GORO - AMEX

Good morning, and welcome to the Gold Resource Corporation First Quarter 2022 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following management's presentation, there will be a question-and-answer session open to financial analysts only. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, May 10, 2022 at 11 o'clock Eastern Time. I will now turn the conference over to Kim Perry, Gold Resource Corporation, Chief Financial Officer. Ms. Perry, you may proceed.

Thank you, Chris. And good morning to everyone. On behalf of the Gold Resource team, I would like to welcome you to our conference call covering our Q1 2022 results. Before we begin the call, there are a couple of housekeeping matters I would like to address. Please note that certain statements to be made today are forward-looking in nature and as such, are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings. Joining me on the call today is Allen Palmiere, our President and CEO; and Alberto Reyes, our Chief Operating Officer. Following Allen, Alberto and my prepared remarks, we will be available to answer questions. This conference call is being webcast. For those of you joining us on the webcast, you can download a PDF copy of the conference call slides. The event will also be available for replay on our website later today. Yesterday's news release issued following the close of the market and the accompanying financial statements and MD&A contained in our Form 10-K have been filed with the SEC on EDGAR and are also available on our website at www.goldresourcecorp.com. Please note that all amounts mentioned in this call are in US dollars unless otherwise noted. I will now turn the call over to Allen.

Thank you, Kim, and good morning everyone. I'd like to thank all of the listeners for taking the time to join us on this call. This year is off to a good start. Our team in Mexico maintained the momentum they created in the fourth quarter of 2021. Quarter-over-quarter ton was through the mill and the gold equivalent ounces produced continue to increase. I'd like to point out a few achievements related to ESG before handing the call over to Alberto to provide an update on our Don David Gold operations. We will then precede with March from Kim on our Q1 financial results. Lastly we will provide a few closing remarks and then we will take questions from participants. Most important asset that we have is our people. We have a very good team in Mexico who are responding well to the new culture and operational methodologies that are being introduced. Our corporate team is first class. I'm very happy with the quality and ability of the team. It shows by the results achieved and bodes very well for the future. We continue to invest heavily in Mexico, which will benefit us going forward from an operational, financial and in many cases in environmental standpoint. With the completion of the filtration plant and dry stock facility in 2021, we are processing the tailings through the new plant. The tailings -- the facilities not only conserve water, but reduce the traditional risks associated with the tailings storage facility and accelerate the reclamation of the original open pit. We also processed over 1,000 tons of artisanal tailings from a local community. In addition to financially giving back to the community we're able to ensure that they were properly handled and stored. In Michigan we continue to progress the Back Forty Feasibility Study. An internal commitment we made when we acquired the project was to ensure that the optimized design deployed incorporated environmentally friendly designs and advances in the mining industry. So far we are on track to achieve this objective. The optimized feasibility study should be released in the second half of this year with permit applications following shortly thereafter. I'll now pass the presentation to Alberto to discuss the Don David’s -- Don David Gold's first quarter operational results.

Thank you, Alan. And also good morning to all. We experienced a positive quarter for Don David Gold Mine. Turning to the results of operations, I am pleased to report that we process nearly 137,000 tonnes of ore and sold approximately 8,000 ounces of gold, 265,000 ounces of silver, equating to our combined [11,700] (ph) ounces of gold equivalent. We further sold over 400 tonnes of copper, 1,600 tons of lead and 4,300 tonnes of zinc. As to our investment in infrastructure, as Alan highlighted earlier, I want to point out progress on the construction of the zinc tailings gold regrind circuit. As you may recall, we expect the circuit to provide for a 6% to 10% increase in gold recovery. We are pleased to inform you that the five new circuits have been installed. The project has been commissioned and it is fully operational. Other infrastructure [Technical Difficulty] include a new business improvement project that is on its way. The underground installation circuit is currently being enhanced; the new circuit will improve installation throughout the mine. Our new 350 horsepower fan already installed replaces the 400 horsepower fan, thus reducing energy consumption while provide in the system the flexibility to extend at depth. The circuit will be fully operational by the end of Q2. Continuing with the underground, our exploration development program in Level 3 is progressing slowly as development grades adapt to the ground conditions. The delay in development will not impact the total drill meters in the year. Higher priority has been placed on other areas in the underground that are delivering interesting results regarding the potential down dip extension of Switchback and lateral extension of Arista. Now switching our focus so our Back Forty project, the feasibility study is progressing according to plan, currently undergoing final reviews of the block models for the open pit in the underground, mine designs, processing plant and surface infrastructure. It is worth noticing that we have bolstered the team driving the feasibility study and can expect to reach completion during the second half of 2022. I'll now pass over the presentation to Kim to discuss Q1 financial results.

Thank you, Alberto. We closed the quarter with a strong balance sheet, consisting of just over $31 million cash and working capital increased more than $3 million at March 31. For the first quarter we reported net income of $4 million, net sales of over $45 million or 67% higher in the same period in 2021, due to higher gold sales and higher average base metal prices. Total production costs of $20.1 million for the quarter is 32% higher than the production cost for the same period in 2021. The increase is primarily due to higher royalties as a result of higher metal sales and price increases and rate reagents consumed in the process plant. While we have experienced approximately 40% inflationary pressure on many consumables over the last year, we've been able to maintain the processing cost per ton quarter-over-quarter. Another contributing factor on production cost was the impact of the Mexican labor reform related to profit sharing, which was effective in the second half of 2021. Don David Gold Mine’s total cash cost after co-product credits was a negative $121 per gold equivalent ounce sold. In total, all in sustaining cost per gold equivalent ounce sold were $499 per ounce. These costs are significantly lower in 2021 cost per ounce sold and directly related to the higher base metal prices realized. Alan, back to you.

Thank you, Kim. As you've heard me say before, we are focused on creating value through disciplined growth and capital allocation. And as I noted in my opening comments, we've made tremendous strides to demonstrate our commitment to advance initiatives around health, safety, community development and really our overall ESG programs. We are trying to continuously expand our efforts in this area. With our healthy balance sheet and strong management team we look forward to advancing the Back Forty project and continuing to focus on improvements at the Don David Gold Mine, while maintaining our status as a low-cost producer with a focus on disciplined growth. With that, I'll turn the call over to the operator for questions.

Thank you. [Operator Instructions] Our first question is from Heiko Ihle with H.C. Wainwright. Your line is open.

Thanks for taking my questions. So, I see a breakdown of your capital and exploration investment summary in the release. Building on that, you spent $1.1 million at Back Forty in Q1 and you're guiding to a total spend of $89 million for the year. So can you just break that down a bit, it was $89 million, how much of that is drilling? What meters you are shooting for? I mean, a feasibility study is expected to come out in the second half of 2022, anyway you can, maybe, just define or like give us a little more color when you think we'll see given the Q3 starts in three weeks. Sorry -- Q3 starts in three weeks.

Heiko, I will answer that in a couple of ways. Most of the expenditure at Back Forty this year relates to completion of the feasibility study and preparation for -- preparation ounce the permit applications. There is a small amount of drilling in the budget, directionally about $1 million and that is aimed at condemnation drilling, a little bit of additional geotechnical drilling and a little bit of exploration drilling. When I say a little bit, we're looking at the Southwest extension of the deposit just to see what potentially is. We believe it's significant but we haven't tested it. I think I covered most of it. In terms of timing I would like to give you a hard date. The reality is, we're working with our consultants and trying to pin it down. Our target is to have the feasibility complete by the end of September. However, some of our consultants are squirming a little bit with that. So, the target is certainly this year. Our internal target is the end of September. Hopefully, no later than October. After that, probably two months after we have the feasibility complete, we will be submitting our permit applications.

And building on the last question a little bit, what we're seeing with wage inflation, both in Michigan and Mexico.

In Michigan, we're not seeing a great deal just because of our very small or very low staffing levels. However, in Mexico, we've been able to negotiate increases with the union of just under 5%, which is, I think a major accomplishment. We are seeing further inflationary pressures primarily in the area of reagents and consumables, but so far through increased productivity that hasn't adversely impacted our operating cost per ton. And we maintain that, I don't know. I would like to say we can, but it's really going to be a function of how high the inflation rates offer and how persistent they are. Ultimately, we will have to recognize some increased cost potentially, but at this point we're managing quite well, Heiko.

Perfect. And then finally with the dry stack tailings project. I mean, your total investments have been $14.8 million [indiscernible]. Do you want to guesstimate and quantify the actual cash savings you've seen from this so far since you just use so much less water.

Cash saving cycle zeros is the quick answer. Dry stack tailings is operationally a little bit more expensive than conventional second tailings. Where the real benefit comes from is, as you've identified, production and water consumed, but that really isn’t the cost, that's more of an environmental benefit. We recirculating directionally about 80% of our processed water now, whereas before majority of that went out into the tailings pond and while we did recycle some of it, we had to top up with freshwater. That amount of top up has diminished significantly with dry stack. Dry stock is preferable from an environmental point of view, because you don't have the -- we don't have a dam, number one, we don't have material -- wet material exposed and we don't have a long-term reclamation problem. So that is a real benefit arising from dry stocking. We had an old open pit at the site and what we're doing is using that as the first area of deposition for the dry stacks. So ultimately we will do dry stacking, complete the remediation of the open pit which is a major step forward. But it's not a cost savings, dry stack is more expensive.

Okay. Simple enough. I appreciate your time.

Thanks, Heiko. I appreciate the questions.

[Operator Instructions] It appears that we have no further questions at this time. I'll turn over to Mr. Palmiere for any closing remarks.

Thanks, Chris. I do appreciate it. I do appreciate everyone's time. It was a good quarter. Hopefully, you will be able to see that sustained through the second quarter. And I look forward to speaking to at our next quarterly conference call. Thank you all and have a great morning.