GORO

Business Context and Reporting Period

Company: Gold Resource Corporation (Gold Resource Corp)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Three months ended March 31, 2009

Business Overview: Gold Resource is an exploration-stage company focused on gold and silver properties in the state of Oaxaca, Mexico. The Company has not generated any revenue from operations and has no proven or probable reserves. Its primary asset is the El Aguila Project, where it is constructing a mine and processing mill with the goal of commencing commercial production in 2009.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Loss Increase: Net loss increased by approximately $2.4 million (51%) compared to Q1 2008, driven primarily by a significant acceleration in engineering and construction costs.
• Construction Spending: Engineering and construction expenses surged to $5.84 million in Q1 2009 from $1.63 million in Q1 2008, reflecting the ramp-up of the El Aguila mine and mill construction.
• Exploration Spending: Property exploration and evaluation costs decreased to $627,921 from $915,637 in the prior year quarter, as focus shifted from drilling to construction.
• General & Administrative (G&A): G&A expenses dropped significantly to $639,952 from $2.32 million. This 72% decrease was largely due to a reduction in non-cash stock option compensation expense ($59,677 in 2009 vs. $1.87 million in 2008).
• Liquidity Position: Cash and cash equivalents increased by $5.05 million to $8.58 million, fueled by a $12.99 million equity financing from Hochschild Mining Holdings Limited.

Outlook, Risks, and Management Commentary

• Production Timeline: Management expects to commission the El Aguila processing facility and commence gold and silver sales during 2009. However, the Company explicitly states it cannot guarantee meeting this timetable.
• Capital Requirements: The Company estimates an additional $7 million to $8 million will be required in 2009 to complete the mine and mill and start commercial production. While current cash reserves are strong, the Company may seek additional funding if equity proceeds are insufficient.
• Exploration Stage Status: The Company remains an exploration-stage entity with no proven or probable reserves. Consequently, substantially all expenditures for mine and mill construction are expensed as incurred rather than capitalized, leading to significant reported losses despite asset creation.
• Key Risks:
  • Regulatory: The Company has not yet received the open pit mine permit required to commence production.
  • Market Risk: Exposure to foreign currency fluctuations (Mexican Peso vs. US Dollar) and future commodity price volatility.
  • Country Risk: Operations are located in Mexico, subject to political instability and changing government regulations.

Investor Verification Checklist

• Permitting Status: Verify the current status of the open pit mine permit required for production at El Aguila.
• Reserve Classification: Confirm that no proven or probable reserves have been established, meaning all construction costs are currently being expensed.
• Capital Sufficiency: Assess whether the $8.58 million cash balance is sufficient to cover the estimated $7-8 million remaining capital requirement for 2009 without further dilution.
• Construction Progress: Review updates on the physical completion of the mill, tailings facility, and infrastructure to validate the 2009 production timeline.
• Strategic Alliance: Review the terms of the strategic alliance with Hochschild Mining Holdings Limited regarding future funding obligations or operational support.