U.S. Markets open in 9 hrs 8 mins

Edited Transcript of GORO earnings conference call or presentation 8-May-19 3:00pm GMT

Q1 2019 Gold Resource Corp Earnings Call

COLORADO SPRINGS Jul 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Gold Resource Corp earnings conference call or presentation Wednesday, May 8, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jason D. Reid

Gold Resource Corporation - President, CEO & Director

* John A. Labate

Gold Resource Corporation - CFO

================================================================================

Conference Call Participants

================================================================================

* Chen Lin

* Heiko Felix Ihle

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you all for joining Gold Resource Corporation's first quarter earnings conference call. Mr. Jason Reid, President and CEO will be hosting today's call. Following Mr. Reid's opening remarks, there will be a question and answer period. As a reminder, today's call is being recorded. Please go ahead, Mr. Reid.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [2]

--------------------------------------------------------------------------------

Thank you. Good morning, everyone, and thank you for joining Gold Resource Corporation's 2019 first quarter conference call. I expect my comments to run just a few minutes, followed by a question and answer period. Joining me on the call today for the Q&A portion will be Mr. John Labate, our CFO. Let me remind everyone that certain statements made on this call are not historical fact and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties, as described in our annual report on Form 10-K and for the SEC filings. This may cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued yesterday along with the comments on this call are made only as of today, May 8, 2019, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

You can find the reconciliation of non-GAAP financial measures referred to in our remarks in our Form 10-K filed with the SEC for the year ended December 31, 2018.

Q1 of 2019 was another good quarter for the company. Our Oaxaca Mining Unit produced 6,538 ounces of gold and 364,000 ounces -- plus ounces of silver, which along with substantial base metals generated $26.8 million in net revenue or $0.01 per share in net income for the quarter.

Significant announcements during the quarter from our Oaxaca Mining Unit included: updating our proven and probable reserves, boosting our global tonnes by 16%, our gold ounces by 18% and silver ounces by 14%. We also announced connecting to the power grid, thereby lowering our units power costs and significantly reducing our local environmental emissions.

On our Mirador Mine development crosscut 6 meters of 992 grams per tonne silver. We had a busy quarter for Oaxaca, and we remain on target for our Oaxaca Mining Unit annual production outlook.

At our Nevada Mining Unit, Isabella Pearl Project we announced on March 25, we commenced gold processing by circulating solution on the heap. About 30 days later, after the first quarter ended, we announced a major milestone by producing our first gold from the project. We did well to have produced gold in just over 10 months from breaking ground. Building a project like this is so exciting. An incredible amount of planning, work and problem solving goes into bringing a project like this online. Our team is still working hard to complete the final portions of the ADR process facility from which we expect to pour dore bars on site in the future.

But after evaluating the ease of delivery and reasonable cost to utilize our third party to process our gold-infused carbon accumulating in the ADR plant, it was an easy decision to produce gold dore for sale sooner than anticipated. We believe this is just the beginning of a great gold project for Gold Resource Corporation shareholders. We remain focused on ADR construction completion over the next several months and now look toward the project production ramp-up phase at Isabella Pearl.

We are placing more ore on the pad, more panels under leach and increasing leach circulation flow. Next steps include commercial production in the Nevada Mining Unit 2019 gold production outlook.

During the quarter, we also announced our targets for Isabella Pearl pit expansion and additional pit discovery potential. As noted in the March 26 PR, we increased the Isabella Pearl pit reserves by approximately 22,000 gold ounces with a modest 2018 drill program and look to possible further additions from the northern edge of the pit. We have also identified several high-grade targets near Isabella Pearl with the Scarlet target close by to the west and the Civit Cat West target a bit further northwest. I encourage listeners to review that press release.

East of Isabella Pearl were 5 historic open pits, with the closest producing about 300,000 ounces of gold. Isabella Pearl is the next open pit to now produce gold on this trend. There is great potential that Scarlet and Civit Cat West and/or any of the numerous additional targets west along trend could become open pits as well. We have consolidated over 6 miles of this mineralized trend to the west and look to produce from this area for a very long time.

We had a very busy and great first quarter. For perspective, last year at this time, I made the following statement during the 2018 Q1 conference call. I said then that we are very excited at the prospect of receiving our EA permit and permission to begin construction at the Isabella Pearl mine. Shortly after I made that statement, we received the permit. We broke ground a month later. And a little over 10 months after that, we have successfully produced first gold from the Isabella Pearl mine, and I am proud of our excellent team that makes all these accomplishments possible. Few people will ever be part of a team that builds a mine from scratch that produces gold. Those accomplishments are not without overcoming many challenges along the way. In the mining industry, there will always be challenges. We've seen the Gold Resource Corporation has now earned its place as the newest gold producer in Nevada.

With that, I would like to thank everyone for their time on the conference call. Let's move on to the question-and-answer portion of the call. In an effort to efficiently address the Q&A portion of the call without wasting anyone's time and since we don't screen, filter or limit who can call in, any distracting or antagonistic calls will be terminated, and I will simply move on to the next productive caller's question. Operator, please open up the line for the Q&A, and we'll take our first question if there is one.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And we will take our first question. Caller your line is open. Please go ahead.

--------------------------------------------------------------------------------

Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [2]

--------------------------------------------------------------------------------

It's Heiko from Wainwright. Congratulations on that all that progress with Isabella Pearl and frankly actually across your asset basin. And on the same token, well done on turning a profit and paying a dividend while extending your asset base, good job. Given how close we are to Isabella Pearl being 100% done, to specifically talk about the ADR plans here, can you provide some color on the final steps and expenditures needed to get that thing 100% bolted and maybe even a timeline if you could?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [3]

--------------------------------------------------------------------------------

Sure. Well, we believe -- you said the final timeline for construction?

--------------------------------------------------------------------------------

Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [4]

--------------------------------------------------------------------------------

For the ADR, what's left to do?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [5]

--------------------------------------------------------------------------------

Yes. We are still targeting June like we originally targeted to be done with that. We still move forward. We're in the -- we have had to deal with a couple of final change orders mostly having to do with electrical on it. We are dealing with those. But hopefully, in the next couple months, that is operating or pouring gold from our ADR. As I noted in the press release and in the call today, we were accumulating carbon and gold. So we decided we had the option to start sooner and we did. So that's, to me, more important that we reach cash flow sooner than we originally thought. But having said that, we haven't taken our eye off the ball. And in the next couple of months, we should be done with the ADR and pouring gold dore on site. But as with any project, that final stretch, there's a lot of tying up loose ends, and that's what we're doing right now.

--------------------------------------------------------------------------------

Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [6]

--------------------------------------------------------------------------------

For Arista, I noticed you have a meaningful increases in lead and zinc (inaudible) compare with 4Q '18 and also year-over-year which is obviously less relevant. But there was -- with some of the step-out increases in gold production bulk (inaudible) sequentially. And while silver was up a bit from 4 to 18, it's also down a little bit year-over-year. It's so conceptually (inaudible) current strength in lead and zinc, should you think of that as more of a temporary thing? Or you think those higher grades are here to stay?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [7]

--------------------------------------------------------------------------------

As far as the base metals and the higher grades there, it's a function of where we are on the deposit. If we use the Arista vein system as a case study of what we've lived over the last 8 years plus, as we mine through this epithermal system, some of the higher-grade gold and silver are in upper portions of the system. That's congruent within an epithermal vein system. And we still have gold and silver in these deeper elevations where we're mining now. But what's also congruent with an epithermal system is your base metals increase with depth. So the grade and gradation of where we are right now is a function of being deep in this mine.

Over time, as we now have drifted over to the Switchback and we plan to mine laterally and more importantly up, over time, I expect this trend, if you will, to reverse itself. It will take time. It's not going to happen over a quarter or even a year. But over time, we're going to see it reverse. So regardless, we're happy that this is a (inaudible) metallic deposit. And it was great when zinc was hitting its 10-year highs not too long ago. And we got the benefit of that. But it's just a function of where we are and deep in the deposit. And that's what happens in an epithermal system, higher base metal grades at depth. And you should go upwards you're going to see higher precious metal grades. Does that answer your question?

--------------------------------------------------------------------------------

Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [8]

--------------------------------------------------------------------------------

Very much sorted out.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [9]

--------------------------------------------------------------------------------

Thanks, Heiko. I appreciate it.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

(Operator Instructions) And we'll take our next caller. Your line is open. Please go ahead.

--------------------------------------------------------------------------------

Chen Lin, [11]

--------------------------------------------------------------------------------

Jason, congratulations for your new mine. I just have a .....

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [12]

--------------------------------------------------------------------------------

Thank you. Who am I speaking with?

--------------------------------------------------------------------------------

Chen Lin, [13]

--------------------------------------------------------------------------------

This is Chen Lin. I just have a question. The -- I noticed, right now you're really at the crunch time. You're trying to start up a new mine to generate cash flow. On the balance sheet, I noted that this quarter, you have about $10 million ATM. Is that what you planned? And then I -- just -- basically, the question is going forward, what kind of cash and precious metal on your balance sheet will feel comfortable so that you can complete Isabella, make it cash flow positive until you're dry? Or you plan to draw more ATM at your comfort level?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [14]

--------------------------------------------------------------------------------

Sure. Well, I want to be clear. We made very clear in our quarter that the ATM, obviously, was previously announced. We announced that in the previous quarter. We did tap the ATM from quarter-end till -- or excuse me, from the first quarter till the quarter-end with $4 million additional ATM. So to be clear, we utilized an additional $4.1 million, mostly for working capital and a few of these final change orders I mentioned, having to do mostly with electrical, but primarily for working capital.

But as far as the ATM goes, I was just at a conference yesterday giving a presentation and I had this question why did you even utilize the ATM. When we were -- we obviously set out to build this with cash flow. And in a volatile market, we couldn't get there. So we used $15.5 million of our own cash, and we looked elsewhere, we looked at debt, we looked at our typical equity deal. And the typical equity deal was looking at like 14% across the capital, debt deal was 20%. You don't even have to get out of bed for 20%, plus covenants and hooks. And so the ATM -- I want everybody to know the ATM is 3%. You cannot find -- we could not find, and I said, you can't find any cheaper cost to capital. So we have kept dilution down tremendously by utilizing the ATM, and I'm very proud of that. And I'm a staunch supporter of the ATM now because we could not have -- we would have diluted substantially more if we had to raise money north of the 3%.

So what I also mentioned yesterday at the conference and I'll mention to everybody on call today, as far as dilution is concerned and everybody is focused on that in this company, that's what I love about it. And so I love your question, Chen. But if I told you that we were going to increase 100% production for 20%, 30%, you would be like, hey, that sounds pretty good. If I say 20%, you'd be like that's really good. If I say 10%, you'd say that's excellent. We're at 7%. So if we have to continue to tap the ATM a little bit, we will do it. But I pulled our track record for keeping dilution down. I think anybody (inaudible). We only have 62 million shares outstanding more or less. And so we have done, I think, a really good job in putting ourselves in a position of 100% increase.

So coming back to your ATM, to be clear, most of the ATM you've seen in quarter was old, previously done. We did tap an additional $4 million. And if we don't have to use it going forward, we won't. If we need a little more, we will. But again, we're very focused on debt type capital structure, and I am very pleased to where we sit today, where we just poured gold. We're at the final stretch. Yes, things are tight, but we got it done and we poured our first gold. So now it's just a ramp up. We're racing the ramp up as fast we can. It will take a little bit of time. But again, that first pour is the most important thing. So hopefully I've answered your question on the ATM. Do you want to ask an additional question regarding that ATM? Did I get your question answered, Chen?

--------------------------------------------------------------------------------

Chen Lin, [15]

--------------------------------------------------------------------------------

Yes. Yes, I'm just curious because you have -- the cash at the beginning of the period was $7.7 million. At the end, it's $8.5 million, so you have a little bit cash increase. So what kind of cash will you feel comfortable going forward? Or with the new mine coming, you're willing to let your cash balance to dip further until or maybe...

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [16]

--------------------------------------------------------------------------------

Chen, that's a great question. I understand what you're asking, and to answer this question. We don't have a definitive, hey, this is what we go to. Having said that, in the past, we drew our cash balance down below $4 million. So we're not -- we don't (inaudible) the company to doing that. But we have a lot going on right now and we want to make sure that we see this thing successful, and we're there. And so I can't give you an exact amount because we don't have this, okay, this is where we won't allow the cash to go below because in the (inaudible) we've let it go much lower than where it is today. But again, we're now a 2 jurisdiction operator. So we have to keep that in mind that now we're a company that has 2 mining units, not just one. So there's more above the jungle, so to speak, and we're just doing what we believe is prudent and in the best interest of shareholders. So I can't give you an exact number because I don't have one as far as where we'll let our cash go to.

--------------------------------------------------------------------------------

Chen Lin, [17]

--------------------------------------------------------------------------------

Okay. Congratulations for your new mine.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [18]

--------------------------------------------------------------------------------

Thank you. And I hope, Chen, you saw the picture in that press release of that dore bar. It's beautiful. It's absolutely beautiful. Some dore there's a lot of silver in it. You just don't get that gold shine to it, so hopefully, you saw that.

--------------------------------------------------------------------------------

Chen Lin, [19]

--------------------------------------------------------------------------------

I can touch it one day.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [20]

--------------------------------------------------------------------------------

Yes. Well, at some point, we will be maybe doing mine tours, and there's nothing better than holding gold. I mean there's nothing, it puts a smile on everybody's face that I've ever seen hold gold. So thanks, Chen.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

(Operator Instructions) And we will take our next caller. Your line is open. Please go ahead.

--------------------------------------------------------------------------------

Unidentified Analyst, [22]

--------------------------------------------------------------------------------

[Mark Smith]. This could be for you or for John actually. I was kind of just looking through this balance sheet. There's some things in there I just have some questions on. Specifically, you've got -- I understand accounts payable kind of clogs up sometimes and gets pretty large. $6 million increase in accounts payable, if you could address that? What is this deal on the change in inventory up 40% as well? And then lastly, could you comment on the operating leases, both current long term increasing over $12 million, substantial changes in the balance sheet. And just would like some comment on that?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [23]

--------------------------------------------------------------------------------

Yes, I'm going to turn that over to John. I think he's better apt to answer those questions.

--------------------------------------------------------------------------------

Unidentified Analyst, [24]

--------------------------------------------------------------------------------

Kind of we accounting nerds stick together.

--------------------------------------------------------------------------------

John A. Labate, Gold Resource Corporation - CFO [25]

--------------------------------------------------------------------------------

Yes. As far as accounts payable, that's going to vary. And since we've been ramping up at Isabella Pearl and we don't yet have sufficient revenues, you're going to see that being up a little bit higher. And now we're kicking into full mining mode. So you'll see that. In terms of inventories, same thing. We added almost $5 million of inventories mainly at Isabella Pearl. We also had about $1.5 million of dore inventory in Mexico, which we're not likely to continue to have. That pretty much flowed all the way through to sales shortly after the end of the quarter. So that was more of a timing issue. But yes, inventories will be higher because we're going to have a lot of pad inventory until sales get kicked into full mode in Isabella Pearl.

As far as operating leases, the lease accounting, basically all public companies have to pick up this new pronouncement as of January 1. We implemented it. Basically we have to look at all operating leases that qualify, and that's virtually anything a year or longer. As a lease that we have to put on the balance sheet, we had to determine basically the value of what they call a right-of-use asset. What it amounted to was about $13 million, and you'll see that almost $13 million on a line item in the assets section. Unfortunately, in the liabilities section, you've got a separate short versus long term. And of that $13 million, $8 million of that went as a current liability, which one might say it kind of distorts what we really owe because we don't owe it at this point in time, but we will pay out that over the course of the next year.

So that's basically the operating lease explanation. It's virtually just an accounting matter. It doesn't change the cash that we'll put out under our contract mining agreement whatsoever. But it does bloat up our assets and liabilities, so it just makes the balance sheet look bigger, but not necessarily better.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [26]

--------------------------------------------------------------------------------

Yes, [Mark], I also might add that for those nonaccountants like myself listening to this, the primary driver of the $8 million John referenced is the Ledcor mining contract and that being that we have that contract that's over 12 months triggered this. So now we have to put that -- we have to now account for that since this pronouncement January 1. So the new regulations, so to speak.

--------------------------------------------------------------------------------

Unidentified Analyst, [27]

--------------------------------------------------------------------------------

Okay, I can get that. All right. That was good, John. That really made it a little bit clearer. And especially with the new mine, all those kind of incidentals, lime and whatever all you're putting on that pad have that inventory. [AEP], I understand that you want to speed that out. And [PMX], okay. One other question pretty quick. And I could be wrong. Being a shareholder for quite a while but, I thought we were done with the Aguila open pit mine turns, apparently not.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [28]

--------------------------------------------------------------------------------

Yes, the Aguila is a gift -- the open pit is a gift that keeps on giving. We've been mining that on a small scale for a very long time on and off, and we think we're done and then we'll go in and do a little more exploration and find some additional grade. And so we are mining that. So yes, it's a small amount, but technically, we have 3 mines in Mexico and now one in Nevada.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

And we'll take our next question. Caller, your line is open.

--------------------------------------------------------------------------------

Unidentified Shareholder, [30]

--------------------------------------------------------------------------------

Yes, [Bryan Savage], a shareholder from Chicago, Illinois. I just had one question. Why was the production cost -- seems a lot higher as a percentage than it was in the previous quarter?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [31]

--------------------------------------------------------------------------------

John, do you have an opinion on that?

--------------------------------------------------------------------------------

John A. Labate, Gold Resource Corporation - CFO [32]

--------------------------------------------------------------------------------

Yes, well, that's directly related to the increased throughput to get higher milled tonnes through the mill. And I think that was about a 17% increase and production cost increased about 14%. So it's fairly direct -- directly related to our production. Now because we did lower grade that we were processing, production held pretty constant and cost did increase. So there is quite an impact to the grades. And in terms of production costs, we'll continue to have higher costs as long as we have the higher throughput. But again, the grades, as Jason has already explained, will be changing over time.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [33]

--------------------------------------------------------------------------------

Yes, [Bryan], let me just add to that, Bryan , in the past, I don't get too focused on one quarter as opposed to the other prediction. And here's why, it was not too many quarters ago we were negative cost. That was a function of the high-grade base metals that we were in at that particular quarter and the fact zinc hit a 10-year high. So costs obviously vary, but on balance, we continue to be a low-cost producer.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

(Operator Instructions) We'll take our next caller. Your line is open. Please go ahead.

--------------------------------------------------------------------------------

Unidentified Shareholder, [35]

--------------------------------------------------------------------------------

This is [Bill Casey], shareholder Tucson, Arizona. And first to say, commendations to you for keeping on schedule, including getting all the permits with the Nevada mine. That's excellent, good news to hear. My question is briefly looking at first quarter results compared to first quarter of last year, comparisons were not favorable. I didn't hear any comment on that. I would appreciate some comments and explanation of what accounted for that.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [36]

--------------------------------------------------------------------------------

Sure. Well, I think some of it we addressed in the previous caller's question in they're saying what about costs. And any given quarter can drive those costs up or down like I mentioned just a moment ago. We used to be negative several hundred dollar cost. So it's a function of where we are in the mines, not to regurgitate everything I said earlier in the call. But we are deep in the epithermal system with high-grade base metals, and there are still precious metals there. But as we mine upwards in Switchback, we're going to get into different grade and that will change things over time.

So I guess that would be my answer, it's just a function of where we're mining. But I don't want to lose sight of the bigger picture. We're focused now on ramping up in Nevada. We're focused on announcing commercial production, and we're focused on increasing our annual global gold production. That'll be the catalyst when we show the market what we can do. And I think that's the growth catalyst I think everybody should be focused on. Once we hit our stride there, it's not -- everybody expects dividends to go up and that'll be the next catalyst beyond that. So yes, quarter-on-quarter, year-on-year, you have some variation, but we are in an exciting growth phase and I don't want to have some quarter-on-quarter comparison shadow that. And that's the most important thing.

--------------------------------------------------------------------------------

John A. Labate, Gold Resource Corporation - CFO [37]

--------------------------------------------------------------------------------

Jason, I might also add that the quarter last year was unusually favorable from a base metal point of view and that the prices were considerably higher. We had some positive adjustments that came into the first quarter of 2018 as well. And you'll see that was the quarter where we had negative costs per ounce sold. And as good as we are, that's not likely to continue.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [38]

--------------------------------------------------------------------------------

Yes, another thing that John triggered something that's important for everybody to hear, last year, we had one of the most favorable concentrate buyers' terms that we ever have. And this year, the whole industry got beaten up. And we don't drive that discussion. The big base metal producers drive those negotiations and set the tone and set what we get paid basically. And so we also went from last year getting paid on some of the best terms we've ever seen with the -- at Trafigura to this year were not so good. And on top of that, we actually moved our copper over to Glencore, so we're now selling to Trafigura and Glencore, we got better terms from Glencore on the copper. So that's a big factor too. The metal prices are less favorable this year to all mining companies as far as sales go.

--------------------------------------------------------------------------------

Unidentified Shareholder, [39]

--------------------------------------------------------------------------------

Okay. Just one follow-up. With the good news recently -- good outlook for the company, any comments on why the stock price seems not to be reacting (inaudible) expect?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [40]

--------------------------------------------------------------------------------

That's a great question. And if you look at our news flow, tremendous news flow over the last month, a news flow that one would think would increase the share price. Having said that, my screen and I'm looking at it right now, miners are mostly red, HEC was down 4%, Fortune at almost 3%. We're down 5% right now. Most of the miners are red. This is a very unloved space right now, and you can't buck that trend no matter what kind of good news you come up with to some extent. So it is what it is. I don't have the answer for you, I don't think anybody does. I would have a crystal ball if I did, right? But the most important thing is that we are in production in Nevada, and we are building a successful operation there. It'll take care of itself. The share price will take care of itself. The space will ultimately get some attention at some point and onward and upward. But yes, I can't answer that.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

(Operator Instructions) And we'll move to our next caller. Your line is open. Please go ahead.

--------------------------------------------------------------------------------

Unidentified Analyst, [42]

--------------------------------------------------------------------------------

[Wex Junes] here. I am calling to ask a little bit of color for the electrification project. It seems like that got done pretty late in the quarter, and was just wondering if you got any contribution from that? And if not, with the increased throughput down in Mexico, what is the forecast for how much that might add to our earnings for the balance of the year?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [43]

--------------------------------------------------------------------------------

Yes, we are very proud that after a 5-year arduous project, being a grid power in Mexico, we finally hooked to the grid power in the first quarter, which is monumental for us. The estimated savings at this point is looking like $1 million to $2 million. To give you a sense for power on a cents per kilowatt hour, the grid is $0.13 versus the diesel, which is at $0.24. There is a diesel tax credit that we are still currently able to utilize and we're utilizing, and that put it at $0.16 per share -- excuse me per kilowatt hour. So there is talk that, that diesel credit may go away, and if so, we'd be looking at the savings between the differential of $0.13 versus $0.24, but as it stands now, it's a difference from $0.13 to $0.16. It will add several million, we estimate, but we didn't -- over time we'll see more of that impact.

Also, it's going to take time in that, some of the cost savings that I mentioned at $1 million to $2 million include the cost to replace generators. Generators only have a finite number of hours when you try to rebuild them, but they obviously have a finite number of hours and we found ourselves obviously running on diesel for so long we had to buy new generators on a consistent basis and rotate them in and replace the old ones. We don't have to do that anymore. So those costs obviously will be seen over a longer term, but a couple million is a good target I think as far as cost savings. Obviously if they do away with the diesel, which the new President and they sure might, there's a good chance they do away with that diesel tax credit. Good for us to finally getting into the power grid because we would have gone from $0.16, up to $0.24. Now if they do away with it, it doesn't matter. We're at $0.13. Did that answer your question?

--------------------------------------------------------------------------------

Unidentified Analyst, [44]

--------------------------------------------------------------------------------

Yes, given the figure, the petroleum production down in Mexico, I think that's probably something that we're going to see as far as the increases. Another question regarding the -- I'm trying to understand it, is it ongoing process where we are doing the third party refining? And is that -- what's the schedule for getting production out of that? Are we waiting for more to ship up there? Is there a step in process now? Can you just kind of give us a little color on what you see as the procedures of going forward as far as the third party refiner?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [45]

--------------------------------------------------------------------------------

Sure. Every Tuesday we have an Isabella Pearl conference call at 9:00 a.m. and in the one we just had we discussed this and we would like to be in a position to ship 2-3 times a week. And once we get stable doing that, that'll be good for us.

--------------------------------------------------------------------------------

Unidentified Analyst, [46]

--------------------------------------------------------------------------------

Did they have anything of ours in contract now? Or are they waiting for that?

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [47]

--------------------------------------------------------------------------------

As far as right this second, I don't know. I can't answer that. Whether it is being shipped there, I don't know. But the goal is to have it 2 to 3 times a month and it ships out to Utah they process it. What's great about this group we're using is that we get the carbon back. We looked at other groups and in their process, they destroy the carbon, which is quite expensive. So it didn't really make that much sense, but this group we actually get the carbon back, and so it ships back and goes back to the circuit. So it's really reasonable and it allows us to be producing gold now and so great. And that's terrific. And then we ship the dore to Johnson Matthey, which is now El Saeed, and El Saeed has received our first gold. So money's coming in from that.

--------------------------------------------------------------------------------

Unidentified Analyst, [48]

--------------------------------------------------------------------------------

Okay, that's great. And Greg, if you could give me a little color that you had an option in Reno or going to Salt Lake and that the carbon was the hooker for that, so I'm assuming that in addition to being ecologically been more friendly and that net out on a cost basis to be favorable to recover the carbon with the perhaps higher refining costs.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [49]

--------------------------------------------------------------------------------

Okay. I guess I'm not following you. Is it better just to stay with the carbon? Is that what you're saying?

--------------------------------------------------------------------------------

Unidentified Analyst, [50]

--------------------------------------------------------------------------------

No, no. I'm just saying, you're retrieving the carbon with a process we're using now.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [51]

--------------------------------------------------------------------------------

(inaudible) savings. But you know in a (inaudible) carbon, it's very expensive. And so to have that destroyed, it just makes it far less attractive. But this group in Utah actually gives you the carbon back, so it made far more sense. It was a no brainer. And we don't know (inaudible) at this point. And so -- go ahead.

--------------------------------------------------------------------------------

Unidentified Analyst, [52]

--------------------------------------------------------------------------------

I'm just saying, so the point was, basically, you get the carbon back and you get the gold refined, and the net-net is as good as it would have been if you were just (inaudible). The leach process to the point that you would be shipping it on to the next -- to the actual guy that's punching out the gold.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [53]

--------------------------------------------------------------------------------

Okay. To the refinery, you mean?

--------------------------------------------------------------------------------

Unidentified Analyst, [54]

--------------------------------------------------------------------------------

Right.

--------------------------------------------------------------------------------

Jason D. Reid, Gold Resource Corporation - President, CEO & Director [55]

--------------------------------------------------------------------------------

Yes, I guess I'm not 100% following you, but all I could say is, it's very attractive to the (inaudible) third party. This is just a no brainer. Yes, and that's what we're doing.

Okay, I do think we've gone over time. So if you do have calls in here in the queue, I apologize, but I think we're 7 minutes over time. Feel free to call the office here, and I will field any additional questions anybody has. But with that, thank you, everybody, for their time on the conference call and for all the shareholders out there, it's a pretty fun time. We reported our first gold in Nevada, pretty monumental. So we'll talk to you next quarter. Thank you very much.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

This does conclude today's conference. Thank you for your participation. You may now disconnect.