Gold Resource Cor por ation
NYSE MKT: GORO
2012
Annual
Report
A SHAREHOLDER FOCUSED PRECIOUS METAL PRODUCER
Delivering a growth profile of low-cost, high-margin
production
Demanding high returns on owner invested capital
Distributing meaningful monthly dividends to maximize
total returns to shareholders
1
2012
Annual
Report
2012 Highlights:
Record production of 90,432 ounces precious metal gold
equivalent (AuEq)
Total cash cost of $419 per gold equivalent ounce
(per Gold Institute “total cash cost” calculation)
Record annual revenue of $131.8 million
Record annual mine gross profit of $87.8 million
Record annual dividends of $36.5 million, or $0.69/share
Successfully launched gold and silver dividend program
Released initial NI-43-101 independent resource estimate for
Arista deposit
Physical gold and silver treasury of $5.8 million
(at December 31, 2012)
TABLE OF CONTENTS
Page(s)
2012 Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Q&A with President Jason Reid . . . . . . . . . . . . . . . . . . . 3&4
Performance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 5&6
Arista Underground Mine. . . . . . . . . . . . . . . . . . . . . . . . . 7&8
Exploration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Social and Environmental . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management's Discussion . . . . . . . . . . . . . . . . . . . . . . . 11-24
Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Financial Statements . . . . . . . . . . . . . . . . 27-32
Notes to Consolidated Financial Statements . . . . . . . . . 33-51
Employees
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52&53
Corporate Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
2
Q&A with
President Jason Reid
How do you see the mining industry changing and how does that affect GORO going forward?
The mining industry is changing in response to investor demands after the sector's poor market performance
compared to physical metals. Some investors have moved into precious metal Exchange Traded Funds (ETF's) in
response. Investors today are no longer accepting the outdated industry mantra of growth for growth's sake,
pushing poor return on capital projects and lackluster margins. They are demanding more exposure to gold and
silver, a better return on capital invested and a better allocation of cash flow to include dividends, which ETF's lack.
While most companies are searching to adopt more relevant and sustainable business strategies, we feel GORO is
ahead of the curve. We engineered a business plan from day one that aligns perfectly with today's new investor
demands. We have always focused on the financial performance aspects to the business of mining. We set out
with our own return of capital metric in which a project should return the startup capital to generate the first
revenues within one year. We achieved the one year payback at our El Aguila Project. We also set out with a long
term goal to return approximately one-third of our Cash Flow from Mine Site Operations (CFMSO) to the
shareholders as dividends, returning approximately 30% of our CFMSO in 2011 and 39% in 2012.
In short, we see the mining industry responding to investor demands by moving towards our established
philosophy, though we continue to evolve as well.
Mining companies are recently moving towards initiating or increasing dividends, but GORO's philosophy has always been centered on dividends.
Can you explain that in more detail?
From our IPO in 2006, our goal was to one day distribute meaningful dividends, though at that time we received a great deal of pushback for that view.
Our mantra was to “return as much cash back to the owners of the Company as soon and as often as possible.” We are proud of the fact we may be
the only mining company to have paid a dividend after the first month of declaring commercial production, back in July of 2010. We have paid a
dividend every month since and now have paid shareholders over $1.55 per share. We are very proud of these returns, as our IPO price in September of
2006 was only $1.00 per share. The dividends paid to date now total over $82 million and underscores our shareholder friendly focus.
We target over the long term to return one-third of our Cash Flow from Mine Site Operations as dividends. This means as precious metal prices move up
or down and as our operations produce more or less, our dividend may move accordingly. In this way we target a balanced approach towards growth,
dividends and paying the required taxes as the primary drivers of our business decisions.
We are optimistic that at some point in the future, after our current mill expansion is complete and our Arista mine development is capable of delivering
1,500 tonnes per day of ore to the mill, our Oaxaca Mining Unit may have the ability to return $1.00 per share annually.
As we continue to evolve as a company, we want to move towards building more value and growth for our shareholders expressed in ounces of gold and
silver. In 2012 we took another step in that direction. We are proud to have launched our unique dividend program whereby our shareholders can
convert their monthly cash dividends into physical gold or silver bullion and take delivery if they so desire. This program allows shareholders the ability
to benefit from the best performing asset class for a decade in physical gold. GORO offers this unique and beneficial program to shareholders, which
further expresses shareholder value in ounces of physical gold and silver and delivered to the vault of your choice or your household doorstep.
How do you see the exploration potential at the Oaxaca Mining Unit?
We effectively control substantially all of a 48 kilometer long lineament that makes up an important mineralized structural corridor in Oaxaca, Mexico.
With the El Aguila Project on one end and the El Rey property on the other end, and with indications of mineralization in between, we think we have a
prized property position with tremendous exploration potential. When you add that this mineralization may be the youngest mineralized system in
Mexico, at approximately 15 million years old, we believe much of this mineralized system has not been exposed by erosion. This is why the Arista
deposit was a blind discovery, with its mineralization beginning just 100 meters below the surface. This is most likely the reason this area was
overlooked in the past and bodes well for other potential deposit discoveries along this 48 kilometer trend.
3
h
t
w
o
r
G
d
e
u
n
i
t
n
o
C
r
o
f
d
e
n
o
i
t
i
s
o
P
We have several styles of mineralization that lends credence to the robustness and magnitude of this mineralizing system.
We have low sulfidation epithermal gold mineralization, which expresses itself at the El Aguila open pit and at the El Rey
property 48 kilometers away. We have high-grade intermediate polymetallic epithermal mineralization which we are mining
at the Arista vein system and we also have strong indications of high-grade skarn type mineralization deeper than we
presently have looked. We also have an area at our El Aguila property that shows classic stockwork fracturing filled with
leading edge pathfinder minerals, arsenic and antimony, which geologic models would indicate could be zoning over
possible significant mineralization.
We have only just begun to understand and to see the great potential that our property position holds over this exciting
mineralized structural corridor. I think we will be exploring, mining and producing this dynamic system for many years to
come.
How are some of the issues and challenges you experienced in 2012 being addressed for 2013?
Most new mines have issues and challenges, and it is often necessary to operate for a period of time to see just how to
most effectively mine and develop a particular deposit. In 2012, we experienced our share of challenges with development,
water and carbon dioxide gas. These challenges required us to hire a new team of professionals to manage the Company's
on site operations. Great strides were made in late 2012 with mining the veins more efficiently with less dilution, improving
the infrastructure underground including better water control with new pump stations, the addition of new ventilation fans
and some development off the veins for better mining and water handling optionality. We have also moved to implement
larger capacity underground mine trucks that will afford more efficient haulage of ore out of the mine and lower traffic
congestion.
We are currently focused on lowering dilution with our mining methods, lowering costs by bringing in-house many positions
that were previously contracted and modifying our mine plan to target higher grade ore shoots more efficiently. As with
most underground mines, we will always have challenges. We are fortunate to have attracted many new qualified and
experienced individuals from this competitive industry over the last year and have built an entirely new on site management
team to better address ongoing and future challenges. All in all, we are pleased with the progress.
What is your philosophy on growing the Company?
Growth is important for any company, but it must be disciplined growth that meets the Company's growth criteria. Our
current mill expansion, for instance, has an attractive return on capital aspect to it. We also have several criteria for
development of a mining unit, but two of the most important are the potential ability to ultimately pay $1.00 per share
dividends annually and payback the capital invested to generate the first revenues in one year. This keeps us focused on
high-grade prospects with good infrastructure that are located in mining friendly jurisdictions like our Oaxaca Mining Unit.
We remain focused on our Oaxaca Mining Unit but are also presently looking globally for our second mining unit to apply
this same approach.
With the recent market volatility and precious metal pullback, are gold and silver still a relevant investment?
There are many people far more adept at addressing the macro view of precious metals, but nothing has fundamentally
changed my thesis with gold and silver held in a portfolio. Simply put, if all it took was for countries globally to put ink on
paper to create wealth, prosperity and cover debt obligations, then why does the world not always operate in this
unconventional manner? Quantitative easing is a desperate response to a desperate debt situation. I believe the metal
market volatility is temporary and in response to the compounding economic challenges with the unprecedented printing of
global fiat currencies at the forefront. History records precious metals as a store of wealth in troubled times and an
alternative investment that has outlived all fiat currencies. Those that now call for the end of gold were nowhere to be found
in calling for the long term gold bull market and gold being the best performing asset for a decade now. I don't believe we
have turned any real corners in solving the growing global debt problems, and precious metals should remain a solid
investment for the long run under the status quo. Mining companies are very fortunate and unique to be in the business of
extracting and producing real long term wealth, gold and silver, even during these volatile times. Gold Resource Corporation
is unique among the miners in that we not only provide a meaningful dividend but give shareholders the option to convert a
fiat currency dividend into real physical gold and silver.
4
2012
PERFORMANCE
HIGHLIGHTS
Production
90k
66k
66k66k
s
e
c
n
u
O
t
n
e
l
a
v
i
u
q
E
d
l
o
G
l
a
t
e
M
s
u
o
i
c
e
r
P
)
s
e
c
n
u
O
u
A
/
g
A
1
:
3
5
@
2
1
0
2
(
100,000
80,000
60,000
40,000
20,000
0
10k10k
10k
Dividends Per Share*
Production Cost
$0.69
$0.50
$0.50
$0.50
s
r
a
l
l
o
D
S
U
1.00
0.80
0.60
0.40
0.20
0
$0.18
$0.18
$0.18
$0.18
$727
$419
$419$419$419
e
c
n
u
O
r
e
p
t
s
o
C
h
s
a
C
l
a
t
o
T
2
1
0
2
)
d
r
a
d
n
a
t
S
s
e
t
u
t
i
t
s
n
'
I
l
d
o
G
e
h
T
y
b
d
e
n
i
f
e
d
s
a
(
$1000
$800
$600
$400
$200
0
2010
2010
2011
2011
2012
2012
2010
2010
2011
2011
2012
2012
**Thomson Reuters GFMS's Gold Survey 2012 Update 1
GRC
GRC
Industry Avg.**
Industry Avg.**
Precious Metal gold equivalent ounces: +37%
Dividends Declared: +38%
Sales of Metal Concentrates: +25%
*Dividends paid monthly. Monthly dividends ranged from $0.05 to
$0.06 in 2012, from $0.03 to $0.05 in 2011, and $0.03 in 2010.
5
Selected Financial Information:
(in thousands, except share data)
2012
Annual
Report
Sales of Metal Concentrates:
$131,794
$105,163
2012
2011
Mine Gross Profit:
$87,773
$80,521
Dividends Per Share:
$0.69
$0.50
Treasury Gold and Silver Bullion:
$5,809
$2,549
6
2012
Revenue Distribution
82%
18%
Precious Metals: Gold, Silver
Base Metals: Copper, Lead, Zinc
2012 Average Arista Mill Head Grades
Precious Metals:
Gold: 4.30 grams/tonne
Silver: 355 grams/tonne
Base Metals:
Copper: 0.45%
Lead: 1.70%
Zinc: 3.98%
ARISTA
UNDERGROUND
MINE
A High-Grade, Polymetallic Epithermal System
PA&H Initial NI-43-101 Resource (July 2012)
GRADE IN-SITU ESTIMATES
PRECIOUS METALS AuEq IN-SITU ESTIMATES
Cut-Off
(Grade g/t)
Tonnes
Au (g/t)
Ag g/t
Cu %
Pb %
1* g/t
4,480,711
2.12
7* g/t
2,305,485
3.62
9* g/t 1,606,286
4.47
210
350
428
0.32
0.44
0.50
1.20
1.88
2.19
Zn %
4.10
5.88
6.08
oz/t
0.20
0.34
0.43
g/t
6.22
10.58
13.37
Years
10
5
4
Gold Resource Corporation targets the 9 g/t cutoff: the highest quality, highest margin production ounces.
AuEq = Precious Metal Gold Equivalent. In-Situ = in place, not accounting for mining dilution
(PA&H) Pincock Allan & Holt July 2012 Third Party Estimate AuEq @ 50:1 Au,Ag ratio
*Indicated and Inferred. Years= mine life at 440,000 tonnes per year.
PA&H RESOURCE CRITERIA INCLUDES STANDARDS ESTABLISHED UNDER CANADIAN NI 43-101 FOR INDICATED AND INFERRED RESOURCES
NOT PROVEN AND PROBABLE RESERVES FOR U.S. REPORTING PURPOSES. U.S. investors are cautioned not to assume that all or any part of measured,
indicated or inferred resources will ever be converted into proven and probable reserves.
7
Arista Mine 3D Vein Diagram
(New Discovery)
(New Discovery)
Additional mineralized veins and splays continue to expand the Arista vein system.
Calender Year-End Precious Metal "Arista" Production Targets
~37%
Increase
YR/YR
Production range
to be determined
)
q
E
u
A
(
s
’
z
o
l
t
n
e
a
v
u
q
E
i
l
d
o
G
l
a
t
e
M
s
u
o
c
e
r
P
i
u
A
/
g
A
1
:
3
5
d
e
t
c
e
o
r
P
j
150,000
125,000
100,000
75,000
50,000
25,000
0
90,432
90,432
66,159
66,159
10,493
10,493
10,493
2010
2010
T/D
T/D
~619
~619
2011
2011
T/D
T/D
~773
~773
2012
2012
YEAR
T/D
T/D
~1500
~1500
2014
2014
2015
2015
2013
2013
2013 Target Range: 80,000-100,000 AuEq oz’s
E X P L A N A T I O N
PA&H NI-43-101 Resource
(July 2012)
Envelope
Drill Holes Inside NI-43-101
Resource Estimate
Drill Holes Outside NI-43-101
Resource Estimate
Gold & Silver Distribution
Southeast Trend
Drill Holes Outside NI-34-101Resource Estimate
Drill Hole Thickness (m) Au g/t Ag g/t Cu % Pb % Zn %
1.08
3.9 9.74 280 0.28
109001
3.80
6.3 3.94 407 0.18
109003
5.22
7.0 4.23 324 0.65
108044
1.29
0.5 8.89 1490 0.38
109007
0.22
0.98 696 1.79
0.3
108008
0.88
1.48
1.69
0.63
0.06
Gold Resource Corporation is targeting the 9 gram cutoff grade, focusing on the
quality, high margin ounces.
8
EXPLORATION
“Investing in our future”
48 km
57,868 hectares, or 223
GRC now controls
square miles in Oaxaca, Mexico, with 48
kilometers, or 30 miles, along an important
mineralized North 70 West structural corridor
99% of properties yet to be drilled.
9
SOCIAL AND
ENVIRONMENTAL RESPONSIBILITY
Dental Clinics
Environmental Commitment
Reforestation
Agricultural Training
Medical Clinics
g
n
d
i
l
i
u
b
n
i
i
p
h
s
r
e
n
t
r
a
p
A
“
”
s
e
i
t
i
n
u
m
m
o
c
r
e
g
n
o
r
t
s
Student Scholarships
Hire Locally
10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Except for the historical information, the following discussion contains forward-looking statements that are subject
to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only
as of the date of this report. Our actual future results or actions may differ materially from these forward-looking
statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this annual report. Our
discussion and analysis of our financial condition and results of operations should be read in conjunction with the
audited consolidated financial statements and related notes included in this report and with the understanding that our
actual future results may be materially different from what we currently expect.
Introduction
The following discussion summarizes our results of operations for three fiscal years ended December 31, 2012 and our
financial condition at December 31, 2012 and 2011, with a particular emphasis on the year ended December 31, 2012. The
discussion also presents certain Non-GAAP financial measures that are important to management in its evaluation of our
operating results and which are used by management to compare our performance with what we perceive to be peer group
mining companies and relied on as part of management’s decision-making process. Management believes these measures
may also be important to investors in evaluating our performance. For a detailed description of each of the Non-GAAP
financial measures, please see the discussion under “Non-GAAP Measures” below.
Overview
Business
We are a mining company that pursues gold and silver projects that are expected to have low operating costs and high
returns on capital. We are presently focused on mineral production at the El Aguila Project in Oaxaca, Mexico. We achieved
commercial production in July 2010 at our El Aguila open pit mine with a metal concentrate containing our primary product
of gold and a silver by-product. Operations at the El Aguila open pit mine ceased in February 2011 with the start-up of mine
operations at the La Arista underground mine in March 2011. Our La Arista underground mine produces metal concentrates
that contain our primary metal products of gold and silver, and by-products of copper, lead and zinc.
The mill located at our El Aguila Project produced a total of 90,432 precious metal gold equivalent ounces for the year
ended December 31, 2012, which was within our revised 2012 target mill production of 85,000 to 100,000 precious metal
gold equivalent ounces. During this period, we sold 72,399 of precious metal gold equivalent ounces at a total cash cost
(including royalties) of $419 per precious metal gold equivalent ounce sold. Precious metal gold equivalent is determined by
taking the silver ounces produced or sold and converting them to precious metal gold equivalent ounces using the gold to
silver average price ratio. The gold and silver average prices used are the actual metal prices realized from the sales of our
metals concentrate. (Please see the section titled “Non-GAAP Measures” below for additional information concerning the
cash cost per ounce measure.) For the year ended December 31, 2012, we recorded revenues of $131.8 million, mine gross
profit of $87.8 million and net income of $33.7 million.
Although our annual mill production increased 36.5% over the prior year, we encountered several challenges with
production at La Arista during 2012, including higher than planned mining dilution in our long-hole stopes, mining of lower
grade vein margins and splays, continued development and infrastructure needs in the mine related to abatement of water
inflow at lower levels and ventilation upgrades to reduce carbon dioxide levels. In order to adequately address these issues in
2013, our new on-site management team has taken a more proactive development approach to mitigate effects of water and
carbon dioxide gas including some off vein development, construction of additional ventilation fans providing fresh air to the
mine and additional water pumping stations.
Exploration Stage Company
We are considered an exploration stage company under the SEC criteria since we have not demonstrated the existence
of proven or probable reserves at our El Aguila Project in Oaxaca, Mexico or any of our other properties. Accordingly, as
required by the SEC guidelines (see Note 1 to the Consolidated Financial Statements) and U.S. GAAP for companies in
the exploratory stage, substantially all of our investment in mining properties to date, including construction of the mill, mine
facilities and mine development expenditures, have been expensed and therefore do not appear as assets on our balance sheet.
Certain expenditures, such as expenses for rolling stock or other general purpose equipment, may be capitalized, subject to
our evaluation of the possible impairment of the asset.
Our characterization as an exploration stage company regarding the treatment of construction and development
expenditures as an operating expense rather than as a capital expenditure, has caused us to report larger losses in 2010 and
11
lower net income in 2011 and 2012 than if we had capitalized the expenditures. Additionally, we will not have a
corresponding depreciation or amortization expense for these costs going forward since they are expensed as incurred rather
than capitalized. Although the majority of the capital expenditures for the El Aguila Project were completed between 2007
and 2010, we expect underground mine construction to continue in future years and we will be completing additional capital
improvements at our El Aguila mill during 2013 and future years. In comparison to other mining companies that capitalize
development expenditures because they have exited the exploration stage, we may report larger losses or lesser profits as a
result of this ongoing construction, which will be expensed instead of capitalized for accounting purposes. We expect to
remain as an exploration stage company for the foreseeable future, even though we have reached commercial production. We
will not exit the exploration stage until such time, if ever, that we demonstrate the existence of proven or probable reserves
that meet the SEC guidelines. Likewise, unless mineralized material is classified as proven or probable reserves, substantially
all expenditures for mine and mill construction have been or will be expensed as incurred.
Exploration Activities
During 2012, we continued to focus primarily on infill and step out drilling at the La Arista underground mine, located
at the El Aguila Project. Because this drilling is used to define the mineralization and to assist in mining of the ore at the
underground mine, these expenses are considered development and delineation of the ore body (not exploration), and these
costs are classified as construction and development in the consolidated statements of operations.
Exploration activities that are classified as exploration expenses in the consolidated statements of operations include,
but are not limited to, drilling on other areas of the El Aguila property to test new geologic targets and exploration work on
our other properties. Exploration during 2012 included commencing a surface drill program on portions of the Las
Margaritas property, we also are completing a limited drilling campaign at Alta Gracia and El Chamizo focusing on
previously identified drill targets.
Physical Dividend Program
In April 2012, we launched a physical dividend program pursuant to which our shareholders have the option to convert the
cash dividends we pay into physical gold and silver bullion. As part of our overall strategy to diversify our treasury and to
facilitate this program, we purchase gold and silver bullion. In order for a shareholder to convert their cash dividend into
physical gold and/or silver, the shareholder must opt-in to the physical dividend program and request the conversion of their
cash dividend, or any portion thereof, into physical gold and/or silver. For those shareholders who elect to convert their cash
dividend into gold and/or silver bullion, the gold and silver will be delivered in the form of gold/silver one ounce bullion
rounds. No action is required by any shareholder who elects not to participate in the physical metals program. For those
shareholders who wish to convert any portion of their cash dividend into gold and/or silver bullion, the process is
summarized as follows:
Shareholders must register and hold their Gold Resource Corporation common shares in their name directly with our
transfer agent, Computershare Investor Services, and not through a brokerage house or other intermediary. This is a
requirement so that we can locate and validate the shareholder’s position in our common stock.
Shareholders must set up an individual account with Gold Bullion International (“GBI”), 225 Liberty Street New
York, NY 10006. GBI facilitates the cash to gold and silver conversion.
Shareholders then direct their cash dividend check issued by Computershare to be electronically sent to that
shareholder’s GBI account for the option to have it, or any portion thereof that denominates into a one ounce gold or
silver bullion round. The election to convert all or any portion of the shareholder’s cash dividend into bullion is
governed by an agreement between the shareholder and GBI.
Shareholders with accounts at GBI who wish to change their current gold, silver or cash allocations for their cash
dividend must do so by midnight EDT on the date preceding the monthly dividend record date. (We issue a press
release with details of each dividend declaration, and the dividend record and payment dates.)
On the dividend record date, the number of bullion ounces to be converted and distributed to the shareholder’s
individual account on the dividend payment date is calculated as the dollar value of that portion of the cash dividend
the shareholder elected to convert to bullion, divided by the London Bullion Market PM gold fix on the record date
or the London Bullion Market silver fix on the record date.
12
Only whole ounces of gold and silver bullion are credited to a shareholder’s individual account on the dividend
payment date. The cash value attributable to fractional ounces will remain in the shareholder’s individual account as
cash until such time as future dividends provide the shareholder with sufficient cash to convert to whole ounces of
gold or silver based on the London PM gold fix and silver fix on a future dividend record date, and based on the
shareholder’s self-directed gold, silver or cash allocations in effect at that time. The shareholder may also choose to
move their cash out of their GBI account. Shareholders cannot move cash into their GBI account for conversion into
gold and silver. Only the shareholder’s cash dividend sent from Computershare is eligible for conversion.
During the year ended December 31, 2012, we purchased approximately 1,974 ounces of gold and 59,001 ounces of
silver at market prices for a total cost of $5.2 million. During the year ended December 31, 2011, we purchased
approximately 868 ounces of gold and 41,728 ounces of silver at market prices for a total cost of $3.0 million.
Settlement with Concentrate Buyer
On November 5, 2012, we entered into a settlement agreement with our concentrate buyer as a result of the dispute
over the metallurgical content of the concentrates sampled at buyer’s facility after discovering issues related to the
transportation, handling, control and sampling of those concentrates, and the resulting assays that were obtained from those
samples. We believe the concentrates had been tampered with and compromised sometime after the shipments left the mine
site and until the concentrates were sampled at the buyer’s warehouse. The settlement agreement required the buyer to pay us
$1.5 million, representing the amount by which our provisional invoices for April, May and June 2012 exceeded the tentative
settlement value, based on assays taken at the buyer’s warehouse. In addition, the settlement agreement required us to accept
the final settlement value, based on assays taken at the buyer’s warehouse, for shipments made in February and March 2012.
The settlement resulted in a reduction to precious metal gold equivalent sold of approximately 1,400 ounces and a net
reduction to sales of metal concentrates of $3.3 million, which included assay, pricing and other settlement adjustments with
the buyer, for the six months ended June 30, 2012. These adjustments were recorded in the restated first and second quarter
2012 financial statements.
Other Events
In April 2012, the Board of Directors increased the instituted monthly dividend payment from $0.05 per share to $0.06
per share. Prior to instituting a regular monthly dividend in August 2011, the dividends were characterized as special
dividends. Our long-term goal is to distribute approximately one-third of our Cash Flow from Mine Site Operations (See
Non-GAAP Measures) as dividends to shareholders. In 2011, we distributed approximately 29.8% of Cash Flow from Mine
Site Operations in shareholder dividends. In 2012, we distributed approximately 39.5% of Cash Flow from Mine Site
Operations to our shareholders as dividends. Our dividends should not be considered a prediction or guarantee of future
dividends. Our instituted dividend may be modified or discontinued at the discretion of our Board of Directors, depending on
variables such as, but not limited to, operating cash flow, development requirements and strategies, construction projects,
spot gold and silver prices, taxation and general market conditions.
Results of Operations—Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Sales of metals concentrate, net
During the year ended December 31, 2012, we generated sales of $131.8 million, net of treatment charges, compared to
sales of $105.2 million during the same period of 2011, an increase of 25.3%. The significant increase in sales for the year
ended December 31, 2012 resulted from an increase in payable metals sold due to an increase in tonnes milled in 2012 at the
La Arista underground mine. Fewer ore tonnes were milled and payable metals sold in 2011, principally due to operations at
La Arista not commencing until March 2011. Revenue generated from sale of base metals contained in our concentrates is
considered a by-product of our gold and silver production. (See Production and Sales Statistics tables titled “La Arista
Underground Mine” and “El Aguila Open Pit Mine” below for additional information regarding the three months and years
ended December 31, 2012 and 2011). The year ended 2012 was our second full year of commercial production. Metals prices
realized in 2012 were mixed over the prior year, with average per ounce gold prices increasing to $1,676 from $1,644 per
ounce, a 2% increase, and average per ounce silver prices decreasing to $31 from $35 per ounce, a 12% decrease.
Below are certain key operating statistics for our La Arista underground mine for 2012 and 2011 and the El Aguila
open pit mine for 2011. Our production for 2012 consisted of ore from our La Arista underground mine. Our production for
2011 consisted of ore from both the La Arista underground mine and the El Aguila open pit mine. Production for the three
months ended December 31, 2011 did not include ore from the El Aguila open pit mine, which ceased operations in February
2011, but it did include ore from the La Arista underground mine, which began operations in March 2011. Our production
rate at La Arista is directly a result of mine development and the establishment of sufficient stopes and working faces. The
number of stopes and working faces has increased as we have gone deeper in the mine, which has resulted in more tonnes of
13
ore processed at the mill in 2012 as compared to 2011. We also sustained, at various times, higher than expected mining
dilution rates as high as 35% to 40% in the second quarter of 2012 as well as higher than targeted dilution rates at various
times in the remaining quarters. This dilution lowers the head grades. We believe this to be an unacceptable dilution
percentage and we continue to take steps to lower dilution.
Production Summary
Milled:
Tonnes Milled
Tonnes Milled per Day
Grade:
Average Gold Grade (g/t)
Average Silver Grade (g/t)
Average Copper Grade (%)
Average Lead Grade (%)
Average Zinc Grade (%)
Recoveries:
Average Gold Recovery (%)
Average Silver Recovery (%)
Average Copper Recovery (%)
Average Lead Recovery (%)
Average Zinc Recovery (%)
Mill production (before payable metal deductions)(1)
Gold (ozs.)
Silver (ozs.)
Copper (tonnes)
Lead (tonnes)
Zinc (tonnes)
Payable metal sold(1)
Gold (ozs.)
Silver (ozs.)
Copper (tonnes)
Lead (tonnes)
Zinc (tonnes)
Average metal prices realized
Gold (oz.)
Silver (oz.)
Copper ( tonne)
Lead (tonne)
Zinc ( tonne)
Gold equivalent ounces produced (mill production)(1)
Gold Ounces
Gold Equivalent Ounces from Silver
Total Gold Equivalent Ounces (3)
Gold equivalent ounces sold(1)
Gold Ounces
Gold Equivalent Ounces from Silver
Total Gold Equivalent Ounces
Total Cash Cost per Gold Equivalent Ounce(2)
Production and Sales Statistics
La Arista Underground Mine
La Arista Underground Mine
Three Months
Ended
December 31,
2012
Three Months
Ended
December 31,
2011
Year Ended
December 31,
2012
Year Ended
December 31,
2011
71,541
778
55,434
603
282,120
773
167,806
561
4.63
314
0.46
1.99
4.78
89
94
85
73
82
9,528
675,607
277
1,037
2,809
5,774
417,932
162
953
2,218
1,691 $
36 $
7,942 $
2,256 $
1,952 $
9,528
14,254
23,782
5,774
8,818
14,592
4.20
453
0.61
1.73
3.70
89
93
76
79
79
6,631
753,414
258
760
1,617
5,873
716,221
194
622
1,390
1,691 $
30 $
7,019 $
1,873 $
1,800 $
6,631
13,303
19,934
5,873
12,646
18,519
$
$
$
$
$
$
551 $
279 $
14
4.30
355
0.45
1.70
3.98
88
93
78
70
81
34,417
2,996,743
986
3,374
9,115
26,675
2,446,232
769
3,187
7,222
1,676 $
31 $
8,033 $
2,110 $
1,967 $
34,417
56,015
90,432
26,675
45,724
72,399
419 $
3.35
424
0.48
1.40
2.92
89
93
77
78
76
16,027
2,122,000
620
1,840
3,730
15,700
2,034,187
464
1,510
2,812
1,644
35
8,095
2,184
1,995
16,027
44,663
60,690
15,699
42,815
58,514
-
(1) Mill production represents metal contained in concentrates produced at the mill, which is before payable metal deductions are levied by the buyer
of our concentrates. In addition, mill production quantities for the year ended December 31, 2012 do not reflect any deduction for 583 gold
ounces, respectively, and 45,432 silver ounces, respectively, (approximately 1,400 gold equivalent ounces) resulting from the settlement
agreement with the buyer of our concentrates as discussed on page 30 under “Settlement with Concentrate Buyer”. Gold equivalent ounces sold
for the year ended December 31, 2012 have been reduced by approximately 1,400 gold equivalent ounces as a result of the settlement.
(2) A reconciliation of this non-GAAP measure to mine cost of sales, the most comparable GAAP measure, can be found below in Non-GAAP
Measures. Total cash cost per gold equivalent ounce sold for the combined La Arista underground mine and the El Aguila open pit mine for the
for the year ended December 31, 2011, can be found in Non-GAAP Measures below.
(3) Gold equivalent mill production for 2012 of 90,432 ounces differs from gold equivalent ounces sold for 2012 of 72,399 due principally to buyer
(smelter) concentrate processing deductions of approximately 9,078 gold equivalent ounces, a settlement agreement with the buyer of the
Company’s concentrates of approximately 1,400 gold equivalent ounces and an increase in gold equivalent ounces contained in ending inventory
of approximately 7,555 ounces.
Production and Sales Statistics
El Aguila Open Pit Mine
Year Ended December 31,
2011 (1)
Production Summary
Milled:
Tonnes Milled
Tonnes Milled per Day
Grade:
Average Gold Grade (g/t)
Average Silver Grade (g/t)
Recoveries:
Average Gold Recovery (%)
Average Silver Recovery (%)
Mill production (before payable metal deductions)
Gold (ozs.)
Silver (ozs.)
Payable metal sold
Gold (ozs.)
Silver (ozs.)
Average metal prices realized
Gold (oz.)
Silver (oz.)
Gold equivalent ounces produced (mill production)
Gold Ounces
Gold Equivalent Ounces from Silver (2)
Total Gold Equivalent Ounces
Gold equivalent ounces sold
Gold Ounces
Gold Equivalent Ounces from Silver (2)
Total Gold Equivalent Ounces
46,409
829
4.18
53
89
75
5,559
58,309
3,917
43,605
1,383
34
5,559
-
5,559
3,917
-
3,917
$
$
(4) Total cash cost per gold equivalent ounce sold for the combined La Arista underground mine and the El Aguila open pit mine for the for the year
ended December 31, 2011 can be found in the Non-GAAP Measures.
(5) Silver ounces were considered a by-product in arriving at the total cash cost per ounce equivalent.
For the year ended December 31, 2012, we sold 26,675 ounces gold and 2,446,232 ounces silver from the La Arista
underground mine for at gross sales value of approximately $44.7 million and $75.8 million, respectively. This compares to
19,617 ounces gold and 2,077,792 ounces silver during 2011 from both the La Arista underground mine and El Aguila open
pit mine, for gross sales value of $31.3 million and $72.7 million respectively. From the El Aguila open pit mine, we sold
3,917 ounces gold and 43,605 ounces silver during the first two months of 2011 and from the La Arista underground mine,
we sold 15,700 ounces gold and 2,034,187 ounces silver during the last ten months of 2011. The increase in sales in 2012
principally resulted from a full year of operations at La Arista in 2012, versus ten months of operations at La Arista in 2011.
15
Production
For the year ended December 31, 2012 mill production totaled 90,432 ounces of precious metal gold equivalent
compared to 66,249 ounces of precious metal gold equivalent for 2011. See the table titled “Production and Sales Statistics-
El Aguila Project” above for additional information regarding our mineral production statistics.
We continue to focus on mining and development activities at the La Arista underground mine. Our production is
dependent on the rate of mine development and the establishment of sufficient stopes and working faces. We anticipate the
number of stopes and working faces will increase in 2013 and that precious metal mill production may be similar with 2012
mill production. Our 2013 mine plan anticipates that we will be mining areas of the deposit that contain higher levels of base
metals, as compared to 2012.We are targeting mill production of 80,000 to 100,000 ounces of precious metal gold equivalent
in 2013.
Mine gross profit. For the year ended December, 2012 mine gross profit totaled $87.8 million compared to $80.5
million for the year ended December 31, 2011. The increase in mine gross profit from the prior year was primarily due to the
increase in sales of metal concentrate due to an increase in the quantities of payable metal sold. Mine gross profit as a
percent of sales for the year ended December 31, 2012 decreased to 66.6% from 76.6% during the same period in 2011,
principally due to higher labor, contractor services, diesel, concentrate transportation and other operating costs in 2012.
Net income (loss) before extraordinary item. For the year ended December 31, 2012, net income before extraordinary
item was $33.7 million, or $0.60 per diluted share, as compared to net income before extraordinary item of $60.1 million or
$1.06 per diluted share, for the comparable period of 2011. The $26.4 million decrease in net income in 2012 was principally
attributable to a $12.0 million income tax benefit in 2011 resulting from a reduction to the income tax valuation allowance, as
compared to $13.3 million of income tax expense in 2012.
Costs and expenses. Total costs and expenses during the year ended December 31, 2012 were $38.1 million compared
to $34.9 million during the comparable period of 2011, an increase of $3.2 million, or 9.2%. The increase resulted from an
increase in general and administrative expenses, and exploration expenses, which were partially offset by a decrease in
construction and development expenses, as discussed in more detail below.
General and administrative expenses. General and administrative expenses for the year ended December 31, 2012 was
$13.5 million compared to $8.9 million for the same periods of 2011. The $4.6 million increase in 2012 principally resulted
from higher stock-based compensation expense, investor relations activities, professional services and insurance costs.
Exploration expenses. Property exploration expenses totaled $8.0 million for the year ended December 31, 2012,
compared to $4.9 million during the same period of 2011. The $3.1 million increase in exploration expenses results from
higher expenditures in 2012 to evaluate and drill new exploration targets on the El Aguila and Alta Gracia properties, and to
evaluate other prospects near our La Arista underground mine. We also set up an exploration office in Turkey in September
2012. Exploration costs associated with definition and delineation drilling of the La Arista vein system are reflected in
construction and development expenses.
Construction and development expenses. Construction and development expenses during the year ended December 31,
2012 decreased to $16.6 million from $21.0 million during 2011. Construction and development includes mine development
costs attributable to definition and delineation drilling of the La Arista vein system, and construction related activities at the
El Aguila Project. The $4.4 million decrease when compared to 2011 is due to lower expenditures in 2012 relating to
construction of the tailings dam, expansion of the flotation cells in the flotation circuit in the mill, construction of the mine
camp and infrastructure construction. We will continue to focus on further mine development of La Arista and construction
related activities at the El Aguila Project for the foreseeable future.
Other (expense)income. For the year ended December 31, 2012, we recorded other expense of $2.7million, compared
to other income of $2.4 million during the same period of 2011. The change in other (expense) income resulted primarily
from recognizing a foreign currency loss of $2.9 million during the year ended December 31, 2012 compared to a foreign
currency gain of $2.7 million in the comparable period in 2011. The current year losses resulted from currency translation
adjustments during a period when the dollar was increasing compared to the Mexican peso, and a $2.0 million reclassification
from other comprehensive loss to foreign exchange loss.
Provision for income taxes. For the year ended December 31, 2012, income tax provision was $13.3 million as
compared to an income tax benefit of $12.0 million for the year ended December 31, 2011. The $25.3 million increase in
income tax provision in 2012 principally resulted from a $28.3 million reduction to a valuation allowance on deferred tax
assets in 2011 as compared to a $4.6 million reduction to a valuation allowance on deferred tax assets in 2012. There was no
corresponding income tax provision or benefit during the 2010 due to start-up of operations in 2010. As of December 31,
16
2012, there were no remaining valuation allowances on the Company’s deferred tax assets. See Note 7 to the Consolidated
Financial Statements for additional information.
Extraordinary item. On April 20, 2011, the El Aguila Project suffered severe damage from an anomalous rain and hail
storm which flooded the La Arista underground mine and damaged existing roads, buildings and equipment. We experienced
a loss of $2.5 million, for which we recorded an extraordinary loss of $1.8 million, net of income tax benefit of $0.8 million,
for the year ended December 31, 2011.
Results of Operations – Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
During the year ended December 31, 2011 we sold 19,617 ounces of gold at an average realized price of $1,596 per
ounce for $31.3 million of gross revenue, and 2,077,792 ounces of silver at an average realized price of $35 per ounce for
approximately $72.7 million of gross revenue, compared to 10,493 ounces of gold at an average realized price of $1,201 per
ounce for $12.6 million of gross revenues, and 111,316 ounces of silver at an average realized price of $20 per ounce for
approximately $2.2 million of gross revenue for 2010. Mine gross profit for the year ended December 31, 2011 was $80.5
million compared to $8.0 million in the comparable period of 2010, an increase of $72.5 million or 906%. The increase was
due to a full twelve months of mine operations in 2011 compared to only six months of operations in 2010.
For the year ended December 31, 2011 we reported a net income of $58.4 million, or $1.10 per share, compared to a
net loss of $23.1 million, or $0.46 per share, for the year ended December 31, 2010. Our net income increased in 2011 due to
ramp-up of operations in 2010 as compared to a full year of operations in 2011.
Total costs and expenses for the year ended December 31, 2011 were $34.9 million compared to $30.8 million in the
comparable period of 2010, an increase of $4.1 million or 13.3%. The increase in costs and expenses was primarily due to
our operations transitioning to underground mine development activities and an increase in stock-based compensation.
Exploration expense for the year ended December 31, 2011 of $4.9 million was consistent with our level of
exploration activity in 2010 of $4.7 million.
Construction and development for the year ended December 31, 2011 of $21.0 million increased by $2.6 million or
14.1% when compared to 2010 of $18.4. The higher cost in 2011 was primarily due to the completion of the second phase of
the tailings dam, and expansion of the flotation cells in the mill’s flotation circuit during 2011.
General and administrative expenses increased $1.4 million or 18.7% to $8.9 million for the year ended December 31,
2011 as compared to $7.5 million for the comparable period in 2010. The increase was attributable to increases in
professional fees, salaries and benefits and stock-based compensation.
For the years ended December 31, 2011 and 2010, we recorded a currency translation adjustment loss of $3.2 million
and a currency translation adjustment gain of $0.2 million, respectively, resulting from the translation of our subsidiary’s
Mexican peso denominated functional currency financial statements into the US dollar reporting currency.
Non-GAAP Measures
Throughout this report, we have provided information prepared or calculated according to U.S. GAAP, as well as
provided some non-U.S. GAAP (“non-GAAP”) performance measures. Because the non-GAAP performance measures do
not have any standardized meaning prescribed by U.S. GAAP, they may not be comparable to similar measures presented by
other companies. Accordingly, these measures are intended to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.
Total Cash Cost per Gold Equivalent Ounce Sold
We use total cash cost (including royalties) per gold equivalent ounce sold, calculated in accordance with the Gold
Institute’s Standard, as one indicator for comparative monitoring of our mining operations from period to period and believe
that investors also find this information helpful when evaluating our performance. Total cash costs are arrived at by taking
mine cost of sales, plus treatment and refining charges (which are netted against revenues), less by-product credits earned
from sales of metals we consider by-products (copper, lead and zinc at the La Arista underground mine and silver at the El
Aguila open pit mine) less noncash items such as depreciation and amortization, accretion, stock-based compensation, and
reclamation costs. Total cash costs are divided by gold equivalent ounces sold (gold ounces sold, plus gold equivalent ounces
of silver ounces sold converted to gold ounces using our realized gold price per ounce to silver price per ounce ratio, at the La
Arista underground mine; and gold ounces sold at the El Aguila open pit mine) to arrive at total cash cost per gold equivalent
ounce sold. There can be no assurance that our reporting of this Non-GAAP measure is similar to that reported by other
mining companies.
17
For reporting periods prior to 2012, we reported cash operating cost per gold equivalent ounce produced (on-site mill
production). These amounts have been restated in this Management’s Discussion and Analysis to reflect our current reporting
method, of total cash cost per gold equivalent ounce sold, which we believe is the most common method used by companies
that apply the Gold Institute Standard. The principal difference between cash operating costs and total cash costs is that cash
operating costs exclude royalty costs, whereas total cash costs include royalty costs. Our concentrates are subject to a 5% net
smelter returns royalty. The principal difference between gold equivalent ounces produced at the mill and gold equivalent
ounces sold, is that gold equivalent ounces produced at the mill do not reflect payable metal deductions levied by smelters,
whereas gold equivalent ounces sold are after payable metal deductions levied by smelters.
We have reconciled total cash cost per gold equivalent ounce sold to reported U.S. GAAP measures in the table below.
The most comparable financial measures to our total cash cost is mine cost of sales calculated in accordance with U.S.
GAAP. Mine cost of sales is obtained from the consolidated statements of operations.
Three Months Ended December 31, Twelve Months Ended December 31,
2012
2011
2012
2011
(In thousands, except ounces sold and total cash cost per gold equivalent ounce)
Gold equivalent ounces sold
14,592
18,519
72,399
62,431
Cost of sales - production costs
Treatment and refining charges
By-product credits
Depreciation and amortization
Accretion
Reclamation costs
Stock-based compensation
Total cash costs
Total cash cost per gold equivalent ounce
sold (including royalties)
Cash Flow from Mine Site Operations
$
$
$
11,182 $
3,978
(7,609)
(425)
(21)
(314)
1,251
8,042 $
7,284 $
4,273
(5,027)
(146)
(18)
-
(1,195)
5,171 $
44,021 $
16,680
(26,837)
(1,366)
(81)
(373)
(1,737)
30,307 $
24,642
11,400
(14,357)
(473)
(82)
-
(4,336)
16,794
551 $
279 $
419 $
269
Cash flow from mine site operations (“Cash Flow from Mine Site Operations”) is furnished to provide additional
information and is a Non-GAAP measure. This measure should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with U.S. GAAP. We believe that certain investors use this measure as a basis to
assess mine performance and we use it as a measure on which our planned distributions to shareholders are currently based.
The following table provides a reconciliation of Cash Flow from Mine Site Operations to mine gross profit as presented in
the consolidated statements of operations.
Three Months Ended December 31,
Twelve Months Ended December 31,
2012
2011
2012
2011
Mine gross profit
Stock-based compensation
Depreciation and amortization
Accretion
Cash flow from mine site operations
$
$
16,188 $
(1,251)
426
21
15,384 $
Liquidity and Capital Resources
(In thousands)
28,154 $
1,195
146
19
29,514 $
87,773 $
1,737
1,366
81
90,957 $
80,521
4,336
473
82
85,412
As of December 31, 2012, we had working capital of $46.0 million, consisting of current assets of $59.0 million and
current liabilities of $13.0 million. This represents a decrease of $13.3 million from the working capital balance of $59.3
million as of December 31, 2011. Our working capital balance fluctuates as we use cash to fund our operations, exploration,
and mine development and construction activities, and to pay income taxes and fund our dividends.
18
Prior to achieving profitable operations in 2011, we relied on equity financings to fund our operating activities. Since
achieving profitability in 2011, we have relied on cash flow generated from mining operations to fund our operations, income
tax obligations, dividends and other activities. Our mine development, construction activities and equipment purchases at the
La Arista mine are, in the aggregate, expected to be higher in 2013 as compared to 2012 or 2011. If our cash flows from
operations is insufficient to cover our anticipated expenses we may be required to secure debt or equity financing, reduce our
planned development, construction or other expenditures at the mine, reduce our monthly dividend or implement other
measures. There is no assurance that, in the event debt or equity financing is needed, we would be able to secure this
financing or that it could be secured under favorable terms.
We target calendar year cash distributions to our shareholders totaling approximately one-third of Cash Flow from
Mine Site Operations (See “Non-GAAP Measures” above), subject to the laws of the State of Colorado that govern
distributions to shareholders. Our target dividend payment of one-third of Cash Flow from Mine Site Operations may be
increased, decreased, suspended or discontinued at any time at the sole discretion of the Board of Directors based on
company development requirements and strategies, cash balances, construction projects, spot gold and silver prices, taxation,
general market conditions or any other reason. For the year ended December 30, 2012, we declared dividends of $35.9
million, representing 39.5% of Cash Flow from Mine Site Operations.
Upon declaration of a dividend, each shareholder has the option to subsequently convert that cash dividend into gold
and/or silver bullion. To the extent we do not hold sufficient gold and silver bullion by the distribution payment date we must
purchase gold and/or silver bullion in the market. We intend to purchase gold and silver bullion in the market at various
times throughout the year, and intend to hold quantities of gold and/or silver bullion to enable us to meet, at a minimum, our
forecasted physical delivery requirements for the current and following month.
The mineral concessions that comprise our La Arista underground mine are subject to a 4% net smelter returns royalty
on sales of any gold and silver dore, and a 5% net smelter returns royalty on sales of any concentrate. We produce copper,
lead and zinc concentrates, but no gold and silver dore, at La Arista underground mine. We only produced a gold and silver
concentrate at our El Aguila open pit mine. Royalties are considered mine operating costs and are funded from the sale of
concentrates. Royalty expense is recorded based on provisional invoices and adjusted based on the final invoice. An initial
royalty payment of 50% of the provisional invoice amount is made when the provisional invoice is collected. The remaining
royalties owed are paid when we receive full payment for the final invoice. For the years ended December 31, 2012 and
2011, we made royalty payments totaling $5.8 and $3.6, respectively. We estimate that approximately $7 million of royalty
payments will be made in 2013, subject to market prices for the metals in our concentrates, mine production and timing of
final invoice settlements.
For 2013 we have budgeted approximately $7.4 million for drilling and other exploration related activities at our El
Aguila property. In addition, we intend to spend approximately $2.2 million for drilling and other exploration activities on
our other exploration properties in Mexico. In Turkey, we have budgeted $2.0 million for exploration and property
acquisitions. Our planned exploration expenditures for 2013 are discretionary and could be significantly higher or lower
depending on the ongoing results from the exploration programs. Exploration activities to further delineate and define our La
Arista vein system are considered mine development costs and classified as development and construction expenses in the
consolidated statement of operations.
Our cash and cash equivalents as of December 31, 2012 decreased to $35.8 million from $52.0 million as of
December 31, 2011, a net decrease in cash of $16.2 million.
Net cash provided by operating activities for the year ended December 31, 2012 was $31.2 million compared to $41.3
million during 2011. The $10.1 million decrease in net cash provided by operation activities principally results from payment
of our 2011 Mexican income tax liability in 2012.
Net cash used in investing activities for the year ended December 31, 2012 was $7.7 million compared to $10.4 million
for 2011. The $2.7 million decrease in cash used in investing activities was primarily due to a decrease in capital
expenditures and increase in proceeds from conversion of gold and silver bullion related to our physical gold and silver
dividend program. Although most of our exploration stage expenditures are recorded as an expense rather than an investment,
we capitalize the acquisition cost of land and mineral rights and certain equipment that has alternative future uses or
significant salvage value, including rolling stock, furniture, and electronics. The cost of acquiring these assets is reflected in
our investing activities.
Net cash used in financing activities for the year ended December 31, 2012 was $39.9 million compared to $27.4,
consisting of dividends declared and treasury stock purchases. The $12.5 million increase in net cash used in financing
activities principally results from an increase in dividends paid in 2012. In August 2011, we instituted a regular monthly
dividend consisting of $0.05 per share, which was increased to $0.06 per share in April 2012, until such time as the Board of
Directors determines otherwise.
19
Off-Balance Sheet Arrangements
As of December 31, 2012, we had no off-balance sheet arrangements.
Contractual Obligations
Our known obligations at fiscal year-end December 31, 2012, are set forth in the table below:
Contractual Obligations
Payments due by period
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
(in thousands)
Purchase Obligations(1)
Operating Leases
Non-cancellable Purchase Obligations
Employee Salary Compensation (2)
Total
$
$
4,758 $
821
7,666
1,441
14,686 $
1,915 $
128
7,666
654
10,363 $
2,843 $
261
-
787
3,891 $
- $
144
-
-
144 $
-
288
-
-
288
(1) Represents amounts due to our executive officers pursuant to their respective employment agreements with our
company.
(2) Represents amounts due to non-executive employees pursuant to their respective employment agreements with our
company.
Accounting Developments
For a discussion of Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements,
see Note 1 to the Consolidated Financial Statements.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities and contingencies at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting period. As a result, management is required to
routinely make judgments and estimates about the effects of matters that are inherently uncertain. Actual results may differ
from these estimates under different conditions or assumptions. The following discussion pertains to accounting estimates
management believes are most critical to the portrayal of our financial position and results of operations that require
management’s most difficult, subjective or complex judgments.
Proven or Probable Reserves
Despite the fact that we commenced production in 2010, as of December 31, 2012, none of the mineralized material at
the Company’s El Aguila Project or any of its other properties met the SEC’s definition of proven or probable reserves under
the criteria set forth in SEC Industry Guide 7. As a result, and in accordance with principles generally accepted in the United
States (“U.S. GAAP”) for exploration stage companies, we do not capitalize exploration, evaluation, mine development and
construction costs associated with our properties and, instead, expense these costs as they are incurred.
Revenue
We recognize revenue when an arrangement exists, the price is fixed and determinable, the title and risk of loss have
transferred to the buyer (generally at the time shipment is delivered at buyer’s port) and collection is reasonably assured. We
enter into provisionally priced concentrate sales contracts, whereby the contracts settle at prices to be determined in the future
based on quoted prices. Accordingly, due to the time elapsed between shipment and the final settlement with the buyer, the
Company must estimate revenue based on assay measurements taken at the time of shipment using quoted metal prices at that
time. Changes in the price of the metals concentrates we sell, and differences in assay measurements taken at our facilities at
the time of shipment and those taken at the buyer’s port, can have a significant effect on our revenues.
20
Concentrate sales are initially recorded using quoted metal prices at the time of shipment, and contain an embedded
derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable
from the sale of the concentrates at the quoted metal prices at the time of shipment. The embedded derivative, which does not
qualify for hedge accounting, is adjusted to market through earnings each period prior to final settlement. Changes in the
prices of metals we sell, as quoted on the London Bullion Market, between the shipment and final settlement dates will result
in adjustments to revenues related to sales of concentrate previously recorded upon shipment.
Sales are recorded net of charges for treatment, refining, smelting losses and other charges negotiated by the Company
with the buyer. These charges are estimated upon shipment of concentrates based on contractual terms and adjusted to reflect
actual charges at final settlement. Historically, actual charges have not varied materially from our initial estimates.
Changes in the market price of metals significantly affect the Company’s revenues, results of operations and cash flow.
Metals prices can and often do fluctuate widely and are affected by numerous factors beyond the Company’s control, such as
political and economic conditions, demand, forward selling by producers, expectations for inflation, custom smelter
activities, the relative exchange rate of the U.S. dollar, investor sentiment, and global mine production levels. The aggregate
effect of these factors is impossible to predict. Because the Company’s revenue is derived from the sale of gold, silver,
copper, lead and zinc metals concentrate, its results of operations are directly related to the prices of these metals.
Depreciation and Amortization
Depreciation and amortization on our property and equipment is calculated on a straight line basis over the estimated
useful life of the asset. Significant judgment is involved in the determination of the estimated life of the assets.
Impairment of Assets
Since none of our properties contain proven or probable reserves as defined by the SEC, we do not capitalize
exploration, evaluation, mine development or construction costs for any of our projects. Our long-lived assets are principally
property and equipment, and are evaluated at least annually for impairment when events or changes in circumstances indicate
that the related carrying amount of such assets may not be recoverable. When an indication of impairment exists, an estimate
of fair value is made for the long-lived asset.
Assessing the fair value of our long-lived assets requires us to make several estimates and assumptions that are subject
to risk and uncertainty, changes in these estimates and assumptions could result in the impairment of our long-lived asset
carrying values. Events that could result in impairment of our long-lived assets include, but are not limited to, obsolescence,
damage, underperformance and assets held for disposal. During the years ended December 31, 2012, 2011 and 2010, no asset
impairments were recognized.
Stockpile and Concentrate inventories
Stockpile and concentrate ending inventory tonnages are measured by estimating the number of tonnes added to and
removed from beginning inventory. We periodically survey our stockpile and concentrate ending inventory to verify tonnage
estimates. There are inherent limitations in the survey estimation process, along with process of estimating the number of
tonnes added to and removed from stockpile and concentrate inventory, which includes but is not limited to moisture content,
density, scale calibration and physical measurements. Due to these estimates, amounts reported could differ significantly
from actual results.
Our stockpile and concentrate inventories are valued at the lower of average cost or net realizable value (“NRV”), with
carrying values evaluated at least quarterly. NRV represents the estimated future sales price based on short-term and long-
term metals prices, less estimated costs to complete production and bring the product to sale. The primary factors that
influence the need to record write-downs of stockpile and concentrate inventory include short-term and long-term metals
prices and costs for production inputs such as labor, fuel and energy, materials and supplies, as well as realized ore grades
and recovery rates. If short-term and long-term metals prices decrease, the value of stockpile and concentrate inventory also
decreases, and it may be necessary to record a write-down of stockpile and concentrate inventory to NRV. We did not incur
any lower-of-cost-or-market write downs during the years ended December 31, 2012, 2011 or 2010.
The allocation of costs to stockpile and concentrate inventory, and the determination of NRV involve the use of
estimates. There is a high degree of judgment in estimating current and future operating and capital costs, metal recoveries,
ore grades, production levels, commodity prices, and other factors. There can be no assurance that actual results will not
differ significantly from those estimates and assumptions.
Asset Retirement Obligation
21
Our mining and exploration activities are subject to various laws and regulations, including legal and contractual
obligations to reclaim, remediate, or otherwise restore properties at the time the property is removed from service. A liability
is initially recorded at the estimated present value for an obligation associated with the retirement of tangible long-lived
assets in the period in which it is incurred if a reasonable estimate of fair value can be made. Since none of our properties
contain proven or probable reserves as defined by the SEC, the costs associated with the obligation are charged to
operations. Accounting for reclamation and remediation obligations requires management to make estimates of the future
costs we will incur to complete the work required to comply with existing laws and regulations. Actual costs may differ from
the amounts estimated. Also, future changes to environmental laws and regulations could increase the extent of reclamation
and remediation work required.
Stock-based compensation
We estimate the fair value of our stock option awards using a Black-Scholes model, the inputs of which require various
assumptions including the expected rate of future dividends, discount rate, the expected life of the option and the expected
volatility of our stock price. The expected rate of future dividends is derived based on the dividends paid during the 3 months
immediately preceding the date of grant extrapolated over four quarters (one year); however, the rate at which dividends are
paid may change due to various factors, including, but not limited to changes in our operational and strategic cash needs and
at the discretion of our Board of Directors. Expected forfeiture rates and expected option life are derived based on historical
experience and management’s judgment regarding future expectations. However, such historical experience is limited due to
a relatively small number of grants and, therefore, may not be indicative of future experience. The expected volatility
assumptions are derived using our historical stock price volatility.
These assumptions reflect our best estimates; however, they involve inherent uncertainties based on market conditions
generally outside of our control. If factors change and we use a different methodology for deriving the Black Scholes
assumptions or if our assumptions and judgments regarding future experience prove to be materially different than actual
experience resulting in a change to future assumptions, our share-based compensation expense could be materially impacted.
Deferred income taxes and valuation allowances
In preparing our consolidated financial statements, we estimate the actual amount of taxes currently payable or
receivable as well as deferred tax assets and liabilities attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are
expected to be recovered or settled. Changes in deferred tax assets and liabilities generally have a direct impact on earnings
in the period of the changes. Where applicable tax laws and regulations are either unclear or subject to varying
interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income
tax assets and liabilities recorded in the financial statements.
Each period, we evaluate the likelihood of whether or not some portion or all of each deferred tax asset will be realized
and provide a valuation allowance for those deferred tax assets for which is more likely than not that the related benefits will
not be realized. When evaluating our valuation allowance, we consider historic and future expected levels of taxable income,
the pattern and timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax
planning initiatives. Levels of future taxable income are affected by, among other things, market gold prices, production
costs, quantities of proven or probable gold reserves, interest rates and foreign currency exchange rates. If we determine that
all or a portion of the deferred tax assets will not be realized, a valuation allowance with be increased with a charge to income
tax expense. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for
which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced with a
credit to income tax expense.
In addition, the calculation of income tax expense involves significant management estimation and judgment involving
a number of assumptions. In determining these amounts, management interprets tax legislation in each of the jurisdictions in
which we operate and makes estimates of the expected timing of the reversal of future tax assets and liabilities. We also
make assumptions about future earnings, tax planning strategies and the extent to which potential future tax benefits will be
used. We are also subject to assessments by various taxation authorities which may interpret tax legislation differently,
which could affect the final amount or the timing of tax payments.
22
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risks includes, but is not limited to, the following risks: changes in foreign currency exchange
rates, changes in interest rates, equity price risks, commodity price fluctuations, and country risk. We do not use derivative
financial instruments as part of an overall strategy to manage market risk; however, we may consider such arrangements in
the future as we evaluate our business and financial strategy.
Commodity Price Risk
The results of our operations will depend in large part upon the market prices of gold and silver. Gold and silver prices
fluctuate widely and are affected by numerous factors beyond our control. The level of interest rates, the rate of inflation, the
world supply of gold and silver and the stability of exchange rates, among other factors, can all cause significant fluctuations
in commodity prices. Such external economic factors are in turn influenced by changes in international investment patterns,
monetary systems and political developments. The price of gold and silver has fluctuated widely in recent years, and future
price declines could cause a mineral project to become uneconomic, thereby having a material adverse effect on our business
and financial condition. We have not entered into derivative contracts to protect the selling price for gold or silver. We may
in the future more actively manage our exposure through derivative contracts or other commodity price risk management
programs, although we have no intention of doing so in the near-term.
In addition to adversely affecting our mineralized material estimates and our financial condition, declining gold and
silver prices could require a reassessment of the feasibility of a particular project. Even if a project is ultimately determined to
be economically viable, the need to conduct such a reassessment may cause delays in the implementation of a project.
Foreign Currency Risk
We transact a significant amount of our business in Mexican pesos. As a result, currency exchange fluctuations may
impact our operating costs. The appreciation of non-U.S. dollar currencies such as the peso against the U.S. dollar increases
expenses and the cost of purchasing capital assets in U.S. dollar terms in Mexico, which can adversely impact our operating
results and cash flows. Conversely, a depreciation of non-U.S. dollar currencies usually decreases operating costs and capital
asset purchases in U.S. dollar terms.
The value of cash and cash equivalents denominated in foreign currencies also fluctuates with changes in currency
exchange rates. Appreciation of non-U.S. dollar currencies results in a foreign currency gain on such investments and a
decrease in non-U.S. dollar currencies results in a loss. We have not utilized market risk sensitive instruments to manage our
exposure to foreign currency exchange rates but may in the future actively manage our exposure to foreign currency
exchange rate risk. We also hold portions of our cash reserves in non-U.S. dollar currencies.
Provisional Sales Contract Risk
We enter into concentrate sales contracts with third-party smelters. The contracts, in general, provide for a provisional
payment based upon provisional assays and quoted metal prices. The provisionally priced sales contracts contain an
embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the
receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivative, which is the final
settlement based on a future price, does not qualify for hedge accounting and is marked-to-market through earnings each
period prior to final settlement.
At December 31, 2012, we had outstanding provisionally priced sales of $58.7 million consisting of 12,411 ounces of
gold and 959,485 ounces of silver, 351 tons of copper, 1,570 tons of lead and 4,139 tons of zinc which had a fair value of
approximately $59.3 million including the embedded derivative. If the price for each metal were to change by one percent,
the change (plus or minus) in the total fair value of the concentrates sold would be approximately $641,000.
Interest Rate Risk
We have no debt outstanding nor do we have any investment in debt instruments other than highly liquid short-term
investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.
Equity Price Risk
We have in the past sought and may in the future seek to acquire additional funding by sale of common stock and other
equity. Movements in the price of our common stock have been volatile in the past and may also be volatile in the future. As
23
a result, there is a risk that we may not be able to sell our common stock at an acceptable price should the need for new equity
funding arise.
Country Risk
All of our mineral properties are located in Mexico. In the past, that country has been subject to political instability,
increasing crime, changes and uncertainties which may cause changes to existing government regulations affecting mineral
exploration and mining activities. Civil or political unrest could disrupt our operations at any time. Our exploration and
mining activities may be adversely affected in varying degrees by changing government regulations relating to the mining
industry or shifts in political conditions that could increase the costs related to our activities or maintaining our
properties. Finally, Mexico’s status as a developing country may make it more difficult for us to obtain required financing for
our properties.
MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
GOLD RESOURCE CORPORATION
The Securities Exchange Act of 1934 defines internal control over financial reporting in Rules 13a-15(f) and 15d-15(f) as a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles and includes those
policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
disposition of assets;
•
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of management and our directors; and
Provide reasonable assurance regarding prevention and timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial statements.
Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems that are
determined to be effective provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management assessed the effectiveness of our internal control over financial reporting based on criteria for effective internal
control over financial reporting described in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on its assessment, management concluded that we maintained effective internal control over financial reporting as of
December 31, 2012.
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Gold Resource Corporation
Colorado Springs, Colorado
We have audited the accompanying consolidated balance sheets of Gold Resource Corporation as of December 31, 2012 and
2011, and the related consolidated statements of operations, other comprehensive (loss) income, changes in shareholders’
equity and cash flows for each of the years in the three year period ended December 31, 2012, and the period August 24,
1998 (inception) to December 31, 2012. We also have audited Gold Resource Corporation’s internal control over financial
reporting as of December 31, 2012, based on criteria established in Internal Control–Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Gold Resource Corporation’s management
is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, including in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Gold Resource Corporation as of December 31, 2012 and 2011, and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 2012, and the period August 24, 1998 (inception) to
December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, Gold Resource Corporation maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
/s/ StarkSchenkein, LLP
StarkSchenkein, LLP
Denver, Colorado
25
SELECTED FINANCIAL DATA
The following selected financial data sets forth our summary historical financial data as of and for the years ended
December 31, 2012, 2011, 2010, 2009, and 2008. This information was derived from our audited consolidated financial
statements for each period. Our selected historical financial data is qualified in its entirety by, and should be read in
conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the
financial statements and the notes thereto included elsewhere in this report.
Operating Data
(in thousands, except share data)
Sales of metals concentrate
Mine gross profit
Operating Income (loss)
Other (expense) income
Income (loss) before income taxes
Provision for income taxes
Net income (loss) before extraordinary item
Extraordinary item
Net income (loss)
Net income per common share:
Basic:
Before extraordinary item
Extraordinary item
Net income
Diluted:
Before extraordinary item
Extraordinary item
Net income
Weighted average shares outstanding:
Basic
Diluted
Balance Sheet Data
(in thousands)
Cash and cash equivalents
Total current assets
Land and mineral rights
Property and equipment, net
Deferred tax asset
Total assets
Current liabilities
Long-term obligations
Shareholders’ equity
Year Ended December 31,
2012
2011
2010
2009
2008
$
131,794 $
105,163 $
14,754 $
87,773
49,704
(2,736)
46,968
13,297
33,671
-
$
33,671 $
80,521
45,674
2,414
48,088
(12,037)
60,125
(1,756)
58,369 $
7,971
(22,839)
(235)
(23,074)
-
(23,074)
-
(23,074) $
- $
-
-
-
(34,184)
(26,349)
55
334
(34,129)
(26,015)
-
-
(34,129)
(26,015)
-
-
(34,129) $
(26,015)
$
$
$
$
0.64 $
-
0.64 $
0.60 $
-
0.60 $
1.13 $
(0.03)
1.10 $
1.06 $
(0.03)
1.03 $
(0.46)$
-
(0.46)$
(0.78)
-
(0.78)
(0.46)$
(0.78)
-
-
(0.46)$
(0.78)
(0.76)
-
(0.76)
(0.76)
-
(0.76)
52,846,163
52,979,481
50,042,471
43,764,703
34,393,854
56,315,885
56,414,654
50,042,471
43,764,703
34,393,854
2012
2011
2010
2009
2008
As of December 31,
$
35,780 $
51,960 $
47,582 $
6,752 $
58,984
227
14,050
31,559
85,108
57,687
20,701
227
10,318
19,517
227
4,849
-
227
1,726
-
105,629
115,170
62,797
22,665
13,025
2,790
89,814
25,761
2,281
87,128
6,456
2,495
725
1,992
53,846
19,948
3,028
3,535
3,737
227
812
-
4,781
1,753
-
See the consolidated financial statements contained herein for additional information
26
GOLD RESOURCE CORPORATION
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except shares)
ASSETS
December 31,
2012
December 31,
2011
Current assets:
Cash and cash equivalents
Gold and silver bullion
Accounts receivable
Inventories
Income tax receivable
Deferred tax assets
Prepaid expenses and other assets
Total current assets
Land and mineral rights
Property and equipment - net
Inventories
Deferred tax assets
Total assets
Current liabilities:
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable
Accrued expenses
IVA taxes payable
Income taxes payable
Dividends payable
Total current liabilities
Asset retirement obligation
Total liabilities
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock - $0.001 par value, 5,000,000 shares authorized:
no shares issued and outstanding
Common stock - $0.001 par value, 100,000,000 shares authorized:
53,015,767 and 52,998,303 shares issued and outstanding, respectively
Additional paid-in capital
(Deficit) accumulated during the exploration stage
Treasury stock at cost, 336,398 and 104,251 shares, respectively
Accumulated other comprehensive (loss) - currency translation adjustment
Total shareholders' equity
Total liabilities and shareholders' equity
$
35,780 $
$
$
5,809
6,349
7,533
419
2,121
973
58,984
227
14,050
809
31,559
105,629 $
3,013 $
4,178
2,673
-
3,161
13,025
2,790
15,815
-
53
102,674
(5,851)
(5,884)
(1,178)
89,814
$
105,629 $
51,960
2,549
14,281
4,243
-
11,118
957
85,108
227
10,318
-
19,517
115,170
1,691
4,879
559
15,987
2,645
25,761
2,281
28,042
-
53
132,529
(39,522)
(1,954)
(3,978)
87,128
115,170
The accompanying notes are an integral part of these consolidated financial statements.
27
GOLD RESOURCE CORPORATION
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2012, 2011 and 2010
and for the period from Inception (August 24, 1998) to December 31, 2012
(U.S. dollars in thousands, except shares and per share amounts)
2012
2011
2010
Inception
(August 24, 1998)
to December 31,
2012
Sales of metals concentrate, net
$
131,794 $
105,163 $
14,754 $
251,710
73,036
2,005
231
75,272
176,438
44,868
42,112
91,471
209
752
179,412
(2,974)
139
(2,835)
1,260
(4,095)
(1,756)
(5,851)
(1,178)
(7,029)
Mine cost of sales:
Production costs
Depreciation and amortization
Accretion
Total mine cost of sales
Mine gross profit
Costs and expenses:
General and administrative expenses
Exploration expenses
Construction and development
Production start-up expense, net
Management contract expense
Total costs and expenses
Operating income (loss)
Other (expense) income
Income (loss) before income taxes
Provision for income taxes
Net income (loss) before extraordinary item
Extraordinary items:
Flood loss, net of income tax benefit of
$750
Net income (loss)
Other comprehensive income (loss):
Currency translation gain (loss)
Net comprehensive income (loss)
Net income (loss) per common share:
Basic:
Before extraordinary item
Extraordinary item
Net income (loss)
Diluted:
Before extraordinary item
Extraordinary item
Net income (loss)
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
$
42,574
1,366
81
44,021
87,773
13,507
8,008
16,554
-
-
38,069
49,704
(2,736)
46,968
13,297
33,671
-
33,671 $
2,800
36,471 $
0.64 $
-
0.64 $
0.60 $
-
0.60 $
24,087
473
82
24,642
80,521
8,934
4,927
20,986
-
-
34,847
45,674
2,414
48,088
(12,037)
60,125
(1,756)
58,369 $
(3,218)
55,151 $
1.13 $
(0.03)
1.10 $
1.06 $
(0.03)
1.03 $
6,549
166
68
6,783
7,971
7,474
4,692
18,435
209
-
30,810
(22,839)
(235)
(23,074)
-
(23,074)
-
(23,074)$
215
(22,859)$
(0.46)
-
(0.46)
(0.46)
-
(0.46)
52,846,163
56,315,885
52,979,481
56,414,654
50,042,471
50,042,471
The accompanying notes are an integral part of these consolidated financial statements.
28
GOLD RESOURCE CORPORATION
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the period from Inception (August 24, 1998) to December 31, 2012
(U.S. dollars in thousands, except shares and per share amounts)
Number of
Common
Shares
Par Value
of
Common
Shares
Additional
Paid-in
Capital
Accumulated
(Deficit)
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders'
Equity
-$
-$
-$
-$
-$
-$
Conversion of debentures at
$0.25 per share - related parties
200,000
2,800,000
-
2,800,000
1,000,000
-
3,800,000
1,226,666
-
5,026,666
1,333,334
820,000
-
7,380,000
392,000
1,351,352
-
9,123,352
577,000
-
-
9,700,352
608,000
Balance at Inception, August 24,
1998
$
Shares issued for contributed
capital at $0.005 per share -
Net (loss)
Balance, December 31, 1998
Shares issued for contributed
capital at $0.005 per share -
Net (loss)
Balance, December 31, 1999
Shares issued for management
contract at $0.17 per share -
related parties
Net (loss)
Balance, December 31, 2000
Shares issued for management
contract at $0.17 per share -
related parties
Shares issued for cash at $0.25
per share
Net (loss)
Balance, December 31, 2001
Shares issued for cash at $0.25
per share
Shares issued for cash at $0.17
per share
Net (loss)
Balance, December 31, 2002
Shares issued for cash at $0.25
per share
Share issuance costs forgiven
Net (loss)
Balance, December 31, 2003
Shares issued for cash at $0.25
per share
Shares issued in repayment of
loan related to exploration
agreement at $0.42 per share
Shares issued as stock grant at
$0.25 per share
Net (loss)
Balance, December 31, 2004
3
-
3
1
-
4
1
-
5
1
-
1
-
7
-
1
-
8
1
-
-
9
1
(1)
-
(1)
(1)
-
(2)
203
-
201
187
50
204
-
642
98
223
-
963
144
25
-
1,132
151
499
149
-
1,931
-
(2)
(2)
-
(1)
(3)
-
(205)
(208)
-
-
-
(346)
(554)
-
-
(789)
(1,343)
-
-
(496)
(1,839)
-
-
-
(853)
(2,692)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
(2)
-
-
(1)
(1)
204
(205)
(2)
188
50
205
(346)
95
98
224
(789)
(372)
145
25
(496)
(698)
152
500
150
(853)
(749)
1,200,000
600,000
-
12,108,352
1
1
-
12
29
Stock options exercised,
cashless exercise
Shares issued for cash at $0.25
per share
Shares issued for cash at $0.47
per share
Shares issued for cash at $0.50
per share
Shares issued for cash at $0.50
per share
Shares issued for satisfaction of
payables at $0.25 per share
Shares issued as stock grant at
$0.25 per share
Net (loss)
Balance, December 31, 2005
Stock options granted
Stock options exercised,
cashless exercise
Shares issued for cash at $1.00
per share, net of issue costs
Shares issued for cash at $1.20
per share, net of issue costs
Director Stock grant at $1.00 per
share
Shares issued for investor
relation services at $1.14 per
share
Shares issued for investment
banking services at $1.20 per
share
Shares issued as stock grant at
$1.71 per share
Currency translation adjustment
Net (loss)
Balance, December 31, 2006
Stock options granted
Shares issued for cash at $4.00
per share, net of issue costs
Shares issued for investor
relation services at $3.39 per
share
Shares issued for investment
banking services
Shares issued for consulting
services in Mexico at $3.68 per
share
Currency translation adjustment
Net (loss)
Balance, December 31, 2007
Stock options granted
Stock options exercised,
cashless exercise
Shares issued for cash at $3.00
per share
10,000
276,000
-
-
2
69
2,728,500
3
1,272
122,000
30,000
1,280,000
1,750,000
-
18,304,852
-
240,000
4,600,000
4,322,000
100,000
280,000
257,700
35,000
-
-
28,139,552
-
-
-
1
2
-
18
-
-
5
5
-
-
-
-
-
-
28
-
61
15
319
436
4,105
147
60
4,347
4,924
100
319
-
60
-
-
14,062
99
5,558,500
6
21,706
170,000
263,900
15,000
-
-
34,146,952
-
260,604
1,670,000
-
-
-
-
-
34
-
-
2
576
-
55
-
-
36,498
1,957
181
5,009
30
-
-
-
-
-
-
-
(1,218)
(3,910)
-
-
-
-
-
-
-
-
-
(2,687)
(6,597)
-
-
-
-
-
-
(8,076)
(14,673)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20
-
20
-
2
69
1,275
61
15
320
438
(1,218)
213
147
60
4,352
4,929
100
319
-
60
20
(2,687)
7,513
99
-
21,712
-
-
-
(90)
-
(70)
-
-
-
576
-
55
(90)
(8,076)
21,789
1,957
181
5,011
Shares issued for investor
relation services at $4.25 per
share
Currency translation adjustment
Net (loss)
Balance, December 31, 2008
Stock options granted
Stock options exercised,
cashless exercise
Shares issued for cash at $3.00
per share
Shares issued for cash at $4.00
per share
Shares issued for cash at $8.185
per share
Stock options exercised at $3.68
per share
Currency translation adjustment
Net (loss)
Balance, December 31, 2009
Stock options granted
Stock options exercised,
cashless exercise
Shares issued for cash at $4.63
per share
Shares issued for cash at $8.62
per share
Shares issued for cash at $9.50
per share
Shares issued for cash at $16.00
per share
Return of capital dividend
Currency translation adjustment
Net (loss)
Balance, December 31, 2010
Stock options granted
Purchase of treasury stock
Return of capital dividend
Currency translation adjustment
Net income
Balance, December 31, 2011
Stock options granted
Stock options exercised,
cashless exercise
Purchase of treasury stock
Return of capital dividend
Currency translation adjustment
Net income
10,000
-
-
36,087,556
-
677,933
4,330,000
5,000,000
1,954,795
50,000
-
-
48,100,284
-
141,440
50,000
600,000
631,579
3,475,000
-
-
-
52,998,303
-
-
-
-
-
52,998,303
-
17,464
-
-
-
-
Balance, December 31, 2012
53,015,767 $
-
-
-
36
-
1
4
5
2
-
-
-
48
-
-
-
1
1
3
-
-
-
53
-
-
-
-
-
53
-
-
-
-
-
-
53 $
42
-
-
43,687
2,844
(1)
12,986
19,995
15,998
184
-
-
95,693
2,387
-
538
5,171
5,999
51,986
(9,330)
-
-
152,444
6,570
-
(26,485)
-
-
132,529
6,600
-
-
(36,455)
-
-
102,674 $
-
-
(26,015)
(40,688)
-
-
-
-
-
-
-
(34,129)
(74,817)
-
-
-
-
-
-
-
-
(23,074)
(97,891)
-
-
-
-
58,369
(39,522)
-
-
-
-
-
33,671
(5,851)$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,954)
-
-
-
(1,954)
-
-
(3,930)
-
-
-
(5,884)$
-
63
-
(7)
-
-
-
-
-
-
(968)
-
(975)
-
-
-
-
-
-
-
215
-
(760)
-
-
-
(3,218)
-
(3,978)
-
-
-
-
2,800
-
(1,178)$
42
63
(26,015)
3,028
2,844
-
12,990
20,000
16,000
184
(968)
(34,129)
19,949
2,387
-
538
5,172
6,000
51,989
(9,330)
215
(23,074)
53,846
6,570
(1,954)
(26,485)
(3,218)
58,369
87,128
6,600
-
(3,930)
(36,455)
2,800
33,671
89,814
The accompanying notes are an integral part of these consolidated financial statements.
31
GOLD RESOURCE CORPORATION
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2012, 2011and 2010
and for the period from Inception (August 24, 1998) to December 31, 2012
(U.S. dollars in thousands)
2012
2011
2010
Inception
(August 24, 1998)
to December 31,
2012
$
33,671 $
58,369 $
(23,074)$
(5,851)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization
Accretion
Asset retirement obligation
Stock-based compensation
Management fee paid in stock
Related party payable paid in stock
Unrealized currency exchange (gain) loss
Unrealized (gain) loss from gold and silver bullion
Realized loss from gold and silver bullion converted
Deferred tax assets
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Income tax receivable
Prepaid expenses and other assets
Accounts payable
Accrued expenses
IVA taxes payable/receivable
Income taxes payable
Total adjustments
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Capital expenditures
Purchases of gold and silver bullion
Proceeds from conversion of gold and silver bullion
Restricted cash
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from sales of common stock
Proceeds from exercise of stock options
Proceeds from debentures - founders
Dividends paid
Treasury stock purchases
Proceeds from exploration funding agreement
Net cash (used in) provided by financing activities
Effect of exchange rates on cash and equivalents
Net (decrease) increase in cash and cash equivalents
Cash and equivalents at beginning of period
Cash and equivalents at end of period
Supplemental Cash Flow Information
Income taxes paid
Interest expense paid
Non-cash investing and financing activities:
Conversion of funding into
common stock
Conversion of founders debentures into
common stock
$
$
$
$
$
1,540
81
258
6,600
-
-
1,442
(58)
64
(3,046)
6
8,305
(4,098)
(419)
(14)
1,397
(653)
2,115
(15,987)
(2,467)
31,204
(4,461)
(5,164)
1,897
-
(7,728)
-
-
-
(35,940)
(3,931)
-
(39,871)
215
(16,180)
51,960
35,780 $
33,020 $
-$
-$
-$
953
82
-
6,570
-
-
(1,634)
429
-
(33,213)
-
(14,265)
(1,601)
-
(767)
(428)
2,795
6,147
17,883
(17,049)
41,320
(7,416)
(2,977)
-
-
(10,393)
-
-
-
(25,429)
(1,954)
-
(27,383)
834
4,378
47,582
51,960 $
-$
-$
-$
-$
154
68
315
2,694
-
-
265
-
-
-
-
(980)
(2,731)
-
2
3,378
-
(3,218)
-
(53)
(23,127)
(3,180)
-
-
11,436
8,256
63,393
-
-
(7,740)
-
-
55,653
48
40,830
6,752
47,582 $
-$
-$
-$
-$
3,011
231
2,565
22,651
392
320
(902)
371
64
(36,259)
31
(6,940)
(8,655)
(419)
(1,115)
2,654
2,919
4,722
1,896
(12,463)
(18,314)
(17,497)
(8,141)
1,897
-
(23,741)
150,633
428
50
(69,110)
(5,885)
500
76,616
1,219
35,780
-
35,780
33,020
-
500
50
The accompanying notes are an integral part of these consolidated financial statements.
32
GOLD RESOURCE CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011 and 2010
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Gold Resource Corporation (the “Company”) was organized under the laws of the State of Colorado on August 24,
1998. The Company is a producer of metal concentrates that contain gold, silver, copper, lead and zinc at its El Aquila
Project in Southern Mexico. The Company is also performing exploration and evaluation work on its portfolio of base and
precious metal exploration properties in Mexico and is evaluating other properties for possible acquisition in Turkey.
Significant Accounting Policies
Exploration Stage Company: Despite the fact that the Company commenced production in 2010, it is still considered
an exploration stage company under the criteria set forth by the Securities and Exchange Commission (“SEC”) since it has
not yet demonstrated the existence of proven or probable reserves, as defined by the SEC in Industry Guide 7, at its El Aguila
Project in Oaxaca, Mexico or any of its other properties. As a result, and in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”) for exploration stage companies, all expenditures for exploration and
evaluation of the Company’s properties are expensed as incurred until mineralized material is classified as proven or probable
reserves. Accordingly, substantially all expenditures for mine development and mill construction have been expensed as
incurred. Certain expenditures, such as for rolling stock or other general-purpose equipment, may be capitalized, subject to
evaluation for possible impairment of the asset. As of December 31, 2012, none of the mineralized material at the Company’s
El Aguila Project or any of its other properties met the SEC’s definition of proven or probable reserves. The Company
expects to remain an exploration stage company for the foreseeable future, even though it has reached commercial
production. The Company will not exit the exploration stage unless and until it demonstrates the existence of proven or
probable reserves that meet SEC guidelines.
Proven or Probable Reserves: The definition of proven or probable reserves is set forth in SEC Industry Guide 7.
Proven reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or
drill holes; (b) grade and/or quality are computed from the results of detailed sampling; and (c) the sites for inspection,
sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well-established. Probable reserves are reserves for which quantity and grade and/or quality
are computed from information similar to that used for proven reserves, but the sites for inspection, sampling, and
measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for
proven reserves, is high enough to assume continuity between points of observation. In addition, reserves cannot be
considered proven or probable until they are supported by a feasibility study, indicating that the reserves have had the
requisite geologic, technical and economic work performed and are economically and legally extractable at the time of the
reserve determination. As of December 2012, none of the Company’s mineralized material met the definition of proven or
probable reserves.
Basis of Presentation: The consolidated financial statements included herein are expressed in United States dollars,
the Company’s reporting currency, and conform to accounting principles generally accepted in the United States of America
(“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned Mexican
corporation subsidiaries, which are Don David Gold Mexico S.A. de C.V. (“Don David Gold Mexico”) and Golden Trump
Mexico S.A. de C.V (“Golden Trump Mexico”) and of Gold Resource Madencilik Sanayi Ve Ticaret Limited Sirketi, its
wholly owned Turkish subsidiary corporation. Significant intercompany accounts and transactions have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain and
bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable
under the circumstances. Actual results could differ from these estimates.
Reclassifications: Certain amounts presented in prior periods have been reclassified to conform with the current period
presentation. The reclassifications had no effect on the Company’s net income (loss).
Cash and Cash Equivalents: Cash and cash equivalents consist of all cash balances and highly liquid investments
with a remaining maturity of three months or less when purchased and are carried at cost.
33
Fair Value of Financial Instruments: Fair value accounting under ASC 820 establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1
Level 2
Level 3
Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly,
for substantially the full term of the asset or liability; and
Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable (supported by little or no market activity).
Gold and Silver Bullion: From time to time, the Company may purchase gold and silver bullion on the open market in
order to diversify its treasury and provide for an alternative form of payment for dividends. Pursuant to the fair value
hierarchy established in ASC 820, the fair value of the Company’s gold and silver bullion is established based on quoted
prices in active markets; specifically, the fair value is based on the daily London P.M. fix as of the balance sheet date.
Accounts Receivable: Accounts receivable consists of trade receivables from the sale of metals concentrate.
Inventories: Major types of inventories include ore stockpile inventories, concentrate inventories and materials and
supplies, as described below. Inventories are carried at the lower of average cost or net realizable value, in the case of ore
stockpile inventories and materials and supplies. The net realizable value of ore stockpile inventories represents the estimated
future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production
and bring the product to sale. Concentrate inventories are carried at the lower of full cost of production or net realizable value
based on current metals prices. Write-downs of inventory are reported as a component of production costs applicable to sales.
Ore Stockpile Inventories
Ore stockpile inventories represent mineralized materials that have been mined and are available for further
processing. Ore stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, an
estimate of the contained metals (based on assay data) and the estimated metallurgical recovery rates. Costs are allocated to
ore stockpile inventories based on relative values of material stockpiled and processed using current mining costs incurred up
to the point of stockpiling the ore, including applicable overhead, depreciation and amortization relating to mining
operations. Material is removed from the stockpile at an average cost per tonne. The current portion of ore stockpiles is
determined based on the expected amounts to be processed within the next 12 months. Ore stockpile inventories not expected
to be processed within the next 12 months, if any, are classified as long-term. As of December 31, 2012, all underground
mine ore stockpile inventory was classified as current and all open pit mine ore stockpile inventory was classified as non-
current.
Concentrate Inventories
Concentrates inventories include metal concentrates located either at the Company’s facilities or in transit to its
customer’s port. Inventories consist of copper, lead and zinc metal concentrates, which also contain gold and silver
mineralization.
Materials and Supplies Inventories
Materials and supplies inventories are carried at cost not in excess of their estimated net realizable value. Cost includes
applicable taxes and freight. Inventories consist of chemical reagents, parts, fuels and other materials and supplies.
IVA Taxes Receivable and Payable: In Mexico, value added taxes (IVA) are assessed on purchases of materials and
services and sales of products. Businesses are generally entitled to recover the taxes they have paid related to purchases of
materials and services, either as a refund or as a credit against future taxes payable. Likewise, businesses owe IVA taxes as
the business sells a product and collects IVA taxes from its customers.
Amounts recorded as IVA taxes payable in the consolidated financial statements represent the net estimated IVA tax
liability, since there is a legal right of offset of IVA taxes receivable and payable.
Mineral Acquisition Costs: The costs of acquiring land and mineral rights are considered tangible assets. Significant
acquisition payments are capitalized. Administrative and holding costs to maintain an exploration property are expensed as
incurred. If a mineable ore body is discovered, such capitalized costs are amortized when production begins using the units-
34
of-production method. If no mineable ore body is discovered or such rights are otherwise determined to have diminished
value, such costs are expensed in the period in which the determination is made.
Exploration Costs: Exploration costs are charged to expense as incurred. Costs to identify new mineral resources, to
evaluate potential resources, and to convert mineral resources into proven or probable reserves are considered exploration
costs.
Design, Construction and Development Costs: Certain costs to design and construct mine and processing facilities
may be incurred prior to establishing proven or probable reserves. Under these circumstances, the Company classifies a
project as an exploration stage project and expenses substantially all costs, including design, engineering, construction and
installation of equipment. Certain types of equipment, which have alternative uses or significant salvage value, may be
capitalized. If a project is determined to contain proven or probable reserves, costs incurred in anticipation of production can
be capitalized. Such costs include development drilling to further delineate the ore body, removing overburden during the
pre-production phase, building access ways, constructing facilities, and installing equipment. Interest costs, if any, incurred
during the development phase, would be capitalized until the assets are ready for their intended use. The cost of start-up
activities and ongoing costs to maintain production are expensed as incurred. Costs of abandoned projects are charged to
operations upon abandonment.
If a project commences commercial production and the project is determined to contain proven or probable reserves,
amortization and depletion of capitalized costs is computed on a unit-of–production basis over the expected reserves of the
project based on estimated recoverable gold equivalent ounces.
Property and Equipment: All items of property and equipment are carried at cost not in excess of their estimated net
realizable value. Normal maintenance and repairs are expensed as incurred while expenditures for major maintenance and
betterments are capitalized. Gains or losses on disposition are recognized in operations. Depreciation of property and
equipment is computed using straight-line methods over the estimated economic lives, as follows:
Trucks and autos .................................................. 4 to 5 years
Office furniture and equipment............................ 3 to 10 years
Machinery & equipment ...................................... 6 to 8 years
Buildings .............................................................. 20 to 30 years
Impairment of Long-Lived Assets: The Company evaluates its long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered
to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. Any
impairment losses are measured and recorded based on discounted estimated future cash flows and are charged to income on
the Company’s consolidated statements of operations. In estimating future cash flows, assets are grouped at the lowest level
for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. The
Company’s estimates of future cash flows are based on numerous assumptions, including expected gold and other commodity
prices, production levels, capital requirements and estimated salvage values. It is possible that actual future cash flows will be
significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity
prices, production levels and costs and capital are each subject to significant risks and uncertainties. As of December 31,
2012, the Company’s mineral resources do not meet the definition of proven or probable reserves or value beyond proven or
probable reserves and any potential revenue has been excluded from the cash flow assumptions. Accordingly, recoverability
of capitalized cost is based primarily on estimated salvage values or alternative future uses.
Asset Retirement Obligations: The Company’s mining and exploration activities are subject to various laws and
regulations, including legal and contractual obligations to reclaim, remediate, or otherwise restore properties at the time the
property is removed from service. A liability is initially recorded at the estimated present value for an obligation associated
with the retirement of tangible long-lived assets in the period in which it is incurred if a reasonable estimate of fair value can
be made. For exploration stage properties that do not qualify for asset capitalization, the costs associated with the obligation
are charged to operations. For development and production stage properties that have proven or probable reserves, the costs
are added to the capitalized costs of the property and amortized using the units-of-production method.
Treasury Stock: Treasury stock represents shares of the Company’s common stock which has been repurchased on the
open market at the prevailing market price at the time of purchase. Treasury stock is shown at cost as a separate component
of equity as a deduction from total capital stock.
Revenue Recognition: Metals products sold to the Company’s metals concentrate buyer, including by-product metals,
are recorded as revenue when title and risk of loss transfer to the buyer (generally at the time shipment is delivered at buyer’s
port) at estimated quoted metal prices at time of shipment. Due to the time elapsed between shipment and the final settlement
35
with the buyer, the Company must estimate the prices at which sales of metals will be settled. These estimates are based on
various factors, including assay measurements taken at the time of shipment. At the end of each financial reporting period,
previously recorded provisional sales are adjusted to estimated settlement metals prices until final settlement with the buyer.
Sales to the Company’s buyer are recorded net of charges for treatment, refining, smelting losses, and other charges
negotiated by the Company with the buyer. Charges are estimated upon shipment of concentrates based on contractual terms,
and actual charges typically do not vary materially from estimates. Costs charged by smelters include a metals payable fee,
fixed treatment and refining costs per ton of concentrate.
Changes in metals prices on the London Bullion Market between shipment and final settlement will result in
adjustments to revenues related to sales of concentrate previously recorded upon shipment. Concentrate sales, which are
initially recorded based on estimated quoted metal pricing at the time of shipment, contain an embedded derivative that is
required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of
the concentrates at the quoted metal price at the time of the sale. The embedded derivative, which does not qualify for hedge
accounting, is adjusted to market through earnings each period prior to final settlement.
Changes in the market price of metals significantly affect the Company’s revenues, results of operations and cash flow.
Metals prices can and often do fluctuate widely and are affected by numerous factors beyond the Company’s control, such as
political and economic conditions, demand, forward selling by producers, expectations for inflation, custom smelter
activities, the relative exchange rate of the U.S. dollar, investor sentiment, and global mine production levels. The aggregate
effect of these factors is impossible to predict. Because the Company’s revenue is derived from the sale of gold, silver,
copper, lead and zinc metals concentrate, its results of operations are directly related to the prices of these metals.
Stock-Based Compensation: The Company records compensation expense for the fair value of stock options that are
granted. Expense is recognized on a pro-rata basis over the vesting periods, if any, of the options. The fair value of each
option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model, which requires the input
of subjective assumptions including expected volatility, risk-free interest rates, the expected life of the option dividend yields
and expected forfeitures and cancellations. Expected volatility is based on the historical price volatility of the Company’s
common stock. Risk-free interest rates are based on U.S. government obligations with a term approximating the expected life
of the option. The expected life is estimated in accordance with SEC Staff Accounting Bulletin No. 107, “Share-Based
Payment”. The Company paid dividends beginning in July 2010 and, accordingly, a dividend yield was considered in
calculating the grant date fair value of options granted subsequent to that date; however, no dividend yield was considered for
options granted prior to July 2010. In addition, we estimate the expected forfeiture rate and only recognize expense for those
options expected to vest.
Reclamation and Remediation Costs: Reclamation obligations are recognized when incurred and recorded as
liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset
retirement cost is expensed as incurred since we do not have proven or probable reserves. Reclamation costs are periodically
adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of
either the timing or amount of the reclamation costs. The reclamation obligation is based on when spending for an existing
disturbance will occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, its reclamation
obligations in accordance with ASC guidance for reclamation obligations.
Comprehensive Income (Loss): Total comprehensive income (loss) and the components of accumulated other
comprehensive income (loss) are presented in the Consolidated Statement of Changes in Shareholders’ Equity. Accumulated
other comprehensive income (loss) is composed of foreign currency translation adjustment effects.
Income Taxes: Income taxes are computed using the liability method. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes and
the effect of net operating loss and foreign tax credit carry-forwards. Deferred tax assets are evaluated to determine if it is
more likely than not that they will be realized.
Net Income (Loss) Per Share: Diluted income per share reflects the potential dilution that could occur if potentially
dilutive securities, as determined using the treasury stock method, are converted into common stock. Potentially dilutive
securities, such as stock options and warrants, are excluded from the calculation when their inclusion would be anti-dilutive,
such as periods when a net loss is reported or when the exercise price of the instrument exceeds the average fair market
value.
Foreign Currency: These consolidated financial statements are expressed in United States dollars (“US dollars”),
which is the functional currency of the Company and the reporting currency of the consolidated financial statements. The
functional currency of all of the Company’s subsidiaries is also the US dollar except for Golden Trump Mexico for which the
functional currency is the Mexican peso.
36
Prior to April 2010, the local currency where the Company’s properties are located, the Mexican peso, was the
functional currency for the Company’s subsidiaries. In conjunction with the commencement of production and sales in US
dollars at the El Aguila project in April 2010, the economic facts and circumstances changed such that the functional
currency of one of the Mexican subsidiaries was changed to the US dollar. This change in functional currency was identified
and corrected in the fourth quarter of 2012 and resulted in out-of-period adjustments of $0.8 million to property and
equipment, net; ($2.0) million to unrealized (loss)gain on foreign currency exchange and (deficit) accumulated during the
exploration stage; and an offsetting amount of $2.8 million to accumulated other comprehensive income(loss) - currency
translation adjustment and currency translation gain in other comprehensive income(loss). Management does not believe that
the out-of-period adjustments are material to the consolidated financial statements, herein.
Translation of transactions and balances into the functional currency
Transactions in currencies other than an entity’s functional currency (“foreign currencies”) are recognized at the rates
of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary assets and liabilities
denominated in foreign currencies are translated at the rates prevailing at that date. Foreign currency non-monetary items that
are measured in terms of historical cost are not retranslated. Exchange differences are recognized in net earnings in the period
in which they arise.
Translation to the reporting currency
At the end of each reporting period, the results and financial position of subsidiaries whose functional currency differs
from the reporting currency of the consolidated financial statements are translated into US dollars as follows:
Assets and liabilities are translated at the rates of exchange at the balance sheet date; and
Revenues and expenses are translated at the average exchange rates for the period, or at rates that approximate actual
exchange rates, with the exception of certain items, such as depreciation and amortization, which are translated at
the historical rate applied to the related asset.
Foreign exchange gains and losses resulting from translation from the functional currency to the reporting currency are
recognized in other comprehensive income and are recognized in net earnings upon the substantial disposition, liquidation or
closure of the subsidiary that gave rise to such amounts.
Concentration of Credit Risk: During the years ended December 31, 2012, 2011 and 2010, all of the Company’s
revenues and accounts receivable were the result of sales to two subsidiaries of the Trafigura Group Company: Consorcio
Minero de Mexico Cormin Mex. S.A. de C.V. (“Consorcio”) and Trafigura Beheer, B.V. (“Beheer”) of Lucerne Switzerland.
Sales to Consorcio and Beheer are made under separate contracts with different contract terms. The Company has carefully
considered and assessed the credit risk resulting from its concentrate sales arrangements with Consorcio and Beheer and
believes it is not exposed to significant credit risk in relation to the counterparty meeting its contractual obligations as it
pertains to its trade receivables during the ordinary course of business. In the event that the Company’s relationship with
Consorcio or Beheer is interrupted for any reason, the Company believes that it would be able to locate another entity to
purchase its metals concentrates. However, any interruption could temporarily disrupt the Company’s sale of its principal
products and adversely affect operating results.
The Company’s El Aguila Project, which is located in the state of Oaxaca, Mexico, accounted for 100% of the
Company’s total sales of metals concentrate for the years ended December 31, 2012, 2011 and 2010.
Some of the Company’s operating cash balances are maintained in accounts that currently exceed federally insured
limits. The Company believes that the financial strength of depositing institutions mitigate the underlying risk of loss. To
date, these concentrations of credit risk have not had a significant impact on the Company’s financial position or results of
operations.
Recently Adopted Accounting Standards:
In May 2011, ASC guidance was issued related to disclosures around fair value accounting. The updated guidance
clarifies different components of fair value accounting including the application of the highest and best use and valuation
premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and
disclosing quantitative information about the unobservable inputs used in fair value measurements that are categorized in
Level 3 of the fair value hierarchy. The Company’s January 1, 2012 adoption of the updated guidance had no impact on the
Company’s consolidated financial position, results of operations or cash flows.
37
In June 2011, the ASC guidance was issued related to comprehensive income. Under the updated guidance, an entity
will have the option to present the total of comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. In addition, the update required certain disclosure requirements when
reporting other comprehensive income. The update does not change the items reported in other comprehensive income or
when an item of other comprehensive income must be reclassified to income. The Company adopted the new guidance and
its deferral and opted to present the total of comprehensive income in two separate but consecutive statements effective for its
fiscal year beginning January 1, 2011. The early adoption had no impact on the Company’s consolidated financial position,
results of operations or cash flows.
Recently Issued Accounting Standards Updates:
In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income," or "ASU 2013-02" which requires disclosure of significant
amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect on the
respective line items of net income. This guidance is effective for reporting periods beginning after December 15, 2012 and is
not expected to have a material impact on our consolidated financial statements or financial statement disclosures.
In February 2013, the FASB issued ASU No. 2013-05 “Foreign Currency Matters (Topic 830): Parent’s Accounting for
the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign
Entity or of an Investment in a Foreign Entity. This guidance is effective for reporting periods beginning after December 15,
2013 and is not expected to have a material impact on our consolidated financial statements or financial statement
disclosures.
2. Fair Value Measurement
The Company’s financial instruments consist of cash and cash equivalents, investments in gold and silver bullion, and
accounts receivable (which include provisionally priced sales) as of December 31, 2012 and 2011. The following tables
summarize the Company’s financial instruments required to be measured at fair value on a recurring basis as of December
31, 2012 and 2011. The carrying values of cash and cash equivalents and accounts receivable approximated their fair values
at December 31, 2012 and 2011due to their short maturities.
Gold and silver bullion (1)
Receivables related to unsettled invoices (2)
Gold and silver bullion (1)
Receivables related to unsettled invoices (2)
Fair Value as of December 31, 2012
Level 1
Level 2
Level 3
Total
Balance Sheet Classification
(in thousands)
5,809
6,341
$
$
-
-
$
$
-
-
$
$
5,809
6,341
Gold and silver bullion
Accounts receivable
Fair Value as of December 31, 2011
Level 1
Level 2
Level 3
Total
Balance Sheet Classification
(in thousands)
2,549
6,208
$
$
-
-
$
$
-
-
$
$
2,549
6,208
Gold and silver bullion
Accounts receivable
$
$
$
$
(1) The fair value of the Company’s gold and silver bullion is established based on quoted prices in active markets for identical assets or liabilities
(Level 1); specifically, the fair value is based on the daily London P.M. fix as of December 31, 2012 and 2011, respectively.
(2) Certain concentrate sales contracts provide for provisional pricing as specified in such contracts. These sales contain an embedded derivative
related to the provisional pricing mechanism which is bifurcated and accounted for as a derivative. At the end of each reporting period, the Company
records an adjustment to revenue to mark-to-market outstanding provisional invoices. Because these provisionally priced sales have not yet settled, the
mark-to-market adjustment related to these invoices is included in accounts receivable as of each reporting date.
None of the Company’s financial instruments were classified as Level 2 or Level 3 financial instruments under ASC
820 as of December 31, 2012 or 2011.
Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s
Consolidated Statement of Operations.
38
Years Ended December 31,
Type
2012
2011
2010
Statement of Operations
Classification
Change in fair value of bullion held Unrealized gain (loss) $
58
Bullion converted pursuant to
dividend program (See Note 3)
Realized gain (loss)
Receivables related to unsettled
invoices Provisionally priced sales (1)
Derivative gain (loss)
$
$
(64)
219
(in thousands)
$
$
$
(429)
-
(126)
$
$
$
-
-
359
Other (expense) income
Other (expense) income
Sales of metals
concentrate, net
(1) These sales contain an embedded derivative related to the provisional pricing mechanism which is bifurcated and accounted for as a derivative. At
the end of each reporting period, the Company records an adjustment to revenue to mark-to-market outstanding provisional invoices. Because these
provisionally priced sales have not yet settled, the mark-to-market adjustment related to these invoices is included in sales of metals concentrate, net as
of each reporting date.
3. Gold and Silver Bullion
Beginning in 2011, the Company began to invest a portion of its treasury in physical gold and silver bullion and
continues to do so. During the year ended December 31, 2012, the Company purchased approximately 1,974 ounces of gold
and 59,001 ounces of silver at market prices for a total cost of $5.2 million. During the year ended December 31, 2011, we
purchased approximately 868 ounces of gold and 41,728 ounces of silver at market prices for a total cost of $3.0 million. The
bullion was purchased to diversify the Company’s treasury and is being used in conjunction with a recently adopted program
offering shareholders the ability to convert their cash dividend into gold and silver bullion. During the year ended December
31, 2012, approximately 1,068 ounces of gold and 5,234 ounces of silver were converted into gold and silver bullion and
distributed under this dividend program, resulting in a realized loss of $0.1 million in that year. No gold or silver bullion was
distributed under the dividend program during 2011 or 2010.
The Company values its gold and silver bullion based on guidelines established by ASC 820, as described further in
Note 2. The table below shows the balance of the Company’s holdings of bullion as of December 31, 2012 and 2011.
2012
2011
Gold
Silver
Gold
Silver
(in thousands, except ounces and per ounce )
(in thousands, except ounces and per ounce )
1,774
1,683.08
1,659.83
2,986
2,945
$
$
$
$
$
$
$
$
95,495
33.45
30.00
3,194
2,864
$
$
$
$
868
1,720.93
1,574.50
1,494
1,367
$
$
$
$
41,728
35.55
28.32
1,484
1,182
Ounces
Average cost per ounce
Fair value per ounce
Total cost
Total fair value
4. Inventories
Inventories at December 31, 2012 and 2011 consisted of the following:
2012
2011
(in thousands)
Ore stockpiles - underground mine
Concentrates
Materials and supplies
Inventories- current
Ore stockpiles - open pit mine
Inventories- non-current
Total inventories
$
$
39
1,466
3,305
2,762
7,533
809
809
8,342
$
$
1,629
663
1,951
4,243
-
-
4,243
5. Mineral Properties
The Company has an interest in five properties within the State of Oaxaca, Mexico, the El Aguila Project, the El Rey
property, the Las Margaritas property, the Alta Gracia property and the El Chamizo property. The El Aguila and El Aire
concessions make up the El Aguila Project and the La Tehuana concession makes up the Las Margaritas property. All
properties are located within trucking distance to the El Aguila mill.
The El Aguila Project: Effective October 14, 2002, the Company leased three mining concessions, El Aguila, El Aire,
and La Tehuana, totaling 1,896 hectares. The lease agreement is subject to a 4% net smelter return royalty where production
is sold in the form of gold/silver dore and 5% for production sold in concentrate form. Subject to minimum exploration
requirements, there is no expiration term for the lease. The Company may terminate the lease at any time upon written notice
to the lessor and the lessor may terminate the lease if the Company fails to fulfill any of its obligations. The Company
subsequently acquired two additional concessions, El Chacal and El Pilon, totaling 1,445 hectares, from the same third party,
who is entitled to receive a 2% royalty on future production.
The Company has filed for and received additional concessions for the El Aguila Project that total an additional 17,639
hectares. These additional concessions are not part of the concessions discussed above. The Company’s total interest in the El
Aguila Project aggregates 20,980 hectares.
The El Rey Property: The El Rey property consists of concessions in another area in the state of Oaxaca known as El
Rey, El Virrey, La Reyna and El Marquez. We acquired the El Rey concession from our former consultant and it is subject to
a 2% net smelter return royalty payable to him on a portion of the claims. We obtained the remaining concessions by staking
claims and filing for concessions with the Mexican government. These concessions total 2,773 hectares.
The El Rey property is an exploration stage property with no known reserves. It is approximately 64 kilometers (40
miles) from the El Aguila Project. There is no plant or equipment on the El Rey property. If exploration is successful, any
mining would probably require an underground mine but any mineralized material could be transported by truck and
processed at the El Aguila Project mill.
The Las Margaritas Property: The Las Margaritas property is made up of the La Tehuana concession. The Company
leased this property in October 2002. It is comprised of approximately 925 hectares located adjacent to the El Aguila
property. To date, the Company has conducted limited drilling surface sampling, geologic mapping and continues to define
drill targets for future exploration drill programs.
The Solaga Property: In February 2007, the Company leased a 100% interest in a property known as the Solaga
property for a primary term of eight years. In early 2013, the Company terminated its interest in this lease.
The Alta Gracia Property: In August 2009, the Company acquired property adjacent to the Las Margaritas property
in the Alta Gracia mining district by filing concessions under the Mexican mining laws. The Company refers to this property
as the Alta Gracia property. These properties are comprised of three mining concessions, the David 1, the David 2 and La
Hurradura. The concessions total 5,175 hectares. The Company has conducted limited surface sampling, geologic mapping
and drilling initial targets.
The El Chamizo Property: In June 2011, the Company acquired an additional property between the El Rey property
and Alta Gracia property by staking mineral claims consisting of approximately 26,386 hectares (101 square miles) which it
refers to as the “El Chamizo” property. With the acquisition of El Chamizo, the Company has extended its land position along
what is known as the San Jose structural corridor to 48 kilometers. There has been limited exploration activity at El Chamizo
to date.
As of December 31, 2012, none of the mineralized material at the Company’s properties met the SEC’s definition of
proven or probable reserves.
40
6. Property and Equipment
At December 31, 2012 and 2011, property and equipment consisted of the following:
Trucks and autos
Building
Office furniture and equipment
Machinery and equipment
Subtotal
Accumulated depreciation
Total property and equipment, net
2012
2011
(in thousands)
1,631
1,737
2,275
11,474
17,117
(3,067)
14,050
$
$
1,095
1,737
1,768
7,245
11,845
(1,527)
10,318
$
$
Depreciation expense for years ended December 31, 2012, 2011 and 2010 was $1.5 million, $0.9 million and $0.3
million, respectively. The Company did not have any significant asset disposals in 2012 and 2011.
7. Income Taxes
The Company files income taxes on an entity basis. Gold Resource Corporation files as a U.S. Corporation (“U.S.
Operations”) and the Company’s subsidiaries file in Mexico and Turkey.
For financial reporting purposes, net income (loss) before income taxes and extraordinary item include the following
components:
U.S. Operations
Foreign Operations
$
Total income(loss) before income taxes and extraordinary item $
The Company’s income tax provision consisted of:
2012
Years Ended December 31,
2011
(in thousands)
(13,045)
60,013
46,968
$
$
(11,443)
59,531
48,088
$
$
2010
(7,187)
(15,887)
(23,074)
2012
Years Ended December 31,
2011
(in thousands)
2010
Current taxes:
Federal
State
Foreign
Total current taxes
Deferred taxes:
Federal
State
Foreign
Total deferred taxes
Total income provision
$
$
$
$
$
-
-
22,067
22,067
2,913
298
(11,981)
(8,770)
$
$
$
$
-
-
17,827
17,827
(4,005)
(372)
(25,487)
(29,864)
$
$
$
$
13,297
$
(12,037)
$
-
-
-
-
-
-
-
-
-
The provision for income taxes for the years ended December 31, 2012, 2011 and 2010, differs from the amount of
income tax determined by applying the applicable United States statutory federal income tax rate to pre-tax income from
operations as a result of the following differences:
41
Tax at statutory rates
U.S Operations - state income tax impact
Mexico Operations - tax rate impact
Dividends, net of foreign tax credits
Return to provision
Change in deferred tax assets
Change in valuation allowance
Other
Tax provision
2012
Years Ended December 31,
2011
(in thousands)
2010
16,031 $
345
(2,826)
2,050
1,161
1,400
(4,644)
(220)
13,297 $
15,987 $
(372)
(2,856)
-
-
2,820
(28,574)
958
(12,037) $
(8,076)
(234)
794
-
-
-
7,515
1
-
$
$
Undistributed earnings of the Company’s foreign subsidiaries were approximately $58.7 million at December 31, 2012.
These earnings are considered to be indefinitely reinvested, and do not include earnings which are considered distributed.
According, no provision for U.S. federal and state income taxes has been provided for on those earnings. If the Company
were to separate those earnings, in the form of dividends or otherwise, the company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.
The Company files income taxes on an entity basis. Gold Resource Corporation files a U.S. tax return and the
Company’s subsidiaries each file separate tax returns in Mexico and Turkey.
The Company, on an entity-by-entity basis, evaluates the evidence available to determine whether a valuation
allowance is required on the deferred tax assets. During 2011, the company determined that deferred tax assets attributable to
Gold Resources Corporation and Don David Gold Mexico were “more likely than not” recoverable and recorded a reduction
in the valuation allowance of $28.6 million. During the fourth quarter of 2012, the Company determined that the remaining
deferred tax assets of Don David Gold Mexico were “more likely than not” recoverable and recorded a reduction in the
valuation allowance of $4.6 million. Management’s assessment was based on the increased Don David Gold Mexico 2012
gross profits and net income, forcasted contributed future profits and the projected 2013 payment of dividends (which is
treated as dividend income for income tax purposes) to the U.S. parent.
Deferred tax assets and liabilities are determined on an entity-by-entity basis based on the differences between the U.S.
GAAP financial statement and tax basis of assets and liabilities using the U.S. Mexico and Turkey enacted tax rates in effect
for the year in which the differences are expected to reverse. The deferred tax assets and liabilities are measured by applying
the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently, or in future years, related
to cumulative temporary differences between the tax bases of assets and liabilities and amounts reported in the Company’s
balance sheet. These items are generally deductible for tax purposes in different periods and in different amounts than the
expense recognized for financial reporting purposes.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at
December 31, 2012 and 2011 are presented below:
Deferred tax assets:
Tax loss carryforward
U.S. Operations
Mexico Operations
Property and equipment
Stock-based compensation
Accrued royalties and other liabilities
Foreign tax credits
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets after valuation allowance
At December 31,
2012
2011
(in thousands)
$
$
1,213
-
17,612
5,187
848
7,691
1,129
33,680
-
33,680
$
$
10,187
3,595
15,589
4,404
811
100
593
35,279
(4,644)
30,635
42
Deferred tax liabilities
Net deferred tax asset
$
$
- $
-
33,680
$
30,635
At December 31, 2012, the Company has U.S. tax loss carry-forwards for U. S. tax purposes approximating $1.2
million, which expire between 2026 and 2029, and foreign tax credits of $7.7 million that expire between 2023 and 2024.
As of December 31, 2012, the Company believes that it has no liability for uncertain tax provisions. If the Company
were to determine there were an uncertain tax provisions, the Company would recognize the liability and related interest and
penalties within income tax expense.
Currently the Company is not subject to any income tax examinations in any jurisdiction, however to the extent that net
operating losses have been utilized in either the current or preceding years such losses may be subject to future income tax
examination.
8. Asset Retirement Obligation
The Company’s asset retirement obligation (“ARO”) relates to the estimated reclamation, remediation, and closure
costs for its El Aguila Project. The following table presents the changes in ARO for the years ended December 31, 2012 and
2011.
2012
2011
(in thousands)
Asset retirement obligation – opening balance
Additions and changes in estimates
Foreign currency exchange gain (loss)
Accretion
Asset retirement obligation – ending balance
$
$
2,281
258
170
81
2,790
$
$
2,495
-
(296)
82
2,281
9. Commitments and Contingencies
Operating leases
The Company leased office space in Denver, Colorado under an agreement that expired in February 2011. Rent
expense for 2011 and 2010 was $6,000 and $30,700, respectively. In November 2012, the Company entered into a three year
lease agreement to lease office space in Denver, Colorado commencing January 1, 2013. One of the Company’s subsidiaries
also leased office space in Oaxaca City, Oaxaca. The subsidiary entered into a ten year lease commencing January 1, 2012.
Rent expense for 2012 under this lease was $72,000.
The following is a schedule by years of future minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2012.
Years Ended December 31,
2013
2014
2015
2016
2017
Thereafter
Total
$
$
128,000
130,000
131,000
72,000
72,000
288,000
821,000
43
Employment agreements
The Company has entered into certain employment agreements with senior executive employees and key management
employees. Under these agreements, the Company paid employee base salary compensation of $2.5 million in 2012 and will
have a contractual obligation to pay employee salary compensation of $2.6 million, $2.4 million and $1.2 million in 2013,
2014 and 2015, respectively.
10. Shareholders’ Equity
All of the financial information in this report has been adjusted to reflect the effect of the two-for-one stock split that
was effective February 21, 2005, whereby the Company declared and effected a 100% forward stock split where one
additional share of common stock, par value $0.001, was issued for each common share outstanding as of that date.
The Company was formed August 24, 1998 by William W. Reid and David C. Reid (the “Founders”). During 1998
and 1999, the Founders received 3,800,000 shares of common stock valued at $2,000 for administrative and organization
expenses. The Company remained generally inactive through 1999.
Commencing July 1, 2000, the Company and US Gold Corporation, a publicly traded Colorado corporation, entered
into a management contract whereby US Gold provided general management of the business activities of the Company
through December 31, 2001. Under this management contract, US Gold was issued 2,560,000 shares of common stock of the
Company. The 2,560,000 shares were valued at $392,000 or approximately $0.17 per share. Through this arrangement, the
Company benefited from experienced management without the need to raise cash for the related cost of such management
and administration. The Company was, however, responsible for all additional funding needed.
During 2001, the Founders made convertible debenture loans in the amount of $50,000 to the Company and then
converted those debentures into 200,000 shares of common stock of the Company at a conversion price of $0.25 per share.
In September 2001, the Company commenced the sale of its common shares under exemptions offered by federal and
state securities regulations. During 2001, the Company sold 820,000 shares at $0.25 per share (total $205,000).
During 2002, the Company sold 392,000 shares at $0.25 per share ($98,000) to various parties and 1,351,352 shares at
approximately $0.17 per share ($225,000) to an institutional investor, RMB International (Dublin) Limited (“RMB”).
During 2003, the Company sold 577,000 shares at $0.25 per share raising net proceeds of $145,000. Effective
September 30, 2003, US Gold acquired the RMB shares in exchange for US Gold shares, and terminated the obligation of the
Company to pay RMB approximately $25,000 in transaction costs, which was added back into paid-in-capital.
During 2004, the Company sold 608,000 shares at $0.25 per share raising net proceeds of $152,000. Also during 2004,
the Company issued 1,200,000 shares valued at approximately $0.42 per share to Canyon Resource Corporation for
repayment of a loan for funding of exploration cost at the El Aguila property. Also during 2004, the Company made a stock
grant of 600,000 shares at $0.25 per share or $150,000 to a consultant of the Company.
Effective January 2, 2005, the Company granted common stock awards to its two executive officers and a consultant of
an aggregate 1,750,000 shares for services performed during 2004 and 2005. The shares were valued at $438,000 (or $0.25
per share) which was recorded as stock-based compensation expense of $350,000 in 2004 and $87,000 in 2005. In this
issuance of common stock, William W. Reid received 1,000,000 shares, David C. Reid received 500,000 shares and the
consultant received 250,000 shares
During 2005, an individual exercised stock options for 10,000 shares for $2,500. In June 2005, the Company issued
1,280,000 shares to US Gold Corporation in satisfaction of $320,000 owed for a prior year management contract.
During 2005, the Company sold 428,000 shares to individual investors for cash proceeds of $145,000 (276,000 shares
at $0.25 per share and 152,000 shares at $0.50 per share).
44
In addition, during July and August 2005, the Company closed transactions under a Subscription Agreement and Stock
Purchase Option Agreement with Heemskirk Consolidated Limited (“Heemskirk”), an Australian global mining house,
whereby Heemskirk purchased 2,000,000 shares of common stock of the Company at $0.50 per share. A finder’s fee of
140,000 shares was paid to a third party (resulting in a net value of $0.47 per share). Heemskirk had previously purchased
(in April, 2005) 150,000 shares of common stock at $0.50 per share and the Company had paid a finder’s fee of 10,500
shares. The Company agreed to give Heemskirk a first right of offer for any financings, including sale of equity, the
Company may pursue. In a similar transaction during August 2005, the Company sold 400,000 shares to another investor
raising $200,000 and paid a finder’s fee to a third party of 28,000 shares. These transactions resulted in the issuance of
2,728,500 shares for net cash proceeds of $1.3 million ($0.47 per share).
During 2006, the Company sold 4,600,000 shares of common stock at $1.00 per share in a public offering under a
registration statement filed with the SEC that was declared effective on May 15, 2006. The Company received cash proceeds
of $4.4 million (net of finders’ fees of $249,000).
During 2006, the Company completed a private placement of 4,322,000 shares of common stock at $1.20 per share,
and received net cash proceeds of $4.9 million, after deducting finders’ fees of $258,000. The Company also issued 257,700
shares of common stock as finders’ fees in connection with this private placement.
During 2006, the Company received cash proceeds of $60,000 pursuant to the exercise of options to purchase 240,000
shares at $0.25 per share.
In May 2006, the Company made a common stock award of 100,000 shares to a director. These shares were valued at
$100,000. In December 2006, the Company made a common stock award of 35,000 shares to two employees. These shares
were valued at $60,000. In October 2006, the Company issued 250,000 shares of restricted common stock in exchange for
investor relations services. These shares were valued at $275,000.
Pursuant to a contract effective November 1, 2006, the Company agreed to issue a series of shares of common stock to
a consultant performing investor relations work on its behalf. The 30,000 shares issued in 2006 were valued at $1.50 per
share, or $45,000. The 30,000 shares issued in February 2007 were valued at $2.428 per share, or $73,000. The 30,000
shares issued in May 2007 were valued at $3.39 per share or $102,000. In November 2007, 30,000 shares were issued at a
value of $4.14 per share or $124,000, and 20,000 shares were issued at a value of $4.235 per share or $85,000. The
Company agreed to issue an additional 10,000 shares for services performed during December 2007 valued at $4.375 per
share or $44,000. On May 1, 2007, the Company entered into an investor relations contract for international investors that
required the issuance of 50,000 shares of common stock during the second quarter of 2007. These shares were valued at fair
market value of $148,000.
On October 2, 2007, the Company agreed to issue 15,000 shares of common stock for consulting services performed in
Mexico. These shares were valued at $3.68 per share or $55,000 and were recorded as stock compensation during the year
ended December 31, 2007.
On December 5, 2007, the Company completed the sale of 5,558,500 shares of common stock in a private placement
for a price of $4.00 per share, for aggregate gross proceeds of $22.2 million. The sales were made pursuant to a subscription
agreement between the Company and each subscriber. In connection with the private placement, the Company agreed to pay
finders’ fees of $522,000 cash and 263,900 shares of common stock.
Effective January 13, 2008, the Company agreed to issue 10,000 shares of common stock for investor relations
consulting services. The 10,000 shares were valued at $4.25 per share or $42,000.
During the year ended December 31, 2008, a Director of the Company exercised options to purchase 100,000 shares of
the Company's common stock at the exercise price of $1 per share for total cash proceeds of $100,000.
Effective July 28, 2008, an officer exercised options to purchase 87,000 shares of common stock at $1.00 per
share. The officer elected the “cashless exercise” method for payment, under which he immediately surrendered 19,333
shares of common stock that he would have otherwise been entitled to receive. These shares were valued at $4.50 per share,
for a total valuation of $87,000. The transaction resulted in a net increase of 67,667 common shares outstanding.
Effective October 12, 2008, a consultant exercised options to purchase 81,000 shares of common stock at $1.00 per
share for cash proceeds of $81,000. In addition, the consultant exercised options to purchase 19,000 shares using the
“cashless exercise” method of payment, under which he immediately surrendered 7,063 shares of common stock that he
would have otherwise been entitled to receive. The 7,063 shares were valued at $2.69 per share, for a total valuation of
45
$19,000 and resulting in a net issuance of 11,937 shares. As a result of both transactions, common shares outstanding
increased by 92,937 shares.
On December 5, 2008, the Company entered into a subscription agreement and a strategic alliance agreement with
Hochschild Mining Holdings Limited (Hochschild). Under the terms of the subscription agreement, the Company sold
1,670,000 shares of its common stock to Hochschild at $3.00 per share for total cash proceeds of $5.0 million. Under the
terms of the strategic alliance agreement the Company granted Hochschild an option to purchase an additional 4,330,000
shares of its common stock at a price of $3.00 per share for total cash proceeds of $13 million. The option was exercised on
February 25, 2009. The strategic alliance agreement also contains a number of additional covenants between the parties.
On June 30, 2009, the Company entered into a subscription agreement with Hochschild to sell 5,000,000 shares of its
common stock at a price of $4.00 per share, or a total of $20 million. The transaction was completed in two tranches.
Simultaneously with the execution of the subscription agreement, the Company sold 1,250,000 shares of common stock for
gross proceeds of $5 million. The closing for the remaining 3,750,000 shares of common stock was held on July 20, 2009.
The Company agreed to reserve $4 million of the gross proceeds for exploration activities.
Effective October 2, 2009, a consultant exercised options to purchase 50,000 shares of common stock at $3.68 per
share for total cash proceeds of $184,000.
On December 17, 2009, the Company entered into a subscription agreement with Hochschild to sell 1,954,795 shares
of restricted common stock at $8.185 per share for gross proceeds of $16 million. The Company agreed to reserve $8 million
of the proceeds for underground mining expenses at the La Arista Vein.
During 2009, the Company issued 677,933 shares of common stock pursuant to the exercise of stock options by
officers and directors. Two option-holders exercised 913,000 options using the “cashless exercise” method for payment,
whereby each option-holder immediately surrendered shares of common stock that he would have otherwise been entitled to
receive. In the aggregate, the option-holders exercised 913,000 options and immediately surrendered 235,067 shares of
common stock, resulting in a net issuance of 677,933 shares of common stock. The Company received no cash proceeds in
the transactions.
On March 8, 2010, the Company issued 600,000 restricted shares of common stock at $8.62 per share to Hochschild
pursuant to the strategic alliance agreement. The Company received cash proceeds of $5.2 million.
On May 7, 2010, the Company agreed to issue 50,000 shares of common stock to an individual investor. The
transaction was valued at $10.77 per share based upon the quoted market price of the common stock, and consisted of cash
proceeds of $232,000, or $4.63 per share, and stock compensation expense of $307,000, or $6.14 per share.
On May 26, 2010, the Company issued 631,579 restricted shares of common stock at $9.50 per share to Hochschild
pursuant to a subscription agreement in connection with the parties’ strategic alliance. The Company received cash proceeds
of $6 million.
On September 23, 2010, the Company completed a financing transaction whereby it sold 3,475,000 shares of restricted
common stock at $16.00 per share for net proceeds of $52 million to various institutional investors. Jefferies & Company
Inc. acted as the placement agent in connection with the transaction, and was compensated in the amount of approximately
$3.6 million.
Dividends
The Company declared commercial production July 1, 2010 and, between July 1, 2010 and December 31, 2012, has
declared monthly cash dividends totaling $1.37 per share of common stock in thirty dividend payments to shareholders of
record. The Company declared dividends of $36.5 million and paid dividends of $35.9 million during the year ended
December 31, 2012. During the year ended December 31, 2011, the Company declared dividends of $26.5 million and paid
dividends of $25.4 million. The Board of Directors has authorized the Company’s dividends to be charged to paid-in-capital
until such time as the Company has retained earnings, at which time any subsequent dividends will be charged to retained
earnings. Subsequent to December 31, 2012, the Company declared a regular monthly cash dividend of $0.06 per common
share in January and February 2013.
46
Other Matters
On September 23, 2011, the Board of Directors approved a share repurchase program pursuant to which the Company
may repurchase up to $20 million of its common stock from time to time in market transactions. There is no pre-determined
end date associated with the share repurchase program. As of December 31, 2012, the Company had repurchased 336,398
shares of common stock for $5.9 million.
11. Concentrate Sale Settlements
The Company records adjustments to sales of metals concentrate that result from final settlement of provisional
invoices in the period that the final invoice settlement occurs. The Company also reviews assays taken at the mine site on its
concentrate shipments, upon which the Company’s provisional invoices are based, to assays obtained from samples taken at
the buyer’s warehouse prior to final settlement, upon which the final invoices are in part based, to assess whether an
adjustment to sales is required prior to final invoice settlement. These adjustments resulted in a decrease to sales of $3.1
million for the year ended December 31, 2012, a decrease to sales of $0.6 million for the year ended December 31, 2011 and
an increase to sales of $0.2 million for the year ended December 31, 2010. The net reduction to sales of $3.1 million for 2012
principally resulted from a settlement agreement with the buyer of our concentrates involving a dispute over the concentrate
metallurgical content relating to the transportation, handling, control and sampling of those concentrates at the buyer’s
warehouse, and the resulting assays that were obtained from those samples. The settlement agreement required the buyer to
pay the Company $1.5 million, representing the amount by which provisional invoices for April, May and June 2012
exceeded the tentative settlement value, based on assays taken at the buyer’s warehouse. The settlement agreement also
required the Company to accept the final settlement value, based on assays taken at the buyer’s warehouse, for shipments
made in February and March 2012.
In addition to the final settlement adjustments on provisional invoices, the Company records a sales adjustment to
mark-to-market outstanding provisional invoices at the end of each reporting period. These adjustments resulted in an
increase to sales of $0.2 million for the year ended December 31, 2012, a decrease to sales of $0.1 million for the year ended
December 31, 2011 and an increase to sales of $0.4 million for the year ended December 31, 2010.
Smelter refining fees, treatment charges and penalties are netted against sales of metals concentrates in the consolidated
statement of operations. Total charges for these items totaled $16.9 million, $11.4 million and $0.6 million for the years
ended December 31, 2012, 2011 and 2010, respectively.
12. Employee Benefits
401(k) Plan
Effective October 2012, the Company adopted a profit sharing plan which covers all U.S. employees. The Plan meets
the requirements of a qualified retirement plan pursuant to the provisions of Section 401(k) of the Internal Revenue Code.
The Plan provides eligible employees the opportunity to make tax deferred contributions to a retirement trust account up to
45% of their qualified wages, subject to a maximum of $17,000 annually or $22,500 for employees over the age of 50. The
Company will match 100% of the employee's deferred contribution for contributions representing up to 100% of each
participating employee's deferred earnings. Employees vest in the Company's matching contribution immediately. The
Company’s matching contribution expense amounted to $0.1 million and the unfunded matching contribution obligation was
$0 million for the year ended December 31, 2012.
13. Stock Options
The Company has a non-qualified stock option and stock grant plan under which equity awards may be granted to key
employees, directors and others (the “Plan”). The Plan is administered by the Board of Directors, which determines the terms
pursuant to which any option is granted. The maximum amount of common stock subject to grant under the Plan is 10 million
shares. As of December 31, 2012, there were 1.9 million shares available for future grant under the Plan.
47
A summary of activity under the Plan as of December 31, 2012 is presented below:
Outstanding as of January 1, 2012
Granted
Reissued
Exercised
Forfeited
Outstanding as of December 31, 2012
Shares
5,160,000 $
1,562,000
1,270,000
(100,000)
(1,872,000)
6,020,000 $
Vested and exercisable as of December 31, 2012
3,840,000 $
Weighted
Average Exercise
Price
Weighted Average
Remaining
Contractual Term (in
yrs)
Aggregate
Intrinsic Value
8.51
21.05
17.64
21.30
24.37
8.55
3.41
6.2 $
70,116,500
6.1 $
46,698,100
4.2 $
46,065,400
The weighted-average grant date fair value of options granted during the years ended December 31, 2012, 2011, and
2010 was $11.01, $15.94 and $12.34, respectively. The total fair value of shares vested during the years ended December 31,
2012, 2011 and 2010 as $1.6 million, $5.4 million and $1.1 million, respectively. The Company did not receive any cash
proceeds from options exercised during 2012.
The following table summarizes information about stock options outstanding at December 31, 2012:
Range of Exercise Prices
$0.25
$3.40 - 3.95
$10.10 - $20.51
Number of
Options
Outstanding
Weighted Average
Remaining
Contractual Term
(in yrs)
Exercisable
Weighted
Average
Exercise Price
Number of
Options
Weighted
Average
Exercise Price
1,400,000
2,000,000
2,620,000
6,020,000
1.0 $
5.7 $
9.2 $
0.25
3.68
16.69
1,400,000 $
2,000,000 $
440,000 $
3,840,000
0.25
3.68
12.29
The fair value of stock option grants is amortized over the respective vesting period. Total stock-based compensation
expense related to stock options allocated among production costs and general and administrative expense for the years ended
December 31, 2012, 2011 and 2010 was $6.6 million, $6.6 million $2.7, respectively. Below is a table of stock-based
compensation expense allocated between production and general and administrative expense for the years ended December
31, 2012, 2011 and 2010:
2012
2011
(in thousands)
2010
Production costs
General and administrative expenses
Total stock-based compensation
$
$
1,737 $
4,863
6,600 $
4,336 $
2,234
6,570 $
587
2,107
2,694
In August 2012, the Company offered certain employees the option to cancel their unexercised stock options in
exchange for an equal number of new stock options at a lower exercise price, and subject to a new three-year graded vesting
period. As of December 31, 2012, thirteen employees elected to participate in the offer, which resulted in 1.3 million
outstanding stock options with an exercise period of 10 years being cancelled at exercise prices ranging from $22.45 to
$27.95 per share. Replacement options of 1.3 million with an exercise period of 10 years were issued on August 14, 2012, at
an exercise price of $17.64 per share. The cancellation and reissuance of these stock options was treated as a modification
pursuant to ASC 718 and, accordingly, total stock-based compensation expense related to these awards increased $1.5
million, which will be recognized over the new vesting period.
The estimated unrecognized stock-based compensation expense from unvested options as of December 31, 2012 was
approximately $17.1 million, which is expected to be recognized over the remaining vesting periods of up to 3.0 years.
The assumptions used to determine the value of our stock-based awards under the Black-Scholes method are
summarized below:
48
Risk-free interest rate
Dividend yield
Expected volatility
Expected life in years
14. Other (expense) income
2012
2011
0.62% - 2.31%
2.47% - 3.14%
62.94% - 67.20%
5-10
1.97% - 3.37%
1.98% - 2.08%
67.47% - 68.62%
10
2010
2.64% - 3.07%
0.56% - 2%
71%
10
During the years ended December 31, 2012, 2011 and 2010, other (expense) income consisted of the following:
2010
2012
2011
(in thousands)
Currency exchange (loss) gain
Unrealized gain (loss) from gold and silver bullion held
Realized (loss) from gold and silver bullion converted
Interest income
Other income (expense)
Total other (expense) income
$
$
(2,881) $
58
(64)
122
29
(2,736) $
2,732 $
(429)
-
102
9
2,414 $
(330)
-
-
99
(4)
(235)
15. Net Income (Loss) Per Share
Basic earnings per share is calculated based on the weighted average number of common shares outstanding for the
year. Diluted earnings per share is calculated based on the assumption that stock options outstanding, which have an exercise
price less than the average market price of the Company’s common shares during the year, have been exercised on the later
of the beginning of the year or the date granted and that the funds obtained from the exercise were used to purchase common
shares at the average market price during the year.
2012
Year Ended December 31,
2011
2010
Net income (loss) before extraordinary item
Extraordinary items
Net income (loss)
33,671
-
33,671 $
60,125
(1,756)
58,369 $
$
Basic weighted average shares of common stock
Dilutive effect of stock options
Diluted weighted average common shares outstanding
52,846,163
3,469,722
56,315,885
52,979,481
3,435,173
56,414,654
Basic:
Net income (loss) per basic share before extraordinary item $
Extraordinary item
Net income (loss) per basic share
$
Diluted:
Net income (loss) per diluted share before extraordinary
Extraordinary item
Net income (loss) per diluted share
$
$
0.64 $
-
0.64 $
0.60 $
-
0.60 $
1.13 $
(0.03)
1.10 $
1.06 $
(0.03)
1.03 $
(23,074)
-
(23,074)
50,042,471
-
50,042,471
(0.46)
-
(0.46)
(0.46)
-
(0.46)
Stock options totaling 0 million and 0.8 million as of December 31, 2012 and 2011, respectively, were excluded from
the computation of diluted weighted average shares outstanding. The exercise price of those stock options exceeded the
average market price of the Company’s common shares of $22.07 and $24.32 for the years ended December 31, 2012 and
2011, respectively. Stock options totaling 4.9 million as of December 31, 2010 were excluded from the computation of
diluted weighted average shares outstanding as the effect would have been anti-dilutive.
49
16. Quarterly Financial Data (Unaudited)
The following represents selected information from our unaudited quarterly Statements of Operations Consolidated for
the years ended December 31, 2012 and 2011.
Sales of metals concentrate, net
Mine gross profit
Operating income
Other (expense) income
Net income before extraordinary item
Net income
Net income per common share:
Basic:
Before extraordinary item
Basic:
Diluted:
Before extraordinary item
Diluted:
Weighted average shares outstanding:
Basic
Diluted
Sales of metals concentrate, net
Mine gross profit
Operating income
Other (expense) income
Net income before extraordinary item
Extraordinary item
Net income
Net income per common share:
Basic:
Before extraordinary item
Extraordinary item
Net income
Diluted:
Before extraordinary item
Extraordinary item
Net income
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
$
$
$
$
$
First Quarter
(as restated)
Second Quarter
(as restated)
2012
Third Quarter
Fourth Quarter
36,665 $
29,886
21,548
(1,989)
13,504
13,504 $
0.26 $
0.26 $
0.24 $
0.24 $
30,700 $
17,926
8,178
692
4,128
4,128 $
0.08 $
0.08 $
0.07 $
0.07 $
36,490 $
23,773
13,564
(485)
7,297
7,297 $
0.14 $
0.14 $
0.13 $
0.13 $
27,939
16,188
6,414
(954)
8,742
8,742
0.18
0.18
0.17
0.17
52,898,984
56,362,916
52,909,756
56,443,419
52,848,586
56,254,632
52,728,590
55,846,375
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2011
11,280 $
7,117
2,153
(120)
2,033
-
2,033 $
0.04 $
-
0.04 $
0.04 $
-
0.04 $
20,664 $
15,364
6,724
(23)
4,895
(1,756)
3,139 $
0.09 $
(0.03)
0.06 $
0.09 $
(0.03)
0.06 $
37,781 $
29,886
21,871
2,476
15,216
-
15,216 $
0.29 $
-
0.29 $
0.27 $
-
0.27 $
35,438
28,154
14,926
81
37,981
-
37,981
0.72
-
0.72
0.68
-
0.68
52,998,303
57,840,414
52,998,303
56,545,865
52,997,194
56,357,096
52,924,736
56,209,896
50
17. Related Party Transactions
During 2010 the Company employed an individual who served as the general manager of the Company’s Mexico
operations on a contract consulting basis. This individual was paid $145,000 for his services as general manager in 2010.
After 2010, the Company no longer employed this individual and, accordingly, no longer considers this individual to be a
related party. The Company leased, and continues to lease, portions of the El Aguila, El Rey and Las Margaritas mining
concessions from this individual. This individual is also a part owner in an entity from which the Company leased its interest
in the Solaga property. See also the discussion regarding these leases in Note 5, “Mineral Properties.”
18. Extraordinary Item - Flood
On April 20, 2011, the El Aquila Project experienced a rain and hail storm that was unusual and infrequent to the area
which flooded the La Arista underground mine and damaged roads, buildings and equipment. The Company experienced
resultant property damage of approximately $2.5 million, for which it recorded an extraordinary loss of $1.8 million, net of a
$0.8 million income tax benefit, for year ended December 31, 2011. The Company has filed an insurance claim to recover
damages and losses resulting from business interruption. It is unknown how much, if anything, the Company will recover.
19. Legal Proceedings
On October 25, 2012, a purported securities class action lawsuit captioned Scott Cantor, on Behalf of Himself and All
Others Similarly Situated v. Gold Resource Corporation et al., was filed in the U.S. District Court for the District of
Colorado and on November 13, 2012, a similar case captioned Robert Rhodes, on Behalf of Himself and All Others Similarly
Situated v. Gold Resource Corporation et al., was filed in the same court. The cases were subsequently consolidated into In
re Gold Resource Corp. Securities Litigation, No.1:12-cv-02832. This federal court action names the company and certain of
its executive officers individually as defendants and alleges, among other things, that we and those officers violated Section
10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 in connection with statements relating to our annual production
targets and mine operations. The plaintiffs seek damages, including interest, equitable relief and reimbursement of the costs
and expenses they incur in the lawsuit. We believe the allegations are without merit and that we have valid defenses to such
allegations. We intend to defend this action vigorously.
On February 8, 2013, a shareholder’s derivative lawsuit entitled City of Bristol Pension Fund v. Reid et al., No. 1:13-
CV-00348 was filed in the U.S. District Court for the District of Colorado naming us as a nominal defendant, and naming
seven of our current and former officers and directors as defendants. The lawsuit alleges breach of fiduciary duty, gross
mismanagement and unjust enrichment and seeks to recover, for Gold Resource Corporation’s benefit, unspecified damages
purportedly sustained by us in connection with the alleged misconduct identified in the class action lawsuit discussed above
and an award of attorney’s fees and costs. Pursuant to our articles of incorporation, we are obligated to indemnify our
officers and directors with respect to this litigation and our company will bear the cost associated with defense of these
claims. We are investigating the claims alleged in the derivative lawsuit and will respond appropriately.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in our accountants during the last two fiscal years, and we have not had any disagreements
with our existing accountants during that time.
51
52
53
“Engineered from day one to
maximize shareholder value”
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Gold Resource Corp. the NYSE Composite Index, and the S&P/TSX Global Gold Index
$700
$600
$500
$400
$300
$200
$100
$0
12/07
12/08
12/09
12/10
12/11
12/12
Gold Resource Corp.
NYSE Composite
S&P/TSX Global Gold
COMPARISON OF CUMULATIVE TOTAL RETURN
Company/Index
Gold Resource Corporation
NYSE Composite
S&P/TSX Global Gold
Base
Period
12/31/07
Base
Period
12/31/08
Base
Period
12/31/09
Base
Period
12/31/10
Base
Period
12/31/11
Base
Period
12/31/12
$100
$100
$100
$78.65
$252.81
$665.55
$490.96
$367.38
$60.74
$77.92
$88.36
$84.96
$98.55
$81.17
$102.84
$137.44
$115.88
$101.10
STOCK PERFORMANCE 2012
Year Ending
December 31, 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$27.74
$28.37
$26.96
$21.98
STOCK PERFORMANCE 2011
Year Ending
December 31, 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$29.90
$31.38
$28.74
$24.19
Low
$21.65
$21.03
$16.54
$12.13
Low
$21.16
$21.76
$16.65
$15.06
54
CORPORATE INFORMATION
Management & Directors
William (Bill) W. Reid
Chief Executive Officer and Chairman
Jason Reid
President and Director
Rick Irvine
Chief Operating Officer
Brad Blacketor
Chief Financial Officer
Barry Devlin
Vice President of Exploration
Jesus Rivera
Project Manager
Bill M. Conrad
Independent Director
Isac Burstein
Vice President of Business Development
for Hochschild Mining plc
Tor Falck
Independent Director
Gary Huber
Independent Director
Corporate Information
Transfer Agent
Computershare
Denver, CO
(800) 962-4284
(781) 575-3120
Auditor
KPMG
Denver, CO
303-296-2323 (Office)
*as of Q1 2013
Legal Counsel
Dufford & Brown, P.C.
Denver, CO
303-861-8013 (Office)
The Company will provide at no charge a copy of our
report on Form 10K upon request. Please direct such
request in writing to Greg Patterson at 2886 Carriage
Manor Point, Colorado Springs, CO 80906
Exchange and Stock Information
(as of December 31, 2012)
Closing price per share: $15.41
Exchange: NYSE MKT (GORO)
Shares Outstanding: 52,679,369
Shareholders of Record: ~115
Gold Resource Corporation
2886 Carriage Manor Point Colorado Springs, Colorado 80906
303-320-7708 Office 303-320-7835 Fax
www.goldresourcecorp.com
Engineered
from day one
to maximize
shareholder
value