Securities Authorized for Issuance Under Equity Compensation Plans
| On April 14, 2016, our BoardConsolidated Statements of Directors approved the Gold Resource Corporation 2016 Equity Incentive Plan (the “Plan”). The Plan was approved to, among other things, (i) supersede the Gold Resource Corporation Amended and Restated Non-Qualified Stock Option and Stock Grant Plan and (ii) provide for the grant of options, stock appreciation rights, restricted stock, restricted stock units, stock grants, stock units, performance shares, performance share units, and performance cash. These actions were approved by the shareholders of the Company on June 15, 2016.
Purchases of Equity Securities by the Company
In September 2011, our Board of Directors authorized a share repurchase of up to $20.0 million with no pre-established end date. During 2017 and 2016, we did not repurchase any shares of Gold Resource Corporation common stock on the open market, and approximately $14.0 million remains available in the share repurchase program as of December 31, 2017.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference in such filing.
The following graph compares the performance of our common stock with the performance of the NYSE American Composite Index and the S&P TSX Global Gold Fund, assuming reinvestment of dividends on December 31 of each year indicated. The graph assumes $100 invested at the per share closing price in Gold Resource Corporation and each of the indices on December 31, 2012.
Transfer Agent
Computershare Investor Services, Inc. is the transfer agent for our common stock. The principal office of Computershare is located at 8742 Lucent Boulevard, Suite 225, Highlands Ranch, Colorado 80129 and its telephone number is (303) 262-0600.
Dividend Policy
Since commencing mining operations at our Aguila Project, one of management’s primary goals has been to make cash dividend distributions to shareholders. Since commercial production began in July 2010, we have returned over $110 million back to shareholders in consecutive monthly dividends. Regular dividends should not be considered a prediction or guarantee of future dividends.
Our monthly dividend was modified in December 2015 to reduce the dividend from $0.01 per share per month to one-sixth cent per share per month or $0.02 per share per year. The Board of Directors believed the change in dividend was necessary to help conserve capital as reduced cash flow from operations, as well as the long-term negative outlook in the mining industry, were negatively affecting our financial performance. The instituted dividend may be modified again or discontinued at any time and the declaration of any special dividend is determined at the discretion of our Board of Directors, depending on variables such as, but not limited to, operating cash flow, mine construction requirements and strategies, other construction projects, spot gold and silver prices, taxation, government royalties and general market conditions. At the present time, we are not a party to any agreement that would limit our ability to pay dividends.
Physical Dividend Program
In 2012, we launched a physical dividend program pursuant to which our shareholders have the option to convert the cash dividends that we pay into physical gold and silver bullion. As part of our overall strategy to diversify our treasury and to facilitate this program, we may periodically purchase gold and silver bullion. In order for a shareholder to convert their cash dividend into physical gold and/or silver, the shareholder must opt-in to the physical dividend program and request the conversion of their cash dividend, or portion thereof, into physical gold and/or silver. For those shareholders who elect to convert their cash dividend into gold and/or silver bullion, the gold and silver will be delivered in the form of gold or silver Gold Resource Corporation one-ounce bullion rounds. No action is required by any shareholder who elects not to participate in the physical metals program. For those shareholders who wish to convert any portion of their cash dividend into gold and/or silver bullion, the process is summarized as follows:
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| | Shareholders must register and hold their Gold Resource Corporation common shares in their name directly with our transfer agent, Computershare Investor Services, and not through a brokerage house or other intermediary held in a “street name”. This is a requirement so that we can locate and validate the shareholder’s position in our common stock.
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| | Shareholders must set up an individual account with Gold Bullion International (“GBI”), 1325 Avenue of the Americas, 7th Floor, Suite 0703-2, New York, NY 10019. GBI facilitates the cash to gold and silver conversion.
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| | Shareholders then direct their cash dividend check issued by Computershare to be electronically deposited to the shareholder’s GBI account for the option to have it, or any portion thereof that denominates into a one-ounce gold or silver bullion round. The election to convert all or any portion of the shareholder’s cash dividend into bullion is governed by an agreement between the shareholder and GBI.
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| | Shareholders with accounts at GBI who wish to change their current gold, silver or cash allocations for their cash dividend must do so by midnight Eastern Time on the date preceding the monthly dividend record date. We issue a press release with details of each dividend declaration, and the dividend record and payment dates.
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| | On the dividend record date, the number of bullion ounces to be converted and distributed to the shareholder’s individual account on the dividend payment date is calculated as the dollar value of that portion of the cash dividend the shareholder elected to convert to bullion, divided by the London Bullion Market PM gold fix plus gold bullion minting cost factors on the record date or the London Bullion Market silver fix plus silver bullion minting cost factors on the record date.
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Only whole ounces of gold and silver bullion are credited to a shareholder’s individual account on the dividend payment date. The cash value attributable to fractional ounces will remain in the shareholder’s individual account as cash until such time as future dividends provide the shareholder with sufficient cash to convert to whole ounces of gold or silver based on the London PM gold fix and silver fix on a future dividend record date, and based on the shareholder’s self-directed gold, silver or cash allocations in effect at that time. The shareholder may also choose to move their cash out of their GBI account. Shareholders cannot move cash into their GBI account for conversion into gold and silver. Only the shareholder’s cash dividend sent from Computershare is eligible for conversion.
We encourage shareholders who have questions concerning the physical dividend program to contact our investor relations department at (303) 320-7708.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data sets forth our summary historical financial data as of andOperations for the years ended December 31, 2017, 2016, 2015, 20142021, 2020 and 2013. This information was derived from our audited consolidated financial statements for each year. Our selected historical financial data is qualified in its entirety by, and should be read in conjunction with, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and the notes thereto included elsewhere in this report. For additional information relating to our operations, please see Item 1. Business and Item 2. Properties. 2019
| | | | | | | | | | | | | | | | | | | | Years Ended December 31, | | | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | | | (In thousands, except per share amounts) | | Sales, net | | $ | 110,156 | | $ | 83,227 | | $ | 92,701 | | $ | 115,405 | | $ | 125,784 | | Mine gross profit | | | 42,115 | | | 22,433 | | | 30,323 | | | 50,871 | | | 58,258 | | Net income (1) | | | 4,150 | | | 4,387 | | | 3,062 | | | 15,036 | | | 5,334 | | Net income per common share: | | | | | | | | | | | | | | | | | Basic and diluted | | | 0.07 | | | 0.08 | | | 0.06 | | | 0.28 | | | 0.10 | | Cash dividends declared | | | 0.02 | | | 0.03 | | | 0.11 | | | 0.12 | | | 0.43 | | | | | | | | | | | | | | | | | | | | | As of December 31, | | | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | | | (In thousands) | | Total Assets (1) | | $ | 132,923 | | $ | 118,443 | | $ | 106,499 | | $ | 105,983 | | $ | 91,236 | | Long-term obligations | | | 5,809 | | | 2,425 | | | 2,815 | | | 3,827 | | | 2,887 | |
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| (1)
| | Certain changes between the years 2014 and prior may be related to the transition from an Exploration Stage Enterprise to a Production Stage Enterprise in accordance with Guide 7. Prior to January 1, 2014, we were considered an Exploration Stage Enterprise under SEC criteria since we had not demonstrated proven and probable reserves at our properties. Accordingly, as required under SEC guidelines, substantially all of our investment in mining properties up to that date, including construction of the processing facility, mine facilities and mine construction expenditures, were expensed as incurred and therefore do not appear as assets on our balance sheet. The change in our accounting presentation as a result of our transition to a Production Stage Enterprise may make certain period-over-period comparisons less meaningful.62
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Please see the consolidated financial statements included in this Form 10-K under Item 8 for additional information.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual future results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this annual report and other reports filed by us with the SEC. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes included in this report and with the understanding that our actual future results may be materially different from what we currently expect.
Introduction
The following discussion summarizes our results of operations for three fiscal years ended December 31, 2017, 2016 and 2015 and our financial condition at December 31, 2017 and 2016, with a particular emphasis on the year ended December 31, 2017.
The discussion also presents certain non-GAAP financial measures that are important to management in its evaluation of our operating results and which 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 under Non-GAAP Measures. Please see Item 1. Business for a discussion of our business and Item 2. Properties for the use of certain mining terms.
In our financial statements, we report the sale of precious and base metals as revenue and we periodically review our revenue streams to ensure that this treatment remains appropriate. We consider precious metals to be the long-term primary driver of our economic decisions and believe that base metals are secondary products.
Precious metal gold equivalent 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 realized price ratio for the period.
Highlights for the year ended December 31, 2017 are included below and discussed further in our Management’s Discussion and Analysis.
2017 Highlights
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| | Achieved seventh consecutive year of profitability;
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| | Achieved the upper range of our annual gold production target with 28,117 ounces;
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| | Achieved our annual silver production range with 1.77 million ounces;
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| | Ending working capital of $27.5 million
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| | Cash balance increased by $8.2 million to $22.4 million;
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| | Commenced production and optimization at our Alta Gracia Project’s Mirador Mine;
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| | Furthered the Arista’s mine development at the Switchback vein system;
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| | Total cash cost after by-product credits per precious metal gold equivalent ounce sold of $75;
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| | Total all-in sustaining cost per precious metal gold equivalent ounce sold of $590;
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| | Distributed $1.1 million in shareholder dividends.
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Results of Operations—Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Overview
We are a mining company which pursues gold and silver projects that are expected to achieve both low operating costs and high returns on capital. We have two mining units, the Oaxaca Mining Unit located in Oaxaca, Mexico and the Nevada Mining Unit located in Nevada, USA. Our Oaxaca Mining Unit consists of six properties and includes mineral production from the Arista Mine at the Aguila Project and the Mirador Mine at the Alta Gracia Project. Both are underground mining operations that supply ore to our processing facilities located at the Aguila Project. We produce doré, and metal concentrates which contain precious metals of gold and silver and base metals of copper, lead and zinc. Our Nevada Mining Unit consists of four properties and includes the Isabella Pearl Project which is in the advanced stages of engineering and mine permitting. The Isabella Pearl Project mineralization is predominantly gold with some silver. We target a development decision at Isabella Pearl at the earliest possible date.
Sales, net
Metal sales of $110.2 million for the year ended December 31, 2017 increased by $26.9 million, or 32% when compared to the same period in 2016. The increase in our 2017 sales is primarily attributable to an increase in base metal realized prices, volumes, and lower treatment charges, partially offset by lower precious metals sales. For the year ended December 31, 2017, average realized prices for base metals increased from the same period in 2016 as follows: copper by 33% to $6,354 per tonne, lead by 22% to $2,371 per tonne, and zinc by 37% to $2,993 per tonne. Average realized precious metal prices remained substantially unchanged from 2016.
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/credit after by-product credits measure noted in our non-GAAP measures disclosure. For financial reporting purposes, we report the sale of base metals as part of our revenue. 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 gold equivalent production, the value of these metals is applied as a reduction to total cash costs in our calculation of total cash cost/credit after by-product credits per precious metal gold equivalent ounce sold. Please see Non-GAAP Measures for additional information.
Production
For the year ended December 31, 2017, gold production of 28,117 ounces increased 2% over the same period in 2016, while silver production of 1,773,263 ounces decreased 5% from the same period in 2016, primarily due to higher grades.
For the three months ended December 31, 2017, production totaled 9,209 ounces of gold and 555,550 ounces of silver, an increase of 81% and 32%, respectively, over the same period in 2016. The fourth quarter of 2017 benefited from higher grades processed, when compared to the fourth quarter of 2016. The increase in precious metal production is attributable to a high-grade area which accounted for 70% of the gold and silver production in the quarter.
During 2017, the Arista vein system accounted for 55% of the production tonnage followed by Switchback development ore at 35%, and the Aguila open pit and Mirador Mine with 8% and 2%, respectively. Looking forward into 2018, we plan to start production stoping of the Switchback vein system, continue mining at a lesser rate in the Arista vein system, increase production at the Mirador Mine, and to a lesser extent the Aguila open pit.
Gold and silver ore grades vary depending on the area of the Arista vein system being mined at any given time. We have seen an expected decrease of precious metal grades and an increase in base metal grades as we mined deeper in the deposit. The decrease in grades is a function of the metal gradation in the epithermal system. As we move mining operations into the Switchback vein system, we have seen an increase in precious metal grades in the upper levels of the system as compared to the lower levels. Bulk tonnage mining at Switchback during 2018 is planned to commence in the bottom level of the current mine development, in a lower grade area, as we plan to mine upward to higher-grade areas of Switchback. Mine expansions laterally in the upper mine levels have an increased chance of higher precious metal grades as was seen in areas discovered and mined during 2017. Exploration efforts target both deeper and lateral expansion of the deposit.
During the three and twelve months ended December 31, 2017, we processed Arista Mine ore through the flotation circuit at a rate of 1,357 and 1,301 ore tonnes per day, respectively, compared to 1,373 and 1,295 ore tonnes per day for the same periods in 2016. The agitated leach plant was commissioned in the fourth quarter of 2017 reaching 150 dry metric tonnes throughput per day. Operational challenges, however, limited monthly mill production to just over 1,000 tonnes from the Mirador Mine. We are targeting 100 tonnes per day from the Mirador Mine in 2018. Achieving this processing rate in the future is dependent upon our ability to develop the mine to a point where ore extraction can consistently achieve target capacity while meeting grade and dilution parameters.
Our 2017 full year production of 28,117 gold ounces achieved the upper end of our targeted gold range and 1,773,263 silver ounces achieved the targeted silver range for the year. Our 2017 production outlook was 27,500 gold ounces and 1,850,000 silver ounces plus or minus 5%.
On a precious metal gold equivalent basis, our mill production totaled 16,419 ounces and 52,050 ounces for the fourth quarter and year ended December 31, 2017, respectively. Please see the Production and Sales Statistics table below for additional information regarding our mineral production statistics.
During 2017, we sold 25,221 gold ounces and 1,630,003 silver ounces at a total cash cost per ounce, after by-product credits, of $75. The decrease in cash cost per ounce of $473 from the prior year is primarily attributable to higher average realized prices on base metals and higher base metal sales as a result of higher recovered grades, consistent with our mine plan. During the three months ended December 31, 2017, we sold 7,700 gold ounces and 508,133 silver ounces at a total cash credit per gold equivalent ounce of $170. Please see Non-GAAP Measures below for additional information concerning the cash cost per ounce measures.
2018 Production Targets
Precious metal production targets for 2018 include 27,000 gold ounces, 1,700,000 silver ounces, with a plus or minus range of 10% of each metal. In addition, significant base metal production of copper, lead, and zinc is expected.
Please see Production and Sales Statistics table below for additional information regarding our actual mineral production statistics.
Production and Sales Statistics
| | | | | | | | | | | | | Oaxaca Mining Unit | | | Three months ended December 31, | | Year ended December 31, | | | 2017 | | 2016 | | 2017 | | 2016 | Milled | | | | | | | | | | | | | Tonnes Milled (1) | | | 119,379 | | | 118,798 | | | 449,177 | | | 450,221 | Tonnes Milled per Day (2) | | | 1,357 | | | 1,373 | | | 1,301 | | | 1,295 | Grade | | | | | | | | | | | | | Average Gold Grade (g/t) | | | 2.83 | | | 1.53 | | | 2.29 | | | 2.13 | Average Silver Grade (g/t) | | | 157 | | | 121 | | | 134 | | | 139 | Average Copper Grade (%) | | | 0.39 | | | 0.26 | | | 0.34 | | | 0.29 | Average Lead Grade (%) | | | 2.03 | | | 1.28 | | | 1.60 | | | 1.21 | Average Zinc Grade (%) | | | 4.95 | | | 3.98 | | | 4.39 | | | 3.78 | Recoveries | | | | | | | | | | | | | Average Gold Recovery (%) | | | 85 | | | 87 | | | 85 | | | 89 | Average Silver Recovery (%) | | | 92 | | | 91 | | | 92 | | | 92 | Average Copper Recovery (%) | | | 72 | | | 82 | | | 75 | | | 78 | Average Lead Recovery (%) | | | 73 | | | 79 | | | 75 | | | 74 | Average Zinc Recovery (%) | | | 82 | | | 84 | | | 83 | | | 84 | Mill production (before payable metal deductions) (3) | | | | | | | | | | | | | Gold (ozs.) | | | 9,209 | | | 5,088 | | | 28,117 | | | 27,628 | Silver (ozs.) | | | 555,550 | | | 419,683 | | | 1,773,263 | | | 1,857,658 | Copper (tonnes) | | | 337 | | | 258 | | | 1,141 | | | 1,035 | Lead (tonnes) | | | 1,782 | | | 1,202 | | | 5,365 | | | 4,049 | Zinc (tonnes) | | | 4,854 | | | 3,996 | | | 16,301 | | | 14,302 | Payable metal sold | | | | | | | | | | | | | Gold (ozs.) | | | 7,700 | | | 4,330 | | | 25,221 | | | 25,426 | Silver (ozs.) | | | 508,133 | | | 366,667 | | | 1,630,003 | | | 1,704,336 | Copper (tonnes) | | | 297 | | | 224 | | | 1,066 | | | 964 | Lead (tonnes) | | | 1,633 | | | 1,168 | | | 4,932 | | | 3,797 | Zinc (tonnes) | | | 3,607 | | | 3,313 | | | 13,059 | | | 11,816 | Average metal prices realized (4) | | | | | | | | | | | | | Gold ($ per oz.) | | | 1,279 | | | 1,184 | | | 1,267 | | | 1,256 | Silver ($ per oz.) | | | 16.60 | | | 16.17 | | | 17.10 | | | 17.18 | Copper ($ per tonne) | | | 7,164 | | | 5,499 | | | 6,354 | | | 4,792 | Lead ($ per tonne) | | | 2,531 | | | 2,224 | | | 2,371 | | | 1,936 | Zinc ($ per tonne) | | | 3,524 | | | 2,640 | | | 2,993 | | | 2,188 | Precious metal gold equivalent ounces produced (mill production) (3) | | | | | | | | | | | | | Gold Ounces | | | 9,209 | | | 5,088 | | | 28,117 | | | 27,628 | Gold Equivalent Ounces from Silver | | | 7,210 | | | 5,730 | | | 23,933 | | | 25,395 | Total Precious Metal Gold Equivalent Ounces | | | 16,419 | | | 10,818 | | | 52,050 | | | 53,023 | Precious metal gold equivalent ounces sold | | | | | | | | | | | | | Gold Ounces | | | 7,700 | | | 4,330 | | | 25,221 | | | 25,426 | Gold Equivalent Ounces from Silver | | | 6,594 | | | 5,006 | | | 22,003 | | | 23,299 | Total Precious Metal Gold Equivalent Ounces | | | 14,294 | | | 9,336 | | | 47,224 | | | 48,725 | Total cash cost before by-product credits per precious metal gold equivalent ounce sold (5) | | $ | 1,157 | | $ | 2,045 | | $ | 1,294 | | $ | 1,325 | Total cash (credit) cost after by-product credits per precious metal gold equivalent ounce sold (5) | | $ | (170) | | $ | 698 | | $ | 75 | | $ | 548 | Total all-in sustaining cost per precious metal gold equivalent ounce sold (5) | | $ | 253 | | $ | 918 | | $ | 590 | | $ | 845 | Total all-in cost per precious metal gold equivalent ounce sold (5) | | $ | 270 | | $ | 1,143 | | $ | 617 | | $ | 964 |
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| | For the fourth quarter of 2017 and 2016 and the year ended December 31, 2017 and 2016, this includes nil, 17,605, 42,079 and 56,369 tonnes, respectively, of low-grade stockpile open pit ore. In addition, includes 3,019 and 6,350 tonnes of Mirador ore for the fourth quarter and year ended December 31, 2017, respectively.
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| | Based on actual days the Aguila processing facility operated during the period.
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| | Mill production represents metal contained in concentrates produced at the Aguila processing facility, which is before payable metal deductions are levied by the buyer of our concentrates. Payable metal deduction quantities are defined in our contracts with the buyer of our concentrates and represent an estimate of metal contained in the concentrates produced at our Aguila processing facility which the buyer cannot recover through the smelting process. There are inherent limitations and differences in the sampling method and assaying of estimated metal contained in concentrates that are shipped, and those contained metal estimates are derived from sampling methods and assaying throughout the mill production process. The Company monitors these differences to ensure that precious metal mill production quantities are materially correct.
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| | 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.
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| | For a reconciliation of this non-GAAP measure to total mine cost of sales, which is the most comparable U.S. GAAP measure, please see Non-GAAP Measures.
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Mine gross profit. For the year ended December 31, 2017, mine gross profit and mine gross profit percent totaled $42.1 million and 38% compared to $22.4 million and 27% for the same period in 2016. The increase in mine gross profit and mine gross profit percent during 2017 was primarily driven by higher sales volumes, lower treatment and refining costs, and higher base metal prices during 2017 as compared to 2016.
General and administrative expenses. For the year ended December 31, 2017, general and administrative expenses totaled $8.1 million, compared to $9.5 million for the same period of 2016. The $1.4 million decrease in 2017, compared to 2016 is primarily due to decreased IT support fees and employee compensation expenses.
Exploration expenses. For the year ended December 31, 2017, property exploration expenses totaled $4.3 million which is consistent with exploration expense of $4.3 million for the same period of 2016.
Other expense (income), net. For the year ended December 31, 2017, we recorded other expense of $1.2 million compared to other income of $0.6 million during the same period of 2016. The $1.8 million change in 2017 compared to the same period in 2016 was due to foreign currency losses in 2017 as a result of the Mexican Peso strengthening against the US dollar during the year. Also contributing to the change was one-time income from insurance reimbursements and from the sale of investments in 2016. No such items occurred in 2017.
Provision for income taxes. For the year ended December 31, 2017, income tax expense increased to $24.3 million from $4.8 million for the same period in 2016. The increase in taxes is mostly due to significant changes to U.S. tax legislation which did not result in any cash payments and the Company does not expect any future cash implication. Additionally, increases in pre-tax income, utilization of foreign tax credits, and Mexico fixed assets indexation also contributed to the increase in tax expense. Please seeNote 5 in Item 8. Financial Statements and Supplementary Data for additional information.
Results of Operations – Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Mine gross profit. For the year ended December 31, 2016, mine gross profit and mine gross profit percent totaled $22.4 million and 27% compared to $30.3 million and 33% for the same period in 2015. The decrease in mine gross profit and mine gross profit percent during 2016 was primarily driven by lower sales volume which was partially offset with higher realized gold and silver prices during 2016 as compared to 2015.
General and administrative expenses. For the year ended December 31, 2016, general and administrative expenses totaled $9.5 million, compared to $10.3 million for the same period of 2015. The $0.8 million decrease in 2016 compared to 2015 is primarily due to decreased stock-based compensation, audit fees, and tax consulting fees. These decreases were partially offset by increased IT support fees and employee compensation costs.
Exploration expenses. For the year ended December 31, 2016, property exploration expenses totaled $4.3 million, compared to $7.2 million for the same period of 2015. The $2.9 million decrease in the property exploration spending in 2016 was a result of our cost saving measures for 2016. We continued our exploration activities at our Oaxaca Mining
Unit in 2016, although at a reduced rate from 2015. Offsetting the decrease in activities at our Oaxaca Mining Unit were our increased activities at our Nevada Mining Unit on the Isabella Pearl property during the fourth quarter of 2016 where we spent $1.2 million.
Other expense (income), net. For the year ended December 31, 2016, we recorded other income of $0.6 million compared to other expense of $2.5 million during the same period of 2015. The $3.1 million change in 2016 compared to the same period in 2015 was due to foreign currency gains, an increase in value of our gold and silver rounds/bullion, and a gain on the sale of equity investments in 2016. Offsetting these increases were losses on disposal of fixed assets and an increase in our reserve for obsolete materials and supplies inventory in 2016.
Provision for income taxes. For the year ended December 31, 2016, income tax expense decreased to $4.8 million compared to $7.4 million for the same period in 2015. The decrease in taxes is commensurate with a decrease in pre-tax income, utilization of foreign tax credits, and Mexico fixed assets indexation. Please seeNote 5 in Item 8. Financial Statements and Supplementary Data for additional information.
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/credit after by-product credits per ounce, total all-in sustaining cost per ounce (“AISC”) and all-in cost per ounce (“AIC”). 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.
Total cash cost/credit, after by-product credits, is a measure developed by the Gold Institute in an effort to provide a uniform standard for comparison purposes. The guidance was first issued in 1996 and revised in November 1999. AISC and AIC are calculated based on guidance from the World Gold Council issued in June 2013.
Total cash cost before by-product creditsincludes 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/credit after by-product credits includes total cash cost before by-product credits less by-product credits, or revenues earned from base metals.
AISCincludes total cash cost/credit 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.
AICincludes all-in sustaining costs plus non-sustaining capital expenditures and exploration expense related to the Oaxaca Mining Unit. Capital expenditures and exploration expenses related to projects in our Oaxaca Mining Unit are classified as non-sustaining. Exploration and capital expenditures to develop new properties outside our Oaxaca Mining Unit are excluded from this calculation.
Cash cost before by-product credits per ounce, total cash cost/credit after by-product credits per ounce, AISC and AIC 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 total cash cost/credit after by-product credits to total mine cost of sales (a U.S. GAAP measure) as presented in the Consolidated Statements of Operations:
| | | | | | | | | | | | | | | Three months ended December 31, | | Year ended December 31, | | | 2017 | | 2016 | | 2017 | | 2016 | | | (in thousands) | Total cash (credit) cost after by-product credits | | $ | (2,440) | | $ | 6,512 | | $ | 3,545 | | $ | 26,738 | Treatment and refining charges | | | (2,763) | | | (5,213) | | | (7,760) | | | (16,291) | By-product credits | | | 18,972 | | | 12,577 | | | 57,552 | | | 37,827 | Depreciation and amortization | | | 4,283 | | | 3,120 | | | 14,554 | | | 12,169 | Reclamation and remediation | | | (50) | | | 26 | | | 51 | | | 165 | Stock-based compensation allocated to production costs | | | 33 | | | 14 | | | 99 | | | 186 | Total mine cost of sales | | $ | 18,035 | | $ | 17,036 | | $ | 68,041 | | $ | 60,794 |
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 to AIC:
| | | | | | | | | | | | | | | Three months ended December 31, | | Year ended December 31, | | | 2017 | | 2016 | | 2017 | | 2016 | | | (in thousands, except ounces sold and cost per precious metal gold equivalent ounce sold) | Total cash cost before by-product credits (1) | | $ | 16,532 | | $ | 19,089 | | $ | 61,097 | | $ | 64,565 | By-product credits (2) | | | (18,972) | | | (12,577) | | | (57,552) | | | (37,827) | Total cash (credit) cost after by-product credits | | | (2,440) | | | 6,512 | | | 3,545 | | | 26,738 | Sustaining capital expenditures | | | 5,247 | | | 1,263 | | | 21,155 | | | 11,303 | Sustaining general and administrative expenses | | | 793 | | | 789 | | | 3,156 | | | 3,156 | Total all-in sustaining cost | | | 3,600 | | | 8,564 | | | 27,856 | | | 41,197 | Non-sustaining capital expenditures | | | - | | | 1,205 | | | 9 | | | 3,802 | Non-sustaining exploration expense | | | 236 | | | 898 | | | 1,288 | | | 1,993 | Total all-in cost | | $ | 3,836 | | $ | 10,667 | | $ | 29,153 | | $ | 46,992 | | | | | | | | | | | | | | Precious metal gold equivalent ounces sold (3) | | | 14,294 | | | 9,336 | | | 47,224 | | | 48,725 | | | | | | | | | | | | | | Total cash cost before by-product credits per precious metal gold equivalent ounce sold | | $ | 1,157 | | $ | 2,045 | | $ | 1,294 | | $ | 1,325 | By-product credits per precious metal gold equivalent ounce sold | | | (1,327) | | | (1,347) | | | (1,219) | | | (777) | Total cash (credit) cost after by-product credits per precious metal gold equivalent ounce sold | | | (170) | | | 698 | | | 75 | | | 548 | Other sustaining expenditures per precious metal gold equivalent ounce sold | | | 423 | | | 220 | | | 515 | | | 297 | Total all-in sustaining cost per precious metal gold equivalent ounce sold | | | 253 | | | 918 | | | 590 | | | 845 | Non-sustaining expenditures per precious metal gold equivalent ounce sold | | | 17 | | | 225 | | | 27 | | | 119 | Total all-in cost per precious metal gold equivalent ounce sold | | $ | 270 | | $ | 1,143 | | $ | 617 | | $ | 964 |
| (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 ounces of silver ounces sold converted to gold ounces using our realized gold price per ounce to silver price per ounce ratio.
|
The following tables summarizes our by-product revenue and by-product credit per precious metal gold equivalent ounce sold:
| | | | | | | | | | | | | | | Three months ended December 31, | | Year ended December 31, | | | 2017 | | 2016 | | 2017 | | 2016 | | | (in thousands) | By-product credits by dollar value: | | | | | | | | | | | | | Copper sales | | $ | 2,128 | | $ | 1,235 | | $ | 6,774 | | $ | 4,619 | Lead sales | | | 4,134 | | | 2,597 | | | 11,699 | | | 7,352 | Zinc sales | | | 12,710 | | | 8,745 | | | 39,079 | | | 25,856 | Total sales from by-products | | $ | 18,972 | | $ | 12,577 | | $ | 57,552 | | $ | 37,827 |
| | | | | | | | | | | | | | | Three months ended December 31, | | Year ended December 31, | | | 2017 | | 2016 | | 2017 | | 2016 | By-product credits per precious metal gold equivalent ounce sold: | | | | | | | | | | | | | Copper sales | | $ | 149 | | $ | 132 | | $ | 143 | | $ | 95 | Lead sales | | | 289 | | | 278 | | | 248 | | | 151 | Zinc sales | | | 889 | | | 937 | | | 828 | | | 531 | Total by-product credits per precious metal gold ounces sold | | $ | 1,327 | | $ | 1,347 | | $ | 1,219 | | $ | 777 |
Liquidity and Capital Resources
As of December 31, 2017, we had working capital of $27.5 million, consisting of current assets of $42.5 million and current liabilities of $15.0 million. This represents an increase of $7.2 million from the working capital balance of $20.3 million at December 31, 2016. Our working capital balance fluctuates as we use cash to fund our operations, exploration, mine development, income taxes and our dividends.
Cash and cash equivalents as of December 31, 2017 increased to $22.4 million from $14.2 million as of December 31, 2016, a net increase in cash of $8.2 million. The increase is primarily due to higher cash flow from operations which was partially offset by higher capital expenditures.
Net cash provided by operating activities for the year ended December 31, 2017 was $35.6 million compared to $17.9 million during the same period in 2016, an increase of $17.7 million. The increase is primarily due to higher income before income taxes.
Net cash used in investing activities for the year ended December 31, 2017 was $25.7 million compared to $14.7 million during the same period in 2016. The increase in investing activities is primarily attributable to increased mine development in our Arista Mine and the purchase of additional mineral rights and equipment at our Nevada Mining Unit.
Net cash used in financing activities for the year ended December 31, 2017 was $1.4 million compared to $1.9 million in 2016. The decrease in financing activities was primarily the result of lower dividend and capital lease payments in 2017.
We believe that our liquidity and capital resources are adequate to fund our operations and corporate activities for the foreseeable future. In the event that construction on our Isabella Pearl Project commences in 2018, we would evaluate the use of cash, equity financing, debt financing, or a combination thereof to fund the capital requirements. There can be no assurances that such financing will be available when or if needed upon acceptable terms, or at all.
Off-Balance Sheet Arrangements
As of December 31, 2017, we had no off-balance sheet arrangements.
Contractual Obligations
The following table represents a summary of our contractual obligations at December 31, 2017, except short-term purchase order commitments arising in the ordinary course of business:
| | | | | | | | | | | | | | | | | | | | | Payments due by Period | | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 and
Thereafter | | | (in thousands) | Loan payable | | $ | 2,213 | | $ | 568 | | $ | 594 | | $ | 621 | | $ | 430 | | $ | - | Interest on loan payable | | | 191 | | | 88 | | | 62 | | | 34 | | | 7 | | | | Capital lease obligations | | | 1,600 | | | 382 | | | 404 | | | 427 | | | 387 | | | - | Interest on capital lease obligation | | | 180 | | | 79 | | | 57 | | | 34 | | | 10 | | | | Operating lease obligations | | | 397 | | | 164 | | | 87 | | | 74 | | | 72 | | | - | Equipment purchase obligations | | | 3,791 | | | 3,791 | | | - | | | - | | | - | | | - | | | $ | 8,372 | | $ | 5,072 | | $ | 1,204 | | $ | 1,190 | | $ | 906 | | $ | - |
Accounting Developments
For a discussion of Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements, please see Note 1 in Item 8. Financial Statements and Supplementary Data.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets, liabilities and contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. As a result, management is required to routinely make judgments and estimates about the effects of matters that are inherently uncertain. Actual results may differ from these estimates under different conditions or assumptions. The following discussion pertains to accounting estimates management believes are most critical to the presentation of our financial position and results of operations that require management’s most difficult, subjective or complex judgments.
Proven and Probable Reserves
Critical estimates are inherent in the process of determining our reserves. Our reserves are affected largely by our assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility and production cost. Metals prices are estimated at three-year trailing averages. Our assessment of reserves occurs at least annually, and we may utilize external audits in the future. Reserves are a key component in the valuation of our property, equipment and mine development and related depreciation rates.
Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of many assets depreciated over remaining estimated reserves. Reserves are also a key component in forecasts, with which we compare estimated future cash flows to current asset values in an effort to ensure that carrying values are reported appropriately. Reserves are a culmination of many estimates and are not guarantees that we will recover the indicated quantities of metals or that we will do so at a profitable level.
Revenue
Concentrate sales are initially recorded using quoted metal prices at the time of shipment and 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 the concentrates 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 final settlement. Changes in the prices of metals that we sell between the shipment and final settlement dates will result in adjustments to revenues related to sales of concentrate previously recorded upon shipment. Sales are recorded net of charges for treatment, refining, smelting losses and other charges negotiated with the buyer. These charges are estimated upon shipment of concentrates based on contractual terms and adjusted to reflect actual charges at final settlement. Historically, actual charges have not varied materially from the Company’s initial estimates.
Doré sales are recognized using quoted metal prices, net of treatment and refining charges, when the title has been transferred and collection of the sales price is reasonably assured.
Depreciation and Amortization
Capitalized costs are depreciated or amortized using the straight-line method or unit-of-production (“UOP”) method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such assets or the useful life of the individual assets. Significant judgment is involved in the determination of the estimated life of the assets. Our estimates for reserves are a key component in determining our UOP rates. Our estimates of proven and probable ore reserves may change, possibly in the near term, resulting in changes to depreciation, depletion and amortization rates in future reporting periods. Productive lives range from 1 to 10 years, but do not exceed the useful life of the individual asset.
Please see Note 1 in Item 8. Financial Statements and Supplementary Data for depreciation rates of major asset categories.
Impairment of Long-Lived Assets
We evaluate the carrying value of long-lived assets to be held and used, using a fair-value based approach when events and circumstances indicate that the related carrying amount of our assets may not be recoverable. The economic environment and commodity prices may be considered as impairment indicators for the purposes of these impairment assessments. In accordance with U.S. GAAP, the carrying value of a long-lived asset or asset group is considered impaired when the anticipated undiscounted cash flows from such asset or asset group is less than its carrying value. In that event, a loss will be recorded in our consolidated statements of operations based on the difference between book value and the estimated fair value of the asset or asset group computed using discounted estimated future cash flows, or the application of an expected fair value technique in the absence of an observable market price. Future cash flows include estimates of recoverable quantities to be produced from estimated proven and probable mineral reserves, commodity prices (considering current and historical prices, price trends and related factors), production quantities, production costs, and capital expenditures, all based on life-of-mine plans and projections. In estimating future cash flows, assets are grouped at the lowest level for which identifiable cash flows exist that are largely independent of cash flows from other asset groups. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties.
Asset Retirement Obligation/Reclamation and Remediation Costs
Our mining and exploration activities are subject to various laws and regulations, including legal and contractual obligations to reclaim, remediate, or otherwise restore properties at the time the property is removed from service. Accounting for reclamation and remediation obligations requires management to make estimates of the future costs that we will incur to complete the work required to comply with existing laws and regulations. Actual costs may differ from the amounts estimated. Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and remediation costs. Also, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required.
Stock-based Compensation
We account for stock-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all stock-based payments to employees, including grants of stock options and restricted stock units (“RSUs”), to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award.
Stock-based compensation expense is recorded net of estimated forfeitures in our consolidated statements of operations and as such is recorded for only those stock-based awards that we expect to vest. We estimate the forfeiture rate based on historical forfeitures of equity awards and adjust the rate to reflect changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates.
Income Taxes
In preparing our consolidated financial statements, we estimate the actual amount of taxes currently payable or receivable as well as deferred tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Changes in deferred tax assets and liabilities generally have a direct impact on earnings in the period of the changes. Mining taxes represent federal and state taxes levied on mining operations. As the mining taxes are calculated as a percentage of mining profits, we classify them as income taxes. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded in the consolidated financial statements.
Each period, we evaluate the likelihood of whether or not some portion or all of each deferred tax asset will be realized and provide a valuation allowance for those deferred tax assets for which is more likely than not that the related benefits will not be realized. When evaluating our valuation allowance, we consider historic and future expected levels of taxable income, the pattern and timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax planning initiatives. Levels of future taxable income are affected by, among other things, market gold and silver prices, production costs, quantities of proven and probable reserves, interest rates, federal and local legislation, and foreign currency exchange rates. If we determine that all or a portion of the deferred tax assets will not be realized, a valuation allowance will be recorded with a charge to income tax expense. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced with a credit to income tax expense.
In addition, the calculation of income tax expense involves significant management estimation and judgment involving a number of assumptions. In determining these amounts, management interprets tax legislation in each of the jurisdictions in which we operate and makes estimates of the expected timing of the reversal of future tax assets and liabilities. We also make assumptions about future earnings, tax planning strategies and the extent to which potential future tax benefits will be used. We are also subject to assessments by various taxation authorities which may interpret tax legislation differently, which could affect the final amount or the timing of tax payments.
ITEM 7A.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 depend in large part upon the market prices of gold, 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 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 affecting our operating results. Alternatively, when the value of the peso drops in relation to the US 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.
Provisional Sales Contract Risk
We enter into concentrate sales contracts which, in general, provide for a provisional payment 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 Item 8. Financial Statements and Supplementary Data for additional information.
Interest Rate Risk
Our outstanding debt, at fixed rates, consisted of an equipment loan 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 sought 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Gold Resource Corporation
Colorado Springs, Colorado
OPINIONS ON THE FINANCIAL STATEMENTS AND INTERNAL CONTROL OVER FINANCIAL REPORTING
We have audited the accompanying consolidated balance sheets of Gold Resource Corporation (the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, changes in shareholders' equity, and cash flows, for each year in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). We have also audited the Company's internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each year in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.
BASIS FOR OPINIONS
The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditsalso included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
DEFINITION AND LIMITATIONS OF INTERNAL CONTROL OVER FINANCIAL REPORTING
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/EKS&H LLLP
Denver, Colorado
March 8, 2018
We have served as the Company's auditor since 2016.
Report of Independent Registered Public Accounting Firm
The Board of Directors
Gold Resource Corporation:
We have audited the accompanying consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows of Gold Resource Corporation and subsidiaries (the Company) for the year ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows for Gold Resource Corporation and subsidiaries for the year ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
March 8, 2016
GOLD RESOURCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share and per share amounts)
| | | | | | | | | December 31, | | | 2017 | | 2016 | ASSETS | | | | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 22,390 | | $ | 14,166 | Gold and silver rounds/bullion | | | 3,812 | | | 3,307 | Accounts receivable | | | 2,884 | | | 630 | Inventories, net | | | 11,636 | | | 8,946 | Income tax receivable, net | | | - | | | 626 | Prepaid expenses and other current assets | | | 1,767 | | | 1,587 | Total current assets | | | 42,489 | | | 29,262 | Property, plant and mine development, net | | | 82,599 | | | 70,059 | Deferred tax assets, net | | | 6,854 | | | 17,580 | Other non-current assets | | | 981 | | | 1,542 | Total assets | | $ | 132,923 | | $ | 118,443 | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | Current liabilities: | | | | | | | Accounts payable | | $ | 6,904 | | $ | 5,383 | Loan payable, current | | | 568 | | | - | Capital lease, current | | | 382 | | | - | Income taxes payable | | | 1,944 | | | - | Mining royalty taxes payable | | | 2,359 | | | 2,033 | Accrued expenses and other current liabilities | | | 2,851 | | | 1,526 | Total current liabilities | | | 15,008 | | | 8,942 | Reclamation and remediation liabilities | | | 2,946 | | | 2,425 | Loan payable, long-term | | | 1,645 | | | - | Capital lease, long-term | | | 1,218 | | | - | Total liabilities | | | 20,817 | | | 11,367 | Shareholders' equity: | | | | | | | Common stock - $0.001 par value, 100,000,000 shares authorized: | | | | | | | 56,916,484 and 56,566,874 shares outstanding at December 31, 2017 and 2016, respectively | | | 57 | | | 57 | Additional paid-in capital | | | 114,584 | | | 112,034 | Retained earnings | | | 4,520 | | | 2,040 | Treasury stock at cost, 336,398 shares | | | (5,884) | | | (5,884) | Accumulated other comprehensive loss | | | (1,171) | | | (1,171) | Total shareholders' equity | | | 112,106 | | | 107,076 | Total liabilities and shareholders' equity | | $ | 132,923 | | $ | 118,443 |
The accompanying notes are an integral part of these consolidated financial statements.
GOLD RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2017, 20162021, 2020 and 20152019 | (U.S. dollars in thousands, except share and per share amounts)
| 63 |
| | | | | | | | | | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | Sales, net | | $ | 110,156 | | $ | 83,227 | | $ | 92,701 | Mine cost of sales: | | | | | | | | | | Production costs | | | 53,436 | | | 48,460 | | | 54,362 | Depreciation and amortization | | | 14,554 | | | 12,169 | | | 7,974 | Reclamation and remediation | | | 51 | | | 165 | | | 42 | Total mine cost of sales | | | 68,041 | | | 60,794 | | | 62,378 | Mine gross profit | | | 42,115 | | | 22,433 | | | 30,323 | Costs and expenses: | | | | | | | | | | General and administrative expenses | | | 8,122 | | | 9,533 | | | 10,254 | Exploration expenses | | | 4,349 | | | 4,314 | | | 7,150 | Other expense (income), net | | | 1,166 | | | (560) | | | 2,466 | Total costs and expenses | | | 13,637 | | | 13,287 | | | 19,870 | Income before income taxes | | | 28,478 | | | 9,146 | | | 10,453 | Provision for income taxes | | | 24,328 | | | 4,759 | | | 7,391 | Net income | | $ | 4,150 | | $ | 4,387 | | $ | 3,062 | Net income per common share: | | | | | | | | | | Basic and diluted | | $ | 0.07 | | $ | 0.08 | | $ | 0.06 | Weighted average shares outstanding: | | | | | | | | | | Basic | | | 56,854,670 | | | 55,140,237 | | | 54,186,547 | Diluted | | | 57,594,993 | | | 55,725,206 | | | 54,259,312 |
| The accompanying notes are an integral partConsolidated Statements of these consolidated financial statements.
GOLD RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Cash Flows for the years ended December 31, 2017, 20162021, 2020 and 20152019 | (U.S. dollars in thousands, except share amounts)
| 64 | | | | | | | | | | | | | | | | | | | | | | | Number of Common Shares | | Par Value of Common Shares | | Additional Paid-in Capital | | Accumulated (Deficit)/ Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total Shareholders' Equity | Balance, December 31, 2014 | | 54,515,767 | | $ | 55 | | $ | 93,094 | | $ | 2,040 | | $ | (5,884) | | $ | (1,171) | | $ | 88,134 | Stock options exercised | | 87,337 | | | - | | | 200 | | | - | | | - | | | - | | | 200 | Stock-based compensation | | - | | | - | | | 3,472 | | | - | | | - | | | - | | | 3,472 | Dividends declared | | - | | | - | | | - | | | (6,050) | | | - | | | - | | | (6,050) | Net income | | - | | | - | | | - | | | 3,062 | | | - | | | - | | | 3,062 | Balance, December 31, 2015 | | 54,603,104 | | $ | 55 | | $ | 96,766 | | $ | (948) | | $ | (5,884) | | $ | (1,171) | | $ | 88,818 | Stock options exercised | | 169,999 | | | - | | | 391 | | | - | | | - | | | - | | | 391 | Stock-based compensation | | - | | | - | | | 1,240 | | | - | | | - | | | - | | | 1,240 | Dividends declared | | - | | | - | | | (271) | | | (1,399) | | | - | | | - | | | (1,670) | Acquisitions | | 2,130,169 | | | 2 | | | 13,908 | | | - | | | - | | | - | | | 13,910 | Net income | | - | | | - | | | - | | | 4,387 | | | - | | | - | | | 4,387 | Balance, December 31, 2016 | | 56,903,272 | | $ | 57 | | $ | 112,034 | | $ | 2,040 | | $ | (5,884) | | $ | (1,171) | | $ | 107,076 | Adjustment to beginning retained earnings as a result of adoption of ASU 2016-16 | | - | | | - | | | - | | | (533) | | | - | | | - | | | (533) | Stock-based compensation | | - | | | - | | | 1,192 | | | - | | | - | | | - | | | 1,192 | Stock options exercised | | 25,000 | | | - | | | 58 | | | - | | | - | | | - | | | 58 | Common stock issued for vested restricted stock units | | 78,400 | | | - | | | - | | | - | | | - | | | - | | | - | Common stock issued for the acquisition of mineral rights | | 246,210 | | | - | | | 1,300 | | | - | | | - | | | - | | | 1,300 | Dividends declared | | - | | | - | | | - | | | (1,137) | | | - | | | - | | | (1,137) | Net income | | - | | | - | | | - | | | 4,150 | | | - | | | - | | | 4,150 | Balance, December 31, 2017 | | 57,252,882 | | $ | 57 | | $ | 114,584 | | $ | 4,520 | | $ | (5,884) | | $ | (1,171) | | $ | 112,106 |
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