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GOLD RESOURCE CORP - Quarter Report: 2019 September (Form 10-Q)

Table of Contents

   

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to              

 

Commission File Number: 001-34857


Picture 1

Gold Resource Corporation

(Exact Name of Registrant as Specified in its charter)


 

 

 

Colorado

84-1473173

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

2886 Carriage Manor Point, Colorado Springs, Colorado 80906

(Address of Principal Executive Offices) (Zip Code)

 

(303) 320-7708

(Registrant’s telephone number including area code) 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading Symbol

Name of each exchange where registered

Common Stock

GORO

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No    

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act       

 

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 65,691,527 shares of common stock outstanding as of October 29, 2019.

 

 

 

 

Table of Contents

GOLD RESOURCE CORPORATION

 

FORM 10-Q

 

Index

 

 

 

 

 

Page

 

Part I - FINANCIAL INFORMATION 

 

 

 

Item 1.

    

Financial Statements 

 

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018 

 

1

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)

 

2

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

 

3

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)

 

4

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

5

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

Part II - OTHER INFORMATION 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 4. 

 

Mine Safety Disclosures

 

32

 

Item 6. 

 

Exhibits

 

33

 

Signatures 

 

34

 

 

 

 

 

 

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

GOLD RESOURCE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2019

    

2018

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,757

 

$

7,762

Gold and silver rounds/bullion

 

 

4,169

 

 

3,637

Accounts receivable, net

 

 

7,800

 

 

1,744

Inventories, net

 

 

24,065

 

 

14,342

Prepaid taxes

 

 

1,921

 

 

1,126

Prepaid expenses and other current assets

 

 

2,101

 

 

2,745

Total current assets

 

 

48,813

 

 

31,356

Property, plant and mine development, net

 

 

122,986

 

 

111,242

Operating lease assets, net

 

 

9,484

 

 

 -

Deferred tax assets, net

 

 

6,357

 

 

7,372

Other non-current assets

 

 

4,195

 

 

361

Total assets

 

$

191,835

 

$

150,331

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

13,253

 

$

12,429

Loans payable, current

 

 

870

 

 

765

Finance lease liabilities, current

 

 

440

 

 

412

Operating lease liabilities, current

 

 

8,630

 

 

 -

Mining royalty taxes payable, net

 

 

846

 

 

1,926

Accrued expenses and other current liabilities

 

 

2,280

 

 

2,030

Total current liabilities

 

 

26,319

 

 

17,562

Reclamation and remediation liabilities

 

 

4,907

 

 

3,298

Loans payable, long-term

 

 

1,005

 

 

1,378

Finance lease liabilities, long-term

 

 

549

 

 

831

Operating lease liabilities, long-term

 

 

864

 

 

 -

Total liabilities

 

 

33,644

 

 

23,069

Shareholders' equity:

 

 

 

 

 

 

Common stock - $0.001 par value, 100,000,000 shares authorized:

 

 

 

 

 

 

65,691,527 and 58,850,431 shares outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

136

 

 

69

Additional paid-in capital

 

 

147,751

 

 

121,592

Retained earnings

 

 

17,359

 

 

12,656

Treasury stock at cost, 336,398 shares

 

 

(5,884)

 

 

(5,884)

Accumulated other comprehensive loss

 

 

(1,171)

 

 

(1,171)

Total shareholders' equity

 

 

158,191

 

 

127,262

Total liabilities and shareholders' equity

 

$

191,835

 

$

150,331

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

GOLD RESOURCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Sales, net

 

$

40,066

 

$

24,258

 

$

96,018

 

$

87,177

Mine cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

Production costs

 

 

23,499

 

 

17,363

 

 

59,777

 

 

50,477

Depreciation and amortization

 

 

7,229

 

 

3,515

 

 

14,916

 

 

10,587

Reclamation and remediation

 

 

20

 

 

87

 

 

77

 

 

379

Total mine cost of sales

 

 

30,748

 

 

20,965

 

 

74,770

 

 

61,443

Mine gross profit

 

 

9,318

 

 

3,293

 

 

21,248

 

 

25,734

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

2,194

 

 

2,140

 

 

6,913

 

 

6,719

Exploration expenses

 

 

1,129

 

 

1,304

 

 

3,210

 

 

3,740

Other expense, net

 

 

600

 

 

568

 

 

518

 

 

1,356

Total costs and expenses

 

 

3,923

 

 

4,012

 

 

10,641

 

 

11,815

Income (loss) before income taxes

 

 

5,395

 

 

(719)

 

 

10,607

 

 

13,919

Provision for income taxes

 

 

2,417

 

 

62

 

 

4,949

 

 

5,489

Net income (loss)

 

$

2,978

 

$

(781)

 

$

5,658

 

$

8,430

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

$

(0.01)

 

$

0.09

 

$

0.15

Diluted

 

$

0.05

 

$

(0.01)

 

$

0.09

 

$

0.14

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

65,495,958

 

 

57,642,966

 

 

63,001,178

 

 

57,361,809

Diluted

 

 

65,796,899

 

 

57,642,966

 

 

63,336,131

 

 

58,252,652

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

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GOLD RESOURCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY 

(U.S. dollars in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019 and 2018

 

  

Number of
Common
Shares

  

Par Value of
Common
Shares

  

Additional Paid-
in Capital

  

Retained
Earnings

  

Treasury
Stock

  

Accumulated
Other
Comprehensive
Loss

  

Total
Shareholders'
Equity

Balance, June 30, 2018 (unaudited)

 

57,928,450

 

$

58

 

$

116,135

 

$

13,157

 

$

(5,884)

 

$

(1,171)

 

$

122,295

Stock-based compensation

 

 -

 

 

 -

 

 

605

 

 

 -

 

 

 -

 

 

 -

 

 

605

Net stock options exercised

 

51,667

 

 

 -

 

 

137

 

 

 -

 

 

 -

 

 

 -

 

 

137

Common stock issued for vested restricted stock units

 

74,957

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Dividends declared

 

 -

 

 

 -

 

 

 -

 

 

(287)

 

 

 -

 

 

 -

 

 

(287)

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(781)

 

 

 -

 

 

 -

 

 

(781)

Balance, September 30, 2018 (unaudited)

 

58,055,074

 

$

58

 

$

116,877

 

$

12,089

 

$

(5,884)

 

$

(1,171)

 

$

121,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019 (unaudited)

 

65,147,953

 

$

128

 

$

144,750

 

$

14,710

 

$

(5,884)

 

$

(1,171)

 

$

152,533

Stock-based compensation

 

 -

 

 

 -

 

 

367

 

 

 -

 

 

 -

 

 

 -

 

 

367

Net stock options exercised

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Common stock issued for vested restricted stock units

 

106,256

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Dividends declared

 

 -

 

 

 -

 

 

 -

 

 

(329)

 

 

 -

 

 

 -

 

 

(329)

Issuance of stock, net of issuance costs

 

773,716

 

 

 8

 

 

2,634

 

 

 -

 

 

 -

 

 

 -

 

 

2,642

Net income

 

 -

 

 

 -

 

 

 -

 

 

2,978

 

 

 -

 

 

 -

 

 

2,978

Balance, September 30, 2019 (unaudited)

 

66,027,925

 

$

136

 

$

147,751

 

$

17,359

 

$

(5,884)

 

$

(1,171)

 

$

158,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019 and 2018

 

  

Number of
Common
Shares

  

Par Value of
Common
Shares

  

Additional Paid-
in Capital

  

Retained
Earnings

  

Treasury
Stock

  

Accumulated
Other
Comprehensive
Loss

  

Total
Shareholders'
Equity

Balance, December 31, 2017

 

57,252,882

 

$

57

 

$

114,584

 

$

4,520

 

$

(5,884)

 

$

(1,171)

 

$

112,106

Stock-based compensation

 

 -

 

 

 -

 

 

1,090

 

 

 -

 

 

 -

 

 

 -

 

 

1,090

Net stock options exercised

 

712,271

 

 

 1

 

 

1,203

 

 

 -

 

 

 -

 

 

 -

 

 

1,204

Common stock issued for vested restricted stock units

 

89,921

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Dividends declared

 

 -

 

 

 -

 

 

 -

 

 

(861)

 

 

 -

 

 

 -

 

 

(861)

Net income

 

 -

 

 

 -

 

 

 -

 

 

8,430

 

 

 -

 

 

 -

 

 

8,430

Balance, September 30, 2018 (unaudited)

 

58,055,074

 

$

58

 

$

116,877

 

$

12,089

 

$

(5,884)

 

$

(1,171)

 

$

121,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

59,186,829

 

$

69

 

$

121,592

 

$

12,656

 

$

(5,884)

 

$

(1,171)

 

$

127,262

Stock-based compensation

 

 -

 

 

 -

 

 

1,581

 

 

 -

 

 

 -

 

 

 -

 

 

1,581

Net stock options exercised

 

69,448

 

 

 1

 

 

97

 

 

 -

 

 

 -

 

 

 -

 

 

98

Common stock issued for vested restricted stock units

 

121,060

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Dividends declared

 

 -

 

 

 -

 

 

 -

 

 

(955)

 

 

 -

 

 

 -

 

 

(955)

Issuance of stock, net of issuance costs

 

6,650,588

 

 

66

 

 

24,481

 

 

 -

 

 

 -

 

 

 -

 

 

24,547

Net income

 

 -

 

 

 -

 

 

 -

 

 

5,658

 

 

 -

 

 

 -

 

 

5,658

Balance, September 30, 2019 (unaudited)

 

66,027,925

 

$

136

 

$

147,751

 

$

17,359

 

$

(5,884)

 

$

(1,171)

 

$

158,191

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

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GOLD RESOURCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

5,658

 

$

8,430

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

Deferred income taxes

 

 

1,091

 

 

(467)

Depreciation and amortization

 

 

15,273

 

 

11,096

Stock-based compensation

 

 

1,581

 

 

1,090

Other operating adjustments

 

 

314

 

 

706

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(6,056)

 

 

1,456

Inventories

 

 

(7,119)

 

 

(340)

Prepaid expenses and other current assets

 

 

1,505

 

 

(390)

Other non-current assets

 

 

(2,882)

 

 

132

Accounts payable and other accrued liabilities

 

 

349

 

 

3,536

Mining royalty and income taxes payable, net

 

 

(1,944)

 

 

(4,428)

Net cash provided by operating activities

 

 

7,770

 

 

20,821

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(29,166)

 

 

(26,085)

Other investing activities

 

 

 2

 

 

 5

Net cash used in investing activities

 

 

(29,164)

 

 

(26,080)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

98

 

 

1,261

Proceeds from issuance of stock

 

 

24,449

 

 

 -

Dividends paid

 

 

(944)

 

 

(860)

Repayment of loans payable

 

 

(597)

 

 

(424)

Repayment of finance leases

 

 

(311)

 

 

(285)

Net cash provided by (used in) financing activities

 

 

22,695

 

 

(308)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(306)

 

 

(222)

Net increase (decrease) in cash and cash equivalents

 

 

995

 

 

(5,789)

Cash and cash equivalents at beginning of period

 

 

7,762

 

 

22,390

Cash and cash equivalents at end of period

 

$

8,757

 

$

16,601

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

Interest expense paid

 

$

121

 

$

140

Income and mining taxes paid

 

$

3,743

 

$

6,822

Non-cash investing activities:

 

 

 

 

 

 

Change in accrued capital expenditures

 

$

158

 

$

3,935

Change in estimate for asset retirement costs

 

$

1,476

 

$

527

Equipment purchased through loan payable

 

$

330

 

$

526

Equipment purchased under finance leases

 

$

56

 

$

17

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GOLD RESOURCE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

 

1. Basis of Preparation of Financial Statements

 

The interim Condensed Consolidated Financial Statements (“interim financial statements”) of Gold Resource Corporation and its subsidiaries (collectively, the “Company”) are unaudited and have been prepared in accordance with the rules of the Securities and Exchange Commission for interim statements. Certain information and footnote disclosures required by United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted as permitted by such rules, although the Company believes that the disclosures included are adequate to make the information presented not misleading. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K. The year-end balance sheet data was derived from the audited financial statements.  Unless otherwise noted, there have been no material changes to the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s annual report on Form 10-K.

 

Certain items in the prior period’s Condensed Consolidated Financial Statements have been reclassified to conform to the current presentation.

 

2. Recent Accounting Pronouncements

 

Recently Adopted Accounting Pronouncements

 

Accounting Standards Update No. 2016-02Leases (Topic 842). In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Reporting entities are also required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

The Company adopted the standard effective January 1, 2019 and elected certain available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The standard had a material impact on the Company’s Consolidated Balance Sheets but did not have a material impact on its Consolidated Statements of Operations. The most significant impact was the recognition of ROU assets and the current and long-term components of lease liabilities for operating leases, while the Company’s accounting for finance leases remained substantially unchanged. See Note 13 for more information.

 

Recently Issued Accounting Pronouncements

 

Accounting Standards Update No. 2018-07Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting (“ASU 2018-07”). In June 2018, the FASB issued new guidance regarding accounting for stock compensation.  The new guidance expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods or services from non-employees. ASU 2018-07 specifies that Topic 718

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applies to all share-based payment transactions in which the grantor acquires goods or services to be used or consumed in its operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU 2018-07 is effective for public entities beginning December 1, 2019, with early adoption permitted, but no earlier than the adoption of ASC 606. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

Accounting Standards Update No. 2018-09Codification Improvements (“ASU 2018-09”). In July 2018, the FASB issued new guidance which makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification (“ASC’). The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and were effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company does not expect the adoption of this guidance to have material impact on its consolidated financial statements.

 

3. Revenue

 

The Company derives its revenue from the sale of doré and concentrates.  The following table presents the Company’s net sales for each period presented, disaggregated by source:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(in thousands)

 

(in thousands)

Doré sales, net

 

 

 

 

 

 

 

 

 

 

 

 

Gold

 

$

7,399

 

$

2,080

 

$

12,192

 

$

5,711

Silver

 

 

619

 

 

449

 

 

1,670

 

 

1,218

Less: Refining charges

 

 

(39)

 

 

(43)

 

 

(138)

 

 

(106)

Total doré sales, net

 

 

7,979

 

 

2,486

 

 

13,724

 

 

6,823

Concentrate sales

 

 

 

 

 

 

 

 

 

 

 

 

Gold

 

 

7,767

 

 

4,777

 

 

19,072

 

 

15,714

Silver

 

 

6,370

 

 

4,056

 

 

15,673

 

 

18,940

Copper

 

 

2,502

 

 

2,308

 

 

7,237

 

 

7,326

Lead

 

 

4,480

 

 

3,998

 

 

11,874

 

 

11,343

Zinc

 

 

13,875

 

 

9,702

 

 

36,998

 

 

34,927

Less: Treatment and refining charges

 

 

(3,691)

 

 

(1,121)

 

 

(10,709)

 

 

(4,216)

Total concentrate sales, net

 

 

31,303

 

 

23,720

 

 

80,145

 

 

84,034

Realized/unrealized embedded derivative, net

 

 

784

 

 

(1,948)

 

 

2,149

 

 

(3,680)

Total sales, net

 

$

40,066

 

$

24,258

 

$

96,018

 

$

87,177

 

 

 

4. Gold and Silver Rounds/Bullion

 

The Company periodically purchases gold and silver bullion on the open market for investment purposes and to use in its dividend exchange program under which shareholders may exchange their cash dividends for minted gold and silver rounds.

 

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At September 30, 2019 and December 31, 2018, the Company’s holdings of rounds/bullion, using quoted market prices, consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

    

Ounces

    

Per Ounce

    

Amount

    

Ounces

    

Per Ounce

    

Amount

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

(in thousands)

Gold

 

1,881

 

$

1,485

 

$

2,793

 

1,888

 

$

1,279

 

$

2,415

Silver

 

79,718

 

$

17.26

 

 

1,376

 

79,864

 

$

15.30

 

 

1,222

Total holdings

 

 

 

 

 

 

$

4,169

 

 

 

 

 

 

$

3,637

 

 

5. Inventories, net 

 

At September 30, 2019 and December 31, 2018, inventories, net consisted of the following:  

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

(in thousands)

Stockpiles - underground mine

 

$

2,651

 

$

2,365

Stockpiles - open pit mine

 

 

757

 

 

414

Leach pad

 

 

10,075

 

 

376

Concentrates

 

 

1,546

 

 

1,231

Doré (1)

 

 

1,167

 

 

1,289

Subtotal - product inventories

 

 

16,196

 

 

5,675

Materials and supplies (2)

 

 

7,869

 

 

8,667

Total

 

$

24,065

 

$

14,342


(1)

Net of reserve of $478 and nil as of September 30, 2019 and December 31, 2018, respectively.

(2)

Net of reserve for obsolescence of $857.

In addition to the inventory above, as of September 30, 2019, the Company has $3.9 million of low-grade ore stockpile inventory included in other non-current assets on the accompanying Consolidated Balance Sheet.

During the three months ended September 30, 2019, the Company recorded a net realizable value inventory adjustment of $1.6 million for inventories at its Isabella Pearl Mine.

 

6. Income Taxes

 

The Company recorded income tax expense of $2.4 million and $4.9 million for the three and nine months ended September 30, 2019, respectively.  For the three and nine months ended September 30, 2018, the Company recorded income tax expense of $0.1 million and $5.5 million, respectively.  In accordance with applicable accounting rules, the interim provision for taxes was calculated by using the consolidated effective tax rate. The consolidated effective tax rate is a function of the combined effective tax rates for the jurisdictions in which the Company operates, including global intangible low-taxed income (“GILTI”). Variations in the relative proportions of jurisdictional income could result in fluctuations to the Company’s consolidated effective tax rate. The Company’s losses in the U.S. are taxed at 21% which is then netted against the Company’s income in Mexico which is taxed at 37.5% (30% income tax and 7.5% mining tax) which has resulted in a consolidated effective tax rate above statutory rates.

 

The Company periodically transfers funds from its Mexican wholly-owned subsidiary to the U.S. in the form of dividends. Mexico requires a 10% withholding tax on dividends to foreign parent companies on all post-2013 earnings.  Dividends from earnings generated prior to 2014 were exempted from the new dividend withholding tax. The Company commenced distribution of post-2013 earnings from Mexico in 2018.  According to the existing U.S. – Mexico tax treaty, the dividend withholding tax between these countries is limited to 5% if certain requirements are met.  Based on the Company’s review of these requirements, it estimates it will pay a 5% withholding tax on dividends

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received from Mexico in 2019.  The impact of the planned annual dividends for 2019 is reflected in the estimated annual effective tax rate.

 

As of September 30, 2019, the Company believes that it has no liability for uncertain tax positions.

 

7. Prepaid Expenses and Other Current Assets

 

At September 30, 2019 and December 31, 2018, prepaid expenses and other current assets consisted of the following:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

(in thousands)

Advances to suppliers

 

$

176

 

$

289

Prepaid insurance

 

 

1,142

 

 

1,179

Vendor deposits

 

 

51

 

 

236

IVA taxes receivable, net

 

 

224

 

 

538

Prepaid royalties

 

 

229

 

 

295

Other current assets

 

 

279

 

 

208

Total

 

$

2,101

 

$

2,745

 

 

8. Property, Plant and Mine Development, net

 

At September 30, 2019 and December 31, 2018, property, plant and mine development, net consisted of the following:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

(in thousands)

Asset retirement costs

 

$

2,716

 

$

1,240

Construction-in-progress (1)

 

 

22,479

 

 

34,335

Furniture and office equipment

 

 

2,034

 

 

1,861

Leach pad and ponds

 

 

5,621

 

 

 -

Land

 

 

242

 

 

242

Light vehicles and other mobile equipment

 

 

2,552

 

 

2,508

Machinery and equipment

 

 

32,811

 

 

27,485

Mill facilities and infrastructure

 

 

25,189

 

 

11,712

Mineral interests and mineral rights

 

 

18,228

 

 

17,958

Mine development

 

 

86,876

 

 

69,487

Software and licenses

 

 

1,659

 

 

1,659

Subtotal (2) (3)

 

 

200,407

 

 

168,487

Accumulated depreciation and amortization

 

 

(77,421)

 

 

(57,245)

Total

 

$

122,986

 

$

111,242


(1)

Includes Nevada construction-in-progress costs of $14.1 million and $21.6 million at September 30, 2019 and December 31, 2018, respectively.  Mexico construction-in-progress was $8.3 million and $12.7 million at September 30, 2019 and December 31, 2018, respectively.

(2)

Includes $1.8 million and $1.6 million of assets recorded under finance leases at September 30, 2019 and December 31, 2018, respectively. Please see Note 13 for additional information.

(3)

Includes accrued capital expenditures of $4.5 million and $4.3 million at September 30, 2019 and December 31, 2018, respectively.

 

The Company recorded depreciation and amortization expense of $7.4 million and $15.3 million for the three and nine months ended September 30, 2019, respectively.  For the three and nine months ended September 30, 2018, the Company recorded $3.7 million and $11.1 million, respectively.

 

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9. Accrued Expenses and Other Current Liabilities

 

At September 30, 2019 and December 31, 2018, accrued expenses and other current liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

(in thousands)

Accrued insurance

 

$

526

 

$

364

Accrued royalty payments

 

 

1,526

 

 

1,432

Dividends payable

 

 

109

 

 

98

Other payables

 

 

119

 

 

136

Total

 

$

2,280

 

$

2,030

 

 

10. Reclamation and Remediation

 

The following table presents the changes in reclamation and remediation obligations for the nine months ended September 30, 2019 and year ended December 31, 2018:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

(in thousands)

Reclamation liabilities – balance at beginning of period

 

$

2,009

 

$

2,005

Changes in estimate

 

 

 -

 

 

 -

Foreign currency exchange loss

 

 

 4

 

 

 4

Reclamation liabilities – balance at end of period

 

 

2,013

 

 

2,009

 

 

 

 

 

 

 

Asset retirement obligation – balance at beginning of period

 

 

1,289

 

 

941

Changes in estimate

 

 

1,476

 

 

271

Accretion

 

 

129

 

 

78

Foreign currency exchange loss

 

 

 -

 

 

(1)

Asset retirement obligation – balance at end of period

 

 

2,894

 

 

1,289

Total period end balance

 

$

4,907

 

$

3,298

 

The Company’s reclamation liabilities are related to the Aguila project in Mexico. 

 

The Company’s asset retirement obligations were discounted using a credit adjusted risk-free rate of 8%.  As of September 30, 2019 and December 31, 2018, the Company recorded an asset retirement obligation of $2.3 million and $0.8 million, respectively, related to the Isabella Pearl project. As of September 30, 2019 and December 31, 2018, the Company’s asset retirement obligation related to the Aguila project in Mexico was $0.6 million and $0.5 million, respectively.

 

11. Loans Payable

 

The Company has financed certain equipment purchases on a long-term basis.  The loans bear annual interest at rates ranging from 3% to 4.48%, are collateralized by the equipment, and require monthly principal and interest payments of $0.08 million.  As of September 30, 2019 and December 31, 2018, there was an outstanding balance of $1.9 million and $2.1 million, respectively.  Scheduled minimum repayments are $0.2 million in 2019, $0.9 million in 2020, $0.7 million in 2021, and $0.1 million in 2022. One of the loan agreements is subject to a prepayment penalty of 1% of the outstanding loan balance at time of repayment.  The fair value of the loans payable, based on Level 2 inputs, approximated the outstanding balance at both September 30, 2019 and December 31, 2018. See Note 19 for the definition of a Level 2 input.

 

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12. Commitments and Contingencies

 

The Company has a Contract Mining Agreement with a mining contractor relating to mining activities at its Isabella Pearl project.  Included in this Agreement is an embedded lease for the mining equipment for which the Company has recognized a right-of-use asset and corresponding operating lease liability. Please see Note 13 for more information.   In addition to the embedded lease payments, the Company pays the contract miner operational costs in the normal course of business.   These costs represent the remaining future contractual payments for the Contract Mining Agreement over its term.  The contractual payments are determined by rates within the Contract Mining Agreement, estimated tonnes moved and bank cubic yards for drilling and blasting.  As of September 30, 2019, total estimated contractual payments remaining, excluding embedded lease payments, are $2.8 million and $8.6 million for the years ended December 31, 2019 and 2020, respectively.

 

As of September 30, 2019, the Company has equipment purchase commitments aggregating approximately $1.3 million. 

 

 

13. Leases

 

Operating Leases

 

As discussed in Note 2 to the interim financial statements (see "Recent Adopted Accounting Pronouncements"), the Company adopted the new lease accounting standard on January 1, 2019.  Upon adoption, the Company recognized operating lease assets and corresponding operating lease liabilities totaling $14.2 million.  The Company’s finance leases did not change from December 31, 2018.

 

The Company leases office equipment and administrative offices from third parties as well as an administrative office from a related party.  In addition, the Company has an embedded lease in its Contract Mining Agreement.  Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases as incurred over the lease term.  For leases beginning in 2019 and later, the Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs).

 

Some leases include one or more options to renew, with renewal terms that can extend the lease term from one to two years. The exercise of lease renewal options is at the Company’s sole discretion. The depreciable life of assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.  The weighted average remaining lease term for the Company’s operating leases as of September 30, 2019 is 1.13 years.

 

The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on the lease term adjusted for impacts of collateral. The weighted average discount rate used to measure the Company’s operating lease liabilities as of September 30, 2019 was 4.48%.

 

There are no material residual value guarantees and no restrictions or covenants imposed by the Company’s leases.

 

Most of the Company’s leases have a standard payment schedule; however, the payments for its mining equipment embedded lease are determined by tonnage hauled.  This embedded lease is within a Contract Mining Agreement entered into for the mining activities at the Company’s Isabella Pearl project.  The payments, amortization of the right-of-use asset, and interest vary immaterially from forecasted amounts due to variable conditions at the mine. During the three months ended September 30, 2019, the Company capitalized variable lease costs of $0.3 million to Inventory and $1.4 million to Property, plant, and mine development, respectively.  During the nine months ended September 30, 2019, the Company capitalized variable lease costs of $1.8 million to Inventory and $3.2 million to Property, plant, and mine development, respectively.

 

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The components of all other lease costs recognized within the Company’s Condensed Consolidated Statements of Operations are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

Lease Cost Type

 

Condensed Consolidated Statements of Operations Location

    

2019

    

2019

 

 

 

    

(in thousands)

Operating lease cost

 

General and administrative expenses

 

$

20

 

$

61

Operating lease cost

 

Production costs

 

 

19

 

 

57

Related party lease cost

 

General and administrative expenses

 

 

14

 

 

35

Short term lease cost

 

Production costs

 

 

77

 

 

381

 

Maturities of operating lease liabilities as of September 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

Year Ending December 31:

 

 

    

 

 

2019

 

 

 

$

2,685

2020

 

 

 

 

6,884

2021

 

 

 

 

151

2022

 

 

 

 

13

Thereafter

 

 

 

 

 -

Total lease payments

 

 

 

 

9,733

Less imputed interest

 

 

 

 

(239)

Present value of minimum payments

 

 

 

 

9,494

Less: current portion

 

 

 

 

(8,630)

Present value of minimum payments

 

 

 

$

864

 

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2018 and under legacy lease accounting (ASC 840), future minimum lease payments, including both the future minimum lease payments and the other non-lease element payments for the Contract Mining Agreement, as of December 31, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

Year Ending December 31:

 

 

    

 

 

2019

 

 

 

$

16,259

2020

 

 

 

 

14,839

2021

 

 

 

 

72

2022

 

 

 

 

 -

Thereafter

 

 

 

 

 -

Total lease payments

 

 

 

$

31,170

 

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Finance Leases

 

The Company has finance lease agreements for certain equipment.  The leases bear annual imputed interest of 1.58% to 5.95% and require monthly principal, interest, and sales tax payments of $0.04 million.  The weighted average discount rate for the Company’s finance leases is 5.80%.  Scheduled minimum annual payments as of September 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

Year Ending December 31:

 

 

    

 

 

2019

 

 

 

$

121

2020

 

 

 

 

483

2021

 

 

 

 

419

2022

 

 

 

 

13

Thereafter

 

 

 

 

16

Total minimum obligations

 

 

 

 

1,052

Less: interest portion

 

 

 

 

(63)

Present value of minimum payments

 

 

 

 

989

Less: current portion

 

 

 

 

(440)

Present value of minimum payments

 

 

 

$

549

 

Scheduled minimum annual payments as of December 31, 2018 were as follows (in thousands):

 

 

 

 

 

 

 

Year Ending December 31:

 

 

    

 

 

2019

 

 

 

$

470

2020

 

 

 

 

470

2021

 

 

 

 

406

2022

 

 

 

 

 -

Thereafter

 

 

 

 

 -

Total minimum obligations

 

 

 

 

1,346

Less: interest portion

 

 

 

 

(103)

Present value of minimum payments

 

 

 

 

1,243

Less: current portion

 

 

 

 

(412)

Present value of minimum payments

 

 

 

$

831

 

The weighted average remaining lease term for the Company’s finance leases as of September 30, 2019 is 2.25 years.

 

Supplemental cash flow information related to the Company’s operating and finance leases is as follows for the three and nine months ended September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

 

 

    

2019

    

2019

 

 

 

    

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

 

 

$

355

 

$

1,987

Operating cash flows from finance leases

 

 

 

 

15

 

 

47

Investing cash flows from operating lease

 

 

 

 

1,374

 

 

3,162

Financing cash flows from finance leases

 

 

 

 

107

 

 

311

 

 

14. Embedded Derivatives

 

Concentrate sales contracts contain embedded derivatives due to the provisional pricing terms for unsettled shipments. At the end of each reporting period, the Company records an adjustment to accounts receivable and revenue

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to reflect the mark-to-market adjustments for outstanding provisional invoices based on metal forward prices. Please see Note 19 for additional information.

 

The following table summarizes the Company’s unsettled sales contracts as of September 30, 2019 with the quantities of metals under contract subject to final pricing occurring through November 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold

 

Silver

 

Copper

 

Lead

 

Zinc

 

    

(ounces)

    

(ounces)

    

(tonnes)

    

(tonnes)

    

(tonnes)

Under contract

 

 

6,098

 

 

438,237

 

 

456

 

 

3,059

 

 

6,719

Average forward price (per ounce or tonne)

 

$

1,457

 

$

16.63

 

$

5,786

 

$

2,003

 

$

2,361

 

 

15. Stock-Based Compensation

 

During 2016, the Company replaced its Amended and Restated Stock Option and Stock Grant Plan (the “Prior Plan”) with the Gold Resource Corporation 2016 Equity Incentive Plan (the “Incentive Plan”).  The Incentive Plan allows for the issuance of up to 5 million shares of common stock in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock units (“RSUs”), stock grants, stock units, performance shares, performance share units and performance cash.  Additionally, pursuant to the terms of the Incentive Plan, any award outstanding under the Prior Plan that is terminated, expired, forfeited, or canceled for any reason, will be available for grant under the Incentive Plan.

 

During the nine months ended September 30, 2019 and 2018, a total of 121,060 and 89,921 RSUs vested, respectively, and shares were issued with an intrinsic value of $0.4 million and $0.5 million, respectively, and a fair value of $0.6 million and $0.4 million, respectively.  During the three months ended September 30, 2019 and 2018, a total of 106,256 and 74,957 RSUs vested, respectively, and shares were issued with an intrinsic value of $0.4 million and a fair value of $0.5 million and $0.3 million, respectively

 

During the nine months ended September 30, 2019, stock options to purchase an aggregate of 274,750 shares of the Company’s common stock were exercised at a weighted average exercise price of $3.95 per share. Of that amount, 250,000 of the options were exercised on a net exercise basis, resulting in 44,698 shares being delivered.  The remaining 24,750 options were exercised for cash. No stock options were exercised during the three months ended September 30, 2019.

 

During the three months ended September 30, 2018, stock options to purchase an aggregate of 51,667 shares of the Company’s common stock were exercised for cash at a weighted average exercise price of $2.65 per share.  

 

During the nine months ended September 30, 2018, stock options to purchase an aggregate of 1,412,926 shares of the Company’s common stock were exercised at a weighted average exercise price of $3.13 per share.  Of that amount, 945,000 of the options were exercised on a net exercise basis, resulting in 244,345 shares being delivered.  The remaining 467,926 options were exercised for cash.

 

Stock-based compensation expense for stock options and RSUs for the periods presented is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(in thousands)

 

(in thousands)

Stock options

 

$

264

 

$

413

 

$

1,231

 

$

768

Restricted stock units

 

 

103

 

 

192

 

 

350

 

 

322

Total

 

$

367

 

$

605

 

$

1,581

 

$

1,090

 

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Total stock-based compensation related to stock options and RSUs has been allocated between production costs, general and administrative expenses, and exploration expense as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(in thousands)

 

(in thousands)

Production costs

 

$

26

 

$

31

 

$

32

 

$

43

General and administrative expenses

 

 

324

 

 

531

 

 

1,521

 

 

955

Exploration expense

 

 

17

 

 

43

 

 

28

 

 

92

Total

 

$

367

 

$

605

 

$

1,581

 

$

1,090

The Company has a short-term incentive plan for its executive officers that provides for the grant of either cash or stock-based bonus awards payable upon achievement of specified performance metrics (the “STIP”). As of September 30, 2019, nil has been accrued related to the STIP.

 

16. Shareholders’ Equity

On April 3, 2018, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with an investment banking firm (“Agent”) pursuant to which the Agent agreed to act as the Company’s sales agent with respect to the offer and sale from time to time of the Company’s common stock having an aggregate gross sales price of up to $75.0 million (the “Shares”).  The ATM Agreement will remain in full force and effect until the earlier of April 3, 2021, or the date that the ATM Agreement is terminated in accordance with the terms therein. An aggregate of 773,716 shares and 6,625,588 shares of the Company’s common stock were sold through the ATM Agreement during the three and nine months ended September 30, 2019, for net proceeds to the Company, after deducting the Agent’s commissions and other expenses, of $2.6 million and $24.4 million, respectively.

During the nine months ended September 30, 2019, the Company issued 25,000 shares of its common stock as payment for a one-year investor relations agreement with a third-party.

During the three and nine months ended September 30, 2019, the Company declared dividends of $0.005 and $0.015 per common share, respectively, for an aggregate total of $0.3 million and $1.0 million, respectively, and paid dividends of $0.005 and $0.015 per common share, respectively, for an aggregate total of $0.3 million and $0.9 million, respectively.  During the three and nine months ended September 30, 2018, the Company declared and paid dividends of $0.005 and $0.015, respectively, per common share for an aggregate total of $0.3 million and $0.9 million, respectively.

17. Other Expense, net

 

Other expense, net, for the periods presented consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(in thousands)

 

(in thousands)

Unrealized currency exchange loss (gain)

 

$

406

 

$

(315)

 

$

294

 

$

(241)

Realized currency exchange (gain) loss

 

 

(69)

 

 

275

 

 

103

 

 

864

Unrealized (gain) loss from gold and silver rounds/bullion, net (1)

 

 

(307)

 

 

256

 

 

(550)

 

 

397

Loss on disposal of fixed assets

 

 

 -

 

 

380

 

 

 -

 

 

385

Increase in reserve for inventory

 

 

478

 

 

 -

 

 

478

 

 

 -

Other expense (income)

 

 

92

 

 

(28)

 

 

193

 

 

(49)

Total

 

$

600

 

$

568

 

$

518

 

$

1,356


(1)

Gains and losses due to changes in fair value are non-cash in nature until such time that they are realized through cash transactions.  For

14

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additional information regarding the Company’s fair value measurements and investments, please see Note 19.

 

 

18. Net Income (Loss) per Common Share

 

Basic earnings per common share is calculated based on the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated based on the assumption that stock options and other dilutive securities outstanding, which have an exercise price less than the average market price of the Company’s common shares during the period, would have been exercised on the later of the beginning of the period or the date granted and that the funds obtained from the exercise were used to purchase common shares at the average market price during the period. All the Company’s restricted stock units are considered to be dilutive.

 

The effect of the Company’s dilutive securities is calculated using the treasury stock method and only those instruments that result in a reduction in net income per common share are included in the calculation. Options to purchase 3.9 million and 3.3 million shares of common stock at weighted average exercise prices of $9.73 and $10.89 were outstanding at September 30, 2019 and 2018, respectively, but were not included in the computation of diluted weighted average common shares outstanding, as the exercise price of the options exceeded the average price of the Company’s common stock during those periods, and therefore are anti-dilutive.

 

Basic and diluted net income per common share is calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Net income (loss) (in thousands)

 

$

2,978

 

$

(781)

 

$

5,658

 

$

8,430

Basic weighted average shares of common stock outstanding

 

 

65,495,958

 

 

57,642,966

 

 

63,001,178

 

 

57,361,809

Dilutive effect of share-based awards

 

 

300,941

 

 

 -

 

 

334,953

 

 

890,843

Diluted weighted average common shares outstanding

 

 

65,796,899

 

 

57,642,966

 

 

63,336,131

 

 

58,252,652

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

$

(0.01)

 

$

0.09

 

$

0.15

Diluted

 

$

0.05

 

$

(0.01)

 

$

0.09

 

$

0.14

 

 

19. Fair Value Measurement

 

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: 

 

Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; 

 

Level 2Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and 

 

Level 3Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). 

 

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Table of Contents

As required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth certain of the Company’s assets and liabilities measured at fair value by level within the fair value hierarchy as of September 30, 2019 and December 31, 2018:  

 

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

    

Input Hierarchy Level

 

 

(in thousands)

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Bank deposits

 

$

8,757

 

$

7,762

 

Level 1

Gold and silver rounds/bullion

 

 

4,169

 

 

3,637

 

Level 1

Accounts receivable:

 

 

 

 

 

 

 

 

Receivables from provisional concentrate sales

 

 

7,800

 

 

1,744

 

Level 2

Loans payable

 

 

1,875

 

 

2,143

 

Level 2

 

Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value. Gold and silver rounds/bullion consist of precious metals used for investment purposes and in the dividend program which are valued using quoted market prices. Please see Note 4 for additional information.

 

Trade accounts receivable include amounts due to the Company for deliveries of concentrates and doré sold to customers, net of allowance for doubtful accounts of $1.4 million. Concentrate sales contracts provide for provisional pricing as specified in such contracts. These sales contain an embedded derivative related to the provisional pricing mechanism which is bifurcated and accounted for as a derivative. At the end of each reporting period, the Company records an adjustment to sales to reflect the mark-to-market of outstanding provisional invoices based on the forward price curve. Because these provisionally priced sales have not yet settled as of the reporting date, the mark-to-market adjustment related to these invoices is included in accounts receivable as of each reporting date.  At September 30, 2019 and December 31, 2018, the Company had unrealized gains of $0.7 million and unrealized losses of $0.1 million, respectively, included in its accounts receivable on the accompanying Condensed Consolidated Balance Sheets related to mark-to-market adjustments.  Please see Note 14 for additional information.

 

Loans payable consist of obligations for equipment purchases financed on a long-term basis.  Loans payable are recorded at amortized cost, which approximates fair value. See Note 11 for additional information.

 

Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s Condensed Consolidated Statements of Operations as shown in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

 

 

    

2019

    

2018

    

2019

    

2018

    

Statement of Operations Classification

 

    

(in thousands)

 

 

Realized/unrealized derivative gain (loss), net

 

$

784

 

$

(1,948)

 

$

2,149

 

$

(3,680)

 

Sales, net

Realized/unrealized gold and silver rounds/bullion gain (loss), net

 

$

306

 

$

(258)

 

$

545

 

$

(402)

 

Other expense, net

 

16

Table of Contents

Realized/Unrealized Derivatives

 

The following tables summarize the Company’s realized/unrealized derivatives for the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Gold

    

Silver

    

Copper

    

Lead

    

Zinc

    

Total

Three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain (loss)

 

$

23

 

$

33

 

$

52

 

$

(78)

 

$

(275)

 

$

(245)

Unrealized gain

 

 

181

 

 

378

 

 

18

 

 

200

 

 

252

 

 

1,029

Total realized/unrealized derivatives, net

 

$

204

 

$

411

 

$

70

 

$

122

 

$

(23)

 

$

784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Gold

    

Silver

    

Copper

    

Lead

    

Zinc

    

Total

Three months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized loss

 

$

(88)

 

$

(73)

 

$

(193)

 

$

(320)

 

$

(2,506)

 

$

(3,180)

Unrealized (loss) gain

 

 

(38)

 

 

(186)

 

 

39

 

 

(271)

 

 

1,688

 

 

1,232

Total realized/unrealized derivatives, net

 

$

(126)

 

$

(259)

 

$

(154)

 

$

(591)

 

$

(818)

 

$

(1,948)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Gold

    

Silver

    

Copper

    

Lead

    

Zinc

    

Total

Nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain (loss)

 

$

195

 

$

129

 

$

120

 

$

(97)

 

$

1,022

 

$

1,369

Unrealized gain

 

 

145

 

 

318

 

 

65

 

 

123

 

 

129

 

 

780

Total realized/unrealized derivatives, net

 

$

340

 

$

447

 

$

185

 

$

26

 

$

1,151

 

$

2,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Gold

    

Silver

    

Copper

    

Lead

    

Zinc

    

Total

Nine months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized loss

 

$

(74)

 

$

(126)

 

$

(140)

 

$

(325)

 

$

(1,515)

 

$

(2,180)

Unrealized gain (loss)

 

 

24

 

 

(24)

 

 

(164)

 

 

(432)

 

 

(904)

 

 

(1,500)

Total realized/unrealized derivatives, net

 

$

(50)

 

$

(150)

 

$

(304)

 

$

(757)

 

$

(2,419)

 

$

(3,680)

 

 

 

 

20. Supplementary Cash Flow Information

 

Other operating adjustments and write-downs within the net cash provided by operations on the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 consisted of the following:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

(in thousands)

Unrealized (gain) loss on gold and silver rounds/bullion

 

$

(550)

 

$

397

Unrealized foreign currency exchange loss (gain)

 

 

294

 

 

(241)

Loss on disposition of fixed assets

 

 

 -

 

 

385

Increase in reserve for inventory

 

 

478

 

 

 -

Other

 

 

92

 

 

165

Total other operating adjustments

 

$

314

 

$

706

 

 

21. Segment Reporting

 

The Company has organized its operations into two geographic regions. The geographic regions include Oaxaca, Mexico and Nevada, U.S.A. and represent the Company’s operating segments. Inter-company revenue and expense amounts have been eliminated within each segment in order to report on the basis that management uses internally for evaluating segment performance.  The Company’s business activities that are not considered operating segments are included in Corporate and Other.

 

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Table of Contents

The financial information relating to the Company’s segments is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Mexico

    

Nevada

    

Corporate and Other

 

Consolidated

Three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

34,086

 

$

5,980

 

$

 -

 

$

40,066

Exploration expense

 

 

775

 

 

322

 

 

32

 

 

1,129

Net income (loss)

 

 

5,426

 

 

(480)

 

 

(1,968)

 

 

2,978

Capital expenditures

 

 

3,870

 

 

6,056

 

 

12

 

 

9,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

    

Nevada

    

Corporate and Other

 

Consolidated

Three months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

24,258

 

$

 -

 

$

 -

 

$

24,258

Exploration expense

 

 

630

 

 

630

 

 

44

 

 

1,304

Net income (loss)

 

 

2,453

 

 

(644)

 

 

(2,590)

 

 

(781)

Capital expenditures

 

 

6,269

 

 

8,769

 

 

26

 

 

15,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

Nevada

 

Corporate and Other

 

Consolidated

Nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

88,498

 

$

7,520

 

$

 -

 

$

96,018

Exploration expense

 

 

2,370

 

 

770

 

 

70

 

 

3,210

Net income (loss)

 

 

12,785

 

 

(454)

 

 

(6,673)

 

 

5,658

Capital expenditures (1)

 

 

13,205

 

 

17,969

 

 

12

 

 

31,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

Nevada

 

Corporate and Other

 

Consolidated

Nine months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

87,177

 

$

 -

 

$

 -

 

$

87,177

Exploration expense

 

 

1,616

 

 

2,007

 

 

117

 

 

3,740

Net income (loss)

 

 

18,077

 

 

(2,143)

 

 

(7,504)

 

 

8,430

Capital expenditures (2)

 

 

17,973

 

 

13,091

 

 

26

 

 

31,090

 

(1)

Includes an increase in accrued capital expenditures of $158 and non-cash additions of $1,862; consolidated capital expenditures on a cash basis were $29,166.

(2)

Includes an increase in accrued capital expenditures of $3,935 and non-cash additions of $1,070; consolidated capital expenditures on a cash basis were $26,085.

 

Total asset balances, excluding intercompany balances, at September 30, 2019 and December 31, 2018 are as follows:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

(in thousands)

Mexico

 

$

97,230

 

$

91,590

Nevada

 

 

82,850

 

 

46,677

Corporate and Other

 

 

11,755

 

 

12,064

Consolidated

 

$

191,835

 

$

150,331

 

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Table of Contents

ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion summarizes the results of operations of Gold Resource Corporation and its subsidiaries (“we”, “our”, or “us”) for the three and nine months ended September 30, 2019 and compares those results to the three and nine months ended September 30, 2018. It also analyzes our financial condition at September 30, 2019 and compares it to our financial condition at December 31, 2018. This discussion should be read in conjunction with the management’s discussion and analysis and the audited consolidated financial statements and footnotes for the year ended December 31, 2018 contained in our annual report on Form 10-K for the year ended December 31, 2018.

 

The discussion also presents certain financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles (“non-GAAP”) but which are important to management in its evaluation of our operating results and are used by management to compare our performance with what we perceive to be peer group mining companies and are relied on as part of management’s decision-making process. Management believes these measures may also be important to investors in evaluating our performance. For a detailed description of each of the non-GAAP financial measures, please see the discussion below under Non-GAAP Measures.

 

See Forward-Looking Statements at the end of this Item 2 for important information regarding statements contained herein.

 

Highlights

 

Consolidated highlights for the third quarter of 2019 are summarized below and discussed further in our Management’s Discussion and Analysis:

 

·

Record quarter gold production;

·

$40.1 million sales;

·

$3.0 million net income;

·

$0.05 net income per share;

·

$8.8 million cash balance at September 30, 2019;

·

$0.3 million dividend distributions, or $0.005 per share for the quarter;

·

Nevada Mining Unit’s Isabella Pearl Mine reached commercial production levels in September; and

·

No ATM sales since July 30, 2019.

 

Overview

 

We are a mining company which pursues gold and silver projects that are expected to have both low operating costs and high returns on capital. We are presently focused on mineral production from the Aguila and Alta Gracia projects within our Oaxaca Mining Unit and mineral production from the mine and processing facilities at our Isabella Pearl project within our Nevada Mining Unit. Our processing facilities at the Aguila project produce doré and concentrates primarily from ore mined from the Arista underground mine, which contains precious metals of gold and silver and base metals of copper, lead and zinc, and from the Mirador underground mine, which contains gold and silver. Additionally, we are focused on the exploration and evaluation of our other properties in both Mexico and Nevada. 

 

Precious metal gold equivalent, used periodically throughout this discussion, is determined by taking gold ounces produced or sold, plus silver ounces produced or sold converted to precious metal gold equivalent ounces using the gold to silver average price ratio for the period. The gold and silver average prices used to determine the gold to silver average price ratio are the actual metal prices realized from sales of our gold and silver.

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Table of Contents

 

Exploration and Development Activities

 

We perform exploration activities at our portfolio of exploration properties in Oaxaca, Mexico and Nevada, U.S.A. All of the properties that make up our Oaxaca Mining Unit are located along what is known as the San Jose structural corridor in the Sierra Madre Sur, which runs north 70 degrees west. Our properties comprise 55 kilometers of this structural corridor which spans three historic mining districts in Oaxaca. Our Nevada Mining Unit properties are in the Walker Lane Mineral Belt which is known for its significant and high-grade gold-silver production from current and historic mines.

 

Oaxaca Mining Unit, Mexico

 

The Aguila project: Our Arista Mine activities during the third quarter of 2019 continued to focus on development and ore extraction from the Arista and Switchback vein systems.  Exploration during the quarter continued to focus on underground drilling at the Arista and Switchback veins.  Underground drilling mainly targeted the southeast expansion of the Baja and Este Sur veins currently in production.  The Switchback drilling program targeted further expansion and delineation of the multiple high-grade parallel veins for reserve definition, expansion and mine plan optimization.  The Switchback vein system remains open on strike and vertical extent.  Nine underground diamond drill holes totaling 2,372 meters were completed at the Aguila project during the third quarter of 2019.  During the quarter, surface geologic mapping and rock chip sampling was also conducted at the Aguila open pit and prospects of the Aguila project.

 

Alta Gracia project: Mirador Mine development continued during the third quarter of 2019.  Development focused on the wide, high-grade ore shoot discovered on the Independencia vein during 2018 exploration.  We are trucking and processing this development ore at the Aguila mill.  During the third quarter, nine in-fill and step-out surface and underground diamond drill holes totaling 1,510 meters were completed on the Independencia vein.  Field exploration activities including surface geologic mapping and rock chip sampling were also undertaken at the Aguacatillo prospect on the Alta Gracia project during the quarter.

 

Nevada Mining Unit, U.S.A.

 

Isabella Pearl project: Construction and testing of processing facilities at our Isabella Pearl project continued during the third quarter of 2019.  We have substantially completed the construction of the ADR plant which is scheduled for testing and commissioning in the fourth quarter.  During the third quarter, we continued mining and placing crushed ore on the heap leach pad and continued applying and circulating leach solution to the ore on the heap leach pad for gold dissolution and gold recovery to carbon.  Also, during the quarter, we continued shipping gold-loaded carbon to a third-party to be processed into doré.  Upon final commissioning of the ADR plant, we will be producing doré at the Isabella Pearl Mine site.

 

Exploration during the third quarter included targeted expansion of the Isabella Pearl open pit deposit, including 23 in-fill and step-out drill holes totaling 2,807 meters on the Pearl, Civit Cat North and Scarlet targets.  Numerous high-grade surface samples are situated over historic drill intercepts at Civit Cat North and Scarlet.  Surface geological and alteration mapping and rock chip sampling continued on the historic mining area at the Civit Cat North West target.  This area is targeted for surface drilling in the future.

 

Mina Gold property: During the third quarter, we expanded our land position at Mina Gold by leasing an additional 23 lode mining claims.  These claims will be evaluated along with our other claims at the Mina Gold property in preparation for future surface drilling programs.

 

East Camp Douglas property:  We continued our review of historical geological, exploration and mining data on the East Camp Douglas property during the third quarter of 2019. Field exploration activities included surface geologic mapping, rock chip sampling and collection of samples for spectral analysis in the vicinity of workings of the historic Kernick, Sunset, and Triumph mine areas. We also commenced initial 3D-modeling for the historic mine areas.  These historic mines and the lithocap area continue to be evaluated for surface drilling in the future.

 

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Table of Contents

Consolidated Results of Operations

 

The following table summarizes our consolidated results of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(in thousands)

Sales, net

 

$

40,066

 

$

24,258

 

$

96,018

 

$

87,177

Mine gross profit

 

 

9,318

 

 

3,293

 

 

21,248

 

 

25,734

General and administrative expenses

 

 

2,194

 

 

2,140

 

 

6,913

 

 

6,719

Exploration expenses

 

 

1,129

 

 

1,304

 

 

3,210

 

 

3,740

Other expense, net

 

 

600

 

 

568

 

 

518

 

 

1,356

Income (loss) before income taxes

 

 

5,395

 

 

(719)

 

 

10,607

 

 

13,919

Provision for income taxes

 

 

2,417

 

 

62

 

 

4,949

 

 

5,489

Net income (loss)

 

$

2,978

 

$

(781)

 

$

5,658

 

$

8,430

 

During the three months ended September 30, 2019, consolidated sales included 10,219 ounces and 414,622 ounces of gold and silver, respectively.  During the nine months ended September 30, 2019, we sold 22,376 ounces and 1,100,277 ounces of gold and silver, respectively.

 

Oaxaca Mining Unit Sales, net

 

Oaxaca Mining Unit net sales of $34.1 million for the third quarter of 2019 increased by $9.8 million, or 40%, when compared to the same period in 2018. The increase was primarily a result of higher sales volumes as a result of higher production and increased average realized prices.  For the three months ended September 30, 2019, metal prices increased from the same period in 2018 as follows: gold by 26% to $1,490, silver by 16% to $17.08 per ounce, copper by 1% to $5,659 per tonne, lead by 4% to $2,012 per tonne, and zinc by 24% to $2,261 per tonne.

 

Metal sales for the nine months ended September 30, 2019 were $88.5 million as compared to $87.2 million for the same period of 2018, representing an $1.3 million increase. The increase is primarily attributable to higher gold and base metal volumes sold and higher average realized price for gold.  These increases were partially offset by higher concentrate treatment charges, lower silver metal sales volumes and lower average realized silver and base metals prices.

 

During the three months ended September 30, 2019, we sold 6,175 gold ounces and 411,088 silver ounces at a total cash cost after by-product credits per precious metal gold equivalent ounce of $197, as compared to a cash cost of $582 in the same period in 2018.  The decrease was a result of higher by-product credits from the sale of base metals and higher gold equivalent ounces from silver. Please see Non-GAAP Measures below for additional information concerning the cash cost per ounce measures.  

 

21

Table of Contents

The following Sales Statistics table summarizes certain information about our Oaxaca Mining Unit operations for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal sold

 

 

 

 

 

 

 

 

 

 

 

 

Gold (ozs.)

 

 

6,175

 

 

5,721

 

 

17,201

 

 

16,744

Silver (ozs.)

 

 

411,088

 

 

301,717

 

 

1,096,131

 

 

1,244,092

Copper (tonnes)

 

 

451

 

 

378

 

 

1,220

 

 

1,101

Lead (tonnes)

 

 

2,188

 

 

1,905

 

 

5,961

 

 

4,862

Zinc (tonnes)

 

 

6,016

 

 

3,942

 

 

14,389

 

 

11,527

Average metal prices realized (1)

 

 

 

 

 

 

 

 

 

 

 

 

Gold ($ per oz.)

 

 

1,490

 

 

1,183

 

 

1,391

 

 

1,275

Silver ($ per oz.)

 

 

17.08

 

 

14.69

 

 

15.94

 

 

16.10

Copper ($ per tonne)

 

 

5,659

 

 

5,593

 

 

6,027

 

 

6,526

Lead ($ per tonne)

 

 

2,012

 

 

1,931

 

 

1,976

 

 

2,266

Zinc ($ per tonne)

 

 

2,261

 

 

1,825

 

 

2,642

 

 

2,899

Precious metal gold equivalent ounces sold

 

 

 

 

 

 

 

 

 

 

 

 

Gold Ounces

 

 

6,175

 

 

5,721

 

 

17,201

 

 

16,744

Gold Equivalent Ounces from Silver

 

 

4,712

 

 

3,745

 

 

12,561

 

 

15,710

Total Precious Metal Gold Equivalent Ounces

 

 

10,887

 

 

9,466

 

 

29,762

 

 

32,454

Total cash cost before by-product credits per precious metal gold equivalent ounce sold

 

$

2,085

 

$

1,954

 

$

2,201

 

$

1,687

Total cash cost after by-product credits per precious metal gold equivalent ounce sold (2)

 

$

197

 

$

582

 

$

281

 

$

97

Total all-in sustaining cost per precious metal gold equivalent ounce sold

 

$

520

 

$

1,338

 

$

677

 

$

724


(1)

Average metal prices realized vary from the market metal prices due to final settlement adjustments from our provisional invoices when they are settled. Our average metal prices realized will therefore differ from the market average metal prices in most cases.

(2)

Total cash cost after by-product credits are significantly affected by base metals sales during the periods presented.

 

Oaxaca Mining Unit Production 

 

Gold and silver production for the third quarter of 2019 totaled 7,462 ounces and 473,810 ounces, respectively, compared to 6,411 and 321,590 ounces over the same period in 2018.  The increase in gold and silver production was the result of increased throughput and grades.  Overall production benefited from increased average milled tonnage of 2,007 tonnes per day or 12% increase when compared to the same period in 2018.  The additional mill throughput was for the most part a result of improvements to the Arista mill grinding capacity.

 

For the nine months ended September 30, 2019, we produced 21,881 and 1,304,975 ounces of gold and silver, respectively, as compared to 18,864 and 1,341,429 ounces of gold and silver, respectively, over the same period in 2018.  Our mill throughput increased 14% during the nine months ended September 30, 2019 as compared to 2018.  This increased throughput increased overall production and helped offset the decrease in silver grades for silver production.        

 

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The following Production Statistics table summarizes certain information about our Oaxaca Mining Unit operations for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Arista Mine

 

 

 

 

 

 

 

 

 

 

 

 

Milled

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes Milled

 

 

163,259

 

 

143,110

 

 

 469,167

 

 

410,697

Grade

 

 

 

 

 

 

 

 

 

 

 

 

Average Gold Grade (g/t)

 

 

1.76

 

 

1.51

 

 

1.72

 

 

1.64

Average Silver Grade (g/t)

 

 

85

 

 

72

 

 

84

 

 

106

Average Copper Grade (%)

 

 

0.39

 

 

0.37

 

 

0.38

 

 

0.37

Average Lead Grade (%)

 

 

1.92

 

 

1.82

 

 

1.91

 

 

1.64

Average Zinc Grade (%)

 

 

4.70

 

 

4.21

 

 

4.71

 

 

4.23

Aguila Open Pit Mine

 

 

 

 

 

 

 

 

 

 

 

 

Milled

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes Milled

 

 

3,640

 

 

11,404

 

 

23,976

 

 

25,730

Grade

 

 

 

 

 

 

 

 

 

 

 

 

Average Gold Grade (g/t)

 

 

1.49

 

 

2.30

 

 

1.76

 

 

2.11

Average Silver Grade (g/t)

 

 

58

 

 

39

 

 

45

 

 

41

Mirador Mine

 

 

 

 

 

 

 

 

 

 

 

 

Milled

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes Milled

 

 

11,690

 

 

3,561

 

 

22,540

 

 

11,244

Grade

 

 

 

 

 

 

 

 

 

 

 

 

Average Gold Grade (g/t)

 

 

0.76

 

 

1.41

 

 

0.95

 

 

1.40

Average Silver Grade (g/t)

 

 

197

 

 

105

 

 

203

 

 

158

Combined

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes milled

 

 

178,589

 

 

158,075

 

 

 515,683

 

 

447,671

Tonnes Milled per Day (1)

 

 

2,007

 

 

1,796

 

 

1,967

 

 

1,724

Metal production (before payable metal deductions) (2)

 

 

 

 

 

 

 

 

 

 

 

 

Gold (ozs.)

 

 

7,462

 

 

6,411

 

 

21,881

 

 

18,864

Silver (ozs.)

 

 

473,810

 

 

321,590

 

 

1,304,975

 

 

1,341,429

Copper (tonnes)

 

 

492

 

 

434

 

 

1,407

 

 

1,206

Lead (tonnes)

 

 

2,459

 

 

2,119

 

 

6,916

 

 

5,274

Zinc (tonnes)

 

 

6,057

 

 

4,970

 

 

17,949

 

 

14,236


(1)

Based on actual days the mill operated during the period.

(2)

The difference between what we report as "ounces/tonnes produced" and "payable ounces/tonnes sold" is attributable to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually paid for according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades and recoveries which impact the amount of metals contained in concentrates produced and sold.

 

Nevada Mining Unit Sales, net

 

In May of 2019, we began selling gold and silver doré from our Isabella Pearl Mine.  During the three months ended September 30, 2019, we sold 4,044 and 3,534 ounces of gold and silver, respectively, for net sales of $6.0 million. During the nine months ended September 30, 2019, we sold 5,175 and 4,146 ounces of gold and silver, respectively, for net sales of $7.5 million.

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The following Sales Statistics table summarizes certain information about our Nevada Mining Unit operations for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal sold

 

 

 

 

 

 

 

 

 

 

 

 

Gold (ozs.)

 

 

4,044

 

 

 -

 

 

5,175

 

 

 -

Silver (ozs.)

 

 

3,534

 

 

 -

 

 

4,146

 

 

 -

Average metal prices realized (1)

 

 

 

 

 

 

 

 

 

 

 

 

Gold ($ per oz.)

 

 

1,481

 

 

 -

 

 

1,455

 

 

 -

Silver ($ per oz.)

 

 

17.56

 

 

 -

 

 

17.19

 

 

 -

Precious metal gold equivalent ounces sold

 

 

 

 

 

 

 

 

 

 

 

 

Gold Ounces

 

 

4,044

 

 

 -

 

 

5,175

 

 

 -

Gold Equivalent Ounces from Silver

 

 

42

 

 

 -

 

 

49

 

 

 -

Total Precious Metal Gold Equivalent Ounces

 

 

4,086

 

 

 -

 

 

5,224

 

 

 -

Total cash cost before by-product credits per precious metal gold equivalent ounce sold

 

$

1,119

 

$

 -

 

$

989

 

$

 -

Total cash cost after by-product credits per precious metal gold equivalent ounce sold

 

$

1,103

 

$

 -

 

$

975

 

$

 -

Total all-in sustaining cost per precious metal gold equivalent ounce sold

 

$

1,125

 

$

 -

 

$

992

 

$

 -


(1)

Average metal prices realized vary from the market metal prices due to final settlement adjustments from our provisional invoices when they are settled. Our average metal prices realized will therefore differ from the market average metal prices in most cases.

 

Nevada Mining Unit Production 

 

During the three months ended September 30, 2019, our Isabella Pearl Mine produced 3,703 ounces and 3,487 ounces of gold and silver, respectively.  During the nine months ended September 30, 2019, our Isabella Pearl Mine produced 5,381 ounces and 4,459 ounces of gold and silver, respectively.

 

The following Production Statistics table summarizes certain information about our Isabella Pearl operations for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Ore mined

 

 

 

 

 

 

 

 

 

 

 

 

Ore (tonnes)

 

 

82,169

 

 

 -

 

 

770,446

 

 

 -

Gold grade (g/t)

 

 

0.75

 

 

 -

 

 

0.70

 

 

 -

Low-grade stockpile (tonnes)

 

 

 

 

 

 

 

 

 

 

 

 

Ore (tonnes)

 

 

83,394

 

 

 -

 

 

472,120

 

 

 -

Gold grade (g/t)

 

 

0.47

 

 

 -

 

 

0.52

 

 

 -

Waste (tonnes)

 

 

1,248,891

 

 

 -

 

 

2,947,339

 

 

 -

Metal production (before payable metal deductions) (1)

 

 

 

 

 

 

 

 

 

 

 

 

Gold (ozs.)

 

 

3,703

 

 

 -

 

 

5,381

 

 

 -

Silver (ozs.)

 

 

3,487

 

 

 -

 

 

4,459

 

 

 -

 


(1)

The difference between what we report as "ounces produced" and "payable ounces sold" is attributable to the difference between the quantities of metals contained in the doré we produce versus the portion of those metals actually paid for according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades and recoveries which impact the amount of metals contained in doré produced and sold.

 

Consolidated Other Financial Results

 

Mine gross profit.  For the three months ended September 30, 2019, mine gross profit increased by $6.0 million or 183% compared to the same period in 2018. The increase was primarily due to metals sales as a result of higher average realized prices as compared to 2018. For the nine months ended September 30, 2019, mine gross profit decreased $4.5 million or 17% as compared to the same period in 2018.  The decrease was a result of higher treatment charges and

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increased production costs related to the increased throughput.  These increased costs were offset with higher average realized prices. The three and nine months ended September 30, 2019 included a net realizable value inventory adjustment of $1.6 million for Isabella Pearl that reduced consolidated mine gross profit.  This adjustment was primarily due to initial low grade ore that was placed on the leach pad during production ramp up.

 

General and administrative expenses. For the three and nine months ended September 30, 2019, general and administrative expenses did not materially change from the same periods in 2018.   For the three and nine months ended September 30, 2019, general and administrative expenses were $2.2 million and $6.9 million, as compared to $2.1 million and $6.7 million for the same periods in 2018. 

 

Exploration expenses. For the three and nine months ended September 30, 2019, exploration expenses totaled $1.1 million and $3.2 million as compared to $1.3 million and $3.7 million for the three and nine months ended September 30, 2018, respectively.  The decreased exploration expense was primarily the result of decreased drilling at our Alta Gracia project in Mexico. In addition in 2018, we completed exploration on and abandoned our Gold Mesa project and as a result, no exploration costs were incurred in 2019 related to Gold Mesa.

 

Other  expense, net.  For the three and nine months ended September 30, 2019, we recorded other expense of $0.6 million and $0.5 million as compared to other expense of $0.6 million and $1.4 million for the same periods in 2018. The $0.9 decrease for the nine months ended September 30, 2019 was a result of less currency exchange losses in the 2019 periods due to changes in the Mexican Peso exchange rate, less losses on disposals of fixed assets, and unrealized gains on our gold and silver bullion/rounds as a result of increasing gold and silver prices.  Other expense for the three months ended September 30, 2019 did not materially change from the same period in 2018.  Please see Note 17 to the Condensed Consolidated Financial Statements for additional information.

 

Provision for income taxes.  For the three and nine months ended September 30, 2019, our provision for income taxes was $2.4 million and $4.9 million, respectively, as compared to $0.1 million and $5.5 million for the three and nine months ended September 30, 2018, respectively. The increase in 2019 is commensurate with our decrease in income before income taxes as compared to 2018. Please  see Note 6 to the Condensed Consolidated Financial Statements for additional information.

 

Net income.  For the three and nine months ended September 30, 2019, we recorded net income of $3.0 million and $5.7 million as compared to net loss of $0.8 million and net income of $8.4 million for the corresponding periods in 2018.   

 

Non-GAAP Measures

 

Throughout this report, we have provided information prepared or calculated according to U.S. GAAP and have referenced some non-GAAP performance measures which we believe will assist with understanding the performance of our business. These measures are based on precious metal gold equivalent ounces sold and include cash cost before by-product credits per ounce, total cash cost after by-product credits per ounce, and total all-in sustaining cost per ounce (“AISC”). Because the non-GAAP performance measures do not have any standardized meaning prescribed by U.S. GAAP, they may not be comparable to similar measures presented by other companies. Accordingly, these measures should not be considered in isolation, or as a substitute for, measures of performance prepared in accordance with U.S. GAAP. These non-GAAP measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP.

 

For financial reporting purposes, we report the sale of base metals as part of our revenue.  Revenue generated from the sale of base metals in our concentrates is considered a by-product of our gold and silver production for the purpose of our total cash cost after by-product credits for our Oaxaca Mining Unit. We periodically review our revenues to ensure that our reporting of primary products and by-products is appropriate. Because we consider copper, lead and zinc to be by-products of our precious metal production, the value of these metals continues to be applied as a reduction to total cash costs in our calculation of total cash cost after by-product credits per precious metal gold equivalent ounce sold. Likewise, we believe the identification of copper, lead and zinc as by-product credits is appropriate because of their

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lower individual economic value compared to gold and silver and due to the fact that gold and silver are the primary products we intend to produce.  For our Nevada Mining Unit, silver sales are treated as a by-product.

 

Total cash cost, after by-product credits, is a measure developed by the Gold Institute in an effort to provide a uniform standard for comparison purposes. AISC is calculated based on the current guidance from the World Gold Council.

 

Total cash cost before by-product credits includes all direct and indirect production costs related to our production of metals (including mining, milling and other plant facility costs, smelter treatment and refining charges, royalties, and site general and administrative costs) less stock-based compensation allocated to production costs plus treatment and refining costs.

 

Total cash cost after by-product credits includes total cash cost before by-product credits less by-product credits, or revenues earned from base metals.

 

AISC includes total cash cost after by-product credits plus other costs related to sustaining production, including sustaining allocated general and administrative expenses and sustaining capital expenditures. We determined sustaining capital expenditures as those capital expenditures that are necessary to maintain current production and execute the current mine plan.

 

Cash cost before by-product credits per ounce, total cash cost after by-product credits per ounce and AISC are calculated by dividing the relevant costs, as determined using the cost elements noted above, by precious metal gold equivalent ounces sold for the periods presented.

 

Reconciliations to U.S. GAAP

 

The following table provides a reconciliation of Oaxaca and Nevada Mining Units’ total cash cost after by-product credits to total mine cost of sales (a U.S. GAAP measure) as presented in the Condensed Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(in thousands)

Oaxaca Mining Unit

 

 

 

 

 

 

 

 

 

 

 

 

Total cash cost after by-product credits

 

$

2,139

 

$

5,507

 

$

8,343

 

$

3,140

Treatment and refining charges

 

  

(3,723)

 

 

(1,164)

 

  

(10,838)

 

 

(4,322)

By-product credits

 

  

20,556

 

 

12,989

 

  

57,154

 

 

51,616

Depreciation and amortization

 

  

5,647

 

 

3,515

 

  

12,955

 

 

10,587

Reclamation and remediation

 

  

18

 

 

87

 

  

49

 

 

379

Share-based compensation allocated to production costs

 

 

26

 

 

31

 

 

32

 

 

43

Total Oaxaca Mining Unit mine cost of sales

 

 

24,663

 

 

20,965

 

 

67,695

 

 

61,443

Nevada Mining Unit

 

 

 

 

 

 

 

 

 

 

 

 

Total cash cost after by-product credits

 

 

4,508

 

 

 -

 

 

5,095

 

 

 -

Treatment and refining charges

 

 

(7)

 

 

 -

 

 

(9)

 

 

 -

Depreciation and amortization

 

 

1,582

 

 

 -

 

 

1,961

 

 

 -

Reclamation and remediation

 

 

 2

 

 

 -

 

 

28

 

 

 -

Total Nevada Mining Unit mine cost of sales

 

 

6,085

 

 

 -

 

 

7,075

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consolidated mine cost of sales

 

$

30,748

 

$

20,965

 

$

74,770

 

$

61,443

 

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The following table presents a reconciliation of the non-GAAP measures of total cash cost before by-product credits, total cash cost after by-product credits and AISC for our Oaxaca Mining Unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

 

2019

    

2018

 

 

(in thousands, except ounces sold and cost per precious metal gold equivalent ounce sold)

Total cash cost before by-product credits (1)

 

$

22,695

 

$

18,496

 

$

65,497

 

$

54,756

By-product credits (2)

 

  

(20,556)

 

 

(12,989)

 

  

(57,154)

 

 

(51,616)

Total cash cost after by-product credits

 

 

2,139

 

 

5,507

 

 

8,343

 

 

3,140

Sustaining capital expenditures 

 

 

2,690

 

 

6,413

 

 

9,298

 

 

18,110

Sustaining general and administrative expenses

 

 

825

 

 

744

 

 

2,475

 

 

2,232

Total all-in sustaining cost

 

$

5,654

 

$

12,664

 

$

20,116

 

$

23,482

 

 

 

 

 

 

 

 

 

 

 

 

 

Precious metal gold equivalent ounces sold (3)

 

  

10,887

 

 

9,466

 

  

29,762

 

 

32,454

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash cost before by-product credits per precious metal gold equivalent ounce sold

 

$

2,085

 

$

1,954

 

$

2,201

 

$

1,687

By-product credits per precious metal gold equivalent ounce sold

 

 

(1,888)

 

 

(1,372)

 

 

(1,920)

 

 

(1,590)

Total cash cost after by-product credits per precious metal gold equivalent ounce sold

 

 

197

 

 

582

 

 

281

 

 

97

Other sustaining expenditures per precious metal gold equivalent ounce sold

 

 

323

 

 

756

 

 

396

 

 

627

Total all-in sustaining cost per precious metal gold equivalent ounce sold

 

$

520

 

$

1,338

 

$

677

 

$

724


(1)

Production cost less stock-based compensation allocated to production cost plus treatment and refining charges.

(2)

Please see the tables below for a summary of our by-product revenue and by-product credit per precious metal equivalent ounces sold.

(3)

Gold ounces sold, plus gold equivalent silver ounces sold converted to gold ounces using our realized gold price per ounce to silver price per ounce ratio.

 

The following tables summarize our Oaxaca Mining Unit’s by-product revenue and by-product credit per precious metal gold equivalent ounce sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(in thousands)

By-product credits by dollar value:

 

  

 

 

 

 

 

  

 

 

 

 

Copper sales

 

$

2,554

 

$

2,115

 

$

7,357

 

$

7,186

Lead sales

 

  

4,402

 

 

3,678

 

  

11,777

 

 

11,018

Zinc sales

 

  

13,600

 

 

7,196

 

  

38,020

 

 

33,412

Total sales from by-products (1)

 

$

20,556

 

$

12,989

 

$

57,154

 

$

51,616


(1)

Amounts include realized gain (loss) on embedded derivative.  Please see Note 19 to the Condensed Consolidated Financial Statements for additional information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

By-product credits per precious metal gold equivalent ounce sold:

 

  

 

 

 

 

 

  

 

 

 

 

Copper sales

 

$

235

 

$

223

 

$

247

 

$

221

Lead sales

 

  

404

 

  

389

 

  

396

 

  

339

Zinc sales

 

  

1,249

 

  

760

 

  

1,277

 

  

1,030

Total by-product credits per precious metal gold ounces sold

 

$

1,888

 

$

1,372

 

$

1,920

 

$

1,590

 

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The following table presents a reconciliation of the non-GAAP measures of total cash cost and AISC for our Nevada Mining Unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

 

2019

    

2018

 

 

(in thousands, except ounces sold and cost per precious metal gold equivalent ounce sold)

Total cash cost before by-product credits (1)

 

$

4,571

 

$

 -

 

$

5,168

 

$

 -

By-product credits (2)

 

  

(63)

 

 

 -

 

  

(73)

 

 

 -

Total cash cost after by-product credits

 

$

4,508

 

$

 -

 

$

5,095

 

$

 -

Sustaining exploration expenses

 

 

88

 

 

 -

 

 

88

 

 

 -

Total all-in sustaining cost

 

$

4,596

 

$

 -

 

$

5,183

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Precious metal gold equivalent ounces sold (3)

 

  

4,086

 

 

 -

 

  

5,224

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash cost before by-product credits per precious metal gold equivalent ounce sold

 

$

1,119

 

$

 -

 

$

989

 

$

 -

By-product credits per precious metal gold equivalent ounce sold

 

 

(15)

 

 

 -

 

 

(14)

 

 

 -

Total cash cost after by-product credits per precious metal gold equivalent ounce sold

 

 

1,103

 

 

 -

 

 

975

 

 

 -

Other sustaining expenditures per precious metal gold equivalent ounce sold

 

 

22

 

 

 -

 

 

17

 

 

 -

Total all-in sustaining cost per precious metal gold equivalent ounce sold

 

$

1,125

 

$

 -

 

$

992

 

$

 -

 

(1)

Production cost plus treatment and refining charges.

(2)

Please see the tables below for a summary of our by-product revenue and by-product credit per precious metal equivalent ounces sold.

(3)

Gold ounces sold, plus gold equivalent silver ounces sold converted to gold ounces using our realized gold price per ounce to silver price per ounce ratio.

 

The following tables summarize our Nevada Mining Unit’s by-product revenue and by-product credit per precious metal gold equivalent ounce sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(in thousands)

By-product credits by dollar value:

 

  

 

 

 

 

 

  

 

 

 

 

Silver sales

 

$

63

 

$

 -

 

$

73

 

$

 -

Total sales from by-products (1)

 

$

63

 

$

 -

 

$

73

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

By-product credits per precious metal gold equivalent ounce sold:

 

  

 

 

 

 

 

  

 

 

 

 

Silver sales

 

$

15

 

$

 -

 

$

14

 

$

 -

Total by-product credits per precious metal gold ounces sold

 

$

15

 

$

 -

 

$

14

 

$

 -

 

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Liquidity and Capital Resources

 

As of September 30, 2019, we had working capital of $22.5 million, consisting of current assets of $48.8 million and current liabilities of $26.3 million. This represents an increase of $8.7 million from the working capital balance of $13.8 million at December 31, 2018. Our working capital balance fluctuates as we use cash to fund our operations, financing and investing activities, including exploration, mine development, income taxes and shareholder dividends.  Since the fourth quarter of 2018, our working capital has been supplemented by sales of our common stock under the ATM program.  Our September 30, 2019 working capital was negatively affected by the current operating lease liability of $8.6 million as a result of the adoption of the new leasing standard in 2019. Please see Note 13 to the Condensed Consolidated Financial Statements for more information.

 

Cash and cash equivalents increased $1.0 million to $8.8 million during the first nine months of 2019.

 

Net cash provided by operating activities for the nine months ended September 30, 2019 was $7.8 million compared to $20.8 million for the same period in 2018. The $13 million decrease is primarily due to changes in operating assets and liabilities, primarily inventories related to Isabella Pearl and receivables.

 

Net cash used in investing activities of $29.2 million for the nine months ended September 30, 2019 increased $3.1 million from the same period in 2018 as a result of additional Isabella Pearl mine development and construction of the Isabella Pearl ADR plant.

Net cash provided by financing activities for the three months ended September 30, 2019 was $22.7 million compared to cash used of $0.3 million for same period in 2018 due to proceeds from the sale of our common shares under the ATM agreement in 2019.  During the nine months ended September 30, 2019, we sold 6,625,588 shares of common stock under the ATM Agreement for net proceeds of $24.4 million.    

While we reserve the right to further utilize the ATM Agreement, we currently do not foresee the need to do so as we believe that our liquidity and capital resources are adequate to fund our operations and corporate activities for the foreseeable future.  

 

Accounting Developments

 

For a discussion of Recently Adopted and Recently Issued Accounting Pronouncements, please see Note 2 to the Condensed Consolidated Financial Statements.

 

Off-Balance Sheet Arrangements

 

As of the end of the period covered by this report, we have no off-balance sheet arrangements of the type required to be disclosed by SEC rules that have or are reasonably likely to have a current or future effect on our financial condition, results of operation or cash flow that are material to investors.

 

Contractual Obligations

 

There have been no material changes in our contractual obligations since December 31, 2018 other than the reclassification of our operating lease obligation from our contract mining agreement as a result of the adoption of the new leasing standard on January 1, 2019.  As a result of this adoption, we reclassified $13.7 million from contract mining obligations to lease obligations.

 

Critical Accounting Estimates

 

Leases - Effective January 1, 2019, we adopted ASC Topic 842, Leases. ASC Topic 842 requires the recognition of lease rights and obligations as assets and liabilities on the balance sheet. Previously, lessees were not required to recognize on the balance sheet assets and liabilities arising from operating leases. As we elected the cumulative-effect

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adoption method, prior-period information has not been restated. The most significant effects of the standard on our Consolidated Financial Statements are (1) the recognition of new right-of-use assets and lease liabilities on our Consolidated Balance Sheet for our operating leases, and (2) significant new disclosures about our leasing activities (see Note 13 to the unaudited Consolidated Financial Statements in Part 1, Item1). On January 1, 2019, we recognized operating lease liabilities and right-of-use assets of $14.2 million based on the present value of the remaining lease payments over the lease term. The adoption did not result in a cumulative-effect adjustment to retained earnings. The new standard did not have a material impact on our results of operations or cash flows. 

 

There have been no other changes in our critical accounting estimates since December 31, 2018.

 

Forward-Looking Statements

 

This report contains or incorporates by reference “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others: 

 

·

statements about our future exploration, permitting, production, development, and plans for development of our properties;

·

statements concerning the benefits that we expect will result from our business activities and certain transactions that we contemplate or have completed, such as receipt of proceeds, decreased expenses and avoided expenses and expenditures; and

·

statements of our expectations, beliefs, future plans and strategies, our targets, exploration activities, anticipated developments and other matters that are not historical facts.

 

These statements may be made expressly in this document or may be incorporated by reference from other documents that we will file with the SEC. You can find many of these statements by looking for words such as “believes,” “expects,” “targets,” “anticipates,” “estimates,” or similar expressions used in this report or incorporated by reference in this report.

 

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied. We caution you not to put undue reliance on these statements, which speak only as of the date of this report. Further, the information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, which may change at any time and without notice, based on changes in such facts or assumptions.

Risk Factors Impacting Forward-Looking Statements

 

The important factors that could prevent us from achieving our stated goals and objectives include, but are not limited to, those set forth in other reports we have filed with the SEC, including our Form 10-K for the year ended December 31, 2018, and the following:

 

·

Changes in the worldwide price for gold and/or silver;

·

Volatility in the equities markets;

·

Adverse results from our exploration or production efforts;

·

Producing at rates lower than those targeted;

·

Political and regulatory risks;

·

Weather conditions, including unusually heavy rains;

·

Earthquakes or other unforeseen ground movements impacting mining or processing;

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·

Failure to meet our revenue or profit goals or operating budget;

·

Decline in demand for our common stock;

·

Downward revisions in securities analysts’ estimates or changes in general market conditions;

·

Technological innovations by competitors or in competing technologies;

·

Cybersecurity threats;

·

Investor perception of our industry or our prospects;

·

Lawsuits;

·

Actions by government central banks; and

·

General economic trends.

 

We undertake no responsibility or obligation to update publicly these forward-looking statements but may do so in the future in written or oral statements. Investors should take note of any future statements made by us or on our behalf.

 

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

 

Our exposure to market risks includes, but is not limited to, the following risks: changes in commodity prices, foreign currency exchange rates, provisional sales contract risks, changes in interest rates, and equity price risks. We do not use derivative financial instruments as part of an overall strategy to manage market risk; however, we may consider such arrangements in the future as we evaluate our business and financial strategy.

 

Commodity Price Risk

 

The results of our operations, cash flow, and financial condition depend in large part upon the market prices of gold and silver, and base metal prices of copper, lead and zinc. Gold and silver prices fluctuate widely and are affected by numerous factors beyond our control. The level of interest rates, the rate of inflation, the stability of exchange rates, the world supply of and demand for gold, silver and other metals, among other factors, can all cause significant fluctuations in commodity prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems and political developments. The price of gold and silver has fluctuated widely in recent years, and future price declines could cause a mineral project to become uneconomic, thereby having a material adverse effect on our business and financial condition. We have not entered into derivative contracts to protect the selling price for gold or silver. We may in the future more actively manage our exposure through derivative contracts or other commodity price risk management programs, although we have no intention of doing so in the near-term.

 

In addition to adversely affecting our reserve estimates, results of operations and/or our financial condition, declining gold and silver prices could require a reassessment of the feasibility of a project. Even if a project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause delays in the implementation of a project.

 

Foreign Currency Risk

 

Foreign currency exchange rate fluctuations can increase or decrease our costs to the extent we pay costs in currencies other than the U.S. dollar. We are primarily impacted by Mexican peso rate changes relative to the U.S. Dollar, as we incur some costs in the Mexican peso. When the value of the peso rises in relation to the U.S. Dollar, some of our costs in Mexico may increase, thus adversely affecting our operating results. Alternatively, when the value of the peso drops in relation to the U.S. Dollar, peso-denominated costs in Mexico will decrease in U.S. Dollar terms.  These fluctuations do not impact our revenues since we sell our metals in U.S. dollars. Future fluctuations may give rise to foreign currency exposure, which may affect our financial results.

 

We have not utilized market-risk sensitive instruments to manage our exposure to foreign currency exchange rates but may in the future actively manage our exposure to foreign currency exchange rate risk.

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Provisional Sales Contract Risk

 

We enter into concentrate sales contracts which, in general, provide for a provisional payment to us based upon provisional assays and prices. The provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates determined at the quoted metal prices at the time of shipment. The embedded derivative, which does not qualify for hedge accounting, is adjusted to market through revenue each period prior to settlement.  Changes in the prices of metals between the shipment and final settlement date will result in adjustments to revenues related to the sales of concentrate previously recorded upon shipment. Please see Note 14 in the Condensed Consolidated Financial Statements for additional information.

 

Interest Rate Risk

 

Our outstanding debt consists of equipment loans and leased equipment classified as capital leases. As the debt is at fixed rates, we consider our interest rate risk exposure to be insignificant at this time.

 

 Equity Price Risk 

 

We have in the past, and may in the future, seek to acquire additional funding by sale of common stock and other equity. The price of our common stock has been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to sell our common stock at an acceptable price should the need for new equity funding arise.

 

ITEM 4: Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures - During the fiscal period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the required time periods and are designed to ensure that information required to be disclosed in our reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting  – There were no changes that occurred during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 4.  Mine Safety Disclosures

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Quarterly Report.

 

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ITEM 6: Exhibits

 

The following exhibits are filed or furnished herewith or incorporated herein by reference:

 

 

 

 

Exhibit
Number

 

Descriptions

 

 

 

3.1

 

Articles of Incorporation of the Company as filed with the Colorado Secretary of State on August 24, 1998 (incorporated by reference from our registration statement on Form SB-2 filed on October 28, 2005, Exhibit 3.1, File No. 333-129321).

 

 

 

3.1.1

 

Articles of Amendment to the Articles of Incorporation as filed with the Colorado Secretary of State on September 16, 2005 (incorporated by reference from our registration statement on Form SB-2 filed on October 28, 2005, Exhibit 3.1.1, File No. 333-129321).

 

 

 

3.1.2

 

Articles of Amendment to the Articles of Incorporation as filed with the Colorado Secretary of State on November 8, 2010 (incorporated by reference from our quarterly report on Form 10-Q filed on November 10, 2010, Exhibit 3.1, File No. 001-34857).

 

 

 

3.2

 

Amended and Restated Bylaws of the Company dated August 9, 2010 (incorporated by reference from our current report on Form 8-K filed on August 12, 2010, Exhibit 3.2, File No. 333-129321).

 

 

 

3.2.1

 

Amendment dated March 25, 2013 to Amended and Restated Bylaws of the Company dated August 9, 2010 (incorporated by reference from our current report on Form 8-K filed on March 27, 2013, Exhibit 3.2, File No. 001-34857).

 

 

 

31.1

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Jason D. Reid.

 

 

 

31.2

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for John A. Labate.

 

 

 

32*

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jason D. Reid and John A. Labate.

 

 

 

95

 

Mine safety information listed in Section 1503 of the Dodd-Frank Act. 

 

 

 

101

 

Financial statements from the Quarterly Report on Form 10-Q of Gold Resource Corporation for the three months ended September 30, 2019, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements.


*This document is not being “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. Registration Statements or other documents filed with the SEC shall not incorporate this exhibit by reference, except as otherwise expressly stated in such filing.

 

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SIGNATURES 

 

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Company has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

 

GOLD RESOURCE CORPORATION

 

 

 

 

Dated: October 29, 2019

 

 

/s/ Jason D. Reid

 

 

By:

Jason D. Reid,

 

 

 

Chief Executive Officer and President

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated: October 29, 2019

 

 

/s/ John A. Labate

 

 

By:

John A. Labate,

 

 

 

Chief Financial Officer

 

34