Gold Resource Corp Q1 FY2026 Earnings Call

Good morning, ladies and gentlemen, and welcome to Gold Resource's First Quarter Earnings Conference Call. I would now like to turn the conference call over to Chet Holyoak. Please go ahead.

Thank you, Jenny, and good morning to everyone. On behalf of the Gold Resource team, I would like to welcome you to our conference call covering our first quarter 2026 results. Before we begin the call, there are a couple of housekeeping matters I would like to address. Please note that certain statements to be made today 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. Please note, all amounts referenced during the presentation are in U.S. dollars unless otherwise stated. Joining me on the call today is Allen Palmiere, our President and CEO; and Armando Alexandri, our Chief Operating Officer. Following our prepared remarks, we will be available to answer questions. This conference call is being webcast and will be available for replay on our website later today. Last week's news release that was issued following the close of the market and the accompanying Form 10-K have been filed with the SEC on EDGAR and are also available at our website at www.goldresourcecorp.com. I will now turn the call over to Allen.

Thank you, Chet, and good morning, everyone. I would like to thank you for joining our first quarter conference call. I'd like to address a few points first and then address operations, followed by Chet addressing the financials. Following his remarks, I will then make a few closing comments and we will take questions. I'm pleased to report this quarter continued the company's trend of improving operations, resulting in the achievement of positive net income for the quarter for the first time since 2021. This milestone represents a significant accomplishment for the company and reflects the hard work, dedication and resilience of the exceptional team we have built. Their perseverance through challenging periods assisted by strong commodity prices has been instrumental in getting us to this position. Further, we have assembled a team of consultants led by SLR to complete a definitive feasibility study for our Back Forty project in the Upper Peninsula of Michigan. This study will be complete in Q1 of next year and will be followed by the submission of the necessary permit applications, upon receipt of which we plan on beginning construction. During the quarter, the operation recorded two lost time injury incidents, which, while minor in nature, are concerning and do not reflect our long-standing commitment to a safe and healthy workplace. The operation is implementing the immediate containment and prevention plan supported by an external consultant in alignment with our zero-accident mindset. Despite the challenges, the operation maintained a stable pace and is aligned with quality and productivity standards for narrow vein mining methods to reduce dilution. To put that into context, the former mining method, which was predominantly long-hole mining, experienced dilution of up to 45%. By changing to cut-and-fill mining, our dilution has declined to approximately 12%, thus reducing the material delivered to the mill while maintaining the same metal credits. In support of our production and growth strategy, mine development is maintaining the pace to reach new productive areas and prepare drill stations. The Alta Gracia mining area had a successful reopening contributing good head grades, while an intensive drilling program is underway to increase mineable resources. The operation focuses on producing high-quality concentrate by implementing improvements and rehabilitating part of the infrastructure to support and maintain production volumes and metallurgical recoveries across all metals. A clear filter press for the dry stack tailings system is on site with an installation plan for the next quarter. These enhancements are key to increasing productivity per cycle, enabling us to maintain steady production and increase recovery. I'll now pass the presentation over to Chet to discuss the financial results.

Thank you, Allen. As was mentioned, we are experiencing a very strong start to 2026. I'd like to take a moment to highlight a few of the key accomplishments that contributed to that performance. We continue to strengthen our cash position during the first quarter, ending the period with $31 million, reflecting our disciplined approach to cash management. In addition to this solid balance, strong production resulted in nearly $44 million in net sales for the quarter, generating a robust mining gross profit of $19 million. Most importantly, our first quarter performance delivered net income of $4.7 million or $0.03 per share. As Allen noted, this marks a significant milestone for the company, representing our first quarter of positive net income since 2021. Our cash cost per gold equivalent ounce of $2,164 and all-in sustaining costs of $3,476 per gold equivalent ounce remain above our long-term targets. However, we continue to see a consistent downward trend, which indicates that the actions we have implemented are delivering the intended results. While there is still room for further improvement, we are closely monitoring mining activities and maintaining a disciplined focus on operating as efficiently and economically as possible. It is also important to highlight the continued strength of precious metal grades produced from the mine, particularly silver. Although metal prices have moderated somewhat, the overall price environment for both gold and silver remained very favorable and continues to support positive operating results for the business. With the improvement in profitability, we have also continued to advance underground developments and exploration activities at the Don David mine. During the quarter, we invested approximately $3.8 million in underground development, more than $600,000 in infill drilling and nearly $900,000 in underground exploration development. These investments have continued to expand access to the Three Sisters area and mining activities commenced from Alta Gracia during the quarter. We will continue to advance development and exploration in these areas as part of our long-term strategy to support sustainable mine growth. I will now pass the presentation back to Allen for his concluding remarks.

Thank you, Chet. And thank you all once again for joining us today and for your continued support. It has been a long time since we've been able to report results as positive as these, and we're extremely proud of our entire team for their hard work and dedication in delivering this performance. I'd now like to take a moment to discuss the proposed business combination with Gold Group Mining Inc., which we announced in January. The transaction is structured as a reverse triangular merger through which Gold Resource Corporation will become a wholly owned subsidiary of Gold Group. There are several strategic reasons why we believe this combination will create meaningful value for our shareholders. First, the combined company will benefit from a greatly enhanced asset portfolio. This includes our producing Don David Gold mine and the feasibility stage Back Forty project, along with Gold Group's producing Cerro Prieto mine and the recently acquired San Francisco mine. The San Francisco mine is not currently operating. Our plans are to complete a drilling program to confirm the geological data, to develop our own resource estimate and mine plans, to refurbish the infrastructure and recommence mining early in Q1 of 2027. Together, these assets create a stronger, more diversified portfolio with a pro forma production run rate of greater than 100,000 ounces of gold equivalent within 12 months. Additionally, the exploration potential is extremely attractive, and we plan on a very active program of over 50,000 meters of drilling this year. Importantly, the transaction reduces reliance on a single operation, thereby reducing the impact of any operational interruption at any one line. Second, the combination creates a larger and more diversified mining company with a strong geographic focus on Mexico, one of the world's premier mining jurisdictions with a long history of mineral production. The asset base is also heavily weighted towards precious metals, currently silver-dominant; next year both silver and gold are expected to be significant, and both are experiencing strong price momentum and provide an attractive tailwind for the combined business. The merged company will have a strong balance sheet, no debt, and greater financial flexibility to fund growth projects, exploration initiatives and opportunistic acquisitions. Its increased scale and enhanced market profile are also anticipated to attract a broader institutional investor base, supporting long-term value creation for all shareholders. We are very excited to take advantage of a perfect storm: strong commodity prices, extensive Mexican support from the team at Gold Group and opportunities unique to Mexico. We look forward to unlocking the value proposition that is derived from the transaction. With that, I'll turn the call over to the operator for questions. Thank you.

Your first question is from Stuart McDougall from Research Capital.

Thanks, operator. Allen, I'm still getting up to speed on the story, but I'd like to, just off the bat, know, if you — you're just switching to the cut-and-fill and grades have obviously gone up. Do you expect it to continue to go higher over the course of the year? And secondly, if you could just confirm that I heard correctly, you planned 50,000 meters of drilling in 2026. That is corporate-wide or just for San Francisco? And secondly, I wanted to make sure I heard correctly, the 100,000 ounce target, that's corporate as well.

Thanks, Stuart. Cut-and-fill — we began the transition from long-hole to cut-and-fill in July of last year. And at this point, we're pushing 70% of our production from the Don David mine coming from cut-and-fill stopes. That is going to continue. What it does do is deliver a higher head grade to the mill because of the decrease in dilution. And it really is a much more effective mining method for the narrow veins that we're working in. The numbers I referred to — 70,000 meters could be split, basically, 50,000 for exploration, and then there's an incremental 20,000 of definition drilling at Don David. If I split it out further, we've got about 24,000 at exploration at Cerro Prieto. We've got a similar amount at San Francisco, which is part exploration, part confirmatory drilling. And then the balance is going to be in and around the Don David mine. I think the 100,000-ounce-plus is for production corporately, ball-parking it. Our current run rate for Don David in today's price environment is roughly 50,000 ounces a year. San Francisco, a PEA that was done in 2020, forecast about 50,000 ounces a year. And Gold Group management is predicting between 20,000 and 30,000 ounces per year from Cerro Prieto. And that's where the numbers come from.

And your next question is from Alex Rogaish.

Good morning, and thank you for your time. I'm a small investor compared to you guys. But I do have some concerns — red flags are going up for me. I understand in the first, second and third quarter of '25 why the AISC would be so high. Fourth quarter with a silver medium at $52 announced, you guys did well. You paid off your emergency debt. You got to zero debt now. You made a meager profit. What's confusing is the AISC dropped in December at $52 an ounce. But now in January, February, March — the first quarter — it almost doubled per ounce, and your AISC also increased almost to the second quarter of '25. So I'm confused at what's going on with this AISC and is that reducing shareable profit? The other thing is I'm curious about the condition of all equipment, extraction, transportation, processing at the Don David. And then is Gold Group going to be kind of financially responsible prior to acquisition to helping bring up San Francisco? I have more questions, but I'm going to leave it at that, and I do appreciate your time. Thank you.

No, I appreciate the questions. And I'm going to — you asked a number, so I'm going to try and address them, but please come back at me if I've missed something. AISC did increase in Q1 of this year, and there's two reasons for it. We lost approximately two weeks of production: nine days in January and a further five days in February. The January loss of production was due to a work stoppage, basically a blockade caused by two factions of our union fighting each other, and we were stuck in the middle trying to mediate the dispute, ultimately successfully. They did not have a dispute with us. The dispute was within the union. The other factor was we have a very long portal accessing the mine. And in one area of the portal, we determined that we wanted to reinstall and improve the ground support because it's a very heavily traveled area. So we actually took a five-day stoppage of mine production just to improve the ground support and maintain safety. Had we not lost the two weeks out of the three months, you would have seen higher production and you would have seen lower AISC. The other factor contributing to an increase in the all-in sustaining cost is a very, very heavy emphasis this quarter on development, both at the Don David mine and the restart of another area just to the north, Alta Gracia. Alta Gracia is a historically mined area. We went back in. We did some drilling and we mobilized a contractor in January to reopen that mine; we incurred costs doing that, without any production initially because we had to rehab the access, redo ground support and then develop into the productive areas. But I'm happy to tell you we're currently at a run rate — it's small, 1,500 tonnes a month. That will be up to 3,000 tonnes a month in Q3. And by year-end, we're targeting 5,000 tonnes a month.

Thank you. That tonnage is of what — of copper?

No, no, it's predominantly a silver ore, with minimal copper and a bit of zinc. The silver is running at about 350 grams per tonne. So you've got ballpark 10 or 11 ounces of silver per tonne of ore. In today's world, that's obviously $750 to $800 ore. So it's a nice sweetener and the 5,000 tonnes a month by year-end will have increased our throughput from currently 30,000 tonnes through the mill to 35,000 tonnes. So it is significant. But those are the factors that contributed to the increase in AISC.

Okay. So there's a trend though that without the merger that growth has always had above industry-standard AISC. I could understand the first, second and third quarter. Fourth quarter had dropped, first quarter, you just explained. Is there a plan to bring it down into industry standards, which is usually, I think, $1,400 to a high end of $1,900 per ounce? So I'm concerned about an exponential rise over time.

I'm going to — if you take a look at some of the biggest global mining companies in the world, they're running $2,300 and $2,400 AISC right now, and that's Barrick and Newmont because...

How many employees do they have? How much land mass do they have and how much equipment do they have compared to Gold Resource?

I don't know that there's — I'm struggling to see how that is relevant. I'm talking about the cost of producing an ounce of gold, whether it's in a big mine or a small mine. Bigger mines typically are more efficient, and the unit cost of operation is lower. So the only mines that are producing with an AISC of $1,500 to $1,900 in today's world are heap leach operations like San Francisco when we get it reopened. That is the range that I'm anticipating for San Francisco to operate because, number one, it's open pit. Number two, it's heap leach. And that has a very different cost profile than an underground mine like Don David. The other thing I'd like to address briefly — you mentioned the equipment and the status of the equipment at Don David. You may recall that we brought in a mining contractor in Q2 of last year to develop the area that we call the Three Sisters. It's a new vein swarm that we had identified about 2.5 years ago. The contractor brought with them all of their own equipment. Approximately 50% of our production right now is coming from that area. In addition to that, what we've been doing gradually over the last year is replacing or rebuilding our mining fleet. More importantly, what we've been doing is buying equipment properly sized for cut-and-fill mining. You probably heard that historically this was a long-hole mine, which tended to use big equipment, such as 6-yard scoops and as a result produced bigger mining widths, more dilution and higher total tonnage but lower delivered grade. What we're doing now is moving to smaller equipment, 2.5-yard scoops, which are appropriate for cut-and-fill because you're developing and mining narrower widths, so you need smaller equipment. Smaller equipment results in lower productivity and higher unit cost. But at the end of the day, we are delivering metal units to the mill with less dilution than we were with long-hole mining. The other thing that we've done is we have purchased a third filter for our filtered tailings plant. Why that's relevant is we currently only have two operating filters, and by Q3 we'll be installing a third. The two operating allow us to operate at a rate of 1,500 tonnes a day, but if one of them goes down, we've got a major problem on our hands. Installing the third one will allow us to run two filters and keep one on standby to maintain productivity. We've also ordered and purchased a couple of critical spare bearings for the mills, notably because we didn't have those before. We're also in the process of refurbing a lot of the flotation tanks that over time were a bit worn and we're rebuilding them in real time as we go. I think I covered your questions.

Yes, you did. And thank you very much, and I didn't mean to take up everybody's time with such a long-winded question. I appreciate your replies.

No, I thank you for the questions because if you had them, others had them as well. So I do appreciate them.

I think Friday kind of floored a lot of the small investors — kind of a shock. And we may have expectations without knowledge or there's knowledge and a lot of people did a dump sell.

Well, I'll be honest with you, I was shocked by it as well. It makes no sense to me. The best operating quarter that we've had in now five years and people assume that's a sell signal, which is — look, I'm not a market expert. I don't make forecasts in the market, but it floored me as well.

Well, you guys pulled it out of the red. So congratulations, good job. And I hope Gold Group doesn't dilute us into dust.

Well, I'm going to tell you that Gold Group will provide us with directionally 70,000 to 80,000 ounces of gold a year at an AISC of under $2,000 by this time next year. And that will generate very significant round numbers. If it's $2,000 and assume $4,000 gold, you've got a $2,000 margin on even 60,000 ounces. That's $120 million a year in operating cash flow. Gold Group is going to contribute significantly to our future.

Yes. The cautionary point on that, though, is just like Don David experienced with an internal riff between the union, the two gold mining assets that Gold Group has are in the middle of cartel war zones and cartel war zones have been shut down on their drug trafficking because of the U.S. military. So now they're going to be looking at other revenue sources. So I'm a little concerned that those gold mines are in the middle of the cartel war zone.

Well, I understand your concern, and I think there's been — obviously, there's been a great deal of news in the media about cartels. I'm actually encouraged that the U.S. is becoming more forceful in addressing some of the issues with the cartels. I think that bodes well for Mexico and it bodes well for the U.S. The area that the mines are located in Sonora is relatively close to the Arizona border. But one of the things to keep in mind is it is a very active mining area; there are a number of big mines in the area. They've been operating there for decades. The relationships with local groups are well established. There are other states in Mexico where, based on the news, there's far more violence. But in Sonora itself, it's relatively minimal. There hasn't been any disruption due to cartel activity in any of the mines in the past number of years. I'm not going to predict the future, but I'm encouraged by what's happening. One of the things I will point out: one of the hidden assets with Gold Group is a very strong Mexican team that has been together for many years, working on social license and maintaining relationships with the federal government, the state government, municipalities, indigenous communities and other local groups. They have been dealing with these various groups for many years very successfully. So that is a very significant hidden asset that we are acquiring by putting these two companies together.

Well, thank you so much. I could just keep going, but I know there's other people that have questions and you guys are busy. I couldn't get the live webcast on the Internet, so I did the call in.

Call in works. We'll look into the webcast though. But I do thank you for your questions. I appreciate them. You guys stay safe, and thank you.

There are no further questions at this time. Please proceed with the closing remarks.

Thank you all for joining our call this morning. We are obviously happy with the results and look forward to continuing the progress that we have made. The other thing is it's probably apparent from my comments, but we are very excited about the transaction with Gold Group, which is going to create a much larger, much stronger company, both in terms of people, balance sheet, production profile and potential. Next time we talk, Bob, I would assume that the transaction will have closed and it will be a Gold Group call, but it will be the same team talking to you on this side. Thank you again, and appreciate your time this morning.

Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may now disconnect your lines.