Good day ladies and gentlemen, and welcome to your Gold Resource Corporation’s First Quarter Conference Call. Joining the call today are Mr. Jason Reid, CEO and President; and Mr. John Labate, CFO. As a reminder, today’s call is being recorded. All lines have been placed in a listen-only mode and the floor will be opened for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to Mr. Jason Reid, CEO and President. Sir, the floor is yours.

Thank you. Good morning, everyone, and thank you for joining Gold Resource Corporation’s 2020 first quarter conference call. I expect my comments to run approximately five 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, the current quarterly report on 10-Q 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, and we make – 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, 2019 as well as this current quarterly report on 10-Q. The first quarter production was within estimated production ranges at both our Oaxaca mining unit and Nevada mining unit. The company’s Nevada mining unit production continues with the Isabella Pearl mine ramp up phase, which as previously stated requires us to move a lot of overburden to access the high grade Pearl zone, while we mine Isabella zone’s lower and varied gold grades. This lower grade Isabella ore outcropped at the surface and was the first ore placed on the heap leach pad. As mining continues on schedule, the back half of 2020 we expect to see gold production ramp up as…

But before we do, I would like to get to the first write-in question, an email question by Jorgen comes in three parts. It’s a good – they’re all good questions. The first one is, is the loss in Q1 all attributed to Nevada, whereas Mexico on the red? The loss in Q1 is primarily driven by $7.5 million of non-cash dealing with amortization and depreciation. Having to do with from Mexico, we had three projects that we put into service; the tailings, new tailings lift, power generating – the power plant and the paste plant. So all three of those are in some of the amortization and depreciation. And the ADR in Nevada, we put that on service and started accounting for that in January 1. So that’s being amortized. So that’s been the primary drivers, the amortization and depreciation, non-cash items, driving the loss. Number two, I think the ATM raise was a smart move, but it was unexpected and of course comes with dilution of existing shareholders, assuming GRC sees better times again in this gold bull market. Does the board consider reversing the ATM and buying back shares? I believe there’s still a facility in existence for this. You are correct. There is a facility still in place to do this, but there are currently no plans to do that. Number three, the $6.9 million CapEx is higher than the $5 million cash flow from operations. Is this attributable to timing of the dry stack tailings facility CapEx in Mexico? There’s a lot that goes into that number. $3 million of that is Pearl waste being capitalized. We are capitalizing this waste because we are not into a material amount of ore yet. We just reached the top of the ore body in the Pearl. We’ve…

Thank you. The floor is now open for questions. [Operator Instructions] And we will take our first question from Heiko Ihle with H.C. Wainwright. Please go ahead.

Thank you, guys. Hey, Jason.

Hey, Heiko, how are you?

I’m doing wonderful. Thank you very much. Just quarantined like everybody else.

Right.

First one might be a little bit more of a comment, but I just want to point out, I mean, you guys have $5 million of free cash flow and if nothing else, I think that shows that the low zinc crisis can be more than offset by higher gold prices. And I commend you for that diversification.

Well, thank you. Yes, everybody knows we mine from a polymetallic deposit, and that’s a great thing. And I want to kind of – everybody’s probably focused right now on, oh zinc, oh zinc. That drove a lot of the quarter. Okay, but let me put it in perspective. Back in the bear market for gold and silver, when the space was struggling, we remained profitable as a company for nine years now in part during the bear market because of base metals because they often move countercyclical to the precious metals. And at that time they helped us remain positive. So it is what it is. I expect the base metal price actually to start coming back. Why do I say that? I’m seeing TC charges lower because a lot of supply has been taken out of the market. So I think this is a short-term thing. It is what it is, but yes. Good comment.

You’re talking about the longer term a second ago, like the eight-, nine-year period actually leads overall to my next question. I mean, you guys don’t really have any debt. Interest rates are low, probably going to be low for a while. At what point in time would that ever change? Or maybe the answer is that will never change period? I mean, can you maybe just provide a little bit of color on that, please?

As far as taking on debt?

Correct.

We would consider it. We did consider it when we were looking to build the Isabella Pearl project. In large part, it’s going to be driven by what the terms are. And the terms in debt that we have seen to date are atrocious. And it’s not so much that so many of the debt guys won’t get out of the bed for less than 20% effective interest rate, it’s all the other hooks they put in you, covenants. I sleep so well during this period right now, during the closure. Why? Because we have no debt. And so I don’t have any bank or anybody leaning over me saying, hey, you’re going to trigger these covenants. You’re going to get in trouble. You’re going to – none of that. So I – generally speaking, and factually we’ve been adverse to debt and I don’t imagine we take on debt, but to your point in the future, if that term becomes very attractive, sure, I mean, we’ll consider them, absolutely. It just depends on the actual terms. But, yes, that’s just kind of where we stand on debt. We don’t have any, so I tell you it pays huge – it pays dividends, not the mix, the fact that we’re a dividend payer, but in a different context it pays dividends to not have any debt during times like this.

Fair enough. And then speaking of times like this, I’ve seen a variety of conflicting reports. I’ve seen operations reopening in the May, I’ve seen May 17th, I’ve seen May 18th. Maybe it seems like some guys never even close. Can you maybe just provide a little bit more color and X’s that you were talking about early on what you’re seeing in that area please?

Yes. It’s a bit of a mixed bag. I have been told and I believe it’s to be the case that some of the big Mexican miners like Peñoles, Frisco, Fresnillo they all got together and lobbied the President and they never – and they got a side deal never stopped. I’m not 100% sure of that, but the word is that that’s the case. For most mining companies, we did the right thing, us included and when the mandate came, we closed operations. Most mining companies couldn’t get side deals with the government. I know several that were trying to lobby the government and didn’t succeed. And they were some of the last to come out with their press releases that they shut down. So it’s a wide range. There’s been some who’ve ignored it completely. There’s been some who’ve got side deals, but for the bulk that I’m aware of, everybody acknowledged the government mandated shut down and we shut down. Now as far as restart, they – they’re kind of walking back some of their earlier statements that, hey, you can do an early start if you do this proposal. But now they’re just coming out so much as recently I saw the President speak where he said, construction and mining can start on the 17th. So until we actually see that happen, then we’ll know for sure. But having said that, when the President recently as a couple of days ago is out there saying, mining company can start by the 17th. I’m optimistic, we can start by the 17th. But we’re fully prepared to go to the 30th, Heiko we are fully prepared and can survive many more months, far more than I think most mining companies could. If COVID takes a turn and gets worse and they do even additional lockdown. So it’s a – I mean it’s just a wide varied scenario. It’s ever changing. It changes almost by the hour. But as I talked to you today, at this point, it looks like we might be able to start up by the 17th.

Very good. Thank you so much in the interest of time. I’ll go back in queue.

Hey, thanks, Heiko. Appreciate it.

Thank you. Our next question comes from Jake Sekelsky with ROTH Capital Partners. Please go ahead.

Jason, thanks for taking my question.

Hey Jake, how are you?

Not too bad, hanging in there. So I know you noted higher treatment charges during the quarter and then you alluded to this briefly earlier, but I’m just curious if you’ve seen those come down at all in Q2 as we’ve obviously seen some supply come offline. And if these levels are budgeting for the year or if you’re expecting them to come down?

Jake that’s a great question. Let me just put some context on zinc. TC charges as recently as 2018 were $29, in 2019 they were $190. And they were pushing us in 2020 for over $400. We were able to push it down to about $380, but to go in a three-year period from $29 to $380 is brutal. And I’m – I don’t have the complete picture of why zinc TCs went this direction, but I was being told by the concentrate buyers that it’s a supply demand in large part because China is trying to put in these scrubbers and systems that are more environmentally friendly and they don’t have 100% operating. So they have to operate at less capacity. They can still operate but at less capacity. So therefore there’s not as much capacity. And on top of that, there’s huge supply. So the supply and demand and there’s – I’m sure there’s many other things and other shareholders could probably weigh in on some of the other driving factors, but that’s one of them. And so the supply and demand imbalance has been huge. And so like I mentioned on my call, when I’m talking to the concentrate, but I’ve said, you know, you’re going to put zinc mines out of business. And he said, yes, we know that. And sure enough, I’m not going to call them out, but there’s been several zinc mines just go under. So supply is coming off. Now on top of that, the pandemic that nobody saw that coming, that’s taken off huge supply. So we’re already seeing TC charges cut in half for what they were pushing for. Now that’s not going to impact us because we sign a yearly contract. Most mines do. Some mine sign two year contract, but we do yearly. So we’re locked into these high TCs. Having said that, we do have optionality and that we have over a year with a development in our mine in front of us, so we can go and try to poach areas with higher precious metals and being less dependent on zinc. And secondly, I think watching the TCs drop already, like I’ve heard some are locking in a $200 and I bet they come down even further. Those are leaders I believe to an increase in zinc. So, given all this transpired, the supply and demand, the pandemic, everything, zinc could bounce back. But that could help our focus on trying not to mine heavy zinc areas, which we have plenty of optionality there to try to make that happen. And the gold price to help offset it. But no, we were locked in and we plan that for the whole year as far as the TC charge. It’s just a brutal time. I’m just glad we’re not a sole zinc producer. My goodness, we may have be having a completely different call.

Yes. That’s fair. It’s good to hear that you guys are able to remain nimble down in Mexico and try to focus on some more precious metal rich areas, right. And then just shifting over to Isabella Pearl. Looks like you guys are making good progress towards accessing a higher grade portion towards the second half of this year. Are you able to just quantify the remaining capital required for stripping there and the removal of overburden until you get into I guess the heart of the system?

Well, no, because the heart of the system is much deeper. But we’re going to be into a very material amount in the next couple of levels. We call it the high grade finger and it’s just a function of the way the minerals is situated and it rises at an angle and we’re mining down and we’re into the top of it. But it balloons out to the bottom. But I’m more focused on just getting to another lower level because every level we go down, it widens a bit. And obviously if this grade continues, that’s going to be material. So it’s not going to be a lot of capital to get down to a material amounts of this ore I don’t believe. I don’t have the exact answer to your question on, right in this format as far as the capital to get down to the heart. And again, it’s how you define the heart of it. But I believe we’re going – to try to answer your question, I believe we are in the process of turning the corner so to speak. We always knew this mine is not about Isabella. Isabella just helps us generate cash flow early, while we’re trying to get to the Pearl. That’s the long and short of it. And now we’re there. And so I think we’re turning the corner and that as the next couple of months go by, we’re going to put more of this high-grade on the heap, give it, some time to leach. And that’s why I stated, we’re going to start seeing a bump, I believe in Q3, but I believe a big one in Q4. And so that’s when our lives change. That it’s – so we’re going to put more ounces on the pad with less mining, as we mined down on this. So I think we’re close, we’re very close and our story hasn’t changed from as far as this ramp up and we’re on – right now, we’re on track for that. So as long as we continue to take the precautions not to have COVID hit that site, I don’t – COVID would have to be really bad I believe in Nevada, for them to do what Mexico did. In Nevada, they see mining is essential and Mexico, it’s non-essential. So unless Nevada gets hit very badly, I don’t think they’re going to change course and shut down mining. So as long as we can keep it off of our – out of our sight, off of our mine site, we should be good to go. In the next couple of months, we’re going to start seeing some additional levels with higher grade. Again, it’s mining. There’s going to be lag time before you guys see it. But that’s why, it’s common. It’s happening now. I hope that kind of gets to some of your question, but I don’t have the CapEx number for you.

Yes. No, that’s helpful. Looking forward to that if I can have. That’s all I had on my end. Thanks, again.

I appreciate it. Thanks Jake.

Our next question comes from Chen Lin with Lin Assets. Please go ahead.

Just the curiosity, when you restart the Mexican operation, hopefully sometime this month, is there a cost associated with because you put it on the care maintenance last month maybe?

Yes, there’s going to be some costs that there would be – there if you didn’t have a stoppage. But having said that, we also saw some revenue as we were winding it down, I mean, we had, if not this clean break. When we told everybody to go home, we had numerous trucks in transit to the going to the buyer. And so we saw additional revenue for that month as well, even though we were closed down. So I think we’re in very strong financial position, especially, taking the insurance if you will, of the ATM race. Because again, nobody knows what’s going to happen, both sides could get – it could get hit with the COVID on site and I think we can whether many months with that race. But starting up in Mexico, it really depends on how we get to start up. So to your point, it is going to be heavy capital. What I hope happens is that the 17, which the President just mentioned that we get to bring everybody back and start at the 17. But earlier they were saying, you got to give us a business plan to show us that you’re going to do all these things to mitigate. And so what we had a whole different business plan. We were going to start with a fraction of the workforce and slowly ramp up. But now it looks like we might be able to start sooner. So it just really depends. Whatever we do and if we already run the numbers on the slower ramp up, we want to make sure we’re cash flow positive. I mean, we don’t want to start up and lose more money. So no matter how small we started, but at this point, I’m more optimistic today and this just recently happened, but today that we can start with maybe the whole team. And at that point, yes, there’s going to be costs, but we’re in a strong financial position to whether those costs and we’re going to get it back shortly once we get everything up and running. So yes, these are unprecedented times and it’s tough to give exact figures to these, but I can tell you, we’re looking at all these things. It’s just they’re all in flux and we’ll just have to see when we can start. But I don’t think it’ll be damaging as the point to the startup if that’s your question, Chen.

Thank you. And also I heard the encouraging new TC charge of the ink is going down and unfortunately, you already sign up for the year that the end of time you sign yearly contract. Is there a minimum amount of, but I think you need to deliver at this year because of the stoppage. I’m worry if you need the – you may need to deliver in Q1 of next year of this years, I think as this year’s TC charge? Hopefully, next year it will be much lower.

Yes, I guess a good question. I think there’s a lot of grounds to stand on for us measure for the equivalent amount of tons. And believe me, I will be pushing for that. So that I don’t have to deliver the full contract, but we’ll see how that goes. It would – I don’t want to have this extend into next year at these terms. I want to get out from under these terms as soon as possible, but it’s been brutal and unfortunately we’re a small minor. We stand no chance and really setting the tone or setting the price of the big, big zinc players that drive the whole market. And they’re the ones who set the $400 TC that were ridiculous. But yes – we’ll see what happens. But I want to close out the year under these terms and be done in respect, I can deliver the tonnages and contractually from here on out once we get to start, but I don’t want to be on the hook for a pandemic amount. I think that’s definitely an important measure.

Great. Thank you. Good luck.

Ladies and gentlemen, that is all the time we have allotted for our questions today, before we’ll return to Mr. Jason Reid for closing remarks.

Well, first thanks everybody for being on the call, again, if you were in the queue and you have a question, Greg and I are both around so call us. We’ll be available to answer any and all questions. Thanks everybody for being on the call, and I hope everybody is remaining safe and avoiding this pandemic and hopefully, it impacts lessen sooner rather than later. This isn’t going to be over anytime soon, but hopefully it has less impact on all of us soon. So anyway, be safe and we’ll talk to you next quarter. Thank you.

Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.