Gold Resource Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Amounts below are U.S. dollars; financial-statement amounts are rounded to millions unless stated otherwise. The company operates its Oaxaca Mining Unit in Mexico and its Nevada Mining Unit, including the Isabella Pearl mine.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Net sales | $29.4m | $30.8m | $56.0m | $62.9m |
| Mine gross profit | $6.5m | $9.5m | $11.9m | $22.4m |
| Income before tax | $3.3m | $5.5m | $5.2m | $14.6m |
| Net income | $1.8m | $3.8m | $2.7m | $9.2m |
| Diluted earnings per share | $0.03 | $0.06 | $0.04 | $0.16 |
- Q2 mine gross margin was approximately 22%, compared with 31% a year earlier; first-half mine gross margin was approximately 21%, versus 36%.
- For the first half, operating cash flow was $1.1m, investing cash outflow was $21.4m, and capital expenditures were $21.4m. Financing provided $20.7m, primarily from ATM share sales. Cash and cash equivalents ended at $7.9m, up $0.2m from year-end.
- At June 30, current assets were $51.1m and current liabilities $30.4m, giving working capital of $20.7m and a current ratio of approximately 1.68. Total assets were $191.7m; total liabilities were $39.2m.
- Loans payable were $2.1m and finance lease liabilities $1.1m. Operating lease liabilities were $11.0m following adoption of the new lease standard. Reclamation and remediation liabilities were $4.1m.
Changes versus prior year
- Sales fell 5% in Q2 and 11% in the first half. The company cited higher concentrate treatment charges, lower silver sales volumes, and lower realized silver and base-metal prices, partly offset by higher gold and base-metal volumes.
- Mine gross profit declined 32% in Q2 and 47% in the first half. Management attributed the decline to lower sales, higher treatment charges, and increased production costs associated with greater mining and mill throughput.
- First-half net income fell to $2.7m from $9.2m. Operating cash flow dropped to $1.1m from $19.5m, reflecting lower earnings and working-capital movements, including a $9.2m inventory cash-cost build at Isabella Pearl.
- Oaxaca Q2 throughput rose 13% year over year and gold production increased, while silver production declined with lower grades. Oaxaca cash cost after by-product credits was $291 per precious-metal gold-equivalent ounce sold, versus $70; AISC was $652 versus $577. These are non-GAAP measures and are materially affected by base-metal credits.
- Isabella Pearl recorded its first gold sales in May. Nevada generated $1.5m of sales in the quarter and produced 1,678 ounces of gold. Production was in ramp-up; the company had also placed ore on the heap-leach pad and shipped loaded carbon to a third party for processing.
Outlook, management commentary, and risks
- Management said liquidity and capital resources were adequate for operations and corporate activities for the foreseeable future. No quantified earnings, production, or cost guidance is provided in the supplied filing text.
- Isabella Pearl’s ADR plant completion, initially scheduled for Q2, was delayed by contractor issues and scheduled for Q3, subject to resolving remaining construction issues. Management expected volumes to increase as heap-leach operations ramped up.
- The company raised $21.8m net from ATM sales in the first half and sold a further 773,716 shares for $2.6m net through August 5, 2019. It declared quarterly dividends of $0.005 per share. Shares outstanding were 65,585,271 as of August 5.
- Contractual obligations included estimated Contract Mining Agreement operating payments of $13.4m through 2020 and equipment purchase commitments of approximately $2.0m. The company reported no material off-balance-sheet arrangements.
- Principal stated risks include gold, silver, and base-metal price volatility; Mexican peso fluctuations; provisional pricing adjustments on concentrate sales; production or ramp-up shortfalls; exploration results; political and regulatory conditions; and weather or ground-movement events. The company reported no uncertain tax-position liability and does not use commodity or foreign-currency derivatives to hedge these exposures.
- Operating leases were brought onto the balance sheet upon adoption of ASC 842 on January 1, 2019, adding $14.2m of right-of-use assets and lease liabilities at adoption; management said adoption did not materially affect earnings or cash flows.
Most important facts for investors to verify
- Whether Isabella Pearl’s ADR plant was completed and the mine achieved its planned production and recovery ramp after the reported contractor delay.
- Whether operating cash generation improves as the Isabella Pearl inventory build and capital spending normalize; first-half operating cash flow was $1.1m against $21.4m of capital expenditures.
- How metal prices, treatment charges, realized by-product credits, and provisional settlement adjustments affect sales and unit-cost measures.
- The funding and dilution implications of continued ATM share issuance, alongside the company’s stated liquidity outlook and contractual commitments.
- Reconcile share counts across the filing: the balance sheet and shareholders’ equity statement show different June 30 share figures, while the filing separately reports the August 5 count.