Gold Resource Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; interim financial statements are unaudited. The company operates the Don David Gold Mine (DDGM) in Oaxaca, Mexico, and is advancing the Back Forty project in Michigan.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $23.9 million | $29.0 million | $106.4 million | $87.1 million |
| Mine gross profit (loss) | $(2.2) million | $8.2 million | $25.2 million | $23.7 million |
| Net income (loss) | $(9.7) million | $1.5 million | $(3.0) million | $5.3 million |
| Operating cash flow | Not separately stated | Not separately stated | $7.9 million | $21.9 million |
Q3 mine gross margin was approximately negative 9%, versus approximately 28% a year earlier; net margin was approximately negative 41%, versus approximately 5%. Nine-month mine gross margin was approximately 24%, versus 27%; net margin was approximately negative 3%, versus 6%.
- Q3 DDGM production was 5,851 gold ounces and 261,256 silver ounces; sales were 8,042 gold-equivalent ounces. Gold-equivalent sales were 12% lower year over year.
- Cash and cash equivalents were $22.5 million at September 30, down $11.2 million from year-end 2021. Working capital was $28.9 million, down $0.4 million.
- Nine-month investing cash outflow was $15.3 million, including $14.1 million of capital expenditures and a $1.7 million Maritime Resources investment. Dividends paid were $2.7 million.
- Total liabilities were $83.9 million. Gold and silver stream liabilities were $43.2 million and contingent consideration was $4.0 million; the filing does not report conventional borrowings as a separate debt balance.
- Q3 non-GAAP cash cost was $1,103 per AuEq ounce and consolidated AISC was $1,831 per AuEq ounce, compared with $448 and $1,753, respectively, a year earlier. These measures are not GAAP measures.
Material changes versus comparable periods
- Q3 sales fell 18% year over year, reflecting lower sales volumes and lower realized prices for gold, silver, copper, and lead. Cost of sales rose 25%, mainly from higher depreciation and production costs; the company recorded a mine gross loss.
- Q3 gold and silver production fell 16% and 2%, respectively, despite 13% more tonnes milled. Lower grades, a deliberate temporary slowdown for safety work, and a longer rainy season affected production. Depreciation also increased due to recently commissioned facilities and a lower reserve base used in the units-of-production calculation.
- Nine-month sales rose 22%, supported by higher gold sales volumes and stronger realized gold and zinc prices. However, cost of sales rose 28%, and the company moved from net income to a net loss, including $6.9 million of Back Forty feasibility and permitting expenses.
- Nine-month operating cash flow declined to $7.9 million from $21.9 million, including $16.4 million of income and mining tax payments.
Outlook, commentary, and risks
- Management said available cash and expected operations should cover obligations for at least the next 12 months, while noting long-term liquidity needs could be affected by Back Forty development and financing requirements. Project financing is not expected before 2024.
- Management projected 2022 capital and exploration investment of $29.0–$32.5 million; $24.2 million had been incurred through September. Back Forty feasibility work, including metallurgy and economic modeling, was expected to continue into 2023. Michigan permit applications are to follow completion of the feasibility study.
- DDGM development and exploration were temporarily slowed to address ground-support and ventilation safety concerns. The Mineral Resources and Reserves update was expected in the first half of 2023. The filing reports no lost-time incidents in Q3.
- Back Forty stream agreements carry $43.2 million in recorded liabilities. A default, including failure to achieve commercial production by an agreed date, could require repayment of deposits plus accumulated interest; the stream counterparty may have secured remedies over project assets. Additional gold-stream deposits are conditional and not recorded as liabilities.
- The company reported a material weakness in internal control over financial reporting related to documentation and review controls for complex acquired assets and liabilities. Disclosure controls were deemed ineffective as of September 30, 2022; management said the financial statements nevertheless fairly present the reported periods.
- A local Ejido community injunction seeking cancellation of certain Mexican concessions remains unresolved; the company says it does not conduct the specified work on the affected lands. Key broader risks include metal-price volatility, inflation and supply constraints, geology and mine safety, permitting, and foreign exchange.
Investor facts to verify
- Whether Q3 safety-related operating restrictions, lower grades, and recovery changes affect subsequent production and the timing of the reserve update.
- Progress, cost assumptions, feasibility conclusions, permitting timeline, and financing needs for Back Forty.
- The company’s remediation of the disclosed internal-control material weakness.
- Cash use, tax payments, planned capital spending, and the liquidity impact of stream obligations and any future project financing.
- Metal-price and provisional-settlement exposures; the zinc collar covered 1,950 tonnes for October–December 2022, with a $3,200-per-tonne floor and $3,500 ceiling.