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Gold Resource Corporation Interview Transcript with Bill Reid, President, CEO and Director

Published: 11:26 26 Aug 2011 BST

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Harry Norman: Hello, this is Harry Norman for Proactive Investors and welcome to another Proactive audio interview.

Today is the 12th of August, 2011, and I’m talking with Bill Reid, President, CEO and Director of Gold Resource Corporation, listed on the NYSE AMEX exchange, metals and mining sector.  Stock ticker GORO.  Share price $26.22 million.  Market Cap $1,389.61 million.  Gold Resource Corporation shares are also listed on the Frankfurt exchange.  Web address goldresourcecorp.com.

Bill, thank you very much for joining us for this interview.

Bill Reid: Thank you, Harry.  It’s my pleasure.

Harry Norman: Please would you give investors a brief introduction to Gold Resource Corporation and what makes the company stand out from the crowd.

Bill Reid: Yes, I’d love to.  We went public in September of 2006.  We have a great property in the southern state of Oaxaca, Mexico, and we decided in April 2007 to go forward with the mine.  So we built a mine, a mill, all the infrastructure and, I’m proud to say, three years and three months later—which is kind of fast in the mining business—we declared commercial production July 1st of 2010.  What’s exciting is that we have a high-grade deposit, which we’ll go over in a moment, and things are going really well.

Harry Norman: Please would you talk us through the salient points of Gold Resource Corporations’ second quarter earnings, which were released earlier this week?

Bill Reid: Yes, we were very pleased with results, but I must mention that on April 20th we had a freak storm that flooded the lower levels of our underground mine, so we had to repair and clean all that up.  So April and May were sub-par months, even though people kept everything operating—except for the mine, we had stockpiles.  But even with the difficulties, the second quarter we set record revenue at $20 million, we had record net income of $4.9—before the extraordinary item which was the flood—we paid record dividends of $6.4 million.  So what we’re really excited about is we paid for absolutely all of our activities, including the dividend, and we put an additional $4 million in our bank account.

Harry Norman: What can you tell us about the La Arista Underground Deposit’s current life-of-mine and grade, Bill?

Bill Reid: The recent deposit is our main deposit.  We’ve drilled it out to a certain extent—it’s still open in all directions but with depth and along strike.  We have announced that we have eight years, it’s 3 million tons of mineralised material that grades about 6.5 grams gold, 506 grams silver, copper’s 0.6%, lead’s 2.2%, and zinc is 6.5%.  

So I really like these polymetallic deposits because the base metals—which in this case they could be a mine unto themselves—actually pay for the operating costs, so it lowers our cost.

Harry Norman: What are your current cash costs per ounce at La Arista, and where do you see these cash costs going, Bill?

Bill Reid: We’re targeting for 2011, 60,000 to 70,000 ounces of gold equivalent—that’s converting the silver into gold, so we can talk about gold equivalent.  And we’ve set as our target $100 cash costs to produce those ounces. Now for the first six months of this year we stand at $126 in costs per ounce, so we’re pretty close.  

The grades are actually running only about half of what I just mentioned a moment ago, because we’re in the very top of the deposit and we’re more or less just starting to ramp up.  So we’re very pleased with the way it’s going at this point in time.  

Now what we’re looking at longer term is that by 2013 we are targeting 200,000 ounces gold equivalent at $0 cost, and of course the $0 cost comes about because our lead, zinc and copper pays for all the operating costs.  So we like to make our story very simple—200,000 ounces gold equivalent at $0 cost.

Harry Norman: What can you tell us about Gold Resource Corporation’s exploration and development targets and priorities?

Bill Reid: We have a fantastic property position in this state of Oaxaca.  We have, on a very important, what I call structural trend, we have over 48 kilometres.  At one end, the east end, is La Arista deposit, and that’s, of course, where most of our drilling is taking place right now.  

We’re continuing to expand and infill drilling at the Arista deposit and also if the mining department  needs a few holes, to see what’s out ahead.  We’ll put those in for them.  We have about three or four drill rigs operating at the La Arista deposit.  

Now at the very other end of our property position we have the El Rey mine, which we drilled a couple of years ago, and we discovered a high-grade vein system that’s about 1 to 2 metres wide.  It only has gold—doesn’t have base metals—but it’s running about 1 ounce gold per ton.  So we’re actually putting in a hoist and refurbishing a small shaft that was there so we can get underground, do some test mining on these veins, and get a bulk sample.  So we’re very excited with El Rey.  I hope to, maybe, be producing 100 or 200 tons a day from the El Rey by the end of the year.  

We also have other properties in between and we’re exploring those, such as Alta Gracia has a drill rig and we’re moving forward.  So we have a large position, an exciting position, and it will provide, we believe, a pipeline of projects to feed this mill over many years.

Harry Norman: You have strong views on dividend distributions to shareholders.  Please would you talk us through your corporate philosophy in regard to dividends, Bill?

Bill Reid: Yes, I can say that this company is being run for the shareholders.  And the reason I can say that is you don’t have the typical caretaker management here, you have the owner management.  Management are some of the largest individual shareholders of this company.  So an important philosophy of ours, right from the beginning, was to distribute as much cash back to the owners as quickly as possible.  And we’ve done that.  

I told you we declared commercial production July 1st, 2010.  We declared our first dividend July 31st, that was 3 cents, and we have been paying 3 cents a month until April of this year when we raised that to 4 cents a month. So we’ve returned, to the shareholders, over $22 million, if you include July at this point.  This is in line with our idea and our philosophy that one-third of the margin, or cash, that we generate from the project, one-third should go to pay taxes—because we’re profitable—one-third to build the company and one-third back to the owners of the company.  

We are profitable but we don’t have to pay any taxes right now because of the tax law’s carry-forwards, so through the second quarter we have generated new cash of $36 million and we have distributed $18 million back to the shareholders.  So we’ve lived up to what we said we would do and we were [?? 0:06:47] the company and 50% to the shareholders.  And, of course, at some point we’ll be paying taxes here, so then it will be one third.

Harry Norman: So, with the recent dividend distribution of $6.4 million, leaving you with $42 million in the bank, what is Gold Resource Corporation’s financial situation going forward, Bill?

Bill Reid: We’re very pleased, like I said, in the second quarter, even though under difficult circumstances, the operation paid for everything that we did, including the dividend.  And we put $4 million in the bank.  Our production will be better in the third quarter than it was in the second, and we’re looking at, basically, being fully funded.  In other words we don’t see, for the foreseeable future, the need to issue any more shares—we’ve been very tight with out capital structure, we only have 53 million shares outstanding as a producer, and that’s somewhat rare—so we’re very pleased with where we are and, financially, things are going really well.

Harry Norman: What can the investment community expect from Gold Resource Corporation over the next 12 to 18 months?

Bill Reid: As I said we have a very exciting growth profile, we’re targeting 60,000 to 70,000 ounces this year, maybe 140,000 to 150,000 next year, and then, by 2013, 200,000 ounces at our $0 cost.  So we have one of the better growth profiles out there, we also are one of the lowest-cost gold producers—I think the average cost to produce an ounce of gold now is almost $600—so we have that going forwards.

We also have the ability to explore one of the more exciting exploration projects out there, today, what we have in Oaxaca.  And we’ve stated that we would like to get in the position, which we think we will before too long, to be able to pay the dividends back to the shareholders in kind—in either gold or silver—if they so elect.  

So there’s a lot of exciting things coming down the road with Gold Resource Corporation and we hope everybody will take a hard look at us.

Harry Norman: Remember Proactive Investors is not an investment advice service.  Make sure you register at proactiveinvestors.com, or proactiveinvestors.de for our weekly newsletter, which will keep you informed about our articles, interviews and events.

Thank you for listening.

 

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Gold Resources One2One Forum presentation - December 9th 2010

Gold Resources One2One Forum presentation - December 9th 2010

on 23/12/10