Gold Resource Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing; quarterly comparisons below are included only where relevant. Unless stated otherwise, financial amounts are U.S. dollars.
Business context
Gold Resource is a gold, silver and base-metals producer operating the Don David Gold Mine (DDGM) in Oaxaca, Mexico. DDGM was the company’s sole revenue-producing operation. The company also owns the Back Forty polymetallic project in Michigan, acquired in 2021, and continued work on an optimized feasibility study.
Financial and operating results
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $138.7 million | $125.2 million |
| Mine gross profit / margin | $29.7 million / 21% | $36.7 million / 29% |
| Net income (loss) | $(6.3) million | $8.0 million |
| Cash provided by operating activities | $14.2 million | $34.8 million |
| Cash and cash equivalents at year-end | $23.7 million | $33.7 million |
| Working capital at year-end | $21.4 million | $29.3 million |
- DDGM produced 34,122 gold ounces, 1,213,404 silver ounces and 42,757 gold-equivalent ounces sold. Gold production rose 29% year over year; silver production rose 1%.
- Net sales increased 11%, led by higher gold and zinc sales volumes and realized prices. Total cost of sales rose 23% to $109.0 million, including depreciation and amortization of $27.2 million versus $16.0 million in 2021.
- Cash cost after co-product credits was $458 per gold-equivalent ounce sold. AISC was $788 per ounce for DDGM and $1,022 per ounce consolidated; these are non-GAAP measures.
- Investing cash outflow was $19.4 million, including $18.2 million in capital expenditures and a $1.7 million investment in Maritime Resources. Financing cash outflow was $3.9 million, primarily dividends.
- The balance sheet reported $43.5 million in gold and silver stream liabilities, $4.4 million in contingent consideration and $10.4 million in reclamation and remediation liabilities. The filing does not identify conventional borrowings in the balance-sheet information presented.
Material changes versus 2021
- The company moved from $8.0 million net income to a $6.3 million net loss, despite higher sales. Higher operating costs, depreciation, Back Forty study expenses and other expenses contributed; income-tax expense was $8.6 million.
- Mine gross profit fell by $7.0 million as operating costs rose faster than sales. Production costs increased 12%, with labor, consumables, ground support, transportation, utilities and insurance among the cited drivers.
- Operating cash flow declined by $20.6 million. Cash fell $10.0 million, while working capital decreased 27%.
- 2022 DDGM Proven and Probable Mineral Reserves totaled approximately 1.41 million tonnes, down from 1.54 million tonnes in 2021, mainly due to mining depletion, partly offset by reclassification from resources. Measured and Indicated Resources also declined; the company cited its geological and mine-plan review and resource-to-reserve reclassification.
- DDGM temporarily slowed production, development and exploration in the third and fourth quarters to address ground-support and ventilation challenges. Full-year tonnes milled declined 2%, while higher gold grade supported increased gold production.
Outlook, risks and unusual items
- 2023 guidance: Payable production of 17,000–19,000 gold ounces, 900,000–1,000,000 silver ounces and 30,000–31,000 gold-equivalent ounces. Cash cost guidance is $1,000–$1,050 per gold-equivalent ounce; AISC guidance is $1,250–$1,350 for DDGM and $1,650–$1,750 consolidated.
- Guided 2023 spending includes $6–$7 million capital investment, $3–$4 million sustaining exploration, $6–$7 million growth exploration, and $8.5–$9.5 million G&A excluding stock-based compensation. Management expected the Back Forty feasibility study to be completed in the first half of 2023; the board would then assess whether to proceed with permitting and construction.
- Management forecast $119–$124 million of cash sources and $103–$110 million of expenditures for the twelve months ending December 31, 2023. Estimates depend on metal prices, production, costs and operating continuity; the company said it might adjust spending or use its ATM facility if needed.
- The quarterly dividend was suspended in February 2023 to protect the balance sheet and redirect capital to exploration and growth. The company paid $3.5 million in dividends in 2022.
- A 2022 update to the DDGM closure plan increased the asset retirement obligation by $6.4 million; the year-end obligation was $8.4 million. This estimate was identified as a critical audit matter.
- Key risks include dependence on one operating mine, volatile metal prices, inflation and Mexican-peso exposure, safety and geological conditions, water and permitting, and customer concentration: two customers represented 84% of DDGM revenue.
- The Back Forty project remains subject to feasibility, permitting and community issues. The company is monitoring tribal petitions concerning a cultural landscape and navigability of the Menominee River. A separate Mexican community injunction concerning certain concessions remains under court review; DDGM said it was not conducting the suspended activities on those lands.
- Osisko stream agreements create long-term production commitments and security rights over Back Forty assets. A default, including failure to achieve commercial production as required, could require repayment of deposits and accrued interest and could expose project assets to enforcement.
- The company reported that its disclosure controls and internal control over financial reporting were effective at year-end; the prior-year material weakness related to Aquila acquisition accounting was reported as remediated.
Important facts for investors to verify
- Whether 2023 production and cost guidance was achieved, especially as management expected grades to decline from 2022 levels.
- Whether DDGM ground-support and ventilation issues were resolved without further disruption, and whether safety and production performance improved.
- Actual operating cash flow, cash balance, capital spending and exploration spending against the 2023 forecast; confirm any ATM use or other financing.
- Completion and economics of the Back Forty feasibility study, permitting pathway, tribal and community developments, financing needs and stream-agreement milestones.
- Updated reserve and resource estimates, including the effects of depletion, drilling, grades, recoveries and metal-price assumptions.
- Changes in reclamation estimates, stream liabilities, contingent consideration and the Mexican concession injunction; assess customer concentration and alternative sales arrangements.