Thank you for joining Gold Resource Corporation's Fourth Quarter and Year-End 2018 Conference Call. Mr. Jason Reid, President and Chief Executive Officer, will be hosting today's call. Following Mr. Reid's opening remarks, there will be a question-and-answer period. As a reminder, today's call is being recorded. Please go ahead, Mr. Reid.

Thank you. Good morning, everyone, and thank you for joining Gold Resource Corporation's 2018 fourth quarter and year-end conference call. I expect my comments to run approximately 10 minutes, followed by a question-and-answer period. Joining me on the call today for the Q&A portion will be Mr. John Labate, our Chief Financial Officer. Let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday, along with the comments on this call, are made only as of today February 27, 2019 and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures, referred to in our remarks in our Form 10-K, filed with the SEC for the year ended December 31, 2018. 2018 was another great year for Gold Resource Corporation. We fired on all cylinders, executing on our business plans, positioned the Company for substantial production growth and increased future monthly dividends. I'm very proud that the Company delivered its eighth consecutive year of profitability. An eight-year stretch of profitability in any industry is respectable, but to accomplish eight years of profitability in the mining industry is a special accomplishment. In addition to being profitable, we succeeded on numerous fronts including the following: we achieved our 2018 annual gold and silver production outlook range coupled with substantial base metal production. We had net sales of $115.3 million. We remained a low cost producer. We expanded our…

Thank you. [Operator Instructions] We will now take our first question. Please go ahead caller. Your line is open.

Hi, this is Vijay Marolia of Regal Point Capital. Congrats on a great year, Jason.

Hey, Vijay, thank you.

I got to tell you, very impressed with what you guys are doing at Isabella Pearl and very impressed that you might be able to start pulling gold before June. Does that mean that we could maybe in the fourth quarter or possibly in the third through some sales from that show up on the P&L?

Yeah, we should remain committed that June is our public target, but I just put everybody on notice that we could be producing and selling gold sooner. I can't give you a month Vijay, because we're trying as hard as we can to get into production as soon as we can. And if we can sell gold, we will. But obviously, I can't give you an exact time. But we are close. We are very close. And as soon as we can start making sales, we will and we'll tell the market about that, but if we can beat our June target, more power to us.

Just a quick follow-up question. The energy savings, which as you mentioned, you have been working on that for years now and it looks like we're almost at the finish line, what percentage of your costs do you think are energy related?

Energy is one of our largest costs, the top one of our costs for sure.

Would it be about a third?

Yeah, I don't know that I can give you that percentage and say it's a third, but what's happened in Mexico over the last couple of years is they gave a diesel credit. And that credit has helped us out the last couple of years for the price of diesel. There is speculation that credit goes away with the new government that's come in. If it goes away, the order of magnitude we could be saving being hooked to the line is millions, 4 million to 5 million potentially. If the credit does not go away, we're still looking at millions, but let's wait and see, but the long and short of it is the Arista Mine continues to grow, you guys are seeing that just as we are with the proven and probable increase, these veins keep going – find more veins. It's getting bigger and that takes more energy. So obviously, we hook to the grid is very important, so that we have that energy, but to be hooked to the grid and get that energy at less cost is even more important. But for five years, we've been – you've been hearing me talk about this plan and we are right there. We were informed, like I said, a couple of days ago, the line is 100% complete construction, they are just starting to test the line, and we don't have time frames. It could be a week, it could be three weeks, it could be a month, I don't know, but it's close, really close. And once that's energized, we'll let everybody know and we will have additional power and additional cost savings. But Vijay, coming back to your original question, I don't want to give you percentage of that yet. Let's see what that – let's see how it all shakes out.

Sure. Fair enough Jason. Congrats again. I'm going to back out, but I do have a couple more follow-ups, but I'll let somebody else ask.

Okay, thanks. Thanks, Vijay.

Absolutely.

We will now take our next question. Please go ahead. Your line is open.

Hi, Jason. Mark Smith, a Private Investor. Hey, I've been with you for all these years where you guys have been – and we have been profitable and this is indeed a really great year and you do have a lot of accomplishments to herald. I have one question though and that is regarding these grades. Your throughput in the mill has been increased and that's great, but boy, those grades down on the Aguila project mill, they just continue to kind of waver and come downward. I wonder if – and I know you do have mine plans. Are those grades going to come up any time or I know as you go higher in the deposits you mine up, for example, at Switchback, that you're going to get into more gold and silver. But is that in your mine plan for 2019?

Great question. Good to talk with you again, Mark. Just to reiterate, for anybody who might be listening that doesn't understand the history here, we've been mining down on the Arista vein system now since 2010 and in an epithermal system, there's a gradation to it, as the ore bearing fluids move up, they boil and drop out the metals and the precious metals often drop out higher up in the system, there are still precious metals deep, but really high-grade base metals deep. So, over the years, we've seen a degradation in our precious metal grade and you've seen base metals go through the roof. That's why we're – our costs go lower because we use the base metal as a byproduct credit. But we have been struggling to keep our precious metals production where it is, and to counter that, we have increased throughput and you're seeing that. And so, to your question, where do grades go from here? We discovered the Switchback vein system 500 meters away from the Arista Vein System. We drifted over to the deepest area in the Switchback. So again, we're in these high base metal, a still good precious metal, but not as high as higher up in the elevations. So that's where we entered the vein system, we're now going to be developing and mining over time up, so on the long term, you're going to see a reversal in the grades where you're going to see precious metals go up, base metals to come down, there'll be a push-pull there. We won't have quite as lower costs, so to speak, right, because you don't have the base metal credits, but you’re going to have more precious metals, but it's all good – isn't an ideal situation. If we could just…

Yeah. I appreciate that, run down on that summary that goes back for people who don't go back as far as many people who listen to this do and it's that slow and steady, smart management, why I'm still around with this company as far as being an owner in part with you. One other quick question then on Mirador over there. Is that going to be a slow and steady increase on the tonnage out of there as well?

Yes, Mirador, for those who are listening and may not know, is the second – another mine we put into production with cash flow along our trend at our Alta Gracia Project and we bootstrapped that. We started up very small just pushing 150 – pushing 200 tons occasionally a day. Not really impressive so to speak for the industry, but we wanted to do a cash flow and we did and we're in there developing it, we are not yet really into some of the higher grade areas. There will be some news coming out shortly regarding this area – the Mirador, but it's going to be slow and steady, to your point.

Okay,

Don't – we're not expecting big things from that, in large part, because we are doing over with our own cash trying to bootstrap it. So it takes a little longer, but even today, we think it's the best approach.

Well, it's better than taking on debt, in my estimation as well. And then lastly, down there in the Oaxaca unit, what is the next property that would be, and I realize that will probably be down the road quite a little ways, but what will be the next property that you'll be really starting to dig into down there?

That's a good question. What comes to mind is the Arista Mine. We have tremendous potential to expand that and so actually we are focused – actually we are focused…

Okay. Yes, it's all developed underground and so forth and you'll be able to go get some of those splays and so forth that are going out all over the place down there. Okay.

Right, so we just don't want to get too distracted, so to speak.

Yeah, yeah.

You know that's the heart of the company right now and that will change over time, because we have good things coming from Nevada but that – great – last year we started…

Okay, all right, Jason, it's really good to talk to you. I really appreciate the ability to actually access you and I know that you're good email-wise as well with your guy that attends those and I appreciate that. I appreciate your management. You've learned well from that…

Thank you, Mark. And you – anybody has my number and I don't have a secretary, so if you call, you're going to get me. So if you call the office and just for me, anybody can call me anytime…

Well thanks, for those…

All right, thank you, Mark.

Thank you. [Operator Instructions] We'll now take our next question. Please go ahead. Your line is open.

Jason, it's Harvey Volen.

Hey, Harvey, how are you?

I'm good. Yeah, the numbers and the description of the year and the anticipation of 2019, all sounds great. I have a couple of questions. The deal with Wainwright, you said that you raised $15 million which is obviously going toward the development of Isabella Pearl and that resulted in 3,668,885, to be exact, shares – additional shares outstanding. Is that the end of it or will you be going for more sales?

Right, great question. I want – I also want to add to that, it's only 6.3% dilution, right. I said that earlier. I'll say it again. Very proud of the fact that we gave it a shot to build this with cash flow, we've built about half of it and it was just the market was too volatile and like I've said in every conference call all options were on the table. We looked at this option inside is the best one. And hence we only have 6.3% dilution and we believe we've raised all the money necessary for the construction of the Isabella Pearl. Now we said it in the K. It's open. It remains open. We will use it if we need to, but we believe we have raised all the money necessary for the construction of the Isabella Pearl.

So, possibly the rest of that money could be used for other development of some of the other Nevada properties. Is that what you're saying parenthetically?

No, we're not going to change our stripes as a company. Look, we've fought tooth and nail to have one of the tightest capital structures for producers in this space. This – and we've grown organically for eight years. This is our first raise in eight years. We take it very seriously. We're not just going to go continue to dilute to grow, it's just when this particular project, we told everybody in advance, we're going to give it a shot, doing with cash flow, it's going to be tight, and believe me, looking at spreadsheets, this week or that week, or this month and that month, you have weeks where you like, yeah, we can make it, well, it's going to be tight and we just couldn't. But I'm proud of the fact that we did half. So no, don't see that it's still in place, meaning, we're just going to continually to go hit that over and over again like everybody else in our industry does. We are not like everybody else. And I put my track record against that. So…

I appreciate you saying that, and I appreciate hearing it.

Yeah, no, I just want to be as transparent as possible, remains active, but I will say it a third time, we believe we have raised all the money necessary to construct the Isabella Pearl Project.

Okay, sounds good. Let me ask you about the contract mining agreement. Can you talk about that as far as Isabella Pearl is concerned?

In what way?

Well, I see it as a $30 million for 24 months, a contract miner what is that – what does that entail? What is that contract for exactly?

Okay. We contracted with Ledcor for our contract mining of the deposit and that entails them blasting and mining the waste and ore pulling the ore down to the crushing facility or if it's ROM straight on the pad and hauling waste to the waste locations. That's what it entails. So does that answer your question?

Well, $30 million over two years, that digs pretty deeply into what you expect to get out of Isabella Pearl. So, what other costs are involved in the production from Isabella Pearl besides the mining agreement?

Yeah. We have employee costs. We're trying to run with the real tight ship of about 40 people. So it's going to be really tight, but we're pretty confident we can do that. And then we obviously have all the costs associated with the process with crushing, with loading the heap, with processing through the ADR, but coming back to the Ledcor contract, let me put this in context of Mexico, we use many different contractors in Mexico and you guys who many of which are on this call have been with us a long time, in years where we faltered, you know, in large part, it was the contractor, who just didn't deliver, and so we basically brought all mining in-house. And we are delivering because, for years now, it's all in-house in Mexico. So let me apply that here to Nevada. I can – at any point in time, basically, after 24 months, I can walk away from this Ledcor contract if they don't perform or if it makes sense to go somewhere else. So yes, I know you're looking and focusing on that number, but we're going to be looking at this economics of this, the whole way through and I have optionality if I want to bring the mining in-house. One of the approaches we looked at early on is, should we buy all of the mining fleet and just do it ourselves? Because that is ultimately one of the better ways to go about it. But I didn't want to dilute, none of us wanted to dilute that much to go buy the whole mining fleet right now. But believe me, when we're in production and we're spending an awful lot of cash, like we expect to, especially when we get deep in the Pearl, we will have that option to afford that equipment and bring it in-house. So I know what you're kind of digging at on – on what are these total costs and that looks like a big number and wow they're going to take all the money, no, they're not. I mean, we're – I fully expect to make a lot of money here and perhaps even keep more of it than I do in Mexico. So we'll be watching costs, but Ledcor is a good group. Like any project, there's been a few hiccups along the way. And – but we're getting over through them and we're doing fine. So we'll see where it goes.

Okay. I appreciate your answer. One more question if I might. Dividend policy. Historically, the company has always talked about a third, a third, a third, you know what I'm talking about. And you put that on the back burner for the last several years for obvious reasons, it made much more sense to use all the cash flow you could to build out Nevada and to make other operations more efficient. So now once Nevada goes into production and starts to contribute cash to the company's coffers. Will the dividend policy go back to a third, a third, a third, where it's applied to mine gross profit?

Now it's a great question. I got answer to that is, if it was to go back to a third, third, third, we need to see little bit increase in the gold price. But for the time – for the foreseeable future, we're going to stand with what we state now and that is return as much back to the shareholders as soon as possible. For anybody who is listening who doesn't understand what we're talking about, we had a policy early on, back in the last bull market where we stated that a third of the revenue would go to taxes, a third for growth being put back into the project and a third for dividends and for years we nailed it. And believe me, we got calls from you guys if we were off by just a teeny little bit, but we did it, a third, third, third. Now the bear market hit us and that you just can't do that. The margins got too tight, and you couldn't do it there, we couldn't do it, in the bear market. If we go back into a bull market, we've done in the past, it's possible. I will say that. But I'd like to see that bull market in full effect before I start talking about going back to the third, third, third. But coming back to just dividends, in general, I fully want this dividend to start going up. There's nothing better than cash and dividend checks, nothing. And we all – for those who are in this company during the last bull market, those were great years. And we all want to go back to that. So hence why we build half of this with our cash, even though it was very difficult, not the easy route. Because we want to keep a capital structure. So, yeah, I mean, just to clarify, I can't give you the answer that we're going to go back to a third, third, third without a real strong bull market.

Got it, okay. I accept that. Jason, again, congratulations. I appreciate your conservative management style. I think you've done very, very well in the face of – well, the status of the gold price market and all of the other challenges that the company has had to face. So, congratulations and thanks for taking my call.

Yeah, I appreciate it. And I hope as time goes on these calls get a lot more fun when we're talking about additional production and you're asking me, okay, it went up by this much and where is it going next? That's what I look forward to, Harvey. I hope you call when we're increasing the dividend to ask those questions.

I will and I look forward to it as well. Thanks again.

Perfect. Thank you, Harvey.

We will now take our next question. Please go ahead. Your line is open.

Hey Jason, just a couple of last questions on the side note…

Who is this?

This is Vijay Marolia of Regal Point Capital. Sorry, about that.

Yeah. Hi, Vijay.

So, the long-term debt that's on the P&L, that's just like equipment financing. Is that correct?

Yeah. We have no long-term debt from my perspective, meaning…

Right.

The only thing that we have is equipment financing. Yes. We don't – I don't believe…

Perfect. And I think you already talked about dilution, in terms of CapEx, it seems like there should be drastic reduction in CapEx for this year and next or am I looking at it wrong?

No, I wanted to be and obviously this is we're still finishing everything. But last year, and I noted – I referenced it in my remarks earlier, those three programs were a huge cash drain on us.

Right.

All the while, we're trying to build the Isabella Pearl and it was over $10 million and that was a lot of money, when you're trying to build some that would have gone a long way. Having said that, the tailings again is done, so that CapEx is done. The pay slot is a little bit less, because we're still finishing it, but then the electric lines done. So I mean – we fully expect less CapEx. So, yes, that's an accurate statement at this point in time.

Perfect. And then I guess the last question would be on, in terms of Las Margaritas, do we have expected development date on that?

On Las Margaritas or…

Yeah.

No, we're still exploring Las Margaritas.

Okay, okay. Jason, I'm very excited, and congrats again. And looking forward going over the future results.

Hey, well, we appreciate you following us, Vijay. You've been around a while and good to see that you are hopefully back in – I think we have some exciting things ahead. So, good to hear from you.

Looks that way. Yes. Likewise about here, have a good one.

Okay.

Thank you. We will next take our next…

Operator, with that, I think we've gone over time. So, let's go ahead and close the call out and for anybody who may have been in the queue, feel free to just pick up the phone and call. I have a few things right after this, so I know I said I'm always available, but my associate Greg will be right after this, but anyway, we're around all day. So thank you very much and we'll talk to you next quarter.

This concludes today's call. Thank you for your participation. You may now disconnect.