Gold Resource Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet comparisons are to December 31, 2016. The company’s producing operations are in Oaxaca, Mexico; it is also advancing projects in Nevada. All reported revenue was from Mexico. Financial amounts below are in U.S. dollars; statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Net sales | $24.336 million | $17.403 million |
| Mine gross profit | $10.416 million | $3.454 million |
| Operating income | $7.782 million | $0.772 million |
| Net income | $4.376 million | $0.797 million |
| Basic and diluted EPS | $0.08 | $0.01 |
| Cash from operating activities | $9.002 million | $3.730 million |
| Cash used in investing activities | $6.140 million | $5.522 million |
| Cash and cash equivalents | $16.639 million | $14.166 million at Dec. 31, 2016 |
| Working capital | $22.4 million | $20.3 million at Dec. 31, 2016 |
| Total liabilities | $12.597 million | $11.367 million at Dec. 31, 2016 |
Sales increased 40%, which management attributed to stronger precious- and base-metal prices and lower treatment charges. Mine gross profit rose about 202%. Derived mine gross margin was approximately 42.8%, versus 19.8% a year earlier. Cash from operations exceeded cash capital expenditures of $6.062 million; cash increased $2.473 million during the quarter. No conventional borrowing balance is separately presented in the supplied balance-sheet text; verify debt and lease obligations against the complete filing.
Management reported non-GAAP total cash cost after by-product credits of $263 per precious-metal gold-equivalent ounce sold, versus $667 in Q1 2016; all-in sustaining cost was $744 per ounce, versus $1,307. These company-defined non-GAAP measures are not standardized and should not be treated as substitutes for GAAP results.
Operations and changes versus prior period
- Gold production increased 4% to 6,747 ounces; silver production declined 1% to 427,890 ounces. Gold-equivalent mill production was 12,837 ounces, versus 11,669.
- Ore processed fell 7% to 1,206 tonnes per operating day; management cited a production stoppage for additional mine safety training. Higher grades, metal prices and stronger by-product credits contributed to improved results and lower reported unit costs.
- Q1 realized prices increased year over year for gold (1%), silver (20%), copper (42%), lead (30%) and zinc (65%). Other expense was $0.464 million, compared with $0.706 million of other income in Q1 2016, mainly reflecting greater foreign-exchange losses and lower investment gains.
- Exploration expense increased to $0.822 million from $0.504 million, primarily due to Isabella Pearl activity. General and administrative expense declined to $1.812 million from $2.178 million.
- The company reported Oaxaca proven and probable reserves of 1,891,500 tonnes, including 167,300 gold ounces and 10,009,300 silver ounces. Management said reserves replaced prior-year production and added approximately one year to Arista mine life. Switchback’s strike length expanded by more than 275 meters to over 575 meters.
Outlook, risks and unusual items
- Management said liquidity and capital resources were adequate to fund operations for the foreseeable future. No specific consolidated earnings or revenue guidance was provided.
- Management planned to continue Arista as the primary 2017 ore source, with Alta Gracia, open-pit ore and Switchback development ore as additional sources. Switchback bulk mining was planned to begin in 2018, subject to development and operating performance.
- Isabella Pearl permitting remained pending with Nevada regulators; the company said production timing depended on permits and funding. Mirador development at Alta Gracia was brought in-house after contractor performance was delayed and unacceptable. These project plans and timing are forward-looking and uncertain.
- The company entered cancellable equipment purchase agreements totaling $3.9 million, with $0.4 million advanced by quarter-end; cancellation requires reimbursement of vendor costs through the cancellation date. Cash capital expenditures were $6.062 million; reported segment capital expenditures were $7.857 million including accrued and non-cash additions.
- The company issued 246,210 shares valued at approximately $1.3 million as partial consideration for Nevada mineral rights. It also early adopted ASU 2016-16, reducing other long-term assets and beginning retained earnings by approximately $0.5 million. Income-tax provision was $2.942 million, versus $0.681 million; Q1 2017 included $0.7 million of Mexican fuel tax credits recorded against production costs and applied against income tax payable.
- Key stated risks include metal-price volatility, foreign-exchange exposure (particularly the Mexican peso), provisional pricing adjustments on concentrate sales, permitting and regulatory uncertainty, political and security conditions in Mexico, production interruptions, exploration outcomes, weather and ground movement. The company reported no use of commodity or foreign-exchange hedges and identified no liability for uncertain tax positions.
Important facts for investors to verify
- Whether higher metal prices, grades and by-product credits are sustainable, and how provisional sales settlements affect realized revenue.
- Mine throughput, safety-related interruptions, reserve assumptions and the schedule and economics for Switchback and Mirador development.
- Isabella Pearl permitting, funding requirements and the timing and cost of any Nevada project development.
- Cash needs relative to capital spending, equipment commitments, dividends and exploration; also confirm any debt or lease obligations in the complete filing.
- The assumptions behind non-GAAP cash-cost and all-in sustaining-cost calculations, and the impact of Mexican taxes, fuel credits and currency movements.