Gold Resource Corporation (AMEX:GORO) Q4 2023 Earnings Call Transcript
Gold Resource Corporation (AMEX:GORO) Q4 2023 Earnings Call Transcript March 14, 2024
Gold Resource Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the Gold Resource Corporation Fourth Quarter 2023 Financial and Operating Results Conference Call. At this time, all participants are in listen-only mode. Following managements presentation, there will be a question-and-answer session. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, March 14, 2024 at 10:00 a.m. Eastern Time. I will now turn the conference over to Chet Holyoak, Gold Resource Corporation Chief Financial Officer. Mr. Holyoak, you may proceed.
Chet Holyoak: Thank you, Joelle, and good morning to everyone. On behalf of the Gold Resource team, I would like to welcome you to our conference call covering our fourth quarter 2023 results. Before we begin the call, there are a couple of housekeeping matters I would like to address. Please note that certain statements to be made today are forward-looking in nature and as such, are subject to numerous risks and uncertainties, as described in our annual report on Form 10-K and other SEC filings. All financial measures are unaudited. Audited financial statements will be presented in our 2023 Form 10-K, which will be filed at a future date no later than April 1, 2024, once our external audit firm, BDO USA, LLP, completes their audit procedures.
Please note, all amounts referenced during this presentation are in U.S. dollars unless otherwise stated. Joining me on the call today is Allen Palmiere, our President and CEO; and Alberto Reyes, our Chief Operating Officer. Following Allen, Alberto and my prepared remarks, we will be available to answer questions. This conference call is being webcast. For those of you joining us on the webcast, you can download a PDF copy of the conference call slides. The event will also be available for replay on our website later today. Yesterday's news release that was issued following the close of the market has been filed with the SEC on EDGAR and is available on our website at www.goldresourcecorp.com. I will now turn the call over to Allen.
Allen Palmiere: Thank you, Chet, and good morning, everyone. I'd like to thank you for joining our Q4 conference call. I'd like to address a few points first, and then Alberto will address operations, followed by Chet with the financial results. Following their remarks, I will then make a few closing comments, and we will take questions. The fourth quarter was another challenging one for us. As previously guided, mine sequencing resulted in lower ore grades. While this was always in the plan for the latter part of the year, the unexpected strengthening of the peso and the lower than forecast zinc -- price of zinc adversely affected our byproduct revenues. While commodity prices and foreign exchange rates are beyond our control, we are very focused on those factors that we can control, including costs and productivity.
During 2023, we performed an assessment of our workforce in Mexico that ultimately resulted in a reduction of approximately 10%, and we will continue to evaluate for further reductions. Additionally, we renegotiated certain supply and service contracts that resulted in cost reductions. We obtained certain practices underground to reduce mining costs, reduce dilution and increase productivity. Concerning our processing plant, we are doing test work to attempt to improve recovery while maintain and concentrate quality. Cash continues to be tight and remains our primary focus. We published a preliminary economic analysis for the Back Forty Project last year, which demonstrated the robust nature of the project and confirmed our assumptions when we first acquired it.
The project carries some life of mine NPV at a 6% discount rate of approximately $215 million with an initial capital requirement of $325 million. This study demonstrated the economic viability of the Back Forty Project. Now please turn to Slide 4, and I'll provide a brief update on our Q4 exploration results. Our exploration program continues to produce good results, which will result in higher grade material in our reserves and resources and will increase the mine life. In the past 1.5 years, we had discovered areas of mineralization knowing as of Three Sisters, Gloria, Marena and a continuation of Splay 31, which had been previously identified, all of which contain high grade intercepts and will be part of the future of Don David. As you know, exploration has been the major use of cash over the past two plus years, but the results are more than sufficient to justify the expense and point to the need and desirability of additional drilling in the future.
I will now turn the call over to Alberto for an update on the operations.
Alberto Reyes: Thank you, Allen, and good morning to everyone. I'm thrilled to share our latest achievements, indicative of our strong commitment to cultivating a mature health and safety culture. We're proud to announce that our leading indicators continue to surpass expectations, a testament to the dedication and outstanding participation from our leadership team. I'm pleased to report that our collective efforts have resulted in our lowest LTIFR yet, extending at a rate of 0.2, surpassing our yearly target of 0.25. This milestone underscores our relentless pursuit of safety excellence and the profound impact of our team's diligence and collaboration. The challenges persisted in the fourth quarter with inflationary pressure, fluctuating exchange rates and modifications to the operation procedures, posing ongoing obstacles.
However, our proactive approach to cost saving initiatives remained pivotal in ensuring the continued success of our operations. Despite these challenges, we bolstered our resilience to endure inflationary pressures and exchange rate fluctuations more effectively this time around. In response to the prevailing conditions and with full support from the communities and suppliers, we successfully negotiated additional cost saving measures. These measures have helped alleviate financial strain and position us for greater stability in the face of economic uncertainties. Production for Q4 reached 111,000 tonnes. This figure is lower than Q3's achievements. Although, mine generated 118,000 tonnes, the processing plant faced a major change to the way we collect the water for the process.
As of December, the TSF has been prepared for reclamation and no longer serves as a vast water storage reservoir where reagents can dilute quickly. As such, the optimization of the different flotation circuits was temporarily destabilized and a lower throughput was necessary to help keep consistency. Processing operated at an average of 1,380 tonnes per day, and our 2024 targets have been adjusted to reflect the change. I am pleased to report that we processed nearly 111,000 tonnes of ore, sold approximately 3,760 ounces of gold and 259,000 ounces of silver, equating to over 6,770 equivalent ounces. In addition, we sold 327 tonnes of copper, approximately 820 tonnes of lead and more than 2,180 tonnes of zinc. For the year-to-date through December 31, we processed nearly 460,000 tonnes of ore, sold approximately 18,500 ounces of gold and over 1 million ounces of silver, equating to over 31,000 gold equivalent ounces.
We further sold over 1,230 tonnes of copper, approximately 4,500 tonnes of lead and close to 11,000 tonnes of zinc. Turning to Slide 6. DDGM's capital cost faced difficult obstacles during 2023, including but not limited to maintaining cash flow while introducing more development to target higher NSR stopes beyond 2023. This adjustment was iterated numerous times to ensure optimal returns on investment. The total underground development for the quarter was approximately $850,000 and $5.8 million for the year. As for the total sustaining capital amount, the company spent $1.6 million and approximately $11 million for the quarter and year, respectively. Promising near mine exploration results also influence capital growth expenditure. The team quickly shifted focus and prioritized the models to impact -- the impact of the new results and the signs required in 2024 to align exploration and development efforts to the right targets.
Despite modifications, Q4's total capital and exploration investment came to $2.2 million and a total of $17.2 million for the entire year. This figure is within the range that was provided in guidance between $15 million and $18 million. In closing my update on operations, I'd like to acknowledge the resilience and determination of our team as we reflect on the challenges faced in Q4 2023. Despite the obstacles, we remained firm and emerged stronger, demonstrating our ability to adapt and persevere in the face of adversity. Looking ahead to 2024 and beyond, we have carefully accounted for the challenges that lie ahead in our strategic planning. We are confident that the measures we've implemented and the lessons we've learned will position us for success in the coming years.
I'll now pass the presentation over to Chet to discuss the financial results.
Chet Holyoak: Thank you, Alberto. Turning to Slide 7. During the fourth quarter, we realized a small decrease in our cash balance, and we ended the quarter with $6.3 million. The decline in cash is primarily due to increased cash costs at DDGM, which we will discuss in just a moment and to our exploration program, as was mentioned earlier by Allen. Cash used in operating activities was $5.2 million for the year and includes over $4.5 million spent on exploration in Mexico and over $1.5 million spent in Michigan related to the Back Forty studies. For the fourth quarter 2023, we reported net losses of $3.1 million or $0.03 per share. And for the full year, we reported net losses of $16 million or $0.18 per share. For the quarter, net sales of $21 million were 35% lower than the same period in 2022, due mainly to lower volumes of all metals sold.
Year-to-date net sales of $97.7 million were 30% lower than the same period in 2022, also due to lower volumes of all metals sold and significantly lower zinc prices. The lower zinc prices are also impacting cash cost per ounce, which we discuss on the next page. While production costs for the quarter and year of approximately $17 million and $76 million, respectively, are slightly lower than the prior year, the significantly lower tonnes processed along with gold equivalent ounces sold resulted in an unfavorable impact on unit costs, such as cost per tonne processed and cost per gold equivalent ounce sold. We will discuss this in a bit more on the next page. Depreciation for the period is largely in line with the depreciation for the same period in 2022.
Finally, mining gross profit is lower in 2023, primarily due to the lower sales, not being proportionally offset by lower production costs. Turning to Slide 8. We will discuss cash costs for the quarter and year. For the quarter, Don David Gold Mine's total cash cost after co-product credit was $1,397 per gold equivalent ounce and total all-in sustaining cost per gold equivalent ounce sold was $1,664 per ounce. For the year, Don David Gold Mine's total cash cost after co-product credits was $1,250 per gold equivalent ounce sold and total all-in sustaining cost per gold equivalent ounces sold was $1,630 an ounce. There are five key drivers related to the increase in cash cost per gold equivalent ounce sold: the first reduction in gold equivalent ounces sold; second, a reduction in co-product credits; third, the strengthening of the Mexican peso; fourth, treatment charges; and fifth, other production cost increases such as power and transportation.
The gold equivalent ounces are lower due to the lower grade ore and lower recoveries realized both during the quarter and year-to-date. The lower co-product credits were the result of lower copper, lead and zinc tonnes being sold as compared to the respective 2022 periods and the significantly lower realized metal price of zinc during the year. The Mexican peso has strengthened against the U.S. dollar in 2023. With approximately 60% of our production and capital costs originating in the peso, this has resulted in a larger-than-planned unfavorable impact on our costs. While the above-mentioned drivers have resulted in a negative impact, we have made positive strides in managing the costs that we can control, resulting in a decrease in total cash cost after co-product credits and total all-in sustaining cost per gold equivalent ounce sold from quarter three to quarter four.
While the drivers above also resulted in the company missing guidance on several key performance measures, we were able to stay within or exceed guidance on other measures such as safety, production, mine development and exploration. Allen, back to you.
Allen Palmiere: Thank you, Chet. Our share price, along with most of our peer group continues to languish. A producing mine in Mexico and a project having a $200 million NPV in Michigan are trading at prices that do not reflect the underlying value. We are not getting any recognition for the intrinsic value of our assets, relatively strong balance sheet and excellent technical and operating teams. The current environment has and will persist for an indeterminate period of time, and as previously announced, the Board of Directors and management engaged the services of Cormark Securities Inc. as a financial adviser to explore and evaluate strategic alternatives to unlock value for our shareholders. There is no certainty around the outcome, but we are confident that the process is necessary to ensure that we are acting in the best interest of all stakeholders. With that, I'll turn the call over to the operator for questions.
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