Q3 2022 Gold Resource Corp Earnings Call

Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference. Please.

Zero for operator assistance at any time.

I would like to remind everyone that this conference call is being recorded today November 22 at <unk> Oclock Eastern time.

I will now turn the conference over to Kim term global resource appropriately and Chief Financial Officer, Mr. <unk>.

You May proceed.

Thank you Sandy and good morning to everyone on.

On behalf of gold resource team I would like to welcome you to our conference call covering our Q3 2022 results.

Before we begin the call there are a couple of housekeeping matters I would like to address.

Please note that certain statements made today are forward looking in nature and as such are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, and other SEC filings.

Joining me on the call today is Alan Palmer, our president and CEO and Alberto <unk>, our Chief operating officer.

Following Alan Alberto and my prepared remarks will be available to answer questions.

This conference call is being webcast for those of you joining us on our webcast can download a PDF of the conference slides.

The event will also be available for replay on our website later today.

Yesterday's news release issued following the close of the market and the accompanying financial statements and MD&A contained on our Form 10-Q has been filed with the SEC on Edgar and are also available on our website at Www Dot Gold resource Corp Dot com.

Please note that all amounts mentioned in this call are in U S dollars unless otherwise stated.

I will now call the turn over.

Turn the call over to Alan.

Thank you Kim.

Morning, everyone.

I'd like to thank everyone for taking the time to join us on this call.

The ultimate safety programs has been our top priority in 2021 and 2022.

During the third quarter, we took additional measures with didi GM to address ground support and ventilation issues.

Disciplined approach of a temporary impact on production volumes.

On development and exploration.

With that said, we're still on track to meet 2022 production and cost guidance.

We will always put our people and safety first the temporary cost of production.

I'd like to point out a few achievements related to the back 40 project reported pending recall over to Alberto to provide an update on our dawn David Gold operations.

We will then proceed with the marks from Kim on our Q1 financial results. Lastly, we will provide a few closing remarks, and then we will take questions from participants.

In Michigan, we continue to progress the <unk> feasibility study.

We had a couple of opportunities to engage with the local community leaders, including tribal leaders to provide initial site layout and improvements made to the project.

Work on metallurgy, and the economic model that will continue into 2023.

Permit applications will follow after releasing the final feasibility study.

I will now pass the presentation over to Alberto to discuss Dawn David Gold.

Operational results.

Thank you Ellen and also good morning to all.

Turning to the results of operations I am pleased to report that we processed nearly 111000 tonnes of ore and sold approximately 5000 ounces of gold and 260000 ounces of silver equator.

Equating to a combined 8000 gold equivalent ounces.

We further sold over 282 tonnes of copper 1000 tons of lead and approximately two point out to 90000 tons of zinc.

Turning to slide five.

As for an update on operations as Alan mentioned earlier, we are on track to meet guidance for the year.

However, we must mention some of the headwinds we faced this quarter that impacted our production.

Our Mexican operation experienced a lower throughput compared to the two previous quarters of the hurricane season, moving Oaxaca received an unusual show a rain is slightly impacting crushing activities. Furthermore, the processing plant needed to implement changes to the ground rebranded circuit.

Gold and copper recoveries to go those changes have been adjusted and recoveries are back to normal.

On the mining front phase one of an installation system of competing.

But the phase II, they've been dementia connecting level two level <unk> seven experienced various ground the ground conditions delaying its completion until Q4.

For the health and safety approach mentioned earlier by Alan we initiated the rollout of an internal health and safety program focus on improving safety standards, reviewing certifications and strong leadership in the field.

Some of the work required.

<unk> seen some slowdown operations underground to rehabilitate some working areas. This process reduced mining rates for a week in September production rates picked up immediately after that and the workforce since invigorated with our results with all the work in Q3, we are confident we can achieve guidance for the year.

I'll now pass over the presentation to Kim to discuss Q3 final results financial results.

Thank you Alberto.

Does the quarter with a strong balance sheet, consisting of just over 22 million cash and working capital of $28 9 million at September 32022.

Cash in 2022.

Declined due to $16 million in tax payments made about 'twenty, one and 2022.

A $14 million investment in capital projects.

Only $7 million investment in the back for the project.

A $1 7 million investment in Maritime Resource Corporation, and nearly $3 million distributed in dividends.

For the third quarter, we reported net losses of $9 7 million.

These losses are primarily driven by a decline in commodity prices and increase in depreciation expense in the back 40 project costs being reflected as an expense on the P&L.

The increase in depreciation expense reflects the addition of the filtration plant and dry stack facilities.

The addition of the gold re grind circuit and a lower mineral reserves depreciation base.

Net sales at DD, GM of nearly $24 $24 million or 18% lower than the same period in 2021 due to lower sales volumes as a result of lower grades as well as a lower realized metal prices.

Total production cost of $19 4 million for the quarter or 13% higher than the production costs for the same period in 2021.

This increase is primarily related to the 13% increase in ore tons processed over the same period.

John David Gold mines total cash cost after co product credits was 11 three per gold equivalent ounce sold and total all in sustaining cost per gold equivalent ounce sold of $1831 per ounce.

These costs are significantly higher than the 2021 cost and directly related to the lower base metal credits and lower base metal prices realized.

And lower equivalent production during the quarter.

Even with a higher comp.

Even with a higher cash cost per ounce realized in Q3, I would like to reiterate the full year cost guidance of 425 to $475 per ounce for total cash costs and 12 50 to $13 50 per consolidated all in sustaining costs.

Alan back to you.

Thank you Kevin.

As we're all aware of the economic climate continues to present challenges with commodity prices and cost pressures.

While we are comfortable with our 2022 guidance this is making cost and capital projections for the back 40 project challenging.

In an inflationary environment with declining commodity prices.

Escalating capital cost, we're having to work very hard at optimizing the back 40.

As you've heard me say before we remain focused on creating value through disciplined growth.

And appropriate capital allocation.

And as I noted in my opening comments, we have made tremendous strides to demonstrate our commitment to advance initiatives around health safety community development and really our overall ESG programs.

We plan to continually expand our efforts in this area.

With our healthy balance sheet strong management team, we look forward to advancing the back 40 project and continuing to focus on improvements at the Dawn David Gold mine, while maintaining our status as a low cost producer with a focus on disciplined growth.

With that I will turn the call over to the operator for questions.

Thank you.

And gentlemen, we will now begin the question and answer your station should you have operation. Please.

Followed by then the one youre Deutsche Longhorn.

You will hear from acknowledging your request on your questions will be both in their day or we see should.

Should you wish to take them from the buying process. Please britney starts a little bit endometrial.

We are using a speakerphone please lift the handset before pressing any cues one moment. Please for your first question.

Your first question comes from <unk> <unk> from H C. Wainwright. Please go ahead.

Eric Thank you all for taking my questions I appreciate it.

Good morning Heiko.

Good morning.

You all know them.

<unk> is cutting on expenses, just because the market is a bit bearish and it seems like you've done quite a wonderful job at maintaining at least some exploration of about 40.

$6 9 million at the site. This year your full year projections of $90 million and a half I mean essentially in place let's spend in Q4.

But let's look a little bit longer term I mean, how much of that spending.

With permitting basically expenditure or things that you can't cut down.

And how much at the site is trying to find a better word discretionary spending how much of that are you forced to spend how much of that can you pick.

I think this question is especially pertinent since you expect and I quote work related to the metallurgy and the economic model to continue.

Maybe just some ideas for 2023 please.

Heiko.

It's not coming and I'm sure, it's not coming as any surprise to you, but there is substantial cost pressures.

We are looking.

Looking at refining our met testing too.

Attempt to increase recovery.

Particularly at present, but also for gold.

<unk> for you.

And we feel its potentially significant enough to justify continuing to work on it before we release the feasibility.

In terms of.

<unk> costs on a go forward basis.

Our estimate for direct permitting related expenditures next year. This directionally about $2 $5 million two to two and a half.

And.

Then there is cost of maintaining the property security et cetera.

Some G&A churns in the Lake.

We're looking directionally probably.

Four to four and $5 million for next year of about 40.

Is that.

If were delayed on.

Achieving an appropriate results from a financial model.

Metallurgy.

Some of that will be deferred until the following year. So it is not a big burden and it's significantly lower than this year.

Got it.

As I said.

In favor of if not.

For lack of a better word giving up on the site. So I'm appreciate it that you are keeping on trying.

And then one other thing there was a sentence in the release I'm trying to get some clarification on and during the third quarter of 2022 production mine development and exploration, we are deliberately and temporarily slow to improve safety specific to grown support and ventilation.

Are you seeing where people regrown support they get a bit scared and then over a day later Halloween. So can you just described.

Okay.

Can you just sort of expand on what that really means empty.

Financially.

But on your mining methods detours recover or recoveries that kind of stuff as well please.

Happy to HEICO.

First ongoing too.

Told you that our current safety performance.

Is substantially better.

Yeah.

Almost twice as good as the norm in the mining industry in Mexico.

That being said our target is not our target is to have a mine operating with safety standards and very comparable to anything anywhere in North America. So from our perspective, we still have a ways to go.

Okay.

Because where we are considered a safe mine in Mexico, there is a certain amount of.

I won't call it complacency amongst the team but.

Our perspective is that we're better than everybody else already why do we need to continue to work on it.

What we chose to do is.

Basically shocking off and we went in and we went in and we looked at.

Work basis, where it didnt meet.

Our standard.

And we show up and down until the rehab them and brought them up to standard.

And we did that tour.

Period of about two weeks two to three weeks and we did in fact leaves some production because about but what it did was <unk>.

<unk> the workforce realize that we are very serious about prioritizing safety.

<unk> production.

And that is a bit unusual in some some countries.

Some countries put production first and say it could be down.

Not willing to do that.

I have never had a fatality on my watch in any mine I work at I don't want to start.

I want this mine to be showcase for safety. So when we when I say when we say that we.

Page certain decisions.

That was what was driving the bus.

We focused on ground support and ventilation because there are two areas that have the most immediate impact from a safety point of view.

We focused widely throughout the operation we did the internal audit, where we checked 900 individual items.

But the focus was initially on <unk>.

Those.

Safety practices, which could have potentially the greatest.

Adverse effect, if they werent operating appropriately that's why we identify those two in the press release.

Makes sense production production impact Directionally.

It was a few thousand tons coming out of the mine didn't affect recoveries, but it did affect the.

Volume coming out of the mine and we did it very consciously.

We talked about how we could.

Refocus or.

Challenge the workforce to operate even more safely than they have.

That was what we came up with.

I'm actually very happy with the outcome of it.

<unk>.

<unk> and <unk>.

Fact, we've expanded the senior safety team, we have people underground every shift and they have the authority to work shutdown of work base, if it's not in complete compliance into.

Interestingly, we're not having to do that pretty much anymore theyre doing a very good job.

There is everybody can shut on workspace, if they deem it necessary.

Everybody from a helper right on up to the mine manager right everybody has the authority to shut down a workplace.

We had told them that in the past, but they didn't realize that until we started with shutting down workplaces and now they've embraced it.

The culture is changing.

Is it a quick fix.

No it's not heiko, it's going to take a long time, but at least we seem to see a trend whereby they recognize that we are absolutely serious about safety as a priority.

That really address your question.

That went above and beyond the Becker call here. Thank you very much I'll get back in queue here.

Okay, you're very welcome Michael Thank you.

Take care.

Hey.

Thank you.

As a reminder.

So im sure you have operation pretty spread this time, followed by the number one.

There are no further questions at this time.

May proceed.

Thank you operator, I would like to thank everyone for participating this morning.

Financially as you are aware it wasn't overly robust quarter in part it's driven by.

Generally accepted accounting principles, which preclude us from capitalizing.

Expenditures on the back 40 until such time as we complete the feasibility study and moving forward to construction.

Okay.

I personally believe that those should be capitalized.

Unfortunately, they were not.

Lower volume mines and <unk>.

The.

Yet to be replace depleting resources that have resulted in.

In my mind abnormally high depreciation expense, which further contributed to the loss.

I'd like to point out that notwithstanding.

Notwithstanding the fact that we.

Did experience a loss, we still were able to maintain all of our expenditures are exploration in Mexico are developments in Mexico. The work on the back 40.

And in fact, we've made a small investment in a company called Maritime resources to get a toehold in the companies should it turn into a very attractive opportunity.

I would like to thank everyone for joining us this morning.

And I look forward to speaking to you if not before certainly when we announce our year end results.

<unk>.

Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you pay.

Disconnect your lines.