Earnings Call Transcript - GORO Q3 2025

Operator, Operator

Good morning, and welcome to the Gold Resource Corporation Third Quarter 2025 Earnings Conference Call. Following management's presentation, there will be a question-and-answer session. I would like to remind everyone that this conference is being recorded today, November 5, 2025, at 12:00 p.m. Eastern Time. I will now turn the conference over to Chet Holyoak, Gold Resource Corporation Chief Financial Officer. Mr. Holyoak, you may proceed.

Chet Holyoak, CFO

Thank you, Mike, and good morning to everyone. On behalf of the Gold Resource team, I would like to welcome you to our conference call covering our third quarter 2025 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 this presentation are in U.S. dollars, unless otherwise stated. Joining me on the call today is Allen Palmiere, our President and CEO. 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. Yesterday's news release that was issued following the close of the market, and the accompanying Form 10-Q have been filed with the SEC on EDGAR and are also available on our website. I will now turn the call over to Allen.

Allen Palmiere, President and CEO

Thank you, Chet, and good morning, everyone, or afternoon, I guess technically. I would like to thank you for joining our third quarter conference call. I would like to address a few points first, then I will follow that up by addressing operations, followed by Chet addressing the financials. Following these remarks, I'll make a few closing comments, and then we will take questions. I'm pleased to tell you that we are seeing the early signs of a turnaround at our operations in Mexico. As you may be aware, a year ago, we were facing significant challenges. We knew it was necessary to address these challenges, but we were capital constrained. As we were able to raise funds, we began slowly implementing our plans and made some management changes. There were major issues to address; a lack of development severely constrained our production, our mining fleet needed renewal and availability further constrained our production. Another issue related to the size of our mining equipment. Our fleet was sized for wider veins, which resulted in inappropriate mining methods being employed and led to excess dilution. As part of our fleet renewal process, we have and are acquiring replacement equipment to address aging assets. Several units appropriately sized for our projected mining requirements have already arrived and are operational. As previously announced, to reduce production risk, we engaged a mining contractor to assist in mine development and to focus on production from the new Three Sisters area. Development by the contractor continues to progress well with 1,435 meters completed in the Three Sisters area. Their progress has validated our expectations, revealing good vein widths and high-grade mineralization. Notably, this work has enabled the commencement of production from the Three Sisters, marking a significant milestone. The material extracted from this zone is rich in precious metals, reinforcing our confidence in the area's potential. With properly sized equipment, we are changing our mining methods in narrow vein zones. One key improvement has been the introduction of cut and fill for approximately 40% of our stopes, which is more profitable in narrow vein applications. By reducing dilution, this method results in lower tonnes mined while delivering the same metal units to the mill. Lower transportation, crushing, grinding, and processing costs, coupled with higher recovery, results in higher profitability. In addition to the operational improvements we've discussed, we're also benefiting from record high metal prices. While our strategy does not depend on elevated pricing, these market conditions are contributing to a stronger economic position. This added momentum supports our efforts as we continue executing the plans that we laid out earlier in the year. I would like now to provide an update on the operations. During the quarter, the operation unfortunately recorded several lost time injury incidents, which, while concerning, do not reflect our long-standing commitment to maintaining a safe and healthy workplace. In response, we have engaged an external consultant to conduct a comprehensive safety assessment and audit. This initiative will help us identify operational risks, evaluate our current safety maturity, and develop a proactive plan aligned with our 0 accident mindset. Despite a challenging quarter driven by extensive mine development activities, our team implemented key adjustments to mining methods, particularly in the narrow Arista veins and Three Sisters areas to reduce dilution. These changes yielded measurable results, resulting in higher production volumes and enhanced ore grades delivered to the plant. As a result, metallurgical recoveries across all metals exceeded prior quarters. To support our growth strategy, we successfully acquired specialized narrow vein mining equipment, which has improved selectivity and operational control. While we await the arrival of the third filter press for the dry stack tailing system, we completed several upgrades at the filtration plant. These enhancements have increased productivity per cycle, allowing us to maintain a steady milling rate of approximately 1,350 tonnes per day on the days that we operate. Permitting and rehabilitation efforts resumed at the alteration line with commissioning targeted for early Q1 of 2026. Mine development and exploration drilling remain critical to sustain production and expand our resource base. Continued support from our mine development contractor and two diamond drilling contractors is essential to advance some resource to reserve conversion pipeline. I'll now pass the presentation back to Chet to discuss the financial results.

Chet Holyoak, CFO

Thank you, Allen. As we have mentioned in the past, and as you can see in reading our current Form 10-Q, 2025 has been a difficult year. I do not want to rehash all the information in the filed report, but there are a couple of points that I would like to make. We concluded the third quarter with a strong cash position of over $9 million, reflecting both our success in capital raising efforts and disciplined cash management. In addition to this cash balance, as previously noted, our production ramped up significantly towards the end of Q3. We completed multiple shipments in late September that were still in transit at quarter-end. As a result, the associated revenue was recorded under accounts receivable, with cash collections occurring in the first few weeks of October. Importantly, we also showed mining gross profit during the quarter, a key milestone that signals meaningful progress on our path back to profitability. While our cash cost per gold equivalent ounce and all-in sustaining cost per gold equivalent ounce remain above our long-term targets, we are encouraged by the downward trend shown during the third quarter. As production efficiency improves and the quality of mine material increases, we are seeing a corresponding reduction in related cost per equivalent ounce. It is also worth highlighting that the current environment of elevated precious metal prices is positively impacting our operations. The precious metal content in our material, especially in silver, has increased, which is contributing meaningfully to our cash flow and overall financial performance. As previously discussed, many of the operational challenges we faced earlier this year stemmed from insufficient underground development, which limited access to multiple mining faces and higher-grade zones. To mitigate these issues and support long-term growth, we made significant capital investments in both underground development and exploration throughout the year. Specifically, we invested over $2.6 million in underground development and more than $6.5 million in underground exploration development, mainly in the Three Sisters area. These investments are already yielding results. As noted, we now have access to multiple mining faces, and production has commenced from the Three Sisters area. We will continue to invest in developing and exploring these areas to meet the long-term plans that we have for the mine. I will now pass the presentation back to Allen for his concluding remarks.

Allen Palmiere, President and CEO

Thank you, Chet, and thank you all once again for joining us today and for your continued support. It's encouraging to be able to share positive developments, and we're optimistic that the momentum we're experiencing will not only continue but strengthen through the remainder of this year and into next. We're beginning to see the tangible benefits of executing the strategic plans we outlined earlier this year. I'd also like to take a moment to address the Back Forty Project. As you're aware, a lack of capital has prevented us from advancing the project. With the improvements at our mine in Mexico, we are now able to fund the permitting process and complete the feasibility study, advancing this exceptional project toward a production decision. We expect that this work will commence in the next couple of months, and we will be keeping you posted on a regular basis. With that, I'll turn the call over to the operator for questions.

Operator, Operator

Your first question comes from Jake Sekelsky from Alliance Global Partners.

Jacob Sekelsky, Analyst

So just starting with the development work at Three Sisters you were just talking about, are you able to quantify the level of throughput you're targeting from here, I guess, as we head into 2026?

Allen Palmiere, President and CEO

As we head into 2026, we're anticipating that between 40% and 50% of our total production will be coming from the Three Sisters. The balance will be split roughly equally between Arista and Switchback.

Jacob Sekelsky, Analyst

Okay. That's helpful. And do you think you'll hit that 50% balance from Three Sisters in Q1? Or do you have a timeline to kind of get to that?

Allen Palmiere, President and CEO

We're anticipating it actually being at least 40% in Q1, potentially higher with the progress that the contractor is making. And certainly by Q2, we'll be at that run rate at the latest. I'm anticipating it earlier.

Jacob Sekelsky, Analyst

Got it. Okay. And then just from a high level, I mean, we've seen base metals rally the last few months. Any thoughts on hedging to kind of lock in some of those higher credits at these levels?

Allen Palmiere, President and CEO

It's something that we consider on a regular basis, Jake. On a fairly regular basis, we go out, get quotes for hedging primarily. We've been reticent to hedge in the past, but with metal prices where they are, it's something that we are actively considering. And I'm not going to say we're going to hedge all of our precious metals by any stretch of the imagination. But zinc is pretty strong, copper is pretty strong. And by hedging those, it will help us with surety in achieving our cash flows.

Operator, Operator

Your next question comes from the line of Heiko Ihle.

Heiko Ihle, Analyst

Can you guys hear me all right?

Allen Palmiere, President and CEO

You're perfectly clear, Heiko. Good to hear from you.

Heiko Ihle, Analyst

Perfect. I'm standing in the lobby of an office building, waiting to go into a one-on-one. So I apologize for the background noise. In your press release, you talked a bit about receiving some used equipment at site. Can you elaborate on what exactly has been received, what you're still waiting for? How much you paid for it, and how you paid for it? And also maybe just quantify the uptime delta that you had compared to what you had before?

Allen Palmiere, President and CEO

The uptime delta, Heiko, sorry?

Heiko Ihle, Analyst

The difference in uptime that you have now versus what you had before with the older...

Allen Palmiere, President and CEO

Availability. Okay. Chet, I don't know if you have the expenditures at your fingers, do you?

Chet Holyoak, CFO

I do not have them right at my fingertips.

Allen Palmiere, President and CEO

Okay. We have invested around $4 million in a combination of new and used equipment. We received several 2.5 yard scoops for the narrow vein and acquired a 6-yard scoop to replace an older unit. Additionally, we have a jumbo scoop, and we are still waiting for a narrow profile jumbo for our narrow vein mining operations. I expect that by the end of this month, most of our mining equipment will be operational, on-site, and functional.

Heiko Ihle, Analyst

Fair enough, fair enough.

Allen Palmiere, President and CEO

One thing I want to elaborate on, Heiko, is that the contractor, of course, brought all of their own equipment in. It's a blend of narrow vein and long-haul equipment. They've got a couple of small scoops and about 6-yard scoops, and they've got quite a large inventory of equipment. They are able to bring in what they need on demand. That has freed up our equipment to focus on Arista and Switchback.

Heiko Ihle, Analyst

Fair enough. Okay. That makes sense. You talked a little bit in the...

Allen Palmiere, President and CEO

I forgot to mention the availability on the new equipment, and it's running north of 80%.

Heiko Ihle, Analyst

Okay. So that's probably quite a big change to what it was before. And I assume the old stuff, like at least some of the spare parts can be scavenged in like 3 loaders turned into 1, right?

Allen Palmiere, President and CEO

That is exactly what we're doing. The old stuff is parked, and then we salvage all usable parts from it and scrap the frame and anything that's unusable.

Heiko Ihle, Analyst

Fair enough. Can you walk us through the impact of cut and fill mining, like the method on cost per tonne? I mean, obviously, dilution improves, but do we need to make any amendments to our model based on that change?

Allen Palmiere, President and CEO

If you have to make amendments to the model, the net result would be an increase in revenue per tonne mined. The cost, historically, long haul is running in the low 40s. Cut and fill is running low to mid-50s per ton. The big change, of course, when we were long hauling the narrow veins, we were unfortunately experiencing dilution in excess of 40%. By properly constraining the cut and fill, and we are throwing in a bit of resuing just to ensure that we get lower dilution, we've managed to bring dilution in those areas down to 13% to 17%. So we're moving 25% less material to the mill, but we're producing this amounted to the same revenue generation or better generation because the delivered head grade is higher. So our recoveries correlate with grade; we're getting better recoveries as well. Net-net, it's a significant improvement.

Operator, Operator

At this time, there are no further questions. I'd like to turn it back over to management for closing remarks.

Allen Palmiere, President and CEO

Thank you, Mike. I do want to thank everybody for joining us today. I stress the importance of what we are seeing in terms of a turnaround at the Don David mine. I'll put it in context a little bit; in July, it was a terrible month because we were in the midst of converting from long haul to cut and fill in a number of areas of the mine, necessitating additional development. But as we got into August, things improved. In September, we significantly exceeded our forecast in terms of tonnes produced. I'm happy to tell you that in October, we significantly exceeded our forecast in terms of tonnes produced, and I'm expecting that to continue for the balance of the year. So the turnaround is very much in hand, and I expect to be able to tell you when we next talk that we have seen very significant improvement sustained and looking forward to additional improvement in the future. With that, I will thank you once more for joining us, and I look forward to speaking to you, if not sooner, for year-end results. Thank you.

Operator, Operator

Thank you. This does conclude today's conference call. Thank you for attending. You may now disconnect your lines.