Gold Resource Corp says Q2 production up 8% despite "challenging" quarter

*updated with CEO comments from conference call
Gold Resource Corp (NYSE MKT:GORO) said Friday morning that second quarter gold equivalent production grew year-over-year despite lower than targeted mill output and slowed development at its high grade La Arista deposit in Mexico.

The gold producer, which yields gold from its El Aguila operations in the southern state of Oaxaca, Mexico, said gold equivalent production rose 8 per cent over the prior year quarter, to 14,488 ounces.

This number is still less than half of what Gold Resource Corp targeted for the quarter, which prompted the company in July to reduce its full year outlook for production in the range of 100,000 to 120,000 ounces.

This compares to its prior guidance for between 120,000 to 140,000 ounces of gold equivalent.

CEO Bill Reid noted on a conference call this morning that achieving 100,000 ounces of output for the year would still represent a 50 per cent increase over last year's production.

For the three months that ended June 30, the company sold 17,211 ounces of gold equivalent, versus 13,097 ounces a year earlier. Average prices realized on sales during the latest period were higher for gold and lower for silver, at $1,631 per ounce gold and $27 per ounce silver, respectively.

“The second quarter was a challenge as infrastructure requirements slowed the development and stoping of high-grade ore zones at La Arista,” said Gold Resource Corp’s president, Jason Reid, in a statement Friday. 

“This resulted in processing diluted development ore and stoping from available lower grade ore zones.

"Even with mill production for the quarter below our target, it is still impressive that we were profitable, we paid $9.5 million in dividends to the owners of the company, and we were still able to put approximately $800,000 in the bank.”

CEO Bill Reid added that the company achieved "a great deal" in the period, which "speaks to the cash-generating power of the La Arista deposit and the El Aguila project."

Indeed, the company said net income totalled $3.6 million, or 7 cents per share, versus $3.1 million, or 6 cents per share, a year earlier.

Net comprehensive income, including a currency translation loss of $1.7 million, totalled $1.9 million, in the most recent period.

The gold producer generated a mine gross profit of $17.2 million, compared with $15.4 million a year ago.

Sales rose to $30 million, up from $20.7 million last year.

Cash costs were significantly higher, however, at $509 per ounce of gold equivalent, versus $303 per ounce in the year ago period. Total expenses and costs rose almost 13 per cent to $9.7 million.

“Our total cash cost per ounce of gold equivalent sold this quarter was high
as a direct result of the lower production," Reid continued.

"Had we achieved our targeted production of 30,000 gold equivalent ounces, we believe total cash costs would have been equal to about half of the $509 per gold equivalent ounce we reported."

Reid said the company believes the higher total cash cost number is "temporary", and will decrease with anticipated higher production in the "current and future quarters".

“We expect increased production from high-grade ore zone blocks between levels 7 through 10 prepared in the second quarter, which we are now actively stoping,” he concluded.

The company milled 59,928 tonnes in the latest quarter, compared to 40,194 tonnes in the second quarter of last year.

Gold Resource Corp, which initiated a physical gold and silver dividend program in April, paid $9.5 million to shareholders in dividends in the most recent period and converted $1.3 million of its treasury into gold and silver.

It also increased its cash position by $0.8 million from the first quarter, to $44.8 million. CEO Reid noted that 33 per cent of the company's cash flow from its mine site operations has been distributed so far this year.

The mining company has a 100 per cent interest in six potential high-grade gold and silver properties in Mexico’s southern state of Oaxaca.

Bill Reid said on the conference call Friday that the production of its El Aguila mine is dependant on the development mine, and that it is problematic to focus solely on quarter-by quarter results when faced with building a business that is longer term.

The La Arista deposit remains open at depth and along strike, and the company remains confident that it will add ounces with continued drilling.