Q3 2021 Gold Resource Corp Earnings Call
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Cash from operating activities was $5 7 million for the third quarter and working capital was 31 million at September 30.
For the third quarter, we reported net income of $1 5 million.
Revenues were in line with Q2, 2021, and nearly 3 million higher than Q3, 2020, notwithstanding we had fewer tons processed through the mill.
Net sales also benefited from a 44% decrease in concentrate treatment charges for base metal tons sold.
Treatment charges for the three months ended September 30, or $2 3 million or $473 per base metal tons sold.
Compared with $5 9 million or $842 per ton of metal sold for the same period in 2020.
This decrease is largely dependent on the spot treatment charges strong spot treatment charge market for zinc.
Yeah.
Total production cost of $17 2 million for the third quarter are slightly down from last quarter, and 6% higher than the production costs of $16 3 million for the same period in 2020.
The increase was primarily due to a $1 7 million increase in consumable metal consumable chemicals used in the processing plant due to a 13% price increase offset by lower volumes processed.
<unk> total cash cost was $466 per gold equivalent ounce sold.
In total all in sustaining costs were 1031.
These costs are down significantly quarter over quarter, and we expect these costs to be significantly lower again in the fourth quarter of 2021.
Accordingly, we maintain our revised full year guidance of total cash cost per gold equivalent ounce or between 250 and $290 per ounce and total all in sustaining cost of between 800 and $900 per gold equivalent ounce sold.
During the first half of 2021, a new management team was assembled with a directive to unlock the value of the Mexican assets, along with a mandate to grow the company.
In the first nine months management's investment in our Mexican assets totaled $18 9 million.
We expect our spend on underground development in 2021 should be closer to $5 million rather than the $9 8 million originally guided due to a reallocation of resources early in the year to dress ground support challenges.
In Q3, 2021 work began on the gold re grind project to repurpose existing ball mill and refurbish certain flotation cells, while new flotation cells are on order and expected onsite later this year.
Zinc tailings will be re ground and then leach to produce dore bars.
This process is expected to increase gold recovery by 6% to 10%.
Commissioning is expected prior to year end.
As of September 32021, 5 million has been invested in this project and another 200000 expected this year.
Construction of the filtration plant and dry stacked tailings project is 95% complete as Alan mentioned earlier.
[noise] commissioning will commence next month in November with completion expected in December 2021.
Delays were incurred during the temporary COVID-19 shutdown in August and delivery of some of the materials being delayed.
The work to prepare the open pit to receive the dry stack tailings is complete.
Mine development during the quarter included ramps and access to different areas of the deposit and exploration development drifts.
A total of 2500 meters of underground exploration development was completed during the first nine months, including access to new drilling platforms for exploration.
With that I will turn the call back over to Alan.
Thank you Tim.
As I noted in my opening comments, we're navigating in the process of acquiring a kilo.
Since the announcement in September our agreement with <unk> to acquire them. The management team has been working to close the transaction with good progress made on all fronts, including the assignment signing of the arrangement agreement on October two.
Upon closing the transaction, we intend to finalize a new block model and resource study.
Develop a new mine plan evaluate alternative process flow sheets.
Lee to revised and optimized definitive feasibility study, which we expect to complete in the first half of 2022.
Permitting and detailed engineering are expected to run in parallel into 2023.
This is to ensure that we're approaching the development of the back 40 project, the most environmentally and economically advantageous manner.
Production of <unk> is expected to produce gold and silver Dore as well as copper lead and zinc concentrates bearing gold and silver.
Construction is expected to commence in early 'twenty.
Yes.
We feel the acquisition of the back 40 project.
Excellent opportunity for our shareholders.
It will be immediately accretive on a net asset value basis.
The combined company is expected to benefit from a peer leading growth profile.
Our robust balance sheet with no debt and free cash flow generation from its dawn David Goldberg.
The companys position of financial strength is expected to result in an.
An improved ability to access the debt financing required to fund the back 40 projects capital expenditures.
Through the acquisition shareholders will have the opportunity to participate in the ongoing growth of our multi jurisdictional diversified precious and base metal producer with exposure to gold silver zinc copper and lead to the Dawn, David Gold mine and the <unk>.
For the project.
In closing.
We remain on track for full year guidance.
We have already seen encouraging underperforming results in the third quarter and the early part of the fourth quarter.
Thank you for taking your time to listen in.
This concludes our prepared remarks, and I will now turn the call back over to the operator for questions.
Thank you we will now begin the question and answer session.
If you have any questions or comments. Please press star one on your phone at this time.
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Once again, if you have any questions or comments. Please press star one on your phone now please hold for a moment, while we poll for questions.
And our first question today is coming from Heiko Ely at H Wainwright. Your line is live you may begin.
Hey, there thanks for taking my questions.
Good morning, Hi, Joe good to hear from you.
Always a pleasure.
Great Project you Street at some material arrived Laker site is everything no side or are there still things that are in rude or not even shipped yet maybe.
So what exactly are you waiting for and I assume price wise. This is a non issue because pricing was locked in Saudi.
Large scale inflation, we've seen on everything from used cars for mining equipment.
Won't be an issue on this one right.
Speaking to the latter comment first it's not going to be an impact.
I will tell you that what we are waiting for is an embarrassingly small piece of equipment.
We had some piping that was delayed it is back ordered and should be delivered sometime in the next month or two unfortunately, the supply chain issues are affecting us just like everyone else, but thats all were waiting for HEICO.
But.
It doesn't hold up construction or anything else.
Construction is effectively complete.
We're literally we're at the 95% level, we have to hook up some pipes and were into commissioning that's where we are okay.
Okay.
Got it.
And then pricing it doesn't make a different data.
Simple enough and then just finally on the Aquila deal.
You sort of went into this big level in your prepared remarks.
In your release you list late November closing dates. So we're looking at a month from now just out of curiosity and I don't know how much color, you're willing and able to provide in a public setting like this but what other issues are step.
We'll need to be finished before the closing.
<unk> San please.
There are two or three conditions precedent to closing that we control.
I'm not going to go into specifics heiko, but they are well in hand.
Sure.
A capital markets perspective, there will be a shareholders' meeting on the 17th of November followed shortly thereafter by a court hearing whereby with the benefit of a positive vote. The court will approve the plan of arrangement.
Closing would then follow two or three days later and we're currently planning on closing on the 23rd.
So if you look at the risks associated with closing number one obviously is going to be the shareholders' vote. We.
We already have a preliminary order from the court. So we don't view that as being.
Significant risk element.
And then we have these three conditions precedent, but all of which.
Based on progress to date I'm very comfortable with.
The likelihood of closing is very high.
Excellent terrific news wonderful. Thank you again, congratulations and Stacey.
Thanks, Michael we'll be talking soon.
Thank you. Our next question today is coming from John Bair Ascend Advisors. Your line is live you may begin.
Thank you and thank you for taking my questions.
You touched a little bit on.
In your prepared comments about encouraging results.
Regarding the potential to increase higher grade mineralized.
Material and the switchback veins and I was just wondering if you could.
And on that a little bit more is it.
New.
Actually new.
Veins that you've discovered there were.
Could you share a little bit more on that.
Sure.
You may recall that Q1, we had some ground control problems.
In solar that.
And we have.
Implemented new mining approaches in solid add to reduce dilution improved ground control techniques, but in addition to that.
I indicated in my remarks that we've undergone a are in the process of undergoing.
A major review of all of our geological information, leading up to block models, and then to mine plans.
That process has enabled us to develop a <unk>.
Mine plan for the balance of this year plus next year with a high degree of confidence associated with our ability to produce.
Where we are mining in Q4 of this year is in an area of.
Switchback that does in fact and it.
I'd love to take credit for it but nature put good grades there.
The mine planning is enabling us to.
Extracted with a high level of productivity.
That address your question Sean.
Yes, yes.
That's good and then.
Secondly.
I'm curious what your.
If you have a sense on what your budget outlook for 2022 might be regarding exploration efforts outside of the switchback vein system.
In the press release.
<unk> indicated spending.
Roughly $6 6 billion year to date and I was just wondering if.
We're doing any.
Planning on doing any.
Xtra.
Exploration efforts.
And this in context with what you are going to be.
Kissing on assuming back 40 project gets done the merger occurs.
What are your any of your.
Are you going to reduce any exploration activities I guess, what I'm asking.
What the answer is no.
If anything we will expand our exploration efforts in Mexico.
<unk> 40 is a discrete project at this point because of the stage of development.
We're into detailed engineering studies met studies modeling.
Working on the feasibility.
So there will be no funds diverted from Mexico for exploration in the back toward it.
In terms of the quantum of the expenditure for next year I cannot tell you at this point, we're in the process of developing those plans as we speak.
In all likelihood the constraint will not be available capital, but it will be available drilling sites just as was the case this year.
Our emphasis for next year will continue to be near mine and in mine exploration to expand our reserves and resources.
We are going to be looking at a few greenfield sites, but that won't be our primary focus.
<unk> primary focus is to maximize the value associated with our existing infrastructure. So we're going to be looking close to home to try and expand our resources and reserves.
Okay.
Very good and last quick one on the gold recovery project will the re grind help.
In zinc recovery as well as gold or is that completely separate.
That is completely separate what we're going to be doing is we are going to be taking.
How do I phrase this we're going to be taking the reject from the zinc circuit.
So effectively you've got material going in you've got the zinc concentrate produced as you have tailings, which historically would go straight to the tailings facility.
What we are going to be doing is we're going to be taking those tailings <unk>.
Subjecting them to another stage of very aggressive flotation.
<unk> a form of concentrate that will then be re ground and fed into the Leach circuit.
Sole objective of that.
Exercise is to recover gold that would otherwise have gone out into the tailings.
And it's significant.
Directionally looking at between 6% to 10% increase in gold recovery.
Right Yeah.
So basically the the initial processing of this ore.
<unk>.
Moved the majority of the zinc that you can.
Economic basis that right.
That's correct that's correct.
What we are what we are treating is the rejects from the zinc concentration process.
Okay.
Very good thank you for taking my questions and good luck moving forward.
Thanks, John I appreciate it.
For calling in.
Okay.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone now.
Our next question today is coming from James Adam. Your line is live you may begin.
Good morning, Alan and Kim and congrats again on the quarter.
Alan The first question I had was related to the Capex modifications that have been made.
Thinking through the reduced 2021 Capex forecast can you elaborate on what's been deferred into 2022 versus what it simply reduced or eliminated.
We have not eliminated anything James the major.
Contribution to the shortfall on capital in the current year's because we are to be very honest behind in our development.
Youll recall the ground control issues that we had in Q1.
Those at necessitated diverting developments.
<unk> abilities to bypass certain areas and develop new areas for mining.
Net result of that was overall, we got behind in our development.
It's not canceled it gets deferred and we are looking at various means of catching up on that development over the next six to 12 months.
Okay Fair enough and then in regards to the back 40.
Do you have any updates on the permitting application timelines and also do you anticipate any further need for dilutive financing to take the project to construction at this time.
Okay.
James Let me answer.
Your questions in conjunction with some questions that were sent in.
All deals with the back 40.
I'll deal with the latter 0.1st we are not anticipating any dilutive.
<unk> dilutive financings.
In order to build this project.
Our estimates at this point with <unk>.
Indicate that between cash flow from operations.
Normal project finance structure, we have no need to.
Entertain any dilutive financing whatsoever.
That was one of the attractions of this particular asset.
Permitting timeline is.
Unfortunately by definition that was somewhat flexible.
In Michigan.
The permitting process is controlled by the state.
There is no direct federal involvement in the permitting process and there is a department Nolan is environment Great Lakes.
<unk>.
Yes.
The acronym is Eagle environment, Great Lakes.
Energy Thank you.
I always stumble over it but that that department controls the issuance with all of the permits necessary to move the project forward.
Yes.
Perfect Alright.
<unk>.
As you May know akela.
Had a year ago all of their permits.
But.
The review there is a period of time necessary.
Issuance of.
Permits whereby they can be challenged and administrative court.
One of the permits was the wetlands permit it was challenged and it was overturned or it was revoked.
Based on a technicality.
Sure.
Decided not to pursue it pursue legal action to try and have that overturned but they stepped back and they took a look at the <unk>.
Way with which they were approaching binding of the deposits and all of the ancillary impacts on wetlands and particular environmental impacts broadly defined.
So that has resulted in the current process that's underway to do a or produce a revised and optimized feasibility study.
The study will be complete as I indicated.
Second half of next year.
No.
Our timeline, our targets are a little bit more aggressive than what the numbers I'm going to give you but for reference I will give you an idea of what we're dealing with if we can complete the feasibility by the end of Q2.
The permitting timeline can be.
Somewhere between eight and 12 months to receive the permits.
After that there is a six month to eight month period, whereby the permits are subject to challenge.
Once we get through that challenge periods than.
And then you have effectively a court approved permit.
Which will allow us to move forward.
When you put all the timelines together.
I'm anticipating that by the end of 2023 at the latest we will have all of the permits necessary for us to begin construction subsequent operations. It may be as soon as.
Q3 of 2023, but I'm being conservative because what can happen will happen. So im going to suggest that it might be the end of 2023 before we get permits.
At that point, we would be in a position to start construction James.
Okay, Great Alan Thank you and the next question maybe for Tim do you have a sense Ken by of what the new pro forma G&A expense will increase to or what level of increase we can expect.
The acquisition of Aquila.
Yeah, Jim. Thank you for the question, we do we've looked at it and we actually.
Feel strongly that we're going to have a lot of efficiencies and synergies that will develop.
We don't have a budget for G&A make sure it will be a slight increase in our G&A this year, but.
We should be able to achieve a lot of efficiencies, so maybe $7 million.
Okay.
Six and have seven to eight.
Two relatively minor okay. That's fair.
Good to know.
Two last quick questions, Alan I apologize for taking up the call.
May have missed this on the re grind do you expect to go re grind benefits too.
We began in Q4 of this year or Q1 of next year.
We will start seeing some initial benefits.
Next month.
There will be a commissioning period, so while we will see the impact in November and December we will see the full impact beginning in Q1 of next year.
Great and then last question is related to the tons milled in terms of what we can expect.
In terms of Q4 and beyond what should we anticipate the throughput rate to be on a steady state basis going forward.
As you are aware James.
Budget rate or the planned rate for this year was 500 tons that was done very consciously.
What I can tell you is.
It will not be less than 500 tons and we are looking at the potential for increasing barge next year beyond that I really can't comment because honestly I havent seen the mine plan for next year, yet so its in development and I expect to see it next week, but right now it would be premature for me to give you.
Any kind of directional tonnage it won't be a decrease in IMAX.
Expect again.
Perfect that's positive news and I appreciate the time on this I'll jump back in the queue. Thanks Alan.
Okay.
Thanks James.
Thank you. Our final question today is coming from Ron Aubrey at RJ Aubrey investments Corp. Your line is live you may begin.
Good morning, Alan.
Morning, Ron How're you doing.
Hey, terrific how are you.
It's a beautiful day in Denver.
The code one in the Midwest.
Hey, congratulations on a very very strong third quarter.
We're only.
$1 8 million revenue less than Q2, despite this 12 day.
Shutdown, so what do you attribute that to.
And do you see this strong.
Operating performance Directionally continue this quarter and into next year.
Really there is three factors.
Commodity prices helped.
We got back into.
Areas.
As I indicated earlier better grades good width, better grades so higher productivity and more metal going to the mill.
But the third factor in.
Realistically is by far the most important factor is the operating team in Mexico.
Has done an excellent job of.
Recovering from the 12 day shutdown that was imposed on well it wasn't imposed we took a 12 day shutdown because of the.
Incidents of Covid that we're experiencing.
Restarting after that the team down in Mexico did excellent job of getting back up to.
The normalized rate of productivity and they did it very very well. So those are the three drivers going forward as I talked about earlier, we're in the same material. We're back up to full run rate. So I would expect Q4 is going to be a good quarter for us.
That's excellent.
We still feel that youre on track to achieve your <unk>.
<unk> 40 to 42000 gold equivalent ounces for this year.
We are.
I am comfortable with that guidance.
Fair enough and then final question more longer term has to do with your drill results and I. Thank you for the color.
In your 10-Q.
You are certainly showing a significant increase in high grade mineralization and certainly down dip extensions in the switchback vein system and I think you've called this now the three sisters.
Could you maybe update us on what you think is there.
Okay.
Okay, I'm going to address that question, but first the down dip to the southeast on switchback.
It is just a continuation of the existing system.
Drilled.
We had significant intersections 80 meters below the existing workings and what that potentially gives us.
Being very careful about the words amusing.
With that potentially gets us is for additional levels. There may be more below that but for additional levels is a very significant increase to the mine life.
The.
What I'm, calling the three sisters is actually to the north.
West of Switchback, and it's actually is located between switchback and of <unk>.
Quite high up.
We've got.
As you know we've had some very interesting intersections.
Just now are in the process of finishing a underground drill station that will enable us to do a little bit more work in that area.
Tonnage.
I can't give you any idea.
We're optimistic but it's way too premature for me to even guess as to tonnage I'm encouraged but we need more information.
Okay, well fair.
Fair enough congratulations on you and your team to navigate this difficult period.
Looking forward then to the future results. Thank you.
Thank you I appreciate the call. There was one call that came in over the web, but I just wanted to address before.
We move on.
Yes.
Sure who it came from but it was a question about energy. The back 40 project that is all electrical power off the grid.
<unk> rates that are <unk>.
Very attractive.
I am not in a position to disclose them at this stage if ever.
But I will say that they are better than the rates were being charged in Mexico.
Now are there any more questions.
Not at this time.
So I'd just like to thank on behalf of our team I would like to thank everyone for attending our third quarter conference call and we look forward to the opportunity to engage with our shareholders and other stakeholders over the next days and weeks. Thank you.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day, we thank you for your participation.
Okay.