GORO

Business Context and Reporting Period

Company: Gold Resource Corporation (Colorado)

Filing Type: Form 10-Q (Quarterly Report)

Period Ended: March 31, 2010

Business Stage: Exploration Stage Company. The Company is engaged in the exploration for precious and base metals, primarily in Mexico. It has not generated revenues from operations and has not demonstrated the existence of proven or probable reserves. The Company is currently transitioning from construction to the production phase at its El Aguila Project.

Key Financial Metrics

Note: The Company has no outstanding debt. Total liabilities consist of current liabilities ($941,055) and asset retirement obligations ($2,113,667).

Material Changes vs. Prior Period

• Net Loss: Net loss increased slightly by $124,183 (1.7%) compared to Q1 2009. However, loss per share improved from $(0.19) to $(0.15) due to an increase in the weighted average shares outstanding.
• Expenses: Total costs and expenses increased by $298,003 (4.2%) to $7,443,479.
  • Exploration: Increased 94% to $1,215,873 due to the addition of a second drilling rig.
  • Engineering & Construction: Decreased 21% to $4,599,048 as the Company shifted focus from mill construction to production start-up.
  • Production Start-up: New expense category of $728,654 incurred for mill commissioning, training, and optimization.
  • G&A: Increased 28% to $822,179, driven by higher insurance costs for Mexico operations and increased activity levels.
• Cash Position: Cash and equivalents decreased by $3,062,694 from the prior quarter end, despite $5.17 million in financing proceeds, due to significant operating and inventory build-up costs.
• Inventory: Inventories increased significantly to $1,879,653 (from $224,853), primarily due to the accumulation of oxide ore stockpiles ($1,638,343).

Outlook, Risks, and Management Commentary

• Production Status: The Company commenced operations at the El Aguila mill in December 2009 and shipped its first concentrate in April 2010. The goal is to reach "commercial production" (defined as 80% of design throughput and recoveries) in the second quarter of 2010. Until commercial production is achieved, sales of concentrates are applied against costs and not recognized as revenue.
• Capital Requirements: The Company expects to continue depleting working capital until commercial production generates cash flow. It may seek additional funding to complete plans. $9,651,097 in restricted cash is available for exploration and underground mine construction.
• Underground Development: Construction of the underground La Arista vein mine has begun, with a target to place it in production during the second year of mineral production.
• Risks:
  • Exploration Stage Accounting: As an exploration stage company, the Company expenses construction costs rather than capitalizing them, resulting in reported losses despite significant asset development.
  • Reserves: No mineralized material has been classified as proven or probable reserves per SEC criteria.
  • Market Risks: Exposure to foreign currency fluctuations (MXN/USD), commodity price volatility (gold/silver), and country risk in Mexico.

Investor Verification Checklist

• Commercial Production Timeline: Verify if the Company achieves its Q2 2010 target for commercial production (80% design capacity).
• Restricted Cash Utilization: Monitor the drawdown of the $9.65 million restricted cash balance and the approval process required by Hochschild Mining Holdings Limited.
• Reserve Classification: Confirm if any mineralized material is reclassified as proven or probable reserves, which would alter accounting treatment for future expenditures.
• Financing Needs: Assess the need for additional equity financing given the continued cash burn and the shift to production ramp-up costs.
• Concentrate Sales: Track the volume and value of concentrate shipments to determine when revenue recognition will commence.