Business Context and Reporting Period
Company: Gold Resource Corporation (Colorado)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Stage: Exploration Stage Company. The Company is engaged in the exploration for precious and base metals, primarily in Mexico. It has not generated any revenues from operations and has not established proven or probable reserves.
Key Projects: El Aguila (primary focus), El Rey, Las Margaritas, and Solaga properties.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 | Balance Sheet (Sep 30, 2008) |
|---|---|---|---|
| Revenue (Gold Sales) | $0 | $0 | N/A |
| Net Loss | $(5,162,942) | $(14,120,686) | N/A |
| Loss Per Share (Basic/Diluted) | $(0.15) | $(0.41) | N/A |
| Total Costs & Expenses | $5,217,425 | $14,440,119 | N/A |
| Cash and Cash Equivalents | N/A | N/A | $5,815,499 |
| Working Capital | N/A | N/A | $4,685,316 |
| Total Assets | N/A | N/A | $10,776,209 |
| Total Liabilities | N/A | N/A | $1,181,467 |
| Outstanding Debt | N/A | N/A | $0 |
Material Changes vs. Prior Period
- Increased Operating Loss: Net loss for the nine months ended September 30, 2008, was $14.1 million, compared to $5.5 million in the same period in 2007. This represents a 154% increase in losses.
- Accelerated Capital Expenditures: Engineering and construction costs were $6.0 million for the nine months of 2008, compared to $0 in 2007. Total mineral property costs (exploration, engineering, construction) rose to $11.2 million in 2008 from $4.0 million in 2007.
- Cash Position: Cash and cash equivalents decreased significantly from $22.0 million at December 31, 2007, to $5.8 million at September 30, 2008, due to heavy spending on mine and mill construction.
- Stock-Based Compensation: General and administrative expenses increased by 84% year-over-year, largely driven by $1.9 million in stock-based compensation expense in 2008 compared to $0.5 million in 2007.
Guidance, Outlook, and Risks
- Production Target: Management targets pouring gold in mid-2009. This date was pushed back from earlier estimates due to delays in receiving federal tailings permits and the open pit mine permit.
- Construction Status: The Company has committed approximately $7.5 million (95% of estimated needs) for mill equipment. Rough grading of the mill site is complete, and concrete foundations are underway. The tailings facility construction has begun following permit approval.
- Financing Needs: While the Company believes it has sufficient capital for the remainder of 2008, it anticipates seeking additional financing in 2009 to complete the El Aguila Project and expand exploration. The Company is not currently interested in joint ventures or debt financing.
- Regulatory Risks: Mining activities cannot commence until the open pit mine permit is received. There is no assurance this permit will be granted or that the mid-2009 production target will be met.
- Reserve Status: The Company remains an exploration-stage entity. Mineralization identified does not meet SEC definitions for proven or probable reserves. Consequently, most expenditures are expensed rather than capitalized.
Investor Verification Checklist
- Permitting Status: Verify the current status of the open pit mine permit, which is a critical path item for the mid-2009 production target.
- Cash Burn Rate: Monitor the depletion of the $5.8 million cash balance against the projected capital requirements to complete the mill and mine in 2009.
- Financing Strategy: Assess the Company's ability to raise equity capital in the current market environment, given the explicit need for additional funding in 2009.
- Reserve Definition: Confirm if any engineering studies have been initiated to convert identified mineralization into SEC-compliant proven or probable reserves.
- Executive Compensation: Note the recent amendments to employment agreements for key executives (Reid family) increasing base salaries and severance terms effective January 1, 2008.