Gold Resource Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Financial statements are unaudited. Gold Resource’s continuing operations center on the Don David Gold Mine in Oaxaca, Mexico. Fortitude Gold was spun off on December 31, 2020, so Q1 2020 included its results as discontinued operations; comparisons are therefore not fully like-for-like.
Financial and operating performance
- Revenue: $27.3 million, up 23% from $22.1 million in Q1 2020. Higher realized metal prices and lower concentrate treatment charges contributed to the increase.
- Profitability: Mine gross profit was $8.6 million, versus $0.1 million; net income was $2.5 million ($0.03 per share), compared with a $3.1 million net loss. Income tax expense was $2.6 million. The filing attributes the quarter’s tax expense in part to tax allocations from the Fortitude spin-off.
- Cash flow: Operating cash flow from continuing operations was $6.8 million, compared with $6.2 million. Capital expenditures were $4.3 million; financing cash outflow was $0.6 million, including $0.7 million of dividends paid.
- Liquidity and debt: Cash was $27.2 million at quarter-end, up $1.8 million from December 31, 2020. Working capital was $32.5 million, up 5% from $30.8 million. The balance sheet reports total liabilities of $15.4 million; it does not show a borrowing or debt balance.
- Margins and unit costs: Mine gross margin was approximately 31% of sales, compared with less than 1% in Q1 2020. Non-GAAP total cash cost after co-product credits was $408 per gold-equivalent ounce sold, versus $918; all-in sustaining cost (AISC) was $937, versus $1,229.
- Production and sales: The mine produced 6,097 gold ounces and 307,610 silver ounces, down 5% and 24%, respectively. It sold 5,019 gold ounces and 253,061 silver ounces; gold and silver realized prices were $1,787 and $26.77 per ounce. Total precious-metal gold-equivalent ounces sold were 8,810, versus 8,614.
Changes versus the comparable period
- Production tonnage milled fell 20% to 138,980 tonnes, consistent with the mine plan; management cited lower tonnage as a factor in lower silver production. Higher realized metal prices and lower treatment charges more than offset lower sales volumes, lifting revenue and gross profit.
- Production costs declined 4% to $15.2 million. Treatment and refining charges fell to $2.9 million from $5.8 million, with management citing newly negotiated agreements and noting exposure to volatile spot zinc treatment charges.
- Q1 2021 included $0.5 million of restructuring costs related to the Fortitude spin-off. Q1 2020 included a $10.3 million net stock issuance through the ATM program; no ATM shares were sold in Q1 2021.
Outlook, commentary and risks
- Management said current liquidity should fund operations and corporate activities for the foreseeable future, while noting that COVID-19’s future effects remain uncertain. Mining in Mexico had restarted in May 2020 after the temporary government-ordered suspension.
- 2021 project plans include completion of the dry-stack tailings facility in Q3 and the gold regrind circuit in Q4. Management expects the regrind circuit to improve gold recovery by 6%–10%; dry stacking is expected to allow reuse of about 80% of process water. The filing’s capital guidance is inconsistent: narrative states expected 2021 capital investment of $21 million, while listed guidance categories total $22 million.
- Exploration continued at the Arista and Switchback vein systems, including 14 underground drill holes totaling 4,099 meters. Management also reported new CEO Allen Palmiere, three new independent directors and a Technical Advisory Committee.
- Risks include metal-price and foreign-exchange volatility, COVID-19 disruptions, operating and geological uncertainties, and provisional concentrate pricing. The company does not hedge metal prices. A local Ejido community’s 2020 injunction seeking cancellation of certain concessions remains without a final ruling; the company said it does not conduct the specified work on the named lands.
- A Mexican labor-outsourcing reform published April 23, 2021 was under assessment. The company said it had begun compliance efforts but had not yet determined the overall impact. It also gave notice to terminate its Fortitude management services agreement, effective May 21, 2021.
- The filing reports no lost-time incidents at Don David in Q1 and no material changes to risk factors from the 2020 Form 10-K. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Reconcile the stated $21 million 2021 capital-investment outlook with the $22 million total of the listed capital-guidance categories.
- Track delivery, remaining spend and commissioning of the dry-stack project and gold regrind circuit against stated timelines and expected benefits.
- Assess whether reduced milling and metal production reflect the planned mine sequence and how they affect future sales, costs and reserves.
- Monitor the Mexican outsourcing reform’s implementation and financial or labor implications, and the status of the Ejido injunction.
- Consider the non-GAAP definitions and co-product-credit assumptions underlying reported cash cost and AISC, and the effect of commodity prices, exchange rates and provisional settlements.