Gold Resource Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The filing is unaudited. Gold Resource’s continuing operation is the Don David Gold Mine in Oaxaca, Mexico. Fortitude Gold was spun off on December 31, 2020, so 2020 comparisons include discontinued-operation income that is absent in 2021.
Financial and operating results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $29.0 million | $26.4 million | $87.1 million | $61.1 million |
| Mine gross profit | $8.2 million | $5.8 million | $23.7 million | $4.6 million |
| Net income (loss) from continuing operations | $1.5 million | ($0.3 million) | $5.3 million | ($3.2 million) |
| Net income, including discontinued operations | $1.5 million | $5.0 million | $5.3 million | $0.1 million |
| Cash provided by operating activities | $5.7 million | $6.4 million | $21.9 million | $12.1 million |
Q3 gold-equivalent ounces sold were 9,170, versus 7,898 a year earlier. Gold sold rose to 5,809 ounces from 3,619, while silver sold fell to 255,394 ounces from 316,993. Average realized prices were $1,762 per gold ounce and $23.19 per silver ounce. Mine cost of sales was $20.8 million in Q3; reported mine gross profit increased primarily because concentrate treatment charges declined.
- Costs: Q3 total cash cost after co-product credits was $466 per gold-equivalent ounce; all-in sustaining cost (AISC) was $1,031. Nine-month figures were $535 and $1,090, respectively. These are non-GAAP measures.
- Cash and liquidity: Cash was $29.5 million at September 30, up $4.1 million from year-end 2020. Working capital was $31.0 million. Current assets were $48.9 million and current liabilities $18.0 million.
- Debt and equity: The balance sheet lists no borrowings; total liabilities were $22.0 million and shareholders’ equity $94.2 million. The company paid $2.5 million of dividends in the first nine months and reported 74.6 million shares outstanding as of October 26.
- Cash uses: Nine-month capital expenditures were $15.2 million; cash used in investing was $15.2 million and financing activities used $2.2 million.
Changes versus comparable periods
- Q3 sales rose about 10% year over year, while mine gross profit increased $2.5 million. Lower concentrate treatment charges were a key contributor; treatment and refining charges were $2.3 million versus $5.9 million in Q3 2020.
- Mine throughput declined 36% to 98,010 tonnes, reflecting a 12-day COVID-related suspension and enhanced protocols. Higher gold grades helped lift Q3 gold production 47% year over year; silver production declined 18%.
- Production costs rose 6% to $17.2 million, with higher consumable costs and Mexico labor-reform obligations partly offset by lower production volume.
- Nine-month continuing-operations results improved from a $3.2 million loss to $5.3 million income. Total net income comparisons are affected by the 2020 Fortitude Gold discontinued-operation contribution.
- Nine-month operating cash flow increased to $21.9 million from $12.1 million, partly due to higher income and timing of payables. Exploration expense increased to $3.7 million from $2.1 million.
Guidance, management commentary, risks and unusual items
- Updated 2021 guidance: Payable production is 21,000–23,000 gold ounces and 1.1–1.3 million silver ounces. Cash costs are forecast at $250–$290 per AuEq ounce, revised upward from $210–$225, primarily due to lower expected base-metal co-product credits. AISC guidance remains $800–$900 per AuEq ounce. G&A guidance increased to $6.5–$6.9 million, excluding stock compensation and restructuring.
- Capital guidance was revised to approximately $16 million, primarily reflecting lower underground development spending and redesign of the gold regrind project. Exploration guidance was maintained. The dry-stack tailings project was 95% complete; commissioning was expected to begin in November 2021, with completion expected in December. Management expected the project to improve water reuse and support mine-life and reclamation objectives.
- Management was reviewing geological models, reserves, resources, mine planning and operating methods. The review was expected to inform the year-end SK-1300 technical report and 2022 production guidance. Exploration reported encouraging potential at the Switchback vein system; results do not guarantee economic reserves or future production.
- On September 7, the company announced a binding letter agreement to acquire Aquila Resources; a definitive arrangement agreement was signed October 6, after quarter-end. Closing was expected in Q4 subject to customary conditions. The filing does not provide a clear acquisition purchase price. The Back Forty project’s feasibility study was planned for the first half of 2022; development financing and project outcomes remain uncertain.
- COVID-19 caused a temporary 12-day mine activity suspension and $0.1 million of specific costs. Management said operations had ramped back up, but noted that further disruption could adversely affect results and cash flows.
- Mexico labor-law changes resulted in $1.6 million of employee profit-sharing liabilities and $0.7 million of long-term severance obligations. The company also recorded $0.5 million of restructuring expense in Q1 related to the Fortitude spin-off.
- The company had zinc collars covering 5,500 tonnes for June–December 2021, with 2,550 tonnes still open at quarter-end; the ceiling and floor were $2,992 and $2,860 per tonne. Subsequent to quarter-end it added collars for 4,000 tonnes through March 2022. Gold and silver prices remain unhedged, and provisional concentrate pricing can change reported revenue before final settlement.
- Risks include commodity-price volatility, geology and reserve-estimate uncertainty, mine execution and ground-support challenges, COVID-19, Mexican peso costs, access to labor and supplies, and permitting or community matters. A local Ejido injunction seeking cancellation of certain concessions remained unresolved; the mine was not performing the specified activities on those lands. Management reported no known material pending legal proceedings otherwise.
Most important facts for investors to verify
- Whether revised production and cost guidance is achieved, and how lower throughput, grades, treatment charges and co-product credits affect unit costs.
- Progress, final cost and expected operating benefits of the dry-stack tailings and gold regrind projects.
- Results of the mine-model and reserve/resource review, including the basis for 2022 guidance and any subsequent technical disclosures.
- Aquila transaction terms, financing, required approvals, closing conditions and the Back Forty feasibility and permitting path.
- Potential effects of COVID-19, Mexico labor rules, community litigation and metal-price or currency movements on operations, liquidity and cash flow.
- Reconciliation and comparability of the company’s non-GAAP cash-cost and AISC measures with GAAP results and other miners.