GORO - AMEX

Good afternoon, ladies and gentlemen, and welcome to the Gold Resource Year-End 2024 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, April 9, 2025. I would now like to turn the conference over to Chet Holyoak. Please go ahead.

Thank you, Ludi. And good morning to everyone. On behalf of the Gold Resource team, I would like to welcome you to our conference call covering our year-end 2024 results. Before we begin the call, there are a couple 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. Please note all amounts referenced during this presentation are in U.S. dollars, unless otherwise stated. Joining me on the call today is Allen Palmiere, our President and CEO; and Alberto Reyes, our Chief Operating Officer. Following our prepared remarks, we will be available to answer questions. This conference call is being webcast and will be available for replay on our website later today. Yesterday's news release that was issued following the close of the market and the accompanying form 10-K have been filed with the SEC on EDGAR and are also available on our website at www.goldresourcecorp.com. I will now turn the call over to Allen.

Thank you, Chet, and good morning, everyone. I'd like to thank you all for joining our year-end conference call. I would like to address a few points first, and then Alberto will address operations followed by Chet addressing the financials. Following their remarks, I will then make a few closing comments and we will take questions. 2024, unfortunately was a perfect storm for us. Back-to-back hurricanes, political road blockades, low-grade ore, extremely low equipment availability and limited working [spaces] (ph) all contributed to the poor performance. While difficult, it wasn't expected, and we managed our cash position diligently. How did we get here? Three years ago, we realized that we were facing two significant challenges. Our equipment fleet was wearing out and productivity was suffering accordingly and our reserves and resources had declined to the point where we couldn't justify the capital to upgrade the fleet. We decided to focus all available capital into exploration to increase the quality and quantity of reserves. Fortunately, we were successful and discovered a new system that we now call the Three Sisters. This new system is relatively close to surface and close to the mine entrance, which should result in lower mining costs. The higher grade and good width that are projected will permit efficient mining and produce good value. Going forward, how do we resolve the existing problems? The solution has a number of components. Low grade isn't something we can change, but the current results we are seeing from the Three Sisters system, that's significantly higher grade than the other areas of the mine. And since it's located higher in the geological column, contains higher levels of gold and in particular silver, which is projected to improve the grade issue that we have dealt with and continue to deal with. We are currently negotiating with a contractor to develop and produce from the Three Sisters. This will do two things. Ensure the productivity we need in terms of development and production in the Three Sisters and free up our team and equipment to do the necessary development and maintain the necessary production from the other two areas of the mine. Effectively, we would be accepting somewhat higher variable costs, which we expect will be offset by higher volume to mitigate risk and ensure we achieve our plans. We have identified and are currently negotiating the purchase of a mining fleet that, while used, was only operated for a couple of years and is in very good condition. This is projected to address our mechanical availability and allow us to improve our productivity. We are looking to secure a third filter for a tailings filter plant and thereby eliminate the constraint on mill throughput. The additional filters projected to once again increase our daily production initially to 1,300 tons a day and thereafter to 1,500 tons a day. As close to 50% of our costs are fixed, increased volume will have a significant impact on profitability. To help us with these improvements, we are currently evaluating several sources of funding to enable the implementation and execution of our plan. This is what we plan to do to turn around performance. All of it is planned, all of it is controllable, and we are confident in our ability to execute. It will take time. We are planning on mobilizing the contractor in Q2. The new equipment is projected to be on site and working in Q3. And our objective is to be cash positive again by the end of Q3. I will now turn the call over to Alberto for an update on the operations. Alberto?

Thank you, Allen. Hello and good morning to everyone. The company celebrated a significant milestone of one year without a lost time injury. This accomplishment reflects the collective commitment to maintaining a safe and secure workplace. As mentioned by Allen, the operations experienced a challenging year as it dealt with lower mining flexibility, equipment constraints, and lower grade towards the extremities of Arista and Switchback. To help mitigate operational challenges in mining, the team made significant improvements to the drilling and blasting practices. Their efforts have resulted in narrow-vein long hole mining, maintaining a dilution rate less than 10%. This improvement reduces mining costs and helps maintain better quality material passing through the processing plant. In addition, the processing plant improvements include reducing filter per cycling times, minimizing grinding media consumption, and increasing the solid percentage details. With the Three Sisters zone now formally incorporated into the mine plan, the team implemented key improvements that will allow commercial production to be reached months earlier than originally projected. This high grade deposit is a game changer for DDGM offering improved productivity, because of higher grades and wider mineralized zones, reduced development cost and time, thanks to its proximity to surface and existing infrastructure, enhanced operational flexibility, offering alternatives to the overall mining sequence. Multiple access development to the Three Sisters began in Q4. The ore body was successfully intersected in Q1 2025, confirming thickness and grades. The project is advancing well, and development rates are expected to increase with the arrival of the contractor. As risk mitigation, the use of a contractor offers a balanced production strategy, minimizing potential bottlenecks. I’ll now pass the presentation over to Chet to discuss financial results.

Thank you, Alberto. As has been discussed already, and as you can see when reading our current Form 10-K 2024 was a difficult year with many challenges. I do not want to rehash all the information in the filed report, but there are a couple of points that I’d like to make. The largest issue that needs to be addressed is the restatement of the Back Forty Project gold and silver stream liabilities. It was discovered that the model that was carried over from the Aquila acquisition and that had been used to-date had an error in the application of U.S. generally accepted accounting principles relating to the streaming liabilities and in the calculation of interest and repayments. The error resulted in the company understating the streaming liability and net loss. The restatement which can be viewed in more detail in the 2024 form 10-K affects the forms 10-Q for 2023 and 2024 and the form 10-K for 2023. The error has been corrected and the company is in the process of implementing remediation plans to address the material weakness and controls. While the error was considered material, it did not apply to the company’s mining operations in Mexico nor did it affect the company’s cash position. For cash management for the year, the company did a better job of managing cash than is shown in the statement of operations. During the year, our cash balance decreased by $4.7 million. Included in this decrease was $2 million spent on exploration at the Don David Gold Mine, $0.5 million spent on maintaining the Back Forty Project, and $4.3 million spent on overhead general and administration costs. The main reason for pointing this out is that even with the much lower production from the mine, the mine was still able to cover the cost of operations. Allen, back to you.

Thank you, Chet. I would like to thank you all again for joining the call and for your continued support through the difficult times that we've experienced. The good news is we have a path forward, all of it is planned. All of it is controllable, and we are confident in our ability to execute. It will take time. But with the development of the Three Sisters area, new equipment, and continued exploration success, the Don David mine will once again be a significant cash generator. With that, I'm going to turn the call over to the operator for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Jake Sekelsky with Alliance Global Partners.

Hi, Allen and team. Thanks for taking my questions.

Good morning, Jake.

So just looking at the Three Sisters system and the contractor that's arriving on site this quarter, can you provide any color on sort of the cadence of development there and when you expect to reach first ore in a best case scenario?

It's an interesting question because we actually have already reached first ore Jake. We drifted into the Three Sisters and intersected the first vein structure about a month ago now, and we're currently drifting along strike and getting limited amounts, but we're getting some ore out of the Three Sisters as we speak. It's going to be sporadic at first because we have to develop the ramp up and down to develop additional levels. But we are, in fact, going to be getting some ore release. By the end of the year, we should be in a position where the Three Sisters is generating a significant percentage of the ore and feed to the mill. And our objective would be by January or February of next year to be back up to 1,500 tons a day, over half of which will be out of the Three Sisters. I'm just going to elaborate a little bit more, Jake, because I think it's germane. We -- when we first intersected the vein, we actually did a channel sample. Now I don't like channel samples particularly, but the channel sample was well done. It was cut full way across the vein. And what it disclosed was higher grade than we were anticipating. The thickness was greater and the grades were significantly higher. And put it in context, the NSR value of the channel sample was slightly in excess of $1,000 a tonne. I am not going to tell you that's representative of the Three Sisters. But what it does do is led credence to our interpretation, whereby we believe Three Sisters will be well in excess of $200 NSR on a sustained basis. So we're very encouraged with our result.

Okay, that's helpful. And a good surprise in that sense. In staying with the development work, are you able to break down the $8 million in development capital that you mentioned just from a timing perspective over the next, I guess, call it, two to three quarters?

It's going to be heavily weighted towards Q2 and Q3. Development is going to be well in excess of $20 million for the year. But it's -- the impact is going to be felt most in Q2 and Q3. The reason for that is the contractor will be mobilized and we'll be focusing on development without getting much in the way of order release initially. Later on in the year or release out of the Three Sisters picks up and while the development continues apace, the cash flow will be more than sufficient to compensate for that. Does that address your question, Jake?

It does. I appreciate it. That’s all from me. Thanks again.

Thanks, Jake.

And your next question comes from the line of Heiko Ihle with H.C. Wainwright. Please go ahead.

Hello, Allen and team. Thanks for taking my questions. And apologies for the background noise. I'm at the airport as you can probably hear. Yes, right, welcome to real life. Exciting given all the progress you have with the high-grade Three Sisters vein system. You mentioned some active ways to reduce costs and improve timing on this call earlier in the prepared remarks. And just in general, can you maybe just provide a little bit of added color on what we should expect to see there over the next six, nine months or there may be even some longer-term ideas?

Absolutely. What I alluded to was the fact that we are bringing in a contractor to focus on the Three Sisters. Now when you -- on the surface, when you look at the cost structure provided by a contractor, intuitively, they're going to be higher than we would be able to achieve ourselves. However, about 50% of our costs are fixed. So the cure for fixed cost is higher volume. The contractor, we are very confident, will be able to increase our volume. And by the end of the year or by the end of Q1 of next year, we'll be back up to 1,500 tonnes a day. What that will result in, Heiko, is a significant reduction in our unit cost per tonne mined and processed. And it's strictly a function of fixed cost absorption. That's where we're going to see a big component. The other component I indicated that we are in the process of acquiring a new mining fleet. One of our biggest variable costs has been an attempt to maintain mechanical availability on our existing fleet. And that has proven to be extremely expensive. By having a fleet with minimal hours on it, we anticipate that the repair and maintenance cost will go down. Mechanical availability will increase, and our productivity will increase, all of which will result in lower unit cost per tonne mined and milled. Does that give you a bit of a feel for it, Heiko?

Yes, that's a very comprehensive answer. Thank you very much. Two things just to clarify, that fleet you're looking to buy, is that already in Mexico given daily changes in tariffs and just general things that are going on geopolitically right now. And just maybe -- and then maybe just an idea of what exactly is included in the fleet and the price?

Absolutely. No, the equipment is actually located in Canada, which provides in a normal world, it's easy to transship from Canada to Mexico. But given the volatility around tariffs and with the best of intentions, we have concerns about U.S. customs and Mexican customs, not knowing how to respond to tariffs and transshipping may create problems. We're evaluating alternatives up to and including putting on boat and shipping it from Canada to Mexico and thus avoiding boats at both borders. And it's really in response to uncertainty. We want to minimize the risk of this equipment being held up for whatever reason. And that's why we're looking at potentially ocean freight. The equipment fleet consists of 16 pieces of equipment. They're - included in there are three rock bolters, a rebolter, there are three jumbos, there are five scoops, three low-profile trucks, and I think that's most of the fleet. But in effect, it's a complete mining fleet for a mine of a boat. It was originally scoped for 1,800 tonne per day mine. So it really is a one-stop. I'll give you -- because it is used, we're getting a significant reduction from new price and the vendor has been very helpful in terms of negotiating a payment plan that minimizes our impact on cash flow. And with the equipment purchase, we're also getting unquantified but significant spare parts for all of the equipment. And I say it's unquantified because it's been purchased from a distressed situation. And basically, we've got a couple of containers of parts, and we just -- we're not 100% sure of what we've got, but we know it's significant value, potentially as much as $1 million in those containers. Does that address the question, Heiko. Given the uncertainty around the tariff situation and the volatility, we would like to try and avoid any potential exposure. It may not be possible, but to the extent possible, we just want to avoid it. Long term, it will settle out. It's just I feel sorry for the customs people on every border, in every country right now because I'm not sure they know what's hit them.

That's a fair answer. Thank you very much. I'll get back in queue.

Thanks, Heiko.

[Operator Instructions] Your next question comes from the line of [indiscernible]. Please go ahead.

Hi, good morning, Allen. Hope you are doing well today, sir.

Good morning and it’s good to hear from you.

A quick question for you, sir. In the 10-K, I saw you're dependent upon three buyers of the product. Are any of those buyers located in Asia?

No. They are not. Our -- just to provide clarity, we sell concentrate. And typically, we sell concentrate either to historically, we sold it to a Mexican company that had their own smelter. Currently, we are selling to international trading houses, and none of them are located in Asia. They're all out of Europe.

Okay. Another quick question. I see there's been basically no insider buying from executives for quite a while. I was just wondering if you guys aren't buying personally, and you don't have confidence in buying the stock. What would you say to us as shareholders to encourage us to buy the stock?

Watch the performance. We have been in a position.

The stock has lost 95% of its value.

And I've articulated the reasons for that. I'm not saying it's -- I'm happy about it. I will tell you personally that I'm under water in excess of $2 million in that time frame. So your pain is shared. The reality is the situation, unfortunately, is something we inherited, and we've been working very hard to remedy. I believe that we now have a path forward with the discovery of the Three Sisters, to return the mine to the profitability that we've enjoyed in the past, and I hopefully can reward those shareholders that had suffered along with us. In terms of insider buying, we have effectively been blacked out for about six months. You'll recall -- or you may recall that we had to issue a press release in November of last year, citing potential liquidity challenges and the implications if we weren't able to remedy them. We have been in blackout ever since that, because we're looking at a number of funding opportunities. And while we're in that process, it's just not -- me jumping into the market and buying at $0.12 knowing where I'm trying to take the company is insider trading. I can't do it. As things stabilize, keep watching the trading. That's all I can tell you.

Okay. Sounds good. I was also wondering if the compensation packages for executives is based upon performance. Is that something the Board of Directors oversees?

There are two elements of executive compensation that is tied to performance, short-term and long-term incentives. I will tell you that last year and this -- 2023 and 2024, there have been no awards. There were modest LTI awards in 2023. 2024, zero, both short-term and long-term.

I sure appreciate your time, Allen, and I wish you guys the best today. And thank you for answering my questions. I hope you have a wonderful afternoon, sir.

I appreciate your questions, and please come back when we do Q1 and hopefully, we'll be able to provide you with additional color.

Sounds good.

Thank you.

And I'm showing no further questions at this time. I would like to turn the call back to Mr. Allen Palmiere for closing remarks.

Thank you, operator. I would like to thank everybody for participating. This has been a very unpleasant period of time for the entire operating team. And I would like to commend the operating team for the effort put in to keep the mine afloat. And now to be in a position to turn the mine around and restore it to where it has been historically. They have gone above and beyond. Shareholders, I appreciate your forbearance. I know that everybody is underwater. I’ve shared that I’m -- I share that pain, but I am very comfortable with where -- what we have in place to execute on a go-forward basis and restore value for our shareholders. And I assure you that is our entire focus. Operator, that concludes my remarks. Thank you once again, everyone, and we will talk soon for the Q1 conference call.