Gold Resource (GORO) - 2021 Q3 - Quarterly Report

Third Quarter 2021 Highlights Third Quarter 2021 Highlights The company advanced its acquisition of Aquila Resources, produced 9,170 gold equivalent ounces, and maintained a strong financial position - Entered into a binding letter agreement and subsequent definitive arrangement agreement to acquire all common shares of Aquila Resources Inc[11] - The Don David Gold Mine produced and sold 9,170 gold equivalent ounces, comprising 5,809 gold ounces and 255,394 silver ounces[11] - Construction of the water filtration plant and dry stack tailings facilities is 95% complete, which will enhance water conservation and extend operational life[11] - Experienced a temporary 12-day reduction in activities at the Don David Gold Mine due to an increase in COVID-19 cases, with operations subsequently ramping back up under enhanced protocols[11] Q3 2021 Key Financial Metrics | Metric | Value | | :--- | :--- | | Cash Balance (as of Sep 30, 2021) | $29.5 million | | Year-to-date Operating Cash Flow | $21.9 million | | Net Income | $1.5 million | | Earnings Per Share (EPS) | $0.02 | | Total Cash Cost (after co-product credits) | $466 per AuEq ounce | | Total All-in Sustaining Cost (AISC) | $1,031 per AuEq ounce | Part I - Financial Information Financial Statements The interim financial statements show total assets of $116.2 million and net income from continuing operations of $1.5 million for the quarter Condensed Consolidated Interim Balance Sheets Total assets grew to $116.2 million, driven by increases in cash and net property, plant, and mine development Balance Sheet Summary (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $48,925 | $42,873 | | Cash and cash equivalents | $29,544 | $25,405 | | Property, plant and mine development, net | $66,317 | $62,511 | | Total Assets | $116,181 | $105,734 | | Total Current Liabilities | $17,952 | $12,085 | | Total Liabilities | $21,974 | $15,196 | | Total Shareholders' Equity | $94,207 | $90,538 | Condensed Consolidated Interim Statements of Operations Net sales for Q3 2021 reached $29.0 million, with net income from continuing operations turning to $1.5 million Statement of Operations Summary (in thousands, except per share amounts) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Sales, net | $29,029 | $26,435 | $87,133 | $61,105 | | Mine gross profit | $8,245 | $5,765 | $23,700 | $4,593 | | Income (loss) before income taxes | $3,881 | $2,680 | $12,036 | ($3,632) | | Net income (loss) from continuing operations | $1,529 | ($251) | $5,339 | ($3,212) | | Basic and diluted EPS from continuing operations | $0.02 | $0.01 | $0.07 | ($0.05) | Condensed Consolidated Interim Statements of Cash Flows Net cash from operating activities for the nine-month period was $21.9 million, a substantial increase from the prior year Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,872 | $12,088 | | Net cash used in investing activities | ($15,217) | ($6,413) | | Net cash (used in) provided by financing activities | ($2,215) | $8,989 | | Net increase in cash and cash equivalents | $4,139 | $13,191 | | Cash and cash equivalents at end of period | $29,544 | $23,401 | Notes to the Condensed Consolidated Interim Financial Statements Notes detail the spin-off of Fortitude Gold, new labor reform impacts, and the pending acquisition of Aquila Resources - The spin-off of Fortitude Gold Corporation (FGC) was completed on December 31, 2020, and its results are presented as discontinued operations for the 2020 periods[27] - New labor reform in Mexico required the company to record $1.6 million for employee profit sharing (PTU) and $0.7 million for statutory employee severance benefits in 2021[41][42][43] - The company uses zinc zero cost collars to manage near-term exposure to zinc price risks, resulting in an unrealized loss of $0.1 million as of September 30, 2021[53][55][56] - Subsequent to the quarter's end, on October 6, 2021, the company entered into a definitive arrangement agreement to acquire Aquila Resources Inc[86] Management's Discussion and Analysis (MD&A) Management discusses strategic growth via acquisition, Q3 operational performance, updated guidance, and capital project progress Overview and Strategic Initiatives The company's strategy focuses on acquiring the Back Forty Project to drive growth and reduce jurisdictional risk - Announced the acquisition of Aquila Resources Inc to add the Back Forty Project, which is expected to be accretive and provide a peer-leading growth profile with lower jurisdictional risk[100] - Issued its 2020 Sustainability Report, highlighting a 38% decline in greenhouse gas emissions and a 14.8% decline in water withdrawn per tonne of ore processed compared to 2019[93][94][103] Updated 2021 Guidance Full-year 2021 guidance was revised, lowering silver production and capital investment while increasing cash cost projections Updated 2021 Guidance vs. Original | Measure | Original 2021 Guidance | Updated 2021 Guidance | | :--- | :--- | :--- | | Payable Silver Ounces | 1,700,000 - 1,800,000 | 1,100,000 - 1,300,000 | | Cash Costs per AuEq ounce | $210 - $225 | $250 - $290 | | All-in Sustaining Costs (AISC) | $800 - $900 | Maintained | | Capital Investment | $22.0 million | $16.0 million | Results of Operations Q3 2021 saw a 47% YoY increase in gold production and higher mine gross profit, despite a 36% decrease in tonnes milled Q3 2021 vs Q3 2020 Production Statistics | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Tonnes Milled | 98,010 | 153,531 | -36% | | Average Gold Grade (g/t) | 2.68 | 1.25 | +114% | | Gold Production (ozs) | 6,933 | 4,728 | +47% | | Silver Production (ozs) | 265,829 | 324,592 | -18% | - Mine gross profit for Q3 2021 increased by $2.5 million compared to Q3 2020, primarily due to a $2.6 million increase in revenues resulting from lower concentrate treatment charges[120] - Treatment charges decreased by 44% on a per-base-metal-tonne basis in Q3 2021 compared to Q3 2020, falling to $473 from $842 per tonne[121] Capital and Exploration Investments Year-to-date investments of $18.9 million focused on the Dry Stack Tailings and Gold Regrind projects, both near completion - The Dry Stack Tailings Project is 95% complete, with $5.1 million invested in 2021 and commissioning expected to commence in November 2021[142] - The Gold Regrind Project, expected to increase gold recovery by 6% to 10%, is anticipated to be completed in Q4 2021[141] - Underground exploration drilling has identified high-grade gold mineralization up to 80 meters below the current mine level in the Switchback system[146] Non-GAAP Measures The company reports lower cash costs and All-In Sustaining Costs (AISC) per ounce compared to the prior-year quarter Non-GAAP Cost Reconciliation per AuEq Ounce Sold | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Total cash cost after co-product credits | $466 | $612 | | Total all-in sustaining cost (AISC) | $1,031 | $1,109 | | Total all-in cost after co-product credits | $1,564 | $1,350 | Liquidity and Capital Resources The company maintained a strong liquidity position with $29.5 million in cash and $21.9 million in operating cash flow year-to-date - As of September 30, 2021, the company had a cash balance of $29.5 million and working capital of $31.0 million[159][162] - Net cash from operating activities for the first nine months of 2021 was $21.9 million, compared to $12.1 million for the same period in 2020[165] Market Risk Disclosures Primary market risks include commodity price volatility and foreign currency fluctuations, with zinc production partially hedged - The company's main market risks include commodity prices (gold, silver, base metals), foreign currency exchange rates, and provisional sales contract pricing[176] - In Q2 2021, the company began hedging zinc price risk, entering into a zero cost collar for 5,500 tonnes (approx 43% of expected production) for June through December 2021[178] - Approximately 50% to 60% of the company's expenses are paid in currencies other than the U.S. dollar, primarily the Mexican peso, creating foreign currency risk[182] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation by management, the company's disclosure controls and procedures were concluded to be effective as of the end of the period[187] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[188] Part II - Other Information Legal Proceedings The company reports no material legal proceedings, noting an ongoing injunction against the Mexican government that does not impact operations - The company is not aware of any material, existing or pending legal proceedings against it[190] - An injunction filed by a local community in February 2020 against the Mexican government regarding certain concession titles has not progressed to a final ruling and does not currently impact the Don David Gold Mine's operations[191] Other Items (Risk Factors, Securities, Disclosures, etc.) This section confirms no material changes to risk factors and notes that mine safety disclosures are not applicable - There have been no material changes from the risk factors described in the company's Form 10-K for the year ended December 31, 2020[192] - Mine Safety Disclosures are not applicable as the company does not have mining operations in the U.S[193]