Gold Resource Corporation (GORO)

Q2 2012 Earnings Call

August 10, 2012 11:00 AM ET


William Reid – CEO

Jason Reid – President & Director



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Welcome to the Gold Resource Corporation second quarter earnings conference call. Gold Resource's CEO, William W. Reid will make a brief statement. Following Mr. Reid's opening remarks, there will be an email Q&A period. In order to efficiently respond to as many conference call participants as possible. The company asks callers to email their questions to during the conference call. Management will address submitted email questions during the Q&A portion of the conference call. Email question format should include the individual's name, organization type such as institution or individual investor and your question. This call will be recorded and posted to the company' website within three to five business days. Please go ahead Mr. Reid.

William Reid

Thank you. Welcome to Gold Resource Corporation's second quarter conference call. Since we began mining the underground high grade La Arista vein system, we have been progressively increasing our production. This second quarter however was not a record quarter like the first quarter. The market's response was brutal, but in my opinion overblown. That we reduced our production targets for this year to a range of 100,000 to 120,000 precious metal gold equivalent ounces, about a 16% decrease, achieving the 100,000 level this year with the 50% increase over last year's production. Building the company at a rate of 50% per year is a rare and positive achievement that I believe will be appreciated and rewarded by the market. The market's response also underscores the problem with short term thinking. Quarter by quarter obsession is problematic versus the reality of building the business which is longer term.

Any business, particularly an underground mine is a long term endeavor. We have demonstrated our ability to build and to execute. We have aggressively built the La Arista underground mine and have a strong cash flow to show for it. Even with half our targeted mill production this quarter, we achieved a great deal. We were profitable for the second quarter. We produced more gold than Q2 of '12 than we did in Q2 of '11. We paid for significant and increased development underground. We bought 1.3 million with gold and silver bullion to diversify our treasury. We paid the Mexican government, $8 million in estimated taxes. We paid the owners of the company, the shareholders 9.5 million in dividends. We accomplished all this and still added about 775,000 to our bank account this quarter over the cash we had in the bank at the end of last quarter.

Now, if we can do this with a quarter that is less than half our targeted mill production, consider the cash we will accumulate with achievements of our targeted quarter. This speaks to the cash generating power of this deposit and this project and with increasing cash; this management has certainly demonstrated its bias for distributions to the owners. The company has distributed dividends to the owners, the past 25 consecutive months and thus far, this year, had distributed about 33% of our cash flow from mine site operations. The company remains fully committed to dividends.

I had consistently stated on our conference calls and elsewhere that production is and will always be dependent on the development of the mine. An underground mine is by definition a challenge of constant development as you constantly mine. We have carried out these grueling demands since the beginning, they are not new and they will be with us till the end of the mine.

Now one of the main questions criticisms we have heard is why did you wait until after the quarter ended to release the lower production figures. Well we certainly did not expect going into this quarter that we would produce half of what we targeted. We had just come off our best quarter ever in Q1 primarily as a result of having developed strokes in our high-grade areas and we had seen days where the mill head grades were seven to nine grams gold or and 700 to 800 grams silver. When you have those kinds of days they can drastically increase production of metals for the month and ultimately the quarter in a short period of time. so even if the first month or even two months of the quarter of the low target, it is a fact that if you can bring in high grade to the mill for even one month, you can make a big difference to the quarter overall.

We were working on developing additional stopes in our high grade areas. At any point, had those stopes been able to come online, they would have changed the quarterly numbers drastically. It would have been incorrect to prematurely state we were going to have a below target quarter and they come back with the quarter that was not or not much low target. This is why we will only report quarterly reset our targets that because of the unpredictable nature of mining and especially in the new mine without much history, nobody knows in advance what the actual results will be. We expect to meet our targets more often than not but it is a fact sometimes we will not. As we have done with previous quarters, we announced our preliminary production as soon as we had finished the quarter and got comfortable with the calculated preliminary numbers.

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