Gold Resource Corporation — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone quarterly filing; fourth-quarter figures below are unaudited. Gold Resource produced gold, silver and base-metal concentrates and doré from its Oaxaca operations in Mexico. Its Nevada Isabella Pearl project was under construction, with production targeted for 2019.
Financial and operating results
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Net sales | $115.3 million | $110.2 million |
| Mine gross profit / margin | $33.7 million / 29% | $42.1 million / 38% |
| Net income | $9.3 million | $4.2 million |
| Diluted earnings per share | $0.16 | $0.07 |
| Cash provided by operations | $22.3 million | $35.6 million |
| Cash and cash equivalents at year-end | $7.8 million | $22.4 million |
| Working capital at year-end | $13.5 million | $27.5 million |
Sales increased 5%, primarily on higher copper, lead and zinc sales volumes. Mine gross profit fell about 20% as precious-metal sales volumes and prices declined and production costs rose with higher throughput. Net income increased despite lower mine gross profit, principally because income-tax expense fell to $7.3 million from $24.3 million; the prior-year expense included significant non-cash U.S. tax reform effects and a one-time tax on foreign earnings.
Gold production was 26,838 ounces and silver production was 1,672,034 ounces, both within company guidance but down 5% and 6%, respectively, from 2017. Lower grades at Arista were the principal reason. Copper production rose to 1,652 tonnes from 1,141; lead to 7,280 tonnes from 5,365; and zinc to 19,808 tonnes from 16,301.
For Q4 2018, sales were $28.1 million, mine gross profit was $8.0 million, and net income was $0.9 million. Gold and silver production was 7,974 ounces and 330,605 ounces, respectively; both were below Q4 2017, reflecting lower grades, while mill throughput increased.
Reported non-GAAP cash cost after base-metal by-product credits was $84 per precious-metal gold-equivalent ounce sold, versus $75 in 2017; all-in sustaining cost (AISC) was $655 versus $590. These figures are strongly affected by base-metal credits and should be considered alongside the company’s GAAP results and reconciliation.
Cash, debt and capital spending
Operating cash flow was $22.3 million. Investing activities used $40.1 million, mainly for mine development and construction, including $15.4 million for Isabella Pearl and approximately $9.6 million for Oaxaca tailings, power-grid and paste-fill projects. The resulting cash decline was partly funded by $4.3 million of net ATM equity proceeds and $1.3 million from option exercises. After year-end, the company reported another $10.8 million of net ATM proceeds.
Year-end total assets were $150.3 million and total liabilities were $23.1 million. Equipment loans totaled $2.1 million and capital-lease obligations $1.2 million; the filing’s selected-data figure for long-term obligations was $5.5 million. The company said liquidity was adequate for the foreseeable future and that ATM proceeds raised to date were sufficient to complete Isabella Pearl. Working capital nevertheless declined materially during the year.
Changes, outlook and risks
- Development: Isabella Pearl received required permits; construction advanced, mining and crushing began, and ore was placed on the heap-leach pad in Q4. ADR plant and other infrastructure work remained ongoing at year-end.
- 2019 targets: Oaxaca production guidance was 27,000 ounces of gold and 1.7 million ounces of silver, each plus or minus 10%. The company targeted Isabella Pearl gold sales in mid-2019 and approximately 29,000 ounces in its first 12 months, plus or minus 10%; it had not issued a full-year Nevada production outlook because of commissioning and ramp-up uncertainty.
- Management commentary: Difficult ground conditions slowed Mirador development. Management expected lower precious-metal and higher base-metal grades in 2019 based on current mining areas, with a potential grade reversal over time as mining advances upward at Switchback. These expectations depend on geology and mine development.
- Concentration and market exposure: One customer represented 94% of Oaxaca revenue. The company recorded a $1.4 million allowance for doubtful accounts following a customer bankruptcy filing. It does not hedge metal prices and is exposed to gold, silver and base-metal price changes, provisional settlement adjustments, and Mexican-peso movements.
- Other risks and obligations: Nearly all revenue came from the Oaxaca Mining Unit, leaving operations exposed to mine interruptions, grade and reserve uncertainty, permitting and community issues, Mexico-specific political, tax and regulatory risks, contractor performance, and construction or commissioning delays. Reclamation liabilities were $3.3 million; a $9.2 million Isabella Pearl reclamation bond was supported by a surety arrangement that could require collateral.
- Dividends and financing: The company paid $0.02 per share in 2018. Dividends are discretionary and may be changed or suspended. ATM sales and stock-option exercises increased shares outstanding.
Key facts investors should verify
- Isabella Pearl’s actual commissioning, first gold sales, operating costs and recovery compared with the mid-2019 target.
- Whether 2019 Oaxaca production guidance was achieved, particularly as grades and the Arista/Switchback mine mix changed.
- Customer receivable collection and whether customer concentration remained near the reported 94%.
- Cash needs and liquidity after construction spending, including further ATM share issuance and dilution.
- Metal-price and by-product-credit assumptions behind reported cash cost/AISC, and the reserve estimates’ price and recovery assumptions.
- Reclamation funding requirements, surety collateral terms, and material changes in permits, community agreements or operating risks.