Gold Resource (GORO) - 2018 Q4 - Annual Report

Part I Business Gold Resource Corporation produces metals from its Oaxaca Mining Unit and is developing the Isabella Pearl project in Nevada - The company's primary operations are the Oaxaca Mining Unit in Mexico, producing gold, silver, copper, lead, and zinc, while developing the Isabella Pearl project in Nevada for mid-2019 production[22][23][24] 2018 Financial and Production Highlights | Metric | 2018 Value | | :--- | :--- | | Financials | | | Revenue | $115.3 million | | Mine Gross Profit | $33.7 million | | Net Income | $9.3 million | | Production | | | Gold | 26,838 ounces | | Silver | 1,672,034 ounces | | Copper | 1,652 tonnes | | Lead | 7,280 tonnes | | Zinc | 19,808 tonnes | - In 2018, 94% of the company's Oaxaca Mining Unit revenue came from a single customer, posing a risk of temporary sales disruption if interrupted[38] - The company has paid a monthly dividend since July 2010, totaling $0.02 per share in 2018[31] Risk Factors The company faces significant risks from volatile metal prices, single-mine dependency, and reserve estimate uncertainties - The company's profitability is highly dependent on the volatile market prices of gold, silver, copper, lead, and zinc, with sustained lower prices adversely affecting results[41][42] Historical Gold and Silver Prices (London P.M. Fix, per ounce) | Metal | Year | High | Low | Average | | :--- | :--- | :--- | :--- | :--- | | Gold | 2018 | $1,355 | $1,178 | $1,268 | | | 2017 | $1,346 | $1,151 | $1,257 | | | 2016 | $1,366 | $1,077 | $1,251 | | | 2015 | $1,297 | $1,049 | $1,160 | | | 2014 | $1,385 | $1,142 | $1,266 | | Silver | 2018 | $17.52 | $13.97 | $15.71 | | | 2017 | $18.56 | $15.22 | $17.04 | | | 2016 | $20.71 | $13.58 | $17.14 | | | 2015 | $18.23 | $13.71 | $15.68 | | | 2014 | $22.05 | $15.28 | $19.08 | - The company is almost entirely dependent on revenues from its single Arista mine, making any operational interruption a negative impact on revenue[43] - Estimates of proven and probable reserves are subject to considerable uncertainty based on metal prices and geological interpretations, and "mineralized material" does not constitute SEC-defined reserves[46][48] - The Mexican government imposes a 7.5% 'special' mining duty on net profits and a 0.5% 'extraordinary' duty on gross precious metal sales, significantly affecting operating results and cash flows[63] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable, as there were no legal proceedings at December 31, 2018[100] Properties The company's mineral properties include the producing Oaxaca Mining Unit and the developing Nevada Mining Unit, with reserve estimates - The company holds 100% interest in ten properties, with six in the Oaxaca Mining Unit (Mexico) and four in the Nevada Mining Unit (USA)[102] Proven and Probable Reserves Total Proven and Probable reserves significantly increased in 2018, driven by the Nevada Mining Unit's Isabella Pearl project Total Proven & Probable (P&P) Reserves as of Dec 31, 2018 | Unit | Tonnes | Gold (oz) | Silver (oz) | Precious Metal Gold Equivalent (oz) | | :--- | :--- | :--- | :--- | :--- | | Oaxaca Mining Unit | 3,077,200 | 180,300 | 12,591,300 | 346,600 | | Nevada Mining Unit | 2,934,400 | 214,800 | 1,176,700 | 230,300 | | Total | 6,011,600 | 395,100 | 13,768,000 | 576,900 | - The 2018 P&P reserve estimates were based on three-year trailing average metal prices of $1,258 per ounce for gold and $16.62 per ounce for silver[105] - Total P&P reserves for the Oaxaca Mining Unit increased in tonnes from 2.5 million in 2017 to 3.1 million in 2018, with contained gold increasing from 142,400 ounces to 180,300 ounces[104][106] Oaxaca Mining Unit The Oaxaca Mining Unit is the company's sole production and revenue source, with active mining and exploration - The Aguila Project is the main operating asset, featuring the Arista underground mine and a flexible processing facility for metal concentrates and doré[117][125] - The Alta Gracia project includes the Mirador Mine, which began supplying high-grade silver ore to the Aguila processing facility in 2017[131][135] - 2018 exploration successfully expanded the Switchback vein system at the Arista Mine and discovered a new, high-grade silver ore shoot at the Alta Gracia project[129][136] Nevada Mining Unit The Nevada Mining Unit focuses on the Isabella Pearl development project, targeting first gold production in mid-2019 - The Isabella Pearl project is the company's key development asset in Nevada, with construction commencing after final permits in May 2018 and targeting first gold production in mid-2019[157][161] - In April 2018, the company released its maiden Proven and Probable mineral reserve for Isabella Pearl, totaling 192,600 gold ounces at an average grade of 2.22 g/t[157] - By the end of 2018, major construction milestones at Isabella Pearl were achieved, including completion of the heap leach pad, crushing facility installation, and the start of mining and ore placement[161] Legal Proceedings The company reports no legal proceedings as of December 31, 2018 - Not applicable, as there were no legal proceedings at December 31, 2018[167] Mine Safety Disclosures Mine safety violation information is included in Exhibit 95 of this Annual Report - Information concerning mine safety violations required by the Dodd-Frank Act is included in Exhibit 95 to this Annual Report[168] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities The company's common stock trades on the NYSE American, with a history of monthly dividends and a share repurchase program - The company's common stock is traded on the NYSE American under the ticker symbol "GORO"[170] - Since July 2010, the company has paid consecutive monthly dividends, returning over $111 million to shareholders, with the 2018 dividend at $0.02 per share for the year[177][178] - A physical dividend program allows shareholders to convert cash dividends into physical gold and silver bullion rounds[180] - A share repurchase program of up to $20.0 million was authorized in 2011, with approximately $14.0 million remaining available as of December 31, 2018[173] Selected Financial Data This section presents a five-year summary of the company's historical financial data from 2014 to 2018 Five-Year Selected Financial Data (In thousands, except per share amounts) | | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Operations | | | | | | | Sales, net | $115,308 | $110,156 | $83,227 | $92,701 | $115,405 | | Mine gross profit | $33,690 | $42,115 | $22,433 | $30,323 | $50,871 | | Net income | $9,288 | $4,150 | $4,387 | $3,062 | $15,036 | | Net income per share (basic & diluted) | $0.16 | $0.07 | $0.08 | $0.06 | $0.28 | | Balance Sheet (Year-End) | | | | | | | Total Assets | $150,331 | $132,923 | $118,443 | $106,499 | $105,983 | | Long-term obligations | $5,507 | $5,809 | $2,425 | $2,815 | $3,827 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In 2018, the company achieved profitability with increased sales driven by base metal volumes, while investing heavily in the Isabella Pearl project Results of Operations Net sales increased in 2018 due to higher base metal volumes, offsetting lower precious metal prices and volumes, while net income rose due to reduced income tax provision - Net sales for 2018 increased 5% to $115.3 million, driven by higher base metal sales volumes, compensating for lower precious metal volumes and weaker prices[194] - Mine gross profit decreased from $42.1 million (38% margin) in 2017 to $33.7 million (29% margin) in 2018, due to lower precious metal sales, reduced prices, and higher production costs from increased throughput[213] - The provision for income taxes fell sharply to $7.3 million in 2018 from $24.3 million in 2017, with the 2017 figure elevated due to non-cash expenses from the U.S. Tax Act[217] Production and Sales Statistics In 2018, the company met its production guidance, with decreased gold and silver output but increased base metal production Annual Production (2018 vs. 2017) | Metal | 2018 Production | 2017 Production | % Change | | :--- | :--- | :--- | :--- | | Gold (oz) | 26,838 | 28,117 | -5% | | Silver (oz) | 1,672,034 | 1,773,263 | -6% | | Copper (tonnes) | 1,652 | 1,141 | +45% | | Lead (tonnes) | 7,280 | 5,365 | +36% | | Zinc (tonnes) | 19,808 | 16,301 | +22% | - The company achieved its 2018 production outlook of 27,000 gold ounces and 1,700,000 silver ounces (both +/- 10%)[196] - The decrease in gold and silver production resulted from mining lower-grade areas at the Arista Mine during the year[198] Non-GAAP Measures The company uses non-GAAP measures like total cash cost and all-in sustaining cost (AISC) to evaluate performance Key Non-GAAP Cost Metrics (per precious metal gold equivalent ounce sold) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Total cash cost before by-product credits | $1,722 | $1,294 | | Total cash cost (credit) after by-product credits | $84 | $75 | | Total all-in sustaining cost (AISC) | $655 | $590 | - The company reconciles its non-GAAP measures to 'Total mine cost of sales', which was $81.6 million in 2018[231] Liquidity and Capital Resources Working capital and cash decreased in 2018 due to significant capital expenditures, partially offset by an ATM equity offering Liquidity Position (as of Dec 31) | Metric (in millions) | 2018 | 2017 | | :--- | :--- | :--- | | Working Capital | $13.5 | $27.5 | | Cash and cash equivalents | $7.8 | $22.4 | - Net cash used in investing activities increased to $40.1 million in 2018 from $25.7 million in 2017, primarily due to Isabella Pearl development and Aguila project capital[237] - The company raised $4.3 million in net proceeds in 2018 from its At-The-Market (ATM) Offering Agreement to sell up to $75.0 million of common stock[238] Critical Accounting Estimates Management identifies critical accounting estimates including future metals prices, reserve estimates, and revenue recognition for concentrate sales - Key estimates include future metals prices, which are critical for valuing assets, liabilities, and estimating reserves[244] - Proven and Probable reserve estimates are used to determine units-of-production (UOP) depreciation rates and for impairment testing[246][247] - Revenue from concentrate sales is provisionally recorded and adjusted to market prices until final settlement, creating an embedded derivative that impacts reported revenue[248] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include commodity price fluctuations, foreign currency exposure, and provisional sales contract risk - The company is exposed to commodity price risk, as its results depend largely on the market prices of gold, silver, copper, lead, and zinc[261] - Foreign currency risk exists as some operational costs in Mexico are incurred in Mexican pesos, while revenues are in U.S. dollars[263] - Concentrate sales contracts with provisional pricing expose the company to revenue adjustments based on metal price changes between shipment and final settlement[265] - The company does not use derivative financial instruments to manage market risk[260] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for 2018, 2017, and 2016, along with accompanying notes Consolidated Financial Statements Consolidated financial statements show asset growth, increased net income, and significant cash usage for investing activities in 2018 Consolidated Balance Sheet Summary (as of Dec 31) | (in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Total current assets | $31,061 | $42,489 | | Property, plant and mine development, net | $111,242 | $82,599 | | Total assets | $150,331 | $132,923 | | Total current liabilities | $17,562 | $15,008 | | Total liabilities | $23,069 | $20,817 | | Total shareholders' equity | $127,262 | $112,106 | Consolidated Statement of Operations Summary (Year ended Dec 31) | (in thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Sales, net | $115,308 | $110,156 | $83,227 | | Mine gross profit | $33,690 | $42,115 | $22,433 | | Income before income taxes | $16,551 | $28,478 | $9,146 | | Net income | $9,288 | $4,150 | $4,387 | Notes to Consolidated Financial Statements The notes detail revenue disaggregation, segment reporting, income tax changes, and subsequent events - Revenue in 2018 comprised $112.0 million from concentrate sales and $7.5 million from doré sales, offset by a $4.2 million negative mark-to-market adjustment on embedded derivatives[347] - The Mexico operating segment generated all of the company's $115.3 million in revenue and contributed $20.6 million in net income for 2018, while the Nevada segment incurred a $2.6 million net loss[404] - Subsequent to December 31, 2018, the company sold an additional 2,537,130 shares under its ATM agreement for net proceeds of $10.8 million[407] - The company adopted the new revenue recognition standard (Topic 606) on January 1, 2018, with no changes to previously reported revenue amounts[335] Changes In and Disagreements With Accountants on Accounting and Financial Disclosure The company changed its independent registered public accounting firm in October 2018 due to a merger, with no reported disagreements - Effective October 1, 2018, EKS&H LLLP resigned as the company's auditor due to its merger with Plante & Moran PLLC, which was then engaged as the new auditor[408] - There were no disagreements with the former auditor on any matter of accounting principles, financial statement disclosure, or auditing scope[408] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Based on an evaluation as of December 31, 2018, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[410] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018, a conclusion concurred with by the independent auditor[411][412] Other Information The company reports no other information for this item - None[414] Part III Directors, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10 through 14 is incorporated by reference from the company's 2019 Definitive Proxy Statement - Information required by Item 10 (Directors, Executive Officers, and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership), Item 13 (Certain Relationships and Related Transactions), and Item 14 (Principal Accountant Fees and Services) is incorporated by reference from the company's 2019 Proxy Statement[416][417][418][419][420] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with or incorporated by reference into the Form 10-K report - A list of all exhibits is provided, including corporate governance documents, material contracts, executive agreements, and required certifications[423] - Exhibit 95 contains the Mine Safety Disclosures[425] - Exhibit 101 contains the financial statements formatted in XBRL[425] 10-K Summary The company reports no information for this item - None[425]