.
Many shareholders pushed back on our goal is to build the Nevada mining unit numerous shareholders label did a distraction at the time and stated it would be a decade before a company would have production from the data.
How do we waited for a quote better time, we would have missed the best buying opportunity in the Walker Lane mineral belt in Nevada in the last 20 years had we waited we could not and would not have compiled the exceptional property portfolio in Nevada. We now have we quote waited for a better time it would have been far more costly and can.
And as competition in the Walker Lane.
Area is fierce today.
Well, we had shareholder pushed back against building, our Nevada mining unit at the time, we were in the trenches, making the decisions we deem fit in the best interest of shareholders and where are we today, we have five high grade gold properties. One in production and just 10 months from groundbreaking cash flowing and poised for success, everyone now loves Nevada.
Yeah, and the pushback is all gone.
Had we taken a wait for a better time approach beam suggested by so many shareholders back then he most likely would have missed the opportunity of our Nevada mining unit that we all enjoy today.
We as management identified the opportunity enacted on it we made the correct correct call waiting for a better time once <unk> once an opportunity has been identified and due diligence is complete often translates into waiting for missed opportunities.
So with that I would like to open up the.
Like Q1 and in an effort to efficiently.
Address DQ in a if theres any distracting or antagonistic calls will move on to another productive caller's question. So.
Operator, if there are any questions. If you can please open up the lines for the life QNX. Please.
Ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone we ask that all posing your question you pick up your handset to provide the best quality.
Again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.
Well take our first question from Heiko.
Steve. Please go ahead.
Hey, guys. Thanks for taking my questions and thank you so much by the way for going through all that queuing day here on the call today. So I appreciate it yeah.
Yeah. Thanks, Eric I was just trying to get in front of it. It's amazing if that's still the misconceptions assumption our lives I guess I haven't read fully the press releases or what we've talked about but I just wanted to get out in front of all of that so maybe we could have additional new questions.
It blows my mind that people think that the one asset just disappear as well the spinco.
Let me point out with that.
<unk>.
Let me Echo we lost it yeah. It kind of broke out say your question again.
I said I also want to point out with it it's really nice to see you guys pay a dividend because I mean less than a handful other companies we cover do.
But anyway. So most of my questions profitability going forward I mean, you guys just put on an extremely strong quarter.
How much of that can we trend line into Q4, and then also on a combined basis into next year.
Yeah, I can't give you a specific numbers, obviously, we don't even have an outlook for this year due to the cobot situation, but.
It is our goal to remain profitable every quarter, they all won't be but going forward, where we think we're out of the woods at least for the covert we're still have to fight it will still have to be proactive.
But out.
Out of the woods, meaning I don't believe we'll do another shutdown there.
They might and hence we don't have an outlet for this year, but as we look at Q4, you know I'm optimistic it's going to be another good quarter, and then I think 2020 one's going to be an exciting year for gold resource as I mentioned earlier in the call. The zinc price I mean, we're just talking about it before this call is 115.
We were in the 90 cents back last year.
Year ago.
115 is incredible that'll add millions to the bottom line every half every penny is almost half a million dollars to the bottom line. So.
It's terrific on metal prices, Yeah, you know, we just need to stay vigilant on cobi keeping it.
To the least impact it can possibly be on our operations and I think we're going to have a good Q4 and a great year next year.
Fair enough speak speaking to US next year and just general outlook.
You answered my second question, but one more did I had.
Tore environment, Mexico in Nevada, and post cold, but do you anticipate any longer term changes have you seen anything that people are trying to say that.
Is there anything that maybe we wouldn't be as privy to as you.
Thank you.
Yeah, no. It's a great question I don't have any additional color that everybody else does you know that's paying attention doesn't have governments are always X factors, whether its in Mexico or the U.S. and you know this election will have a big impact on you know.
Going forward on the U.S. from that for that matter the elections happening today. So I don't have any color on that all we you know we can't worry too much about that all we can do is to do everything we can to make sure. Each operations is running as efficiently as possible and we'll roll with any punch the thrown our way in that regard, but yeah, sorry, I can't give you need to.
Any color on that.
Fair enough well keep doing what you're doing I think you're doing a great job at it. Thank you guys I think thank you heiko.
Well take our next question from James Adam. Please go ahead Sir.
Good morning, Jason exam, and first congratulations on an amazing quarter during a very difficult time, hi, Thank you.
No problem I had a few questions. The first one is related to the arm you obviously.
Obviously, it's a difficult time in my.
Thoughts are with the team there, but do you have any visibility on how production might ramp back up to normalized levels over the next few quarters, how quickly we could see that.
Yeah, no. It's a great question.
The impact of Cove. It is there I mean, it ebbs and flows given on the we'd given out how many cases we have.
Given on how many people go into quarantine because they were exposed to somebody it's not fun I mean, it's not it's a challenge so is that going to go away next quarter. This quarter no is going away next year, probably no. All we can do is stay vigilant and keep our protocols in place and we've shown that we can.
To operate with with Covance at our site and still do still do good that will be a challenge.
For every company I mean doesn't matter what industry you're in that that's life as we know it I guess, but.
But.
As far as.
Other aspects I mentioned it on the we mentioned it on the press release of the Spinco. There's some optimization that were targeting for the walk of mining unit.
Like an ore pass or re grind circuit that ore pass could help us not double handles much underground he could save us in cost be far more efficient miners.
That is slated to happen next year, that's on the on on the preliminary budget.
The re grind circuit, we're evaluating that that could have more gold.
Recovery, so we're position meaning ourselves by taking this approach, where we're putting more money into the ground to optimize everything we can optimize and and it just your question kind of underscores why the spinoff happens.
The spinoff needs to happen, because Mexico needs to put more money to work underground sure. We could continue down the same exact path, but people have to understand there is a push and a pull to everything if you're going to pay outside dividends you have to give up some projects and are taking this new strategy is very exciting because we're going to be able to take it.
Our exploration budgets that went from the last seven eight years from 10 million down to 2 million back up toward 10, that's very exciting to me that's finding additional or that's finding new deposits, that's adding tremendous value. So you know the new strategy I think he's going to and lock a lot of value not that are free.
The us operations are operating strategy was wrong I do it all again the exact same way, but now it's evolved to a point where it needs to go this way and between optimization programs. You know between you know our fervent health screening I think we're going to have a really good year 2021.
Great. Thanks, Jason on another question related to what you just mentioned use done extremely well in part because of the base metal prices and particularly saying one of the headwinds for this year and 2021 was related to the T.C. charges for treatment charges do you have any guidance on what kind of cost of judgment adjustment we can.
But going into 2021 as you look at renewing that contract.
Yeah, I can't speak to specifics until we're actually done with it with a contract so I am going to be really reserved on on what I say here, what we are seeing.
His far more favorable Tc terms so.
That will have a big impact if we can secure those favorable tcs that will have a huge impact not not to mention what you meant what you. Just said is the higher the price, but I'm I'm hesitant to go into specifics until we are actually sign a contract. So.
I think that's probably best to flesh out in future call, but point.
Point being a and I've mentioned this in previous calls.
Years ago, when the zinc price was was really dropping.
We didn't know it was going to drop to the extent it did and for other reasons internally, we set a goal to lower cost by $10 million and so we did all these cost cutting measures. We did it and then one fell swoop the Tc charges eliminated that whole savings and so wed be nice is to see.
10 million come back in.
And you know well see well have to wait and see once we get the final.
A contract signed but it's just too early to speak to specifics on that until we get some sign but its looking good.
And that's fair and I've seen the current market prices seem to reflect a couple of hundred dollars potential on savings, which I just wanted to see if I can validates I understand.
In terms of an uptick looking at the exploration side can you provide any update on the drilling that was done that either east Cam telcos and or the golden mile and maybe any exploration efforts being done at the you as well.
Yeah as far as exploration in Nevada.
We started our first east Cam Douglas program. So that's very exciting we're only a couple of holes into it and this is a really big property, it's going to take a while but oh, we are drilling it. So thats exciting a we don't have any results back yet.
As far as Golden Mio goes.
We are I think right now mobilizing a drill or soon to be mobilizing a drill there too.
To to drill it so that's.
That's very exciting as well we're going to go in there's two known areas of mineralization.
And previous companies have put their own resource around it we haven't come out with that number because we want to own it meaning.
Meaning trust, but verify so we're going to go in and you know.
Drilling if you will to confirm what that what what they've drilled.
Is there and try to delineate it and make it a little larger with an initial just to get our arms around the resource if you will and how soon we can do that you know it's still little early to talk about timing, but the sooner the better and for sure by next year.
When we come out with the first resource there so both.
No those properties.
Are being explored as we speak.
And both soon to be drilled as we speak.
As far as the walk of mining unit very exciting and putting up these exploration drift, we as a company have never had the luxury.
Of deploying capital for exploration drifts only so so what I mean by that is until we were able to be in this position. We always had to put a drill wherever the mining wasn't happening and they had space to put a drill and that's common place for mine underground mines and its just push and pull between Ics.
Exploration and production, but we're putting pushing out these exploration drifts, which you can see the schematic on our web site presentation of these exploration drifts and you can see that we are going to be able to test new area is never been tested before around his theories that now they're eastern is very structurally controlled is there.
As to the Switchback has to do with it reaches a you can see the surface expression with rigid on the surface. There's numerous other bridges that are parallel to these to make US think there are more switch backs out there and he's drifts are putting us in a position to find them. So not only do we expect to add two known vein systems, but finding new and.
It will be very exciting so as I mentioned earlier in the call. This new strategy, where we're not going to be a gating factor of all we're pushing this out in dividends no. We're pushing a lot of money back in exploration. This very exciting we're going to be able to to expedite I think some of these expansions and discovery. So exploration is exciting on both front.
Yes.
And Jason and this maybe a question for Tim as well in looking and thinking about the capex requirements over the next year as you expand exploration and continue building out the Tristar, how should we model or think about the future capex over the next four or five quarters.
Yeah, the biggest capex as you everybody or most people are aware you know we've been through a lot of capital expenditure projects that the tailings.
Lift we had an electrical power grid brought in we did a pay spill plant. All these are capital intensive, but it's a good thing you're doing and what that means is the mine is growing the mine and that's what's happening.
We're currently doing they they can tail so.
That capex will continue on into next year before.
Before Cove. It we had planned to be done with that project. This year, but when we got shut down nobody we didn't know how long you're going to get shut down obviously you shut down. So you can't move projects forward. So the long and short of it is the that project just got pushed into next year. So that capital X. project will continue.
There are these optional capex projects that I've alluded to this or past. This re grind. All these things we don't have to do but we were looking at them seriously in an effort to make our project more efficient down there those could potentially go into the Capex budget, but then as this mine grows with you we expected to keep growing and fast.
After once we deploy more exploration capital the infrastructure is going to be the additional capex I mean, we're going to be you know obviously.
You have to push air and power to all these new areas. So.
No.
We don't have we're working as we speak on our budget for next year. So we don't have but.
It all nailed down but.
Oh, you can model. It I mean, we've spent $10 million a year on average on these capex projects.
If we're not doing big Capex projects will probably be allocating that 10 million for mine development, So I'm not saying to knowing the exact number I'm just trying to give you something and that's probably a number that's going to be deployed irrespective of whether you have capex projects or not is gonna be put back into the ground.
No that's fair and that's helpful. The last question and I'll jump back in the queue is as you mentioned there are certain key milestones that you're going to be looking for as you really as it relates to uplisting to the NYSE.
Do you have a sense of what the timeline on that you might be examining the market cap and share price or any other milestones will be it's are you looking at a two quarter process for the year.
If you can give us some guidance before considering that uplift sounds great.
Yeah, the market's going to tell us I think in large part.
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There's very little value in gold resource that represents in Nevada, the market just isn't.
Doing it yet so it's tough to put a number on it.
When we do the Spinco the market will put a number on it and we'll just see once we continued to execute.
On our production and once we initiate the dividend and it won't happen right out of the gate, but once we do initiate a dividend and then do a dividend increases the market I believe will respond quite favorably and then that will dictate share price that will dictate market cap.
Those are some of the primary drivers for an up listing but.
Yes, the market is going to tell us it's not like we can force that that's one of the issues and then heavy part of that portion of the due diligence of the Spinco is do we try to stretch ourselves and go list of major exchange, but the risk is failing and then getting de listed as debt spiral you don't want that you want to uplift when you're confident that the market is.
<unk>.
Grant the market cap and share price necessary to stay on so could it happen in six months, possibly but I think that to be the most aggressive.
It could happen in a year I would I wouldn't see why not if we execute on the plan, but again, we don't call. The shots. All we can do is execute on the plan and production and then issue dividends and then increased dividends and the market is going to tell us.
When we go.
Fair enough and I look at cash flows that I'm projecting out you guys should have a very successful 2021, all right I'll go ahead and jump off the questions and jump back in the queue. Thanks, again, Jason and good luck with the job and keep up the good work.
Thanks James.
All right, let's take one more question.
Well take our next question from Ronald Bernstein. Please go ahead.
Yeah, Hey, Jason a.
Great quarter and great job on the conference call.
Kind of explaining the the reasoning behind the spin off transaction and.
I guess my question or ask you to confirm this for me. It's my understanding that in a spin off transaction, there's a great deal more a protocol and regulations in terms of the.
The extent to which you're able to kind of promote or put out forecast for the for the.
For that you have to see being spun off is that a is that accurate.
Hi, it is but only for a certain amount of time the FCC. The FCC does not like you do what they call I think prepare the market. So you will as I mentioned be going into of 40 day quiet period. So the next steps are obviously, we turned in our S. One.
To the FCC they'll review it a couple of outcomes could happen a they'll review it and give it back with no comments, which means you know declared effective and then we'll move forward to finalize the spinco and the quiet period starts or they come back and say we have these questions answer them and your.
Good and so we would do that or they come back and say answer these questions and resubmit and so then he said another 30 days so well.
We'll just wait and see what the FCC comes back with we put a lot of time and effort into that document. We think it's very good S. One documents, so I'm whole pool I'm optimistic that it goes no comment.
We will hear I think at the end of next week or the week after that will be the 30 days. So it's coming up now once they declared effective then well move forward give the 10 day record date so.
With the FCC, that's a requirement with the FCC and then effectuate.
Effectuate the spin off and then we go into a quiet period for 40 days and you know you're not going to.
Here any talk on on the company until we come out of that four to until we come out of that all we can speak to with what will be in the S. One so.
Yeah, but you actually are kinda.
[laughter], you're kind of limited in terms of your ability at this point to promote the spin off which is no fault of yours. It's just a function of the regulations surrounding those are real congratulations yes, yeah cool.
And I said, we are limited in what you can say.
And the reason I bring that up is my sense is that for me.
Hello.
Been a contributing factor to maybe a bit of the downdraft [laughter] over the last two or three weeks when the stock price and.
Imagine are chomping at the bed, but if you're not allowed to be out there doing a road show or or issuing projections or anything like that that might.
Might be a little frustrating.
Yeah. It just is what it is you know this I don't I don't view the world like so many shareholders on a quarter by quarter basis, I view of long term and so this is this is temporary this pullback is temporary you know it's like the example, I gave in Nevada, right Nobody wanted us to get into that everybody thought it was a day.
Distraction everybody loves it talk to me a year from now everybody's going to love. This Spinco, Mexico, who will have gone down an incredible path and it's going to succeed I'm confident.
And what did you will do the same and the look back and know everybody forget this noise everybody forgets is pushed back and both companies will be better off for it and it's exciting. It's this is an exciting time. So 40 day quieter no problem I mean for the bigger picture it means nothing to me.
Yes.
Well that well that 40 day quiet period.
I mean, I would think that over the next couple of months, we're gonna there will be a.
A good level of news coming out of the company New C O those types of things.
Yes that was perhaps.
Yes.
For Goelro, correct, I mean, but that wont oh, well I guess that wouldn't affect the spend told them what it sort of announcing their CEO for goro, but.
Hi, there I know the paid you know go ahead go ahead, no keeps sorry, I interrupted go ahead well.
I I just I'm.
It feels like there's going to be a a pretty decent amount of news flow coming out of the company over the next two to three months and I was wondering to what extent the quiet period would what effect.
The release.
News items.
The quiet period only affects four to two gold Gotcha go right and how do you see gross yeah gold resource will be able to you know it will be Oh have news on the new board member on the new CEO.
Additional news on you know like normal course, the quiet period only affects the.
The spinco.
Okay, and one final comment on my Oh, due diligence on the company I've I've listened to four years worth of conference calls and.
Read three or four years of of of your press releases and one thing that struck me is that you have and I've heard other other callers comments on this.
Always keep the long term best interest of the company and the shareholders at heart and Oh, I think your yeah in my opinion, having listened to hundreds of conference calls and talk to a lot of people in the industry. Your your Oh.
Just a.
Great artists leader and I appreciate all your work thank you.
Hey, I appreciate the comments.
Thank you. Thank you very much so we're happy with that.
If you are in the queue for the question and answer period, and we didn't get to you.
Please call Us and we'll just we'll talk to you one on one with that I bet, you farewell and Oh.
Look forward to hearing guerrant talking to you on another another conference call down the road. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. We thank you again for your participation you may disconnect. Your lines at this time and have a great day.
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