Gold Resource Corp Q4 FY2020 Earnings Call

Thank you, Kaye, and good morning, everyone. On behalf of the Gold Resource team, I would like to welcome everyone to our year-end 2020 results conference call. Before we begin the call, there are certain housekeeping matters I would like to cover. Please note that certain statements to be made today by the management team are forward-looking in nature, and as such, are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings. On the call today, we have Allen Palmiere, President and Chief Executive Officer; as well as Kim Perry, Chief Financial Officer. Following their prepared remarks, they will be available to answer your questions. This conference call is being webcast. For those of you joining us on the webcast, you can download a PDF copy of the conference call slides from the Materials tab under the Ask A Question tab. The event will also be available for replay on our website later today. Yesterday's news released following the close of the market and the accompanying financial statement and MD&A contained in our 10-K have been filed with the SEC on EDGAR. Also, please note that all amounts mentioned in this call are in U.S. dollars unless otherwise stated. I will now turn the call over to Allen.

Thank you, Ann, and good morning, everyone. I want to thank all of the listeners for taking the time to join us. I look forward to outlining some of the results of the company from 2020. Following my opening remarks, Kim Perry, our CFO, will describe our financial results. I will then provide you with a high-level view of our plans for 2021 and a few closing remarks, and then we will take your questions. On December 31, 2020, Gold Resource Corp. completed its spin-off of the Nevada Mining Unit to Fortitude Gold Corporation, a separate public company. The separation was completed by way of a pro rata distribution of the outstanding shares of the newly created subsidiary to our shareholders on December 31, 2020. I took over as CEO following Jason Reid's departure to run Fortitude. And early in the new year, we added three new Independent Directors, Ms. Lila Manassa Murphy, Mr. Joe Driscoll and Mr. Ron Little, to the Board of Directors. These additions to the company's leadership add the expertise necessary to focus on unlocking the value of our Mexican assets while implementing best-in-class governance. Turning to our Mexican operations, I'm pleased to report that Gold Resource produced approximately 20,500 ounces of gold, 1.2 million ounces of silver, about 1,600 tonnes of copper, 7,700 tonnes of lead and 19,700 tonnes of zinc despite the two-month mandatory shutdown in 2020 of the Don David Gold Mine in response to the COVID-19 pandemic. 2020 marked two milestones: ten years of production and over $1 billion in revenues to date. During the fourth quarter, we processed ore at an average rate of 1,700 tonnes per day compared to 2,000 tonnes per day in 2019, largely because of lost workdays related to COVID-19 protocols and safety measures to keep our workforce safe. As expected, overall recoveries declined in 2020 by approximately 5% due to the impact of a plant being shut down in the second quarter due to the pandemic, which accounted for 80% of the drop, and the nature of where we are mining and the deposit accounted for the balance of the decline. During the year, we realized about $3.3 million in cost savings and reduced diesel fuel consumption by close to 69% as a result of connecting to the power grid for cheaper, more efficient electricity. The project to connect to the power grid also improved local infrastructure and allowed access to electricity for approximately 25,000 families along the transmission road for the first time. The paste fill plant, which was completed in 2019, processed 136,000 tonnes of tailings. Paste tailings are an effective method of recycling. They primarily provide additional ground support to ensure future mining operations occur in a safe and uninterrupted manner. Construction of the dry stack tailings filtration plant continued during the year. These facilities are expected to be complete by midyear 2021. The dry stack will facilitate and accelerate reclamation of certain areas of the open pit mine as well as allow for the efficient and safe storage of tailings. Finally, I want to note that the Don David Gold Mine earned the socially responsible enterprise award for the sixth consecutive year. That is an accomplishment that we are very proud of. With that, I will turn the call over to Kim.

Thank you, Allen, and good morning, everyone. The financial performance from the Don David Gold Mine ensured we closed the year with a strong balance sheet, consisting of just over $25 million cash and no debt. This increase of $15 million from 2019 is after providing the Nevada Mining Unit with over $20 million in cash during the year, including the $10 million as part of the spin-off capitalization. Cash from operating activities was just over $21 million. Working capital from continuing operations was nearly $31 million at December 31, 2020, a year-over-year increase of 22%. For the year, we reported net income of $4.4 million. Our revenue from the Mexican operations was approximately $91 million, resulting in a mining gross profit of $12.5 million. Net sales decreased by $29.6 million for the year as compared to 2019. This decrease is primarily related to two factors: first, production volumes were impacted by the government-mandated suspension of operations related to the global pandemic; and second, a 34% decrease in total concentrate treatment charges, which are netted against concentrate sales within revenues. Lower average realized prices for zinc and lead were slightly offset by higher average realized prices for gold, silver and copper. Total production cost of $60.6 million for 2020 was 16% lower than the production cost for 2019. The decrease is directly related to the lower sales volumes. The production cost per tonne milled was $107, or 3% higher than 2019 production cost per tonne milled of $104. This increase reflects the impact of inflation on labor rates and transportation costs. Treatment charges for the 12 months ended December 31, 2020, were $21.1 million as compared to $13.8 million for the same period in 2019. This equates to $729 per tonne of concentrate produced in 2020 versus $403 per tonne in 2019, an approximate 80% increase for each tonne of concentrate produced. The treatment charges for 2021 are expected to decrease by about 30% to between $525 and $550 per tonne of concentrate produced. This expected decline in concentrate treatment charges is a result of recent negotiations but is also dependent on the spot treatment market for zinc, which can be volatile. Don David Gold Mine's total cash cost after by-product credits was $784 per gold equivalent ounce sold. In total, all-in sustaining costs were $1,365 per gold equivalent ounce sold. We expect these costs to decline in 2021, especially with the expected decrease in treatment charges for zinc concentrates, and Allen will provide a few more details shortly. During the year, we also returned dividends of $2.8 million to shareholders, which, since 2010, have totaled over $115 million.

Thank you, Kim. Turning to 2021. Our focus is on unlocking the value of the mine, existing infrastructure, and large property position. Accordingly, we plan to invest approximately $29 million in infrastructure and exploration in the Don David Gold Mine in 2021. Of the $29 million, approximately 75% of the total will be focused on capital initiatives to sustain the operation and improve recoveries, with the balance focused on exploration. Gold and silver production will remain in line with 2020 as we focus on operational excellence and improved margins, which we expect to be reflected in lower cash cost per ounce after by-product credits in the range of $210 to $225. We anticipate our all-in sustaining cost after by-product credit per gold equivalent ounce to be in the range of $800 to $900. In closing, our Don David Gold Mine located in Oaxaca, Mexico, delivered solid production results during a demanding 2020 amid the COVID-19 global pandemic. While COVID-19 is expected to remain a challenge in the short to medium term, our team has done a truly excellent job of managing the situation, and I would like to take this opportunity to thank all of our employees and contractors for their hard work and resilience. I recently had the opportunity to visit the Don David Gold Mine and see firsthand the operations, including the projects I covered in my opening remarks. Notwithstanding the operation has accomplished a lot, there is a lot more to do. We intend to take a holistic approach to understanding and capitalizing on the foundations laid in the areas of safety, community relations, environmental stewardship, operational excellence, and organic growth in order to unlock the value in our highly prospective ground package. I want to repeat Kim's comment that the company finished the year with a strong balance sheet, which provides us with the flexibility as we move forward to reinvest capital in Mexico to increase the mine's productivity and the life of the operations. Thank you for taking your time to listen in. This concludes our prepared remarks. And I will now turn the call back over to the operator for questions.

Allen, while Kate is pooling for questions, I have a question that's come in on the webcast, and it's from Richard, a private investor. And he asked, after so many years of mining at Arista, have you gone deep enough to determine whether or not there is skarn potential at the Arista site? This has been referenced previously, and he's interested in the potential if such a skarn was determined to exist.

Richard, that skarn potential is certainly there. We're currently in the process of developing two exploration drifts underground, one to the Northwest, one to the Southeast. Part of the drilling objective, once we complete the drift to the Northwest, is to test for the, number one, existence of and location of that skarn. Will we hit it? I don't know. It's exploration. But that is part of the current drilling program for this year.

And I have a second question coming in on the website. Will the company consider listing on the Venture Exchange in Canada or the senior listing Board? And what about attendance at trade shows like the PDAC?

Listing on the Venture or the TSX is something that is a possibility. At this stage, it would be a secondary listing, and it would only be to enable us to access research and investors that trade primarily on Toronto. It's something that we're thinking about. However, one of the things that often occurs is that a secondary listing does not necessarily engender much in the way of trading volume. So it's not an automatic conclusion. It's a good exchange for mining companies, but it's not necessarily an automatic. In terms of attending conferences, this year obviously is a unique year, much like a good portion of last year. We are going to be in attendance at a number of conferences virtually this year. I can't give you all of them, but there are already about half a dozen on the schedule. PDAC, specifically, I'm not going to be attending this year. We have got a conflict with another conference. But certainly, it is our intent to be out presenting the story to as many people as possible.

James from In The Ruff Research asks if we look at the 2021 guidance, it seems that while gold production is expected to stay below pre-pandemic levels, you anticipate higher levels for silver and the other base metals. Is this due to reduced grades of gold or specific stope targeting? Can you provide more details?

Absolutely. James, the type of mineralization we are working with is known as epithermal. Epithermal deposits have some interesting characteristics. As you move away from the original heat source, the concentration of precious metals increases. Conversely, as you get closer to the heat source, the concentration of base metals rises. Currently, at Switchback, we are in a lower area of the system, which has led to an increase in base metals. I want to highlight that we issued a press release a few weeks ago regarding drilling from our exploration development that resulted in very high grades of gold and silver. These drill holes were situated in what we consider to be the upward extension of Switchback. If this trend continues, we expect to see increases in gold and silver grades in the future as we mine higher in the system. I believe that addresses your question.

A follow-up question from James. The assumptions used for estimating the by-product credits assume base metal prices that are significantly below current prices ranging from 17% to 32%. If those rates continue to hold, is it fair to expect significantly lower all-in sustaining costs?

Quick answer is, yes. On our budgeted numbers, we're looking at all-in sustaining, as I indicated earlier in the presentation, of $800 to $900. Obviously, if the base metal prices or by-products increase in value, our all-in sustaining cost would decrease proportionately. So that's absolutely a fair assumption.

From the webcast again, a gentleman named Greg Marino asks, do you have plans to reduce head count operations and staff? On the other hand, are there any investing plans outside of Oaxaca?

In terms of head count, I was down there. I spent ten days down in Mexico in January, and I'll be going back down in the near future. What we have in Mexico is a very high-quality workforce. The technical team is as good as you are going to find anywhere. The underground workforce are very competent. Is the workforce higher than you would typically expect to see in North America? Yes. Is it unusually high for Mexico and Latin America? No. I'm not particularly concerned about our level of workforce. If you look at our total labor cost as a percentage of total operating cost, it runs 32% to 35%. And the rule of thumb is, it's one-third labor, one-third consumables, and one-third power or energy. And that holds pretty much anywhere in the world. So our labor cost as a percentage of production is in line. Are we looking at investing outside of Oaxaca? I will say that in the mining industry, you're always looking. You have to. Do we have a focused corporate development program? No. And I will tell you that my philosophy on corporate development is that it is, by definition, opportunistic. If something is presented to you and it looks as though it has merit, you follow it out. Just by virtue of being in the industry, there are opportunities presented on a continual basis, and 99% of those are not something that we would choose to follow up, but you never know. Something may come along that we're extremely interested in, and then we would look at investing outside a block. Currently, our focus is on the Don David and the very highly prospective land position that Gold Resource has already put together.

Next question, can you describe the service agreement with Fortitude? And how is that going to be treated going forward? That's from Trickle Research?

As part of the spin-off of Fortitude, Gold Resource entered into a service agreement to provide certain services and support to Fortitude. This arrangement was logical since the Gold Resource team was delivering these services while Fortitude was a wholly-owned subsidiary. The main purpose of the service agreement is to give Fortitude enough time to develop their own team. Although we haven't specified a fixed duration for the agreement, Fortitude is rapidly working to establish its own management team. Eventually, I expect the service agreement will be phased out. I cannot provide a timeline, but I plan to discuss this with Jason Reid soon. I am aware that he has been quite successful in forming his management team.

So related question, and this is from back to James, In the Ruff Research. The guidance for the 2021 G&A was between $6 million and $6.5 million versus $8.5 million in 2020. Can you clarify what drove the reduction?

Kim, do you want to take that one?

Sure, Allen, happy to. Thank you for the question. So there were several opportunities to reduce G&A, just part of the spin-off. So there were certain rents, there were some salaries that came through that moved over to Fortitude. So a lot of it related to the Fortitude spin-off. But then by nature of us being a bit of a smaller company this year, we're able to realize some benefits through some of our service arrangements.

I think it's also important to note that the $6 million to $6.5 million excludes the share-based compensation.

Yes, that's correct.

So on the capital investments 2021 guidance, can you clarify which items are already embedded in all-in sustaining costs and which would be incremental?

We have several projects in progress, some of which will fall under all-in sustaining costs and others under growth capital. Specifically, our exploration expenses, which are not related to mining but instead focus on external and nearby exploration, will be categorized as growth capital. The regrind circuit being added to our plant is an enhancement to the existing setup and could improve gold recovery by 6% to 10%. This will be classified as growth capital rather than all-in sustaining. Additionally, there is another significant project underway, which involves the filtration and dry stack initiative. This is similar to constructing a new tailings facility, which will also be classified as growth capital. As we progress, there may be further costs related to the dry stack as we prepare new areas for waste deposition that could eventually be categorized as sustaining costs, but the initial phase is considered growth. We have around $9.8 million allocated in our capital budget for underground development, which is entirely related to sustaining capital. We are also directing $2 million to $2.5 million toward underground exploration, specifically for definition drilling, not exploratory drilling. The purpose of this drilling is to convert resources into reserves and mineable reserves, which falls under all-in sustaining costs. I believe I have covered most aspects. The distinction is mainly between whether expenditures are additive or for maintenance. Underground development is essential for maintaining resource development. In contrast, exploration aims to expand resources over the long term and extend the mine's life, which is classified as growth capital.

Allen, let's take one more question from the webcast, and then we'll turn to the callers who have probably been waiting patiently to ask their questions. Mr. Carter on the webcast is inquiring whether the dividends will continue and if there is a possibility of an increase in the dividends.

Current plans are for the dividends to continue as they have been for the last several years. Prospects for increase is not something that we're considering at this point. We have a reasonable balance sheet. We are, in fact, anticipating increased capital spending, and it comes down to a capital allocation decision that will be reviewed on an ongoing basis. I will say that currently there's no intent to increase it, but if metal prices hold and we end up with a large balance sheet, with our large cash position, you never know.

Thanks, Allen. Kate, do we have people waiting in the wings on the phone?

Yes, we do. Our first question today is coming from Heiko Ihle.

Allen, Kim, and Ann, welcome to the team. I'm truly looking forward to working with all of you.

Good to hear from you, Heiko.

For the electrification of yourself and the local community, can you just walk me through what all that cost your previous spending? And to be clear, I mean, we won't see any more spending on that for the remainder of 2021 at Don David at all, correct?

The transmission line was completed in 2019, and we began to benefit from it in 2020. There was no capital expense related to it in 2020, and there won't be any in 2021 either. The overall cost of the project was not particularly large, estimated at about $1.5 million to $2 million. The main challenge was obtaining access to the right of way for installation. It took the company several years to secure the right of way needed to build the line. Once that was accomplished, the construction was done very efficiently and quickly, and the positive impacts on the local communities were significant. It’s impressive to think about the 25,000 families that have never had electrical power before; this is something the company is justifiably proud of.

I wish you could see my computer because my very next question actually was, one would assume community feedback to this is beyond excitement? And have you seen any change to your social license in the area based on that?

The company has built a strong relationship with the local community over the past decade. We operate in a region of Mexico with several ejidos, and while our connections with some of them are not ideal, we have significant support from the immediate community, which is collaborating with us closely. Moving forward, we aim to capitalize on the positive progress made in local infrastructure, such as the notable achievement of the transmission line. We need to use this to enhance our social license further to the north, allowing us to continue our exploration efforts and potentially expand our resources.

And then just one last one for me, and this might be a Kim question, I'm not sure. Just as a clarification. On your guidance, you note that your G&A does not yet include restructuring expenses. I mean we're two-thirds through Q1. How much in restructuring expenses should we expect to see for the remainder of this calendar year? It looks like you had $1.32 million in 2020 for severance in the Fortitude spin-off as per your 10-K?

Kim, do you want to take that?

Yes. Thank you, Allen. Thank you for the question, Heiko. It's not going to be significant. There's still a couple unknowns as we finish separating systems and so forth, but it would be less than $1 million.

That is yet to be incurred?

Some of it has been incurred. All of it will be incurred by the end of the first quarter, yes.

Excellent. I appreciate that. Allen, it's good to see you made it to the site.

I'll be going back again next month.

I'm a longtime investor, private investor, in GORO. Gosh, it seems like almost forever. In any event, I have a couple of questions. First of all, I noticed that the guidance for this year has production basically flat from last year, if I understand it correctly. Yet last year you were affected significantly by the COVID shutdown. So I'm wondering why production for 2021 isn't greater than 2020.

Harvey, it’s a pleasure to meet you as a long-term shareholder. Looking at the production history of the Don David Gold Mine, 2019 marked its highest production level ever. This was driven by two mineralized zones we mine at Don David. The first zone developed was Arista, characterized by narrow veins. From 2016 to 2019, we developed the Switchback zone, which includes the Soledad vein, significantly wider than what we previously found on the property. Last year, the average mining width was around 10 meters. With a vein like Soledad, we can use different mining methods, leading to higher productivity. In 2019, the company focused on Soledad and will continue to do so, but we are also placing renewed emphasis on the narrow vein at Arista this year. This shift means our production will decline, but Arista is higher grade, so the metal content won't drop significantly. We are leveraging existing resources rather than leaving them behind. The high production levels in 2019 were not sustainable, as it largely depended on one vein in Switchback. Our goal is to utilize the full resource and maintain operations for the long term. This doesn't mean we can't increase production in the future, but we need success in our infill and near-mine exploration efforts. That’s a major focus for us this year. We hope to boost production back to 2,000 tonnes, but this will require additional resources and good mining widths.

Yes. I hear you. And on that same topic, I noticed that reserves are less at the end of 2020 than they were at the end of 2019. So how are you addressing that?

I talked about that a little bit earlier, Harvey. What we're doing is we've budgeted $7.5 million for just exploration this year. That's up from about $2.5 million last year. Last year was a very, very difficult year. COVID hit hard, and we were not able to do our underground development so we could do underground exploration. It was really an atypical year. Now I'm going to put it in context for you. These types of epithermal deposits are very difficult to build a long-term resource out in front of you. And it's difficult because of the cost of drilling. Most of your exploration is underground, so you're drifting and then you're drilling from underground. It is expensive. And you're constrained by your ability to develop. I'll put it in context for you, though. I was involved with a company that had a similar type of mineralization located in Latin America. The mine was started in 1952. It's operating today, and it's never had more than three years' resources ahead of it. I use that as an example only because these types of mines seldom have a long resource ahead of it. However, history would suggest that we will continue to develop resources as we go. A primary example of that are the drill holes we released a few weeks ago. Those are not included in our resources, but it's already indicative of a continuation of the Switchback that we're very excited about. Whether it proves into ore, it's a bit premature. But the holes were very, very good. They were some of the higher grade gold and silver holes that we've pulled on the property, and that is giving us a great deal of optimism that we'll be able to not only replace reserves this year but expand on them.

Sounds good. Sounds good. Of course, I hope that all of this happens, obviously.

There's two major factors here. One, it's mining; and one, it's exploration. But we are in fact in a very, very impressive mineralized zone. And we've had a lot of success in the past, and I anticipate that continuing in the future. I really am not overly concerned about our resources.

Is any of the exploration taking place in areas that you haven't explored before, or is it primarily focused on expanding the locations you are already familiar with?

I think it's more of the latter than the former. We are drilling outside of the direct mine site to the Southeast. It's a continuation of the mineralized zone that we're exploring. It's still relatively close to the mine. But it is in an area where we've not drilled in the past. We are drilling underground, and that is very much near-mine drilling, but we are drilling further to the East to explore for a potential new mineralized zone. We're drilling up-dip of the Switchback, and we're drilling a long strike, both directions for Arista and Switchback. So the answer is a bit of a hybrid. But we are focusing primarily on in-mine and near-mine exploration this year with a specific focus on increasing our mineable resources.

Our next question today is coming from John Bair.

John Bair with Ascend Wealth Advisors. I have been a shareholder-client for several years, so I appreciate you taking my call. I actually had three questions, and you've covered all of them to some extent. Let me start with a simple one. Regarding Heiko's question about the electrical grid, do you have any ongoing costs related to that? Also, how reliable is the electrical source, and how far away is the power being generated?

Okay. Number one, it's good to meet you, John. Quick response to that is that there is no more capital associated with the transmission line. We have on site six standby generators that we used to use for power generation. The only time they were turned on last year, I think it was for a total of four hours outside of normal p.m. running. The grid has been very stable and very reliable. It is not a line just to the mine. What makes this particular transmission line so attractive is it was something that the power authority wanted to build anyway, and it completed a circuit within the grid. It is their primary transmission line, and we have been very, very happy with the stability and continuity of supply. We do maintain the generators because if there were to be a problem, we need to keep running. So we have our generators as standby. But last year, there were virtually no shutdowns due to power availability.

Okay, great. Harvey's previous question about some exploration intrigued me as well. Can you clarify the difference between the $3 million budgeted for surface exploration and the $1.6 million for exploration development? Is it simply about the location of the drill rig, whether it's underground or on the surface, perhaps involving a directional borehole?

The $1.6 million allocated for development is specifically for driving exploration drifts, one to the Northwest and one to the Southeast. This amount covers the costs associated with creating those drifts. The roughly $3 million earmarked for surface drilling is standard surface drilling where we have already identified targets and are drilling to investigate them. Additionally, although I don't have the exact figure handy, there is around $2 million set aside for underground drilling. As we create those exploration drifts, we will set up drill stations to facilitate exploration drilling from underground. Does that clarify your question, John?

Yes, you will be drilling in the magnetic anomaly area to the Northwest as well as East and Southeast. I have your Page 18 from one of your presentations pulled up for reference.

The goal of the drift heading Northwest is to examine the area surrounding the magnetic anomaly. You're correct about that. Additionally, this drift aims to explore potential extensions of both the Switchback and Arista zones. As for the Southeast direction, we are positioned along the strike for both mineralized zones, and we will be investigating that as well. The Northwest drift also includes objectives to push some drill holes further East due to indications of another possible mineralized zone beyond Switchback. Therefore, we have a variety of targets for this program.

Yes, that was the other aspect of that, the additional parallel vein system that has been talked about in previous years and presentations and so forth. How many boreholes do you think will be targeted that way? Or maybe better asked, what percentage of your exploration budget would target that particular potential?

We only have about three drill stations that get us close enough to that zone to test it. So there won't be a lot of holes in there. If we are lucky enough to find something, then we'll probably end up drifting in that direction to expand the drilling over to that potential new zone. I say it's potential, John, because we really don't have any hard indicators where there's surface expressions that would lead us to believe there might be something there. And the only way to test it is from underground. So it will be limited this year, probably only no more than half a dozen holes. If we get some joy, then we will plan on following that up next year and in subsequent years.

Okay. Great. My last question. Kim touched on it in her comments about base metals and processing fees and so forth. My question was going to be, can you share how significant pricing improvements with various products, lead, zinc? We all kind of see every day the price bouncing around for gold and silver. It's pretty more readily put out on news feeds and so forth. Can you talk about that a little bit more? And it sounds like we're still on a variable maybe month-to-month processing schedule rather than a, say, a one-year fixed processing for, I believe zinс was the one that kind of nipped you for a couple of years?

Okay. What you're referring to, John, is the smelter contracts and the TCs that were charged for having our material smelted at the smelters. Last year, there was a very big squeeze on smelter space, and prices went through the roof. The smelters were able to charge almost anything they wanted, and they were near historic highs. That hit us very hard. They've come back to normality this year. Kim talked about it in her remarks. But zinc, because we do produce a lot of zinc, hit us pretty hard. But the indications are right now, based on our current contract and spot, it will be reduced, on a per tonne of concentrate basis, about 30% in our TCs. That is a very significant number. I indicated to you that we are looking directionally at 19,000 or 20,000 tonnes of zinc. And if you have a 30% reduction of cost associated with that level of production, the math is pretty straightforward. It's a significant saving. What we've done for our guidance and our budgeting purposes is we've taken a very conservative position for our pricing of all of our by-products. Just for example, we've used, directionally, just under $3 for copper. Copper is now north of $4. Zinc, we used $102, and zinc is trading $128, $130. Lead, we were high $70s and lead is a bit higher again right now. We were conservative on our numbers for silver and for gold. Now gold, I'm going to make a comment on because we've seen a lot of volatility in price recently; who knows where it goes. But certainly, our by-products are looking very, very secure in terms of providing the cash flow we're anticipating. If anything, we'll get excess cash flow out of it.

Yes, you mentioned that your realized prices for copper, lead, and zinc have been rising. Gold has been challenging recently, but silver has increased. With the growing attention on renewables, your by-products, particularly silver, are relevant as well. If your processing costs for zinc decrease while the realized price for zinc increases, that is a significant advantage. It certainly sounds like a positive development.

It's a nice multiplier, and it could have a very positive...

Allen and Kim, there are a couple more questions on the webcast as we approach the top of the hour. And for anybody whose question didn't get answered, we will follow up with you. We're trying to bucket the questions in general categories. So specifically, a question for Kim. How are you getting prepared in relation to the labor reform on 2021, I'm assuming, in Mexico? And what could be the financial effect?

Thank you for the question. The vote on labor reform was initially scheduled for early February but has been postponed. Recently, Congress addressed some other major issues, which were voted on this past week. We anticipate that the reform vote may take place before the upcoming election in June. Since we expected the vote to happen in February, we had everything prepared in advance. When the vote does occur, we will be ready. We have had extensive discussions with our union, which is very supportive. The reform will essentially ensure that all employees keep their tenure and current benefits. We believe the financial impact will be mostly cost-neutral. We did have a markup we were paying to our service provider, but now there will also be some elements of profit-sharing that will balance out, especially since we have always provided our employees with bonuses. Therefore, the overall cost effect should be neutral.

And Allen, do you have any concerns with the government of Mexico, considering that it could appear anti-mining?

Not particularly. I think that virtually every country in the world goes through periods where it seems to be popular to be anti-mining. However, if you consider Mexico's economy and the percentage of GDP that mining contributes, I really don't believe the government will take actions that jeopardize this significant source of revenue that finances a large portion of their spending. Will there be changes? Absolutely. But I don't think those changes will be so comprehensive or pervasive as to truly compromise our operations. I expect there will be movements to strengthen environmental controls, and there may be an increase in taxation. However, when taxation increases occur, there are often offsetting deductions. Therefore, the net impact is generally not significant. At this point, I don't see any cause for concern, and I don't anticipate any in the future.

Okay. Let me just check here. From James Thottam at In The Ruff Research. I understand that GORO historically was pursuing a potential refund or adjustment resulting from the GILTI tax. Was there any resolution on that?

Kim, do you want to tackle that one?

Yes, I'm happy to. James, that's a good question. In 2020, some reforms allowed us to assess whether we were operating in a high-tax jurisdiction. In 2019, many will remember that we experienced about a $2 million expense related to GILTI for both 2018 and 2019. We reviewed both years and found that in 2018, we did not qualify for the high-tax exemption because we were receiving credits from the diesel fuel used in generators, which lowered our tax to a level not considered high-tax. However, in 2019, we lost that benefit from the diesel credits, so we qualified for what I would hesitate to call a refund; it actually reduced our exposure for 2020. In 2019, the tax effect was around $800,000, meaning we did reclaim some of that $2 million recorded in 2018, or 2019, rather.

I think we have time for one last question. This comes in from Craig on the webcast. So, Allen, as the new CEO of GORO, what encourages you and excites you most about the prospects and opportunities of the company going forward?

The reason I joined the company was due to the unique opportunity it presents. We have a very strong technical team at the mine with the capacity to take on new opportunities. Our property position is impressive and highly promising. A bit of exploration was conducted to the North eight years ago but was not pursued because the focus was on Arista. I believe the exploration opportunities are highly appealing. We have no debt and had about $25 million in cash at year-end. There is no need to seek capital from the markets. This year, we expect to generate free cash flow well beyond our needs. The company is well-equipped to seize organic growth opportunities. Additionally, if opportunities arise from mergers and acquisitions, it is rare to find a company without significant issues. While challenges exist, they are part of an operational company. This is a very attractive setup for unlocking value associated with our people and properties in Oaxaca.

Thanks, Allen. That brings us to the end of the hour. We appreciate each of you for joining us on this call. For those who asked questions during the webcast that we couldn't address, we will follow up with you. We look forward to speaking with you again in the next quarterly conference call. Thank you.

Thanks, everyone.

Thank you. Ladies and gentlemen, this does conclude today's event. You may disconnect at this time, and have a wonderful day. We thank you for your participation.