GORO

Business Context and Reporting Period

Company: Gold Resource Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: Gold Resource is an exploration-stage company focused on gold and silver properties in Oaxaca, Mexico. The company has no operating history and has never generated revenue from mineral sales. Its primary asset is the El Aguila Project, where it is preparing for commercial production targeted for late 2008. The company relies entirely on equity financing to fund operations.

Key Financial Metrics

Note: The company has no outstanding debt. All previous borrowings were repaid or converted to equity.

Material Changes vs. Prior Period

• Financing Activity: In December 2007, the company completed a private placement raising gross proceeds of $22,234,000 (net proceeds of $21,712,000). This significantly increased cash reserves compared to 2006.
• Expense Growth: Total costs and expenses increased by 203% to $8.3 million. This was driven primarily by a 907% increase in property acquisition and exploration costs ($5.73 million in 2007 vs. $0.63 million in 2006) as the company accelerated drilling and construction preparations.
• Operational Shift: The company transitioned from pure exploration to active construction planning for the El Aguila Project, including the design of a mill and infrastructure improvements.

Guidance, Outlook, and Risks

Outlook and Guidance:

• Production Target: Management anticipates commencing commercial production at the El Aguila Project in the second half of 2008.
• Capital Requirements: Estimated capital cost for the mill and infrastructure is $20,000,000. The company expects to utilize proceeds from the December 2007 private placement but anticipates needing additional funding in 2008 to complete construction.
• Monthly Burn Rate: Corporate overhead is estimated at approximately $140,000 per month.

Material Risks and Contingencies:

• No Proven Reserves: The company has no proven or probable reserves as defined by the SEC. All exploration and construction costs are expensed as incurred, meaning the investment in properties does not appear as an asset on the balance sheet.
• Permitting Delays: Construction is contingent upon receiving final permits from Mexican federal agencies (SEMARNAT) for the mill and open-pit mine. While a road permit was received, the mill and mine permits were pending as of the filing date.
• Political and Social Risk: Operations are located in Oaxaca, Mexico, which has experienced social and political unrest. The company must maintain agreements with local "Ejido" (agrarian cooperative) groups for surface rights.
• Commodity Price Volatility: Feasibility is dependent on gold prices, which fluctuate significantly.

Investor Verification Checklist

• Reserve Status: Verify that the company has not established SEC-defined proven or probable reserves; all mineralized material is currently classified as exploration-stage.
• Permitting Progress: Confirm the status of the mill and open-pit mine permits from SEMARNAT, as these are critical path items for the 2008 production target.
• Capital Sufficiency: Assess whether the $22 million raised in late 2007 is sufficient to cover the estimated $20 million construction cost plus ongoing operational burn rates without further dilution.
• Related Party Transactions: Review the lease agreement for the El Aguila property, which is leased from a company consultant (Jose Perez Reynoso) and subject to a 4-5% net smelter return royalty.
• Construction Timeline: Monitor the timeline for the construction of the access road and mill, noting that delays could push production beyond 2008.