Gold Resource Executive Insights: Defining Classifications, El Rey Negotiations
On Friday, Gold Resource Corp (AMEX:GORO) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.
Jason Reid – President: The next question is from Josh Elving of Dougherty & Company. Do you have any color on or can you help me understand how the resource gets divided among the classification of measured, indicated and inferred?
William Reid – Chairman and CEO: Sure, this is Bill. I’ll take this. There are certain definitions for measured, indicated and inferred. However, the reality is it boils down to a lot of subjectivity with regards to the engineer that is actually doing the work. How he feels about projecting out the mineralization its continuity and I think in this particular case, most of what was classified as inferred where most of the ounces were and indicated which some of the ounces. Now I could certainly that to me it might be more indicated, the way I see it, a little bit of inferred, but it doesn’t really making any difference at this point in time. This was our first resource report. We’re going to build on this and with the history of production, I think maybe next time around we’ll be able to move several of these criteria from I indicated deferred maybe up to measured, indicated. So there’s a lot of subjectivity in it, but that’s the way it’s classified at this point in time.
Jason Reid – President: I might add that for us or for me the most important aspect of doing the 43-101 was third-party confirmation for the market that we have a very high-grade deposit and then that’s clearly the case. Moving on to a question by (Alf Ellison) individual shareholder, he has several questions, have you drilled much step-out drilling since October 31 cut off date?
William Reid – Chairman and CEO: We all want the 43-101 to grow. Okay, we’ve actually had a lot of drilling since October 31, of course a lot of that has been for mining development purposes, that’s the number one priority, if the miners and the engineers need to know what’s out ahead or needs to plan or raise several other aspects of underground development and they need some information. Those drills will be used for that. When they are not being drilled for development and mining purposes, we have stepped out and we’re starting to accumulate data and drilling on the expansion and we may have some press releases obviously in the future relating to that. We are – the way I look at it is, this first drilling, the first 500 meters and we didn’t exactly drill completely in the whole 500 meters, is in start of this deposit, and even using Pincock, Allen & Holt, we got four or five years, we think it’s seven years. But anyway you look at it, we have the ability at this point now to be producing generating the cash flow and have time to expand this deposit, which we think will grow considerably. So we are very excited about getting to the point where we can really expand this deposit.
Jason Reid – President: I will jump in here too. To be clear, the deposit does remain open on striking debt. So we are very excited to continue to test the extensions. Second question, I wonder when you expect to update the NI 43-101 again?
William Reid – Chairman and CEO: Well let’s just get the first report out first, and then we will be working with that over a period of time, with additional drilling, as well as historical comparison from drilling to the actual mining, which at this point, I think confirms to a large extent, what we believe is there. So with that historical mining and it (takes) time around taking a look at that with regards to the resource report, we think we will of course improve things and build on what we have had so far.
El Rey Negotiations
Jason Reid – President: Any news on how negotiations are going in regards to El Rey? I will take this one. We continue to work with those communities around El Rey to move that property forward, with the sensitivity of us being a visitor in their land. So we feel the best way forward, is one of open communication, respect and patience, as opposed to pushing an agenda for immediate gain. We are optimistic we are making progress in that regards. Moving onto a question by (Jay Sauter of Paso Limited), could you please lay out a clear path your target of 200,000 ounces for 2013, how many tons per day, what grades are you expecting, what are mill expansion milestones, does reaching this target require further exploration success?
William Reid – Chairman and CEO: Okay, I’ll take that. First of all, having additional further exploration success is not required for us to reach our targeted 200,000 ounces. As you’ve heard me say before, I believe the function of the mine more than the mill will determine whether we have, when and where we reach the 200,000 ounces. In general terms and because you can’t pen down exact numbers, that we need to get 1,200 to 1,400 tonnes per day out of the mine, the reason I say 1,400, you got to always have the ability to have a little bit more than the amount you want to run through the mill, so that you can build a stockpile. So, the mines got to get up to 1,200 to 1,400 tonnes per day. There’s still lot of work to get to that. I think our development declined to the Southwest, where we’re putting ourselves in a different portion of the ore body and once we can start developing that portion that will give us the ability to bring more tonnes out, but there’s always a lot of infrastructure associated with mine like I mentioned ventilation and many other things. So, the real sensitivity, which I have stated clearly before is the mine and not the mill, the mill that we have right now a nominal numbers should be able to do 440,000 tonnes year. The mill doesn’t really need to be ramped up so much. In other words, last year we were looking at 600 tonnes per day, this year we’re looking at 900 tonnes per day, then of course it needs to go to 1,200 or so tonnes a day, but any time you reach or approach the limit of a mill, you start to lose efficiencies or whatever, so what we’ve been doing over this period of time which you’re well aware of was we’ve been upgrading pretty much all aspects of the mill, not all of them are upgraded yet, but with the ability to have the flexibility of doing maybe a little be more than 1,200 tonnes per day, but we increased the crushing plan, we increased the generator capacities, we’ve increased our cleaner flotation cells, we’re in the process of looking at several other important parameters to increase the capacity of the mill, but once again to me, the sensitivity of achieving that 200,000 tonnes a year is a function of how many times we can get out of the mine. We believe the grades we have in our mine will give us that ability to reach the 200,000 ounce level.
Jason Reid – President: We had several questions from various shareholders with the theme of the secondary listing, asking for additional color and what are some of the company’s considerations, so I’ll speak to that. One of the considerations regarding the Canadian listing is the pushback we received to the idea of doing a listing but not doing an equity offering in Canada, so the shares will be available to trade in Canada. Now we worked hard to achieve a tight capital structure enabling a meaningful dividend and we’re all enjoying that dividend and we do not take lightly a possible compromised or capital structure just for new listing, so these are some of the considerations that we’re looking at. If we move forward with the Canadian listing without an equity offering Canadian funds would have to buy shares from the New York Stock Exchange. They can do that right now. So and we are free to market in Canada to facilitate market interest from Canadian investors to buy on the New York Stock Exchange, again just throwing out some color just some of the considerations. So having said that, the Canadian listing is still very much in consideration, but we’re also considering other markets. We believe in the benefit of a secondary listing and are evaluating all our options.
Jason Reid – President: A question from (Alan Pritchard) an individual investor. Please explain the recent disposal; I guess this is to you Bill, 600,000 Gold Resource Corporation shares that was reported in the SEC Form 4 April 30?
William Reid – Chairman and CEO: Sure, I generally don’t care to speak about my personal situation; however, this is not an issue. Everybody is aware of the lifetime gift for state planning purposes is this year of $5 million per individual. That lifetime gift may not be at the $5 million level next year. So the disposition of these shares were gifts. I did not sell those shares even though there are I think, there are some people who think that we did, if you look at the actual filing you’ll see that the nomenclature or the symbol is that these were gifted. So these are gifted shares for state planning purposes, and they were not sold.
Jason Reid – President: (Arthur Robb) asks what is the current tonnage per day process through the mill, what is the expected tonnage per day by the end of the month?
William Reid – Chairman and CEO: We report quarterly. We are not going to be able to and we won’t give a day-by-day throughput or tonnage situation. We appreciate the interest, but we just have to really report by the quarter, because there are so many things involved, other than just tons per day. So thank you Arthur, but we just can only comment on the quarterly basis.
Jason Reid – President: Question from John Doody of Gold Stock Analyst, he says congratulations on the great quarter. Reaching the 1,200 ton per day average milling target for 2013 requires continued ramp up of the mill in 2012, and you give the forecast milling rates for the next three quarters of 2012?
William Reid – Chairman and CEO: Sure, and I want to clarify it is kind of like what I said before. We don’t really have to ramp up the mill. For instance, last year, we only ran at an average, but we ran at 600 tons per day. When it was time to go in January, we basically could just jump to 900 tons, although the mill will do that, and over a week or 10 days, got it all smoothed out. But we had to back off because the mine was not delivering the ability for us to do 900 tons a day. So once again, with regards to our production levels and achieving our targets, it’s really a function of the mine. We don’t need to ramp up the mill through 2012 as a matter of fact I would say our average for 2012 is our target which will be — our target is 900. We hope we achieve that but we won’t really take the mill above the 900 because we don’t need to for 2012 and then we expect to, you can almost think of it as flipping a switch, it’s just all the equipment can take the higher tonnage, but it’s once again it falls back on the mine and its ability to deliver the tonnes, but as you can see we’re making progress. We are now being able switch from the 10 ton trucks to and it’s not just a matter that they are 10 tonnes, those trucks aren’t really made for the hard work of climbing up a decline or incline, but once we get the actual underground mining trucks then I think we will not have any issues with regards to trucking because they’re made to go up such ramps and carry a lot more tonnage. So we’ll continue to work our way at each aspect of what it’s going to take for us to achieve our 200,000 ounces in year 2013.
Jason Reid – President: The next question and I apologize if I get your last name wrong, (Sanjeev Pillai), individual investor. Congratulations on the great quarter as a long time shareholder thanks to Bill and Jason for an excellent stewardship of company and regular growing monthly dividend. Did Coral buyback any shares during the first quarter, if yes how many shares were purchased. The answer is no. As far as our buyback policy is concerned, we evaluate that when there’s any retrenchment and we’ll go in and buy at that point. The second question, there seems to be a discrepancy between the number of shares mentioned in the 10-Q filing on 5/10/12 and that mentioned in the current earnings press release which one is correct. I believe the discrepancy is due to an employee in Mexico that exercised options between those dates of the end of quarter, March 31st and the filing of May 10th and therein lies that this is the difference.
William Reid – Chairman and CEO: Let me just clarify Jason, it’s not a discrepancy. They are both correct. It’s just a different point in time. So in other words, the filing of the 10-Q with regards to that has to be after the March 31, so as of the March 31st that number of shares outstanding was correct, but the press release is as of just filing the press release day before yesterday. There were additional shares due to that exercise of option, so basically they’re both correct.
Jason Reid – President: Then the second particularly, the average gold and silver grade continues to show a significant increase with the previous quarter and year. Can you provide some color as to whether you are continuing to see the trend of increasing gold and silver grades as you go further into the ore body? Are grades increasing at the same rate or is the rate of increase leveling off?
William Reid – Chairman and CEO: This is an absolutely fascinating and exciting ore body that it’s truly – every day we see grades that didn’t — certain places are pretty phenomenal. Just to give you little color, the last couple of days, I saw that the zinc grade through the mill was one day 7% and the other day 8%. That’s obviously above our average and that’s not going to be the average, but on those particular days, the zinc was quite high and the lead I think was above 3%, so we do believe that as we go into the ore body that it does get richer. Now, I can’t really comment on the rate of change, but so we’ve been mining some areas recently that seem to have more gold and little less silver, but then there’ll be other areas where the silver will really stand out. So it’s very exciting as a geologist to see the character of this ore body, which is quite exciting. I might just mention that our cash cost is helped by our base metals and because we can use the revenue from the base metal to offset our cost. I believe when we – like our last, this first quarter we’re reporting on the zinc grade was like 3.59, you know, I expect to see that get up to 4.5 or 5 and if that is the case, then that’s going to help reduce our costs and same thing with lead, it’s 1.7 here, it could increase, and so should the copper. As those base metals increase, that could help move our costs down. Equally as the average grade of the gold increases, which looks like it’s doing right now and the silver is excellent also, so we do believe that we’re going to reach a steady state that will be closer to the averages we stated in our mineralized material estimate, but if it’s an exciting the ore body and it’s amazing some of the grades that we get and see on a daily basis, but of course at the end of the day it’s all about averages, but this is a high-grade deposit and we expect those averages to be pretty good.