Gold Resource Corporation

Jason D. Reid - Chief Executive Officer, President and Director Joe A.

Rodriguez - Chief Financial Officer

Anthony Chiarenza - Key Equity Investors, Inc.

Thank you. Good morning, everyone, and thank you for joining Gold Resource Corporation's 2015 First Quarter Conference Call.

Today's call will include the first quarter overview of operations and exploration, followed briefly by a corporate matter and a few comments on gold and silver. Joining me on the call today for the Q&A portion will be Mr.

Joe Rodriguez, 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, May 11, 2015, 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, 2014. Precious metal prices continue to be under pressure with first quarter prices weakening year-over-year with the realized gold price dropping 7.2% and the realized silver price dropping 17.5%.

Even with this continued price pressure, the company is pleased to deliver a strong quarter of profitability with production results in line with annual production targets. Q1 production from the Arista Mine totaled 19,347 ounces of precious metal gold equivalent at a realized 72:1 silver-to-gold ratio.

We milled an average of 1,026 tonnes per day or 92,359 total milled tonnes for the quarter. For those tonnes -- from those tonnes, we produced 8,348 ounces of gold, 790,300 ounces of silver, 293 tonnes of copper, 1,013 tonnes of lead, 2,762 tonnes of zinc.

Before payable metal deductions, our total cash cost after metal by-product credits per precious metal gold equivalent ounce sold and including royalties totaled $416 per ounce for the quarter compared to $422 per ounce during the first quarter of 2014. Total cash cost in the first quarter was also lower compared to the $550 reported in Q4 2014.

Our all-in sustaining cash cost per ounce for the first quarter totaled $995. During the quarter, we sold 8,678 ounces of gold and 727,315 ounces of silver, 277 tonnes of copper, 920 tonnes of lead and 2,205 tonnes of zinc.

The gold ounces sold during the quarter were higher than produced by 330 ounces. Average grades and recoveries for Q1 included: gold grade at 3.13 grams per tonne with 90% recovery; silver grade at 287 grams per tonne with 93% recovery; copper grade at 0.42% with 76% recovery; lead grade at 1.46% with 75% recovery; and a zinc grade at 3.71% with an 81% recovery.

We generated revenues, our revenues are net of smelter charges, of $28.4 million; generated mine gross profit of $14 million; and net income of $5.1 million or $0.09 per share. Our Q1 average metal prices realized were $1,203 per ounce gold and $16.74 per ounce silver.

We distributed $1.6 million in dividends to shareholders or $0.03 per share during the quarter. Cash and cash equivalents at March 31, 2015, totaled $21.4 million with an additional $3.4 million in physical gold and silver bullion.

We had receivables of $7.5 million at quarter end. The company remained debt free, except for short-term capital equipment leases, of which we paid down $372,000 during the quarter with the remaining total of $2 million as of March 31, 2015.

The company paid $5.2 million in taxes during Q1. Turning to our operations in progress during the quarter as per our 2015 operational plan.

Gold equivalent ounces are on budget, and we currently expect to achieve our previously announced production target of each metal with the precious metal portion at 80,000 to 90,000 gold equivalent ounces at a 64:1 silver-to-gold ratio. Base metal production is currently 15% above budget and is reported as a credit against our costs, contributing to our ability to maintain the Arista Mine as a low cash cost producer.

As the Arista Mine deepens, we continue to encounter an increased amount of higher-grade narrow veins per mining level. In order to efficiently mine these veins, an internal ramp has started on Level 18.

This ramp will specifically provide access to veins such as Vein 1, Vein 3, and the newly discovered Viridiana vein. The new ramp is expected to increase our productivity levels by allowing more areas to be worked simultaneously.

During the first quarter, stoping ore represented approximately 55% of total mine production and came from 6 veins and in 7 individual production areas between Levels 12 and 18. We are currently targeting, in the near term, lower-cost stoping ore to contribute a higher percentage of overall production.

On average, we were actively developing 10 to 15 ore headings during the quarter. Timely mine development is critical to the continued success of the Arista Mine.

In the first quarter, we experienced some transitional challenges with our new mine development contractor, Dumas, and are pleased to report that development targets are now being met after a bumpy start. At the end of the quarter, the main ramp was 50 meters from the access to Level 20, and the Splay 5 ramp reached the accesses to the vein on Levels 15 and 19.

Turning to exploration. A total of 3 exploration drills are currently at the company's properties with 2 surface drills and 1 underground drill.

The primary exploration focus for the first quarter included the extensions of the polymetallic epithermal Arista vein system. Success on this front included drilling the new Viridiana veins, which expand the Arista deposit to the northeast, which -- with step-out drill holes.

Mineralization including Hole 511733, which intercepted high-grade mineralization with 7.04 meters grading 9.29 grams per tonne gold, 957 grams per tonne silver, 1.7% copper, 4.15% lead and 5.6% zinc, including 1.16 meters grading 5.72 grams per tonne gold, 2,060 grams per tonne silver, 2.62% copper, 4.65% lead and 10.65% zinc. We continue to develop the access ramp from the Arista deposit towards Switchback and advanced the ramp by approximately 25 meters during the quarter.

Our goal, capital and equipment availability permitting, is to reach the top of the Switchback mineralization as we know it by year end. A strong fault currently defines the Switchback mineralization to the east.

One possibility is that the vein extensions and mineralization could potentially be on the other side and above this fault that we are -- that we currently cannot drill through given the distances our current drill path is from this target. When ramp development reaches near the top of the Switchback, we plan to attempt drilling through this fault from a close proximity.

This may allow us to test a large new area at the same elevation as the upper portion of the Arista deposits mineralization but on the other side of the fault that, as of today, we have not been able to test at Switchback. We are excited to reach the Switchback on several fronts, including exploration, but also to touch the mineralization through development to better understand the best way to develop it for mining.

At our Alta Gracia property located northwest along our mineralized trend from the Arista Mine, exploration drilling has previously discovered extensions of known ore zones historically mined. Definition drilling for mine planning, metallurgical testing and environmental permitting are under way to evaluate mining the mineralized material identified at Alta Gracia and trucking it through our existing oxide circuit at our El Aguila mill.

We continue to look globally for additional property opportunities, although we only give consideration to mining-friendly jurisdictions. We have seen success with our diversification efforts and are optimistic we will find more opportunities to capitalize on.

To wrap up the Q1 overview, we did well during the first quarter of 2015 regarding our low-cost production targets, additional exploration success. We continue to remain profitable during this bear metal market, generated solid earnings and, more importantly, continued our monthly dividend to shareholders in both cash and/or physical gold ounce and silver ounce distributions.

On the corporate side, we are pleased to have now closed the book on the class action and associated derivative shareholder lawsuit filed against the company back in 2012. In our opinion, the lawsuits were frivolous.

The courts granted our motion to dismiss the class action lawsuit, and the appeals court upheld the District Court's decision to dismiss it. The derivative lawsuit voluntarily dropped the case upon the outcome of the court's decision to dismiss the class action.

It is an unfortunate commentary on today's business environment in which certain business models target what I call a hostage payment from companies by suing and hoping for a quick settlement payment in lieu of sustaining the costs associated with defending the lawsuit. We live in a world of sue first and ask questions later.

Gold Resource Corporation did not succumb to this hostage payment, and we fought hard with our excellent counsel at Latham & Watkins and at Gibson, Dunn & Crutcher. The company's hard-earned dollars, management's time -- and management's time was wasted on these frivolous lawsuits.

Fortunately, the company did not pay one cent in settlement to these groups. It is ironic these groups say they are working for the shareholders' interests, all the while, their crusade is instead damaging the company's reputation, treasury, share price and associated shareholder value as a result.

In addition to this damage, we lost many shareholders from these frivolous suits as well. I believe at the end of the day there are those in society that create, and others in society who take a parasitic route.

Gold Resource Corporation creates. Turning to a few comments on the gold market.

Physical precious metal demand continues to be very strong from Russia, India and China. It is also interesting to note that the -- to take note of the large banks that are paying millions in fines for getting caught manipulating the gold price.

Past conspiracy theory of gold and silver price suppression and market manipulation is no longer a conspiracy theory, but now tangible precious metal market manipulation fact. For those shareholders who joined Gold Resource Corporation's last year's annual meeting, you heard me about Barclays Bank gold manipulation and them being fined $44 million by the United Kingdom for gold price fixing, to which I said there would surely be other bank fines to come.

More recently, UBS bank was found guilty by Switzerland's finance regulator, FINMA, "serious misconduct" and "clear attempt to manipulate precious metal benchmarks" particularly in silver as well as foreign exchange manipulation. UBS was ordered to return $139 million made on illicit profits from this market manipulation.

A more recent development includes the reported U.S. justice department's investigation of at least 10 of the world's largest banks for gold and silver price manipulation to include names like Goldman Sachs, JPMorgan Chase & Co., and Deutsche Bank AG.

It's not a stretch to think more bank fines for metal price manipulation are to come. It has also been reported that in about a 2-week time span recently, JPMorgan Chase accumulated more than 8.3 million ounces of physical silver, taking their physical holdings from about 5 million ounces back in 2012 to about a 10-fold increase to over 55 million ounces of physical silver holdings, representing one of the largest hoards of silver.

Reports show JPMorgan Chase is standing for delivery of physical silver from the COMEX with recent deliveries including: the reported April 7, 1.1 million ounces; April 8, 1.2 million ounces; April 9, 893,000 ounces; April 10, 1.2 million ounces; April 14, 1 million ounces; April 15, 1.1 million ounces; April 16, 1.1 million ounces. Their CEO, Mr.

Dimon, stated in his letter to shareholders, "Some things never change. There will be another crisis, and its impact will be felt by the financial market."

Mr. Dimon is a smart man and JPMorgan Chase's actions seemed to telegraph silver is now a great investment in front of a pending financial crisis, or JPMorgan Chase is covering their large paper silver short position.

Either way, when one of the world's largest banks is standing for delivery of precious metals by such a huge order of magnitude, this is something to pay attention to and a possible indicator of the potential return to the precious metal bull market. For the most part, the mainstream media fails to cover these stories.

But occasionally, it does. On February 10, 2015, Jim Cramer, who is about as mainstream media as you can get, on his Mad Money show made this comment, "There would have been a time when I would have laughed about the conspiracy thing, but I can't anymore.

Doesn't it seem that everything has been rigged? The currency has been rigged.

The bonds have been rigged. LIBOR was rigged.

What didn't they rig?" At the end of the day, manipulations ultimately fail, which should send gold and silver prices upward, and we may be nearing that point at the current artificially low metal prices.

History favors precious metals as a store of value when the dust settles on market and currency manipulation failures. What it is important for shareholders of Gold Resource Corporation is that we remain profitable during this time of metal price suppression, of which we did quite well during the first quarter of 2015 with earnings of $0.09 per share and continued our monthly dividend while some peers in the industry have gone out of business during this difficult time in the industry.

I personally look forward to the end of metal price manipulation and the return of the bull market in precious metals, as I believe we are well positioned to generate shareholder value and make a lot of money when that time comes. With that, I would like to thank everyone for their time today on this conference call.

Let's now move to the question-and-answer portion of the call. In an effort to efficiently address the Q&A portion of the call without wasting anyone's time.

And since we do not screen, filter or limit who can call in, any distracting or antagonistic calls will be terminated and I will simply move on to the next productive caller's questions. [Operator Instructions] I would like to welcome our CFO, Mr.

Joe Rodriguez, and open up the lines for our Q&A. Good morning, Joe.

Good morning Jason.

Operator, please take our first caller and question if there is one.

My name is Mark Smith [ph]. I'm definitely a long shareholder here.

I liked the quarter. I have a couple of questions.

Sure.

The -- I think you touched on it, Jason. The tonnes per day milled was due to sort of a -- the new mining contractor getting its feed into the mine and getting up to speed, if that's correct?

And then a second question, I guess, for Joe. Noticed the $2.4 million increase in the accounts payable.

Could you comment on that, please?

Yes, Mark [ph], let me jump in here first before Joe addresses the $2.4 million increase. As far as the tonnes per day, we as a company do our mining.

The Dumas is our development contractor and they do all the development work and we pay them on a meter basis. Now we did have kind of a rough transition from our past mine contractor to this one for the development portion.

But coming back to the tonnes, they will vary quarter-on-quarter just as they function of the type of mining we are doing. The more long haul stoping we can do, the more tonnage we can pull.

But every quarter will vary some, and what we're trying to do, though, is that at the end of the year have it all average out. So I wouldn't focus as much on the tonnes on a quarter-by-quarter basis just as long as we can pull enough to reach our year-end goals.

So I just want to clarify that because Dumas does not do our mining, they just do our development.

Okay, I misunderstood that.

No problem. No, it's a great question, Mark.

I appreciate it, and I'm glad that we were able to clarify it for you and anybody else. And Joe, I'll let you address the $2.4 million.

Yes. Yes, Mark, good question on your part.

I think most of the increase is due to a timing. Sometimes, we have a lot of payables coming in at the same time and it's just a timing thing.

So it just happened to be that in this quarter, we ended the quarter with some unpaid payables at the time. But it'll cycle through and I think we will come back to normal amounts.

My name is Jim Miller [ph]. I'm a long shareholder.

I'm just curious about El Rey. Is there any kind of report on it?

Yes, no, good question. El Rey is a very exciting property.

It's on our far northwest end of our trend. We have very high-grade gold there.

We're optimistic at some point we'll be back there moving that forward. However, at this point, we're still working with the communities to gain access to it.

If you'll recall, this was quite a while ago, we had some issues with community pushback. And it had less to do with our company and more to do with one of our neighbors, who I think, coincidentally, their actions caused some pushback in mining in general over in that area.

And so we've been trying to overcome that. Rather than force our hand and say, "Look, we have the right to be here, move."

We've taken the approach of, no, let's step back and get everybody comfortable, and that's what we're doing. So unfortunately, I don't have any update, Jim.

But we're still working with them to gain access and we just want to do it in the most amiable terms possible. So that's what we're doing.

So I don't have an update, but we're optimistic at some point we'll be back there pushing that forward.

My name is Anthony Chiarenza, with Key Equity Investors. I have a question on the production level.

Are you a long or short, Tony?

I am long now. I'm long.

We don't short.

We get short callers, that's why I ask. Okay.

No problem, no, no, no. No interest in that.

The question I have is on the production levels. So you had about -- a little bit over 19,000 in the first quarter, and you're projecting 80,000 to 90,000-level production for the year.

What makes you confident that you're going to get in that level? Because the first quarter in general, I have spoken to people and they've kind of found it was a little bit low relative to what the expectations are.

So what gives you the confidence that you're going to be in that 80,000 to 90,000?

Right. Well, first, we set out in the beginning of every year with a budget, and we look at the mine plan and we come up with our estimates from that.

Now on the 80,000 to 90,000, that's based on a ratio and -- though unfortunately, or fortunately, right? The ratio varies day to day.

And so we can't -- we don't have a crystal ball. So when we look forward, we put a 64 ratio on it.

Now -- right now the ratio is closer to 67. Or actually, it's 72, is it not, Joe, I think?

So...

Yes, 72:1, Jason.

Yes, 72:1. So that ratio jumps around.

I think when we -- just looking at the 64, I think we're going to make that. Now the reality is that ratio is going to move.

And when you're calculating a gold equivalent, which you're taking the silver and converting it into a dollar value, that dollar value back into gold, it skews the numbers at the end of day just because the ratio moves. So we're comfortable with the 80,000 to 90,000 at this point.

And that's about all I can say on that. The actual amounts will totally be dependent on a gold equivalent basis based on what metal prices do by the end of the year or the average.

And so that when it's -- when the metal prices are falling, like they did last year, that can hurt us. And if they're going up, it would obviously help us.

But no, we're just shy of 20,000 and that would put us at -- for the first quarter, and that would put us at the 80,000 if they were all duplicated [ph] at that. So that's where we are today.

But again, since we don't have a crystal ball and nobody can know where the metal prices is going to go, that is going to move. And that's why this year we took a bit of a different approach in that we called out every metal that we targeted to produce and the amount to try to draw your attention more on the actual amounts of metals as opposed to the ratio.

The ratio will still be there, and everybody in this industry wants to hear that ratio. It's an easier number to digest.

But we got hit last year in that we produced more gold, more silver, more copper, more lead and more zinc than we ever have had as a company, and yet because of the falling metal prices, that hurt our gold equivalent production number and we just missed it by hundreds of ounces. But that's just the world in which we live in with the fluctuating metal price.

So hopefully, that answered your question, or addressed it anyway? Do you have another one?

Sure, sure. No, no.

Now I just wanted to get a little bit of thought on Nevada and how -- and what your progress is at that point to actually getting some production at some point over the next several years?

Right. It's way too early to talk about production in Nevada.

We are just getting our feet wet in Nevada, and we've picked up a couple of properties, and we're doing early exploration on them. This is a long-lead-time industry.

On average, you're talking years and years from discovery to production. But we operate a little different than the norm in the industry, and we've fast-tracked.

For instance, we put our El Aguila project in production in 3 years and 3 months from the date we made our production decision, which is lightning fast for this industry, and including the fact we had a year longer with permit delays than we thought or we would have done it even faster. So as far as Nevada is concerned, this is just all early exploration and it's too early to talk about any kind of production.

We have to find something first. This is just early days.

Jason, this is Chris Lewis [ph]. Obviously, I am long.

Got a couple of things. Obviously, with the manipulation that's going on in the marketplace, and it is obvious, I've seen the articles and I think I've forwarded a couple to you, Greg, in fact, what are you guys -- or what can you do to further lower your costs, number one?

And number two, what can you guys do to align the executive compensation to achieving those goals?

Okay. Okay, first of all, on the costs, now you're absolutely right, Chris [ph], that all we -- we just have to focus on getting our costs down so that we can sustain any metal price.

We have had a lot of success in lowering our costs. We continue to strive to lower our costs, and there's 2 things we're looking at right now.

One is where we truck our concentrates to and the other is power. So the first one, if we're able to truck our concentrates to a closer port -- and this port is much closer.

In fact, it's less than half of the distance as the other one. The other one takes 2 days to get to its location.

We could substantially lower our cost if we can get into that port. That's a big if.

I want to caveat that. This has not been easy.

We've been working on this for over a year. But if we can get into this new port, we could see our trucking costs hopefully go down substantially because of that.

The other is power. We currently are -- as far as our operations are concerned, are 100% on diesel-generated power.

We have 2 independent diesel generating power plants. We are working right now with the federal commission of electricity in Mexico, in Oaxaca, to try to get the power grid with an increased power line brought to our site.

This is early days in this process, but we've been working on this for over a year as well. If we can get this power line hooked up, we could potentially cut our power cost, I'm going to just arm wave here, by potentially half just from our back of the envelope calculations thus far.

So between power and trucking to this other port, if we can get one or both of those, I believe we could substantially lower our costs further. To be clear, this is not -- neither of these are guaranteed to happen.

We're -- we've been working on them a long time, but things take a long time in this business. But I'm optimistic we will get both.

And if the costs drop further and -- or, excuse me, the prices drop further in precious metals, this could counter that as well. So that's the cost piece.

The comp piece, I want to first address the comp piece with this. ISS is one of the voting services that a lot of shareholders and predominantly institutional shareholders look at to get guidance on how to vote their shares.

The last one I saw was 2013. In 2013, the ISS report, and this is the full report that I've seen, showed that Gold Resource Corporation, I believe, was -- paid its executives lower than 93% of this industry.

We are on the low end of compensation. So if you were to compare our compensation with the rest of this industry, I think we're on the low end, first and foremost.

But how we align our pay, we already do that from several different metrics. And in fact, there was an article written in The Gazette, Colorado Springs Gazette, actually addressing this issue when it came out Sunday.

I can steer everyone toward that and you can read some of my comments in that regard because we do -- the board does look at -- the compensation does -- the Compensation Committee does look at various different metrics. But one of the things that the article in the gazette points out is that there's this TSR metric that they're trying to impose upon companies to say this is the only metric you should use when evaluating compensation to your executives.

There are so many shortfalls to that TSR metric. If you just use that TSR metric, you ignore many of the other aspects that you have to take into account when you're dealing with compensation-related issues, and I called those into attention and this is -- and the article speaks specifically to this.

We increased our revenue by 190 not percent but a 190-fold basically from the previous year, up to 6 -- up to like $12 million -- I think it's $12 million or $16 million, $16 million. The TSR metric would never pick that up.

So if you'll look solely on the TSR metric, there's a lot of shortfalls in that and that's one of the reason why there's a divide in the SEC saying there's a 2 to 3 vote, 2 people saying, no, it's a bad metric to be using. So the long and short of this is that, a, I think we're compensated on the low end, just generally speaking.

We highly motivate our people with stock options so that the company has to do well for them to be worth something. And that's the case.

And furthermore, we have many different metrics to take in to -- everything into account. In 2013, there were no bonuses given because that was a rough year.

In 2014, bonuses were given at the 6-month point because we had an excellent 6 months. The back half was a little rough and nobody got bonuses.

So I think we're more than fair as far as our compensation and we incentivize so that the company does well, all shareholders do well. And I think we're doing quite well on that front.

No, that's it. Thank you very much for the -- your attendance on this conference call.

If you have any additional questions and your call did not make it in, please feel free to call myself or Greg at the office and we will be happy to take those calls. Thank you, have a good day.