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 March 31,June 30, 2023
☐ | 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
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.) |
7900 E. Union Ave, Suite 320, Denver, Colorado 80237
(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:
a | ||
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: 88,468,542 shares of common stock outstanding as of April 23,July 24, 2023.
GOLD RESOURCE CORPORATION
FORM 10-Q
Table of Contents
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Condensed Consolidated Interim Financial Statements and Notes | 3 | ||
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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San Jose de Gracia, Oaxaca |
Gold Resource Corporation
1
FIRSTSECOND QUARTER 2023 HIGHLIGHTS
Highlights for the three months ended March 31,June 30, 2023 are summarized below and discussed further in our under Item 2—Management’s Discussion and Analysis:Analysis of Financial Condition and Results of Operations:
Don David Gold Mine
● | No lost time incidents during the quarter. Our year-to-date LTIFR safety record is 0.22 as compared to the Mexican average of 0.88 (in US equivalent). Safety at Gold Resource Corporation is paramount. Even with a good track record at the Don David Gold Mine (“DDGM”), the Company continues to strive each quarter for improved measures, awareness, and training. |
● | In the second quarter of 2023, the Don David Gold Mine produced and sold a total of 7,689 gold equivalent (“AuEq”) ounces, comprised of 4,287 gold ounces and 274,257 silver ounces at an average sales price per ounce of $2,010 and $25, respectively. |
● | The DDGM diamond drilling program has progressed as planned during the second quarter with encouraging results. Drilling continues to advance at DDGM on two fronts: (1) Infill drilling with the objective of upgrading defined Inferred resources to the Indicated category; and (2) Exploration drilling with the objective of identifying additional Inferred resources via step-out drilling along the South Soledad, Sagrario, Marena and Three Sisters vein systems, as well as on the recently identified Gloria vein system. |
Back Forty Project
● | Optimization work related to the metallurgy and the economic model for the Back Forty Project in Michigan, USA is near completion. The Company plans to release these updated results in a report during the third quarter. |
● | Updated site layout designs have focused on little to no impact on wetlands and being fully protective of the environment. The U.S. Supreme Court ruling in Sackett v. Environmental Protection Agency limits the federal government’s authority with regards to wetlands and will likely result in not needing a “dredge and fill” wetland permit. The “drawdown” of wetlands will be regulated by Michigan State authorities. |
Financial
● |
● | Net loss was |
● | Working capital was |
● | Total cash cost after co-product credits for the quarter was |
● | The Company’s |
Don David Gold Mine
Back Forty Project
Gold Resource Corporation
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
GOLD RESOURCE CORPORATION
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(U.S. dollars in thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of | ||||
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
| Note | 2023 | | 2022 | Note | 2023 | | 2022 | ||||
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 21,420 | | $ | 23,675 | | $ | 17,957 | | $ | 23,675 |
Accounts receivable, net | | | 5,134 | | | 5,085 | | | 4,355 | | | 5,085 |
Inventories, net | 4 | | 11,179 | | | 13,500 | 4 | | 10,874 | | | 13,500 |
Prepaid expenses and other current assets | 6 | | 2,983 | | | 3,839 | 6 | | 6,776 | | | 3,839 |
Total current assets | | | 40,716 | | | 46,099 | | | 39,962 | | | 46,099 |
Property, plant and mine development, net | 7 | | 148,997 | | | 152,563 | 7 | | 145,645 | | | 152,563 |
Other non-current assets | 8 | | 5,488 | | | 5,509 | 8 | | 5,465 | | | 5,509 |
Total assets | | $ | 195,201 | | $ | 204,171 | | $ | 191,072 | | $ | 204,171 |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Accounts payable | | $ | 8,616 | | $ | 13,329 | | $ | 13,114 | | $ | 13,329 |
Mining royalty taxes payable, net | | | 744 | | | 3,945 | | | 1,130 | | | 3,945 |
Contingent consideration | 12 | | 2,215 | | | 2,211 | 12 | | 2,263 | | | 2,211 |
Accrued expenses and other current liabilities | 9 | | 5,058 | | | 5,197 | 9 | | 2,608 | | | 5,197 |
Total current liabilities | | | 16,633 | | | 24,682 | | | 19,115 | | | 24,682 |
Reclamation and remediation liabilities | 11 | | 11,669 | | | 10,366 | 11 | | 12,541 | | | 10,366 |
Gold and silver stream agreements liability | 10 | | 43,740 | | | 43,466 | 10 | | 44,015 | | | 43,466 |
Deferred tax liabilities, net | 5 | | 7,719 | | | 9,224 | 5 | | 4,674 | | | 9,224 |
Contingent consideration | 12 | | 2,144 | | | 2,179 | 12 | | 2,191 | | | 2,179 |
Other non-current liabilities | 9 | | 2,305 | | | 2,490 | 9 | | 1,835 | | | 2,490 |
Total liabilities | | | 84,210 | | | 92,407 | | | 84,371 | | | 92,407 |
Shareholders' equity: | | | | | | | | | | | | |
Common stock - $0.001 par value, 200,000,000 shares authorized: | | | | | | | | | | | | |
88,468,542 and 88,398,109 shares outstanding at March 31, 2023 and December 31, 2022, respectively | | | 89 | | | 89 | ||||||
88,468,542 and 88,398,109 shares outstanding at June 30, 2023 and December 31, 2022, respectively | | | 89 | | | 89 | ||||||
Additional paid-in capital | | | 111,286 | | | 111,024 | | | 111,580 | | | 111,024 |
Retained earnings | | | 6,671 | | | 7,706 | | | 2,087 | | | 7,706 |
Treasury stock at cost, 336,398 shares | | | (5,884) | | | (5,884) | | | (5,884) | | | (5,884) |
Accumulated other comprehensive loss | | | (1,171) | | | (1,171) | | | (1,171) | | | (1,171) |
Total shareholders' equity | | | 110,991 | | | 111,764 | | | 106,701 | | | 111,764 |
Total liabilities and shareholders' equity | | $ | 195,201 | | $ | 204,171 | | $ | 191,072 | | $ | 204,171 |
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—UnauditedNotes (Unaudited)
3
GOLD RESOURCE CORPORATION
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share and per share amounts)
(Unaudited)
| | | | | | | |
| | | For the three months ended | ||||
| | | March 31, | ||||
| Note | | 2023 | | 2022 | ||
| | | | | | | |
Sales, net | 3 | | $ | 31,228 | | $ | 45,417 |
Cost of sales: | | | | | | | |
Production costs | | | | 19,850 | | | 20,074 |
Depreciation and amortization | | | | 7,254 | | | 5,958 |
Reclamation and remediation | | | | 195 | | | 62 |
Total cost of sales | | | | 27,299 | | | 26,094 |
Mine gross profit | | | | 3,929 | | | 19,323 |
Costs and expenses: | | | | | | | |
General and administrative expenses | | | | 1,193 | | | 1,899 |
Mexico exploration expenses | | | | 1,389 | | | 1,237 |
Michigan Back Forty Project expenses | | | | 450 | | | 1,068 |
Stock-based compensation | 16 | | | 597 | | | 774 |
Realized and unrealized loss on zinc zero cost collar | 17 | | | - | | | 4,137 |
Other expense, net | 18 | | | 1,469 | | | 838 |
Total costs and expenses | | | | 5,098 | | | 9,953 |
(Loss) income before income taxes | | | | (1,169) | | | 9,370 |
(Benefit) provision for income taxes | 5 | | | (134) | | | 5,351 |
Net (loss) income | | | $ | (1,035) | | $ | 4,019 |
Net (loss) income per common share: | | | | | | | |
Basic and diluted net (loss) income per common share | 19 | | $ | (0.01) | | $ | 0.05 |
| | | | | | | |
Weighted average shares outstanding: | | | | | | | |
Basic | 19 | | | 88,405,935 | | | 88,338,774 |
Diluted | 19 | | | 88,405,935 | | | 88,616,868 |
| | | | | | | | | | | | |
| | For the three months ended | | For the six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
| Note | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | | | | | | | | | | | |
Sales, net | 3 | $ | 24,807 | | $ | 37,064 | | $ | 56,035 | | $ | 82,481 |
Cost of sales: | | | | | | | | | | | | |
Production costs | | | 20,302 | | | 21,722 | | | 40,152 | | | 41,796 |
Depreciation and amortization | | | 6,474 | | | 7,262 | | | 13,728 | | | 13,220 |
Reclamation and remediation | | | 200 | | | 61 | | | 395 | | | 123 |
Total cost of sales | | | 26,976 | | | 29,045 | | | 54,275 | | | 55,139 |
Mine gross (loss) profit | | | (2,169) | | | 8,019 | | | 1,760 | | | 27,342 |
Costs and expenses: | | | | | | | | | | | | |
General and administrative expenses | | | 2,130 | | | 1,920 | | | 3,323 | | | 3,819 |
Mexico exploration expenses | | | 1,045 | | | 810 | | | 2,434 | | | 2,047 |
Michigan Back Forty Project expenses | | | 395 | | | 2,027 | | | 845 | | | 3,095 |
Stock-based compensation | 16 | | 7 | | | 393 | | | 604 | | | 1,167 |
Realized and unrealized (gain) loss on zinc zero cost collar | 17 | | - | | | (3,799) | | | - | | | 338 |
Other expense, net | 18 | | 711 | | | 214 | | | 2,180 | | | 1,052 |
Total costs and expenses | | | 4,288 | | | 1,565 | | | 9,386 | | | 11,518 |
(Loss) income before income taxes | | | (6,457) | | | 6,454 | | | (7,626) | | | 15,824 |
(Benefit) provision for income taxes | 5 | | (1,873) | | | 3,781 | | | (2,007) | | | 9,132 |
Net (loss) income | | $ | (4,584) | | $ | 2,673 | | $ | (5,619) | | $ | 6,692 |
Net (loss) income per common share: | | | | | | | | | | | | |
Basic and diluted net (loss) income per common share | 19 | $ | (0.05) | | $ | 0.03 | | $ | (0.06) | | $ | 0.08 |
| | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | 19 | | 88,468,542 | | | 88,343,992 | | | 88,437,413 | | | 88,341,398 |
Diluted | 19 | | 88,468,542 | | | 88,791,552 | | | 88,437,413 | | | 88,646,849 |
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—UnauditedNotes (Unaudited)
4
GOLD RESOURCE CORPORATION
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2023 and 2022 | | For the three months ended June 30, 2023 and 2022 | ||||||||||||||||||||||||||||||||||||
| | Number of | | Par Value of | | Additional Paid- | | Retained | | Treasury | | Accumulated | | Total | | Number of | | Par Value of | | Additional Paid- | | Retained | | Treasury | | Accumulated | | Total | ||||||||||||
Balance, December 31, 2021 | | 88,675,172 | | $ | 89 | | $ | 110,153 | | $ | 17,563 | | $ | (5,884) | | $ | (1,171) | | $ | 120,750 | ||||||||||||||||||||
Stock-based compensation | | - | | | - | | | 160 | | | - | | | - | | | - | | | 160 | ||||||||||||||||||||
Net stock options exercised | | - | | | - | | | (331) | | | - | | | - | | | - | | | (331) | ||||||||||||||||||||
Dividends declared (1) | | - | | | - | | | - | | | (883) | | | - | | | - | | | (883) | ||||||||||||||||||||
Net income | | - | | | - | | | - | | | 4,019 | | | - | | | - | | | 4,019 | ||||||||||||||||||||
Balance, March 31, 2022 | | 88,675,172 | | $ | 89 | | $ | 109,982 | | $ | 20,699 | | $ | (5,884) | | $ | (1,171) | | $ | 123,715 | | 88,675,172 | | $ | 89 | | $ | 109,982 | | $ | 20,699 | | $ | (5,884) | | $ | (1,171) | | $ | 123,715 |
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Balance, December 31, 2022 | | 88,734,507 | | $ | 89 | | $ | 111,024 | | $ | 7,706 | | $ | (5,884) | | $ | (1,171) | | $ | 111,764 | ||||||||||||||||||||
Stock-based compensation | | - | | | - | | | 273 | | | - | | | - | | | - | | | 273 | | - | | | - | | | 507 | | | - | | | - | | | - | | | 507 |
Common stock issued for vested restricted stock units | | 88,570 | | | - | | | - | | | - | | | - | | | - | | | - | | 38,503 | | | - | | | - | | | - | | | - | | | - | | | - |
Dividends declared (1) | | - | | | - | | | - | | | (884) | | | - | | | - | | | (884) | ||||||||||||||||||||
Surrender of stock for taxes due on vesting | | (18,137) | | | - | | | (11) | | | - | | | - | | | - | | | (11) | | (4,585) | | | - | | | (9) | | | - | | | - | | | - | | | (9) |
Net income | | - | | | - | | | - | | | 2,673 | | | - | | | - | | | 2,673 | ||||||||||||||||||||
Balance, June 30, 2022 | | 88,709,090 | | $ | 89 | | $ | 110,480 | | $ | 22,488 | | $ | (5,884) | | $ | (1,171) | | $ | 126,002 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Balance, March 31, 2023 | | 88,804,940 | | $ | 89 | | $ | 111,286 | | $ | 6,671 | | $ | (5,884) | | $ | (1,171) | | $ | 110,991 | ||||||||||||||||||||
Stock-based compensation | | - | | | - | | | 294 | | | - | | | - | | | - | | | 294 | ||||||||||||||||||||
Net loss | | | | | - | | | - | | | (1,035) | | | - | | | - | | | (1,035) | | - | | | - | | | - | | | (4,584) | | | - | | | - | | | (4,584) |
Balance, March 31, 2023 | | 88,804,940 | | $ | 89 | | $ | 111,286 | | $ | 6,671 | | $ | (5,884) | | $ | (1,171) | | $ | 110,991 | ||||||||||||||||||||
Balance, June 30, 2023 | | 88,804,940 | | $ | 89 | | $ | 111,580 | | $ | 2,087 | | $ | (5,884) | | $ | (1,171) | | $ | 106,701 |
(1) | Cash dividends declared and paid per share was $0.01 |
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GOLD RESOURCE CORPORATION
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, 2023 and 2022 | ||||||||||||||||||
| | Number of | | Par Value of | | Additional Paid- | | Retained | | Treasury | | Accumulated | | Total | ||||||
Balance, December 31, 2021 | | 88,675,172 | | $ | 89 | | $ | 110,153 | | $ | 17,563 | | $ | (5,884) | | $ | (1,171) | | $ | 120,750 |
Stock-based compensation | | - | | | - | | | 667 | | | - | | | - | | | - | | | 667 |
Net stock options exercised | | - | | | - | | | (331) | | | - | | | - | | | - | | | (331) |
Common stock issued for vested restricted stock units | | 38,503 | | | - | | | - | | | - | | | - | | | - | | | - |
Dividends declared (1) | | - | | | - | | | - | | | (1,767) | | | - | | | - | | | (1,767) |
Surrender of stock for taxes due on vesting | | (4,585) | | | - | | | (9) | | | - | | | - | | | - | | | (9) |
Net income | | - | | | - | | | - | | | 6,692 | | | - | | | - | | | 6,692 |
Balance, June 30, 2022 | | 88,709,090 | | $ | 89 | | $ | 110,480 | | $ | 22,488 | | $ | (5,884) | | $ | (1,171) | | $ | 126,002 |
| | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2022 | | 88,734,507 | | $ | 89 | | $ | 111,024 | | $ | 7,706 | | $ | (5,884) | | $ | (1,171) | | $ | 111,764 |
Stock-based compensation | | - | | | - | | | 567 | | | - | | | - | | | - | | | 567 |
Common stock issued for vested restricted stock units | | 88,570 | | | - | | | - | | | - | | | - | | | - | | | - |
Surrender of stock for taxes due on vesting | | (18,137) | | | - | | | (11) | | | - | | | - | | | - | | | (11) |
Net loss | | | | | - | | | - | | | (5,619) | | | - | | | - | | | (5,619) |
Balance, June 30, 2023 | | 88,804,940 | | $ | 89 | | $ | 111,580 | | $ | 2,087 | | $ | (5,884) | | $ | (1,171) | | $ | 106,701 |
(1) | Cash dividends declared and paid per share were $0.02 for the six months ended June 30, 2022. On February 13, 2023, the Company announced the suspension of future quarterly dividends to protect our balance sheet and to focus capital resources on exploration and growth opportunities. |
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.
GOLD RESOURCE CORPORATION
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
| | | | | | |
| | For the three months ended March 31, | ||||
| Note | 2023 | | 2022 | ||
Cash flows from operating activities: | | | | | | |
Net (loss) income | | $ | (1,035) | | $ | 4,019 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | |
Deferred income tax benefit | | | (715) | | | (827) |
Depreciation and amortization, including amortization in reclamation | | | 7,276 | | | 6,003 |
Stock-based compensation | | | 597 | | | 774 |
Other operating adjustments | 21 | | 631 | | | 2,551 |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | | (49) | | | (2,975) |
Inventories | | | 1,741 | | | (2,013) |
Prepaid expenses and other current assets | | | 1,390 | | | 1,179 |
Other noncurrent assets | | | (42) | | | 340 |
Accounts payable and other accrued liabilities | | | (4,514) | | | (920) |
Mining royalty and income taxes payable, net | | | (4,256) | | | (3,901) |
Net cash provided by operating activities | | | 1,024 | | | 4,230 |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Capital expenditures | | | (3,136) | | | (5,949) |
Proceeds from the sale of gold and silver rounds | | | - | | | 533 |
Net cash used in investing activities | | | (3,136) | | | (5,416) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Cash settlement of options exercise | | | - | | | (246) |
Dividends paid | | | - | | | (883) |
Other financing activities | | | (16) | | | - |
Net cash used in financing activities | | | (16) | | | (1,129) |
Effect of exchange rate changes on cash and cash equivalents | | | (127) | | | (222) |
| | | | | | |
Net decrease in cash and cash equivalents | | | (2,255) | | | (2,537) |
Cash and cash equivalents at beginning of period | | | 23,675 | | | 33,712 |
Cash and cash equivalents at end of period | | $ | 21,420 | | $ | 31,175 |
| | | | | | |
Supplemental Cash Flow Information | | | | | | |
Income and mining taxes paid | | $ | 4,501 | | $ | 13,857 |
Non-cash investing or financing activities : | | | | | | |
Change in capital expenditures in accounts payable | | $ | (983) | | $ | (927) |
| | | | | | |
| | For the six months ended June 30, | ||||
| Note | 2023 | | 2022 | ||
Cash flows from operating activities: | | | | | | |
Net (loss) income | | $ | (5,619) | | $ | 6,692 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | |
Deferred income tax benefit | | | (2,965) | | | (1,198) |
Depreciation and amortization, including accretion in reclamation | | | 13,772 | | | 13,294 |
Stock-based compensation | | | 604 | | | 1,167 |
Other operating adjustments | 21 | | 616 | | | (1,827) |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | | 730 | | | 2,395 |
Inventories | | | 1,762 | | | (1,688) |
Prepaid expenses and other current assets | | | (594) | | | (1,829) |
Other noncurrent assets | | | (72) | | | - |
Accounts payable and other accrued liabilities | | | (2,394) | | | (943) |
Mining royalty and income taxes payable, net | | | (5,367) | | | (3,857) |
Net cash provided by operating activities | | | 473 | | | 12,206 |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Capital expenditures | | | (6,001) | | | (10,518) |
Proceeds from the sale of gold and silver rounds | | | - | | | 533 |
Net cash used in investing activities | | | (6,001) | | | (9,985) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Cash settlement of options exercise | | | - | | | (376) |
Dividends paid | | | - | | | (1,767) |
Other financing activities | | | (16) | | | - |
Net cash used in financing activities | | | (16) | | | (2,143) |
Effect of exchange rate changes on cash and cash equivalents | | | (174) | | | (455) |
| | | | | | |
Net decrease in cash and cash equivalents | | | (5,718) | | | (377) |
Cash and cash equivalents at beginning of period | | | 23,675 | | | 33,712 |
Cash and cash equivalents at end of period | | $ | 17,957 | | $ | 33,335 |
| | | | | | |
Supplemental Cash Flow Information | | | | | | |
Income and mining taxes paid | | $ | 6,068 | | $ | 15,972 |
Non-cash investing or financing activities | | | | | | |
Change in capital expenditures in accounts payable | | $ | (795) | | $ | (1,094) |
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—UnauditedNotes (Unaudited)67
GOLD RESOURCE CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31,June 30, 2023
(Unaudited)
1. Basis of Preparation of Financial Statements
The Condensed Consolidated Interim 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 (“SEC”) 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, 2022 included in the Company’s annual report on Form 10-K.10-K (the “2022 Annual Report”). 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.2022 Annual Report.
Certain items in the prior period’s consolidated financial statements and notes have been reclassified to conform to the current presentation. In the first quarter ofthree and six months ended June 30, 2022, exploration expenses included both the Don David Gold Mine (“DDGM”) exploration expenses and the Back Forty Project expenses. In 2023, these are presented on separate lines in the Consolidated Statements of Operations to align with the current presentation. These reclassifications had no effect on the reported results of operations.
2. Recently Adopted Accounting Standards
Recent accounting pronouncements issued have been evaluated and do not presently impact our financial statements and supplemental data.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—UnauditedNotes (Unaudited)78
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:
| | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | | For the three months ended June 30, | | For the six months ended June 30, | ||||||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | ||||||
| | (in thousands) | | (in thousands) | | (in thousands) | ||||||||||||
Doré sales, net | | | | | | | | | | | | | | | | | | |
Gold | | $ | 1,725 | | $ | 1,244 | | $ | 543 | | $ | 2,484 | | $ | 2,268 | | $ | 3,728 |
Silver | | | 69 | | | 20 | | | 32 | | | 57 | | | 101 | | | 77 |
Less: Refining charges | | | (25) | | | (7) | | | (17) | | | (10) | | | (42) | | | (17) |
Total doré sales, net | | | 1,769 | | | 1,257 | | | 558 | | | 2,531 | | | 2,327 | | | 3,788 |
Concentrate sales | | | | | | | | | | | | | | | | | | |
Gold | | | 10,622 | | | 14,541 | | | 7,949 | | | 13,850 | | | 18,571 | | | 28,391 |
Silver | | | 6,573 | | | 6,085 | | | 6,609 | | | 5,146 | | | 13,182 | | | 11,231 |
Copper | | | 2,994 | | | 4,097 | | | 2,749 | | | 2,708 | | | 5,743 | | | 6,805 |
Lead | | | 2,965 | | | 3,827 | | | 2,782 | | | 3,768 | | | 5,747 | | | 7,595 |
Zinc | | | 9,551 | | | 16,317 | | | 7,928 | | | 14,352 | | | 17,479 | | | 30,669 |
Less: Treatment and refining charges | | | (3,159) | | | (2,741) | | | (3,311) | | | (3,127) | | | (6,470) | | | (5,868) |
Total concentrate sales, net | | | 29,546 | | | 42,126 | | | 24,706 | | | 36,697 | | | 54,252 | | | 78,823 |
Realized gain - embedded derivative, net (1) | | | 634 | | | 866 | | | 248 | | | 1,160 | | | 882 | | | 2,026 |
Unrealized (loss) gain - embedded derivative, net | | | (721) | | | 1,168 | ||||||||||||
Unrealized (loss) - embedded derivative, net | | | (705) | | | (3,324) | | | (1,426) | | | (2,156) | ||||||
Total sales, net | | $ | 31,228 | | $ | 45,417 | | $ | 24,807 | | $ | 37,064 | | $ | 56,035 | | $ | 82,481 |
(1) | Copper, lead, and zinc are co-products. In the Realized gain - embedded derivative, net, there is |
4. Inventories, net
At March 31,June 30, 2023 and December 31, 2022, inventories, net, consisted of the following:
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of | ||||
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Stockpiles - underground mine | | $ | 171 | | $ | 597 | | $ | 244 | | $ | 597 |
Concentrates | | | 2,035 | | | 3,271 | | | 1,384 | | | 3,271 |
Doré, net | | | 382 | | | 653 | | | 359 | | | 653 |
Subtotal - product inventories | | | 2,588 | | | 4,521 | | | 1,987 | | | 4,521 |
Materials and supplies (1) | | | 8,591 | | | 8,979 | | | 8,887 | | | 8,979 |
Total | | $ | 11,179 | | $ | 13,500 | | $ | 10,874 | | $ | 13,500 |
(1) | Net of reserve for obsolescence of $0.1 million as of |
5. Income Taxes
The Company recorded an income tax benefit of $0.1$1.9 million and $2.0 million, respectively, for the three and six months ended March 31,June 30, 2023. For the three and six months ended March 31,June 30, 2022, the Company recorded an income tax expense of $5.4 million.$3.8 million and $9.1 million, respectively. In accordance with applicable accounting rules, the interim provision for taxes is calculated using the estimated consolidated annual 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. Variations in the relative
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
9
proportions of jurisdictional income could result in fluctuations to the Company’s consolidated effective tax rate. At the federal level, the Company’s income in the U.S. is taxed at 21%, and a
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—Unaudited
8
5% withholding tax applies to dividends received from Mexico. The Mexico income is taxed at 37.5% (30% income tax and 7.5% mining tax), and Canada income is taxed at 26.5%, which results in a consolidated effective tax rate above statutory U.S. Federal rates. The U.S. and Canadian jurisdictions do not currently generate taxable income.
Mexico Mining Taxation
Mining entities in Mexico are subject to two mining duties, in addition to the 30% Mexico corporate income tax: (i) a “special” mining duty of 7.5% of taxable income as defined under Mexican tax law (also referred to as “mining royalty tax”) on extraction activities performed by concession holders, and (ii) the “extraordinary” mining duty of 0.5% on gross revenue from the sale of gold, silver, and platinum. The mining royalty tax is generally applicable to earnings before income tax, depreciation, depletion, amortization, and interest. In calculating the mining royalty tax, there are no Gold Resource Corporation deductions related to depreciable costs from operational fixed assets, but prospecting and exploration expenses are amortized using a 10% rate in a 10 year10-year straight line. Both duties are tax deductible for income tax purposes. As a result, our effective tax rate applicable to the Company’s Mexican operations is higher than Mexico’s statutory rate.
The Company periodically transfers funds from its Mexican wholly-ownedwholly owned subsidiary to the U.S. in the form of dividends, which are subject to a 10% Mexico withholding tax, unless otherwise provided per a tax treaty. The current U.S.-Mexico tax treaty limits the dividend withholding tax between these countries to 5%, as long as certain requirements are met. Based on the Company’s understanding that it meets these requirements, the Company pays a 5% withholding tax on dividends paid from Mexico. The impact of the planned annual dividends for 2023 is reflected in the estimated annual effective tax rate. As of March 31,June 30, 2023, the Company recorded $0.6 million deferred tax liability related to the 5% withholding tax on funds available for transfer to the U.S. as dividends in the future are no longer deemed to be permanently reinvested in Mexico. If these funds are distributed to the U.S. from Mexico in the future, at that time, they will be subject to the 5% dividend withholding tax payment upon distribution.
As of March 31,June 30, 2023, the Company believes that it has no liability for uncertain tax positions.
6. Prepaid Expenses and Other Current Assets
At March 31,June 30, 2023 and December 31, 2022, prepaid expenses and other current assets consisted of the following:
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of | ||||
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (Unaudited) | | | | |||||||
| | (in thousands) | | (in thousands) | ||||||||
Advances to suppliers | | $ | 711 | | $ | 867 | | $ | 706 | | $ | 867 |
Prepaid insurance | | | 538 | | | 1,298 | | | 2,436 | | | 1,298 |
Prepaid income tax | | | 1,256 | | | 432 | | | 2,813 | | | 432 |
Other current assets | | | 478 | | | 1,242 | | | 821 | | | 1,242 |
Total | | $ | 2,983 | | $ | 3,839 | | $ | 6,776 | | $ | 3,839 |
A value added (“IVA”) tax in Mexico is assessed on the sales of products and purchases of materials and services. Businesses owe IVA taxes as the business sells a product and collects IVA taxes from its customers. Likewise, businesses are generally entitled to recover the taxes they have paid related to purchases of materials and services, either as a refund or credit to IVA tax payable. Amounts recorded as IVA taxes in the consolidated financial statements represent the net estimated IVA tax payable or receivable, since there is a legal right of offset of IVA taxes. As of June 30, 2023, this resulted in an asset balance, included in Other current assets.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—UnauditedNotes (Unaudited)910
7. Property, Plant and Mine Development, net
At March 31,June 30, 2023 and December 31, 2022, property, plant and mine development, net consisted of the following:
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of | ||||
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Asset retirement costs | | $ | 7,449 | | $ | 7,449 | | $ | 7,449 | | $ | 7,449 |
Construction-in-progress | | | 250 | | | 351 | | | 208 | | | 351 |
Furniture and office equipment | | | 1,776 | | | 1,732 | | | 1,827 | | | 1,732 |
Land | | | 9,033 | | | 9,033 | | | 9,033 | | | 9,033 |
Mineral interest | | | 79,543 | | | 79,543 | | | 79,543 | | | 79,543 |
Light vehicles and other mobile equipment | | | 2,144 | | | 2,327 | | | 2,151 | | | 2,327 |
Machinery and equipment | | | 41,729 | | | 41,343 | | | 41,774 | | | 41,343 |
Mill facilities and infrastructure | | | 35,924 | | | 35,917 | | | 35,915 | | | 35,917 |
Mine Development | | | 107,916 | | | 105,263 | | | 110,625 | | | 105,263 |
Software and licenses | | | 1,554 | | | 1,552 | | | 1,554 | | | 1,552 |
Subtotal (1) | | | 287,318 | | | 284,510 | | | 290,079 | | | 284,510 |
Accumulated depreciation and amortization | | | (138,321) | | | (131,947) | | | (144,434) | | | (131,947) |
Total | | $ | 148,997 | | $ | 152,563 | | $ | 145,645 | | $ | 152,563 |
(1) | Includes accrued capital expenditures of |
The Company recorded depreciation and amortization expense of $7.3$6.5 million and $13.7 million, respectively, for the three and six months ended March 31,June 30, 2023 as compared to $6.0$7.3 million and $13.2 million, respectively, for the same periodperiods ended March 31,June 30, 2022.
8. Other Non-current Assets
At March 31,June 30, 2023 and December 31, 2022, other non-current assets consisted of the following:
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of | ||||
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Investment in Maritime | | $ | 1,561 | | $ | 1,559 | | $ | 1,418 | | $ | 1,559 |
Investment in Green Light Metals | | | 3,617 | | | 3,611 | | | 3,697 | | | 3,611 |
Other non-current assets | | | 310 | | | 339 | | | 350 | | | 339 |
Total | | $ | 5,488 | | $ | 5,509 | | $ | 5,465 | | $ | 5,509 |
Investment in Maritime
On September 22, 2022, the Company invested Canadian Dollar (“C$”) 2.4 million (or $1.7 million) in the common shares of Maritime Resources Corp. The 47 million shares purchased representrepresented 9.9% of the issued and outstanding shares of Maritime. Both asAs of March 31,June 30, 2023 and as of December 31, 2022, the value of the investment was $1.4 and $1.6 million.million, respectively.
Investment in Green Light Metals
A promissory note was acquired in the Aquila Resources Inc. (“Aquila”) acquisition. In October 2021, Aquila sold its Wisconsin assets to Green Light Metals in return for a C$4.9 million ($3.9 million) promissory note. In December 2022, an amended agreement was executed (1) amending the maturity date to December 28, 2022, (2) clarifying the definition of “qualified financing” which set the value to C$0.40 per share for the common shares that were to be issued at maturity; and (3) adding a top-up provision that would result in additional common shares being issued to the Company if any Green
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—UnauditedNotes (Unaudited)1011
Light Metals financing was raised at less than C$0.40 per share before March 31, 2023, essentially preventing dilution and ensuring that the total value of the Green Light Metals shares held by the Company at March 31, 2023 remains at C$4.9 million.
Upon maturity on December 28, 2022, the Company received 12,250,000 private shares of Green Light Metals, which settled the promissory note. The shares received represented 28.5% ownership in Green Light Metals at the time. After this settlement and before March 31, 2023, additional financing was raised by Green Light Metals at C$0.40 per share. Therefore, the top-up provision was not triggered and no additional shares were received. The Company’s ownership in Green Light Metals as of March 31,June 30, 2023 is approximately 28%. Both asAs of March 31,June 30, 2023 and as of December 31, 2022, the value of this equity investment was $3.7 and $3.6 million.million, respectively.
9. Accrued Expenses and Other Liabilities
At March 31,June 30, 2023 and December 31, 2022, accrued expenses and other liabilities consisted of the following:
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of | ||||
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Accrued royalty payments | | $ | 1,402 | | $ | 1,787 | | $ | 1,054 | | $ | 1,787 |
IVA taxes payable, net | | | 274 | | | - | ||||||
Share-based compensation liability | | | 168 | | | - | | | 147 | | | - |
Liability for Aquila drillhole capping (1) | | | 110 | | | - | | | 110 | | | - |
Employee profit sharing obligation | | | 2,350 | | | 2,206 | | | 98 | | | 2,206 |
Other payables | | | 754 | | | 1,204 | | | 1,199 | | | 1,204 |
Total accrued expenses and other current liabilities | | $ | 5,058 | | $ | 5,197 | | $ | 2,608 | | $ | 5,197 |
| | | | | | | | | | | | |
Accrued non-current labor obligation | | $ | 1,145 | | $ | 1,050 | | $ | 1,237 | | $ | 1,050 |
Share-based compensation liability | | | 1,040 | | | 884 | | | 506 | | | 884 |
Other long-term liabilities | | | 120 | | | 556 | | | 92 | | | 556 |
Total other non-current liabilities | | $ | 2,305 | | $ | 2,490 | | $ | 1,835 | | $ | 2,490 |
(1) | This is the current portion of the Company’s reclamation and remediation liabilities. Please see Note 11— Reclamation and Remediation in |
A value added (“IVA”) tax in Mexico is assessed on the sales of products and purchases of materials and services. Businesses owe IVA taxes as the business sells a product and collects IVA taxes from its customers. Likewise, businesses are generally entitled to recover the taxes they have paid related to purchases of materials and services, either as a refund or credit to IVA tax payable. Amounts recorded as IVA taxes in the consolidated financial statements represent the net estimated IVA tax payable or receivable, since there is a legal right of offset of IVA taxes. As of March 31, 2023, this resulted in a liability balance.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—Unaudited
11
10. Gold and Silver Stream Agreements
The following table presents the Company’s liabilities related to the Gold and Silver Stream Agreements as of March 31,June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of | ||||
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Liability related to the Gold Stream Agreement | | $ | 20,938 | | $ | 20,881 | | $ | 20,995 | | $ | 20,881 |
Liability related to the Silver Stream Agreement | | | 22,802 | | | 22,585 | | | 23,020 | | | 22,585 |
Total liability | | $ | 43,740 | | $ | 43,466 | | $ | 44,015 | | $ | 43,466 |
Periodic interest expense will be incurred based on an implied interest rate. The implied interest rate is determined based on the timing and probability of future production and an 8% discount rate. Interest expense is recorded to the Consolidated Statements of Operations, and the gold and silver stream agreement liability recorded on the Consolidated Balance Sheet. These liabilities approximate fair value.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
12
Gold Streaming Agreement
In November 2017, Aquila entered into a stream agreement with Osisko Bermuda Limited (“OBL”), a wholly owned subsidiary of Osisko Gold Royalties Ltd (TSX & NYSE: OR), pursuant to which OBL agreed to commit approximately $55 million to Aquila through a gold stream purchase agreement. In June 2020, Aquila amended its agreement with Osisko, reducing the total committed amount to $50 million, as well as adjusting certain milestone dates under the gold stream to align with the current project development timeline. Aquila had received a total of $20 million of the committed funds at the time of the Gold Resource Corporation acquisition. Remaining deposits from OBL are $5 million upon receipt of permits required for the development and operation of the Back Forty Project and $25 million upon the first drawdown of an appropriate project debt finance facility. OBL has been provided a general security agreement over the Back Forty Project, which consists of the subsidiaries of Gold Resource Acquisition Sub. Inc., a 100% owned subsidiary of Gold Resource Corporation. The initial term of the agreement is for 40 years, automatically renewable for successive ten-year periods. The agreement is subject to certain operating and financial covenants, which are in good standing as of March 31,June 30, 2023.
The $20 million received from OBL through March 31,June 30, 2023 is shown as a long-term liability on the Consolidated Balance Sheet, along with an implied interest. The implied interest rate is applied on OBL advance payments and calculated on the total expected life-of-mine production to be deliverable (as supported in the Back Forty Project Preliminary Economic Assessment) at December 31, 2022 closing gold and silver metal price and is discounted at 8.0%. As the remaining $30 million deposit is subject to the completion of certain milestones and the satisfaction of certain other conditions, this amount is not reflected on the Consolidated Balance Sheet.
Per the terms of the gold stream agreement, OBL will purchase 18.5% of the refined gold from Back Forty (the “Threshold Stream Percentage”) until the Company has delivered 105,000 ounces of gold (the “Production Threshold”). Upon satisfaction of the Production Threshold, the Threshold Stream Percentage will be reduced to 9.25% of the refined gold (the “Tail Stream”). In exchange for the refined gold delivered under the Stream Agreement, OBL will pay the Company ongoing payments equal to 30% of the spot price of gold on the day of delivery, subject to a maximum payment of $600 per ounce. Where the market price of gold is greater than the price paid, the difference realized from the sale of the gold will be applied against the deposit received from Osisko. (See Note 12—Commitments and Contingencies in Item 8—Financial Statements and Supplementary Data for additional information.)
Gold Resource Corporation—1—Condensed Consolidated Interim Financial Statements and Notes—UnauditedNotes (unaudited) for additional information.)
12
Silver Stream Agreement
Through a series of contracts, Aquila executed a silver stream agreement with OBL to purchase 85% of the silver produced and sold at the Back Forty Project. A total of $17.2 million has been advanced under the agreement of March 31,June 30, 2023. There are no future deposits remaining under the agreement. The initial term of the agreement is for 40 years, automatically renewable for successive ten-year periods. The agreement is subject to certain operating and financial covenants, which are in good standing as of March 31,June 30, 2023.
Per the terms of the silver stream agreement, OBL will purchase 85% of the silver produced from the Back Forty Project at a fixed price of $4 per ounce of silver. Where the market price of silver is greater than $4 per ounce, the difference realized from the sale of the silver will be applied against the deposit received from Osisko.
The $17.2 million received from OBL through March 31,June 30, 2023 is shown as a long-term liability on the Consolidated Balance Sheet along with an implied interest. (See Note 12—Commitments and Contingencies in Item 8—1—Condensed Consolidated Interim Financial Statements and Supplementary DataNotes (unaudited) for additional information.)
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
13
11. Reclamation and Remediation
The following table presents the reclamation and remediation obligations as of March 31,June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of | ||||
| | March 31, | | December 31, | | June 30, | | December 31, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Current reclamation and remediation liabilities (1) | | $ | 110 | | $ | - | | $ | 110 | | $ | - |
Non-current reclamation and remediation liabilities | | | 11,669 | | | 10,366 | | | 12,541 | | | 10,366 |
Total | | $ | 11,779 | | $ | 10,366 | | $ | 12,651 | | $ | 10,366 |
(1) | The current portion of reclamation and remediation liabilities are included in Accrued expenses and other current liabilities. Please see Note 9— Accrued Expenses and Other Liabilities in |
The following table presents the changes in reclamation and remediation obligations for the threesix months ended March 31,June 30, 2023 and the year ended December 31, 2022:
| | | | | | | | | | | | |
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Reclamation liabilities – balance at beginning of period | | $ | 1,949 | | $ | 1,833 | | $ | 1,949 | | $ | 1,833 |
Foreign currency exchange loss | | | 135 | | | 116 | | | 260 | | | 116 |
Reclamation liabilities – balance at end of period | | | 2,084 | | | 1,949 | | | 2,209 | | | 1,949 |
| | | | | | | | | | | | |
Asset retirement obligation – balance at beginning of period (1) | | | 8,417 | | | 1,279 | | | 8,417 | | | 1,279 |
Changes in estimate (1) | | | - | | | 6,384 | | | - | | | 6,384 |
Liability for Aquila drillhole capping (2) | | | 514 | | | - | | | 514 | | | - |
Accretion | | | 173 | | | 668 | | | 354 | | | 668 |
Foreign currency exchange loss | | | 591 | | | 86 | | | 1,157 | | | 86 |
Asset retirement obligation – balance at end of period | | | 9,695 | | | 8,417 | | | 10,442 | | | 8,417 |
Total period end balance | | $ | 11,779 | | $ | 10,366 | | $ | 12,651 | | $ | 10,366 |
(1) | In 2022, the Company updated its closure plan study, which resulted in a $6.4 million increase in the estimated liability and asset retirement costs. This increase is a result of formalizing a tailings storage facility closure plan, the addition of the dry stack facility and the filtration plant, and the increase of inflation in Mexico. |
(2) | As of December 31, 2022, the Company reported the liability to remediate exploration drill holes at the Back Forty Project in Michigan, USA in other non-current liabilities. As of March 31, 2023, this liability was reclassified to non-current reclamation and remediation liabilities. Upon completion of the |
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—Unaudited
13
The Company’s undiscounted reclamation liabilities of $2.1$2.2 million and $1.9 million as of March 31,June 30, 2023 and December 31, 2022, respectively, are related to the Don David Gold Mine in Mexico. These represent reclamation liabilities that were expensed through 2013 before proven and probable reserves were established and the Company was considered to be a development stage entity; therefore, most of the costs, including asset retirement costs, were not allowed to be capitalized as part of our Property, Plant & Mine Development.
The Company’s asset retirement obligations reflect the additions to the asset for reclamation and remediation costs in Property, Plant & Mine Development, post 2013 development stage status, which are discounted using a credit adjusted risk-free rate of 8%. As of March 31,June 30, 2023 and December 31, 2022, the Company’s asset retirement obligation related to was $9.7$10.4 million and $8.4 million, respectively, and was mostly related to the Don David Gold Mine in Mexico.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
14
12. Commitments and Contingencies
Commitments
As of March 31,June 30, 2023 and December 31, 2022, the Company has equipment purchase commitments of approximately $1.0$0.7 million and $1.2 million, respectively.
Contingent ConsiderationAccrued Expenses and Other Liabilities
With the Aquila acquisition, the Company assumed a contingent consideration related to the December 30, 2013, Aquila acquisition of 100% of the shares of HudBay Michigan Inc. (“HMI”), a subsidiary of HudBay Minerals Inc. (“HudBay”), effectively giving Aquila 100% ownership in the Back Forty Project (the “HMI Acquisition”). Pursuant to the HMI Acquisition, HudBay’s 51% interest in the Back Forty Project was acquired in consideration for the issuance of common shares of Aquila, future milestone payments tied to the development of the Back Forty Project, and a 1% net smelter return royalty on production from certain land parcels in the project. The issuance of shares and 1% net smelter obligations were settled before the Company acquired Aquila.
The contingent consideration is composed of the following in Canadian dollars:
The value of future installments is based on C$9 million tied to development of the Back Forty project as follows:
The value of the contingent consideration as of March 31, 2023 was $4.4 million, including $2.2 million in current liabilities and $2.2 million in non-current liabilities. It is more likely than not that management will pay C$3 million ($2.2 million) of the liability in 2023 in order to prevent the repurchase of 51% ownership by HMI. Therefore, this portion is presented as current liability, with $2.2 million remaining in long-term liability. The contingent consideration is adjusted for the time value of money and the likelihood of the milestone payments. Any future changes in the value of the contingent consideration will be recognized in the Consolidated Statements of Operations.
Other ContingenciesItem 1—
The Company has certain other contingencies resulting from litigation, claims, and other commitments and is subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. The Company currently has no basis to conclude that any or all of such contingencies will materially affect its financial position, results
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—Unaudited
14
of operations, or cash flows. However, in the future, there may be changes to these contingencies, or additional contingencies may occur, any of which might result in an accrual or a change in current accruals recorded by the Company, and there can be no assurance that their ultimate disposition will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
With the acquisition of Aquila Resources Inc. on December 10, 2021, the Company assumed substantial liabilities that relate to the gold and silver stream agreements with Osisko Bermuda Limited. Under the agreements, Osisko deposited a total of $37.2 million upfront in exchange for a portion of the future gold and silver production from the Back Forty Project. The stream agreements contain customary provisions regarding default and security. In the event that our subsidiary defaults under the stream agreements, including failing to achieve commercial production at a future date, it may be required to repay the deposit plus accumulated interest at a rate agreed with Osisko. If it fails to do so, Osisko may be entitled to enforce its remedies as a secured party and take possession of the assets that comprise the Back Forty Project.
13. Shareholders’ Equity
No dividends were declared and paid in 2023. During the three months ended March 31, 2022, the Company declared and paid dividends of $0.01 per common share, paying an aggregate total of $0.9 million.
14. Derivatives
Embedded Derivatives
Concentrate Sales
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 to reflect the mark-to-market adjustments for outstanding provisional invoices based on forward metal prices. Please see Note—20 Fair Value Measurement in this Item 1—Condensed Consolidated Interim Financial Statements and Notes (unaudited) for additional information on the realized and unrealized gain (loss) recorded to adjust accounts receivable and revenue.
The following table summarizes the Company’s unsettled sales contracts at March 31, 2023 with the quantities of metals under contract subject to final pricing expected to occur through May 2023:information.
The following table presents the changes in reclamation and remediation obligations for the six months ended June 30, 2023 and the year ended December 31, 2022:
| | | | | | |
| | 2023 | | 2022 | ||
| | (in thousands) | ||||
Reclamation liabilities – balance at beginning of period | | $ | 1,949 | | $ | 1,833 |
Foreign currency exchange loss | | | 260 | | | 116 |
Reclamation liabilities – balance at end of period | | | 2,209 | | | 1,949 |
| | | | | | |
Asset retirement obligation – balance at beginning of period (1) | | | 8,417 | | | 1,279 |
Changes in estimate (1) | | | - | | | 6,384 |
Liability for Aquila drillhole capping (2) | | | 514 | | | - |
Accretion | | | 354 | | | 668 |
Foreign currency exchange loss | | | 1,157 | | | 86 |
Asset retirement obligation – balance at end of period | | | 10,442 | | | 8,417 |
Total period end balance | | $ | 12,651 | | $ | 10,366 |
| | | | | | | | | | | | | | | | | | |
| | Gold | | Silver | | Copper | | Lead | | Zinc | | | Total | |||||
| | (ounces) | | (ounces) | | (tonnes) | | (tonnes) | | (tonnes) | | | | |||||
Under contract | | | 4,390 | | | 256,430 | | | 207 | | | 1,720 | | | 2,183 | | | |
Average forward price (per ounce or tonne) | | $ | 1,885 | | $ | 22.08 | | $ | 8,880 | | $ | 2,092 | | $ | 3,078 | | | |
Unsettled sales contracts value (in thousands) | | $ | 8,275 | | $ | 5,662 | | $ | 1,838 | | $ | 3,598 | | $ | 6,719 | | $ | 26,092 |
(1) |
|
(2) | As of December 31, 2022, the
|
The Company’s undiscounted reclamation liabilities of $2.2 million and $1.9 million as of June 30, 2023 and December 31, 2022, respectively, are related to the Don David Gold Mine in Mexico. These represent reclamation liabilities that were expensed through 2013 before proven and probable reserves were established and the Company was considered to be a development stage entity; therefore, most of the costs, including asset retirement costs, were not allowed to be capitalized as part of our Property, Plant & Mine Development.
The Company’s asset retirement obligations reflect the additions to the asset for reclamation and remediation costs in Property, Plant & Mine Development, post 2013 development stage status, which are discounted using a credit adjusted risk-free rate of 8%. As of June 30, 2023 and December 31, 2022, the Company’s asset retirement obligation related to was $10.4 million and $8.4 million, respectively, and was mostly related to the Don David Gold Mine in Mexico.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
14
12. Commitments and Contingencies
Commitments
As of June 30, 2023 and December 31, 2022, the Company has equipment purchase commitments of approximately $0.7 million and $1.2 million, respectively.
Under Mexican law, employees are entitled to receive statutory profit sharing (Participacion a los Trabajadores de las Utilidades or “PTU”) payment. The required cash payment to employees in the aggregate is equal to 10% of their employer’s profit subject to PTU, which differs from profit determined under U.S. GAAP. Please see Note 9—Accrued Expenses and Other Liabilitiesin this Item 1—Item 1—Condensed Consolidated Interim Financial Statements and Notes (unaudited) for additional information.
The following table presents the changes in reclamation and remediation obligations for the six months ended June 30, 2023 and the year ended December 31, 2022:
| | | | | | |
| | 2023 | | 2022 | ||
| | (in thousands) | ||||
Reclamation liabilities – balance at beginning of period | | $ | 1,949 | | $ | 1,833 |
Foreign currency exchange loss | | | 260 | | | 116 |
Reclamation liabilities – balance at end of period | | | 2,209 | | | 1,949 |
| | | | | | |
Asset retirement obligation – balance at beginning of period (1) | | | 8,417 | | | 1,279 |
Changes in estimate (1) | | | - | | | 6,384 |
Liability for Aquila drillhole capping (2) | | | 514 | | | - |
Accretion | | | 354 | | | 668 |
Foreign currency exchange loss | | | 1,157 | | | 86 |
Asset retirement obligation – balance at end of period | | | 10,442 | | | 8,417 |
Total period end balance | | $ | 12,651 | | $ | 10,366 |
16. Stock-Based Compensation
The Company’s compensation program comprises three main elements: base salary, an annual short-term incentive
(1) | In 2022, the Company updated its closure plan
|
(2) | As of December 31, 2022, the Company reported the liability to
|
The Company’s undiscounted reclamation liabilities of $2.2 million and $1.9 million as of June 30, 2023 and December 31, 2023 and 2022, respectively, the changes in liabilities related to DSUs resulted in $0.4 million and $0.6 million stock-based compensation expense.
RSUs of 612,059 and 234,605 were granted during the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023 and 2022, respectively, a total of 195,525 and nil RSUs vested. For the RSUs vesting in 2023, 70,433 common shares were issued with an intrinsic value and a fair value of $61,981, RSUs of 18,137 were withheld for taxes due to net settlement, and 106,955 RSUs were deferred.
Stock options of nil and 320,816 were granted during the three months ended March 31, 2023 and 2022, respectively. Stock options of nil and 355,000, respectively, were exercised during the three months ended March 31, 2023 and 2022. The exercises in 2022, respectively, are related to the Don David Gold Mine in Mexico. These represent reclamation liabilities that were expensed through 2013 before proven and probable reserves were established and the Company was considered to be a development stage entity; therefore, most of the costs, including asset retirement costs, were not allowed to be capitalized as part of our Property, Plant & Mine Development.
The Company’s asset retirement obligations reflect the additions to the asset for reclamation and remediation costs in Property, Plant & Mine Development, post 2013 development stage status, which are discounted using a credit adjusted risk-free rate of 8%. As of June 30, 2023 and December 31, 2022, the Company’s asset retirement obligation related to was $10.4 million and $8.4 million, respectively, and was mostly related to the Don David Gold Mine in Mexico.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
14
12. Commitments and Contingencies
Commitments
As of June 30, 2023 and December 31, 2022, the Company has equipment purchase commitments of approximately $0.7 million and $1.2 million, respectively.
Contingent Consideration
With the Aquila acquisition, the Company assumed a contingent consideration related to the December 30, 2013, Aquila acquisition of 100% of the shares of HudBay Michigan Inc. (“HMI”), a subsidiary of HudBay Minerals Inc. (“HudBay”), effectively giving Aquila 100% ownership in the Back Forty Project (the “HMI Acquisition”). Pursuant to the HMI Acquisition, HudBay’s 51% interest in the Back Forty Project was acquired in consideration for the issuance of common shares of Aquila, future milestone payments tied to the development of the Back Forty Project, and a 1% net smelter return royalty on production from certain land parcels in the project. The issuance of shares and 1% net smelter obligations were settled before the Company acquired Aquila.
The contingent consideration is composed of the following in Canadian dollars:
The value of future installments is based on C$9 million tied to development of the Back Forty project as follows:
a. | C$3 million payable on completion of any form of financing for purposes including the commencement of construction of Back Forty. Up to 50% of the C$3 million can be paid, at the Company’s option, in Gold Resource Corporation shares with the balance payable in cash.
|
c. | C$2 million payable in cash 270 days after the commencement of commercial production; and |
d. | C$2 million payable in cash 450 days after the commencement of commercial production. |
The value of the contingent consideration as of June 30, 2023 was $4.5 million, including $2.3 million in current liabilities and $2.2 million in non-current liabilities. As the Company has the option to pay the first milestone payment of C$3 million ($2.3 million) in 2023 in order to prevent the repurchase of 51% ownership by HMI, this portion is presented as a current liability, with $2.2 million remaining in long-term liability. The contingent consideration is adjusted for the time value of money and the likelihood of the milestone payments. Any future changes in the value of the contingent consideration will be recognized in the Consolidated Statements of Operations.
Other Contingencies
The Company has certain other contingencies resulting from litigation, claims, and other commitments and is subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. The Company currently has no basis to conclude that any or all of such contingencies will materially affect its financial position, results of operations, or cash flows. However, in the future, there may be changes to these contingencies, or additional contingencies may occur, any of which might result in an accrual or a change in current accruals recorded by the Company, and there can be no assurance that their ultimate disposition will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
With the acquisition of Aquila Resources Inc. on December 10, 2021, the Company assumed substantial liabilities that relate to the gold and silver stream agreements with Osisko Bermuda Limited. Under the agreements, Osisko deposited a total of $37.2 million upfront in exchange for a portion of the future gold and silver production from the Back Forty Project. The stream agreements contain customary provisions regarding default and security. In the event that our subsidiary defaults under the stream agreements, including failing to achieve commercial production at a future date, it may be required
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
15
to repay the deposit plus accumulated interest at a rate agreed with Osisko. If it fails to do so, Osisko may be entitled to enforce its remedies as a secured party and take possession of the assets that comprise the Back Forty Project.
13. Shareholders’ Equity
No dividends were declared and paid in 2023. During the three and six months ended June 30, 2022, the Company declared and paid dividends of $0.01 per common share and $0.02 per common share for an aggregate total of $0.9 million and $1.8 million, respectively.
14. Derivatives
Embedded Derivatives
Concentrate Sales
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 to reflect the mark-to-market adjustments for outstanding provisional invoices based on forward metal prices. Please see Note—20 Fair Value Measurement in Item 1—Condensed Consolidated Interim Financial Statements and Notes (unaudited) for additional information on the realized and unrealized gain (loss) recorded to adjust accounts receivable and revenue.
The following table summarizes the Company’s unsettled sales contracts at June 30, 2023 with the quantities of metals under contract subject to final pricing expected to occur through August 2023:
| | | | | | | | | | | | | | | | | | |
| | Gold | | Silver | | Copper | | Lead | | Zinc | | | Total | |||||
| | (ounces) | | (ounces) | | (tonnes) | | (tonnes) | | (tonnes) | | | | |||||
Under contract | | | 4,681 | | | 334,989 | | | 326 | | | 2,371 | | | 4,681 | | | |
Average forward price (per ounce or tonne) | | $ | 1,954 | | $ | 23.65 | | $ | 8,434 | | $ | 2,110 | | | 2,719 | | | |
Unsettled sales contracts value (in thousands) | | $ | 9,147 | | $ | 7,922 | | $ | 2,749 | | $ | 5,003 | | $ | 12,728 | | $ | 37,549 |
Other Derivatives
Zinc zero cost collar
Derivative instruments that are not designated as hedging instruments are required to be recorded on the balance sheet at fair value. Changes in fair value will impact the Company’s earnings through mark-to-market adjustments until the physical commodity is delivered or the financial instrument is settled. The fair value does not reflect the realized or cash value of the instrument. As of December 31, 2022, the Company’s hedge program concluded, but the Company may utilize similar programs in the future to manage near-term exposure to cash flow variability from metal prices.
The Company manages credit risk by selecting counterparties believed to be financially strong, by entering into netting arrangements with counterparties and by requiring other credit risk mitigants, as appropriate. The Company actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits, and monitors credit exposures against those assigned limits.
15. Employee Benefits
Effective October 2012, the Company adopted a profit sharing plan (the “Plan”) which covers all U.S. employees. The Plan meets the requirements of a qualified retirement plan pursuant to the provisions of Section 401(k) of the Internal Revenue Code. The Plan also provides eligible employees the opportunity to make tax deferred contributions to a retirement trust account up to 90% of their qualified wages, subject to the IRS annual maximums.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
16
Under Mexican law, employees are entitled to receive statutory profit sharing (Participación a los Trabajadores de las Utilidades or “PTU”) payments. The required cash payment to employees in the aggregate is equal to 10% of their employer’s profit subject to PTU, which differs from profit determined under U.S. GAAP. Please see Note 9—Accrued Expenses and Other Liabilitiesin Item 1—Condensed Consolidated Interim Financial Statements and Notes (unaudited) for additional information.
16. Stock-Based Compensation
The Company’s compensation program comprises three main elements: base salary, an annual short-term incentive plan (“STIP”) cash award, and long-term equity-based incentive compensation (“LTIP”) in the form of deferred stock units (“DSUs”), restricted stock units (“RSUs”), stock options, and performance share units (“PSUs”).
The Gold Resource Corporation 2016 Equity 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, RSUs, stock grants, stock units, performance shares, PSUs, 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.
DSUs of nil and 278,663, respectively, were granted to the Board of Directors during the three and six months ended June 30, 2023. DSUs of nil and 214,357 were granted to the Board of Directors during the three and six months ended June 30, 2022, respectively. DSUs are vested immediately and redeemable in cash or shares at the earlier of 10 years or upon the eligible directors’ termination. Termination is deemed to occur on the earliest of: (1) the date of voluntary resignation or retirement of the director from the Board; (2) the date of death of the director; or (3) the date of removal of the director from the Board whether by shareholder resolution, failure to achieve re-election, or otherwise; and on which date the director is not a director or employee of the Company or any of its affiliates. These awards contain a cash settlement feature and are therefore classified as a liability and are marked to market each reporting period.
The Company may also issue DSUs for directors in lieu of board fees at their request. During the three and six months ended June 30, 2023, respectively, there were 17,652 and 31,301 DSUs granted in lieu of board fees that are also subject to mark-to-market adjustment. During the three and six months ended June 30, 2022, respectively, there were 3,352 and 6,708 DSUs granted in lieu of board fees that are also subject to mark-to-market adjustment. Additionally, during the first quarter of 2023, executives were granted 212,407 DSUs in lieu of half of their STIP cash bonus for 2022.
During both the three and six months ended June 30, 2023, there were 323,900 DSUs redeemed for the cash value of $0.3 million. There were no DSU redemptions during the same periods in 2022.
As of June 30, 2023 and 2022, the non-current liability balances related to DSUs were $0.4 million and $0.6 million, respectively. For the three months ended June 30, 2023 and 2022, respectively, the changes in liabilities related to DSUs resulted in $0.3M million and $0.2 million credit to stock-based compensation expense. For the six months ended June 30, 2023 and 2022, respectively, the changes in liabilities related to DSUs resulted in $0.1 million and $0.4 million stock-based compensation expense, respectively.
RSUs of 167,133 and 779,192 were granted during the three and six months ended June 30, 2023, respectively. RSUs of 377,076 and 611,681 were granted during the three and six months ended June 30, 2022, respectively. During the three and six months ended June 30, 2023, respectively, a total of nil and 195,525 RSUs vested. Both during the three and six months ended June 30, 2022, a total of 77,801 RSUs vested. For the RSUs vesting in 2023, 70,433 common shares were issued with an intrinsic value and a fair value of $61,981, RSUs of 18,137 were withheld for taxes due to net settlement, and 106,955 RSUs were deferred.
No stock options were granted nor exercised during the three and six months ended June 30, 2023. Stock options of nil and 320,816 were granted during the three and six months ended June 30, 2022, respectively. Stock options of nil and 355,000, respectively, were exercised during the three and six months ended June 30, 2022. The exercises in 2022 were settled in cash.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
17
PSUs of nil and 534,890 were granted during the three and six months ended June 30, 2023 respectively. PSUs of 400,894 and 695,041 were granted during the three and six months ended June 30, 2022, respectively. PSUs cliff vest usually in three years based on the relative and absolute total shareholder return of a predetermined peer group and are expected to be settled in cash.
During the three and six months ended June 30, 2023, there were 60,214 and 98,483 PSUs, respectively, forfeited due to employee terminations. There were no forfeitures during the same periods in 2022.
As of June 30, 2023 and 2022, the current liability balances related to PSUs were $0.1 million and nil, respectively, and the non-current liability balances related to PSUs were $0.2 million and $0.1 million, respectively.
Stock-based compensation expense for the periods presented is as follows:
| | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | ||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Deferred stock units | | | (288) | | | (207) | | | 69 | | | 370 |
Restricted stock units | | | 174 | | | 256 | | | 327 | | | 304 |
Stock options | | $ | 120 | | $ | 250 | | $ | 240 | | $ | 399 |
Performance stock units | | | 1 | | | 94 | | | (32) | | | 94 |
Total | | $ | 7 | | $ | 393 | | $ | 604 | | $ | 1,167 |
The Company’s STIP for its management team provides annual cash payable upon achievement of specified performance metrics. As of June 30, 2023, the Company accrued $0.8 million payable in cash related to the 2023 STIP program.
17. Zinc Zero Cost Collar
During the three months ended March 31, 2023 and 2022, the realized and unrealized (gains) losses related to the Company’s Zinc Zero Cost Collar
During the three and six months ended June 30, 2023 and 2022, the realized and unrealized (gains) losses related to the Company’s zinc zero cost collar are the following:
| | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | ||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Realized loss on zinc zero cost collar | | $ | - | | $ | 829 | | $ | - | | $ | 2,457 |
Unrealized gain on zinc zero cost collar (1) | | | - | | | (4,628) | | | - | | | (2,119) |
Total | | $ | - | | $ | (3,799) | | $ | - | | $ | 338 |
| | | | | | |
| | For the three months ended March 31, | ||||
| | 2023 | | 2022 | ||
| | (in thousands) | ||||
Realized loss on zinc zero cost collar | | $ | - | | $ | 1,628 |
Unrealized loss on zinc zero cost collar (1) | | | - | | | 2,509 |
Total | | $ | - | | $ | 4,137 |
(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. |
On May 18, 2021, the Company entered into a Trading Agreement with Auramet International LLC that governs nonexchange traded, over-the-counter, spot, forward and option transactions on both a deliverable and non-deliverable basis involving various metals and currencies. Gains and losses due to changes in fair value are non-cash in nature until such time that they are realized through cash transactions. Please see Note 14—Derivatives in Item 1—Condensed Consolidated Interim Financial Statements and Notes (unaudited) for additional information. As of December 31, 2022, the Company’s hedge program concluded, but the Company may utilize similar programs in the future to manage near-term exposure to cash flow variability from metal prices.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
18
18. Other Expense, net
Other expense, net, for the periods presented consisted of the following:
| | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | ||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Unrealized currency exchange (gain) loss (1) | | $ | (114) | | $ | 77 | | $ | 339 | | $ | 522 |
Realized currency exchange loss | | | 133 | | | 30 | | | 309 | | | 159 |
Realized and unrealized loss (gain) from gold and silver rounds, net | | | 6 | | | 8 | | | (3) | | | (28) |
Loss on disposal of fixed assets | | | 12 | | | - | | | 12 | | | - |
Interest on streaming liabilities | | | 275 | | | 134 | | | 549 | | | 310 |
Severance (2) | | | 267 | | | - | | | 877 | | | - |
Other expense (income) | | | 132 | | | (35) | | | 97 | | | 89 |
Total | | $ | 711 | | $ | 214 | | $ | 2,180 | | $ | 1,052 |
(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. |
(2) | This is due to an organized reduction of |
19. Net Income per Common Share
Basic net income per common share is calculated based on the weighted average number of common shares outstanding for the period. Diluted earnings per common share are 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 RSUs are considered to be dilutive in periods with net income.
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 1.5 million shares of common stock at weighted average exercise prices of $2.88 were outstanding as of June 30, 2023 but had no dilutive effect due to the net loss. Options to purchase 2.3 million shares of common stock at a weighted average exercise prices of $4.49 were outstanding as of June 30, 2022 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 the reporting period, and therefore are anti-dilutive.
Basic and diluted net income per common share is calculated as follows:
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—Unaudited
17
18. Other Expense, net
Other expense, net, for the periods presented consisted of the following:
| | | | | | |
| | For the three months ended March 31, | ||||
| | 2023 | | 2022 | ||
| | (in thousands) | ||||
Unrealized currency exchange loss (1) | | $ | 453 | | $ | 445 |
Realized currency exchange loss | | | 176 | | | 129 |
Realized and unrealized gain from gold and silver rounds, net | | | (9) | | | (36) |
Interest on streaming liabilities | | | 274 | | | 176 |
Severance (2) | | | 610 | | | - |
Other (income) expense | | | (35) | | | 124 |
Total | | $ | 1,469 | | $ | 838 |
19. Net Income per Common Share
Basic net income per common share is calculated based on the weighted average number of common shares outstanding for the period. Diluted earnings per common share are 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 RSUs are considered to be dilutive in periods with net income.
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 1.5 million shares of common stock at weighted average exercise prices of $2.90 were outstanding as of March 31, 2023 but had no dilutive effect due to the net loss. Options to purchase 2.7 million shares of common stock at a weighted average exercise prices of $4.08 were outstanding as of March 31, 2022 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 the reporting period, and therefore are anti-dilutive.
Basic and diluted net income per common share is calculated as follows:
| | | | | |
| For the three months ended | ||||
| March 31, | ||||
| 2023 | | 2022 | ||
Numerator: | | | | | |
Net (loss) income (in thousands) | $ | (1,035) | | $ | 4,019 |
| | | | | |
Denominator: | | | | | |
Basic weighted average shares of common stock outstanding | | 88,405,935 | | | 88,338,774 |
Dilutive effect of share-based awards | | - | | | 278,094 |
Diluted weighted average common shares outstanding | | 88,405,935 | | | 88,616,868 |
| | | | | |
Basic and diluted net (loss) income per common share | $ | (0.01) | | $ | 0.05 |
For the three months ended For the six months ended June 30, June 30, 2023 2022 2023 2022 Numerator: Net (loss) income (in thousands) $ (4,584) $ 2,673 $ (5,619) $ 6,692 Denominator: Basic weighted average shares of common stock outstanding 88,468,542 88,343,992 88,437,413 88,341,398 Dilutive effect of share-based awards - 447,560 - 305,451 Diluted weighted average common shares outstanding 88,468,542 88,791,552 88,437,413 88,646,849 Basic and diluted net (loss) income per common share $ (0.05) $ 0.03 $ (0.06) $ 0.08Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes—Unaudited
18
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
19
20. 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 1 | Unadjusted quoted prices in active markets
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As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. These assets and liabilities are remeasured for each reporting period. The following tables set forth certain of the Company’s assets and liabilities measured at fair value by level within the fair value hierarchy as of June 30, 2023 and December 31, 2022:
| | | | | | | | |
| | As of | | As of | | | ||
| | June 30, | | December 31, | | Input Hierarchy Level | ||
| | 2023 | | 2022 | | | ||
| | (in thousands) | | | ||||
Cash and cash equivalents | | $ | 17,957 | | $ | 23,675 | | Level 1 |
Accounts receivable, net | | $ | 4,355 | | $ | 5,085 | | Level 2 |
Investment in equity securities-Maritime | | $ | 1,418 | | $ | 1,559 | | Level 1 |
Investment in equity securities-Green Light Metals | | $ | 3,697 | | $ | 3,611 | | Level 3 |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents: Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value.
Accounts receivable, net: Accounts receivable, net include amounts due to the Company for deliveries of concentrates and doré sold to customers. 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 June 30, 2023 and December 31, 2022, the Company had an unrealized loss of $0.8 million and an unrealized gain of $0.6 million, respectively, included in its accounts receivable on the accompanying Consolidated Balance Sheets related to mark-to-market adjustments on the embedded derivatives. Please see Note 14—Derivatives in Item 1—Condensed Consolidated Interim Financial Statements and Notes (unaudited) for additional information.
Investment in equity securities—Maritime: On September 22, 2022, Gold Resource Corporation invested C$2.4 million (or $1.7 million) in the common shares of Maritime Resources Corp. (“Maritime”), ticker symbol MAE.V on TSX-V, in a private placement. The 47 million shares purchased represent less than 10% of the issued and outstanding shares of Maritime. As of June 30, 2023, the share price of Maritime was C$0.040, compared to C$0.045 as at December 31, 2022; and therefore, an unrealized loss of $0.2 million was recorded, offset by a small foreign exchange gain.
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
20
Investment in equity securities—Green Light Metals: Upon maturity on December 28, 2022, the Company received 12,250,000 private shares of Green Light Metals, which settled the promissory note receivable from Green Light Metals. The shares received represented approximately 28.5% ownership at the time. Management chose to account for this investment using the fair value option; therefore, these securities are carried at fair value. As of June 30, 2023, the value of this equity investment was C$4.9 million ($3.7 million). The value of the issued shares was determined to be C$0.40 per share, which was based on the significant unobservable input of Green Light Metals recent equity transactions. For the six months ended June 30, 2023, there have been no gains or losses on the value of the shares the Company received, other than some foreign exchange gains.
Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s Condensed Consolidated Interim Statements of Operations as shown in the following table:
| | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | | Statements of Operations Classification | |||||||||
| | 2023 | | 2022 | | | 2023 | | 2022 | | | ||||
| Note | (in thousands) | | | |||||||||||
Realized and unrealized derivative loss, net | 14 | $ | (457) | | $ | (2,164) | | | $ | (544) | | $ | (130) | | Sales, net |
Realized loss on zinc zero cost collar | 17 | $ | - | | $ | (829) | | | $ | - | | $ | (2,457) | | Realized and unrealized loss on zinc zero cost collar |
Unrealized gain on zinc zero cost collar | 17 | $ | - | | $ | 4,628 | | | $ | - | | $ | 2,119 | | Realized and unrealized loss on zinc zero cost collar |
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 | ||||||
For the three months ended June 30, 2023 | | | | | | | | | | | | | | | | | | |
Realized gain (loss) | | $ | 127 | | $ | 196 | | $ | (8) | | $ | 54 | | $ | (121) | | $ | 248 |
Unrealized (loss) gain | | | (44) | | | (34) | | | (46) | | | 93 | | | (674) | | | (705) |
Total realized/unrealized derivatives, net | | $ | 83 | | $ | 162 | | $ | (54) | | $ | 147 | | $ | (795) | | $ | (457) |
| | | | | | | | | | | | | | | | | | |
| | Gold | | Silver | | Copper | | Lead | | Zinc | | Total | ||||||
For the three months ended June 30, 2022 | | | | | | | | | | | | | | | | | | |
Realized gain (loss) | | $ | 56 | | $ | (95) | | $ | (58) | | $ | 37 | | $ | 1,220 | | $ | 1,160 |
Unrealized loss | | | (243) | | | (164) | | | (121) | | | (246) | | | (2,550) | | | (3,324) |
Total realized/unrealized derivatives, net | | $ | (187) | | $ | (259) | | $ | (179) | | $ | (209) | | $ | (1,330) | | $ | (2,164) |
| | | | | | | | | | | | | | | | | | |
| | Gold | | Silver | | Copper | | Lead | | Zinc | | Total | ||||||
For the six months ended June 30, 2023 | | | | | | | | | | | | | | | | | | |
Realized gain | | $ | 241 | | $ | 345 | | $ | 46 | | $ | 148 | | $ | 102 | | $ | 882 |
Unrealized loss | | | (81) | | $ | (305) | | $ | (56) | | $ | (10) | | $ | (974) | | | (1,426) |
Total realized/unrealized derivatives, net | | $ | 160 | | $ | 40 | | $ | (10) | | $ | 138 | | $ | (872) | | $ | (544) |
| | | | | | | | | | | | | | | | | | |
| | Gold | | Silver | | Copper | | Lead | | Zinc | | Total | ||||||
For the six months ended June 30, 2022 | | | | | | | | | | | | | | | | | | |
Realized gain (loss) | | $ | 182 | | $ | 154 | | $ | (15) | | $ | 56 | | $ | 1,649 | | $ | 2,026 |
Unrealized (loss) gain | | | (1) | | | 111 | | | (105) | | | (199) | | | (1,962) | | | (2,156) |
Total realized/unrealized derivatives, net | | $ | 181 | | $ | 265 | | $ | (120) | | $ | (143) | | $ | (313) | | $ | (130) |
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
21
21. 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 three and six months ended June 30, 2023 and 2022 consisted of the following:
| | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | ||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Unrealized loss (gain) on gold and silver rounds | | $ | 5 | | $ | 8 | | $ | (4) | | $ | (62) |
Unrealized foreign currency exchange (gain) loss | | | (114) | | | 77 | | | 339 | | | 522 |
Unrealized loss on zinc zero cost collar | | | - | | | (4,628) | | | - | | | (2,119) |
Other | | | 94 | | | 165 | | | 281 | | | (168) |
Total other operating adjustments | | $ | (15) | | $ | (4,378) | | $ | 616 | | $ | (1,827) |
22. Segment Reporting
As of June 30, 2023, the Company has organized its operations into three geographic regions: Oaxaca, Mexico, Michigan, U.S.A., and Corporate and Other. Oaxaca, Mexico represents the Company’s only production stage property. Michigan, U.S.A. is an advanced exploration stage property. Intercompany revenue and expense amounts have been eliminated within each segment in order to report the net income (loss) on the basis that management uses internally for evaluating segment performance. The Company’s business activities that are not considered production stage or advanced exploration stage properties are included in Corporate and Other.
The following table shows selected information from the Consolidated Balance Sheets relating to the Company’s segments (in thousands):
| | | | | | | | | | | | |
| | Oaxaca, | | Michigan, | | Corporate | | Consolidated | ||||
As of June 30, 2023 | | | | | | | | | | | | |
Total current assets | | $ | 34,487 | | $ | 150 | | $ | 5,325 | | $ | 39,962 |
Total non-current assets | | | 56,445 | | | 92,948 | | | 1,717 | | | 151,110 |
Total assets | | $ | 90,932 | | $ | 93,098 | | $ | 7,042 | | $ | 191,072 |
Total current liabilities | | $ | 14,601 | | | 2,502 | | | 2,012 | | $ | 19,115 |
Total non-current liabilities | | | 3,446 | | | 60,823 | | | 987 | | | 65,256 |
Total shareholders' equity | | | 72,885 | | | 29,773 | | | 4,043 | | | 106,701 |
Total liabilities and shareholders' equity | | $ | 90,932 | | $ | 93,098 | | $ | 7,042 | | $ | 191,072 |
| | | | | | | | | | | | |
As of December 31, 2022 | | | | | | | | | | | | |
Total current assets | | $ | 38,032 | | $ | 272 | | $ | 7,795 | | $ | 46,099 |
Total non-current assets | | | 63,342 | | | 92,927 | | | 1,803 | | | 158,072 |
Total assets | | $ | 101,374 | | $ | 93,199 | | $ | 9,598 | | $ | 204,171 |
Total current liabilities | | $ | 20,035 | | $ | 3,352 | | $ | 1,295 | | $ | 24,682 |
Total non-current liabilities | | | 5,533 | | | 60,648 | | | 1,544 | | | 67,725 |
Total shareholders' equity | | | 75,806 | | | 29,199 | | | 6,759 | | | 111,764 |
Total liabilities and shareholders' equity | | $ | 101,374 | | $ | 93,199 | | $ | 9,598 | | $ | 204,171 |
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
22
The following table shows selected information from the Consolidated Statements of Operations relating to the Company’s segments (in thousands):
| | | | | | | | | | | | |
| | Oaxaca, | | Michigan, | | Corporate | | Consolidated | ||||
For the three months ended June 30, 2023 | | | | | | | | | | | | |
Sales, net | | $ | 24,807 | | $ | - | | $ | - | | $ | 24,807 |
Total mine cost of sales, including depreciation | | | 26,376 | | | 28 | | | 572 | | | 26,976 |
Exploration expense | | | 1,045 | | | 395 | | | - | | | 1,440 |
Total other costs and expenses, including G&A | | | 72 | | | (30) | | | 2,806 | | | 2,848 |
Provision for income taxes | | | (1,612) | | | (215) | | | (46) | | | (1,873) |
Net loss | | $ | (1,074) | | $ | (178) | | $ | (3,332) | | $ | (4,584) |
| | | | | | | | | | | | |
For the three months ended June 30, 2022 | | | | | | | | | | | | |
Sales, net | | $ | 37,064 | | $ | - | | $ | - | | $ | 37,064 |
Total mine cost of sales, including depreciation | | | 28,995 | | | 33 | | | 17 | | | 29,045 |
Exploration expense | | | 810 | | | 2,027 | | | - | | | 2,837 |
Total other costs and expenses, including G&A | | | (3,568) | | | 121 | | | 2,175 | | | (1,272) |
Provision for income taxes | | | 3,518 | | | - | | | 263 | | | 3,781 |
Net income (loss) | | $ | 7,309 | | $ | (2,181) | | $ | (2,455) | | $ | 2,673 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Oaxaca, | | Michigan, | | Corporate | | Consolidated | ||||
For the six months ended June 30, 2023 | | | | | | | | | | | | |
Sales, net | | $ | 56,035 | | $ | - | | $ | - | | $ | 56,035 |
Total mine cost of sales, including depreciation | | | 53,036 | | | 42 | | | 1,197 | | | 54,275 |
Exploration expense | | | 2,434 | | | 845 | | | - | | | 3,279 |
Total other costs and expenses, including G&A | | | 703 | | | 214 | | | 5,190 | | | 6,107 |
Provision for income taxes | | | (1,562) | | | (437) | | | (8) | | | (2,007) |
Net income (loss) | | $ | 1,424 | | $ | (664) | | $ | (6,379) | | $ | (5,619) |
| | | | | | | | | | | | |
For the six months ended June 30, 2022 | | | | | | | | | | | | |
Sales, net | | $ | 82,481 | | $ | - | | $ | - | | $ | 82,481 |
Total mine cost of sales, including depreciation | | | 55,089 | | | 33 | | | 17 | | | 55,139 |
Exploration expense | | | 2,047 | | | 3,095 | | | - | | | 5,142 |
Total other costs and expenses, including G&A | | | 1,124 | | | 438 | | | 4,814 | | | 6,376 |
Provision for income taxes | | | 8,869 | | | - | | | 263 | | | 9,132 |
Net income (loss) | | $ | 15,352 | | $ | (3,566) | | $ | (5,094) | | $ | 6,692 |
| | | | | | | | | | | | |
Gold Resource Corporation—Condensed Consolidated Interim Financial Statements and Notes (Unaudited)
23
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,” “us,” or the “Company”) for the three and six months ended June 30, 2023 and compares those results with the three and six months ended June 30, 2022. It also analyzes the Company’s financial condition as of June 30, 2023 and compares it to the financial condition as of December 31, 2022. This discussion should be read in conjunction with management’s discussion and analysis and the audited consolidated financial statements and footnotes contained in the 2022 Annual Report.
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 and a reconciliation to GAAP financial measures, please see the discussion below under “Non-GAAP Measures.” Also see Forward-Looking Statements at the end of this Item 2 for important information regarding statements contained herein.
Overview
Gold Resource Corporation is a mining company that pursues gold, silver, and other metal projects that are expected to achieve both low operating costs and high returns on capital. The Don David Gold Mine is our cornerstone asset comprised of six properties. The Company’s focus is to unlock the significant upside potential of this asset through optimization of the current operations, growing the existing resource, and identifying new opportunities near existing infrastructure. The primary mineral production is coming from the Arista underground mine. This mine supplies ore to our processing facilities to produce gold and silver doré and copper, lead, and zinc concentrates which also contain gold and silver.
The Back Forty Project, when developed, is expected to produce gold and silver doré and copper and zinc concentrates bearing gold and silver. Optimization work related to metallurgy and the economic models progressed during the second quarter of 2023. Once the optimization work is completed, the Board will evaluate the current economic climate and make a decision on how to proceed with the Back Forty Mine.
| |
Field safety inspection underground | DDGM’s continued pursuit for excellence in safety is paying great rewards. Our most valuable assets, our people, have increased their participation with leading indicators. This leadership role undertaken by everyone, is translating into no Lost Time Incidents, many closed action plans, and a sense of empowerment that reaches out beyond the mine into our neighboring communities. The same discipline applied to safety, is also becoming part of the operation’s daily planning and execution. DDGM has implemented several initiatives during the first half of the year, resulting in cost savings and improved efficiencies, such as improved blasting techniques, drilling patterns, ramp maintenance, and overall housekeeping. These initiatives have partially offset the increased costs due to the strengthening Mexican peso. Ground support challenges continue; however, these challenges are being embraced as opportunities. For example, a fault in one of the stopes being mined during the second quarter forced the team to act on the side of safety, rehabilitate the area and redirect mine production to the lower levels of the mine. The result was far more favorable base |
Gold Resource Corporation—Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
metal grades, especially for zinc; however precious metal prices were lower than planned. |
The processing plant had to respond to higher power costs due to both the power rate increase and the strengthening Mexican peso. One opportunity was identified, and we implemented the testing of a new reagent mixture in the copper concentrate. It improved the liberation of lead, thus improving the quality of the copper.
Lastly, the operations team has now moved mainly into long hole stoping for the remaining part of the year. This mining methodology not only accelerates productivity, but it also maintains lower costs compared to the cut and fill mining methodology utilized year to date. We are confident the operations are making the necessary improvements needed to deliver on our annual production guidance.
2023 DDGM Exploration Updates
Our portfolio of properties that make up the Don David Gold Mine are located along a 55-kilometer trend of the San Jose structural corridor in the Sierra Madre Sur mountain range. This structural corridor trends north 70 degrees west and spans three historic mining districts within the state of Oaxaca. Surface exploration activity continues on several properties with a goal of defining additional priority drill targets, demonstrating our commitment to long-term investment in Oaxaca, Mexico.
Underground exploration drilling continued during the second quarter of 2023, where access is available, from various locations within the Arista mine: (1) to continue testing of the Three Sisters vein system, as well as other new vein targets, such as the recently identified Gloria vain system and (2) to further define and expand the Mineral Reserves and Mineral Resources of the current vein systems in production.
During the second quarter of 2023, we completed 8 exploration drill holes (4,425 meters) and 37 infill drill holes (5,700 meters).
● | Exploration drilling in the second quarter of 2023 continued testing the northwest extension of the Switchback system at depth and along strike where we have confirmed the continuation of the system. Drilling also continued exploration of the Three Sisters vein system in conjunction with the newly discovered Gloria vein system, located immediately west of Three Sisters. The Switchback system extends for over a kilometer along a NW-SE strike and continues to remain open in both directions along strike as well as up- and down-dip. The Three Sisters and Gloria vein systems also remain open at depth and along strike. Exploration drilling in 2023 will continue to focus on these structures as well as the down-dip extensions of the Soledad South vein (Switchback) and Marena zone (Arista). |
● | Infill drilling in the second quarter of 2023 continued to focus on both the Arista and Switchback vein systems, defining mineralization along strike and down-dip of existing workings. Infill drilling continues to confirm zones of high-grade mineralization within the resource model as well as additional mineralized structures outside existing models, including, the Marena zone (Arista), and the Soledad South and Susana North veins (Switchback). |
|
Gold Resource Corporation—Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
Hole No. 523058: Gloria vein zone (458.30 – 469.35 m; 11.05 m) |
Regional exploration activities continued during the second quarter of 2023 with the evaluation and prioritization of advanced stage projects located along the 55-kilometer trend of the San Jose structural corridor (i.e. Alta Gracia, Margaritas, Chamizo, El Rey, and Jabali projects) where the Don David Gold Mine controls a total of 55.1 square kilometers of concession holdings. Other prospects near the Arista mine are also being re-evaluated for additional near-term potential with a goal of defining additional priority drill targets. Below is the regional geologic map and outline of the DDGM concession holdings showing the advanced stage project locations.
Regional Geologic Map Showing Advanced Stage Exploration Project Locations
Gold Resource Corporation—Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Results of Operations
Don David Gold Mine
Mine activities during the second quarter of 2023 included development and ore extraction from the Arista mine.
The following table summarizes certain production statistics about our Don David Gold Mine for the periods indicated:
| | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | ||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Arista Mine | | | | | | | | | | | | |
Milled | | | | | | | | | | | | |
Tonnes Milled | | | 113,510 | | | 128,884 | | | 230,231 | | | 264,685 |
Grade | | | | | | | | | | | | |
Average Gold Grade (g/t) | | | 1.59 | | | 2.63 | | | 1.97 | | | 2.82 |
Average Silver Grade (g/t) | | | 86 | | | 64 | | | 90 | | | 73 |
Average Copper Grade (%) | | | 0.37 | | | 0.32 | | | 0.37 | | | 0.37 |
Average Lead Grade (%) | | | 1.64 | | | 1.99 | | | 1.69 | | | 1.98 |
Average Zinc Grade (%) | | | 3.72 | | | 4.00 | | | 3.80 | | | 4.46 |
Recoveries | | | | | | | | | | | | |
Average Gold Recovery (%) | | | 79.7 | | | 85.1 | | | 80.4 | | | 84.7 |
Average Silver Recovery (%) | | | 91.9 | | | 93.2 | | | 91.5 | | | 93.3 |
Average Copper Recovery (%) | | | 79.1 | | | 72.7 | | | 78.1 | | | 75.9 |
Average Lead Recovery (%) | | | 74.6 | | | 78.6 | | | 75.9 | | | 78.1 |
Average Zinc Recovery (%) | | | 84.6 | | | 83.1 | | | 84.6 | | | 83.5 |
Combined | | | | | | | | | | | | |
Tonnes Milled (1) | | | 113,510 | | | 129,099 | | | 231,291 | | | 265,943 |
Tonnes Milled per Day (2) | | | 1,395 | | | 1,516 | | | 1,408 | | | 1,553 |
Metal production (3) | | | | | | | | | | | | |
Gold (ozs.) | | | 4,637 | | | 9,317 | | | 11,808 | | | 20,504 |
Silver (ozs.) | | | 289,816 | | | 249,088 | | | 612,492 | | | 581,380 |
Copper (tonnes) | | | 334 | | | 303 | | | 670 | | | 734 |
Lead (tonnes) | | | 1,389 | | | 2,020 | | | 2,948 | | | 4,093 |
Zinc (tonnes) | | | 3,569 | | | 4,282 | | | 7,406 | | | 9,844 |
Metal produced and sold (3) | | | | | | | | | | | | |
Gold (ozs.) | | | 4,287 | | | 8,746 | | | 10,795 | | | 17,127 |
Silver (ozs.) | | | 274,257 | | | 231,622 | | | 569,072 | | | 497,029 |
Copper (tonnes) | | | 327 | | | 286 | | | 659 | | | 694 |
Lead (tonnes) | | | 1,317 | | | 1,755 | | | 2,734 | | | 3,394 |
Zinc (tonnes) | | | 3,141 | | | 3,590 | | | 6,201 | | | 7,949 |
Percentage payable metal (3) | | | | | | | | | | | | |
Gold (%) | | | 92 | | | 94 | | | 91 | | | 84 |
Silver (%) | | | 95 | | | 93 | | | 93 | | | 85 |
Copper (%) | | | 98 | | | 94 | | | 98 | | | 95 |
Lead (%) | | | 95 | | | 87 | | | 93 | | | 83 |
Zinc (%) | | | 88 | | | 84 | | | 84 | | | 81 |
(1) | During the six months ended June 30, 2023 and 2022, tonnes milled includes 1,060 and 1,258 purchased tonnes, respectively, related to a collaborative initiative with a local community to ensure the proper environmental treatment and storage of the material. |
(2) | Based on actual days the mill operated during the period. |
(3) | 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 amounts of metals contained in concentrates produced and sold. |
Gold Resource Corporation—Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Second quarter 2023 compared to second quarter 2022
Production
During the three months ended June 30, 2023, total tonnes milled of 113,510 were 12% lower than for the same period in 2022. Metal production for gold, lead, and zinc decreased by 50%, 31%, and 17%, respectively, during the three months ended June 30, 2023 as compared to the same period last year as a result of the lower tonnes processed and lower metal grades as expected and in line with the 2023 mine plan. Metal production for silver and copper increased by 16% and 10%, respectively, during the three months ended June 30, 2023 as compared to the same period last year due to higher metal grades for silver and copper.
Grades & Recoveries
During the three months ended June 30, 2023, all of the ore processed came from the Arista underground mine with an average gold grade of 1.59 g/t and silver grade of 86 g/t, compared to 2.63 g/t and 64 g/t, respectively, for the same period in 2022. The average gold grade was 40% lower and silver grade 34% higher. As shown in the Technical Report Summary for DDGM incorporated by reference in the 2022 Annual Report (the “Technical Report Summary”), grades are expected to decline in 2023 in line with the life of mine average shown in the estimates of mineral reserves (as defined subpart 1300 of Regulation S-K, “Mineral Reserve”) and mineral resources (as defined subpart 1300 of Regulation S-K, “Mineral Resource”) tables contained therein (the “Mineral Reserve and Mineral Resource Tables”). As grades decline, recoveries are expected to decline as well. Our base metals average grades during the three months ended June 30, 2023 were 0.37% for copper, 1.64% for lead, and 3.72% for zinc. While copper grades were 16% higher, lead and zinc grades were 18% and 7% lower, respectively, than in the same period in 2022.
Gold and silver recoveries for the three months ended June 30, 2023 were 79.7% and 91.9%, respectively, reflecting a 6% decrease for gold and a 1% decrease for silver over the same period in 2022. We have encountered different mineralization containing not only high-grade metals, but a portion of the production areas are in zones of high quartz mineralization. Some of the gold is encapsulated in the quartz and is lost due to the fact it cannot be recovered in the flotation circuit. Copper, lead, and zinc recoveries for the three months ended June 30, 2023 were 79.1%, 74.6%, and 84.6%, respectively. While recoveries for copper and zinc for the three months ended June 30, 2023 increased by 9% and 2%, respectively, recoveries for lead decreased by 5%, compared to the same period in 2022. As shown in the Technical Report Summary incorporated by reference in the 2022 Annual Report, future recoveries and grades are expected to be in line with the life of mine average shown in the Mineral Reserve and Mineral Resource Tables.
Year-to-date 2023 compared to year-to-date 2022
Production
During the six months ended June 30, 2023, total tonnes milled of 230,231 were 13% lower than for the same period in 2022. Metal production for gold, copper, lead, and zinc decreased by 42%, 9%, 28%, and 25%, respectively, during the six months ended June 30, 2023 as compared to the same period last year as a result of the lower tonnes processed and lower metal grades as expected and in line with the 2023 mine plan. Metal production for silver increased by 5% during the six months ended June 30, 2023 as compared to the same period last year due to higher silver grades.
Grades & Recoveries
During the six months ended June 30, 2023, the majority of ore processed came from the Arista underground mine with an average gold grade of 1.97 g/t and silver grade of 90 g/t, compared to 2.82 g/t and 73 g/t, respectively, for the same period in 2022. The average gold grade was 30% lower, and silver grade was 23% higher. As shown in the Technical Report Summary incorporated by reference in the 2022 Annual Report, grades are expected to decline in 2023 in line with the life of mine average shown in the Mineral Reserve and Mineral Resource Tables. As grades decline, recoveries are expected to decline as well. Our base metals average grades during the six months ended June 30, 2023 were 0.37% copper, 1.69% lead,
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and 3.80% zinc. While copper grade was the same, lead and zinc grades were both 15% lower than in the same period in 2022.
Gold and silver recoveries for the six months ended June 30, 2023 were 80.4% and 91.5%, respectively, reflecting a 5% decrease for gold and a 2% decrease for silver over the same period in 2022. We have encountered different mineralization containing not only high-grade metals, but a portion of the production areas are in zones of high quartz mineralization. Quartz has an adverse effect on the floatation while encapsulating some of the gold. Copper, lead, and zinc recoveries for the six months ended June 30, 2023 were 78.1%, 75.9%, and 84.6%, respectively. While recoveries for copper and zinc for the six months ended June 30, 2023 increased by 3% and 1%, respectively, recoveries for lead decreased by 3% compared to the same period in 2022. As shown in the Technical Report Summary incorporated by reference in the 2022 Annual Report, future recoveries and grades are expected to be in line with the life of mine average shown in the Mineral Reserve and Mineral Resource Tables.
Sales Statistics
The following table summarizes certain sales statistics about the Don David Gold Mine operations for the periods indicated:
| | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | ||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Net sales | | | | | | | | | | | | |
Gold | | $ | 8,492 | | $ | 16,334 | | $ | 20,839 | | $ | 32,119 |
Silver | | | 6,641 | | | 5,203 | | | 13,283 | | | 11,308 |
Copper | | | 2,749 | | | 2,708 | | | 5,743 | | | 6,805 |
Lead | | | 2,782 | | | 3,768 | | | 5,747 | | | 7,595 |
Zinc | | | 7,928 | | | 14,352 | | | 17,479 | | | 30,669 |
Less: Treatment and refining charges | | | (3,328) | | | (3,137) | | | (6,512) | | | (5,885) |
Realized and unrealized (loss) gain - embedded derivative, net | | | (457) | | | (2,164) | | | (544) | | | (130) |
Total sales, net | | $ | 24,807 | | $ | 37,064 | | $ | 56,035 | | $ | 82,481 |
Metal produced and sold | | | | | | | | | | | | |
Gold (ozs.) | | | 4,287 | | | 8,746 | | | 10,795 | | | 17,127 |
Silver (ozs.) | | | 274,257 | | | 231,622 | | | 569,072 | | | 497,029 |
Copper (tonnes) | | | 327 | | | 286 | | | 659 | | | 694 |
Lead (tonnes) | | | 1,317 | | | 1,755 | | | 2,734 | | | 3,394 |
Zinc (tonnes) | | | 3,141 | | | 3,590 | | | 6,201 | | | 7,949 |
Average metal prices realized (1) | | | | | | | | | | | | |
Gold ($ per oz.) | | $ | 2,010 | | $ | 1,874 | | $ | 1,953 | | $ | 1,886 |
Silver ($ per oz.) | | $ | 24.93 | | $ | 22.05 | | $ | 23.95 | | $ | 23.06 |
Copper ($ per tonne) | | $ | 8,397 | | $ | 9,275 | | $ | 8,788 | | $ | 9,786 |
Lead ($ per tonne) | | $ | 2,153 | | $ | 2,168 | | $ | 2,156 | | $ | 2,254 |
Zinc ($ per tonne) | | $ | 2,485 | | $ | 4,338 | | $ | 2,835 | | $ | 4,066 |
Gold equivalent ounces sold | | | | | | | | | | | | |
Gold Ounces | | | 4,287 | | | 8,746 | | | 10,795 | | | 17,127 |
Gold Equivalent Ounces from Silver | | | 3,402 | | | 2,729 | | | 6,979 | | | 6,077 |
Total AuEq oz | | | 7,689 | | | 11,475 | | | 17,774 | | | 23,204 |
(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 average market metal prices in most cases. |
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Second quarter 2023 compared to second quarter 2022
Key drivers in the production and financial results for the second quarter of 2023, as compared to the second quarter of 2022, relate to the lower tonnes mined and changes in metal grades. These results align with the 2023 mine plan and were considered in the 2023 guidance disclosed in the 2022 Annual Report. Financial results have also been impacted unfavorably by the strengthening Mexican peso and the lower zinc price realized in 2023.
Metal Sold
During the three months ended June 30, 2023, gold sales of 4,287 ounces, lead sales of 1,317 tonnes, and zinc sales of 3,141 tonnes decreased by 51%, 25%, and 13%, respectively, as compared to the same period in 2022. Silver and copper sales of 274,257 ounces and 327 tonnes, respectively, increased by 18% and 14% during the three months ended June 30, 2023 compared to the same period in 2022.
Average metal prices realized
During the three months ended June 30, 2023, the average metal prices were $2,010 per ounce for gold, $24.93 per ounce for silver, $8,397 per tonne for copper, $2,153 per tonne for lead, and $2,485 per tonne for zinc. Compared to the same period in 2022, the average metal price for gold and silver increased by 7% and 13%, respectively, while the average metal price for copper, lead, and zinc decreased by 9%, 1%, and 43%, respectively.
Year-to-date 2023 compared to year-to-date 2022
Key drivers in the production and financial results for the six months ended June 30, 2023, as compared to the same period in 2022, relate to the lower tonnes mined and changes in metal grades. These results align with the 2023 mine plan and were considered in the 2023 guidance disclosed in the 2022 Annual Report. Financial results have also been impacted unfavorably by the strengthening Mexican peso and the lower zinc price realized in 2023.
Metal Sold
During the six months ended June 30, 2023, gold sales of 10,795 ounces, copper sales of 659 tonnes, lead sales of 2,734 tonnes, and zinc sales of 6,201 tonnes decreased by 37%, 5%, 19%, and 22%, respectively, as compared to the same period in 2022. Silver sales of 569,072 ounces increased by 14% during the six months ended June 30, 2023 compared to the same period in 2022.
Average metal prices realized
During the six months ended June 30, 2023, the average metal prices were $1,953 per ounce for gold, $23.95 per ounce for silver, $8,788 per tonne for copper, $2,156 per tonne for lead, and $2,835 per tonne for zinc. Compared to the same period in 2022, the average metal price for both gold and silver increased by 4%, while the average metal price for copper, lead, and zinc decreased by 10%, 4%, and 30%, respectively.
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Gold Resource Corporation—Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Financial Measures
The following table summarizes certain financial data of the Company for the periods indicated:
| | | | | | | | | | | | | |||
| | For the three months ended June 30, | | For the six months ended June 30, | |||||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | |||||||
| | (in thousands) | | (in thousands) | |||||||||||
Doré and concentrate sales | | $ | 28,592 | | $ | 42,365 | | $ | 63,091 | | $ | 88,496 | |||
Less: Treatment and refining charges | | | (3,328) | | | (3,137) | | | (6,512) | | | (5,885) | |||
Realized/unrealized derivatives, net | | | (457) | | | (2,164) | | | (544) | | | (130) | |||
Sales, net | | | 24,807 | | | 37,064 | | | 56,035 | | | 82,481 | |||
Total cost of sales | | | 26,976 | | | 29,045 | | | 54,275 | | | 55,139 | |||
Mine gross (loss) profit | | | (2,169) | | | 8,019 | | | 1,760 | | | 27,342 | |||
Other costs and expenses, including tax: | | | 2,415 | | | 5,346 | | | 7,379 | | | 20,650 | |||
Net (loss) income | | $ | (4,584) | | $ | 2,673 | | $ | (5,619) | | $ | 6,692 | |||
| | | | | | | | | | | | | |||
Other Non-GAAP Financial Measures: | | | | | | | | | | | | | |||
Total cash cost after co-product credits per AuEq oz sold (1) | | $ | 1,333 | | $ | 247 | | $ | 979 | | $ | 61 | |||
Total consolidated all-in sustaining cost after co-product credits per AuEq oz sold (1) | | $ | 1,990 | | $ | 805 | | $ | 1,551 | | $ | 653 | |||
Total all-in cost after co-product credits per AuEq oz sold (1) | | $ | 2,196 | | $ | 1,099 | | $ | 1,744 | | $ | 956 |
(1) | For a detailed description of each of the non-GAAP financial measures and a reconciliation to GAAP financial measures, please see the discussion below under “
The following table summarizes certain
Gold Resource Corporation—Management’s Discussion and Analysis of Financial Condition and Results of Operations
During the three months ended Average metal
During the three months ended Year-to-date 2023 compared to Key drivers in the production and Metal Sold During the six months ended June 30, 2023, gold sales of 10,795 ounces, copper sales of 659 tonnes, lead sales of 2,734 tonnes, and zinc sales of 6,201 tonnes decreased by 37%, 5%, 19%, and 22%, respectively,
During the Gold Resource Corporation—Management’s Discussion and Analysis of Gold Resource Corporation—Management’s Discussion and Analysis of Financial Condition and Results of Operations Gold Resource Corporation—Management’s Discussion and Analysis of Financial Condition and Results of Operations Financial Measures The following table summarizes certain financial data of the Company for the periods indicated:
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