GORO

Business Context and Reporting Period

Company: Gold Resource Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Gold Resource is an exploration-stage company engaged in the exploration for and production of gold and silver, primarily in the State of Oaxaca, Mexico. The company's flagship asset is the El Aguila Project, where it constructed a mill and mine infrastructure. As of the reporting date, the company had no operating history and had never generated revenue from mineral sales.

Key Financial Metrics

Note: The company reported no debt. The significant increase in assets and working capital is primarily due to equity financing proceeds.

Material Changes vs. Prior Period

• Net Loss Increase: Net loss increased by approximately $8.1 million (31%) compared to 2008, driven by accelerated engineering and construction costs at the El Aguila Project.
• Construction Expenditures: Engineering and construction costs rose to $20.99 million in 2009 from $14.50 million in 2008. Total construction costs committed or spent on the mill and infrastructure reached approximately $35.5 million.
• Exploration Costs: Exploration and evaluation expenses decreased slightly to $7.81 million in 2009 from $8.17 million in 2008 as focus shifted to construction.
• Financing Activity: The company raised approximately $49.2 million in net cash from financing activities in 2009, primarily through private placements with strategic partner Hochschild Mining Holdings Limited. This contrasts with $5.2 million raised in 2008.
• Operational Milestone: The company completed the flotation circuit of the mill in late 2009 and produced its first concentrate in February 2010 (subsequent to year-end).

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Commercial Production: Management anticipates achieving "commercial production" (defined as 80% of mill design throughput and recoveries) in March or April 2010.
• Production Plan: Initial production is expected from the open-pit mine at El Aguila. Underground mining at the La Arista vein is targeted for the second year of production, with construction of the decline ramp underway in early 2010.
• Capital Requirements: The company expects to continue depleting working capital until commercial production generates cash flow. Additional funding may be required to complete underground mine construction and exploration.

Risks and Contingencies

• No Proven Reserves: The company has not established proven or probable reserves as defined by the SEC. Consequently, all exploration and construction expenditures are expensed rather than capitalized, resulting in reported losses that may not reflect the economic value of the assets.
• Production Uncertainty: There is no assurance that commercial production will be achieved in the estimated timeframe, at estimated rates, or at all. Metallurgical recovery rates and ore grades are based on estimates.
• Regulatory and Political Risk: Operations are subject to Mexican federal, state, and local laws. Risks include potential changes in mining royalties (a 4% royalty proposal was under consideration by the opposition party), environmental regulations, and political instability in Oaxaca.
• Financing Risk: The company relies on equity financing. A limited number of authorized shares remain available for issuance, which could constrain future capital raising without shareholder approval.

Investor Verification Checklist

• Reserve Status: Verify the company's status as an "exploration stage" entity with no SEC-defined proven or probable reserves, meaning asset values are not capitalized on the balance sheet.
• Production Timeline: Monitor the achievement of "commercial production" in Q1/Q2 2010 and the ramp-up of mill throughput to 80% of design capacity.
• Capital Sufficiency: Assess whether current cash reserves ($6.75M unrestricted + $11.4M restricted) are sufficient to fund the underground mine development and ongoing operations without further dilution.
• Strategic Partner Influence: Note that Hochschild Mining Holdings Limited owns approximately 28.7% of the company and holds rights of first refusal on future financings.
• Regulatory Environment: Track the status of the proposed 4% mining royalty in Mexico and any changes in environmental permitting requirements.