Q2 2023 Gold Resource Corporation Earnings Call

Good morning, and welcome to the Gold Resource Corporation second quarter, 2023 financial and operating results Conference call. At this time, all participants are in a listen only mode.

Management's presentation, there will be a question and answer session instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference. Please press star zero for operator assistance at any time I would like to remind everyone that this.

Call is being recorded today July 27 2023.

Mountain time, I will now turn the conference over to Kim Perry Gold Resource Corporation, Chief Financial Officer, Mr. Barry you'll be preceded.

Thank you Ina.

And good morning to everyone.

On behalf of the gold resource team I would like to welcome you to our conference call covering our second quarter 2023 results.

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

Please note that certain statements to be made today are forward looking in nature and as such are subject to numerous risks and uncertainties as described in our 2022 annual report on Form 10-K, and other SEC filings.

Please note all amounts referenced during the presentation are in U S dollars unless otherwise stated joining.

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

Alan Alberto in my prepared remarks will be available to answer questions. This conference call is being webcast for those of you joining us on the webcast you can download a PDF copy of the conference call slides.

<unk> 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 Form 10-Q have been filed with the SEC on Edgar and are also available on our website at Www Dot Gold Resource Corp Dotcom.

I'll now turn the call over to Alan.

Thank you Ken and good morning, everyone.

Like to thank all of the listeners for taking a fact that join us on this call and I hope everyone's enjoying their summer.

I'd like to start by addressing safety at the Dawn David Goldmine.

Year to date, we have experienced only one lost time injury. This makes us one of the safest mines in Mexico, and we are approaching North American safety standards.

This is our highest priority and our focus is beginning to show the results that we require.

As I noted on both the 2022 year and the first quarter earnings call. We continue to face several challenges impacting our dawn David Goldberg.

Some of these challenges were unanticipated in uncontrollable such as declining base metal prices the appreciation of the peso against the us dollar.

Persistent inflation in Mexico.

As previously indicated the mining sequence for the year has resulted in lower massive rates and metal production.

While the year over year comparison, it was negative I have to point out that our production guidance remains intact and so far this year our costs are in line with forecast.

Notwithstanding the external pressures for team has performed well and are achieving or surpassing all of their key operational objectives.

Can you continue to address these challenges we are identifying and implementing measures for cost reduction and operational efficiency.

Concerning our operational results for both the quarter and year to date tons milled ore grades and metal produced and sold were lower than the respective 2022 periods. However, they are in line with our 2023 mine plan in which this was anticipated.

For the remainder of this year, our management team is focused on identifying opportunities to improve our production profile.

Concerning leadership I do want to stress that our new management team at the Dawn David Gold mine has done an excellent job during the first half of this year in improving safety culture Rolling out best practices and operational standards, along with identifying efficiencies that will ultimately increase productivity.

With this team now in place I'm confident that we'll be able to continue to deliver positive results for our stakeholders well into the future.

Moving into the remainder of the presentation I will provide an update on our Q2 exploration results and then turn the presentation over to Alberto array as for an update of our Dawn David Gold operations, and then to Kim or an update on our quarterly and year to date financial results.

Following Tim's prepared remarks, I will then provide an update on our back toward the project.

Lastly, we will provide a few closing remarks, and then we'll take questions participants.

Now please turn to slide four and I'll provide an update on our Q2 exploration results.

During the quarter, our Diamond drilling program progress as per our plan and on two fronts, while the objective exploration drilling to identify additional inferred resources and infill drilling with the objective of upgrading defined inferred resources into the indicated category there.

Results to date have been very encouraging with several new areas of mineralization being identified and targeted.

Exploration efforts to date include 12 exploration holds trailing.

Totaling more than 6900 meters 63, infill drill holes totaling nearly 10700 meters.

For the quarter. This included eight exploration drill holes totaling 4425 meters.

37, infill drill holes totaling 5700 meters.

During the quarter exploration focused on the northwest extension of the Switchback system and we have confirmed the continuation of the system.

Drilling was also performed at the three sister and Gloria vein systems.

Half of this year, we will continue to focus on these systems along with the down dip extensions of the solar Dod being silent on the Marina zone.

Infill drilling was focused on the recent switchback vein system, including defining mineralization, along strike and down depth of existing workings.

Infill drilling continues to confirm the zones of high grade mineralization.

Within our legislation within the resource model.

Well as additional mineralized structures outside of the existing models, including Splay 31 Arena.

Solid at <unk> in Chicago North veins.

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

Thank you Alan and also good morning to all.

Getting your attention to slide five please.

Starting with safety of DDG and I will take this opportunity to share our recent accomplishments and celebrate the solid dedication and disciplined displayed by each member of our workforce towards safety.

With immense pleasure that I announced a new lost time injury frequency rate LTE AFR op unimpressive, so youre pointing to this.

This remarkable achievement is a testament to the outstanding effort put forth by every individual in the organization.

By adhering to rigorous safety protocols and continuously seeking improvement we have collectively cultivating a culture a culture that prioritizes the wellbeing of our team members above all else.

Our success in maintaining an impressive LTI apparel fuel pointed to you Sir.

As a reminder, that with the right team everything can be achieved.

Despite all challenges <unk> has once once again achieved metal production targets as planned in Q2.

Our business improvement initiatives, which started in Q1 continued to be integral to the team's success and a great effort to compensate for the stronger peso and lower zinc prices.

An example, the processing plant initiated the testing of different reagents.

We are glad to announce that the results were positive.

It hasn't improved the quality of the copper concentrate.

New reagent increases the grade of copper, while reducing the led content.

During the quarter I am pleased to report that we produced nearly.

<unk> hundred 14000 tonnes of ore.

Hold approximately 4300 ounces of gold.

274000 ounces of silver.

Equating to nearly 7700 gold equivalent ounces. In addition, we sold nearly 330 tons of copper approximately 1300 tons of lead and more than 3100 console zinc.

For the year to date through June 30th.

We processed nearly 231000 tonnes of ore salt approximately 10800 ounces of gold and 569000 ounces of silver equating to over 17000.

The equivalent ounces with farther sold 650 pounds of copper approximately 2700 tons of lead and over 6200 console zinc.

Turning to slide six.

Our development underground will continue to be our main driver in capital expenditures in 2023 in Q2, our capital development was approximately 100 meters higher than planned achieving 720 meters at a cost of $1 1 million.

This development includes the extension of rents below level 28, and the extension of installation assistance.

<unk> infill exploration development includes 200 meters to focus on the exploration drift on level 28, switchback and level plenty for Arista infill drilling is having great success, and we drilled 5700 meters in Q2.

Our growth exploration program continues to be focused on the three sisters and the Gloria vein. We've spent approximately $820000 on growth really in Q2.

The trading platform previously on level three have now been relocated to our risk that to improve access to the system.

We continue to be impressed with the results. So let me reiterate that with the right team in place. We are confident that <unk> will meet its annual production targets I will now pass the presentation over to Kim to discuss our financial results.

Thank you Alberto.

After our Q2 activities, our balance sheet remains solid with $18 million in cash.

Our cash balance has declined approximately $5 7 million. This year, our working capital balance of $28 million has only declined 3% from year end 2022. The decline in cash is primarily due to the cash spent on capital and exploration expenditures at DDG.

Cash from operating activities is half a million dollars year to date. This reflects $2 4 million spent on exploration in Mexico, and nearly 1 million spent in Michigan related to the back 40 studies.

For the second quarter 2023.

Net losses of $4 6 million or 5% five cents per share and for the full six months, we reported net losses of $5 6 million or <unk> <unk> per share for.

For the quarter net sales of $26 million with 33% lower than the same period in 2020, Q due to both lower volumes of all metal sold with the exception as silver and lower base metal prices for the year net sales of 56 million or 32% lower than the same period in 2012.

Sue also due to both lower volume of metal so with the exception of silver and lower base metal prices.

The lower base metal prices are also impacting cash cost per ounce, which we will discuss on the next slide.

While production costs for the quarter and year to date of approximately $20 million and $40 million are in line with the production cost for the same period. In 2022. This is resulting in an unfavorable impact on unit costs, such as cost per ton process and cost per gold equivalent ounce sold again will discuss a bit more theyre more in the next.

Syed.

Depreciation for the period is largely in line with the depreciation for the same period in 2020, Q. Finally mining gross profit is lower in 2023, primarily due to the lower sales not offset by lower production costs.

Turning to slide eight we'll discuss cash costs at Dawn David Goldman.

For the quarter DDG and total cash cost after co product credits with $1333 per gold equivalent ounce sold and total all in sustaining cost trickles equivalent ounce sold $1990 per ounce for.

For the year CD Gm's total GAAP cash cost after co product credits was $9 979 per gold equivalent ounce sold and all in sustaining costs were $15 51 per house.

There are five key drivers related to the increase in cash costs.

One reduction of gold equivalent ounces sold.

Two a reduction in co product credits.

Three the strengthening Mexico Mexican peso for treatment charges and five other production cost increases driven by inflation, such as power and transportation.

Yes.

Sales results were lower due to the lower ore tons processed lower ore grade and lower recoveries.

Both for the quarter and year to date.

Alan noted this was an expected result of our current mine plan.

For the lower co product credits.

The lower co product credits were the result of lower copper that zinc tons sold.

Impaired to the respective period in 2020 jail, but more significantly the result of the lower prices the lower prices realized for base metals, especially zinc.

The Mexican peso has strengthened to the U S. Dollar in 2023 with approximately 60% of our production costs originating in pesos. This is had a larger than expected impact on our year to date costs.

While year to date, we are within our guidance range of a 1000 to 1050 per ounce for.

Our cash costs, we are monitoring this closely for the impact.

Credit and the peso may have on the outcome of this key performance measure for the full year.

Alan back to you.

Thank you Ken.

About 40 project as I noted back in the first quarter earnings release, we remain optimistic.

I'm very confident that there is an economically viable mining there and we are diligently working through the optimization work.

Two resulted in a number of potential improvements and once the engineering and testing is complete and the costs are finalized we will incorporate the cost into the financial model.

I do want to highlight that during the quarter, a few new developments arose relating to back 40.

One being a ruling by the U S. Supreme Court limits, the federal government's authority with regards to wet labs and will likely result in not needing a dredge and fill wetlands permit.

The drawdown will.

It will be really will be regulated by the Michigan state authorities.

The company is committed to designing the back 40 mind with minimal environmental impact and to follow all state permitting requirements.

The second being the nomination by the Menominee tried with Wisconsin, conserving our cultural landscape known as enamel Mark to the National Register of Historic Places.

I need to stress that these cultural sites were initially identified in our baseline archeological studies and we've reflected measures and are planning to ensure that these sites are protected and preserved.

The company will continue we'll continue to develop plans that avoid impact to these important cultural sites.

As I indicated a month ago with our 2022 year end results. Our team is progressing on safety and operational efficiencies to ensure the wellbeing of our employees and the optimal performance of the Dawn David Gold mine.

As previously discussed our exploration program is ongoing and the results continue to be very encouraging.

Q2 was positive and that the results support our annual guidance and while we anticipate further challenges. We are confident we will make 2023 another successful year.

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

Thank you ladies and gentlemen, we will now begin the question and answer session should you have any question. Please press the star followed by Don on your telephone keypad.

Hey, John Bob acknowledging with quest questions will be taken in the order received should you wish to cancel your request. Please press the star followed later too.

Once again that is star and wanted to ask a question.

And your first question comes from the line of Heiko Mueller from each.

Please go ahead.

Hey, there Alan and Jim and team I. Appreciate you guys taking my questions.

Let's talk about the infill drilling versus exploration drilling a little bit can you break that out in regards to how much spend on each and then also like meters and maybe give some color on inflationary impacts and availability of rigs as well please.

Oh I don't have.

That split by Fingertips, Tim do you have that available.

Alan I was going to just point us back to.

The slide on the investment summary.

And the split between exploration and growth typically share the exploration component in the infill drilling is typically under your sustaining high bill.

So this would be a good resource for you.

Okay Fair.

Fair enough.

Yeah.

Just in terms go ahead.

I would like to clarify infill versus exploration celebrate listeners may not be completely.

Familiar with it.

But infill is dealing primarily with previously identified resources.

To gain more information to upgrade the resource potentially from inferred to indicated.

Catered to measured measured proven and probable.

Upgrade the quality of the information available some of our infill drilling has actually.

<unk> disclosed areas of mineralization that were not previously included in any of our models. So that's that's a big positive.

Exploration drilling is step out drilling.

Targeting areas that are not included in any of our models.

This has resulted in very significant declines year to date.

Makes sense okay.

Moving on to grades a little bit I mean, anglogold came in at $1 five nine grams per ton and I assume this is mostly a temporary thing.

We're essentially done with July at this point do you want to maybe just provide some color on the month, if you'd be so kind and then maybe also for the remainder of the year by quarter.

I would.

July .

Early part of July was not.

It was consistent with what we saw in Q2 latter part.

Last couple of weeks, we've seen an uptick in base metal prices.

And <unk>.

Modest uptick in precious.

Precious metal.

Zinc in particular has been quite strong for us.

The balance of the year.

Yes.

Okay.

Yes.

We had predicted that the low grades would persist through the balance of the year.

However, we have identified areas, where we had underestimated the grades. So we are hopeful that we will see somewhat higher grades for the balance of the year, but heiko.

It's a bit premature for me to tell you that definitively.

Understood well, there's no such thing as a definite thing in mining right.

Well Unfortunately that is true.

Fair enough I appreciate the color I mean can you keep up the good work of we're sold very supportive for your company and I Hope that Michigan works out well as well I appreciate that ill get back in queue.

Michael I appreciate the comments thank you.

Just to follow up a little bit.

One of the things that I mentioned in my prepared remarks, but I do want to emphasize that if you look at 'twenty two versus 'twenty three 'twenty three is down however, if you look.

Three relative to our guidance we're on target we.

We had anticipated that we would be in an area of the mining with relatively low grades.

And that in fact has proven somewhat to be true. We have had a positive reconciliation from model to mill and not the grades going to the mill were higher than those anticipated in our models.

Josh We would expect will continue for the balance of the year and the.

<unk> will not be quite as low as we had originally planned.

We are in the process as we speak of redoing our models.

For the purposes of.

Developing our 2024.

2020 for budget and guidance, but that will take us realistically.

Quite some time before we're finished all of that work.

Operator are there any more questions.

Thank you and your next question comes from the line of Brad Johnson from private company. Please go ahead.

Thank you for taking my call.

Got a question.

The EPA court ruling.

Dream corridor I should say.

It was really the permit application and there was only 11.2 acres.

This dredge and fill aspect.

The mine accordingly to the last permit application.

And the scope of this mine site and being as large as it is why is it a significant ruling.

Put myself on mute and listen.

Sure happy to address that broadly.

Yeah.

Yes.

The fact that there was dredging failed inherent with the original mine plan necessitated the wetlands permit.

Anytime there was compromised to the.

Pre existing loans, we have to have the permit.

And that was driven by the interpretation by the EPA.

Contiguous wetlands.

They had interpreted the necessity for those permits to be anything that is contiguous not necessarily part of the contiguous to any major waterway.

What the ruling determined was that.

Any wetlands.

Captured by the Epa's regulations had to be part of or immediately adjoining.

Identify drainage areas.

The fact that they were in the general area no longer triggers the wetlands analysis.

None of the wet lands in our.

Mindsight drained directly into the river.

They are standalone wetlands without any.

Direct relationship to the river and as such it's our view and the view of our consultants.

We no longer are captured by the requirement for the <unk> permit.

I'll go one step further.

You alluded to the 11.

11 acres that we're going to be dredged and build in the original permits application.

We have gone to great lengths in our current mine planning.

<unk> size to minimize.

The.

Impact wetlands to the greatest extent possible.

So much so that.

Under the current plan.

Im going to be an approximate here, but the total amount of wetlands impacted by our current plan is less than one quarter of one acre I want to say, it's 110th of one acre which is the size of the city.

And the city. So we've managed to to the greatest extent possible eliminate any direct impact on that Lance completely.

That in conjunction with the Supreme Court ruling.

In our mind eliminates a necessity for the wetlands permit this is yet to be confirmed I will tell you that.

But we're very confident in our interpretation.

Does that address your question Brian .

Yes. Thank you.

Yes.

Thank you Mr. Pontiac during no further questions at this time. Please proceed.

Thank you operator.

Number one I would like to thank everybody for taking the time to join us today.

Number two the message I would like to leave you with is.

While the financial results are not what we.

Would hope them to be.

$1 five zinc for most of the quarter.

That's hard.

And the low grade that Unfortunately, we had anticipated and was included in the mine plan hit us hard.

Depreciation of the peso and something that.

We couldnt anticipate.

I'm very happy that the efforts at the mine are compensated in large part.

For the peso and inflationary impacts on our operating costs.

Profitability isn't where we want it to be but.

We are doing everything in accordance with our plans and hopefully we'll see some recovery in terms of base metal prices in the near term zinc is up.

7% over that.

Hello already so hopefully we're seeing a bit of a turnaround.

And I look forward to being able to speak with all of you again on.

On our Q3 conference call if not before.

Thank you all very much and I hope you all have a great opportunity.

Thanks, operator.

Ladies and gentlemen that does conclude our conference for today. Thank you all for participating you may all disconnect.

Okay.

[music].

Okay.