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Monday, 12 August 2013
Gold Resource Corp says business model will help company prosper "after the storm passes" - UPDATE
***Updated with management comments from conference call***
Gold Resource Corp (NYSE MKT:GORO) reported Friday that second quarter production at its Mexico operations rose 42 per cent year-over-year as cash costs increased and realized prices dropped in line with the mining industry, though the company said it expects production costs to drop as it benefits from higher mill throughput in the future. It also addressed a recent sellof by one of its largest shareholders, opining that the sale of its stock had nothing to do with the company, but rather with the current lackluster mining environment.
The U.S. based gold producer, which produces from its El Aguila mine in Oaxaca, Mexico, posted 20,574 ounces of gold equivalent production for the three months that ended June 30, compared to 14,488 ounces a year ago. The company stood by its full year production target for between 80,000 to 100,000 ounces of gold equivalent.
The planned expansion of its Aguila mill to a nominal 1,500 tonnes per day progressed well during the quarter, according to the company's statement, with the target to complete the project by year-end. Last month, Gold Resource Corp said that its goal was to keep mill operations going through the majority of the construction phase, with minimal shutdown days for equipment installation. Equipment is expected on site by the end of the month.
During the second quarter, the company recorded a net loss, with the gold miner citing the mill expansion as the main reason for the loss on a conference call this morning following the release of the quarterly figures. "We won't see the true effect of the expansion until the mill is able to run at the targeted 1,500 tonne per day rate. We expect to see costs go down as rates through the mill go up," president Jason Reid said on the call, adding that the company is continually looking at areas where it can reduce overall costs.
The company sold 19,992 ounces of precious metal during the quarter, at realized average prices of $1,386 per ounce of gold and $23 per ounce of silver. Precious metals prices dropped dramatically in the second quarter, with the price of gold tanking 23% during the period, hurting miners globally.
The gold and silver prices represent a decline of 13.5 per cent and 14.8 per cent, respectively, from the second quarter of 2012. “With the decrease in precious metal market prices, and the gold-to-silver ratio working against us this quarter, our team was still able to deliver respectable production results," said Reid in the statement released Friday.
Total cash costs were also higher, at $645 per ounce of gold equivalent, including a 5 per cent royalty, compared to $509 per ounce in the same period last year. Reid said to analyst and investors on the call that he realizes the costs are unacceptably high, with the company "stepping up" to build increased capacity.
The company swung to a net loss of $1.37 million, or a loss of 3 cents per share, compared to a net profit of $4.13 million, or 7 cents per share, a year ago. Net sales fell to $26.66 million from $30.7 million, while total costs and expenses increased to $11.91 million from $9.75 million, with construction and development expenses comprising $5.6 million of the total.
Reid said that excluding the mill expansion expenses, and some other items, it would have shown a profit for the most recent quarter.
The gold miner, with cash and equivalents of $30.4 million at quarter end, realized $12.5 million in cash flow from mine site operations during the latest quarter, and distributed dividends of $6.4 million or 12 cents per share for the three month period, after cutting its monthly dividend in half earlier this year in response to the precipitous precious metals price drop. Since declaring production more than three years ago, it has returned over $86 million to shareholders in monthly dividends.
The company said it continues to target increased production levels in anticipation of increased milling capacity later this year, expecting a decrease in production costs with higher mill throughput.
Gold Resource Corp also responded to queries over its largest shareholder, Hochschild Mining, reducing its stake by more than 20 per cent in the junior gold company last month. "As far as I am concerned, they [Hochschild] needs liquidity in a volatile market to focus on their own operations and issues," said Reid on the conference call, highlighting that Hochschild has been a long term supporter of the project since 2008 and has recently announced pay cuts going as high as the chairman and CEO.
"They are tightening their belts after the precious metals downturn, and this is the primary reason I believe they are selling our stock," he reassured, saying that additional cost savings measures could be in the cards for Gold Resource Corp should market conditions necessitate.
Reid concluded the call by calling on the precious metals mining industry as a whole to adjust their ways, to seek return on capital and investment. "We're moving the company forward to a new level of production." Its unique business model, he said, which continues to distribute a "meaningful dividend", will not only weather the storm, but help the company prosper after the storm passes.
Separately, the company also announced the dismissal "with prejudice" of a class action lawsuit against Gold Resource Corp, meaning the plaintiff cannot allege the same claims against the miner in a new suit.