Gold Resource Corporation (NYSE:GORO) Q2 2023 Earnings Conference Call July 27, 2023 12:00 PM ET Company Participants Allen Palmiere - President, Chief Executive Officer & Director Kimberly Perry - Chief Financial Officer Alberto Reyes - Chief Operating Officer Conference Call Participants Heiko Ihle - H.C. Wainwright Operator Good morning, and welcome to the Gold Resource Corporation Second Quarter 2023 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mod ...

Financial Performance - Net sales for the three months ended June 30, 2023, were $24,807,000, a decrease of 32.9% compared to $37,064,000 for the same period in 2022[15]. - The company reported a net loss of $4,584,000 for the three months ended June 30, 2023, compared to a net income of $2,673,000 for the same period in 2022[15]. - For the six months ended June 30, 2023, the company reported a net loss of $5.619 million compared to a net income of $6.692 million for the same period in 2022[25]. - Total sales for the six months ended June 30, 2023, were $56.035 million, down from $82.481 million in 2022, representing a decline of approximately 32%[31]. - Mine gross profit decreased by $25.6 million, or 94%, for the six months ended June 30, 2023, primarily due to a $26.4 million decrease in net sales[161]. - The company recorded a net loss of $5.6 million for the six months ended June 30, 2023, compared to net income of $6.7 million during the same period in 2022[165]. Assets and Liabilities - Total assets decreased from $204,171,000 as of December 31, 2022, to $191,072,000 as of June 30, 2023, representing a decline of approximately 6.4%[13]. - The company's retained earnings decreased from $7,706,000 as of December 31, 2022, to $2,087,000 as of June 30, 2023, reflecting a decline of approximately 72.9%[13]. - Total current liabilities decreased from $24,682,000 as of December 31, 2022, to $19,115,000 as of June 30, 2023, a reduction of about 22.5%[13]. - Total current assets as of June 30, 2023, were $39,962,000, a decrease from $46,099,000 as of December 31, 2022, representing a decline of approximately 13.5%[108]. - Total shareholders' equity as of June 30, 2023, was $106,701,000, a decrease from $111,764,000 as of December 31, 2022, reflecting a decline of approximately 4.5%[108]. Cash Flow and Investments - Net cash provided by operating activities decreased significantly to $473 thousand from $12.206 million in the prior year[25]. - As of June 30, 2023, cash and cash equivalents were $17.957 million, down from $33.335 million at the end of the previous year[25]. - The investment in Maritime Resources Corp. was valued at $1.4 million as of June 30, 2023, down from $1.6 million at the end of 2022, representing a 12.8% decrease[42]. - The value of the investment in Green Light Metals was $3.7 million as of June 30, 2023, compared to $3.6 million as of December 31, 2022, reflecting a 2.8% increase[45]. Production and Operational Metrics - Gold production in Q2 2023 was 4,637 ounces, down 50% from 9,317 ounces in Q2 2022[130]. - Silver production increased by 16% to 289,816 ounces in Q2 2023 compared to 249,088 ounces in Q2 2022[130]. - Total tonnes milled in Q2 2023 were 113,510, a 12% decrease compared to Q2 2022[130]. - Gold equivalent ounces sold decreased to 7,689 oz in Q2 2023 from 11,475 oz in Q2 2022, representing a 32.4% decline[202]. Costs and Expenses - Total cost of sales decreased by 2% to $54.3 million for the six months ended June 30, 2023, primarily due to a $1.6 million decrease in production costs[160]. - General and administrative expenses increased by 11% to $2.1 million for the three months ended June 30, 2023, compared to $1.9 million for the same period in 2022[167]. - Total cash cost after co-product credits per AuEq oz sold increased to $1,333 for the three months ended June 30, 2023, from $247 in the same period of 2022, attributed to lower co-product credits and a 33% decrease in AuEq ounces sold[183]. - Total consolidated all-in sustaining cost after co-product credits per AuEq oz sold rose to $1,990 for the three months ended June 30, 2023, compared to $805 for the same period in 2022[184]. Future Outlook and Strategic Initiatives - The company suspended future quarterly dividends on February 13, 2023, to protect its balance sheet and focus on exploration and growth opportunities[18]. - The exploration focus for 2023 includes the Three Sisters and Gloria vein systems, with ongoing drilling aimed at expanding mineral reserves and resources[124]. - Work on optimizing feasibility for the Back Forty Project is ongoing, with current initiatives focused on finalizing financial models and considering environmental factors[195]. - The company has implemented several operational initiatives resulting in cost savings and improved efficiencies, partially offsetting increased costs due to currency fluctuations[115].

Gold Resource Corporation (NYSE:GORO) Q1 2023 Earnings Conference Call April 26, 2023 12:00 PM ET Company Participants Kim Perry - Chief Financial Officer Allen Palmiere - President and Chief Executive Officer Alberto Reyes - Chief Operating Officer Conference Call Participants Marcus Giannini - H.C. Wainwright Operator Good morning, and welcome to the Q1 2023 Earnings Call. At this time, all lines are in listen-only mode. Following management’s presentation, there will be a question-and-answer session. Ins ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☐ 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 Graphic 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, Co ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 ◻ 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) Colorad ...

Gold Resource Corporation (NYSE:GORO) Q4 2022 Earnings Conference Call March 3, 2023 10:00 AM ET Company Participants Kim Perry - Chief Financial Officer Allen Palmiere - President and Chief Executive Officer Alberto Reyes - Chief Operating Officer Conference Call Participants Operator Good morning, and welcome to the Gold Resource Corporation Full-Year 2022 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s presentation, there w ...

Gold Resource Corporation (NYSE:GORO) Q3 2022 Earnings Conference Call November 1, 2022 10:00 AM ET Company Participants Kim Perry - Chief Financial Officer Allen Palmiere - President & Chief Executive Officer Alberto Reyes - Chief Operating Officer Conference Call Participants Heiko Ihle - H.C. Wainwright Operator Good morning, and welcome to the Gold Resource Corporation Third Quarter 2022 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following ...

[Third Quarter 2022 Highlights](index=5&type=section&id=Third%20Quarter%202022%20Highlights) The company reported a **$9.7 million net loss** for Q3 2022, driven by lower commodity prices and higher expenses, while maintaining a **$22.5 million cash balance** and advancing the Back Forty Project - The company's cash position decreased by **$11.2 million** since year-end 2021 to **$22.5 million**, after paying **$2.7 million** in dividends, investing **$14.1 million** in capital expenditures, and investing in the **Back Forty Project**[11](index=11&type=chunk) Q3 2022 Financial & Operational Snapshot | Metric | Value | Note | | :--- | :--- | :--- | | Net Loss | $9.7 million | Driven by lower commodity prices, higher depreciation, and Back Forty exploration expenses. | | Loss per Share | $0.11 | - | | Working Capital | $28.9 million | A slight decrease of $0.4 million from Dec 31, 2021. | | Total Cash Cost | $1,103 / AuEq oz | After co-product credits. | | Total AISC | $1,831 / AuEq oz | After co-product credits. | | AuEq Ounces Sold | 8,042 oz | From the Don David Gold Mine. | - Production at the **Don David Gold Mine (DDGM)** was intentionally slowed during Q3 to improve safety related to ground support and ventilation, resulting in **no lost time incidents** during the quarter[11](index=11&type=chunk) - Progress on the **Back Forty Project** in Michigan continued, with the **feasibility study's** metallurgy and economic model work expected to extend into **2023**. Permit applications will follow the study's completion[11](index=11&type=chunk) [Part I - FINANCIAL INFORMATION](index=7&type=section&id=Part%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) The unaudited Condensed Consolidated Interim Financial Statements for Q3 2022 and 2021 are presented, detailing Balance Sheets, Operations, Equity, Cash Flows, and accompanying notes [Condensed Consolidated Interim Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Interim%20Balance%20Sheets) As of September 30, 2022, total assets were **$199.5 million** and liabilities **$83.9 million**, with cash decreasing from **$33.7 million** to **$22.5 million** Balance Sheet Summary (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | **$48,329** | **$58,915** | | Cash and cash equivalents | $22,531 | $33,712 | | Property, plant and mine development, net | $149,232 | $156,771 | | **Total Assets** | **$199,538** | **$215,762** | | **Total Current Liabilities** | **$19,466** | **$29,659** | | Gold and silver stream agreements | $43,201 | $42,560 | | **Total Liabilities** | **$83,894** | **$95,012** | | **Total Shareholders' Equity** | **$115,644** | **$120,750** | [Condensed Consolidated Interim Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Operations) The company reported a **$9.7 million net loss** for Q3 2022, a reversal from Q3 2021 net income, primarily due to decreased net sales and increased cost of sales Statement of Operations Summary (in thousands, except per share data) | Account | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Sales, net | $23,869 | $29,029 | $106,350 | $87,133 | | Total cost of sales | $26,047 | $20,784 | $81,186 | $63,433 | | Mine gross (loss) profit | $(2,178) | $8,245 | $25,164 | $23,700 | | Back Forty Project expenses | $3,830 | - | $6,925 | - | | (Loss) income before income taxes | $(9,947) | $3,881 | $5,877 | $12,036 | | **Net (loss) income** | **$(9,730)** | **$1,529** | **$(3,038)** | **$5,339** | | Basic and diluted net (loss) income per share | $(0.11) | $0.02 | $(0.03) | $0.07 | [Condensed Consolidated Interim Statements of Changes in Shareholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Total shareholders' equity decreased from **$120.8 million** at year-end 2021 to **$115.6 million** by September 30, 2022, primarily due to a net loss and dividend payments - For the nine months ended September 30, 2022, shareholders' equity decreased by **$5.1 million**, from **$120.75 million** to **$115.64 million**. Key drivers were a **net loss of $3.0 million** and **dividends declared of $2.7 million**[23](index=23&type=chunk) [Condensed Consolidated Interim Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased to **$7.9 million** for the nine months ended September 30, 2022, resulting in a **$11.2 million net decrease** in cash and cash equivalents Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,914 | $21,872 | | Net cash used in investing activities | $(15,333) | $(15,217) | | Net cash used in financing activities | $(3,027) | $(2,215) | | **Net (decrease) increase in cash** | **$(11,181)** | **$4,139** | | Cash at beginning of period | $33,712 | $25,405 | | **Cash at end of period** | **$22,531** | **$29,544** | [Notes to the Condensed Consolidated Interim Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Interim%20Financial%20Statements) Detailed notes disclose accounting policies, revenue disaggregation, Mexican mining taxes, gold and silver stream agreements, and contingent consideration liabilities Net Sales by Source for Nine Months Ended Sep 30, 2022 (in thousands) | Source | 2022 | 2021 | | :--- | :--- | :--- | | Doré sales, net | $5,333 | $7,347 | | Concentrate sales, net | $102,081 | $79,630 | | Realized/Unrealized gain on derivative | $(1,064) | $156 | | **Total sales, net** | **$106,350** | **$87,133** | - Mining entities in Mexico are subject to a **30% corporate income tax** and a **7.5% special mining duty**, resulting in a combined **37.5% tax on income**. There is also a **0.5% duty** on gold and silver sales[36](index=36&type=chunk) - Liabilities for **gold and silver stream agreements** related to the **Back Forty Project** totaled **$43.2 million** as of September 30, 2022. These agreements require future delivery of a percentage of gold and silver production in exchange for upfront payments received[47](index=47&type=chunk)[48](index=48&type=chunk)[51](index=51&type=chunk) - A **contingent consideration liability** of **$4.0 million** is recorded, related to future milestone payments tied to the development of the **Back Forty Project**[58](index=58&type=chunk)[59](index=59&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=38&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20%28MD%26A%29) This section provides management's perspective on the company's financial condition and results, detailing production, sales, capital investments, non-GAAP measures, and liquidity [Overview](index=38&type=section&id=Overview) Gold Resource Corporation operates the Don David Gold Mine in Mexico and the Back Forty Project in Michigan, with Q3 2022 focusing on improving safety at DDGM through a deliberate production slowdown - The company's **primary assets** are the producing **Don David Gold Mine (DDGM)** in Mexico and the development-stage **Back Forty Project** in Michigan, USA[112](index=112&type=chunk)[114](index=114&type=chunk) - A **deliberate and temporary slowdown** of underground development, exploration, and production was implemented at **DDGM** to improve safety related to ground support and ventilation[115](index=115&type=chunk)[116](index=116&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Q3 2022 DDGM operations saw decreased gold production and net sales, resulting in a **$2.2 million mine gross loss** due to lower grades and metal prices DDGM Production Summary | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Tonnes Milled | 110,682 | 97,806 | 375,367 | 351,572 | | Gold Grade (g/t) | 1.98 | 2.68 | 2.57 | 2.04 | | Gold Production (oz) | 5,851 | 6,933 | 26,355 | 19,585 | DDGM Sales Summary | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Gold Sold (oz) | 5,478 | 5,809 | 22,605 | 16,525 | | Avg. Realized Gold Price ($/oz) | $1,627 | $1,762 | $1,823 | $1,790 | | Total Net Sales (in thousands) | $23,869 | $29,029 | $106,350 | $87,133 | DDGM Financial Performance (in thousands) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Cost of Sales | $26,047 | $20,784 | $81,186 | $63,433 | | Mine Gross (Loss) Profit | $(2,178) | $8,245 | $25,164 | $23,700 | [Other Costs and Expenses, Including Taxes](index=54&type=section&id=Other%20Costs%20and%20Expenses%2C%20Including%20Taxes) Other costs increased significantly in Q3 2022 due to **$3.8 million** in Back Forty Project expenses, while G&A decreased and income tax reflected a benefit from the pre-tax loss - **Back Forty Project** expenses, which were not present in 2021, totaled **$3.8 million** in Q3 2022 and **$6.9 million** for the nine months ended September 30, 2022[167](index=167&type=chunk)[169](index=169&type=chunk) - General and administrative expenses decreased by **24%** in Q3 and **7%** in the nine-month period compared to 2021, primarily due to costs in 2021 related to employee and management changes[167](index=167&type=chunk) - The company recorded an **income tax benefit of $0.2 million** in Q3 2022 due to a pre-tax loss, compared to a **$2.4 million expense** in Q3 2021. The year-to-date tax expense increased **33%** to **$8.9 million**[174](index=174&type=chunk) [Non-GAAP Measures](index=64&type=section&id=Non-GAAP%20Measures) Non-GAAP measures like Total Cash Cost and AISC rose in Q3 2022 to **$1,103/AuEq oz** and **$1,831/AuEq oz**, driven by lower co-product credits and fewer ounces sold Non-GAAP Cost Reconciliation per AuEq Ounce Sold | Metric ($/oz) | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Total cash cost after co-product credits | $1,103 | $448 | $314 | $519 | | Total consolidated all-in sustaining cost (AISC) | $1,831 | $1,753 | $938 | $1,318 | | Total all-in cost after co-product credits | $2,449 | $2,286 | $1,323 | $1,691 | [2022 Capital and Exploration Investment Summary](index=58&type=section&id=2022%20Capital%20and%20Exploration%20Investment%20Summary) The company invested **$24.2 million** in capital and exploration for the first nine months of 2022, split between sustaining and growth, with a full-year projection of **$29.0-$32.5 million** Capital and Exploration Investment (in thousands) | Category | YTD Sep 30, 2022 | 2022 Full Year Projection | | :--- | :--- | :--- | | Sustaining Investments | $12,229 | - | | Growth Investments | $12,009 | - | | - DDGM Growth | $5,139 | $4.0 - $5.0 million | | - Back Forty Growth | $6,925 | $9.0 - $9.5 million | | **Total Investment** | **$24,238** | **$29.0 - $32.5 million** | [2022 DDGM Exploration Updates](index=59&type=section&id=2022%20DDGM%20Exploration%20Updates) DDGM exploration focused on underground and surface programs, confirming high-grade zones and mineralized structures, though a temporary slowdown impacted resource updates - Year-to-date, the company has completed **16 exploration drill holes (8,003 meters)** and **127 infill drill holes (18,641 meters)** at **DDGM**[189](index=189&type=chunk) - Infill drilling confirmed **high-grade mineralization** in the **Arista and Switchback vein systems**, while exploration drilling confirmed the continuation of the **Switchback system**[191](index=191&type=chunk) - The **temporary slowdown of mine development** during Q3 impacted the timing of the Mineral Resources and Mineral Reserves update[188](index=188&type=chunk) [Liquidity and Capital Resources](index=67&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2022, working capital was **$28.9 million** and cash **$22.5 million**, a **$11.2 million decrease** from year-end 2021, with management deeming current liquidity sufficient - **Cash and cash equivalents decreased by $11.2 million** during the first nine months of 2022 to **$22.5 million**[207](index=207&type=chunk) - **Working capital was $28.9 million** as of September 30, 2022, a slight decrease from **$29.3 million** at year-end 2021[205](index=205&type=chunk) - For the nine months ended Sept 30, 2022, **cash from operations was $7.9M**, **cash used in investing was $15.3M**, and **cash used in financing was $3.0M**[209](index=209&type=chunk)[210](index=210&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces significant market risks from commodity prices (gold, silver, base metals), foreign currency fluctuations (Mexican peso), and provisional sales contract pricing - The company's results are **highly dependent on the market prices** of gold, silver, copper, lead, and zinc. The company has entered into **zinc zero cost collars** but **does not hedge other metals**[224](index=224&type=chunk) - The company is exposed to **foreign currency risk**, primarily from the **Mexican peso**, as approximately **50% to 60%** of its expenses are paid in currencies other than the U.S. dollar[228](index=228&type=chunk) - Concentrate sales contracts have **provisional pricing**, creating an **embedded derivative** that is marked-to-market through revenue until final settlement, exposing the company to price changes between shipment and final payment[230](index=230&type=chunk) [Controls and Procedures](index=73&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were ineffective as of September 30, 2022, due to an unremediated material weakness in internal control over financial reporting from the Aquila acquisition - A **material weakness** in internal control over financial reporting was identified as of December 31, 2021, related to the operating effectiveness of review controls over the accounting for the **Aquila acquisition**[235](index=235&type=chunk)[238](index=238&type=chunk) - Due to the **unremediated material weakness**, the CEO and CFO concluded that **disclosure controls and procedures were not effective** as of September 30, 2022[233](index=233&type=chunk) - Despite the **material weakness**, management has concluded that the **consolidated financial statements are fairly presented** in all material respects[233](index=233&type=chunk) [Part II - OTHER INFORMATION](index=75&type=section&id=Part%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=75&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any material pending legal proceedings, aside from an ongoing injunction against the Mexican federal government concerning concession titles not currently worked by the company - An **injunction** was filed in February 2020 by a local **Ejido community** against the Mexican government regarding certain concession titles. The company states it **does not currently conduct mining activities** in the specific concessions named in the injunction[242](index=242&type=chunk) [Risk Factors](index=75&type=section&id=Item%201A.%20Risk%20Factors) No material changes from the risk factors previously described in the company's Form 10-K for the year ended December 31, 2021 - **No material changes** from the risk factors disclosed in the company's annual report on Form 10-K for the year ended December 31, 2021[243](index=243&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=75&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None reported for the period - **None**[244](index=244&type=chunk) [Defaults upon Senior Securities](index=75&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) None reported for the period - **None**[244](index=244&type=chunk) [Mine Safety Disclosures](index=75&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable as the Michigan project is not yet under MSHA jurisdiction - The Michigan project is **not yet subject to MSHA jurisdiction**, therefore mine safety disclosures are **not applicable**[244](index=244&type=chunk) [Other Information](index=77&type=section&id=Item%205.%20Other%20Information) None reported for the period - **None**[245](index=245&type=chunk) [Exhibits](index=77&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data files - Filed exhibits include **certifications** pursuant to Section 302 and 906 of the **Sarbanes-Oxley Act** and financial statements formatted in **inline XBRL**[245](index=245&type=chunk)

Gold Resource Corporation (NYSE:GORO) Q2 2022 Earnings Conference Call July 28, 2022 12:00 PM ET Company Participants Kim Perry - Chief Financial Officer Allen Palmiere - President & Chief Executive Officer Alberto Reyes - Chief Operating Officer Conference Call Participants Jake Sekelsky - Alliance Global Partners Operator Good day and thank you for standing by. Welcome to the Gold Resource Corporation Q2 Earnings Conference. [Operator Instructions] During today's conference call, there will be a question- ...

[Second Quarter 2022 Highlights](index=4&type=section&id=Second%20Quarter%202022%20Highlights) [Strategic](index=4&type=section&id=Strategic) The company received a corporate social responsibility award and strengthened its senior leadership team - The Don David Gold Mine received the "Corporate Social Responsibility" (ESR) award for the **eighth consecutive year** from the Mexican Center for Philanthropy (CEMEFI), recognizing its commitment to social and environmental protection programs[11](index=11&type=chunk) - The company continues to process tailings from nearby communities to ensure proper environmental handling and storage[11](index=11&type=chunk) - To strengthen the senior leadership team, Patrick Frenette was hired as Vice President, Technical Services, and Steve Donohue was seconded as Vice President, Environmental and Regulatory Affairs (Michigan) to further de-risk the Back Forty Project's optimized feasibility study and permit applications[11](index=11&type=chunk) [Operational](index=4&type=section&id=Operational) The Don David Gold Mine produced 11,475 gold equivalent ounces while exploration and feasibility studies progressed Don David Gold Mine Q2 2022 Production | Metric | Quantity | | :--- | :--- | | Gold Equivalent Ounces | 11,475 | | Gold Ounces | 8,746 | | Silver Ounces | 231,622 | | Average Realized Gold Price | $1,874/oz | | Average Realized Silver Price | $22/oz | - Exploration efforts continued to focus on infill drilling of the Arista vein system with encouraging results, while sampling programs were initiated at the Alta Gracia and Chamizo projects[11](index=11&type=chunk) - The feasibility study for the Back Forty Project in Michigan progressed during Q2 2022, with completion expected in the second half of the year, followed by the submission of permit applications to state agencies[11](index=11&type=chunk) [Financial](index=4&type=section&id=Financial) The company maintained a strong balance sheet with $33.3 million in cash and reported net income of $2.7 million Key Financial Data for Q2 2022 | Metric | Amount (in millions of USD) | | :--- | :--- | | Cash (as of June 30) | 33.3 | | Cash (as of Dec 31) | 33.7 | | Capital and Exploration Expenditures | 15.7 | | Year-to-Date Operating Cash Flow | 12.2 | | Net Income (Quarter) | 2.7 | | Earnings Per Share (Quarter) | $0.03 | | Working Capital (as of June 30) | 37.1 | | Working Capital (as of Dec 31) | 29.3 | | Total Cash Cost per AuEq oz | $247 | | Total All-In Sustaining Cost per AuEq oz | $799 | - The company paid **$0.9 million in dividends** to shareholders during the quarter, bringing the cumulative total to over **$121 million** since 2010[11](index=11&type=chunk) [Part I - FINANCIAL INFORMATION](index=5&type=section&id=Part%20I%20-%20FINANCIAL%20INFORMATION) [ITEM 1. Financial Statements](index=5&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated interim financial statements for the period ended June 30, 2022 [Condensed Consolidated Interim Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Interim%20Balance%20Sheets) Total assets slightly decreased to $213.6 million, while shareholders' equity increased to $126.0 million Condensed Consolidated Interim Balance Sheets Summary (in thousands of USD) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | 33,335 | 33,712 | | Total current assets | 60,426 | 58,915 | | Property, plant and mine development, net | 152,777 | 156,771 | | Total assets | 213,606 | 215,762 | | **Liabilities and Shareholders' Equity** | | | | Total current liabilities | 23,373 | 29,659 | | Gold and silver stream agreements liability | 42,987 | 42,560 | | Total liabilities | 87,604 | 95,012 | | Total shareholders' equity | 126,002 | 120,750 | | Total liabilities and shareholders' equity | 213,606 | 215,762 | [Condensed Consolidated Interim Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Operations) Net sales and net income showed significant growth for the three and six months ended June 30, 2022 Condensed Consolidated Interim Statements of Operations Summary (in thousands of USD) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | 37,064 | 30,836 | 82,481 | 58,104 | | Total cost of sales | 29,045 | 23,956 | 55,139 | 42,649 | | Mine gross profit | 8,019 | 6,880 | 27,342 | 15,455 | | Net income | 2,673 | 1,283 | 6,692 | 3,810 | | Net income per share, basic and diluted | 0.03 | 0.02 | 0.08 | 0.05 | [Condensed Consolidated Interim Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Total shareholders' equity increased to $126.0 million, driven by net income and stock-based compensation Summary of Changes in Shareholders' Equity (in thousands of USD) | Metric | Balance at March 31, 2021 | Balance at June 30, 2021 | Balance at March 31, 2022 | Balance at June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Common stock | 75 | 75 | 89 | 89 | | Additional paid-in capital | 84,966 | 85,269 | 109,982 | 110,480 | | Retained earnings | 14,436 | 14,974 | 20,699 | 22,488 | | Treasury stock | (5,884) | (5,884) | (5,884) | (5,884) | | Accumulated other comprehensive loss | (1,171) | (1,171) | (1,171) | (1,171) | | **Total Shareholders' Equity** | **92,422** | **93,263** | **123,715** | **126,002** | - In Q2 2022, the company paid a dividend of **$0.01 per share**, totaling $0.884 million; for the first half of 2022, dividends paid were **$0.02 per share**, totaling $1.767 million[18](index=18&type=chunk)[21](index=21&type=chunk) [Condensed Consolidated Interim Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Cash%20Flows) Net cash from operating activities was $12.2 million for the six months ended June 30, 2022 Condensed Consolidated Interim Statements of Cash Flows Summary (in thousands of USD) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | 12,206 | 16,129 | | Net cash used in investing activities | (9,985) | (9,333) | | Net cash used in financing activities | (2,143) | (1,471) | | Effect of exchange rate changes on cash | (455) | (195) | | Net (decrease) increase in cash and cash equivalents | (377) | 5,130 | | Cash and cash equivalents at end of period | 33,335 | 30,535 | [Notes to the Condensed Consolidated Interim Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Interim%20Financial%20Statements) This section provides detailed notes covering key accounting policies, revenue sources, and financial instrument details [Note 1. Basis of Preparation of Financial Statements](index=10&type=section&id=Note%201.%20Basis%20of%20Preparation%20of%20Financial%20Statements) The unaudited interim financial statements are prepared in accordance with SEC rules for interim reporting - The condensed consolidated interim financial statements are unaudited and have omitted or condensed certain U.S. GAAP disclosures as permitted by SEC rules[26](index=26&type=chunk) [Note 2. Recently Adopted Accounting Standards](index=10&type=section&id=Note%202.%20Recently%20Adopted%20Accounting%20Standards) Recently issued accounting standards currently have no impact on the company's financial statements - After evaluation, recently issued accounting standards currently have no impact on the company's financial statements and supplementary data[28](index=28&type=chunk) [Note 3. Revenue](index=11&type=section&id=Note%203.%20Revenue) Revenue is primarily derived from dore and concentrate sales, with net sales increasing significantly year-over-year Net Sales by Source (in thousands of USD) | Source | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Doré sales, net | 2,531 | 2,903 | 3,788 | 5,696 | | Concentrate sales, net | 36,697 | 27,264 | 78,823 | 51,774 | | Realized gain on embedded derivatives, net | 1,160 | 359 | 2,026 | 450 | | Unrealized (loss) gain on embedded derivatives, net | (3,324) | 310 | (2,156) | 184 | | **Total Net Sales** | **37,064** | **30,836** | **82,481** | **58,104** | - In Q2 2022, zinc sales from concentrate were **$14.352 million**, a substantial increase from $9.240 million in the same period of 2021[30](index=30&type=chunk) [Note 4. Inventories, net](index=11&type=section&id=Note%204.%20Inventories%2C%20net) Net inventories increased to $12.5 million, primarily due to higher levels of concentrate, dore, and supplies Inventories, net (in thousands of USD) | Inventory Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Stockpile - underground mine | 61 | - | | Concentrate | 2,986 | 2,048 | | Doré, net | 800 | 452 | | Materials and supplies | 8,659 | 7,861 | | **Total** | **12,506** | **10,361** | [Note 5. Income Taxes](index=11&type=section&id=Note%205.%20Income%20Taxes) Income tax expense increased significantly, driven by higher net income and Mexico's tax regime Income Tax Expense (in thousands of USD) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | 3,781 | 1,751 | 9,132 | 4,345 | - In addition to a **30% corporate income tax**, mining entities in Mexico are subject to a **7.5% "special" mining duty** (treated as income tax) and a **0.5% gold and silver sales mining duty** (treated as a production cost)[35](index=35&type=chunk) - The company is subject to a **5% dividend withholding tax** when transferring funds from its Mexican subsidiary to the U.S., in accordance with the U.S.-Mexico tax treaty[37](index=37&type=chunk) [Note 6. Promissory Note](index=13&type=section&id=Note%206.%20Promissory%20Note) The company holds a non-interest-bearing promissory note from Green Light Metals due in December 2022 - The company holds a **CAD 4.9 million (approx. USD 3.9 million)** promissory note issued by Green Light Metals, due on December 31, 2022, payable in Green Light Metals common stock[39](index=39&type=chunk) [Note 7. Prepaid Expenses and Other Current Assets](index=13&type=section&id=Note%207.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid expenses and other current assets increased, mainly due to advances to suppliers and prepaid insurance Prepaid Expenses and Other Current Assets (in thousands of USD) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Advances to suppliers | 1,149 | 188 | | Prepaid insurance | 2,414 | 1,222 | | Other current assets | 429 | 875 | | **Total** | **3,992** | **2,285** | [Note 8. Property, Plant and Mine Development, net](index=15&type=section&id=Note%208.%20Property%2C%20Plant%20and%20Mine%20Development%2C%20net) Net property, plant, and mine development decreased slightly, while depreciation and amortization expenses increased Property, Plant and Mine Development, net (in thousands of USD) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Mine development | 98,900 | 92,138 | | Plant facilities and infrastructure | 35,200 | 24,973 | | Accumulated depreciation and amortization | (118,888) | (105,167) | | **Total** | **152,777** | **156,771** | - Depreciation and amortization expenses were **$7.3 million** for Q2 2022 and **$13.2 million** for H1 2022, a significant increase from the same periods in 2021[44](index=44&type=chunk) [Note 9. Accrued Expenses and Other Liabilities](index=15&type=section&id=Note%209.%20Accrued%20Expenses%20and%20Other%20Liabilities) Accrued expenses increased due to higher royalty fees and employee profit-sharing obligations in Mexico Accrued Expenses and Other Liabilities (in thousands of USD) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Accrued royalties | 2,145 | 1,743 | | Employee profit sharing obligation | 2,113 | 1,888 | | Other payables | 1,331 | 1,100 | | **Total accrued expenses and other current liabilities** | **5,589** | **4,731** | | Accrued non-current labor obligations | 1,105 | 920 | | Deferred Stock Unit (DSU) compensation liability | 671 | 206 | | Other long-term liabilities | 160 | 826 | | **Total other non-current liabilities** | **1,936** | **1,952** | - Mexican labor outsourcing reform resulted in the company assuming employee profit sharing (PTU) obligations, with a **$2.1 million** current liability and a **$1.1 million** long-term liability for statutory severance recorded as of June 30, 2022[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 10. Gold and Silver Stream Agreements](index=17&type=section&id=Note%2010.%20Gold%20and%20Silver%20Stream%20Agreements) The total liability related to gold and silver stream agreements with Osisko Bermuda Limited was $43.0 million Gold and Silver Stream Agreements Liability (in thousands of USD) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Liability related to Gold Stream Agreement | 20,459 | 20,364 | | Liability related to Silver Stream Agreement | 22,528 | 22,196 | | **Total Liability** | **42,987** | **42,560** | - The Gold Stream Agreement entitles OBL to purchase **18.5% of refined gold** from the Back Forty Project until 105,000 ounces are delivered, after which the percentage drops to 9.25%; OBL will pay 30% of the spot gold price, capped at $600 per ounce[52](index=52&type=chunk) - The Silver Stream Agreement entitles OBL to purchase **85% of the silver production** from the Back Forty Project at a fixed price of $4.00 per ounce[56](index=56&type=chunk) [Note 11. Reclamation and Remediation](index=19&type=section&id=Note%2011.%20Reclamation%20and%20Remediation) Total reclamation and remediation obligations increased slightly to $3.3 million, primarily related to the Don David Gold Mine Change in Reclamation and Remediation Obligations (in thousands of USD) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Beginning reclamation liability | 1,833 | 1,890 | | Foreign currency translation (gain) loss | 55 | (57) | | Ending reclamation liability | 1,888 | 1,833 | | Beginning asset retirement obligation | 1,279 | 1,208 | | Accretion | 51 | 109 | | Foreign currency translation (gain) loss | 40 | (38) | | Ending asset retirement obligation | 1,370 | 1,279 | | **Total ending balance** | **3,258** | **3,112** | [Note 12. Commitments and Contingencies](index=19&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) The company has equipment purchase commitments and contingent considerations tied to the Back Forty Project's development - As of June 30, 2022, the company had equipment purchase commitments of approximately **$0.8 million**, an increase from $0.4 million at December 31, 2021[59](index=59&type=chunk) - A contingent consideration of **$4.3 million** is tied to development milestones for the Back Forty Project, including financing completion and phased payments after commercial production begins[63](index=63&type=chunk)[67](index=67&type=chunk) - The company has significant liabilities under the gold and silver stream agreements with Osisko Bermuda Limited; failure to achieve commercial production on schedule could require repayment of advances with interest or result in Osisko taking possession of the Back Forty Project assets[65](index=65&type=chunk) [Note 13. Shareholders' Equity](index=21&type=section&id=Note%2013.%20Shareholders'%20Equity) The company had 88,372,692 common shares issued and outstanding and distributed dividends during the period Dividend Distribution | Period | Dividend per Share | Total Amount (in millions of USD) | | :--- | :--- | :--- | | Three Months Ended June 30, 2022 | $0.01 | 0.9 | | Six Months Ended June 30, 2022 | $0.02 | 1.8 | | Three Months Ended June 30, 2021 | $0.01 | 1.0 | | Six Months Ended June 30, 2021 | $0.02 | 1.7 | - As of June 30, 2022, there were **88,372,692 common shares** issued and outstanding[66](index=66&type=chunk) [Note 14. Derivatives](index=21&type=section&id=Note%2014.%20Derivatives) The company manages commodity price risk through zinc zero-cost collars and accounts for embedded derivatives in concentrate sales - Concentrate sales contracts contain embedded derivatives that require mark-to-market adjustments for unsettled invoices based on forward metal prices at each reporting period[68](index=68&type=chunk)[69](index=69&type=chunk) - The company uses zinc zero-cost collars to manage zinc price risk, which resulted in a **$2.5 million realized loss** and a **$2.1 million unrealized gain** in the first half of 2022[71](index=71&type=chunk)[72](index=72&type=chunk) Value of Unsettled Sales Contracts (in thousands of USD) | Metal | Quantity | Average Forward Price | Value | | :--- | :--- | :--- | :--- | | Gold (oz) | 5,029 | $1,845 | $9,279 | | Silver (oz) | 158,039 | $21.87 | $3,456 | | Copper (tonnes) | 163 | $9,092 | $1,482 | | Lead (tonnes) | 1,711 | $2,157 | $3,691 | | Zinc (tonnes) | 3,553 | $3,984 | $14,155 | | **Total** | | | **$32,063** | [Note 15. Employee Benefits](index=23&type=section&id=Note%2015.%20Employee%20Benefits) The company provides a 401(k) plan for U.S. employees and statutory profit sharing for employees in Mexico - The company offers a qualified retirement plan under Section 401(k) for its U.S. employees[74](index=74&type=chunk) - Under Mexican law, employees are entitled to statutory profit sharing (PTU) payments equivalent to **10% of the employer's taxable income**[75](index=75&type=chunk) [Note 16. Stock-Based Compensation](index=25&type=section&id=Note%2016.%20Stock-Based%20Compensation) Stock-based compensation expense increased significantly due to new equity awards granted to management and the board Stock-Based Compensation Expense (in thousands of USD) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Stock options | 250 | 135 | 399 | 362 | | Restricted stock units | 256 | 70 | 304 | (16) | | Performance stock units | 94 | - | 94 | - | | Deferred stock units | (207) | (8) | 370 | 335 | | **Total** | **393** | **197** | **1,167** | **681** | - In H1 2022, **214,357 DSUs** were granted to the Board, along with **377,076 RSUs** and **695,041 PSUs**; PSUs typically vest over three years based on relative total shareholder return and are expected to be cash-settled[79](index=79&type=chunk)[80](index=80&type=chunk)[82](index=82&type=chunk) - In H1 2022, **355,000 stock options** were exercised and settled in cash[81](index=81&type=chunk) [Note 17. Zinc Zero Cost Collar](index=27&type=section&id=Note%2017.%20Zinc%20Zero%20Cost%20Collar) The zinc zero-cost collar generated a net gain in the second quarter due to falling zinc forward prices Realized and Unrealized Gain (Loss) on Zinc Zero Cost Collar (in thousands of USD) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Realized loss | 829 | - | 2,457 | - | | Unrealized gain | (4,628) | - | (2,119) | - | | **Total** | **(3,799)** | **-** | **338** | **-** | - The forward price of zinc decreased from **$4,244 per tonne** at March 31, 2022, to **$3,130 per tonne** at June 30, 2022, causing the collar position to shift from a liability to an asset[87](index=87&type=chunk)[162](index=162&type=chunk) [Note 18. Other Expense, net](index=27&type=section&id=Note%2018.%20Other%20Expense%2C%20net) Other expenses for the six-month period increased, primarily due to higher unrealized foreign exchange losses Other Expense, net (in thousands of USD) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Unrealized foreign exchange loss | 77 | 75 | 522 | 316 | | Realized foreign exchange (gain) loss | 30 | 114 | 159 | (59) | | Realized and unrealized (gain) loss on gold and silver rounds, net | 8 | (34) | (28) | 32 | | Employee benefit obligation | - | 700 | - | 700 | | Stream agreement interest | 134 | - | 310 | - | | Other (income) expense | (35) | 12 | 89 | (436) | | **Total** | **214** | **867** | **1,052** | **553** | [Note 19. Net Income per Common Share](index=29&type=section&id=Note%2019.%20Net%20Income%20per%20Common%20Share) Basic and diluted net income per share increased due to higher net income Net Income per Common Share Calculation Summary | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (in thousands of USD) | 2,673 | 1,283 | 6,692 | 3,810 | | Basic weighted-average common shares outstanding | 88,343,992 | 74,485,672 | 88,341,398 | 74,445,058 | | Effect of dilutive stock-based awards | 447,560 | 501,887 | 305,451 | 423,129 | | Diluted weighted-average common shares outstanding | 88,791,552 | 74,987,559 | 88,646,849 | 74,868,187 | | **Net income per common share, basic and diluted** | **$0.03** | **$0.02** | **$0.08** | **$0.05** | - **2.3 million** and **2.6 million** stock options were excluded from the diluted weighted-average share calculation for the periods ended June 30, 2022 and 2021, respectively, as they were anti-dilutive[92](index=92&type=chunk) [Note 20. Fair Value Measurement](index=29&type=section&id=Note%2020.%20Fair%20Value%20Measurement) Assets and liabilities are measured at fair value using a three-level hierarchy Assets by Fair Value Hierarchy (in thousands of USD) | Asset Category | June 30, 2022 | December 31, 2021 | Input Level | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 33,335 | 33,712 | Level 1 | | Accounts receivable, net | 6,277 | 8,672 | Level 2 | | Derivative asset - zinc zero cost collar | 275 | - | Level 2 | | Derivative liability - zinc zero cost collar | - | (1,844) | Level 2 | - Accounts receivable, net, includes a **$1.9 million** mark-to-market adjustment for embedded derivatives as of June 30, 2022[96](index=96&type=chunk) - The zinc zero-cost collar derivative is valued using the Black-Scholes model, considering interest rate forecasts, market volatility, and the zinc forward price curve[97](index=97&type=chunk) [Note 21. Supplementary Cash Flow Information](index=32&type=section&id=Note%2021.%20Supplementary%20Cash%20Flow%20Information) Other operating adjustments significantly impacted cash flow from operations Other Operating Adjustments (in thousands of USD) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Unrealized (gain) loss on gold and silver rounds | 8 | (35) | (62) | 31 | | Realized loss on gold and silver rounds | - | 1 | 34 | 1 | | Unrealized foreign exchange loss | 77 | 75 | 522 | 316 | | Unrealized loss on zinc zero cost collar | (4,628) | - | (2,119) | - | | Other | 165 | 60 | (202) | 93 | | **Total other operating adjustments** | **(4,378)** | **101** | **(1,827)** | **441** | [Note 22. Segment Reporting](index=32&type=section&id=Note%2022.%20Segment%20Reporting) The company operates in three geographic segments: Oaxaca, Mexico; Michigan, USA; and Corporate and Other Segment Asset Summary (in thousands of USD) | Segment | Total Assets at June 30, 2022 | Total Assets at December 31, 2021 | | :--- | :--- | :--- | | Oaxaca, Mexico | 113,995 | 116,813 | | Michigan, USA | 94,164 | 95,546 | | Corporate and Other | 5,447 | 3,403 | | **Consolidated Total Assets** | **213,606** | **215,762** | Segment Operating Results Summary (in thousands of USD) | Metric | Oaxaca, Mexico (Q2 2022) | Michigan, USA (Q2 2022) | Corporate and Other (Q2 2022) | Consolidated Total (Q2 2022) | | :--- | :--- | :--- | :--- | :--- | | Net sales | 37,064 | - | - | 37,064 | | Net income (loss) | 7,309 | (2,181) | (2,455) | 2,673 | - The Michigan segment was acquired on December 10, 2021, so no comparable information exists for the same period in 2021[105](index=105&type=chunk)[106](index=106&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses operating results and financial condition for the three and six months ended June 30, 2022 [Overview](index=34&type=section&id=Overview) The company focuses on mining gold and silver projects with low operating costs and high returns on capital - The company primarily produces gold and silver dore, as well as copper, lead, and zinc concentrates, from its Don David Gold Mine[111](index=111&type=chunk) - The Back Forty Project is expected to complete its feasibility study in the second half of 2022, with permitting activities planned to continue into 2023[111](index=111&type=chunk) - The company is committed to a zero-harm workplace and adheres to the highest ESG standards for the benefit of its employees and local communities[112](index=112&type=chunk)[114](index=114&type=chunk) [COVID-19 Pandemic](index=36&type=section&id=COVID-19%20Pandemic) The company continues to take precautions to protect its workforce and has not experienced material operational impacts - The company continues to implement preventative measures to protect the health and safety of its employees and communities, including professional training, social distancing, employee screening, and remote work[116](index=116&type=chunk) - To date, the COVID-19 pandemic has not had a material impact on the company's operations or financial statements, but the long-term effects remain uncertain, and the company will continue to monitor market conditions[117](index=117&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Higher gold production and zinc prices drove significant increases in net sales and net income for H1 2022 [Don David Gold Mine Production Statistics](index=37&type=section&id=Don%20David%20Gold%20Mine%20Production%20Statistics) Gold production increased year-over-year due to higher grades, while silver production declined Don David Gold Mine Production Statistics Summary | Metric | Q2 2022 | Q2 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Tonnes Milled | 128,884 | 126,363 | +2.0% | | Average Gold Grade (g/t) | 2.63 | 1.91 | +37.7% | | Average Silver Grade (g/t) | 64 | 79 | -19.0% | | Gold Production (oz) | 9,317 | 6,555 | +42.1% | | Silver Production (oz) | 249,088 | 295,979 | -15.9% | | Lead Grade (%) | 1.99 | 1.63 | +22.1% | | Zinc Grade (%) | 4.00 | 3.64 | +9.9% | | Gold Recovery (%) | 85.1 | 80.0 | +5.1% | | Zinc Recovery (%) | 83.1 | 79.4 | +3.7% | - The tailings filtration plant and dry stack facility, completed in 2021, now process **85% of tailings** for dry stacking and **15%** for underground paste backfill, conserving water and extending operational life[125](index=125&type=chunk)[127](index=127&type=chunk) [Sales Statistics](index=41&type=section&id=Sales%20Statistics) Sales volumes for gold, lead, and zinc increased, with a significant rise in the average realized zinc price Don David Gold Mine Sales Statistics Summary | Metric | Q2 2022 | Q2 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Gold Sold (oz) | 8,746 | 5,697 | +53.5% | | Silver Sold (oz) | 231,622 | 270,321 | -14.3% | | Lead Sold (tonnes) | 1,755 | 1,214 | +44.6% | | Zinc Sold (tonnes) | 3,590 | 3,193 | +12.4% | | Average Gold Price ($/oz) | 1,874 | 1,822 | +2.9% | | Average Silver Price ($/oz) | 22.05 | 26.88 | -17.9% | | Average Zinc Price ($/tonne) | 4,338 | 2,945 | +47.3% | | Total Gold Equivalent Ounces Sold | 11,475 | 9,685 | +18.5% | [Financial Measures](index=42&type=section&id=Financial%20Measures) Net sales, mine gross profit, and net income all increased significantly year-over-year for Q2 and H1 2022 Key Financial Data Summary (in thousands of USD) | Metric | Q2 2022 | Q2 2021 | Change (YoY) | H1 2022 | H1 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | 37,064 | 30,836 | +20.2% | 82,481 | 58,104 | +42.0% | | Total cost of sales | 29,045 | 23,956 | +21.2% | 55,139 | 42,649 | +29.3% | | Mine gross profit | 8,019 | 6,880 | +16.6% | 27,342 | 15,455 | +76.9% | | Net income | 2,673 | 1,283 | +108.3% | 6,692 | 3,810 | +75.6% | - The increase in cost of sales was primarily due to a **$2.9 million increase in depreciation** and a **$2.2 million increase in production costs**, related to higher prices for consumables, royalties, and equipment parts[145](index=145&type=chunk)[146](index=146&type=chunk) [Other Costs and Expenses, Including Taxes](index=45&type=section&id=Other%20Costs%20and%20Expenses%2C%20Including%20Taxes) Total other costs and expenses rose in H1 2022, driven by Back Forty project expenses and higher income taxes Other Costs and Expenses, Including Taxes (in thousands of USD) | Category | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | General and administrative | 1,920 | 2,134 | 3,819 | 3,715 | | DDGM exploration | 810 | 648 | 2,047 | 1,855 | | Back Forty project | 2,027 | - | 3,095 | - | | Stock-based compensation | 393 | 197 | 1,167 | 681 | | Realized and unrealized (gain) loss on zinc zero cost collar | (3,799) | - | 338 | - | | Other expense, net | 214 | 867 | 1,052 | 553 | | Provision for income taxes | 3,781 | 1,751 | 9,132 | 4,345 | | **Total other costs, including taxes** | **5,346** | **5,597** | **20,650** | **11,645** | - Back Forty project expenses were **$3.1 million** in H1 2022, primarily for the feasibility study and permitting applications[160](index=160&type=chunk) - Income tax expense increased to **$9.1 million** in H1 2022, driven mainly by a **76% increase in net income**[165](index=165&type=chunk) [Other Non-GAAP Financial Measures](index=47&type=section&id=Other%20Non-GAAP%20Financial%20Measures) Total cash cost and all-in sustaining cost per gold equivalent ounce decreased significantly due to higher by-product credits Non-GAAP Financial Measures Summary | Metric | Q2 2022 | Q2 2021 | Change (YoY) | H1 2022 | H1 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Cash Cost per AuEq oz, net of by-product credits | $247 | $687 | -64.0% | $40 | $554 | -92.8% | | Total All-in Sustaining Cost per AuEq oz, net of by-product credits | $799 | $1,254 | -36.2% | $626 | $1,104 | -43.3% | | Total All-in Cost per AuEq oz, net of by-product credits | $1,094 | $1,512 | -27.6% | $929 | $1,397 | -33.5% | - The decrease in total cash cost is primarily attributable to **increased by-product credits** from base metal sales and **higher gold equivalent ounces sold**[166](index=166&type=chunk)[167](index=167&type=chunk) [2022 Capital and Exploration Investment Summary](index=48&type=section&id=2022%20Capital%20and%20Exploration%20Investment%20Summary) Total capital and exploration investment for H1 2022 was $15.7 million, focused on development and growth projects H1 2022 Capital and Exploration Investment (in thousands of USD) | Investment Category | H1 2022 | Full Year 2022 Guidance | | :--- | :--- | :--- | | **Sustaining Investment** | | | | Underground development | 3,168 | $8.5 - $9.5 million | | In-fill drilling and exploration development | 4,040 | $7.0 - $7.5 million | | Other sustaining capital | 1,416 | $4.0 - $4.5 million | | **Sustaining Investment Subtotal** | **8,624** | | | **Growth Investment** | | | | DDGM Growth: Gold regrind | 745 | - | | DDGM Growth: Dry stack completion | 1,149 | - | | DDGM Growth: Surface exploration/other | 935 | $2.5 - $3.0 million | | DDGM Growth: Underground exploration drilling | 1,112 | $3.0 - $3.5 million | | Back Forty Growth: Feasibility study & permitting | 3,095 | $8.0 - $9.0 million | | **Growth Investment Subtotal** | **7,036** | | | **Total Capital and Exploration** | **15,660** | **$33.0 - $37.0 million** | - The gold regrind project was commissioned in Q2 2022 and is expected to continue improving gold recovery rates, which have already increased by approximately **5%** since the same period in 2021[174](index=174&type=chunk) - The dry stack tailings project continued operational optimization in H1 2022, with **85% of tailings** now sent to the dry stack facility and **15%** used for underground paste backfill[176](index=176&type=chunk) [2022 DDGM Exploration Updates](index=51&type=section&id=2022%20DDGM%20Exploration%20Updates) Exploration activities in H1 2022 focused on infill and expansion drilling of the Arista and Switchback vein systems - Underground exploration drilling continued to test the Three Sisters area and other new vein targets within the Arista vein system, while also defining and expanding reserves and resources of existing vein systems[181](index=181&type=chunk) - During the second quarter, **5 exploration drill holes (2,890 meters)** and **34 infill drill holes (4,404 meters)** were completed[181](index=181&type=chunk) - Surface exploration programs initiated soil sampling at the Alta Gracia mining area and geological mapping and rock chip sampling at the Chamizo project area[183](index=183&type=chunk) [Non-GAAP Measures](index=51&type=section&id=Non-GAAP%20Measures) This section provides definitions and reconciliations for non-GAAP financial measures used by the company - Non-GAAP measures include cash cost before by-product credits, total cash cost net of by-product credits, and all-in sustaining cost (AISC), calculated on a per precious metal gold equivalent ounce sold basis[184](index=184&type=chunk) - Copper, lead, and zinc are considered by-products of gold and silver production, and their sales revenue is treated as a by-product credit to reduce total cash costs[185](index=185&type=chunk) Reconciliation of Non-GAAP Cost Measures to U.S. GAAP (in thousands of USD, except per ounce data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Precious Metal Gold Equivalent Ounces Sold (oz) | 11,475 | 9,685 | 23,204 | 18,491 | | Total cash cost, net of by-product credits | 2,832 | 6,650 | 922 | 10,241 | | Total cash cost per AuEq oz, net of by-product credits | $247 | $687 | $40 | $554 | | Consolidated total all-in sustaining cost, net of by-product credits | 9,173 | 12,149 | 14,532 | 20,406 | | Consolidated total all-in sustaining cost per AuEq oz, net of by-product credits | $799 | $1,254 | $626 | $1,104 | | Total all-in cost, net of by-product credits | 12,551 | 14,642 | 21,568 | 25,825 | | Total all-in cost per AuEq oz, net of by-product credits | $1,094 | $1,512 | $929 | $1,397 | [Trending Highlights](index=55&type=section&id=Trending%20Highlights) Quarterly data from 2021 and 2022 shows positive trends in production, sales, and profitability Operational Data Trend Summary | Metric | Q1 2021 | Q2 2021 | Q1 2022 | Q2 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Tonnes Milled | 138,980 | 129,590 | 136,844 | 129,099 | | Average Gold Grade (g/t) | 1.68 | 1.93 | 3.00 | 2.63 | | Gold Production (oz) | 6,097 | 6,555 | 11,187 | 9,317 | | Gold Sold (oz) | 5,019 | 5,697 | 8,381 | 8,746 | | Average Zinc Price ($/tonne) | $2,797 | $2,945 | $3,842 | $4,338 | | Total Gold Equivalent Ounces Sold | 8,810 | 9,696 | 11,729 | 11,475 | Financial Data Trend Summary (in thousands of USD, except per ounce data) | Metric | Q1 2021 | Q2 2021 | Q1 2022 | Q2 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Net Sales | $27,268 | $30,836 | $45,417 | $37,064 | | Income from Mining Operations before D&A | 11,974 | 11,259 | 25,281 | 15,281 | | Total Cash Cost per AuEq oz, net of by-product credits | $408 | $713 | $(121) | $247 | | Net Income | 2,527 | 1,283 | 4,019 | 2,673 | | Basic EPS | $0.03 | $0.02 | $0.05 | $0.03 | [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital increased to $37.1 million, and the company believes it has sufficient liquidity for the next 12 months Liquidity Metrics (in millions of USD) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Working Capital | 37.1 | 29.3 | | Cash and Cash Equivalents | 33.3 | 33.7 | | Net Cash from Operating Activities (H1) | 12.2 | 16.1 | | Net Cash from Investing Activities (H1) | (10.0) | (9.3) | | Net Cash from Financing Activities (H1) | (2.1) | (1.5) | - Of the **$33.3 million** cash balance at June 30, 2022, **$28.4 million** was held by foreign subsidiaries, primarily in U.S. dollar-denominated accounts[199](index=199&type=chunk) - The company has filed a universal shelf registration statement to issue up to **$200 million** in securities, but it is not usable until the 2022 Form 10-K is filed in 2023 due to delays in filing historical financial statements related to the Aquila acquisition[204](index=204&type=chunk)[205](index=205&type=chunk) [Accounting Developments](index=58&type=section&id=Accounting%20Developments) Information on recently adopted accounting standards is available in the financial statement notes - For a discussion of recently adopted and issued accounting standards, please refer to Note 2 of the Condensed Consolidated Interim Financial Statements[207](index=207&type=chunk) [Forward-Looking Statements](index=58&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements that are subject to inherent risks and uncertainties - Forward-looking statements relate to future investments, project completion dates, gold recovery expectations, capital expenditures, dividend payments, and the ability to meet future obligations[208](index=208&type=chunk)[210](index=210&type=chunk) - Actual results may differ due to factors including the COVID-19 pandemic, commodity price volatility, operational challenges, economic conditions, and uncertainties in mineral resource estimates[209](index=209&type=chunk)[211](index=211&type=chunk)[215](index=215&type=chunk) - The company undertakes no obligation to publicly revise these forward-looking statements to reflect future events or developments, except as required by law[214](index=214&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks including commodity prices, foreign exchange rates, and interest rates [Commodity Price Risk](index=61&type=section&id=Commodity%20Price%20Risk) The company's financial performance is highly dependent on volatile market prices for gold, silver, and base metals - The company's operating results are significantly affected by the market prices of gold, silver, copper, lead, and zinc, which are highly volatile[217](index=217&type=chunk) - The company has entered into a zinc zero-cost collar to protect the sales price of zinc but does not currently have derivative contracts for gold, silver, copper, or lead[217](index=217&type=chunk)[218](index=218&type=chunk) [Foreign Currency Risk](index=61&type=section&id=Foreign%20Currency%20Risk) The company's primary foreign currency exposure relates to the Mexican peso, as a majority of its expenses are peso-denominated - The company is primarily affected by changes in the exchange rate between the Mexican peso and the U.S. dollar, as approximately **50% to 60%** of its expenses are paid in Mexican pesos[221](index=221&type=chunk) - As metal sales are denominated in U.S. dollars, exchange rate fluctuations do not have a material impact on revenue[220](index=220&type=chunk)[221](index=221&type=chunk) [Provisional Sales Contract Risk](index=63&type=section&id=Provisional%20Sales%20Contract%20Risk) Provisional pricing terms in concentrate sales contracts create revenue volatility due to mark-to-market adjustments - Provisional pricing clauses in concentrate sales contracts contain embedded derivatives that are marked-to-market through revenue each reporting period, causing revenue volatility[223](index=223&type=chunk) [Interest Rate Risk](index=63&type=section&id=Interest%20Rate%20Risk) The company's current interest rate risk is considered insignificant - The company's current interest rate risk is considered insignificant and is primarily related to minor payments for office leases[224](index=224&type=chunk) [Equity Price Risk](index=63&type=section&id=Equity%20Price%20Risk) The company's common stock price has been and may continue to be volatile, which could impact future equity financing - The price of the company's common stock has been volatile in the past and may be volatile in the future, which could prevent the sale of stock at an acceptable price if new equity financing is required[225](index=225&type=chunk) [ITEM 4. Controls and Procedures](index=63&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to a material weakness related to the Aquila acquisition accounting [Evaluation of Disclosure Controls and Procedures](index=63&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Disclosure controls and procedures were concluded to be ineffective as of June 30, 2022 - As of June 30, 2022, the company's disclosure controls and procedures were deemed ineffective due to a material weakness in internal control related to the Aquila acquisition that has not been fully remediated[226](index=226&type=chunk) - Despite the material weakness, management concluded that the consolidated financial statements fairly present the company's financial position, results of operations, and cash flows in all material respects[226](index=226&type=chunk) [Material Weakness in Internal Control Over Financial Reporting](index=63&type=section&id=Material%20Weakness%20in%20Internal%20Control%20Over%20Financial%20Reporting) A material weakness was identified in the review controls over the accounting for the Aquila acquisition - The company identified a material weakness in internal control over financial reporting as of December 31, 2021, related to the operating effectiveness of review controls over the accounting and valuation of assets and liabilities in the Aquila acquisition[231](index=231&type=chunk) - This material weakness resulted from the complexity of the Aquila acquisition, the compressed timeline for transaction completion, and insufficient documentation of the execution of review controls[228](index=228&type=chunk)[230](index=230&type=chunk) [Changes in Internal Control Over Financial Reporting](index=65&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes occurred in internal control over financial reporting during the period - Other than the documentation enhancement efforts described above, there were no material changes in internal control over financial reporting during the three and six months ended June 30, 2022[232](index=232&type=chunk) [Part II - OTHER INFORMATION](index=65&type=section&id=Part%20II%20-%20OTHER%20INFORMATION) [ITEM 1. Legal Proceedings](index=65&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - The company is not currently a party to any material existing or pending legal proceedings[234](index=234&type=chunk) - A lawsuit filed by a local Ejido community in Mexico seeking cancellation of several concessions has not yet reached a final ruling, but the Don David Gold Mine is not currently conducting relevant operations on the disputed concession land[235](index=235&type=chunk) [ITEM 1A. Risk Factors](index=65&type=section&id=ITEM%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report - There have been no material changes from the risk factors described in the company's Annual Report on Form 10-K for the year ended December 31, 2021[236](index=236&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None - No unregistered sales of equity securities and use of proceeds[237](index=237&type=chunk) [ITEM 3. Defaults upon Senior Securities](index=65&type=section&id=ITEM%203.%20Defaults%20upon%20Senior%20Securities) None - No defaults upon senior securities[237](index=237&type=chunk) [ITEM 4. Mine Safety Disclosures](index=65&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Mine safety disclosure requirements are not applicable as the company's U.S. project is not yet subject to MSHA jurisdiction - The company's advanced exploration project in Michigan, USA, is not yet subject to the jurisdiction of the Mine Safety and Health Administration (MSHA), making mine safety disclosure requirements inapplicable[237](index=237&type=chunk) [ITEM 5. Other Information](index=67&type=section&id=ITEM%205.%20Other%20Information) None - No other information[238](index=238&type=chunk) [ITEM 6. Exhibits](index=67&type=section&id=ITEM%206.%20Exhibits) This report includes certifications and financial statements in inline XBRL format - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[238](index=238&type=chunk) - Exhibits also include the Condensed Consolidated Interim Financial Statements and the cover page interactive data file, formatted in inline XBRL[238](index=238&type=chunk) [Signatures](index=68&type=section&id=Signatures) [Signatures](index=68&type=section&id=Signatures) The report was duly signed by the company's Chief Executive Officer and Chief Financial Officer - This report has been signed by Allen Palmiere (Chief Executive Officer, President, and Director) and Kimberly C. Perry (Chief Financial Officer) on July 27, 2022[242](index=242&type=chunk)