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Gold Resource Corporation (NYSE: GORO): Strong Base Metal Prices Help Bolster Healthy 1st Quarter Balance Sheet

 -- Published: Thursday, 3 May 2018 | Print  | Disqus 

By Nicholas LePan,


As the market for base metals over the past year has improved, along with steady improvements in the price of gold, companies that have base metal production in addition to gold and silver are seeing the gains on their balance sheets.  Some even where the additional base metal credits reduce the total cash cost of gold production.  


Gold Resource Corp. (NYSE: GORO) recently reported its first quarter results of 6,647 ounces of gold and 425,884 ounces of silver, which along with base metal revenue generated $32.2 million in net revenue and $5.5 million, or $0.10 per share in net income for the quarter (all figures in US dollars).


The company, which has been mining in Mexico for eight years, is just starting to see "negative" cash costs come into play at the project in the last two quarters because of improved base metal prices, especially zinc.    


Benefiting from strong base metal production and sales, the company sold 10,275 precious metal gold equivalent ounces at a total cash cost of negative $316 per ounce, after by-product credits of copper, lead and zinc.


The company reports production numbers as "precious metal gold equivalent" of gold and silver. The company does not include base metals in its production numbers, but uses the revenue generated from base metals as a credit towards precious metal gold equivalent (gold/silver) production.  This is the source of the company's negative $316 cash costs. 


Average realized metal prices during the quarter included $1,342 per ounce gold compared to $1,215 per ounce in the same quarter in 2017 and $16.58 per ounce silver compared to $17.29 in the same quarter in 2017.  Total all-in sustaining cost per precious metal gold equivalent ounce sold is $347.


Production totals for the first quarter of 2018 included 6,647 ounces of gold, 425,884 ounces of silver, 385 tonnes of copper, 1,615 tonnes of lead and 4,793 tonnes of zinc. The company is maintaining its 2018 production guidance, targeting a plus or minus 10 percent production of 27,000 gold ounces and 1,700,000 silver ounces. 


Gold Resource is also developing the Isabella Pearl project in Mineral County, Nevada.  The company recently released its maiden mineral reserve for the gold project increasing its company-wide gold reserves by 135%. 


Proven and probable (“P&P”) reserves included in the Isabella Pearl reserve report include 2,694,500 tonnes grading 2.22 grams per tonne (g/t) gold and 13 g/t silver, equating to 192,600 gold ounces and 1,129,100 silver ounces. 


Metal prices used for P&P reserves were $1,222 per ounce of gold and $16.62 per ounce of silver.  Silver is not considered an economic mineral of interest in the maiden reserve report and is not considered as part of the project feasibility study; only a minor amount is planned to be recovered.  The company is in the  in the final stages of permitting and 2018 should see the commencement of mine construction.   


When combined with the company’s Oaxaca Mining Unit’s December 31, 2017 mineral reserve, company-wide proven and probable reserve tonnes now total 5,195,600, an increase of 108 percent, while gold ounces in the proven and probable category total 335,000, an increase of 135 percent.


As of December 31, 2017, it increased proven and probable reserve tonnes by 32 percent, extending its Oaxaca Mining Unit’s mine-life. The company is currently conducting drilling on the Arista and Switchback vein systems and believes it will add more reserves in the future.  


The company has about ~57 million shares outstanding and an annual dividend of 0.02 cents (paid monthly).  The company has returned $110 million to its shareholders in monthly dividends since commercial production commenced July 1, 2010. It just recently declared its 95th dividend. It also offers its shareholders the option to convert their cash dividends into physical gold and silver for delivery.  


The company will benefit significantly from any further price increases in precious metals and increases in metal reserves, however in the meantime base metals are maintaining a healthy and profitable balance sheet. 


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