Gold Resource Corporation — Q1 2018 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2018, compared with Q1 2017; balance-sheet comparisons are to December 31, 2017. The company produces gold, silver and base-metal concentrates and doré at its Oaxaca, Mexico operations, while advancing exploration and development properties in Nevada.
Key financial metrics
Amounts are U.S. dollars unless noted; financial statement amounts are in millions.
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Net sales | $32.2 million | $24.3 million; up 32% |
| Mine gross profit / margin | $12.9 million / 40.2% | $10.4 million / 42.8% |
| Net income / diluted EPS | $5.5 million / $0.09 | $4.4 million / $0.08 |
| Operating cash flow | $14.0 million | $9.0 million |
| Capital expenditures, cash basis | $7.3 million | $6.1 million |
| Cash and cash equivalents | $28.6 million | $22.4 million at Dec. 31, 2017 |
| Working capital | $29.8 million | $27.5 million at Dec. 31, 2017 |
| Total assets / total liabilities | $142.4 million / $24.7 million | $132.9 million / $20.8 million at Dec. 31, 2017 |
| Loan and capital lease obligations | $3.6 million | At March 31, 2018; fixed-rate obligations |
Current assets were $48.7 million and current liabilities $18.9 million at quarter-end. Operating cash flow less cash capital expenditures was approximately $6.6 million. The company reported mine gross profit, not a separate operating-income line in the presented statements.
Material changes versus Q1 2017
- Sales increased $7.8 million, primarily from higher base-metal volumes and prices and higher realized gold prices. Realized gold, copper, lead and zinc prices rose 10%, 22%, 9% and 34%, respectively; silver fell 4%.
- Base-metal sales and production increased substantially. Gold and silver production declined slightly to 6,647 ounces and 425,884 ounces; gold-equivalent mill production declined to 11,909 ounces from 12,837 ounces.
- Arista throughput increased, but gold and silver grades fell 29% and 43%, and gold recovery declined to 78% from 89%. Management attributed the recovery change partly to Switchback ore characteristics and said it was working on a response.
- Mine gross profit increased 24%, while mine gross margin declined to 40.2% from 42.8%. G&A rose $0.5 million to $2.4 million, primarily from legal and accounting fees; exploration expense rose $0.4 million to $1.2 million, mainly for Isabella Pearl and Gold Mesa.
- Net income increased 25%. Operating cash flow rose by $5.0 million; cash increased $6.2 million during the quarter after investing, financing and foreign-exchange effects.
Outlook, commentary and risks
- No formal company-wide revenue or earnings guidance is provided. Management said liquidity and capital resources should fund operations and corporate activities for the foreseeable future.
- Isabella Pearl was in permitting and engineering advancement. Nevada environmental approvals had been received; Bureau of Land Management permits remained pending. Any move into construction in 2018 would require evaluation of cash, equity, debt or combined funding, with no assurance financing would be available on acceptable terms.
- On April 19, 2018, the company announced a feasibility study and proven and probable reserve estimate for Isabella Pearl, effective December 31, 2017: 192,600 gold ounces and 1,129,100 silver ounces. The company described production timing as subject to permitting, funding and construction timelines.
- Management reported total cash cost after base-metal by-product credits of negative $316 per precious-metal gold-equivalent ounce sold and all-in sustaining cost of $347 per ounce. These are non-GAAP measures; the unusually large by-product credits reflect strong base-metal sales and should not be read as GAAP per-ounce profitability.
- One customer accounted for 94% of Q1 revenue, versus 93% in Q1 2017. Concentrate sales have provisional pricing; subsequent metal-price movements can adjust revenue and receivables before final settlement.
- Principal exposures include gold, silver and base-metal prices, Mexican peso exchange rates, production and recovery variability, exploration outcomes, permitting and regulatory delays, and weather or other operating disruptions. The company reported no commodity-price hedges.
- An April 3, 2018 at-the-market agreement permits sales of up to $75 million of shares through April 3, 2021; no shares had been sold under it as of April 30, 2018. Equipment purchase commitments were approximately $3.4 million at March 31.
- The company recorded Q1 income tax expense of $3.6 million and said its effective rate differed from the U.S. statutory rate primarily because of Mexican income and mining taxes. It estimated a 5% withholding tax on planned 2018 dividends from Mexico.
- Management anticipated adopting lease accounting changes on January 1, 2019; preliminary assessment indicated most identified leases would be recognized on the balance sheet, with minimal expected income-statement impact.
Important facts for investors to verify
- Share-count discrepancy in the filing text: the balance sheet reports 57,230,793 shares outstanding at March 31, while the statement of changes in equity reports 57,567,191 at that date. The balance-sheet comparison also reports 56,916,484 shares at December 31, whereas the equity statement shows 57,252,882. Confirm the correct figures against the filed statements and subsequent share disclosures.
- Track Arista grades and recoveries, especially whether gold recovery returns toward prior levels, and monitor the effects of mining the Switchback system.
- Assess customer concentration and settlement-related metal-price adjustments, alongside base-metal price and by-product-credit sensitivity.
- Confirm Isabella Pearl permit status, project economics, construction timing and funding needs; assess potential dilution if the ATM is used.
- Review the basis and reconciliation of the non-GAAP cost-per-ounce measures and the timing of committed capital spending.