Gold Resource Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company operates the Don David Gold Mine (DDGM) in Oaxaca, Mexico; its Back Forty project in Michigan remains in advanced exploration and optimization.
Financial and operating performance
- Q2 revenue: $24.8 million, down 33% from $37.1 million a year earlier. Lower sales volumes and weaker realized copper, lead and zinc prices contributed; zinc’s realized price fell 43% year over year.
- Profitability: Q2 mine gross loss was $2.2 million, versus gross profit of $8.0 million in Q2 2022; net loss was $4.6 million, or $0.05 per share, versus net income of $2.7 million, or $0.03 per share. First-half net loss was $5.6 million, versus net income of $6.7 million in 2022.
- Margins: Q2 mine gross margin was approximately negative 8.7%, compared with positive 21.6% a year earlier. First-half margin was approximately 3.1%, versus 33.1% in 2022.
- Production and sales: Q2 AuEq ounces sold were 7,689, down 33%. Gold sold fell 51% to 4,287 ounces; silver sold rose 18% to 274,257 ounces. Tonnes milled declined 12%, and gold production fell 50%, in line with the mine plan and lower grades.
- Costs: Q2 cash cost after co-product credits was $1,333 per AuEq ounce and AISC was $1,990, compared with $247 and $805, respectively, in Q2 2022. First-half amounts were $979 and $1,551; management said these remained within 2023 guidance, but a stronger Mexican peso and lower zinc prices could require a guidance revision. These are non-GAAP measures.
- Cash flow: First-half operating cash flow was $0.5 million, down from $12.2 million; capital expenditures used $6.0 million. Cash declined $5.7 million from year-end. The quarterly operating cash flow trend table reports a Q2 outflow of $0.6 million.
- Liquidity and obligations: June 30 cash was $18.0 million and working capital was $20.8 million. The company reported no conventional debt. Its balance sheet included $44.0 million of gold and silver stream liabilities, $4.5 million of contingent consideration and $12.7 million of reclamation and remediation liabilities.
- Balance sheet comparison: Total assets were $191.1 million, down from $204.2 million at December 31, 2022; shareholders’ equity was $106.7 million, down from $111.8 million.
Material changes versus the prior comparable period
- First-half revenue fell 32% to $56.0 million. Mine gross profit fell to $1.8 million from $27.3 million, and the company moved from first-half net income to a net loss.
- Lower ore throughput and gold grades reduced gold output; lower co-product credits, increased power costs and peso strength pressured unit costs. Quartz-rich mineralization also affected gold recovery.
- The prior-year period included a $3.8 million Q2 gain from a zinc zero-cost collar; the hedge program ended in 2022, and there was no corresponding 2023 gain.
- Quarterly dividends were suspended in February 2023 to protect the balance sheet and direct capital toward exploration and growth.
Outlook, commentary and risks
- Management said operational initiatives, including a shift mainly to long-hole stoping for the remainder of the year, are intended to support annual production guidance. The filing does not provide a clear production-guidance figure in the supplied text.
- 2023 capital and exploration investment guidance is $15–18 million: $9–11 million sustaining and $6–7 million growth. First-half investment was $9.3 million.
- Back Forty metallurgy and economic-model optimization was nearing completion. Updated results were planned for release in Q3 2023; the board would then assess economic conditions and decide how to proceed. Project financing was not expected to be needed before 2024, subject to project approval and financing conditions.
- Management cited commodity prices, Mexican peso appreciation, power and operating costs, geological and ground-support challenges, changing grades and recoveries, and permitting and environmental matters as risks. It stated that liquidity was expected to meet known obligations and potential cash requirements for the next 12 months and beyond.
- Osisko stream agreements are secured by Back Forty project assets. A default, including failure to achieve commercial production in the future, could require repayment of advances plus interest and could permit enforcement against project assets. A HudBay-related contingent payment also relates to Back Forty development; non-payment of the applicable milestone could give HudBay a right to repurchase a 51% project interest.
- A 2020 injunction by a local Ejido community seeking cancellation of certain concessions remains unresolved. The company said it does not conduct specified work on the named concessions in the community’s lands.
- The company renewed its ATM agreement in June 2023 and may sell common shares under it; actual remaining availability is not clear from the supplied filing text.
Important facts for investors to verify
- Whether production and full-year cost guidance remain achievable given lower grades, unit-cost pressure and management’s warning that guidance may need revision.
- Q3 Back Forty optimization results, permitting requirements, the board’s development decision and the project’s financing and stream-agreement implications.
- Cash burn, working-capital trends and the extent to which foreign-subsidiary cash is accessible for U.S. needs.
- Progress and potential operational impact of the unresolved Ejido injunction, as well as the status of reclamation estimates and contingent obligations.
- Potential dilution and proceeds if the renewed ATM is used, and the company’s dividend policy following its suspension.