Gold Resource Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise stated. The company’s producing operation is the Don David Gold Mine in Oaxaca, Mexico. Back Forty in Michigan is an advanced exploration-stage project.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Net sales | $45.4 million | $27.3 million |
| Mine gross profit | $19.3 million; 42.5% of sales | $8.6 million; 31.4% of sales |
| Net income / diluted EPS | $4.0 million / $0.05 | $2.5 million / $0.03 |
| Operating cash flow | $4.2 million | $6.8 million |
| Capital expenditures and investing cash flow | $5.9 million capital expenditures; $5.4 million net investing outflow | $4.3 million net investing outflow |
| Cash and cash equivalents | $31.2 million | $33.7 million at Dec. 31, 2021 |
| Working capital | $32.4 million | $29.3 million at Dec. 31, 2021 |
| Total liabilities | $92.9 million | $95.0 million at Dec. 31, 2021 |
Sales increased 67%, reflecting higher volumes and realized prices. Gold sold rose 67% to 8,381 ounces; total gold-equivalent ounces sold increased 33% to 11,729. Gold production rose 83% to 11,187 ounces, primarily due to higher grades. Mine gross profit increased 125%. Production costs rose 32% to $20.1 million, while total cost of sales increased to $26.1 million, partly due to higher depreciation and operating costs.
Reported total cash cost after base-metal co-product credits was negative $121 per gold-equivalent ounce, versus $413 in Q1 2021; consolidated all-in sustaining cost was $499 per ounce, versus $943. These are non-GAAP measures and benefited substantially from base-metal credits and prices. Income tax expense increased to $5.4 million from $2.6 million.
Liquidity, obligations, and material items
- Cash declined $2.5 million during the quarter after operating cash flow, investment spending, dividends of $0.9 million, and other cash movements. Management said available liquidity should meet obligations for the next 12 months and foreseeable operations, while noting there is no assurance.
- The filing reports no conventional borrowing balance. Significant recorded obligations include $42.8 million of gold and silver stream liabilities, $4.4 million of contingent consideration, and reclamation and remediation liabilities of $3.2 million.
- The zinc zero-cost collar generated a $4.1 million loss in Q1, including $1.6 million realized and $2.5 million unrealized; the latter related to contracts maturing April–December 2022. The collar covers 5,850 tonnes of zinc, with a stated $3,500-per-tonne floor and cap terms described in the filing. The March 31 balance sheet included a $4.4 million derivative liability.
- Mexican labor-law changes contributed to employee profit-sharing and other obligations; $3.0 million was accrued for statutory profit sharing and $1.0 million for long-term severance benefits.
Outlook, risks, and controls
- 2022 capital and exploration investment guidance is $33–$37 million. The Q1 amount was $8.3 million, including $1.1 million for Back Forty feasibility and permitting work.
- The Back Forty feasibility study was expected in the second half of 2022, followed by Michigan permit applications. Management cited a 2025 target for commercial production and expected project financing in 2023 or 2024; these are forward-looking targets, not guarantees. Development funding needs and stream-agreement obligations are material longer-term considerations.
- The Don David gold regrind circuit was expected to be completed and commissioned in Q2 2022, with management estimating a 6%–10% increase in gold recovery. Gold recovery in Q1 was 84.3%; silver, lead, and copper recoveries declined year over year, while zinc recovery improved.
- Risks include volatile metal prices, operating-cost inflation, Mexican peso movements, permitting and feasibility uncertainty, geological and operational challenges, COVID-19 disruption, and potential work stoppages or protests. The company noted that 50%–60% of expenses are paid in currencies other than the U.S. dollar.
- A local Ejido community’s 2020 injunction seeking cancellation of certain Mexican concessions remains unresolved; the filing says the Don David mine does not conduct the specified activities on the affected community lands. The company reported no other material pending legal proceedings.
- Disclosure controls and procedures were concluded to be ineffective as of March 31, 2022 because of a material weakness in documentation and operating effectiveness of review controls over acquisition accounting and valuation related to the Aquila acquisition. Management said the financial statements nevertheless fairly present the company’s results and position; remediation work was ongoing.
- In April 2022, the Audit Committee approved BDO USA, LLP as independent public accountant for fiscal 2022.
Important facts for investors to verify
- Whether operating cash generation and the $31.2 million cash balance can support planned investment, dividends, and ongoing obligations.
- The realized operating impact of the zinc collar, and whether the reported negative cash cost per ounce is sustainable without unusually favorable co-product credits.
- Progress, cost estimates, feasibility results, permitting, financing, and schedule for Back Forty, including conditions attached to stream funding and contingent payments.
- Whether the material weakness is remediated and disclosure controls become effective.
- Developments in the Ejido injunction, metal prices, operating costs, safety performance, and production grades and recoveries.