Gold Resource (GORO) - 2022 Q3 - Quarterly Report

Third Quarter 2022 Highlights 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] 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] - 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] Part I - FINANCIAL INFORMATION Financial Statements 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 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 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 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] Condensed Consolidated Interim Statements of Cash Flows 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 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] - 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][48][51] - 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][59] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 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][114] - 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][116] Results of Operations 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 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][169] - 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] - 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] Non-GAAP Measures 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 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 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] - Infill drilling confirmed high-grade mineralization in the Arista and Switchback vein systems, while exploration drilling confirmed the continuation of the Switchback system[191] - The temporary slowdown of mine development during Q3 impacted the timing of the Mineral Resources and Mineral Reserves update[188] Liquidity and Capital Resources 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] - Working capital was $28.9 million as of September 30, 2022, a slight decrease from $29.3 million at year-end 2021[205] - 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][210] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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] Controls and Procedures 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][238] - 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] - Despite the material weakness, management has concluded that the consolidated financial statements are fairly presented in all material respects[233] Part II - OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds None reported for the period - None[244] Defaults upon Senior Securities None reported for the period - None[244] Mine Safety Disclosures 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] Other Information None reported for the period - None[245] Exhibits 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]