Gold Resource Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. The company’s operating mine is the Don David Gold Mine (DDGM) in Oaxaca, Mexico. The Back Forty project in Michigan is at the advanced exploration and feasibility-study stage. Figures are U.S. dollars unless noted.
Financial performance and liquidity
- Revenue: Net sales were $31.2 million, down 31% from $45.4 million. Management attributed the decline mainly to lower sales volumes and metal prices; treatment and refining charges also rose 16%.
- Profitability: Mine gross profit fell 80% to $3.9 million from $19.3 million. The company reported a net loss of $1.0 million, or $0.01 per share, versus net income of $4.0 million, or $0.05 per share.
- Costs and margins: Cost of sales increased to $27.3 million from $26.1 million, including higher depreciation and amortization ($7.3 million versus $6.0 million). Cash cost after co-product credits was $711 per gold-equivalent ounce (AuEq); consolidated all-in sustaining cost (AISC) was $1,221 per AuEq. Both are non-GAAP measures and increased from Q1 2022 ($163 cash cost per ounce and $462 AISC, respectively; the 2022 cash-cost figure was negative).
- Cash flow: Operating cash flow was $1.0 million, down from $4.2 million. Capital expenditures were $3.1 million; cash declined $2.3 million to $21.4 million.
- Liquidity: Working capital was $24.1 million, up $2.7 million from year-end 2022. Current assets were $40.7 million and current liabilities $16.6 million. Management said it expects available liquidity and operations to cover obligations for at least the next 12 months.
- Liabilities: Total liabilities were $84.2 million, including $43.7 million in gold and silver stream-agreement liabilities, $11.7 million in reclamation and remediation liabilities, and $4.4 million in contingent consideration. The filing does not identify conventional bank borrowings on the balance sheet.
Operating results and changes versus Q1 2022
- DDGM produced 7,171 ounces of gold and 322,676 ounces of silver. Total tonnes milled decreased 14% to 117,781; gold production fell 36%, reflecting lower throughput and 22% lower average gold grade, which management said was expected under the 2023 mine plan. Silver production decreased 3%.
- AuEq ounces sold declined 14% to 10,055. Gold sales fell 22%; silver sales increased 11%. Realized gold price rose 1% to $1,915/oz, while realized silver and base-metal prices were lower.
- Higher unit costs and lower co-product credits contributed to increased per-ounce cost measures. Depreciation also rose following completion of mine infrastructure projects and a lower reserve base used in the units-of-production calculation.
- The company recorded $0.6 million of severance expense related to workforce reductions and a leadership change at DDGM. The prior-year period included $4.1 million of losses on a zinc collar; the hedge program ended in 2022.
- Cash dividends were suspended in February 2023 to protect the balance sheet and direct capital to exploration and growth. No dividends were declared or paid in Q1 2023; $0.9 million was paid in Q1 2022.
Outlook, risks and contingencies
- 2023 investment guidance: $9–11 million for sustaining investment and $6–7 million for growth investment, or $15–18 million total capital and exploration. Q1 spending was $4.975 million.
- Back Forty: Feasibility work continued, particularly metallurgy and economic modeling. Management said the Board will assess economic conditions and decide how to proceed after the study is completed. Cost estimates may be affected by inflation; project financing is not expected to be required before 2024 or 2025.
- Project-related obligations: The company considers it more likely than not it will pay C$3 million of contingent consideration in 2023 to prevent the former owner, HudBay Minerals, from having the right to repurchase a 51% interest in Back Forty if the specified financing milestone is not met by November 2023. Osisko stream agreements also carry default and security provisions; failure to meet obligations, including future commercial-production conditions, could expose Back Forty assets to remedies.
- Operations and safety: Management described ongoing safety and operating improvements under a new Mexican leadership team. One lost-time incident occurred in Q1. Management noted that quartz mineralization can adversely affect flotation and gold recovery; gold and silver recoveries were lower year over year.
- Other risks: Results are exposed to metal-price and foreign-exchange fluctuations, inflation and supply constraints, geological uncertainty, and permitting and feasibility outcomes. Approximately 50%–60% of expenses are paid in currencies other than U.S. dollars; the company does not currently hedge these exposures.
- Legal matter: An injunction filed by a local Ejido community in 2020 seeking cancellation of certain Mexican concession titles remains unresolved. The company said it does not conduct excavation, drilling, tunneling, or exploitation work on the affected lands.
- Management reported disclosure controls and procedures were effective at quarter-end and no material change in internal control over financial reporting occurred during the quarter.
Key facts for investors to verify
- Whether DDGM throughput, grades, recoveries, and co-product credits track the 2023 mine plan, and how these affect sales and unit costs.
- Progress toward the Back Forty feasibility study, project economics and financing needs, and the November 2023 contingent-consideration milestone.
- Cash generation, working capital, and the company’s ability to fund planned $15–18 million annual investment while meeting stream and reclamation obligations.
- Status and potential operational impact of the unresolved Ejido injunction, and any material changes in safety performance or operating conditions.
- Reconciliation and comparability of non-GAAP cash-cost and AISC measures to GAAP results and to other mining companies.