Thank you all for joining Gold Resource Corporations First Quarter Earnings 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 Corporations 2019 first quarter conference call. I expect my comments to run just a few minutes followed by 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 10K 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, May 8, 2019. We undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find the 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. Q1 of 2019 was another good quarter for the company. Our Oaxaca Mining Unit produced 6,538 ounces of gold and 364,000 ounces - plus ounces of silver, which along with substantial base metals generated $26.8 million in net revenue or $0.01 per share in net income for the quarter. Significant announcements during the quarter from our Oaxaca Mining Unit included: updating our proven and probable reserves, boosting our global tonnes by 16%, our gold ounces by 18% and silver ounces by 14%. We also announced connecting the power grid, thereby lowering our unit power costs and significantly reducing our local environmental emissions. On our Mirador Mine development crosscut 6 meters of 992 grams per tonne silver.…

[Operator Instructions]. And we will take our first question. Caller your line is open. Please go ahead.

It's Heiko from Wainwright. Congratulations on that all that progress with Isabella Pearl and frankly actually across your asset basis. And on the same token, well done on turning a profit and paying a dividend while expanding your asset base, good job. Given how close we are to Isabella Pearl being 100% done, to specifically talk about the ADR plans here, can you provide some color on the final steps in expenditures needed to get that thing 100% done, please and maybe even a timeline if you could?

Sure. Well, we believe we set the final time line for construction.

For the ADR, what's left to do?

Yes. We are still targeting June like we originally targeted to be done with that. We still move forward. We're in the - we have had to deal with a couple of final change orders mostly having to do with electrical on it. We are dealing with those. But hopefully, in the next couple months, that is operating and pouring gold from our ADR. As I noted in the press release and in the call today, we were accumulating carbon and gold. So we decided we had the option to start sooner. We did. So that's even more important that we reach cash flow sooner than we originally thought. But having said, we haven't taken our eye off the ball. And in the next couple of months, we should done with the ADR and pouring gold dore on site. But as with any project, that final stretch, there's a lot of kind of loose ends, and that's what we're doing right now.

For Arista, I noticed you have a meaningful increases in lead and zinc both when compared with 4Q '18 and also year-over-year which is obviously less relevant. But there was - with some of the offset by decreases in gold production bulk or year-over-year sequentially. And while silver was up a bit from 4 to 18, it's also down a little bit year-on-year. Just so conceptually in longer term I mean this current strength in lead and zinc, should we think of that as more of a temporary thing? Or you think those higher grades are here to stay?

As far as the base metals and the higher grades there, it's a function of where we are on the deposit. If we use the Arista vein system as a case study of what we've lived over the last 8 years plus, as we mine through this epithermal system, some of the higher-grade gold and silver are in upper portions of the system. That's congruent within an epithermal vein system. And we still have gold and silver in deeper elevations where we're mining now. But what's also congruent with an epithermal system in here, base metals increase with depth. So the grade and gradation of where we are right now is a function of being deep in this mine. Over time, as we now have adjusted over to the Switchback and we plan to mine laterally and more importantly up, over time, I expect this trend, if you will, to reverse itself. It will take time. It's not going to happen over a quarter or even a year. But over time, we're going to see it Reverse. So regardless, we're happy that this is the polymetallic deposit. And it was great when zinc was hitting its 10-year highs not too long ago. And we've got the benefit of that. But it is function of where we are and deep in the deposit. And that's what happens even at the thermal system, higher base metal grades at depth. And you should go upwards you are going to see higher precious metal grades. Does that answer your question?

Very much sorted out.

Thanks, Heiko. I appreciate it.

[Operator Instructions]. And we'll take our next caller. Your line is open. Please go ahead.

Jason, congratulations for your new mine. I just have a.....

Thank you. Who am I speaking with?

This is Chen Lin. I just have a question. The - I noticed, right now you're really at the crunch time. You're trying to start up a new mine to generate cash flow. On the balance sheet, I noted this quarter, you have about $10 million ATM. Is that what's your plan? And then I - just - basically, the question is, going forward, what kind of cash and precious metal on your balance sheet you will feel comfortable so that you can complete Isabella and make it cash flow positive until you're dry? Or you plan to draw more ATM at your comfort level?

Sure. Well, I want to be clear. We made very clear in our quarter that the ATM, obviously, was previously announced. We announced that in the previous quarter. We did tap the ATM from quarter-end till - or excuse me, from the first quarter till the quarter-end with $4 million additional ATM. So to be clear, we utilized an additional $4.1 million, mostly for working capital and a few of these final change orders I mentioned, having to do with electrical, but primarily for working capital. But as far as the ATM goes, I was just at a conference yesterday giving a presentation and I had this question on why do you utilize the ATM. When we were - we obviously set out to build this with cash flow. And in a volatile market, we couldn't get there. So we used $15.5 million of our own cash, and we looked elsewhere, we looked at debt, we looked at a typical equity deal. And the typical equity deal was looking at like 14% across the capital, debt deal was 20%. They don't even get out of bed for 20%, plus covenants and hooks. And so the ATM - I want everybody to know the ATM is 3%. You cannot find - we could not find - you can't find any cheaper cost to capital. So we have kept dilution down tremendously by utilizing the ATM, and I'm very proud of that. And I'm a staunch supporter of the ATM now, because we could not have - we would have diluted substantially more if we had to raise money north of the 3%. Well, I also mentioned yesterday at the conference and I'll mention to everybody on call today, as far as the recent concerns - and everybody is focused on that…

Yes, I'm just curious, because you have - the cash at the beginning of the period was $7.7 million. At the end, it's $8.5 million, so you have a little bit cash increase. So what kind of cash will you feel comfortable going forward? Or with the new mine coming, you're willing to let your cash balance to dip further until or maybe...

Chen, that's a great question. I understand what you're asking, and that's a great question. We don't have a definitive, hey, this is what we go to. Having said that, in the past, we drew our cash balance down below $4 million. So we don't object to the company to doing that. But we have a lot going on right now and we want to make sure that we see this thing successful, and we're there. And so I can't give you an exact amount, because we don't have this, okay, this is where we won't allow the cash to go below, because you can go back in history and look and we've let it go much lower than where it is today. But again, we're now at two jurisdiction operator. So we have to keep that in mind that now we're a company that has two mining units, not just one. So the more above the jungle, so to speak, and we're just doing what we believe is prudent and in the best interest of shareholders. So I can't give you an exact number, because I don't have one as far as where we'll let our cash go to.

Okay. Congratulations for your new mine.

Thank you. And I hope, Chen, you saw the picture in that press release of that dore bar. It's beautiful. It's absolutely beautiful. Some dore there's a lot of silver in it. You just don't get that gold shine to it, so hopefully you saw that.

Made to touch in one day.

Yes. Well, at some point, we will be maybe doing mine tours, and there's nothing better than holding gold. I mean there's nothing, it puts a smile on everybody's face that I've ever seen that holds gold. So thanks, Chin.

[Operator Instructions]. And we will take our next caller. Your line is open. Please go ahead.

Mark Smith [ph]. This could be for you or for John actually. I was kind of just looking through this balance sheet. There's some things in there I just have some questions on. Specifically, you've got - I understand accounts payable kind of clogs up sometimes and gets pretty large. $6 million increase in accounts payable, if you could address that? What is this deal on the change in inventory up 40% as well? And then lastly, could you comment on the operating leases, both current long term increasing over $12 million, substantial changes in the balance sheet. And just would like some comment on that?

Yes, I'm going to turn that over to John. I think he's better apt to answer those questions.

Kind of we accounting nerds stick together.

Yes. As far as accounts payable, that's going to vary. And since we've been ramping up at Isabella Pearl and we don't yet have sufficient revenues, you're going to see that being up a little bit higher. And now we're kicking into the full mining mode. So you'll see that. In terms of inventory, same thing. We added almost $5 million of inventories mainly at Isabella Pearl. We also had about $1.5 million of dore inventory in Mexico, which we're not likely to continue to have. That pretty much flowed all the way through to sales shortly after the end of the quarter. So that was more of a timing issue. But yes, inventories will be higher, because we're going to have a lot of pad inventory until sales get kicked into full mode in Isabella Pearl. As far as operating leases, the lease accounting, basically all public companies have to pick up this new pronouncement as of January 1. We implemented it. Basically we have to look at all operating leases that qualify, and that's virtually anything a year or longer. As a lease that we have to put on the balance sheet, we had to determine basically the value of what they call a right-of-use asset. What it amounted to was about $13 million, and you'll see that almost $13 million on a line item in the assets section. Unfortunately, in the liabilities section, you've got a separate short versus long term. And of that $13 million, $8 million of that went as a current liability, which one might say it kind of distorts what we really owe, because we don't owe it at this point in time, but we will pay out that over the course of the next year. So that's basically the operating lease explanation. It's virtually just an accounting matter. It doesn't change the cash that we'll put out under our contract mining agreement whatsoever. But it does bloat up our assets and liabilities, so just makes the balance sheet look bigger, but not necessarily better.

Yes, Mark, I also might add that for those nonaccounts like myself listening to this, the primary driver of the $8 million John referenced is the Ledcor mining contract and that being that - we have that contract. It's over 12 months to trigger this. So now we have to put that. We have to now account for that since this pronouncement at January 1. So the new regulations, so to speak.

Okay, I can get that. All right. That was good, John. That really made it a little bit clearer. And especially with the new mine, all those kind of incidentals, slime and whatever all you're putting on that pad, have that inventory. AEP, I understand that, you want to speed that out. And PMX, okay. One other question pretty quick. And I could be wrong. Being a shareholder for quite a while, but I thought we were done with the Aguila open pit mine turns, apparently not.

Yes, the Aguila is a gift. The open pit is a gift that keeps on giving. We've been mining that on a small scale for a very long time on and off, and we think we're done and we will go ahead and do a little more exploration and find some additional grade. And so we are mining that. So yes, it's a small amount, but technically, we have three mines in Mexico and now one in Nevada.

And we'll take our next question. Caller, your line is open.

Yes, Bryan Savage [ph], shareholder from. I just had one question. Why was the production cost - seems a lot higher as a percentage than it was in the previous quarter?

John, do you have an opinion on that?

Yes, well, that's directly related to the increased throughput to get higher milled tonnes through the mill. And I think there was about 17% increase and production cost increased about 14%. So it's fairly direct - directly related to our production. Now because we did lower grade that we were processing, production held pretty constant and cost didn't increase. So there is quite an impact in the grades. And in terms of production costs, we'll continue to have higher costs as long as we have the higher throughput. But again, the grades, as Jason has already explained, will be changing over time.

Yes, Bryan, let me just add to that, Bryan , in the past, I don't get too focused on one quarter as opposed to the other prediction. And here's why, it was not too many quarters ago, we were in negative cost. Now it's a function of the high-grade base metals that we're in at that particular quarter and the fact zinc hit a 10-year high. So costs obviously vary, but on balance, we continue to be a low-cost producer.

[Operator Instructions]. We'll take our next caller. Your line is open. Please go ahead.

This is Bill Casey [ph], shareholder Tucson, Arizona. And first to say, commendations to you for keeping on schedule, including getting all the permits with the Nevada mine. That's excellent, good news to hear. My question is briefly looking at first quarter results compared to first quarter of last year, comparisons were not favorable. I didn't hear any comment on that. I would appreciate some comments and explanation of what accounted for that.

Sure. Well, I think some of it we addressed in the previous caller's question, and they were saying what about costs. And any given quarter can drive those costs up or down, like I mentioned just a moment ago. We used to be negative several hundred dollar cost. So it's a function of where we are in the mine, not to regurgitate everything I said earlier in the call. But we are deep in the epithermal system with high-grade base metals, and there are still precious metals there. But as we mine upwards in Switchback, we're going to get into different grade and that will change things over time. So I guess, that would be my answer, it's a function of where we're mining. But I don't want to lose sight of the bigger picture. We're focused now on ramping up in Nevada. We're focused on announcing commercial production, and we're focused on increasing our annual global gold production. That'll be the catalyst when we show the market what we can do. And I think that's the growth catalyst I think everybody should be focused on. Once we hit our stride there, it's not - everybody expects it will go up and that'll be the next catalyst beyond that. So yes, quarter-on-quarter, year-on-year, you have some variation, but we are in an exciting growth phase and I don't want to have some quarter-on-quarter comparison shadow that. And that's the most important thing.

Jason, I might also add that the quarter last year was unusually favorable from a base metal point of view and that the prices were considerably higher. We had some positive adjustments that came into the first quarter of 2018 as well. And you'll see that was the quarter where we had negative costs per ounce sold. And as good as we are, that's not likely to continue.

Yes, another thing that John triggered something that's important for everybody here, last year, we had one of the most favorable concentrate buyers' terms that we ever have. And this year, the whole industry got beaten up. And we don't drive that discussion. The big base metal producers drive those negotiations and set the tone and set what we get paid basically. And so we also went from last year getting paid on some of the best terms we've ever seen with the Trafigura to this year were not so good. And on top of that, we actually moved our copper over to Glencore, so we're now selling to Trafigura and Glencore, so we got better terms from Glencore on the copper. So that's a big factor too. The metal prices are less favorable this year to all mining companies as far as sales go.

Okay. Just one follow-up. With the good news recently - good outlook for the company, any comment on why the stock price seems not to be reacting the way one would expect?

That's a great question. And if you look at our news flow, tremendous news flow over the last month, a news flow that one would think would increase the share price. Having said that, my screen and I'm looking at it right now, miners are mostly red, HEC was down 4%, Fortune almost 3%. We're down 5% right now. Most of the miners are red. This is a very unloved space right now, and you can't buck that trend no matter what kind of good news come out to some extent. So it is what it is. I don't have the answer fully, I don't think anybody does. I would have a crystal ball if I did, right? But the most important thing is that we are in production in Nevada, and we are building successful operation there. It'll take care of itself. The share price will take care of itself. The space will ultimately get some attention at some point and onward and upward. But yes, I can't answer that.

[Operator Instructions]. And we'll move to our next caller. Your line is open. Please go ahead.

Wex Jones [ph] here. I'm calling to ask a little bit of color for the electrification project. It seems like that got done pretty late in the quarter, and was just wondering if you got any contribution from that? And if not, with the increased throughput down in Mexico, what is the forecast for how much that might add to our earnings for the balance of the year?

Yes, we were very proud that after a 5-year arduous project, being a grid power in Mexico, we finally hooked to the grid power in the first quarter, which is monumental for us. The estimated savings at this point is looking like $1 million to $2 million. To give you a sense for power on a cents per kilowatt hour, the grid is $0.13 versus the diesel, which is at $0.24. There is a diesel tax credit that we are still currently able to utilize and we're utilizing, and that put it at $0.16 per share - excuse me per kilowatt hour. So there is talk that, that diesel credit may go away, and if so, we'd be looking at the savings between the differential of $0.13 versus $0.24, but as it stands now, it's a difference from $0.13 to $0.16. It will add several million, we estimate, but we didn't - over time we'll see more of that impact. Also, it's going to take time in that, some of the cost savings that I mentioned at $1 million to $2 million include the cost to replace generators. Generators only have a finite number of hours when you try to rebuild them, but they obviously have a finite number of hours and we found ourselves obviously running on diesel for so long, we had to buy new generators on a consistent basis and rotate them in and dispose the old ones. We don't have to do that anymore. So those costs obviously will be seen over a longer term, but a couple million is good target I think as far as cost savings. Obviously if they do away with the diesel, which the new President they sure might, there's a good chance they do away with that diesel tax credit. Good for us to finally getting into the power grid, because we would have gone from 16 cents, up to 24 cents. Now if they do away with it, it doesn't matter. We're at 13 cents. Did that answer your question?

Yes, given the figure, the petroleum production down in Mexico, I think that's probably something that we're going to see as far as the increases. Another question regarding the - I can't understand it, is it ongoing process where we are doing the third party refining? And is that - what's the schedule for getting production out of that? Are we waiting for more to ship up there? Is there a step in process now? Can you just give some more color on what you see as the procedures of going forward as far as the third party refiner?

Sure. Every Tuesday we have an Isabella Pearl conference call at 9:00 a.m. and then in the one we just had we discussed this and we would like to be in a position to ship 2-3 times a week. And once we get stable doing that, that'll be good for us.

Did they have anything of ours in revenue process now? Or are they waiting for that?

As far as right this second, I don't know. I can't answer that. Whether it is being shipped there, I don't know. But the goal is to have it 2 to 3 times a month and it just ships to Utah they process it. What's great about this group we're using is that we get the carbon back. We looked at other groups and in their process they destroy the carbon, which is quite expensive. So it didn't really make that much sense, but this could be we actually get the carbon back, and so it ships back and goes back to the circuit. So it's really reasonable and it allows us to be producing gold now and so great. And that's terrific. And then we ship to Dore [ph] to Johnson Matthey, which is now El Saeed, and El Saeed has received our first gold. So money's coming in from that.

Okay, that's great. And Greg, if you could give me a little color that you had a option of what you know, of going to Salt Lake and that the carbon was the hooker for that, so I'm assuming that in addition to being ecologically been more friendly and that net out on a cost basis to be favorable to recover the carbon with the perhaps higher refining cost?

Okay. I guess I'm not following you. Is it better just to stay with the carbon. Is that what you're saying?

No, no. I'm just saying, you're retrieving the carbon with a process we're using now.

It's huge savings. You don't want to burn that carbon, it's very expensive. And so to have that destroyed, it just makes it far less attractive. But this group in Utah actually gives you carbon back, so it made far more sense and it was no brainer at that point. And so - go ahead.

I'm just saying, so the point was, basically, you get the carbon back and you get the gold refined, and the net-net is that good than what it would have been if you were just gotten the bleach [ph] process to the point that you would be shipping it on to the next - to the actual guy that's punching out the gold.

Okay. To the refinery, you mean?

Right.

Yes, I guess I'm not 100% following you, but all I could say is, it's very attractive to the utilize third party. It's just a no brainer. Yes, and that's what we're doing. Okay, I do think we've gone over time. So if you do have calls in here in the queue, I apologize, but I think we're 7 minutes over time. Feel free to call the office here, and I will field any additional questions anybody has. But with that, thanking everybody for their time on the conference call and for all the shareholders out there, it's pretty fun time. We reported our first gold in Nevada, pretty monumental. So we'll talk to you next quarter. Thank you very much.

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