Thank you for joining Gold Resource Corporation Third 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 Corporation's 2019 third quarter conference call. I expect my comments to run just a few 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 this earnings release that we issued yesterday, along with the comments on this call, are made only as of today, and we undertake no obligations 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. The third quarter of 2019 was an excellent quarter on numerous fronts for Gold Resource Corporation. It marked a record gold production quarter for the Company. It positioned the Company to increase its 2019 global gold production outlook by 42% and put the Company in a position to increase its dividend by 100%, starting this month. Our global production for the quarter totaled 11,165 ounces of gold, 477,297 ounces of silver, along with substantial base metals, generated over $40 million in net revenue, mine gross profit of $9.3 million and $3 million net income or $0.05 per share for the quarter. The third quarter ramp-up at our Nevada Mining Unit’s Isabella Pearl project allowed us to announce commercial production…

Thank you. [Operator Instructions] We will now take our first question. Caller, please go ahead. Caller, your line is now open. Please go ahead with your question.

Okay. Can you hear me, alright?

We can hear you now. What is your name, please?

This is Heiko with H.C. Wainwright.

Hi, Heiko. How are you?

Good. Thank you very much for taking my questions. How are you?

Good.

Thanks for taking my questions, and congratulations on the dividend increase. I mean, I was just sort of thinking earlier, it’s been quite a while since I got the comment that -- comment on a dividend increase for a junior miner. So, congratulations for that.

Thank you.

Going to Isabella Pearl, can you just sort of go into a little bit more detail on things that still need to get done? I mean, I guess, in other words, what aspects of the operation should we expect to be different between now and the end of Q4, and possibly more efficient for the remainder of the year?

Yes. As far as the project is concerned -- and let's start with the process plant and the ADR. We are technically commissioning portions of that. And when that gets fully commissioned, we will be pouring dore on site. And as I mentioned, we're going to see a little bit bump in revenue, a little less cost, because we will be doing that in house. So that will be good. As we move to the operations of the mine in general, Ledcor has been doing a really good job right now keeping to schedule, which is very important, because we are -- if you remember, the Isabella, while being great that it’s outcrops at the surface with mineral, it only averages about a gram, what we're really chasing is the deep high grade in the Pearl. And as soon as we start to get into the Pearl, which could happen as early as mid-next year or potentially sooner, our lives are going to change tremendously, Heiko. This is great that we made money in September off of what I consider fairly low grade in Isabella. When we get into the Pearl at 4 or 5 grams, we're going to be a different company. So, we just need to stay focused. We need to have Ledcor continue to execute. And we are going to over time see increased grade go on the heap leach pad. And we're going to be producing more gold. Does that answer your question?

Yes. So, there is really nothing besides the ADR?

No, there is not. No, there is not. We, as everybody knows, drilled a second well, both wells are producing great. We have -- our primary focus right now is just being mining. The ADR will come on line. We're not pressed for time, because we're producing revenue, having our carbon stripped off site. But, again, once we do have -- bring that in house, that's just a little bit additional revenue for us. But, no, the focus needs to be putting grade on the heap leach pad and getting to the Pearl.

Got it. Next one maybe a little bit more of a question for John. But, I mean, feel free to both of you guys pitch in here. I mean, so we see increase both year-over-year cash equivalent balance and also your gold and silver volume balance when you compare to December 31st, and [indiscernible] for the Q. Can you just sort of walk us through the minimum levels of cash? Do you feel the Company needs to have to operate properly? And then, maybe also just sort of walk us through at what pricing additional cash has diminishing more utility and you would be looking for alternate uses besides maybe keeping it on the balance sheet? And obviously, we've talked about the dividend increase. So, that’s one logical place where it could go.

Sure. Just high level. We don't have a minimum, per say. As a company, our shareholders in the past have seen us drop to $4 million cash balance. So, depending on the situation -- and I'm not saying we're going there, but depending on the situation we've done that in the past. You’ve watched us quarter over quarter hold about $7 million to $8 million, we're doing well that. And the fact that we’re holding right now where we are and we're no longer in need of the ATM because of the projects done basically, we are going to expect to -- or I expect to, I should say, I fully expect to see our cash balance start to grow. And how great will that be, because we're going to deploy it in several different places. So, I don’t want to be nailed down to a hard and fast x million cycle for cash balance because that’s just not how we operate. There is too many variables, too many things going on at each mining unit, and it may fluctuate. But I think the long and short answer is, you guys have watched us hold around $7 million to $8 million recently.

[Operator instructions] Next question, caller, your line is open. Please go ahead.

Hi, Jason. This is Chin Lin. [ph] How are you?

Hi, Chin. I’m good. How are you?

Good. Congratulations for the good quarter. Some of my questions have already been answered by Heiko. Just a quick one, one thing is also about Isabella. You are right now mining Isabella, the grade is about 1 gram. I noticed, in the last quarter, you had 0.7 gram. Is that you intentionally put a lower grade there to fix any variations of the mines tested, or this is just part of mine that’s been lower grade than Isabella?

No. That’s -- thanks Chin. That’s a good question. No, the average in Isabella just globally is 1. But obviously, we have to start with the first benches. And you're going to see grade variations in that regard. We expect, at the end of the day when we look back what Isabella ran, it should average 1. But there will be pockets in which it’s higher and areas in which it’s lower. So, there is always going to be a great variability. There is not much we can do about that, again, because you start with the first benches and you mine down. So, does that answer your question? It's not a function of anything, but the way the deposit situates.

Okay, great. Thank you. I don’t whether you did, if you separate any cash costs, all-in sustainable Isabella or you put just the company together of the two mines together?

Are you asking if we separated the cash cost out from Isabella versus the Oaxaca Mining Unit?

Right.

John, did we separate it in the Q?

Yes. The cash costs for each mining unit are separate in the Q. There is about 3 or 4 pages of statistics and everything is in there.

Okay. Thank you. I probably missed that part. Sorry about that. So, what's your forecast ongoing for Isabella for next year, especially if you start to mine Pearl?

Yes. We're still going to handle on our cost. We’ve stated earlier on, before we even started this project, the early estimates are about $600 cash cost. But, we're now in the thick of it. And it’s too early to really tell. We're starting to see cost develop as far as just ongoing operational cost. But as this deposit evolves, we're moving the most tons now than -- in these early years, the first couple of years, and as we get into the later years, we're moving far less tons and the grade goes way up. So, you’re going to see over time, especially the last two years of this deposit, our costs should go way down and our revenue is going to go way up. And that's just a function of what tons need to be moved. So, I'm a little hesitant to be real specific on what we think our costs are because we're just not quite there yet. But, you're seeing the cost in the Q. John, do you have any input on this, do you want to add anything to this as far as where you see cost going?

Well, as we reported, we're averaging about 0.7 grams per ton right now for Isabella Pearl, and we’ll be looking to slightly in excess of 1 gram per ton, in fact doing some of that right now and in the next year. So, the cost per ounce is purely a function right now of grade, because the costs are pretty stable at this point. So, as you can imagine the costs should be coming down on a per ounce basis.

Your last quarter 11.25, so you should see -- that’s all-in sustainable, so you should see coming down below 1,000 I assume when you get 1 gram and then at a much lower when you...

Yes, much lower. And just to reiterate that point, Isabella again averages 1 gram, sometimes it may be higher, some lower, but average is globally. We're not -- it’s not about Isabella. This whole the deposit is about the Pearl, which is 4 to 5 grams. So, you can imagine what that will do to our costs, once we’re moving less tons at a much higher grade, our cost is going to really drop. But, that's later.

Okay. Final question is, when you start ADR plant, how much lower do you expect the cost would drop, how much reduce your cost in -- cash cost…

Yes, there will be some, and that's why I say a bit. I am not -- the shipping of the carbon doesn’t cost us that much, Chin. John, what's our average shipping cost? Do you happen to know off the top of your head?

It runs probably about $4,000 to $5,000 per shipment. So, it’s not real significant.

Yes. It's not material amount. But, it is going to save us little money. So, yes, that's not going to be a big driver, Chin, to try to address your question. That's not going be a big driver pushing our costs, so to speak. It’s just going to be nice to be producing dore on site, for a number of different reasons.

Okay, great. Thank you. Congratulations for the great quarter.

Hey. Thanks, Chin.

Thank you. We’ll now take our next question. Caller, please go ahead.

Hi. This is Ron Aubrey. [Ph] Congratulations to you and your team on reaching commercial production. It's a very significant milestone, very few companies achieve, especially with so few shares outstanding and no long-term debt. So, congratulations to you and your team.

Thank you.

Some of the questions have already been asked and answered. So, switching to CapEx, you touched on having most of your significant CapEx growth projects for both Mexico and Nevada now completed, so the Company's position now to generate significant free cash flow. So one way to continue maximizing shareholder value is exploring the ongoing Company's vast property portfolio. So, could you kind of give us a feel over the next few years what that looks like from an exploration resource expansion perspective, and what these properties that investors should focus in both jurisdictions?

Right. well, let’s start with Oaxaca Mining Unit first. Our primary focus is always going to be around our largest mine, the Arista mine. So that will be a lion’s share of where we explore because you obviously want to drill where you know there is gold, and you obviously want to be drilling and adding where you can that you can produce from. So that will be a primary focus in Mexico. As we move to Nevada, we are going to be focused on this trend, there is 6 miles of trend we've locked up that, if you're off of our claim boundaries on the 6-mile trend, there is about five other open pit heap leach historic mines. Right across the highway from us is the Santa Fe, old Santa Fe mine and they produce 300,000 ounces of gold. So, we're on the same trend. Isabella is going to do over 200,000 at least. There is a property in our PowerPoint deck on our website that talks about Scarlet. I hope Scarlet is our next deposit, if not, we have numerous other targets where we’ve identified mineral and a lot of good structure where there could be potential targets for additional open pit heap leaches. But as a priority in Nevada, obviously we’re trying to add any that we can at Isabella Pearl. Then, we're going to focus on Scarlet. But then, we are going to move to East Camp. East Camp is a huge district scale play. I think,, we did really well to pick this up during the bear market. As you can see the essays on the PowerPoint deck on our website and all those essays that you see, all that high grade, we didn’t drill any of it. These are all past companies who were…

Yes. Very good. Thank you. One final question. You mentioned on the last conference call the lesion [ph] curve and the potential for re-rating of the Company shares based on Nevada reaching commercial production. Now, that this significant milestone has been achieved, reoccurring future sales and cash flow are more predictable. So, in your opinion, what is reaching a significant milestone mean to the Company share price going forward?

Well, I think we’ve seen it in our outperformance over the last several weeks to our peers. We have been an anomaly in the space and the market is finally stepping up and saying hey, these guys did it. To your comment earlier on, congratulations for making commercial production, there are plenty of institutions who have told me they're waiting from us to prove to them that we can do, because they have been involved in too many failures in the past. So, as we continue to prove to them and commercial production being one of those, increasing the dividend I think speaks volumes, but as we continue to prove to them, they’ve said they're coming in. So, I think, as we continue to execute, we will continue to be on this lesion curve, which we’re on our way in my opinion, again from the outperformance to our peers. Having said that, it’s a volatile metal market, it always -- it has been for last several years and I expect that too. But yes, I guess, long and short of it is, when we come out with 42% increase to our gold production target for this year, when we announce commercial production, we increase gold -- our dividend by 100%, these are kind of things that you get re-rating from. And I think we will continue to see that. Does that answer your question on that one?

Yes. And I appreciate your expectation as to what the future might bring. So, thanks for sharing. Just one final question on Walker Lane just a mineral trend. I mean, historically numerous gold, silver mines in aggregate producing over 40 million ounces of gold, 445 million ounces of silver, some of them are in your own backyard. The companies like first-mover advantage, pull position in this emerging Walker Lane mineral district, you got a strong balance sheet, open ATM, cusp of generating significant cash flow, are there any accretive like tuck-in acquisitions possibly to significantly add to your reserve, extend mine life, leverage or scale, your Isabella operations?

Yes, there are and we're looking at some. But M&A, it has to fit. We don't just do M&A to do M&A. We're very specific. We have to check all our boxes where we walk away. But are we looking at things? Absolutely. And the reason we are is it’s very much in our memory that during the last bull market, we couldn't play in the M&A space at all. And mining companies were taking over and doing M&A 2 to 3 times valuation and it just didn’t make sense. Then the bear market hit, and that's when we went to work. And we looked for 4.5 years during the bear market, it’s countercyclical, but it actually is what you should do, that's what we did do and we closed 4 deals in 14 months. This window is still open. It’s not going to be open for too much longer, I don't believe. Once the world shakes and gold takes off, don't know when that will be, that could next month, that could be next year, but when it happens, we won’t be in the M&A space at all. So, we have already shown that we're in the M&A space by these 4 acquisitions in 14 months to secure our pull proposition in the Walker Lane. There is no reason why we shouldn’t still look for opportunities, because things are still relatively cheap. But, once the bull market takes hold in gold, we will be out, and we'll just focused on what we have. It could take off right now and I’d be happy because we don’t really need anything else. But to your point, yes we're looking, we should look. And if there is some sort of acquisition that’s accretive, we will do it.

Thank you. We will now take our next question. Caller, please go ahead.

Good morning, Jason. Mark Smith, private investor. I’ve been with you for nearly 10 years, and you’ve always delivered on what you said. So, I’m just looking at this waste to ore ratio, it seems to have gone up in the last three months there at Isabella Pearl. And you said that you really liked the results from Ledcor. So, would you make a comment with regard to how well you’ve actually modeled that deposit and these stripping ratios are in line with what you thought or not?

When we had our model going into this and a model is just that. You don’t really know until you mine it. And so, as we’ve been mining it, we found more ore than we expected. And so, we’ve had to tweak our model. The waste to ore ratio went down substantially in Isabella because we found more than we expected. So, I don't think that will continue when we get over to the Pearl, because just structurally, it looks like the Pearl, we call this high grade finger that comes up out of Pearl, we think we have a handle on that. We won't really know until we mine it tough. But, just to come back and reiterate to try to address your question, there's been less waste than we thought. So, that’s good. That’s a positive. It doesn’t always happen. Sometimes you have a model and you think you have an understanding, going into a deposit could be less. But, in this case it was little more which really helped. So, that’s positive. But, again, I’m so excited to get to the Pearl. I mean, this is great. I mean to actually make $1 million in September off of Isabella is great. The Pearl, we're going to make incredible amount of money. So, the sooner we get to the Pearl, we're just going to be off and running. These quarters are going to be great, they are going to be fun and we're going to make a lot of money. So, the whole focus again -- and it takes time, we always knew it because there is a lot of overburden to get down to the Pearl mineralization. But, we’ve been happy what we’ve seen this far. It’s been little better than our estimates and models. And so, as we move into the Pearl, we will see how that goes but that grade is going to change our lives.

And when do you target that Pearl then actually hit in the top of that thing?

Well, I refer to it as a finger stringer because there is 80% of the ore in this deposit is in that finger, in the Pearl 80%. So, basically, most all of it’s there. Now, most all of it is deep, but there is this finger that comes up. And we’ve modeled the finger to the best of our ability. Having said that, we're going to get into that finger and not too far down the road, not too many more months. But, it’s small at that point and it hasn’t widened out. So, we’re going to start to see some of that. But, we don't really know yet and we don’t know till mine it on how much of it we are going to have in that finger. I mean this deposit has been drilled a lot but you can't drill it a 100% obviously. So, again, mining it is the ultimate test on what the deposit situates like. Coming back to it, we will get into finger, the very tip of it, not materially but the very tip of it, in a handful of months from now. That's going to happen. And we will just kind of have to see at that point what kind of impact it has. But, as we go deeper, that's when the material impact happens. So, I mean, we're still several months out.

Okay. Thanks.

Okay. I think, we’ve run over time. So, with that, I will conclude the conference call. If you are in the queue and you didn't have your question answered, Greg and I are both in the office. Call us, we will be happy to answer any questions anybody may have, and we’ll be around to take those calls. So, with that, I'd like to thank everyone for the time. We look forward to updating you on the next conference call. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.