Gold Resource Corporation (GORO) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Gold Resource Corporation's Annual Meeting. I am Alec Morrison, Chairman of the Board of Directors, and I will Chair this meeting today, and Ann Wilkinson will act as Secretary of the meeting. I hereby call this meeting to order. We are 1 year into the pandemic. And while we are seeking a return to normal, circumstances dictate that this year's meeting will be a hybrid meeting with some of our leadership attending online with the balance here in person. I welcome all of you to join us online. Joining me online today are Allen Palmiere, Chief Executive Officer and President; and Director, Ron Little. Other members of the company's team here in person or online include Kim Perry, our Chief Financial Officer; Alberto Reyes, Chief Operating Officer; [ Nick Sutter ], VP Exploration; and Ann Wilkinson, VP, Investor Relations and Corporate Affairs. We also have Joe Adams and Brian Rooney, representatives of Plante Moran; and Brian Boonstra, representing, Davis Graham & Stubbs is available online and available to speak if necessary. Before we commence with the formal portion of the meeting, I would like to touch on 2 housekeeping matters. [Operator Instructions] If you have a question that directly relates to any proposals, we ask you to submit those as soon as possible. We will make every effort to answer questions as time permits. Otherwise, we will attempt to answer general questions at the end of the meeting. If we do not get to your question, you can almost reach out directly to Ann, and she can assist you. Following the conclusion of the formal business of the meeting, there will be a presentation by Allen Palmiere, our President, Chief Executive Officer and Director. The second housekeeping matter is that when the polls open, any shareholder wishing to vote his or her shares, can do so by clicking on the voting button on the bottom right-hand side of the screen. If you've already voted your shares, there is no need to vote again unless you wish to change your vote. We will now proceed with the formal part of the annual meeting. A complete list of the shareholders as of the record date of April 6, 2021, was on file at the company's offices and open to inspection by any shareholder as required by Colorado Law. The list is also available for inspection by any shareholder during this meeting. I will now ask Ann Wilkinson to report on the calling of the meeting and the presence of a quorum.

Ladies and gentlemen, I have an affidavit from Broadridge, attesting that on April 23, 2021, the annual report, the notice of this meeting and the proxy statement were mailed to shareholders date of April 6, 2021. On that date, there were outstanding and entitled to vote at this meeting 74,439,205 shares of the company's common stock. Shareholders who hold a total of at least 63% of the shares outstanding are present in person or by proxy. The company's bylaws require the presence of more than 1/2 of the outstanding shares entitled to vote. Therefore, a quorum is present for this meeting.

Thank you, Ann. Based on that report, I declare that the meeting is duly convened. I have also appointed [ Ms. Christine Amarine ] to serve as Inspector for Elections for the purposes of tabulating votes at this meeting. She has executed her oath, which will be filed with the minutes of this meeting. The polls will be open for voting immediately after the introduction of the proposals and remain open until I declare them closed. Typically, we ask shareholders outside of management that attend the meeting in person to assist us with offering the proposals. But given the limitations of the virtual meeting format, I'm going to rely on Ms. Perry and [ Edith Masslever ], each of whom are also shareholders of the company, to assist us with the offering of motions for the proposals on the agenda. The first item of business is the election of directors to serve until the next Annual Meeting of shareholders and until their successors are elected and qualified. 5 directors were nominated, and the Board of Directors recommended voting for all 5 directors. The Chairman recognizes Kim Perry to nominate 5 persons for election to the Board of Directors.

Mr. Chairman, I nominate the following persons as directors of the company: Alec Morrison, Joe Driscoll, Ron Little, Lila Manassa Murphy and Allen Palmiere. Is there a second to the nominations?

I second the nominations.

The company has received no other nominations for directors in the manner prescribed by the company's bylaws. I therefore declare that the nominations are closed. Are there any questions regarding the nominations for Director?

There are no questions, Mr. Chairman.

Thank you. If not, we will move to the next item of business. The next order of business is a shareholder's advisory proposal to approve the company's executive compensation program. The Board of Directors has recommended a vote for the approval of the executive compensation program. The Chairman recognizes [ Edith Masslever ] to make the motion concerning the proposal to approve executive compensation.

Mr. Chairman, I move that the following resolution be adopted, resolved that the compensation paid to the named Executive Officers of Gold Resource Corporation as described in the proxy statement sent to the shareholders and this cause person to the rules of the Securities and Exchange Commission be approved on an advisory basis.

Is there a second to that motion?

I second the motion.

Are there any questions regarding the advisory proposal to approve executive compensation?

There are no questions, Mr. Chairman.

If not, we will move on to the next item of business. The next item of business is ratification of the appointment of the independent accountants who serve as auditors of the company, Plante Moran, for the year ended December 31, 2021. The Board of Directors has recommended ratification of the appointment of Plante Moran by the shareholders. The Chairman recognizes [ Edith Masslever ] to make the motion.

Mr. Chairman, I move that the following resolution be adopted. Resolved that the proposal to appoint Plante & Moran, PLLC as the company's independent auditors for the year ending December 31, 2021, be ratified and approved.

Is there a second to that motion?

I second the motion.

Are there any questions regarding the proposal to Ratify Plante Moran as the company's independent auditors?

There are no questions, Mr. Chairman.

If not, we will move to the final item of business. The next item of business is to approve an amendment to the company's articles of incorporation to increase the number of authorized shares of common stock from 100 million shares to 200 million shares. As such, authorized shares amendment is described on Pages 14 and 15. And as such, articles of amendment are set forth on Page 46 of the proxy statement dated April 23, 2021. The Board of Directors has recommended a vote for the authorized shares amendment. The Chairman recognizes Kim Perry to make the motion concerning the proposal to approve the authorized shares amendment.

Mr. Chairman, I move that the following resolution be adopted, resolved that Article 4 of the articles of incorporation is hereby amended to read in its entirety as is set forth in Annex A to the proxy statement dated April 23, 2021.

Is there a second to that motion?

I second the motion.

Are there any questions regarding the amendment to increase the number of authorized shares?

There is a question.

Could you elaborate a little bit further on the thought process that requires [ your line ] to doubling the authorized number of shares.

I need to repeat the question really quick. Tom has asked if -- what's the thought process behind doubling the number of shares?

Okay. Currently, we have just over 74 million shares outstanding. And the current authorized number of shares to be issued would be 100 million shares. We just feel that increasing the number of authorized shares allows us to effect an amount of shares that might be required in future, should we have a corporate transaction that would be transacted in shares.

That doesn't seem like much of an explanation, honestly. You've got 1/3 available of your currently authorized shares, it sounds like. And you're proposing lots of possible dilution with an awfully low share price right now. I don't understand the thought process still.

So we have essentially 26 million shares available, which would represent, at today's share price, less than $70 million worth of value that we could transact with. We just feel the flexibility to allow us to look at larger transactions, and $75 million is in the best interest of all shareholders. And we will ensure that any transactions we make are accretive to shareholders on many aspects and many angles.

Is that commitment in writing somewhere in your proxy materials?

Which commitments, sir?

That any transaction would be accretive?

It's just in the best interest of everybody that any transaction we look at will be accretive on many measures.

Thank you, [ Mr. Wolf ].

There will be no other proposals under consideration at this meeting. We will now open the polls to allow voting for the 3 proposals just discussed. As a reminder, you can vote your shares electronically in the lower right-hand side of your screen, if you have not already voted or if you have changed your mind. [Voting]

I will now declare the polls for voting closed and call upon our election judge to report on the results of the vote.

Mr. Chairman, we're prepared to announce the preliminary voting results and after inspection and verification of any ballots cast during this virtual meeting, the final detailed tabulation results in a report with the Securities and Exchange Commission on a Form 8-K within 4 days from today. Broadridge was engaged to tabulate the votes cast by proxy. And based on their initial tabulation report, I hereby report the following based on preliminary tabulation results. Number one, Alec Morrison, Joe Driscoll, Ron Little, Lila Manassa Murphy and Allen Palmiere, each have been elected to serve as directors until the next annual meeting of shareholders or until their successors are elected and qualified. The proposal to approve an advisory basis, the compensation of the company's named executive officers was approved by approximately 93% of the votes cast at the meeting. The proposal to ratify Plante & Moran, PLLC as the company's independent accountants for the year ending December 31, 2021, was approved with approximately 98% of shares voted cast in favor. And the proposal to approve an amendment to the company's articles of incorporation to increase the number of authorized shares of common stock from 100 million shares to 200 million shares. As such articles of amendment are set forth on Page 46 of the proxy statement dated April 23, 2021, was approved with approximately 85% of shares voted cast in favor.

Thank you, [ Mrs. Amarine ]. I believe this concludes the proposals at this meeting. Is there any other business to be discussed at this meeting? If not, I will now try to address any outstanding questions.

Mr. Chairman, there's no outstanding questions at this time.

Any questions from the floor? As it appears there are no further questions or business to discuss, I will entertain a motion to terminate the meeting.

Mr. Chairman, I move to terminate the meeting.

I second the motion.

All in favor, say, aye.

Aye.

The formal portion of this meeting is adjourned. And with that, I would like to turn the meeting over to Allen Palmiere, President, Chief Executive Officer and Director.

Thank you, Alex, and good morning, everyone. I have to admit that I'm very much looking forward to a time when meetings are back to being fully in person. The virtual world is somewhat efficient, but it lacks a great deal. The past year is one of dramatic change and challenge for the company. The elephant in the room, of course, is COVID-19. It caused, effectively, a 2-month shutdown at our Don David Gold Mine in the late spring of last year. Like many companies, we struggled with it. However, our management team developed very rigid and very strict COVID protocols that have allowed full resumption of operations. It took a while. Over the course of several months, we gradually brought our production back up to the full levels. And by year-end, we were operating at full levels, including incorporating all of those COVID protocols that still remain in place. The mine management and the operating team really do need to be congratulated on the job well done during very, very difficult times. They addressed a series of challenges, and they came out on top, and they do need to be recognized. We did have a very unfortunate occurrence in December. We did have a fatality at the mine. It is something that is not acceptable to anybody involved with the corporation, the Board, management, our operating teams. It was a breach of safety protocol. And what we have done to address it is renewed our focus on all safety training and protocols throughout the corporation. The other major impact last year was the spin-out of the Nevada assets into Fortitude Gold. This led to a major market disruption, but it has also led Gold Resources to new opportunities. Directly resulting from that, 3 out of our 4 independent directors are new, and we have renewed the focus on best practice governance. We have a new executive management team focused on social responsibility, safety, operational improvement. And this goes to the question was asked earlier, very disciplined growth. Where are we today? We do have effectively a new Board, Alex Morrison, our Chairman; Lila Manassa Murphy, Joe Driscoll and Ron Little have, between them, a series of skill sets that were specifically selected to complement each other and to complement management. They are all very involved and are making very significant contributions to the corporation. The focus is and will continue to be at the Board level on best practices in governance. You will see a review in the documentation that's already been provided as part of the notice for the meeting, that there were already been significant changes. You can be sure that those changes will continue and be enhanced on a go-forward basis. We're very focused on improving disclosure to our shareholders. We're also very focused on improving communication with our shareholders on a regular and consistent basis. In addition to effectively a new Board, we established an Advisory Committee. The purpose of the Advisory Committee is to have available to the Board and to management, the expertise of certain individuals that we feel can make a significant contribution to the company. We have 2 current members, Mr. Dale Finn and Mr. Joe Spiteri. Dale comes to us with an extensive background in exploration through Latin America, Africa and North America. Joe has been an independent consultant for many years and is one of the foremost valuation and optimization consultants in the mining industry in Canada today. We have effectively a new management team. Kim Perry, our CFO, has the longest tenure of anyone, and she stepped down off the Board to take the role of CFO last August. Alberto Reyes, our new Chief Operating Officer, joined us now 3 weeks ago. Ann Wilkinson, VP IR and Corporate Affairs, joined us in January; and [ Nick Sutter ] took over the role of VP Exploration in February. This new team is renewing the focus on social responsibility, safety and operational efficiency. We do have a very strong technical and operating team down in Mexico. I'll put that in context for you. A number of years ago, I was the CEO of a mid-tier company called Hudbay Minerals. At that time, we had 4 mines operating, all in Canada. We have one mine in Mexico. And we've got a stronger and larger engineering team in Mexico than I did when I was running Hudbay Minerals. It's an unrecognized asset of the team, and it's one that gives us the opportunity to take advantage of potential developments that may present themselves. The mine is operating well. We have had some ground control issues. They were expanded on during our Q1 call. But notwithstanding that, we are still tracking guidance. The opportunities that present themselves at this point are multiple. We are going to and are actively reinforcing and enhancing the safety culture that we want to see at our operation. ESG in today's world is becoming progressively more important. In our situation, our primary focus is only on telling our story. We have a multitude of very significant social and environmental accomplishments. For example, 2019, we installed a power line to the mine. That had a couple of benefits. One, we no longer rely on gen sets to generate our electrical power, reducing the amount of diesel fuel that's consumed at the mine. And more significantly, in a lot of respects, we provided power to 25,000 families that had never had access to electrical power before. We are well along in construction of our new dry stack tailings. It's due to be commissioned beginning in July, and that does a couple of things. One, it eliminates the ongoing usage of traditional tailings of deposition methods. And our initial site for tailings deposition, pursuant to the dry stack is the old open pit. This company originally started with a small open pit mine. By using that as a storage facility, we will effectively be able to completely reclaim the old open pit and ultimately restore to something close to the original topography. We have provided very significant impacts, economic benefits to the local communities. We've encouraged businesses to start and to thrive. And we're seeing the town of San José de Gracia being very, very active and vibrant as a result. We've provided to them water supply. We've helped them with infrastructure development and the change in the community is noticeable. Last and certainly not least, for the seventh consecutive year, we received the socially responsible Enterprise Award, awarded by a foundation -- independent foundation in Mexico to those companies that exhibit the highest standards of social responsibility. That is a very significant accomplishment. And again, the operating team at the mine needs to be congratulated for the work that they've done. Going forward, we are going to further engage with local communities on a strategic and consistent basis. Historically, while we have engaged with the local communities, I think that we have been a little bit efficient in the consistency of the approach. And we are now in the process of developing a plan that will ensure that we have consistent, honest and open communication with all of the local communities. Our Mexican assets are an excellent platform to develop a mid-tier precious metal producer. Historically, the mine was viewed as a source of dividends and corporate office did not really focus on improvement. The latter 4 years, once the company acquired the Nevada operations, the focus shifted to Nevada and the Mexican team was, while not completely, but largely left to their own devices, and were not necessarily provided with all of the capital necessary to enhance the operations. We are a low-cost producer in terms of gold equivalent ounces. However, we do have the potential of lowering our costs further by optimizing operational procedures and providing to the team the necessary capital to allow them to fully realize the potential of the operation. We have a very strong balance sheet. We have no debt. And our cash flow is significant. Prior to sustaining and growth capital this year, we will be cash flowing directionally about $50 million. This is far in excess of any comparable gold mine with 40,000 ounces. Large part, it's due to our byproducts, principle of which are zinc and copper. And I believe everybody understands where copper is at $4.50 a pound directionally and zinc is doing extremely well as well. So that gives us the opportunity to accumulate a good cash reserve to enable us to take advantage of opportunities that may present themselves. We do have a very significant land position in Mexico, and we have approximately 55 kilometers of contiguous concessions running to the North West of our existing mine. There's been very little work done on this portfolio of projects. However, there has been a little bit of work done on each one of them. And each one of them have indicated -- have shown some potential for economic resources. Exploration is a risky business. Does it mean we're going to find anything there? No. However, we do know there is very strong potential, and we are going to be focusing on that going forward. Where is -- where are we going? The primary objective is to continue to improve corporate governance. We want to be and we will be best-in-class. We want to continue to improve stakeholder relations. It's a very broad term. That includes the local communities, our suppliers, our employees and our shareholders. How do we do that? It's communication, consistent and open and honest communication, and that will be the case for all of our stakeholders. We're going to continue to focus on safety. Any accident is too many accidents. And we are going to ensure that we have absolutely the best practice implemented across the corporation. We're going to focus on operational improvement. I indicated earlier that the mine has not necessarily been given as much capital as it could have been, and we've already are in the process of changing that. An example is a modification to our metallurgical circuit that's underway right now. What we're going to be doing is pulling a secondary concentrate off of our tailings and fine grinding it running that through the leach. That is forecast to increase our gold production by -- gold recovery by between 6% and 10%. Total cost is only $1.9 million. Now this has been proposed 1.5 years ago, but because the focus was not necessarily on Mexico, it never gained any traction. It has been authorized, the engineering is well underway, and we're looking at commissioning that modification to the process sheet sometime this fall. Directionally, it will be October and November. Payback for that particular investment is measured in months. Depending on gold price, it could be as few as 3 to 4 months and if gold goes down, it could be 6 to 9 months. That is the type of investment that we'll be making in our operations in Mexico to improve the operation, our recovery and our profitability. We are going to continue to focus on near mine and then subsequently greenfield exploration on our concessions in Mexico. Last year, 2020, the total budget for exploration was only $2.5 million. This year, we increased it to $7.5 million, and the constraint was not available capital, the constraint was availability of drill sites. We're actively working on obtaining access to drill sites near the mine and in the greenfield concessions so that we can enhance and increase the exploration next year beyond what we're doing this year. Lastly, but certainly not least, we are going to opportunistically assess and pursue M&A opportunities. M&A is not a strategy. It is, by definition, opportunistic. And any operating company has to, on a continual basis, review those opportunities to present themselves. It has to be disciplined. Growth for growth's sake is not what we're doing. Alex earlier, in response to the question from the floor, indicated that we will be looking at acquisitions that are accretive across most metrics. What are the metrics? Cash flow, ounces, resources, multiples. There's a whole variety of metrics that we look at when we're looking at acquisitions, and we are not going to pursue those acquisition opportunities that are not accretive. Are they going to be accretive across all metrics? Probably not. However, they will be accretive across most metrics, and they will -- if we pursue an acquisition or more, they will, in fact, be very value-accretive to our existing shareholder base. That is the minimum threshold that we will be looking at. What's our objective? Our objective is to have a clear path to 150,000 ounces of production within 2 years. Does it mean we will be there within 2 years? Potentially or potentially not. I can't answer that question because if it is by way of exploration, a new mine will take time to develop, but we will know where we're going. If it's by way of acquisition. The answer is going to be dependent on whether or not it's a producing asset or a development stage asset, but that is our objective. Thank you. And now I will take a few questions if anyone has anything to ask.

Allen, it doesn't appear there's any questions -- oh, there is a question from the floor. One minute.

Yes, please. [indiscernible] they are being hired primarily for opportunistic activity rather than buying operations where you have, I guess, at least in my view, plenty of expertise.

So I'm going to repeat the commission in summary, is -- the question from the floor is, can we please elaborate on the Technical Committee, is it specific for M&A opportunistic type work? Or is it specific to operations and the work that's taking place there?

The Technical Advisory Committee is not specific to either of those. We are using the Technical Committee to work with [ Nick Sutter ], our VP Exploration, to look -- take a fresh look at our understanding of the geology, near-mine and in the greenfield concessions that we have and to help develop new targets. That's the primary focus right now with Dale Finn. Joe Spiteri. Joe is looking at a couple of things. Operational efficiency. He's looking at our procedures, underground -- primarily underground. He's not a metallurgist, but very much so a mining engineer. And he's working with our Chief Operating Officer, Alberto, to assess the direction we're going operationally. Can those 2 individuals assist in M&A? Absolutely. Joe has done a great deal of valuation work for a whole variety of companies. Dale has been involved in his prior incarnation with Newmont, assessing acquisition opportunities. But the primary focus currently is on our existing operations. And then on a secondary basis, they will be involved looking at any potential acquisitions.

Thank you, Dennis. There are no other questions from the floor.

All right then. I do thank everyone for their time, for their attention. As I said earlier, I would be very thankful that next year, we can all be there in person. Have a good afternoon -- or morning, and afternoon everyone.