GORO

Business Context and Reporting Period

Company: Gold Resource Corporation (Colorado)

Reporting Period: Quarterly period ended June 30, 2008 (Form 10-Q)

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 gold sales and has not established proven or probable reserves.

Key Projects: El Aguila (primary focus), El Rey, Las Margaritas, and Solaga properties.

Key Financial Metrics

Note: The Company reported no debt as of June 30, 2008. All previous borrowings were repaid or converted to equity.

Material Changes vs. Prior Period

• Increased Operating Loss: Net loss for the six months ended June 30, 2008, increased by approximately 212% compared to the same period in 2007, driven by accelerated capital expenditures and exploration costs.
• Capital Expenditures: Investing cash outflows surged to $3.06 million in 2008 from $0.2 million in 2007. This reflects the purchase of mining and milling equipment and construction of infrastructure (roads, housing, substations) at the El Aguila project.
• Stock-Based Compensation: Expenses rose significantly to $1.91 million in the first half of 2008 compared to $0.32 million in 2007, due to the grant of 1.05 million stock options to officers, directors, and consultants.
• Interest Income: Increased to $264,950 (from $118,811) due to higher cash balances from prior financings held in interest-bearing accounts.

Guidance, Outlook, and Risks

Outlook and Guidance

• Production Target: Management revised the target for initial gold production from Q4 2008 to Q1 2009.
• Reason for Delay: Delays in receiving necessary permits for mining activities and tailings impoundment construction.
• Budget: The Company has budgeted $20 million for mine and mill construction and an additional $3 million for other activities through year-end 2008. Approximately 95% of required mill equipment has been committed.
• Funding Needs: While current liquidity is deemed sufficient for the balance of 2008, the Company may require additional equity financing to complete construction if costs exceed the budget due to inflation in steel and concrete prices.

Risks and Contingencies

• Permitting Risk: Construction of the tailings impoundment and commencement of mining cannot proceed without specific permits, which are currently pending.
• Reserve Definition: The Company has not established proven or probable reserves per SEC Industry Guide 7. Consequently, a significant portion of expenditures is expensed rather than capitalized.
• Foreign Operations: Operations in Mexico expose the Company to currency fluctuations, exchange controls, and political instability.
• Liquidity: The Company has no revenue and relies on equity financing. It is not a candidate for conventional debt financing.

Investor Verification Checklist

• Permit Status: Verify the current status of the mining and tailings permits required to commence operations in Q1 2009.
• Capital Budget Adherence: Monitor whether the $20 million construction budget remains sufficient given rising commodity prices for steel and concrete.
• Reserve Studies: Confirm if the Company intends to undertake the engineering studies required to define proven/probable reserves, which would allow for capitalization of costs.
• Cash Burn Rate: Assess the sustainability of the current cash balance ($12.1M) against the projected burn rate of ~$145k/month for overhead plus capital project costs.
• Stock Dilution: Review the impact of the 3.625 million outstanding stock options on future share count and potential dilution.