G R
old
esource
C
orporation
NYSE MKT: GORO
Annual Report
2014
Dear Fellow Shareholders:
2014 was a year of success for the Company in an otherwise challenging
bear market in the precious metal space. Our achievements included produc-
tion of more gold, more silver and more base metals than we have ever pro-
duced annually. We achieved this while lowering costs, distributing monthly
dividends and increasing our cash on hand by over 12 million dollars, while
not raising money or diluting shareholders.
Some of the 2014 highlights included:
• 83,903 precious metal gold equivalent ounces produced (68.2:1 silver-to-gold ratio)
• 69,845 precious metal gold equivalent ounces sold
• Record annual production of 35,552 gold ounces, a 4.7% increase over 2013
• Record annual production of 3,297,204 silver ounces, an 8.7% increase over 2013
• Record annual base metal production; 1,254 tonnes copper, 4,555 tonnes lead and 13,195 tonnes zinc
• Reduced annual total cash costs by 28.3% over 2013 to $449 per precious metal gold equivalent ounce
• $16.2 million annual net income, or $0.30 per share
• $27.5 million cash and cash equivalents, a $12.5 million increase over 2013
• $6.5 million annual dividends paid, or $0.12 per share
• Achieved milestone with total dividend distributions to shareholders exceeding $100 million
• Commissioned new doré facility at Aguila mill
• Continued to discover high-grade drill intercepts from Switchback
• Replaced tonnes mined back into the Arista deposit’s Proven and Probable Reserve Study
• Diversified into second mining friendly jurisdiction, Nevada, USA
Our goal for 2014 was to position the Company to emerge from this market volatility as a leaner, stronger,
efficient and more profitable mining company, well positioned to generate cash at current metal prices, and in
an even stronger position to generate more when the metal markets finally resume their longer term bull market
trend. Overall we accomplished that goal in 2014, and we continue to focus on these same themes into 2015. We
thank you for your continued support.
Sincerely,
Jason Reid
CEO & President
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2014
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number: 001-34857
GOLD RESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
Colorado
(State or other jurisdiction of
incorporation or organization)
84-1473173
(I.R.S. Employer
Identification No.)
2886 Carriage Manor Point, Colorado Springs, Colorado 80906
(Address of Principal Executive Offices) (Zip Code)
(303) 320-7708
(Registrant’s telephone number including area code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Common Stock, $0.001 par value
Name of each exchange on which registered
NYSE MKT
Securities registered under Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to post such files). Yes No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Larger accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No
The aggregate market value of the common stock of Gold Resource Corporation held by non-affiliates as of June 30, 2014, the last business
day of the registrant’s most recently completed second fiscal quarter, was $274,147,607 based on the closing price of the common stock of
$5.06 as reported on the NYSE MKT, LLC.
As of March 18, 2015 there were 54,179,369 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Definitive Proxy Statement to be filed pursuant to Regulation 14A for the registrant’s 2015 annual meeting of shareholders
are incorporated by reference into Part III of this Form 10-K.
1
TABLE OF CONTENTS
PART I
BUSINESS
ITEM 1:
ITEM 1A: RISK FACTORS
ITEM 1B: UNRESOLVED STAFF COMMENTS
ITEM 2:
ITEM 3:
ITEM 4: MINE SAFETY DISCLOSURES
PROPERTIES
LEGAL PROCEEDINGS
Page
4
8
16
16
24
25
ITEM 5: MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES
26
PART II
OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
ITEM 6:
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8:
ITEM 9:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A: CONTROLS AND PROCEDURES
ITEM 9B: OTHER INFORMATION
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
ITEM 11: EXECUTIVE AND DIRECTOR COMPENSATION
ITEM 12:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
ITEM 14:
INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
SIGNATURES
EXHIBIT INDEX
ADDITIONAL INFORMATION
28
30
42
44
68
68
72
72
72
72
72
72
73
76
77
Descriptions of agreements or other documents contained in this report are intended as summaries and are not necessarily
complete. Please refer to the agreements or other documents filed or incorporated herein by reference as exhibits. Please see
the exhibit index at the end of this report for a complete list of those exhibits.
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve risks and uncertainties. The statements contained in this
report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this report, the words “plan,” “target,”
“anticipate,” “believe,” “estimate,” “intend” and “expect” and similar expressions are intended to identify such forward-
looking statements. Such forward-looking statements include, without limitation, the statements regarding Gold Resource
Corporation’s strategy, future plans for production, future expenses and costs, future liquidity and capital resources, future
dividends and estimates of mineralized material. All forward-looking statements in this report are based upon information
available to Gold Resource Corporation on the date of filing this report, and the company assumes no obligation to update
any such forward-looking statements. Forward looking statements involve a number of risks and uncertainties and there can
be no assurance that such statements will prove to be accurate. Gold Resource Corporation’s actual results could differ
materially from those discussed in this report. Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the Item 1A. Risk Factors section of this Form 10-K.
In addition to the specific factors identified under Item 1A. Risk Factors in this report, other uncertainties that could
affect the accuracy of forward-looking statements include:
Decisions of foreign countries and banks within those countries;
Unexpected changes in business and economic conditions, including the rate of inflation;
Changes in interest rates and currency exchange rates;
Timing and amount of production, if any;
Technological changes in the mining industry;
Our costs;
Changes in exploration and overhead costs;
Access and availability of materials, equipment, supplies, labor and supervision, power and water;
Results of current and future feasibility studies;
The level of demand for our products;
Changes in our business strategy, plans and goals;
Interpretation of drill hole results and the geology, grade and continuity of mineralization;
Rock formations, faults and fractures, water flow and possible CO2 gas exhalation or other unanticipated
geological situations;
Acts of God such as floods, earthquakes and any other natural disasters;
The uncertainty of mineralized material estimates and timing of mine construction expenditures; and
Commodity price fluctuations.
This list, together with the factors identified under Item 1A. Risk Factors, is not exhaustive of the factors that may
affect any of our forward-looking statements. You should read this report completely and with the understanding that our
actual future results may be materially different from what we expect. These forward-looking statements represent our
beliefs, expectations and opinions only as of the date of filing this report. We do not intend to update these forward-looking
statements except as required by law. We qualify all of our forward-looking statements by these cautionary statements.
3
ITEM 1.
BUSINESS
History and Organization
PART I
Gold Resource Corporation was organized under the laws of the State of Colorado on August 24, 1998. We are a
producer of metal concentrates that contain gold, silver, copper, lead and zinc, as well as, doré containing gold and silver at
the El Aguila Project in the southern state of Oaxaca, Mexico. The El Aguila Project includes the El Aguila open pit mine,
which ceased operations in February 2011, and the La Arista underground mine, which is currently in operation. We are also
performing exploration and evaluation work on certain of our portfolio of precious and base metal exploration properties in
Mexico and Nevada and are evaluating other properties for possible acquisition.
In this report, “Company,” “our,” “us” and “we” refer to Gold Resource Corporation together with our affiliates and
subsidiaries, unless the context otherwise requires.
On April 30, 2014, we announced the completion of our initial reserve study and issued a report dated December 31,
2013, confirming the existence of proven and probable reserves as defined in Industry Guide 7 (“Guide 7”) promulgated by
the U.S. Securities and Exchange Commission (“SEC”). As a result of the completion of the reserve study, we have
transitioned from an Exploration Stage Enterprise to a Production Stage Enterprise in accordance with Guide 7. We no longer
consider ourselves to be a Development Stage Entity as defined in Accounting Standards Codification 915 – Development
Stage Entities (“ASC 915”).
We completed our initial public offering (“IPO”) in August 2006. Since that time, we have raised additional capital
pursuant to several private placements of our common stock. We used the proceeds of our IPO and additional private
placements to conduct exploration activities at the El Aguila property. Based on our successful exploration efforts, we
decided on April 11, 2007, to move forward to construct a mill and a mine at the El Aguila Project. We began mining and
milling operations at the El Aguila Project on July 1, 2010. See Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations for more information. The El Aguila Project includes approximately 30,074
hectares of mining concessions, an access road from a major highway, haul roads, a mill facility and adjoining buildings,
including an assay lab, an open pit and underground mine, tailings pond and other infrastructure. See Item 2. Properties for
additional information.
Our principal executive offices are located 2886 Carriage Manor Point, Colorado Springs, Colorado 80906, and our
telephone number is (303) 320-7708. We maintain a website at www.goldresourcecorp.com and through a link on our
website you can view the periodic filings that we make with the SEC.
Our operations at our Oaxaca Mining Unit in Mexico are conducted through our wholly-owned Mexican subsidiary,
Don David Gold Mexico S.A.de C.V. (DDGM). In November 2013, we divested our interest in Golden Trump Mexico S.A.
de C.V. Our Nevada Exploration Unit operates through our wholly-owned subsidiary, GRC Nevada Inc.
Developments During 2014
We completed our fourth full year of mining operations in 2014. Two mines are located at our El Aguila Project; the El
Aguila open pit mine and the La Arista underground mine. Mining at the El Aguila open pit mine was essentially completed
in 2010, and we transitioned to processing mineralized material from the La Arista underground mine in March 2011. In
2014, we processed ore from the La Arista underground mine with gold and silver as our primary metal products and copper,
lead and zinc as by-products. Our El Aguila milling facility located on our El Aguila Project produced both concentrates and
doré.
During 2014, we continued to develop the La Arista underground mine; reaching Level 19 on the decline ramp by year
end. We developed multiple stopes and working faces for mining, predominantly from Levels 12 to Level 17 during the year.
The mining methods of long-hole stoping and cut-and-fill were utilized.
Our optimization of the mill expansion, completed in the fourth quarter of 2013, resulted in our ability to begin
producing a higher grade gold and silver concentrate in the first quarter of 2014, due to being able to utilize a Knelson gravity
concentrator at our mill facilities. With the goal of reducing refining costs, royalties and treatment costs, we completed the
commissioning phase of the doré processing facility and achieved commercial production in the fourth quarter of 2014.
In 2014, we leased two properties in Nevada, United States of America, for exploration purposes. We leased the Radar
property from Altan Nevada Minerals Limited and the Goose property from Nevada Eagle LLC, and formed our Nevada
Mining Unit. We believe that these properties have excellent potential for discovery of both bulk tonnage replacement-type
and bonanza-grade vein-type gold deposits, similar to other gold deposits historically mined in the Paradise Peak and
Goldfield districts. These mines are also in the Walker Lane Mineral Belt and well known for their significant and high-
grade gold-silver production. We believe the Radar and Goose properties are highly prospective based on their proximity to
4
other major gold deposits in the Walker Lane Mineral Belt. Our operations in Nevada are in the exploration stage. See Item
2. Properties for additional information.
Production Summary
During 2014, mill production totaled 83,903 ounces of precious metal gold equivalent from the La Arista mine, which
was a 1.1% decrease in mill production from 2013. We processed an aggregate of 375,623 tonnes of mineralized material
with an average grade of 3.21 grams per tonne gold and 296 grams per tonne silver. See the table titled Production and
Sales Statistics—El Aguila Project in Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations for detailed information regarding our production statistics.
Exploration
Exploration during 2014 continued to focus primarily on our Oaxaca Mining Unit and specifically the El Aguila Project
with infill and step-out drilling at the La Arista deposit’s vein system. This included follow-up of the new Switchback
discovery which is an area of mineralization approximately 500 meters northeast of the La Arista deposit, for which drill
results continue to show multiple veins over a 60 to 80 meter interval. We also performed exploration at several of our other
properties, including continuing a surface drill program on portions of the Alta Gracia property that focused on previously
identified drill targets. Please see the map of our properties under Oaxaca Mining Unit in Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations for more information regarding our
exploration properties in Mexico. See Item 2. Properties for additional information regarding our exploration activities.
Dividends
We declared and paid an aggregate of $0.12 per share in dividends in 2014. In 2012, we commenced a physical
dividend program pursuant to which our shareholders have the option to convert the cash dividends into physical gold and
silver bullion and take physical delivery of bullion or have it stored in a secured vault network. See Item 5. Market For
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities for additional
information.
Proven and Probable Reserves
Beginning January 1, 2014, we transitioned from an Exploration Stage Enterprise to a Production Stage Enterprise as
defined by Guide 7. On April 30, 2014, we announced the completion of our reserve study and issued a report dated
December 31, 2013 confirming the existence of proven and probable reserves as defined in Guide 7 promulgated by the SEC.
As a result of the completion of the reserve study, we have transitioned from an Exploration Stage Enterprise to a Production
Stage Enterprise in accordance with Guide 7. We no longer consider ourselves to be a Development Stage Entity as defined
in ASC 915 and accordingly cumulative and other disclosures required by ASC 915 are no longer included in our financial
statements.
Prior to January 1, 2014, we were considered an Exploration Stage Enterprise under SEC criteria since we had not
demonstrated proven and probable reserves at our El Aguila Project in Oaxaca, Mexico or any of our other
properties. Accordingly, as required under SEC guidelines, substantially all of our investment in mining properties up to that
date, including construction of the mill, mine facilities and mine construction expenditures, were expensed as incurred and
therefore do not appear as assets on our balance sheet.
Our characterization as an Exploration Stage Enterprise resulted in the classification of our facilities and mine
construction expenditures as operating expenses rather than capital expenditures, and may have caused us to report lower net
income than if we had capitalized the expenditures. In addition, prior to January 1, 2014, our financial statements did not
reflect a corresponding depreciation or amortization expense for our facilities and mine construction costs since they were
expensed as incurred rather than capitalized. The change in our accounting presentation as a result of our transition to a
Production Stage Enterprise may make certain period-over-period comparisons less meaningful than otherwise since we
capitalized mine development related expenditures that would have been expensed under our prior accounting presentation.
5
As of December 31, 2014, our proven and probable reserves were:
Reserve Class
Tonnes
Gold
g/t
Silver
g/t
Precious
Metal Gold
Equivalent
g/t
Gold
Ounces
Silver
Ounces
Precious
Metal Gold
Equivalent
Ounces
Copper
%
Lead
%
Zinc
%
La Arista
Proven
Probable
Total
1,010,700
2.91
289
526,500
2.09
230
7.83
6.01
94,600
9,376,500
254,300
35,400
3,894,300
101,800
0.6
0.4
1.5
1.7
3.2
3.1
1,537,200
2.63
269
7.21
130,000
13,270,800
356,100
0.6
1.6
3.2
Notes to the above proven and probable (“P & P”) reserves:
1. Metal prices used for P & P reserves were $1,448.19 per ounce of gold, $24.67 per ounce of silver, $3.35 per pound of copper, $0.95 per pound
of lead and $0.91 per pound of zinc. These prices reflect the three-year trailing average prices for gold, silver, copper, lead and zinc.
2.
Precious metal gold equivalent is 58.70:1 using gold and silver only to calculate gold equivalencies.
3. A breakeven net smelter return cutoff grade of $110 per tonne was used for estimations of P & P reserves.
4. Mining, processing, energy, administrative and smelting/refining costs were based on 2014 actual costs for the El Aguila Project.
5. Metallurgical recovery assumptions used were 92% for gold, 92% for silver, 78% for copper, 77% for lead and 83% for zinc. These recoveries
reflect 2014 actual average recoveries for the El Aguila project.
P & P reserves are diluted and factored for expected mining recovery.
6.
7. Minimum mining width for P & P reserves is 1.4 meters.
8.
Figures in tables are rounded to reflect estimate precision and small differences generated by rounding are not material to estimates.
In addition to our proven and probable reserves, we estimated measured and indicated mineralized material within the
definition of Guide 7. Mineralized material does not have demonstrated economic viability. As of December 31, 2014, our
measured and indicated mineralized material was:
Mineralized Zones
Tonnes
Gold
g/t
Silver
g/t
Copper
%
Lead
%
Zinc
%
Switchback
Measured
Indicated
Santiago
Measured
Indicated
Alta Gracia
Measured
Indicated
Total
128,600
320,000
448,600
30,300
79,400
109,700
78,800
79,800
158,600
716,900
1.46
1.26
1.32
2.30
1.62
1.81
0.47
0.67
0.57
90
90
90
144
132
135
349
330
339
0.4
0.4
0.4
0.3
0.2
0.2
‐
‐
‐
1.1
1.1
1.1
0.7
0.4
0.5
‐
‐
‐
3.7
3.8
3.8
1.4
0.9
1
‐
‐
‐
Notes to the above measured and indicated (“M & I”) mineralized material:
1. A breakeven net smelter return cutoff grade of $110 per tonne was used for estimations of M & I mineralized material.
2. Metallurgical recovery assumptions used were 92% for gold, 92% for silver, 78% for copper, 77% for lead and 83% for zinc. These recoveries
reflect 2014 actual average recoveries for the El Aguila project.
3. M & I mineralized material is diluted and factored for expected mining recovery.
4. Minimum mining width for M & I mineralized material is 1.4 meters.
5.
Figures in tables are rounded to reflect estimate precision and small differences generated by rounding are not material to estimates.
Reserve estimates are prepared by Barry Devlin, Vice President of Exploration. Mr. Devlin holds a BS degree with
honors in Geology, 1981, and a Masters in Geology, 1987, from the University of British Columbia, Vancouver, Canada. He
is also a Professional Geologist registered with the Association of Professional Engineers and Geoscientists of British
Columbia.
6
Condition of Physical Assets and Insurance
Our business is capital intensive and requires ongoing capital investment for the replacement, modernization or
expansion of equipment and facilities. For more information, see Item 7, Management’s Discussion and Analysis of
Consolidated Financial Condition and Results of Operations, Liquidity and Capital Resources, below. We maintain
insurance policies against property loss and business interruption and insure against risks that are typical in the operation of
our business in amounts that we believe to be reasonable. Such insurance, however, contains exclusions and limitations on
coverage, particularly with respect to loss, environmental liability and political risk. There can be no assurance that claims
would be paid under such insurance policies in connection with a particular event. See Item 1A, Risk Factors, below for
additional information
Environmental Matters
We conduct our operations so as to protect the environment and believe our operations are in compliance with
applicable laws and regulations in all material respects. Our operating mine has a reclamation plan in place that we believe
meets all applicable legal and regulatory requirements. At December 31, 2014, $3.0 million was accrued for reclamation
costs relating to current or recently producing properties.
Competitive Business Conditions
The exploration for, and the acquisition of, gold and silver properties are subject to intense competition. Identifying and
evaluating potential mining prospects is a costly and time-consuming endeavor. Due to our limited capital and personnel, we
are at a competitive disadvantage compared to many other companies with regard to exploration and, if warranted,
advancement of mining properties. Our present limited capital means that our ability to compete for properties to be explored
and developed is limited. We believe that competition for acquiring mineral prospects will continue to be intense in the
future.
Government Regulations and Permits
In connection with mining, milling and exploration activities, we are subject to the United States and Mexican federal,
state and local laws and regulations governing the protection of the environment, including laws and regulations relating to
protection of air and water quality, hazardous waste management and mine reclamation as well as the protection of
endangered or threatened species. The department responsible for environmental protection in Mexico is Secretaria de Medio
Ambiente y Recursos Naturales (“SEMARNAT”), which is similar to the United States Environmental Protection
Agency. SEMARNAT has broad authority to shut down and/or levy fines against facilities that do not comply with its
environmental regulations or standards. Potential areas of environmental consideration for mining companies, including ours,
include but are not limited to, acid rock drainage, cyanide containment and handling, contamination of water sources, dust
and noise.
In connection with our mill and mining operations at the El Aguila Project, we have and intend to secure various
regulatory permits from federal, state and local agencies. These governmental and regulatory permits generally govern the
processes being used to operate, the stipulations concerning air quality and water issues, and the plans and obligations for
reclamation of the properties at the conclusion of operations. Regulations require that an environmental impact statement,
known in Mexico as a Manifiestacion de Impacto Ambiental (“MIA”), be prepared by a third-party contractor for submission
to SEMARNAT. We have submitted our MIA to SEMARNAT for their review, and it has been approved. Studies required to
support the MIA include a detailed analysis of these areas, among others: soil, water, vegetation, wildlife, cultural resources
and socio-economic impacts. Although the regulatory process in Mexico has a public review component, proof of local
community support for a project is required to gain final MIA approval. We have received the required local community
support for the El Aguila area from which we are currently producing.
We have obtained, and plan to obtain at the appropriate time, environmental permits, licenses or approvals required for
operations. During 2014, we received a permit to begin constructing the third phase of the tailings impoundment facility at
the El Aguila Project. We are not aware of any material violations of environmental permits, licenses or approvals issued
with respect to our operations.
In connection with exploration activities in the state of Nevada, United States of America, we are subject to various
federal and state laws and regulations governing protection of the environment, including the Clean Air Act; the Clean Water
Act; the Comprehensive Environmental Response; the Compensation and Liability Act; the Emergency Planning and
Community Right-to-Know Act; the Endangered Species Act; the Federal Land Policy and Management Act; the National
Environmental Policy Act; the Resource Conservation and Recovery Act; and related state laws. These laws and regulations
are continually changing and are generally becoming more restrictive. Our activities outside the United States are also subject
to various levels of governmental regulations for the protection of the environment and, in some cases, those regulations can
be as, or more, restrictive than those in the United States.
7
We conduct our operations so as to protect public health and the environment and believe our operations are in
compliance with applicable laws and regulations in all material respects. Our operating mine has a reclamation plan in place
that we believe meets all applicable legal and regulatory requirements.
Customers
During the year ended December 31, 2014, our revenue was predominately through the sales of metals concentrate to
Consorcio Minero de Mexico Cormin Mex. S.A. de C.V., a Trafigura Group Company (“Trafigura”) which was 93% of our
sales for the year. During the fourth quarter of 2014, we reached commercial production of gold and silver doré bars and
began selling to Johnson Matthey Gold & Silver Refining Inc. (“Johnson Matthey”). In the event that our relationships
with Trafigura or Johnson Matthey is interrupted for any reason, we believe that we would be able to locate another entity
to purchase our precious metals and by-product metals. However, any interruption could temporarily disrupt the sale of our
principal products and adversely affect our operating results. We periodically review our options of alternative sales outlets to
mitigate the concentration of risk with one concentrate buyer in case of any unforeseen disruptions.
Employees and Contractors
We currently have eleven full-time employees, six of which serve as our executive officers. These individuals devote
all of their business time to our affairs.
During 2013, we divested a wholly-owned Mexican subsidiary that held our Mexican employees to a third-party
employee service company, and our El Aguila Project General Manager is currently our only employee in Mexico. We
contract for the services of our approximately 380 former employees with the firm that acquired our subsidiary and also use
various independent contractors for constructing our underground mine, surface exploration drilling and trucking.
ITEM 1A. RISK FACTORS
This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operation,
contains forward-looking statements that may be materially affected by several risk factors, including those summarized
below:
Risks Relating to Our Company
Our existing production is limited to a single mine and any interruptions or stoppages in our mining activities would
adversely affect our revenue. We are presently relying on a single mine to provide mineralized material for processing at our
mill facility which we sell to fund our operations. Any interruption in our ability to mine this location, such as a labor strike,
natural disaster, or loss of permits would negatively impact our ability to collect revenue following such interruption.
Additionally, if we are unable to economically develop additional mines, we will eventually deplete the body of mineralized
material and will no longer generate revenue sufficient to fund our operations. A decrease in or cessation of our mining
operations would adversely affect our financial performance and may eventually cause us to cease operations.
If we are unable to achieve gold and silver production levels anticipated from our El Aguila Project, our financial
condition and results of operation will be adversely affected. We have proceeded with the processing of the mineralized
material from the La Arista underground mine at the El Aguila Project based on estimates of mineralized material identified
in our drilling program and estimates of gold and silver recovery based on test work developed during our initial scoping
study, reports and subsequent Proven and Probable Reserve report. However, risks related to metallurgy are inherent when
working with extractable minerals. Sales of gold and silver that we realize from future mining activity will be less than
anticipated if the mined material does not contain the concentration of gold and silver predicted by our geological
exploration, studies and reports. If sales of gold and silver are less than anticipated, we may not be able to recover our
investment in our property and our operations may be adversely affected. Our inability to realize production based on
quarterly or annual projections may also adversely affect the price of our common stock and you may lose all or part of your
investment.
Estimates of proven and probable reserves and mineralized material are uncertain and the volume and grade of ore
actually recovered may vary from our estimates. The proven and probable reserves and mineralized material stated in this
report represent the amount of gold, silver, copper, lead and zinc that we estimated, at December 31, 2014, could be
economically and legally extracted or produced at the time of the reserve determination. Estimates of proven and probable
reserves and mineralized material are subject to considerable uncertainty. Such estimates are, to a large extent, based on the
prices of gold, silver, copper, lead and zinc and interpretations of geologic data obtained from drill holes and other
exploration techniques.
8
Additionally, the term “mineralized material” as used in this report does not indicate proven and probable reserves as
defined by Guide 7 or our standards. Estimates of mineralized material are subject to further exploration and development,
and are, therefore, subject to considerable uncertainty. We cannot be certain that any part or parts of the mineralized material
deposit will ever be confirmed or converted into Guide 7 compliant reserves or that mineralized material can be economically
or legally extracted.
If the price of gold or silver declines from recent levels, if production costs increase or recovery rates decrease or if
applicable laws and regulations are adversely changed, we can offer no assurance that the indicated level of recovery will be
realized or that mineral reserves as currently reported can be mined or processed profitably. If we determine that a portion of
our ore reserves become uneconomic, this may ultimately lead to a reduction in our reported reserves. Consequently, if our
actual mineral reserves are less than current estimates, our business, prospects, results of operations and financial position
may be materially impaired.
We may be unable to replace reserves as they become depleted. Gold and silver producers must continually replace
reserves depleted by production to maintain production levels over the long term and provide a return on invested capital.
Depleted reserves can be replaced in several ways, including expanding known ore bodies, locating new deposits, or
acquiring interests in reserves from third parties. Exploration is highly speculative in nature, involves many risks and is
frequently unproductive. Our current or future exploration programs may not result in new mineral producing operations.
Even if significant mineralization is discovered, it will likely take many years from the initial phases of exploration until
commencement of production, during which time the economic feasibility of production may change.
As a result of these uncertainties, our exploration programs and any acquisitions which we may pursue may not result
in the expansion or replacement of our current production with new ore reserves or operations, which could have a material
adverse effect on our business, prospects, results of operations and financial position.
We have identified material weaknesses in our internal controls over financial reporting that, if not properly
corrected, could materially adversely affect our operations and result in material misstatements in our financial
statements. As described in Item 9A. Controls and Procedures, we have concluded that our internal control over financial
reporting was ineffective as of December 31, 2014, because certain material weaknesses existed in our internal control over
financial reporting related to the validation of the completeness and accuracy of underlying data used in the determination of
significant estimates and accounting transactions and the presentation of income tax expense. We are working to remediate
these material weaknesses, however, if we are unable to remediate our material weaknesses in a timely manner, we may be
unable to provide holders of our securities with the required financial information in a timely and reliable manner and we
may incorrectly report financial information. Additionally, if our remedial measures are insufficient to address the material
weaknesses, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are
discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be
required to restate our financial results. These events could have a material adverse effect on our operations, result in
sanctions or investigations by regulatory authorities, or loss of investor, supplier and customer confidence in the reliability of
our financial statements, which in turn could harm our business and negatively impact the trading price of our stock.
The volatility of the price of gold and silver could adversely affect our future operations and, if warranted, our
ability to develop our properties. The profitability of our operations, the value of our properties and our ability to raise
funding to conduct continued exploration and mine construction, if warranted, are directly related to the market price of gold,
silver and other base metals. The price of gold and silver may also have a significant influence on the market price of our
common stock. Our decision to put a mine into production and to commit the funds necessary for that purpose must be made
long before the first revenue from production would be received. A decrease in the prices of gold and silver may prevent our
properties from being economically mined or result in the write-off of assets whose value is impaired as a result of lower
gold or silver prices. The volatility in gold and silver prices is illustrated by the following table, which sets forth for each of
the past five calendar years, the average annual market prices in U.S. dollars per ounce of gold and silver based on the daily
London P.M. fix:
Mineral
Gold
Silver
2010
2011
2012
2013
2014
$
$
1,225
20.19
$
$
1,572
35.12
$
$
1,669
31.15
$
$
1,411
23.79
$
$
1,266
19.08
The price of gold and silver is affected by numerous factors beyond our control, including inflation, fluctuation of the
United States dollar and foreign currencies, global and regional demand, the sale of gold and silver by central banks, and the
political and economic conditions of major gold and silver producing countries throughout the world and accordingly no
amount of planning or technical expertise can fully eliminate these risks. In the event gold or silver prices decline or remain
9
low for prolonged periods of time, we might be unable to develop our properties, which may adversely affect our results of
operations, financial performance and cash flows.
We have incurred substantial losses in the past and may not continue to be profitable. During the fiscal years ended
December 31, 2014, 2013 and 2012, we reported comprehensive net income of $16.2 million, $0.1 million and $36.0 million,
respectively. We have accumulated retained earnings of $4.0 million as of December 31, 2014. While we were profitable
during the past three years, there is no assurance that we will be profitable in the future. Unexpected interruptions in our
mining business may cause us to incur losses, or the revenue that we generate from production may not be sufficient to fund
continuing operations including exploration and mine construction costs. Our failure to generate future profits may adversely
affect the price of our common stock and you may lose all or part of your investment.
We may require significant additional capital to fund our business plan. We may be required to expend significant
funds to determine if mineralized material and proven and probable mineral reserves exist at any of our non-producing
properties, to continue exploration and if warranted, develop our existing properties and to identify and acquire additional
properties to diversify our property portfolio. We have spent, and may be required to continue to expend, significant amounts
of capital for drilling, geological and geochemical analysis, assaying and feasibility studies with regard to the results of our
exploration. We may not benefit from these investments if we are unable to identify commercially exploitable mineralized
material.
Our ability to obtain necessary funding for these purposes, in turn, depends upon a number of factors, including our
historical and prospective results of operations, the status of the national and worldwide economy, the price of gold, silver
and other valuable metals and the costs associated with extracting them. The mining sector has been negatively impacted by
declining metal prices in the last two years. We may not be successful in generating or obtaining the required financing, or if
we can obtain such financing, such financing may not be on terms that are favorable to us. Failure to obtain such additional
financing could result in delay or indefinite postponement of further mining operations or exploration and construction and
the possible partial or total loss of our potential interest in our properties.
Revenue from the sale of our metals may be adversely affected by loss or damage during shipment and storage at
our buyer’s facilities. We rely on third-party transportation companies to transport our metals to the buyer’s facilities for
processing and further refining. The terms of our sales contract with the buyers require us to rely on assay results from
samples of our metals that are obtained at the buyer’s warehouse to determine the final sales value for our metals. Once the
metal leaves our mill facility, we no longer have direct custody and control of these products. Theft, loss, automobile
accidents, improper storage, fire, natural disasters, tampering or other unexpected events while in transit or at the buyer’s
location may lead to the loss of all or a portion of our metal products. Such losses may not be covered by insurance and may
lead to a delay or interruption in our revenue and our operating results may be adversely affected.
Exploration and if deemed feasible, development of mineral properties is inherently risky and could lead to
unproductive properties and/or capital investments. Our long-term success depends on our ability to identify additional
mineral deposits on the El Aguila Property and any other properties that we have or may acquire and to develop one or more
of those properties into commercially viable mining operations. Mineral exploration is highly speculative in nature, involves
many risks and is frequently unproductive. These risks include unusual or unexpected geologic formations and the inability
to obtain suitable or adequate machinery, equipment or labor. The success of gold exploration is determined in part by the
following factors:
The identification of potential gold mineralization based on surface analysis;
Availability of government-granted exploration and construction permits;
The quality of our management and our geological and technical expertise; and
The capital available for exploration.
T
Substantial expenditures are required to establish proven and probable reserves through detail drilling and analysis, to
develop metallurgical processes to extract metal and to develop the mining and processing facilities and infrastructure at any
site chosen for mining. Whether a mineral deposit will be commercially viable depends on a number of factors, which
include, without limitation, the particular attributes of the deposit, such as size, grade, metallurgy, and proximity to
infrastructure like power, water and roads; metal prices, which fluctuate widely; and government regulations, including,
without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals
and environmental protection. We may invest significant capital and resources in exploration activities and abandon such
investments if we are unable to identify commercially exploitable mineral reserves. The decision to abandon a project may
have an adverse effect on the market value of our securities and our ability to raise future financing.
10
We currently do not enter into forward sales, commodity, derivatives or hedging arrangements with respect to our
gold and silver production, and as a result, we are exposed to the impact of any significant decrease in the price of gold or
silver. We sell the gold and silver we produce at quoted market metal prices. Currently, we do not enter into forward sales,
commodity, derivative or hedging arrangements to establish a price in advance for the sale of future gold or silver production,
although we may do so in the future. As a result, we may realize the benefit of any short-term increase in the gold or silver
price, but we are not protected against decreases in the gold or silver price. If the gold or silver price decreases significantly,
our revenues may be materially adversely affected.
Our current property portfolio is limited to a single producing property and our ability to remain profitable over the
long-term will depend on our ability to expand the known deposits like La Arista and /or identify, explore and develop
additional properties. Gold and silver properties are wasting assets. They eventually become depleted or uneconomical to
continue mining. The acquisition of gold and silver properties and their exploration, mine construction and mining activities
are subject to intense competition. Companies with greater financial resources, larger staff, more experience and more
equipment for these types of activities may be in a better position than us to compete for such mineral properties. If we are
unable to find, advance, and economically mine new properties, we most likely will not be profitable on a long-term basis
and the price of our common stock may suffer.
Our producing property is subject to a lease in favor of a third party which provides for royalties on production. The
leased portion of the property provides for a net smelter return royalty of 4% where production is sold in the form of gold and
silver doré and 5% where production is sold in concentrate form. All of our production to date has been from the leased
property and processed and sold as either concentrate or doré. The requirement to pay royalties to the owner of the
concessions at our El Aguila property, which includes the open pit mine and underground mine, reduces our profitability.
Our profits are subject to a new royalty tax imposed by the Mexican government. The Mexican government enacted
tax reform legislation which requires mineral producers to pay a royalty tax to the government of 7.5% on net profits from
metal concentrate sales and an additional 0.5% royalty fee on gross sales of precious metals of gold, silver and platinum.
This legislation has and may in the future significantly and adversely affect our results of operations, including our cash
flows, which may in turn affect the amount of capital we have available for typical uses of cash, including but not limited to,
reinvestment into our business, funding new projects and paying dividends to our shareholders.
The facilities and development of our underground mine and operation of our mill are subject to all of the risks
inherent in development and operations. These risks include potential delays, cost overruns, shortages of material or labor,
construction defects, breakdowns and injuries to persons and property. We expect to engage a combination of North
American and Mexican subcontractors and material suppliers in connection with the continued mine construction of the El
Aguila Project. While we anticipate taking all measures which we deem reasonable and prudent in connection with our
facilities, construction of the underground mine and the operation of the mill, there is no assurance that the risks described
above will not cause delays or cost overruns in connection with such construction or operation. Any delays would postpone
our anticipated receipt of revenue and adversely affect our operations, which in turn may adversely affect the price of our
stock.
Our underground mining operations are subject to unique risks. The exploration for minerals, mine construction and
mining operations from an underground mine involve a high level of risk and are often affected by hazards outside of our
control. Some of these risks include, but are not limited to, underground fires or floods, fall-of-ground accidents, seismic
activity and unexpected geological formations or conditions including noxious fumes or gases. The occurrence of one or
more of these events in connection with our exploration, mine construction, or production activities may result in the death
of, or personal injury to, our employees, other personnel or third parties, the loss of mining equipment, damage to or
destruction of mineral properties or production facilities, monetary losses, deferral or unanticipated fluctuations in
production, environmental damage and potential legal liabilities, all of which may adversely affect our reputation, business,
prospects, results of operations and financial position.
Our operations are subject to permitting requirements which could result in the delay, suspension or termination of
our operations. Our operations, including our ongoing exploration drilling programs and production at the El Aguila Project,
require permits from the Mexican government. If we cannot obtain or maintain the necessary permits or if there is a delay in
receiving future permits, our timetable and business plan will be adversely affected. We will be required to obtain necessary
exploration permits for our Nevada Mining Unit and any delays in receiving future permits, our timetable and business plan
will be adversely affected.
Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income. We
recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than
not of being realized; otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of
11
deferred tax assets requires management to make significant estimates related to expectations of future taxable income.
Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax
laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, our
ability to realize the deferred tax assets could be impacted. Additionally, future changes in tax laws could limit our ability to
obtain the future tax benefits represented by our deferred tax assets. At December 31, 2014, our current and long-term
deferred tax assets were $3.9 million and $25.5 million, respectively.
Our continuing reclamation obligations at the El Aguila Project and our other properties could require significant
additional expenditures. We are responsible for the reclamation obligations related to disturbances located on all of our
properties, including the El Aguila Project. We have reserved a liability on our balance sheet to cover the estimated fair value
of our reclamation obligation. However, there is a risk that any reserve could be inadequate to cover the actual costs of
reclamation when carried out. Continuing reclamation obligations will require a significant amount of capital. There is a risk
that we will be unable to fund these additional obligations and further, that the regulatory authorities may increase
reclamation requirements to such a degree that it would not be commercially reasonable to continue exploration activities,
which may adversely affect our results of operations, financial performance and cash flows.
Our operating properties located in Mexico are subject to changes in political or economic conditions and
regulations in that country. The risks with respect to Mexico or other developing countries include, but are not limited to:
nationalization of properties, military repression, extreme fluctuations in currency exchange rates, criminal activity, lack of
personal safety or ability to safeguard property, labor instability or militancy, mineral title irregularities and high rates of
inflation. In addition, changes in mining or investment policies or shifts in political attitude in Mexico may adversely affect
our business. We may be affected in varying degrees by government regulation with respect to restrictions on production,
price controls, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation,
land use, land claims of local people, opposition from non-governmental organizations, water use and mine safety. The effect
of these factors cannot be accurately predicted but may adversely impact our operations.
Our ability to develop our Mexican properties is subject to the rights of the Ejido (local inhabitants) to use the
surface for agricultural purposes. Our ability to mine minerals is subject to maintaining satisfactory arrangements with the
Ejido for access and surface disturbances. Ejidos are groups of local inhabitants who were granted rights to conduct
agricultural activities on the property. We must negotiate and maintain a satisfactory arrangement with these residents in
order to disturb or discontinue their rights to farm. While we have successfully negotiated and signed such agreements related
to the El Aguila Project, our inability to maintain these agreements or consummate similar agreements for new projects could
impair or impede our ability to successfully mine the properties.
Competition in the mining industry is intense, and we have limited financial and personnel resources with which to
compete. Competition in the mining industry for desirable properties, investment capital and personnel is intense. Numerous
companies headquartered in the United States, Canada and elsewhere throughout the world compete for properties and
personnel on a global basis. We are a small participant in the gold mining industry due to our limited financial and personnel
resources. We presently operate with a limited number of personnel and we anticipate that we will compete with other
companies in our industry to hire additional qualified personnel which will be required to successfully operate our mine and
mill site. We may be unable to attract the necessary investment capital or personnel to fully explore and if warranted, develop
our properties and be unable to acquire other desirable properties. We believe that competition for acquiring mineral
properties will continue to be intense in the future.
Since most of our expenses are paid in Mexican pesos and we sell our production in United States dollars, we are
subject to changes in currency values that may adversely affect our results of operation. Our operations in the future could
be affected by changes in the value of the Mexican peso against the United States dollar. 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, 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, and other monetary assets and liabilities denominated in foreign currencies also fluctuate with changes in
currency exchange rates.
Our activities are subject to significant environmental regulations, which could raise the cost of doing business or
adversely affect our ability to develop our properties. Our mining operations are subject to environmental regulation by
SEMARNAT. Regulations governing advancement of new projects or significant changes to existing projects require an
environmental impact statement, known in Mexico as a MIA. We may also be required to submit proof of local community
support for a project to obtain final approval. If an environmental impact statement is adverse or if we cannot obtain
community support, our ability to develop our properties could be adversely affected. Significant environmental legislation
exists in Mexico, including fines and penalties for spills, release of emissions into the air, seepage and other environmental
damage, which fines or penalties could adversely affect our financial condition or results of operation.
12
Our business is subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, a breach
or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits and reputational
harm. We operate in certain jurisdictions that have experienced governmental and private sector corruption to some degree,
and in certain circumstances, strict compliance with anti-bribery laws may conflict with certain local customs and practices.
For example, the U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions generally prohibit companies
and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other
commercial advantage. Our Code of Ethics and other corporate policies mandate compliance with these anti-bribery laws,
which often carry substantial penalties. There can be no assurance that our internal control policies and procedures always
will protect us from recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by our affiliates,
employees or agents. As such, our corporate policies and processes may not prevent all potential breaches of law or other
governance practices. Violations of these laws, or allegations of such violations, could lead to civil and criminal fines and
penalties, litigation, and loss of operating licenses or permits, and may damage our reputation, which could have a material
adverse effect on our business, financial position and results of operations or cause the market value of our common stock to
decline.
We are dependent upon information technology systems, which are subject to disruption, damage, failure and risks
associated with implementation and integration. We are dependent upon information technology systems in the conduct of
our operations. Our information technology systems are subject to disruption, damage or failure from a variety of sources,
including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters and defects in
design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to
gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized
release of confidential or otherwise protected information and the corruption of data. Various measures have been
implemented to manage our risks related to information technology systems and network disruptions. However, given the
unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to
production downtimes, operational delays, the compromising of confidential or otherwise protected information, destruction
or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses
from remedial actions, any of which could have a material adverse effect on our cash flows, competitive position, financial
condition or results of operations.
We could also be adversely affected by system or network disruptions if new or upgraded information technology
systems are defective, not installed properly or not properly integrated into our operations. We are modifying our enterprise
software to support various operational functions, financial reporting and controls management. The modification of this
system carries risks such as cost overruns, delays and interruptions. If we are not able to successfully implement these system
modifications, we will have to rely on manual reporting processes and controls over financial reporting that have not been
planned, designed or tested. Various measures have been implemented to manage our risks related to the system
implementation and modification, but system modification failures could have a material adverse effect on our business,
financial position and results of operations and could, if not successfully implemented, adversely impact the effectiveness of
our internal controls over financial reporting.
The nature of mineral exploration and production activities involves a high degree of risk and the possibility of
uninsured losses. Exploration for and the production of minerals is highly speculative and involves greater risk than many
other businesses. Many exploration programs do not result in the discovery of mineralization, and any mineralization
discovered may not be of sufficient quantity or quality to be profitably mined. Our operations are, and any future mining
operations or construction we may conduct will be, subject to all of the operating hazards and risks normally incident to
exploring for and mining of mineral properties, such as, but not limited to:
Economically insufficient mineralized material;
Fluctuation in production costs that make mining uneconomical;
Labor disputes;
Unanticipated variations in grade and other geologic problems;
Environmental hazards;
Water conditions;
Difficult surface or underground conditions;
Industrial accidents;
Metallurgic and other processing problems;
Mechanical and equipment performance problems;
13
Failure of pit walls, dams, declines, drifts and shafts;
Unusual or unexpected rock formations;
Personal injury, fire, flooding, cave-ins and landslides; and
Decrease in the value of mineralized material due to lower gold and silver prices.
Any of these risks can materially and adversely affect, among other things, the construction of properties, production
quantities and rates, costs and expenditures, potential revenues and targeted production dates. We currently have limited
insurance to guard against some of these risks. If we determine that capitalized costs associated with any of our mineral
interests are not likely to be recovered, we would incur a write down of our investment in these interests. All of these factors
may result in losses in relation to amounts spent which are not recoverable or result in additional expenses.
We do not insure against all of the risks to which we may be subject in our operations. While we currently maintain
insurance against general commercial liability claims and the physical assets at our El Aguila Project, we do not maintain
insurance to cover all of the potential risks associated with our operations. We might be subject to liability for environmental,
pollution or other hazards associated with mineral exploration and mine construction, which risks may not be insured against,
which may exceed the limits of our insurance coverage, or which we may elect not to insure against because of premium
costs or other reasons. We may also not be insured against interruptions to our operations. Losses from these or other events
may cause us to incur significant costs which could materially adversely affect our financial condition and our ability to fund
activities on our property. A significant loss could force us to reduce or terminate our operations.
We depend upon a limited number of personnel and the loss of any of these individuals could adversely affect our
business. Due to the relatively limited number of personnel that we employ, we are dependent on certain individuals to run
our business. These individuals include our executive officers, including Jason Reid, Joe Rodriguez, Rick Irvine and Barry
Devlin. If any of these individuals were to die, become disabled or leave our company, we would be forced to identify and
retain individuals to replace them. There is no assurance that we can find suitable individuals to replace them or to add to our
employee base if that becomes necessary. We have no life insurance on any individual, and we may be unable to hire a
suitable replacement for them on favorable terms should that become necessary.
In the event of a dispute regarding title to our operating property or any facet of our operations, it will likely be
necessary for us to resolve the dispute in Mexico, where we would be faced with unfamiliar laws and procedures. The
resolution of disputes in foreign countries can be costly and time consuming. In a foreign country we face the additional
burden of understanding unfamiliar laws and procedures. We may not be entitled to a jury trial, as we might be in the United
States. Further, to litigate in any foreign country, we would be faced with the necessity of hiring lawyers and other
professionals who are familiar with the foreign laws. For these reasons, we may incur unforeseen losses if we are forced to
resolve a dispute in Mexico or any other foreign country.
We have been named as a defendant in securities class action and shareholder lawsuits which could result in
substantial damages and may divert management’s time and attention from our business. As described in more detail in
Item 3. Legal Proceedings, we and certain of our officers and directors are named as defendants in a securities class action
and shareholder derivative lawsuits. On January 16, 2015, the United States Court of Appeals for the Tenth Circuit affirmed
the District Court’s decision to dismiss the case with prejudice. While the securities class action lawsuit may be further
appealed within a specified time period, we believe the plaintiff does not intend to take any further action regarding the
lawsuit. Subsequent to the appellate court ruling, all parties to the shareholder derivative lawsuit agreed to voluntarily dismiss
the proceeding and the case was terminated on February 25, 2015. These lawsuits and any other potential future lawsuits are
subject to inherent uncertainties, and the actual costs incurred relating to these lawsuits will depend upon many unknown
factors. The outcome of litigation is necessarily uncertain, and we could be forced to expend significant resources in the
defense of these suits, and we may not prevail. Monitoring and defending against legal actions is time-consuming for our
management and detracts from our ability to fully focus our internal resources on our business activities. In addition, we may
incur substantial legal fees and costs in connection with the litigation. We are not currently able to estimate the possible cost
to us from these matters, and we cannot be certain how long it may take to resolve the litigation or the possible amount of any
damages that we may be required to pay. We have not established any reserves for any potential liability relating to these or
any other lawsuits. It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary
damages. A decision adverse to our interests on these actions could result in the payment of substantial damages and could
have a material adverse effect on our cash flow, results of operations, financial position and stock price.
14
Our directors and officers may be protected from certain types of lawsuits. The laws of the State of Colorado provide
that our directors will not be liable to us or our shareholders for monetary damages for all but certain types of conduct as
directors of the company. Our Articles of Incorporation permit us to indemnify our directors and officers against all damages
incurred in connection with our business to the fullest extent provided or allowed by law. Additionally, we entered into
individual indemnification agreements with our current directors and officers and we intend to execute substantially similar
agreements with future directors and officers. The exculpation provisions of any of these items may have the effect of
preventing shareholders from recovering damages against our directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited assets to defend our directors and officers
against claims, including claims arising out of their negligence, poor judgment or other circumstances. Pursuant to the terms
of the indemnification agreements, we are required to advance funds to our directors and officers prior to the final disposition
of any threatened or actual legal proceeding, and including in the event it is ultimately determined that such officer or director
is not entitled to indemnification pursuant to the terms of the indemnification agreement, in which case we will depend on
reimbursement of advanced expenses from such individual.
Risks Related to Our Common Stock
Our stock price may be volatile and as a result you could lose all or part of your investment. In addition to other risk
factors identified and to volatility associated with equity securities in general, the value of your investment could decline due
to the impact of any of the following factors upon the market price of our common stock:
Changes in the worldwide price for gold and/or silver;
Volatility in the equities markets;
Disappointing results from our exploration or production efforts;
Producing at rates lower than those targeted;
Political and regulatory risks;
Weather conditions, including unusually heavy rains;
Failure to meet our revenue or profit goals or operating budget;
Decline in demand for our common stock;
Downward revisions in securities analysts’ estimates or changes in general market conditions;
Technological innovations by competitors or in competing technologies;
Investor perception of our industry or our prospects;
Actions by government central banks; and
General economic trends.
During the 2014 year the price of our stock has ranged from a low of $2.70 to a high of $6.35. In addition, stock
markets in general have experienced extreme price and volume fluctuations and the market prices of securities have been
highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of
our common stock. As a result, you may be unable to resell your shares at a desired price.
Past payments of dividends on our common stock are not indictors of future payments of dividends. In 2012, we
instituted a monthly cash dividend payable to holders of our common stock. During 2014, and as of March 19, 2015, the
instituted monthly dividend was $0.01 per share per month. However, our ability to continue to pay dividends in the future
will depend on a number of factors, including cash flow, mine construction requirements and strategies, other acquisition
and/or construction projects, spot gold and silver prices, taxation, government imposed royalties and general market
conditions. Further, a portion of our cash flow will likely be retained to finance our operations. Any material change in our
operations may affect future dividends which may be modified at the discretion of our Board of Directors. Any decrease in
our monthly dividend would likely have an adverse impact on the price of our common stock.
15
We are subject to the Continued Listing Criteria of the NYSE MKT, and our failure to satisfy these criteria may
result in delisting of our common stock. Our common stock is currently listed on the NYSE MKT. In order to maintain the
listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum
amount of shareholders’ equity and a minimum number of public shareholders. In addition to objective standards, the NYSE
MKT may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear
unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so
reduced as to make continued listing on the NYSE MKT inadvisable; if the issuer sells or disposes of principal operating
assets or ceases to be an operating company; if an issuer fails to comply with the NYSE MKT’s listing requirements; if an
issuer’s common stock sells at what the NYSE MKT considers a “low selling price” and the issuer fails to correct this via a
reverse split of shares after notification by the NYSE MKT; or if any other event occurs or any condition exists which makes
continued listing on the NYSE MKT, in its opinion, inadvisable.
If the NYSE MKT delists our common stock, investors may face material adverse consequences, including, but not
limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an
inability for us to obtain additional financing to fund our operations.
Issuances of our stock in the future could dilute existing shareholders and adversely affect the market price of our
common stock. We have the authority to issue up to 100,000,000 shares of common stock, 5,000,000 shares of preferred
stock, and to issue options and warrants to purchase shares of our common stock without stockholder approval. As of March
19, 2015, there were 54,179,369 shares of common stock outstanding. Future issuances of our securities could be at prices
substantially below the price paid for our common stock by our current shareholders. In addition, we can issue blocks of our
common stock in amounts up to 20% of the then outstanding shares without further shareholder approval. Because we have
issued less of our common stock than many of our larger peers, the issuance of a significant amount of our common stock
may have a disproportionately large impact on our share price compared to larger companies.
Our awards of stock options to employees may not have their intended effect. A portion of our total compensation
program for our executive officers and key personnel has historically included the award of options to buy our common
stock. If the price of our common stock performs poorly, such performance may adversely affect our ability to retain or
attract critical personnel. In addition, any changes made to our stock option policies or to any other of our compensation
practices which are made necessary by governmental regulations or competitive pressures could affect our ability to retain
and motivate existing personnel and recruit new personnel.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We classify our mineral properties into two categories: “Operating Properties” and “Exploration Properties.” Operating
Properties are properties on which we operate a producing mine and are what we consider a “material” property in
accordance with Guide 7.
We currently have an interest in eight properties. Six of our properties, including one Operating Property and five
Exploration Properties, are in the southern state of Oaxaca, Mexico. During 2014, we leased two properties in Nevada which
are considered Exploration Properties.
Oaxaca Mining Unit
All of the properties that make up our Oaxaca Mining Unit are located in what is known as the San Jose structural
corridor, which runs north 70 degrees west. Our properties comprise 55 continuous kilometers of this structural corridor
which spans three historic mining districts in Oaxaca. The map below shows the general location of our six Oaxaca
properties:
16
We are granted concessions from the Mexican federal government to explore and mine our properties in Mexico, see
Mining Concessions and Regulations in Mexico. Certain properties are held by us as the concession holder and other
properties that we lease from a third party. We are required to pay concession fees to the Mexican government to maintain
our interest in these concessions, and we pay concession fees for all of our mineral properties, including those which are
subject to the third-party lease. The table below details information related to the mining concessions that comprise our six
properties in Oaxaca.
Concession Name(s)
Size
Property Interest
Acquisition
Date
2014
Maintenance
Fees Paid
Operating Properties:
(in hectares) *
El Aguila
El Aguila and Mina El Aire
971 Lease, subject to royalty
2002 $
18,870
Concession holder, subject to
royalty
1,445
2010
7,981
El Aguila
El Chacal and El Pilon
El Aguila
El Pitayo 1, 2, 3 and 4, El Talaje
and San Luis
El Aguila
El Zorrito
4,775 Concession holder
9,828 Concession holder
El Aguila
El Coyote and La Curva
7,245 Concession holder
El Aguila
Zopi
720 Concession holder
El Aguila
San Miguel Fracc 1 and San Miguel
Fracc 2
El Aguila
El Aguila III
Total :
2,090 Concession holder
3,000 Concession holder
30,074
17
2008
2009
2010
2011
26,370
26,985
19,893
975
2013
2014
$
1,857
1,340
104,271
Concession Name(s)
Size
Property Interest
Exploration Properties:
El Rey
El Rey
El Rey
El Rey
El Virrey, La Reyna
El Marquez
El Chamizo
El Chamizo
(in hectares) *
172 Lease, subject to royalty
728 Concession holder
1,874 Concession holder
26,386 Concession holder
El Chamizo
San Pedro Fracc 2
1,860 Concession holder, subject to
royalty
Acquisition
Date
2014
Maintenance
Fees Paid
2002 $
2005
2009
2011
2013
1,900
8,039
5,144
35,033
20,550
Alta Gracia David 1, David 2 and La Herradura
5,175 Concession holder
2008
28,581
Las Margaritas La Tehuana
925 Concession holder
2002
17,975
El Fuego
San Pedro Fracc 1
2,554 Concession holder, subject to
royalty
Lachiguiri
Lachiguiri
4,000 Concession holder
Total:
43,674
2013
28,214
2014
1,786
$
147,222
* One hectare is equal to 2.4711 acres. The 73,748 hectares in which we hold an interest is equal to approximately 285 square miles.
Operating Properties
The El Aguila Project
Background
The El Aguila Project currently comprises 17 mining concessions aggregating 30,074 hectares as described in the table
above.
In 2002, we leased the El Aguila, El Aire and La Tehuana concessions from a third party. The El Aguila and El Aire
concessions are part of the El Aguila Project and the La Tehuana concession comprises the Las Margaritas property. The El
Aguila lease agreement is subject to a 4% net smelter return royalty where production is sold in the form of gold/silver doré
and 5% for production sold in concentrate form. Subject to meeting minimum exploration requirements, there is no
expiration term for the lease. We may terminate it at any time upon written notice to the lessor and the lessor may terminate it
if we fail to fulfill any of our obligations, which primarily consists of paying the appropriate royalty to the lessor.
In 2010, we acquired from a third party, at no additional cost, the El Chacal and El Pilon concessions, which are
subject to a 2% royalty, but are not subject to the El Aguila lease agreement. We filed for and received additional concessions
from the Mexican government which are also not part of the concessions leased or acquired from the third party. The mineral
concessions making up the El Aguila Project are located within the San Pedro Totolapam Ejido.
Location and Access
The El Aguila Project is located in the Sierra Madre del Sur Mountains of southern Mexico in the central part of the
State of Oaxaca. The property is located along a major paved highway approximately 120 kilometers southeast of Oaxaca
City, the state’s capital city. The property is approximately four kilometers due northwest from the village of San Jose de
Gracia. We have constructed gravel and paved roads from the village to the mine and mill sites which supports adequate
access to the property.
18
The climate of the El Aguila Project area is dry and warm to very warm with most rainfall occurring in the summer and
annual precipitation averaging 423.7 mm. The average yearly temperature is 26.6 degrees centigrade. The area is very rocky
with arid vegetation. Subsistence farming occurs and the main agricultural crop is agave cactus that is cultivated for the
production of mescal.
Geology and Mineralization
The El Aguila Project is located in the San Jose de Gracia Mining District in Oaxaca. Multiple volcanic domes of
various scales, and probably non-vented intrusive domes, dominate the district geology. These volcanogenic features are
imposed on a pre-volcanic basement of sedimentary rocks. Gold and silver mineralization in this district is related to the
manifestations of this classic volcanogenic system and is considered epithermal in character.
Historically, we have produced ore from two locations on the El Aguila property, the open pit mine (“El Aguila open
pit”) and the underground mine at the La Arista vein system. The El Aguila open pit mineralization is considered low
sulfidation, epithermal mineralization primarily of gold with some silver and no base metals. The La Arista vein system is
considered intermediate epithermal mineralization of gold, silver, copper, lead, and zinc. The host rock at the La Arista vein
system is primarily andesite.
Facilities
We constructed a mill facility and infrastructure at the El Aguila Project for approximately $35 million in 2009, and
expanded the mill facility in 2012 and 2013, by $23 million. The flotation mill expansion, completed at the end of 2013,
increased the number of flotation cells and added a second ball mill to allow for additional processing capacity. The mill is
flexible in its ability to process several types of mineralization. It has a differential flotation section capable of processing
polymetallic mineralized material and producing up to three separate concentrate products for sale. The mill also has an
agitated leach circuit capable of producing gold and silver doré for sale. Depending on the specific type and characteristics of
the mineralized material the mill can process sulfide material in its flotation circuit at a nominal 1,500 tonnes of mineralized
material per day. The agitated leach circuit can process a nominal 300 tonnes per day.
Our optimization of the mill expansion, which was completed in the fourth quarter of 2013, resulted in our ability to
begin producing a higher grade gold and silver concentrate in the first quarter of 2014, by utilizing a Knelson gravity
concentrator at our mill facilities. With the goal of reducing refining costs, royalties and treatment costs, we completed the
commissioning phase of the doré processing facility and achieved commercial production in the fourth quarter of 2014.
Power is provided by diesel generators at the site. We obtained water rights from the Mexican government for an
amount of water that we believe is sufficient to meet our operating requirements and pump it approximately five kilometers
to the site from a permitted well located near the Totolapam River.
Additional improvements at the site include a second diesel generation power plant and switch gear, paving a 3
kilometer section of the road from the mine to the mill, construction of a new surface maintenance garage and fuel station,
haul roads from the mine site to the mill, mill facility office space, an assay lab, an exploration office, a tailings
impoundment facility and other infrastructure.
Exploration Activities
The early history of activity at the El Aguila Project, as known by us, is prospecting and limited mining for gold and
silver from the early 1900’s to the mid 1960’s. In 1998, the concessions were leased to Apex Silver Mines Corporation of
Denver, Colorado. Apex carried out an exploration program involving geologic mapping, surface sampling and an 11-hole
drilling program (1,242 meters). The results did not meet Apex’s expectations so it cancelled its lease on the property in
2002. We leased the property from a third party in October 2002.
In August 2003, we commenced an initial drilling and exploration program. Through 2014, we have drilled a total of
764 core holes (both surface and underground) equaling 220,829 meters and 166 reverse circulation holes equaling 14,367
meters for a total of 930 holes totaling 235,196 meters.
Exploration at the El Aguila Project includes drilling the El Aguila open pit mineralization and the discovery and
subsequent detailed drilling of the La Arista deposit’s vein system. The La Arista vein system is made up of multiple en
echelon parallel veins with the two primary veins, the Baja vein and the Arista vein which are approximately 30 meters
apart. Currently more than 15 veins have been identified with indications of at least 5 more. The drilling of the La Arista vein
system has shown mineralized material over 1,000 meters of strike length and more than 500 meters of depth with veins open
along strike and depth.
19
Drilling at El Aguila in 2014, was mainly a continuation of the previous year’s activities of infill and step out drilling
from the La Arista mine. In 2014, 136 diamond drill holes (both surface and underground) totaling 43,137 meters were
completed on the El Aguila Project.
In 2014, exploratory drilling from the La Arista deposit also continued to expand the systems high-grade mineralization
at the new Switchback discovery, located 500 meters to the northeast of the La Arista deposit. Switchback has been drilled
450 meters along strike by 450 meters at depth, containing significant gold, silver, copper, lead and zinc mineralization.
Drilling highlights include a 19.3 meter wide vein zone averaging 2.56 g/t gold, 129 g/t silver, 0.62% copper, 1.28% lead and
3.84% zinc which included 1.71 meters of 13.45 g/t gold, 860 g/t silver, 1.81% copper, 3.52% lead and 7.18% zinc.
Operating Activities
We commenced mining and milling operations at the El Aguila Project’s La Arista Mine on July 1, 2010. Mineral
production during 2010 consisted of processing mineralized material from the El Aguila open pit located approximately 0.5
kilometers from the mill. Mining of the open pit was essentially completed in 2010. Approximately one-half of the open pit
material was processed and one-half remains in long-term stockpiles.
During 2010, we began developing an underground mine to access the La Arista deposit’s vein system. The
underground mine is approximately two kilometers from the mill. As of December 31, 2014, the construction of our primary
decline ramp has now reached Level 19 which is approximately 360 vertical meters below the mine portal.
During 2014, we continued underground mining of the La Arista mineralized material at our El Aguila Project. In
2014, a record 9,654 linear meters of tunnel construction was completed in the mine. This included 4,576 linear meters of
capital mine infrastructure construction and a further 695 meters of vertical rise development. Mine infrastructure
improvements include a third surface exhaust fan installation and an underground water pumping station.
In 2014, we processed underground ore through the mill at an average of 1,111 tonnes per day and totaled 375,623
tonnes for the year, with an average grade of 3.21 grams per tonne gold and 296 grams per tonne silver. All of our processing
is taking place using the mill’s flotation circuit processing sulfide ore from the La Arista underground mine, as we have not
yet utilized the mill’s agitated leach circuit. We anticipate that we would use the agitated leach circuit if ever we are able to
mine sufficient oxide material from one of our properties.
Please see the table titled Production and Sales Statistics—El Aguila Project in Item 7. Management’s Discussion
and Analysis for additional details concerning our mineral production statistics for 2014 and 2013.
Exploration Properties
We currently hold an interest in five additional properties in our Oaxaca Mining Unit located in Oaxaca, Mexico and
two properties in Nevada, United States of America, which we classify as exploration properties. We do not currently
consider any of these properties to be a “material” property for purposes of Guide 7 and none of these properties has any
known reserves. We anticipate that all exploration activities at these properties will be funded through our working capital.
In 2015, we anticipate spending approximately $10.4 million for exploration which includes approximately $2.0
million for exploration ramps to the Switchback.
Oaxaca Mining Unit
The Las Margaritas Property
The Las Margaritas property is made up of the La Tehuana concession. We leased this concession in October 2002,
from a third party along with two of the concessions comprising the El Aguila property and the terms of this agreement are
discussed under “The El Aguila Project” above. It is comprised of approximately 925 hectares located along our 55
kilometer mineralized trend and adjacent to the El Aguila Project.
To date, we have drilled 24 core holes for a total of 8,035 meters at the Las Margaritas property. In 2014, a soil and
rock geochemical program was conducted at the Las Margaritas property. This program was a follow-up of the stream
sediment geochemical program conducted in 2010 and 2012. A total of 1,494 soil and 66 rock samples were collected on
lines oriented from southwest to northeast across the projection of known regional structures. The soil data showed a series
of west-northwest and northwest trending trends visible in the epithermal pathfinder suite of metals (gold, silver, arsenic,
antimony, mercury and thallium). These linear patterns spatially correlate with known historical mining in the Las
20
Margaritas district. The linear patterns also extend beyond and between the known workings and establish additional trends
for prospecting along mapped structural orientations.
The Alta Gracia Property
In August 2009, we acquired claims adjacent to the Las Margaritas property in the Alta Gracia Mining District by
filing concessions known as the David 1, the David 2 and La Herradura, totaling 5,175 hectares.
Follow-up surface drilling was conducted at Alta Gracia during 2014, with 39 diamond drill holes totaling 7,589
meters completed. The 2014 drill campaign initially focused near the historic El Mirador underground mine, testing the
Mirador vein. This drilling encountered significant intercepts including 5.06 meters grading 1.53 g/t gold and 1,383 g/t silver
and 8.58 meters grading 1.34 g/t and 700 g/t silver for the El Mirador vein. The San Juan Vein, located approximately 500
meters southwest of the historic El Mirador underground mine, was also tested and returned 1.19 meters grading 3.16 g/t
gold and 2,232 g/t silver. We also drilled the El Huaje vein, a parallel vein structure located approximately 200 meters
southeast of the El Mirador vein, which returned 2.23 meters of 0.85 g/t gold, 710 g/t silver, 1.03% lead and 5.14% zinc.
The El Mirador and San Juan vein gold and silver mineralization discovered to date does not show any appreciable base
metals, so this precious metal mineralization could potentially be trucked to and processed through the El Aguila Mill’s
agitated leach circuit. In 2015, mineable resources are planned to be estimated and metallurgical test work done to determine
if mining and processing of Alta Gracia mineralized material is warranted at our El Aguila processing facility.
The El Chamizo Property
In June 2011, we staked mineral claims between the El Rey property and Alta Gracia property along trend and acquired
an exploration concession from the Mexican government of approximately 26,386 hectares referred to as El Chamizo. In
March 2013, we acquired a property known as Cerro Colorado (comprised of the San Pedro Fracc. 2 concession) from
Almaden Minerals, Ltd. consisting of approximately 1,860 hectares. The Cerro Colorado property is surrounded by our El
Chamizo concession and we include it as part of the El Chamizo property. Any future production from the Cerro Colorado
concession is subject to a 2% net smelter return royalty in favor of Almaden.
Because of the close proximity of El Chamizo to Alta Gracia, exploration activity began on this property during late
2011, and to date has been limited to geochemical sampling and drilling of eight shallow core holes for a total of 1,327
meters. No significant work was conducted at El Chamizo during 2014. In 2015, exploration on the property is expected to
include additional surface geological mapping and geochemical sampling of several new prospective targets identified on the
El Chamizo property.
The El Fuego Property
In March 2013, we acquired the El Fuego property (comprised of the San Pedro Fracc. 1 concession) from Almaden
Minerals Ltd. subject to a 2% net smelter return royalty. The El Fuego property consists of approximately 2,554 hectares and
is located south of our Alta Gracia and El Chamizo properties. In 2013, El Fuego was included in the property-wide airborne
geophysical survey. Geologic mapping and surface sampling were conducted on the El Fuego property during 2013 and 2014
to allow us to meet the acceptable minimum amount of work required to maintain the claims.
The El Rey Property
The El Rey property consists of concessions on the far northwest end of our 55 kilometer mineralized corridor in the
State of Oaxaca known as El Rey, El Virrey, La Reyna and El Marquez. We acquired the El Rey concession from a third party
and it is subject to a 2% net smelter return royalty payable to them on a portion of the claims. We obtained the remaining
concessions by staking claims and filing for concessions with the Mexican government.
The El Rey property is approximately 64.4 kilometers by road 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
where mineralized material could be trucked to the El Aguila mill located on the El Aguila Project for processing. Limited
drilling at El Rey has encountered gold and silver mineralization up to one meter of 132.5 g/t gold and 1.5 meters of 958 g/t
silver. The mineralized material has been located within 100 meters from the surface. To date, we have drilled 48 core holes
for a total of 5,278 meters at the El Rey property. Early in 2012, we completed a small amount of work to finish refurbishing
and extending an existing shaft on the property to permit underground exploratory drilling. We ceased work at El Rey during
2012, following a request to obtain additional approvals from local community agencies. We continue to work with the local
agencies and anticipate resolving the matter, but we have no assurance that we will be able to resume our exploration
activities in the near term. If the matter is resolved, we will conduct follow-up drilling and exploration based on the drilling
21
done in 2008. We do not anticipate any significant exploration activities at El Rey in 2015. However, we plan to conduct the
acceptable minimum amount of work required to maintain the claims.
Other Properties
Other properties include the 4,000-hectare Lachiguiri exploration concession granted from the Mexican government in
2014. The Lachiguiri claim, located 55 kilometers east of El Aguila, was staked to cover zones of interesting gold-silver-
base metal mineralization occurring in limestone conglomerates affected by intense fracturing, oxidation and some silicified
zones. Discussions with the local community for surface access and preliminary field investigations are planned for
Lachiguiri in 2015.
During 2015, we also plan to acquire additional properties and conduct exploration programs including drilling along
the 55 kilometer mineralized trend and geologic structural corridor which encompasses our other properties in Mexico.
Mining Concessions and Regulations in Mexico
Mineral rights in Mexico belong to the Mexican federal government and are administered pursuant to Article 27 of the
Mexican Constitution. All of our mining concessions are exploitation concessions, which may be granted or transferred to
Mexican citizens and corporations. Our leases or concessions are held by our Mexican subsidiary. Exploitation concessions
have a term of 50 years and can be renewed for another 50 years. Concessions grant us the right to explore and exploit all
minerals found in the ground. Maintenance of concessions requires the semi-annual payment of mining duties (due in January
and July) and the performance of assessment work, on a calendar year basis, with assessment work reports required to be
filed in the month of May for the preceding calendar year. The amount of mining duties and annual assessment are set by
regulation and may increase over the life of the concession and include periodic adjustments for inflation. Mining
concessions are registered at the Public Registry of Mining in Mexico City and in regional offices in Mexico.
Mexican mining law does not require payment of finder’s fees to the government, except for a discovery premium in
connection with national mineral reserves, concessions and claims or allotments contracted directly from the Mexican
Geological Survey. None of the claims held by any of our subsidiaries are under such a discovery premium regime.
Ejido Lands and Surface Right Acquisitions in Mexico
Surface lands at our Oaxaca mining properties are Ejido lands (agrarian cooperative lands granted by the federal
government to groups of Campesinos pursuant to Article 27 of the Mexican Constitution of 1917). Prior to January 1, 1994,
Ejidos could not transfer Ejido lands into private ownership. Amendments to Article 27 of the Mexican Constitution in 1994
now allow individual property ownership within Ejidos and allow Ejidos to enter into commercial ventures with individuals
or entities, including foreign corporations. We have an agreement with the local San Pedro Totolapam Ejido allowing
exploration and exploitation of mineralization at the El Aguila Project and some of our surrounding properties.
Mexican law recognizes mining as a land use generally superior to agricultural. However, the law also recognizes the
rights of the Ejidos to compensation in the event mining activity interrupts or discontinues their use of the agricultural
lands. Compensation is typically made in the form of a cash payment to the holder of the agricultural rights. The amount of
such compensation is generally related to the perceived value of the agricultural rights as negotiated in the first instance
between the Ejidos and the owner of the mineral rights. If the parties are unable to reach agreement on the amount of the
compensation, the decision will be referred to the government.
We have established surface rights agreements with the San Pedro Totolapam Ejido and the individuals impacted by
our proposed operations which allow disturbance of the surface where necessary for our exploration activities and mining
operations.
Nevada Mining Unit
In 2014, we acquired an interest in two properties in the State of Nevada, United States of America, both of which we
classify as Exploration Properties. We do not currently consider any of these properties to be a material property for purposes
of Guide 7 and neither of these properties has any known reserves. We anticipate that all exploration activities at these
properties will be funded through our working capital.
22
The Radar Property
In September 2014, we leased the Radar property from Altan Nevada Minerals Limited for ten years. The Radar
property covers an area of approximately 3,550 acres and is made up of 178 unpatented lode claims located in the area known
as the Walker Lane Mineral Belt in central Nevada. Radar is immediately adjacent to the former gold-silver-mercury past
producing Paradise Peak Mine, near the Round Mountain and Rawhide mines. Pursuant to the lease, we will be required to
make work expenditures of up to $250,000 annually to maintain our interest in the property and at our option we may
purchase the property for $1.5 million, subject to a 3% net smelter return royalty, at any time prior to the expiration of the
lease term.
The Goose Property
In December 2014, we leased the Goose property from Nevada Eagle LLC for five years. The Goose property consists
of five unpatented lode claims covering approximately 100 acres adjacent to Radar in the Walker Lane Mineral Belt. The
claims comprising the Goose property cover “Newman Ridge,” a mountain located directly west of the past producing
Paradise Peak mine, near the Round Mountain and Rawhide mines. We have an option to purchase the property for
$175,000, subject to a 2% net smelter return royalty, at any time prior to the expiration of the lease term. The Goose Property
is located within the area of interest for the Radar Property which is being leased from Altan Nevada Minerals Limited and
falls under an additional 3% smelter return royalty.
Office Facilities
We maintain offices in Oaxaca and in Colorado. We constructed an administrative office building adjacent to the mill
site as part of the facilities at the El Aguila Project. We also lease office space in Oaxaca City, Oaxaca consisting of
approximately 3,000 square feet. The lease commenced in 2012 for ten years. In 2014, we sold the building that serves as
our executive and administrative headquarters in Colorado Springs and have leased a portion back under a renewable one-
year lease. We also established a satellite office in Denver, Colorado consisting of approximately 2,500 square feet, the lease
commenced in 2012 for three years.
23
Glossary
The following terms used in this report shall have the following meanings:
Andesite:
Doré:
en echelon:
Epithermal:
g/t:
Hectare:
An extrusive igneous, volcanic rock, of intermediate composition, with aphanitic to porphyritic
texture characteristic of subduction zones, such as the western margin of South America.
Unrefined gold and silver bars usually containing more than 90% precious metal.
Closely-spaced, parallel or subparallel, overlapping or step-like minor structural features in rock.
Used to describe gold deposits found on or just below the surface close to vents or volcanoes,
formed at low temperature and pressure.
Grams per metric ton.
Another metric unit of measurement, for surface area. One hectare equals 1/200th of a square
kilometer, 10,000 square meters, or 2.47 acres. A hectare is approximately the size of a soccer
field.
Mineralized Material: Minerals or any mass of host rock in which minerals of potential commercial value occur.
Net Smelter Return
Royalty:
Mineral Deposit:
Portal:
Tonne:
A share of the net revenue generated from the sale of metal produced by the mine, “NSR”.
Rocks that contain economic amounts of minerals in them and that are expected to be profitably
mined.
The entrance to the mine at the surface.
A metric ton. One tonne equals 1000 kg. It is approximately equal to 2,204.62 pounds.
Volcanogenic:
Of volcanic origin.
Volcanic domes:
These are mounds that form when viscous lava is erupted slowly and piles up over the vent,
rather than moving away as lava flow. The sides of most domes are very steep and typically are
mantled with unstable rock debris formed during or shortly after dome emplacement. Most
domes are composed of silica-rich lava which may contain enough pressurized gas to cause
explosions during dome extrusion.
ITEM 3.
LEGAL PROCEEDINGS
A securities class action lawsuit subsequently captioned In re Gold Resource Corporation. Securities Litigation,
No.1:12-cv-02832 was filed in U.S. District Court for the District of Colorado naming us and certain of our current and
former officers and directors as defendants on October 25, 2012. The complaint alleged violations of federal securities laws
by us and certain of our officers and directors. On July 15, 2013, the federal district court granted our motion to dismiss the
lawsuit with prejudice. On January 16, 2015, the United States Court of Appeals for the Tenth Circuit affirmed the District
Court’s decision. While the securities class action lawsuit may be subject to rehearing or appealed to the U.S. Supreme Court
within a specified time period, we believe the plaintiff does not intend to take any further action regarding this lawsuit.
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 the 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. The action was stayed pending resolution of the appeal of the
dismissal of the securities class action lawsuit. Following the appellate court’s decision to affirm the District Court’s ruling,
all parties to the shareholder derivative lawsuit agreed to voluntarily dismiss the proceedings and the case was terminated on
February 25, 2015.
24
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
25
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASE OF EQUITY SECURITIES
Market Information
Our common stock trades on the NYSE MKT LLC stock exchange, which we refer to as the NYSE MKT, under the
symbol “GORO”. The table below sets forth the high and low sales prices for our common stock on the NYSE MKT for the
last two fiscal years on a quarterly basis.
Year Ending
December 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
December 31, 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
6.16
5.27
6.35
5.36
15.85
13.20
9.43
6.54
$
$
Low
4.45
3.52
4.74
2.70
12.26
7.92
6.31
4.49
On March 18, 2015, the high and low sales prices of our common stock on the NYSE MKT stock exchange were $2.85
and $2.62, respectively, and we had approximately 200 record holders.
Securities authorized for issuance under equity compensation plans
The following table provides information about our common stock that may be issued upon the exercise of options,
warrants and rights under all of our equity compensation plans as of December 31, 2014.
Plan Category
Number of
Securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (a)
Weighted-average
Exercise price of
Outstanding
options, warrants
and rights (b)
Number of securities
Remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) (c)
Equity compensation plans approved by security holders:
4,675,000
$
9.61
1,475,000
Purchases of Equity Securities by the Company and Affiliated Purchasers
In September 2011, our Board of Directors authorized a share repurchase of up to $20.0 million with no pre-
established end date. During 2014 and 2013, we did not repurchase any shares of Gold Resource Corporation common stock
on the open market, and approximately $14 million remains available in the share repurchase program as of December 31,
2014.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed”
with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933
or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference in
such filing.
The following graph compares the performance of Gold Resource Corporation common stock with the performance of
the NYSE MKT Composite Index and the S&P TSX Global Gold Fund, assuming reinvestment of dividends on
December 31 of each year indicated. The graph assumes $100 invested at the per share closing price in Gold Resource
Corporation and each of the indices on December 31, 2009.
26
Transfer Agent
Computershare Investor Services, Inc. is the transfer agent for our common stock. The principal office of
Computershare is located at 8742 Lucent Boulevard, Suite 225, Highlands Ranch CO 80129 and its telephone number is
(303) 262-0600.
Dividend Policy
Since commencing mining operations at our El Aguila Project, one of management’s primary goals has been to make
cash dividend distributions to shareholders. Since commercial production began July of 2010, the Company has returned over
$102 million back to shareholders in consecutive monthly dividends. Our dividend philosophy remains consistent in
returning as much in dividends as possible to the shareholders when possible. Regular dividends should not be considered a
prediction or guarantee of future dividends. Our instituted dividend may be modified or discontinued at any time at the
discretion of our Board of Directors, depending on variables such as, but not limited to, operating cash flow, mine
construction requirements and strategies, other construction projects, spot gold and silver prices, taxation, government
royalties and general market conditions. At the present time, we are not a party to any agreement that would limit our ability
to pay dividends. For the fiscal year ended December 31, 2014 we declared cash dividends on our common stock of $0.01 per
share for each month of the year. For the fiscal year ended December 31, 2013, we declared cash dividends on our common
stock of $0.06 per share for the first three months, $0.03 per share the next eight months and $0.01 per share for the last
month.
27
Physical Dividend Program
In 2012, we launched a physical dividend program pursuant to which our shareholders have the option to convert the
cash dividends that we pay into physical gold and silver bullion. As part of our overall strategy to diversify our treasury and
to facilitate this program, we may periodically 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 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 or silver
Gold Resource Corporation 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 held in a
“street name”. 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”), 1325 Avenue of the
Americas, 7th Floor, Suite 0703-2, New York, NY 10019. GBI facilitates the cash to gold and silver conversion.
Shareholders then direct their cash dividend check issued by Computershare to be electronically deposited to the
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 Eastern Time 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 plus gold bullion
minting cost factors on the record date or the London Bullion Market silver fix plus silver bullion minting cost
factors on the record date.
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.
We encourage shareholders who have questions concerning the physical dividend program to contact our investor
relations department at (303) 320-7708.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data sets forth our summary historical financial data as of and for the years ended
December 31, 2014, 2013, 2012, 2011 and 2010. 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, Item 7. 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. For additional information relating to our
operations, see Item 1. Business and Item 2. Properties.
28
Operating Data
Year Ended December 31,
(in thousands, except share and per share amounts)
2014
2013
2012
2011
2010
Sales, net
Mine gross profit (1)
Operating income (loss) (1)
Other income (expense)
Income (loss) before income taxes
Provision for income taxes (benefit)
Net income (loss) before extraordinary item
Extraordinary item
Net income (loss) (1)
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
Balance Sheet Data
(in thousands)
Cash and cash equivalents
Total current assets (2)
Property, plant and mine development, net (1)
Deferred tax asset (2)
Total assets
Current liabilities
Long-term obligations
Shareholders’ equity
$
$
$
$
$
$
$
115,405 $
50,871
31,588
(322)
31,266
15,021
16,245
-
16,245 $
125,784 $
58,258
10,330
(1,355)
8,975
8,890
85
-
85 $
131,794 $
87,773
49,704
(2,736)
46,968
13,297
33,671
-
33,671 $
105,163 $
80,521
45,674
2,414
48,088
(12,037)
60,125
(1,756)
58,369 $
14,754
7,971
(22,839)
(235)
(23,074)
-
(23,074)
-
(23,074)
0.30 $
0.00 $
0.64 $
1.13 $
(0.46)
-
-
-
(0.03)
-
0.30 $
0.00 $
0.64 $
1.10 $
(0.46)
0.30 $
0.00 $
0.60 $
1.06 $
(0.46)
-
-
-
(0.03)
-
0.30 $
0.00 $
0.60 $
1.03 $
(0.46)
54,119,095
53,255,259
52,846,163
52,979,481
50,042,471
54,620,332
55,299,475
56,315,885
56,414,654
50,042,471
As of December 31,
2014
2013
2012
2011
2010
27,541 $
47,100
32,348
25,519
111,665
17,762
3,827
90,076
14,973 $
39,599
18,354
29,814
92,429
11,878
5,274
75,277
35,780 $
58,984
14,277
31,559
105,629
13,025
2,790
89,814
51,960 $
85,108
10,545
19,517
115,170
25,761
2,281
87,128
47,582
57,687
5,076
-
62,797
6,456
2,495
53,846
(1) Certain changes between the years 2014 and prior may be related to the transition from an Exploration Stage Enterprise to a Production Stage
Enterprise in accordance with Guide 7. Prior to January 1, 2014, we were considered an Exploration Stage Enterprise under SEC criteria since we
had not demonstrated proven and probable reserves at our properties. Accordingly, as required under SEC guidelines, substantially all of our
investment in mining properties up to that date, including construction of the mill, mine facilities and mine construction expenditures, were
expensed as incurred and therefore do not appear as assets on our balance sheet. The change in our accounting presentation as a result of our
transition to a production stage enterprise may make certain period-over-period comparisons less meaningful.
(2) During 2014, the Company determined that it incorrectly classified the presentation of deferred income taxes, the presentation of a deferred
charge, and the presentation of an investment within the consolidated balance sheet. As of December 31, 2013, the Company made certain tax
related reclassifications on the consolidated balance sheet which resulted in a $1.7 million decrease to current deferred tax assets, a $2.2 million
increase to noncurrent deferred tax assets and a $0.5 million increase to current deferred tax liability. We also reclassified $3.5 million from
income tax receivable to other noncurrent assets and $0.2 million was reclassified from prepaid expenses and other current assets to investments.
Additionally, for 2013 the following immaterial corrections were made to the consolidated statements of cash flows associated with the above
changes; amounts previously presented as changes in income tax payable/receivable have been reclassified as other and amounts previously
presented as changes in prepaid expenses and other current assets have been reclassified as purchases of marketable securities. There was an
increase in the net cash provided by operating activities of $0.2 million and a corresponding decrease in the net cash used in investing activities
reported for the period ended December 31, 2013 as a result of these changes. The reclassification was made for presentation purposes and had no
material impact on the consolidated statements of operations and comprehensive income.
See the consolidated financial statements included in this Form 10-K under Item 8 for additional information.
29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 and
other reports filed by us with the SEC. 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.
The following discussion summarizes our results of operations for three fiscal years ended December 31, 2014, 2013
and 2012 and our financial condition at December 31, 2014 and 2013, with a particular emphasis on the year ended
December 31, 2014.
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 are 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.
Overview
Business
We are a mining company which 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 from ore at the El Aguila Project in Oaxaca, Mexico.
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 from ore containing our
precious metal products of gold and silver, and by-products of copper, lead and zinc, as well as gold and silver doré.
The mill located at our El Aguila Project produced a total of 83,903 precious metal gold equivalent ounces for the year
ended December 31, 2014, which was approximately 1.1% less than our stated 2014 targeted mill production range. During
the same period we sold 69,845 precious metal gold equivalent ounces. Precious metal gold equivalent is determined by
taking the gold ounces produced or sold, plus silver ounces produced or sold converted to precious metal gold equivalent
ounces using the gold to silver average ratio for the period. The gold and silver average prices used to determine the gold to
silver average price ratio are the actual metal prices realized from sales of our gold and silver. For the years ended December
31, 2014, 2013 and 2012, we had cash cost per ounce of $449, $626 and $419, respectively. (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, 2014, we recorded revenues of $115.4 million, mine gross profit of $50.9 million and
net income of $16.2 million. In 2014, dividends distributed to shareholders totaled $0.12 per share or $6.5 million.
Our optimization of the mill expansion, which was completed in the fourth quarter of 2013, resulted in our ability to
begin producing a higher grade gold and silver concentrate in the first quarter of 2014 by utilizing a Knelson gravity
concentrator at our mill facilities. With the goal of reducing refining costs, royalties and treatment costs, we completed the
commissioning phase of the doré processing facility and achieved commercial production in the fourth quarter of 2014. We
capitalized approximately $0.9 million during 2014 on the doré processing facility.
Underground mine operational challenges during 2014 included mine advancements of infrastructure, dewatering of
the mine, management of carbon dioxide gas, limiting dilution of ore while mining and variable grades of the mineralized
material depending on the location of the deposit being mined at any point in time. Our mining team takes a proactive
approach to mitigating these challenges as we improve and optimize our mining techniques. In addition to operational
challenges, we experienced significant volatility and declining metals prices during 2014, which unfavorably impacted the
ratio which we use to calculate gold equivalent ounces.
30
Our annual mill precious metal production in 2014 was 35,552 gold ounces, an increase of approximately 4.7% over
2013, while annual silver production increased approximately 8.7%, or 3,297,204 ounces over the same period. Our 2014
production on a precious metal gold equivalent basis totaled 83,903 ounces at a 68.2:1 silver to gold ratio, which included
19,057 ounces precious metal gold equivalent produced during the fourth quarter at a 77.6:1 silver to gold ratio. The
Company’s full 2014, production year budget assumed a 63.2:1 silver to gold ratio ($19.00 silver and $1,200 gold) based on
spot metal prices at the beginning of 2014. Had 2014 seen less volatility in the metal prices and the budget estimate of 63.2:1
silver to gold ratio held for the year, we would have produced approximately 87,720 gold equivalent ounces.
Reserve Report
Beginning January 1, 2014, we transitioned from an Exploration Stage Enterprise to a Production Stage Enterprise as
defined by Guide 7. On April 30, 2014, we issued a report on the reserve estimate for the La Arista underground mine at the
El Aguila Project with an effective date of December 31, 2013. The report confirms the existence of proven and probable
reserves as defined in Guide 7 and we therefore transitioned from a Development Stage Entity as defined in Accounting
Standards Codification 915 – Development Stage Entities (“ASC 915”), we also transitioned from an Exploration Stage
Enterprise to a Production Stage Enterprise as defined in Guide 7. We no longer consider ourselves to be a Development
Stage Entity as defined in ASC 915 and accordingly cumulative and other disclosures required by ASC 915 are no longer
included in our financial statements.
Prior to January 1, 2014, we were considered a Development Stage Entity under SEC criteria since we had not
demonstrated proven and probable reserves at our El Aguila Project in Oaxaca, Mexico or any of our other properties.
Accordingly, as required under SEC guidelines, substantially all of our investment in mining properties up to that date,
including construction of the mill, mine facilities and mine construction expenditures, were expensed as incurred and
therefore do not appear as assets on our balance sheet.
Our characterization as an exploration stage company resulted in the classification of our facilities and mine
construction expenditures as operating expenses rather than capital expenditures, and may have caused us to report lower net
income than if we had capitalized the expenditures. In addition, prior to January 1, 2014, our financial statements did not
reflect a corresponding depreciation or amortization expense for our facilities and mine construction costs since they were
expensed as incurred rather than capitalized. The change in our accounting presentation as a result of our transition to a
production stage enterprise may make certain period-over-period comparisons less meaningful than otherwise since we
capitalized mine development related expenditures that would have been expensed under our prior accounting presentation.
We plan to update our reserve report annually.
Doré Processing Facility
Our optimization of the mill expansion during 2013 resulted in our ability to begin producing a higher grade gold and
silver concentrate in the first quarter of 2014 by utilizing a Knelson gravity concentrator at our mill facilities. With the goal
of reducing refining costs, royalties and treatment costs, we completed the commissioning phase of the doré processing
facility, and achieved commercial production in the fourth quarter of 2014, resulting in 1,561 gold equivalent ounces or $3.1
million, net of treatment charges, sold in the form of commercial grade doré bars for the year ended December 31, 2014. At
December 31, 2014 we had approximately 6,400 ounces of high grade gold and silver concentrate inventory awaiting to be
processed into doré bars at our doré facility in early 2015.
Exploration Activities
During 2014, 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 other areas of the El Aguila Project to test new geologic targets, and exploration work on our
other exploration properties. In 2015, we anticipate spending approximately $9.7 million for exploration activities in Mexico.
This shall include approximately $6.5 million for surface drilling and $1.2 million for underground drilling and $2.0 million
on the exploration ramp to the Switchback. By comparison, we spent $6.9 million on exploration in 2014. We anticipate that
all exploration activities will be funded from working capital.
31
In Nevada, United States of America, we anticipate spending an additional $0.7 million on exploration, mainly for
surface drilling on our Radar property during 2015.
During 2014, we made the decision to drift several hundred meters from the Arista deposit towards the Switchback
discovery, located approximately 500 meters northeast of the operating La Arista mine, to set up a drill station better suited to
test the Switchback mineralization. Drilling thus far has defined a mineralized strike length of 450 meters by a depth of 450
meters. Drilling from the new drill pad late in 2014 continued to identify infill intercepts of high-grade polymetallic gold,
silver, copper, lead and zinc mineralization in multiple en echelon veins. Visual similarities exist among the drill core and the
assayed high-grade mineralization when comparing the Switchback to the Arista deposit. We are in the preliminary stages of
mine planning and additional core drilling at the Switchback for the purposes of obtaining better data to decide whether to
move forward with targeted future production while being able to utilize the current infrastructure of the La Arista mine to
efficiently access and mine the Switchback.
El Aguila Project: During 2014, our exploration activities at El Aguila continued to emphasize mine expansion at the
La Arista vein system. We continued to focus primarily on infill and step-out drilling to define the mineralization and to
assist in mining of the mineralized material at the La Arista underground mine. Drilling has principally targeted extensions
of the La Arista deposit vein system. Surface drilling was also conducted on the potential feeder veins of the El Aguila open
pit and Santiago veins and the Chacal and Salina Blanca prospects, located northwest and southwest of the La Arista mine,
respectively. Economically significant gold, silver and base metal values were encountered and further drilling is planned in
2015. The results from these activities have also generated additional exploration targets that are marked for future drilling.
Oaxaca Mining Unit Exploration
Alta Gracia property: Surface diamond drilling was conducted at Alta Gracia during 2014. We drilled 39 core holes
totaling 7,589 meters in 2014. Mineable resources are being estimated and metallurgical test work done to determine if
mining and processing of Alta Gracia mineralized material is warranted at our El Aguila processing facility. Follow-up
drilling is also being planned for Alta Gracia in 2015.
Las Margaritas property: A soil and rock geochemical program was conducted at the Las Margaritas property in
2014. Follow-up investigation and drilling is being planned for Las Margaritas in 2015.
El Chamizo property: Surface geological mapping and geochemical sampling of several new prospective targets
identified on the El Chamizo property are planned in 2015.
El Fuego property: During 2014, preliminary investigations were conducted on the El Fuego property. Further
investigations and diamond drilling are planned for El Fuego in 2015.
Nevada Mining Unit Exploration
Radar property: During 2014, data review and field investigations to identify drilling targets were conducted on the
Radar property. Further investigations and diamond drilling are planned for Radar in 2015.
Goose property: Initial field investigations to identify drill targets are planned for the Goose property in 2015.
Results of Operations—Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Sales of metals, net
Metal sales for the twelve months ended December 31, 2014 decreased by $10.4 million, or 8.3%. This decrease was
primarily due to the increase of 6,400 ounces of high-grade gold and silver concentrate inventory awaiting to be processed at
our doré facility as of December 31, 2014, lower average grades mined and processed during the year, and lower realized
gold and silver prices when compared to the corresponding period in 2013. Gold and silver prices realized for the year ended
December 31, 2014 decreased by 9.2% to $1,260 per ounce and 21.8% to $18.48 per ounce, respectively, when compared to
the same period in 2013. Revenue generated from the sale of base metals in our concentrates is considered a by-product of
our gold and silver production for the purpose of our total cash cost after by-product credits measure noted in our Non-GAAP
measures disclosure. (See Production and Sales Statistics - La Arista Underground Mine table below for additional
information regarding our mineral production statistics for the three and twelve months ended December 31, 2014 and 2013).
32
We periodically review our revenues to ensure that our reporting of primary products and by-products is appropriate.
Because we consider copper, lead and zinc to be by-products of our precious metal gold equivalent production, the value of
these metal s is applied as a reduction to total cash costs in our calculation of total cash cost, after by-product credits, per
precious metal gold equivalent ounce sold, including royalties. (See Non-GAAP Measures disclosures).
Production
For the year ended December 31, 2014, mill production totaled 35,552 ounces of gold, an increase of approximately
4.7% over 2013; silver production increased to 3,297,204 ounces, an increase over prior year of approximately 8.7%. On a
precious metal gold equivalent basis, our mill production totaled 83,903ounces, compared to 84,835 precious metal gold
equivalent ounces for 2013, or a 1.1% decrease. The decrease in the precious metal gold equivalent ounces was primarily due
to a higher gold to silver average ratio as a result of a drop in our actual metal prices realized from sales of our gold and silver
during 2014. For the year ended December 31, 2014, we sold 25,872 ounces gold and 2,998,685 ounces silver from the La
Arista underground mine for a gross sales value of approximately $32.6 million and $55.4 million, respectively. This
compares to 31,563 ounces of gold and 3,047,076 ounces of silver sold during 2013 from the La Arista underground mine for
a gross sales value of $43.8 million and $72.0 million, respectively. This decrease in sold ounces was in large part due to the
increase in concentrate inventory.
See Production and Sales Statistics-La Arista Underground Mine table below 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 rate at
La Arista is directly a result of mine development and the establishment of sufficient stopes and working faces. The El Aguila
mill’s flotation circuit processing capacity is a nominal 1,500 tonnes per day. Achieving this processing rate in the future is
dependent upon our ability to develop the La Arista underground mine to a point where ore extraction can consistently
achieve an average rate of 1,500 tonnes per day. During the three and twelve months ended December 31, 2014 we processed
on average 1,068 and 1,111 ore tonnes per day, respectfully, as compared to 906 and 866 ore tonnes per day for the same
periods in 2013, representing an increase of 17.9% and 28.3%, respectively.
Below are certain key operating statistics for our La Arista underground mine for 2014 and 2013.
Production and Sales Statistics - La Arista Underground Mine
Three months ended December 31,
Year ended December 31,
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 (%)
2014
2013
2014
2013
91,830
1,068
83,330
906
375,623
1,111
316,720
866
3.67
292
0.35
1.60
3.61
91
91
76
72
84
3.21
296
0.43
1.57
4.21
92
92
78
77
83
3.72
326
0.38
1.24
2.95
90
91
78
70
80
3.30
290
0.50
1.75
4.95
91
92
79
80
85
33
Production and Sales Statistics - La Arista Underground Mine continued
Three months ended December 31,
Year ended December 31,
2014
2013
2014
2013
Mill production (before payable metal deductions)(1)
Gold (ozs.)
Silver (ozs.)
Copper (tonnes)
Lead (tonnes)
Zinc (tonnes)
Payable metal sold
Gold (ozs.)
Silver (ozs.)
Copper (tonnes)
Lead (tonnes)
Zinc (tonnes)
Average metal prices realized (2)
Gold (oz.)
Silver (oz.)
Copper (tonnes)
Lead (tonnes)
Zinc (tonnes)
Precious metal gold equivalent ounces produced (mill
production) (1)(3)(4)
Gold Ounces
Gold Equivalent Ounces from Silver
Total Precious Metal Gold Equivalent Ounces
Precious metal gold equivalent ounces sold (3)(4)
Gold Ounces
Gold Equivalent Ounces from Silver
Total Precious Metal Gold Equivalent Ounces
Total cash cost (before by-product credits) per precious
metal gold equivalent ounce sold (including royalties) (5)
Total cash costs, after by-product credits, per precious
metal gold equivalent ounce sold (including royalties) (5)
$
$
$
$
$
$
$
8,865
790,738
363
1,282
3,856
6,026
827,386
388
1,270
3,450
1,169 $
15.07 $
6,480 $
1,927 $
2,181 $
8,865
10,192
19,057
6,026
10,664
16,690
8,966
711,496
224
956
2,520
7,629
686,421
214
908
2,129
1,236 $
20.36 $
7,109 $
2,086 $
1,894 $
8,966
11,721
20,687
7,629
11,308
18,937
35,552
33,942
3,297,204
3,032,841
1,254
4,555
13,195
926
2,742
7,452
25,872
31,563
2,998,685
3,047,076
1,139
4,208
10,833
1,260 $
18.48 $
6,770 $
2,088 $
2,200 $
35,552
48,351
83,903
25,872
43,973
69,845
941
2,632
6,596
1,388
23.64
7,341
2,188
1,943
33,942
50,893
84,835
31,563
51,372
82,935
1,298 $
1,077 $
1,025 $
933
550 $
684 $
449 $
626
(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. Payable metal deduction quantities are defined in our contracts with the buyer of our concentrates and represent an estimate
of metal contained in the concentrates produced at our mill which the buyer cannot recover through the smelting process. There are inherent
limitations and differences in the sampling method and assaying of estimated metal contained in concentrates that are shipped, and those
contained metal estimates are derived from sampling methods and assaying throughout the mill production process. The Company monitors
these differences to ensure that precious metal mill production quantities are materially correct.
(2) Average metal prices realized vary from the market metal prices due to final settlement adjustments from our provisional invoices when they are
settled. Our average metal prices realized will therefore differ from the market average metal prices in most cases.
(3) Precious metal gold equivalent mill production for the three months ended December 31, 2014, of 19,057 ounces differs from gold equivalent
ounces sold for the same period of 16,690 due principally to buyer (smelter) concentrate processing and other deductions of approximately 1,503
gold equivalent ounces and an increase in gold equivalent ounces contained in ending inventory of approximately 862 ounces.
(4) Precious metal gold equivalent mill production for the twelve months ended December 31, 2014, of 83,903 ounces differs from gold equivalent
ounces sold for the same period of 69,845 principally due to buyer (smelter) concentrate processing and other deductions of approximately 8,442
gold equivalent ounces and an increase in gold equivalent ounces contained in ending inventory of approximately 5,616 ounces.
(5) Non-GAAP measure to total mine cost of sales reconciliation, which is the most comparable United States generally accepted accounting
principles (“U.S. GAAP”) measure, see Non-GAAP Measures.
34
Our 2015 mine plan anticipates that we will be mining areas of the deposit that contain higher levels of base metals
along with the primary production of gold and silver, as compared to 2014 levels. We are targeting a mill production range of
80,000 to 90,000 ounces of precious metal gold equivalent in 2015, assuming a 64.1:1 silver to gold ratio.
Mine gross profit.
For the year ended December 31, 2014, mine gross profit totaled $50.9 million compared to $58.3 million for the year
ended December 31, 2013. The $7.4 million decrease in mine gross profit principally resulted from lower realized metal
prices and a decrease in our operating costs when compared to 2013. Cost decreases were attributable to our cost reduction
program that we implemented in the second half of 2013 which continued through 2014. We continue to monitor costs
including labor, on-site contractors, repairs and maintenance, security, safety costs, fuel, materials and supplies.
General and administrative expenses.
General and administrative expenses for the year ended December 31, 2014, were $12.3 million, compared to $16.3
million for the same period of 2013. The $4.0 million decrease in 2014, principally resulted from cost cutting measures
including a decrease in compensation, computer IT support, investor relations and legal expenses.
Exploration expenses.
Property exploration expenses totaled $6.9 million for the year ended December 31, 2014, compared to $9.5 million
during the same period of 2013. Costs associated with definition and delineation drilling of the La Arista vein system were
reflected in mine development and capitalized. The $2.6 million decrease in 2014 includes a $1.1 million credit due to the
reversal of an allowance for an uncollectible IVA receivable.
Facilities and mine construction expenses.
Facilities and mine construction expenses, which was a line item required prior to having proven and probable reserves
effective as of January 1, 2014, were nil for the year ended December 31, 2014, compared to $22.2 million during the same
period of 2013. The decrease in facilities and mine construction expenses was due to our changed status from an Exploration
Stage company to a Production Stage company having proven and probable reserves for the first time in 2014. In 2013 we
had $5.6 million of expenses related to our mill expansion.
Costs and expenses.
Total costs and expenses during the year ended December 31, 2014, were $19.3 million compared to $47.9 million
during the comparable period of 2013, a decrease of $28.6 million or 59.7%. The decrease in cost and expenses, as discussed
in more detail below, resulted from a decrease in general administrative, exploration, facilities and mine construction
expenses from the mill expansion during 2013. A significant portion of the reduction was related to the change in recognition
and presentation, as a result of the change in status from an Exploration Stage Enterprise to a Production Stage Enterprise, as
certain development costs were capitalized in 2014, while such costs were expensed in 2013.
Other expense.
For the year ended December 31, 2014, we recorded other expense of $0.3 million compared to other expense of $1.4
million during the same period of 2013. The improvement was primarily due to the $1.8 million impairment of gold and
silver bullion in 2013.
Provision for income taxes.
For the year ended December 31, 2014, income tax expense increased to $15.0 million as compared to an income tax
expense of $8.9 million for the year ended December 31, 2013. As of December 31, 2014, the increase is primarily due to the
new mining royalty tax and deferral of exploration expense for tax purposes. See Note 8 to the Consolidated Financial
Statements for additional information.
35
Net income.
For the year ended December 31, 2014, net income was $16.2 million, or $0.30 per basic share, as compared to $0.1
million or $0.00 per basic share, for the comparable period of 2013. The increase in net income for the year was impacted by
the matters described above.
Results of Operations – Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
During the year ended December 31, 2013, sales of metals totaled $125.8 million, net of treatment charges, compared
to sales of $131.8 million during the same period of 2012. Gold equivalent ounces sold in 2013, increased to 82,935 ounces
compared to 72,399 ounces sold in 2012. Gold prices realized for 2013, were $1,388 per ounce, down from $1,676 per ounce
in 2012. Mine gross profit for the year ended December 31, 2013, was $58.3 million compared to $87.8 million in the
comparable period of 2012, a decrease of $29.5 million or 33.6%.
For the year ended December 31, 2013, we reported net income of $0.1 million, or $0.00 per basic share, compared to
net income of $33.7 million, or $0.64 per basic share, for the year ended December 31, 2012. The $33.6 million decrease in
net income in 2013, was principally attributable to a decrease in metal prices, and higher production, general and
administrative, exploration, and facilities and mine construction expenses. Total costs and expenses for the year ended
December 31, 2013, were $47.9 million compared to $38.1 million in the same period of 2012, an increase of $9.8 million or
25.7%. The increase in costs and expenses was primarily due to an increase in exploration, general administrative, and
facilities and mine construction expenses.
Exploration expense for the year ended December 31, 2013, was $9.5 million compared to $8.0 million in the same
period of 2012. The $1.5 million increase in exploration expenses principally resulted from an expanded drilling program and
from an aerial geophysical survey over our Oaxaca property trend.
Facilities and mine construction expenses for the year ended December 31, 2013, were $22.2 million compared to
$16.6 million in the same period of 2012. The $5.6 million increase in facilities and mine construction expenses was
principally due to our mill expansion project.
General and administrative expenses for the year ended December 31, 2013, were $16.3 million, compared to $13.5
million in the same period of 2012. The $2.8 million increase in 2013 principally resulted from an increase in compensation,
insurance, computer IT support, investor relations and legal expenses.
Other expense for the year ended December 31, 2013, was $1.4 million, compared to $2.7 million in the same period of
2012. The $1.3 million decrease in 2013 principally resulted from a decrease in foreign currency losses of $2.5 million and
increase in other income of $0.6 million, which was partially offset by an increase in impairment of gold and silver bullion of
$1.8 million.
Provision for income tax for the year ended December 31, 2013, was $8.9 million, compared to $13.3 million in the
same period of 2012.
Non-GAAP Measures
Reconciliation of Non-GAAP Measures to Total Mine Cost of Sale
In this report, we have provided information prepared or calculated according to U.S. GAAP, as well as referenced
some Non-U.S. 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.
We have reconciled total cash cost, before by-product credits and total cash cost, after by-product credits to total mine
cost of sales which is a reported U.S. GAAP measure. Total cash cost, before by-product credits, includes all direct and
indirect operating cash costs related directly to our production of metals which includes mining, milling and other plant
facility costs, smelter treatment and refining charges, royalties, and general and administrative costs.
We use total cash cost, after by-product credits per precious metal gold equivalent ounce sold (including royalties) 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. By-product credits include revenues earned from all metals other
than the primary precious metals sold. Management also uses this measurement for the comparative monitoring of
performance of our mining operations period-to-period from a cash flow perspective. Total cash cost, after by-product
36
credits, per precious gold equivalent ounce sold is a measure developed by the Gold Institute Standard in an effort to provide
a uniform standard for comparison purposes. However, there can be no assurance that our reporting of this Non-GAAP
measure is similar to that reported by other mining companies.
The following tables present a reconciliation between the Non-GAAP measures of total cash cost, before by-product
credits and total cash cost, after by-product credits to the U.S. GAAP measure of total mine cost of sales and depreciation,
reclamation and remediation and stock-based compensation for our operations at the El Aguila project for the three and
twelve month periods ended December 31, 2014 and 2013:
Total Cash Costs after By-Product Credits (Non-GAAP)
Total cash cost (before by-product credits) (1)
By-product credits (2)
Total cash cost (after by-product credits)
Divided by precious metal gold equivalent ounces sold (3)
Total cash cost (before by-product credits) per precious
metal gold equivalent ounce sold (including royalties)
By-product credits per precious metal gold equivalent
ounces sold (2)
Total cash costs, after by-product credits, per precious
metal gold equivalent ounce sold (including royalties)
Three months ended December
31,
Year ended December 31,
2014
2013
2014
2013
(In thousands, except ounces sold and cost
per precious metal gold equivalent ounce sold)
(In thousands, except ounces sold and cost
per precious metal gold equivalent ounce sold)
$
21,658 $
20,387 $
71,582 $
77,407
(12,488)
9,170
16,690
1,298
(748)
(7,445)
12,942
18,937
1,077
(393)
(40,323)
(25,485)
31,259
69,845
1,025
(576)
51,922
82,935
933
(307)
$
550
$
684 $
449 $
626
(1)
Includes all direct and indirect operating cash costs related directly to our production of metals including mining, milling and other plant facility
costs, smelter treatment and refining charges, royalties, and general and administrative costs.
(2) See table below for a summary of our by-product revenue and by-product credit precious metal equivalent ounces sold.
(3) 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.
Summary of By-Product Revenue and By-Product Credit Precious Metal Gold Equivalent Ounces Sold
By-product credits by dollar value:
Copper sales
Lead sales
Zinc sales
Total sales from by-products
Three months ended December 31,
Year ended December 31,
2014
2013
2014
2013
(In thousands)
(In thousands)
$
$
2,525 $
1,519 $
7,712 $
2,426
7,537
1,894
4,032
8,762
23,849
12,488 $
7,445 $
40,323 $
6,909
5,759
12,817
25,485
37
Three months ended December 31,
Year ended December 31,
2014
2013
2014
2013
(In thousands)
(In thousands)
By-product credits per precious metal gold equivalent
ounce sold:
Copper ounces
Lead ounces
Zinc ounces
$
151 $
80 $
110 $
145
452
100
213
125
341
Total by-product precious metal gold ounces sold
$
748 $
393 $
576 $
83
69
155
307
Cash Flow from Mine Site Operations
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 of our targeted distributions to shareholders. 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,
Year Ended December 31,
2014
2013
2014
2013
(In thousands)
Mine gross profit
$
10,014 $
9,703 $
50,871 $
58,258
Stock-based compensation
Depreciation and amortization
Reclamation and remediation
459
1,324
-
509
582
28
2,182
4,293
-
2,380
2,392
112
Cash flow from mine site operations
$
11,797 $
10,822 $
57,346 $
63,142
Liquidity and Capital Resources
As of December 31, 2014, we had working capital of $29.3 million, consisting of current assets of $47.1 million and
current liabilities of $17.8 million. This represents an increase of $1.6 million from the working capital balance of $27.7
million as of December 31, 2013. Our working capital balance fluctuates as we use cash to fund our operations, including
exploration, mine development, income taxes and our dividends.
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 expenditures. Due to the decrease in Cash Flow from Mine Site
Operations in 2013, due in part from lower gold and silver prices and the new Mexican tax reform legislation imposed on
precious and non-precious metal producers, the Board of Directors elected to reduce the Company’s monthly dividend of
$0.03 per share to $0.01 per share effective December 2013. There is no assurance as to what any future dividend may
be regardless of Company goals.
These cash distributions are subject to the laws of the State of Colorado that govern distributions to shareholders. For
the year ended December 31, 2014, we declared dividends of $6.5 million compared to $25.5 million in 2013.
Cash and cash equivalents as of December 31, 2014, increased to $27.5 million from $15.0 million as of
December 31, 2013, a net increase in cash of $12.5 million. The $12.5 million increase in cash principally resulted from net
cash generated from operating activities of $37.7 million, less capital expenditure of $17.9 million, investments of $1.8 and
dividends paid of $6.5 million.
38
Net cash provided by operating activities for year ended December 31, 2014 was $37.7 million compared to $6.9
million during the comparable period in 2013. The increase in cash provided by operating activities was, in part, the result of
$12.3 million of cash outflows in 2014 which would have historically been considered to be operating cash flows that are
now considered investing activities as they qualify for capitalization as mine development, due to the change from an
Exploration Stage Enterprise to a Production Stage Enterprise as of January 1, 2014. Our net income also increased
significantly in 2014, contributing to the improvement in net operating cash flows.
Net cash used in investing activities for the year ended December 31, 2014, was $16.6 million compared to $6.7
million during the comparable period in 2013. Cash used in investing activities during the year ended December 31, 2014,
was primarily the result of mine equipment purchases, investments and mine development. One of our major investing
activities was attributed to mine development activities at our El Aguila Project. Our planned development drilling
expenditures are discretionary and could be significantly more or less depending on variables including the ongoing results
from the drilling programs and market conditions. Development drilling activities to further delineate and define our La
Arista deposit are considered mine development.
Net cash used in financing activities for the year ended December 31, 2014 was $7.9 million compared to $21.0 million
during the same period in 2013. The reduction was primarily due to the reduction of dividends paid in 2014, $6.5 million
compared to $25.5 million for the same period in 2013. Cash used in financing activities during the year ended December 31,
2014, was primarily the result of payments for dividends and capital leases.
We believe that our liquidity and capital resources from our operations are adequate to fund our operations and
corporate activities.
Off-Balance Sheet Arrangements
As of December 31, 2014, we had no off-balance sheet arrangements.
Contractual Obligations
Our known obligations at year ended December 31, 2014, are set forth in the table below:
Contractual Obligations
Capital leases
Operating Leases
Non-cancellable Purchase Obligations
Total
Accounting Developments
Payments due by period
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
(in thousands)
$
$
2,431 $
1,578 $
853 $
- $
506
1,036
146
1,036
144
-
216
-
$
3,973
$
2,760
$
997
$
216
-
-
-
-
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.
39
Proven and Probable Reserves
Critical estimates are inherent in the process of determining our reserves. Our reserves are affected largely by our
assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility and
production cost. Metals prices are estimated at long-term averages. Our assessment of reserves occurs at least annually, and
we may utilize external audits in the future. Reserves are a key component in the valuation of our property, equipment and
mine development and related depreciation rates.
Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of
many assets depreciated over remaining estimated reserves. Reserves are also a key component in forecasts, with which we
compare estimated future cash flows to current asset values in an effort to ensure that carrying values are reported
appropriately. Reserves are a culmination of many estimates and are not guarantees that we will recover the indicated
quantities of metals or that we will do so at a profitable level.
Revenue
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 between us and
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.
Depreciation and Amortization
Capitalized costs are depreciated or amortized using the straight-line method or unit-of-production (“UOP”) method at
rates sufficient to depreciate such costs over the shorter of estimated productive lives of such facilities or the useful life of the
individual assets. Significant judgment is involved in the determination of the estimated life of the assets. Our estimates for
reserves are a key component in determining our UOP rates. Our estimates of proven and probable ore reserves may change,
possibly in the near term, resulting in changes to depreciation, depletion and amortization rates in future reporting periods.
Productive lives range from 3 to 30 years, but do not exceed the useful life of the individual asset.
Depreciation rates of major asset categories are:
Machinery and equipment
Furniture, computer and office equipment
Light vehicles and other mobile equipment
Impairment of Long-Lived Assets
8 years
3-10 years
4 years
We evaluate the carrying value of long-lived assets to be held and used, using a fair-value based approach when events
and circumstances indicate that the related carrying amount of our assets may not be recoverable. The economic environment
and commodity prices may be considered as impairment indicators for the purposes of these impairment assessments. In
accordance with U.S. GAAP, the carrying value of a long-lived asset or asset group is considered impaired when the
anticipated undiscounted cash flows from such asset or asset group is less than its carrying value. In that event, a loss will be
recorded in our consolidated statements of operations and comprehensive income based on the difference between book value
and the estimated fair value of the asset or asset group computed using discounted estimated future cash flows, or the
application of an expected fair value technique in the absence of an observable market price. Future cash flows include
estimates of recoverable quantities to be produced from estimated proven and probable mineral reserves, commodity prices
(considering current and historical prices, price trends and related factors), production quantities and capital expenditures, all
based on life-of-mine plans and projections. In estimating future cash flows, assets are grouped at the lowest level for which
identifiable cash flows exist that are largely independent of cash flows from other asset groups. 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.
40
Asset Retirement Obligation/Reclamation and Remediation Costs
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.
Accounting for reclamation and remediation obligations requires management to make estimates of the future costs that we
will incur to complete the work required to comply with existing laws and regulations. Actual costs may differ from the
amounts estimated. Reclamation costs are allocated to expense over the life of the related assets and 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 and remediation costs. 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, 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 three
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.
Income and Mining Taxes
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. Mining taxes represent state and provincial taxes levied on mining operations. As the mining
taxes are calculated as a percentage of mining profits, we classify them as income taxes. 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 and silver prices,
production costs, quantities of proven and probable 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. We also evaluate the amount of dividend distributions we repatriate from our
foreign subsidiary which is based upon having sufficient estimated current earnings and profits eligible for distribution.
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.
41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risks includes, but is not limited to, the following risks: changes in commodity prices, foreign
currency exchange rates, changes in interest rates and equity price risks. 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 reserve estimates, results of operation and/or 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.
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 average spot price one week prior to 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, 2014, we had outstanding provisionally priced sales of $28.6 million consisting of 5,355 ounces of
gold and 753,419 ounces of silver, 305 tonnes of copper, 1,694 tonnes of lead and 3,352 tonnes of zinc which had a fair value
of approximately $27.5 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 $0.3 million.
Interest Rate Risk
Our outstanding debt consists of leased equipment classified as capital leases. Accordingly, we consider our interest
rate risk exposure to be insignificant at this time.
42
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. The price of our common stock has been volatile in the past and may also be volatile in the future. As 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
Most 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 including taxes. 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.
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (dollars in millions except per share
and per ounce amounts unless otherwise indicated)
Index to Financial Statements:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets at December 31, 2014 and 2013
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2014,
2013 and 2012
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2014, 2013
and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Page
45
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44
Report of Independent Registered Public Accounting Firm
The Board of Directors
Gold Resource Corporation:
We have audited the accompanying consolidated balance sheets of Gold Resource Corporation and subsidiaries (the
Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations and
comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period
ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements 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 audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Gold Resource Corporation and subsidiaries as of December 31, 2014 and 2013, and the results
of their operations and their cash flows for each of the years in the two-year period ended December 31, 2014, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Gold Resource Corporation’s internal control over financial reporting as of December 31, 2014, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 19, 2015 expressed an adverse
opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Denver, Colorado
March 19, 2015
45
Report of Independent Registered Public Accounting Firm
The Board of Directors
Gold Resource Corporation:
We have audited the accompanying consolidated statements of operations and comprehensive income, changes in
stockholders’ equity, and cash flows of Gold Resource Corporation and subsidiaries for the year ended
December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
results of operations and the cash flows of Gold Resource Corporation and subsidiaries for the year ended
December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/ StarkSchenkein, LLP
StarkSchenkein, LLP
Denver, Colorado
March 18, 2013
46
GOLD RESOURCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Gold and silver bullion
Accounts receivable
Inventories
IVA taxes receivable
Income taxes receivable
Deferred tax assets
Prepaid expenses and other current assets
Total current assets
Property, plant and mine development, net
Deferred tax assets
Investments (including $2,389 and nil, respectively, measured at fair value)
Other non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Capital lease obligations
IVA taxes payable
Income taxes payable
Dividends payable
Deferred tax liability
Total current liabilities
Capital lease obligations
Reclamation and remediation liabilities
Total liabilities
Shareholders' equity:
December 31,
December 31,
2014
2013
$
27,541 $
14,973
3,447
1,416
7,295
575
-
3,891
2,935
47,100
32,348
25,519
2,620
4,078
$
$
111,665 $
3,892 $
3,923
1,498
-
7,907
542
-
17,762
834
2,993
21,589
3,801
2,307
7,468
-
2,960
2,282
5,808
39,599
18,354
29,814
231
4,431
92,429
2,873
5,613
1,469
925
-
538
460
11,878
2,387
2,887
17,152
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:
54,515,767 and 54,179,369 shares issued and outstanding, respectively
Additional paid-in capital
Retained earnings/Accumulated (deficit)
Treasury stock at cost, 336,398 shares
Accumulated other comprehensive (loss)
Total shareholders' equity
Total liabilities and shareholders' equity
-
-
55
93,094
3,982
(5,884)
(1,171)
90,076
$
111,665 $
54
88,044
(5,766)
(5,884)
(1,171)
75,277
92,429
The accompanying notes are an integral part of these consolidated financial statements.
47
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
GOLD RESOURCE CORPORATION
for the years ended December 31, 2014, 2013 and 2012
(U.S. dollars in thousands, except share and per share amounts)
Sales, net
Mine cost of sales:
Production costs
Depreciation and amortization
Reclamation and remediation
Total mine cost of sales
Mine gross profit
Costs and expenses:
General and administrative expenses
Exploration expenses
Facilities and mine construction
Total costs and expenses
Operating income
Other expense
Income before income taxes
Provision for income taxes
Net income
Other comprehensive income:
Currency translation gain
Comprehensive income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
2014
2013
2012
$
115,405
$
125,784 $
131,794
60,241
4,293
-
64,534
50,871
12,336
6,947
-
19,283
31,588
(322)
31,266
15,021
65,022
2,392
112
67,526
58,258
16,260
9,470
22,198
47,928
10,330
(1,355)
8,975
8,890
$
$
$
$
16,245
$
85 $
-
16,245
$
0.30
0.30
$
$
7
92 $
0.00 $
0.00 $
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
2,800
36,471
0.64
0.60
54,119,095
54,620,332
53,255,259
55,299,475
52,846,163
56,315,885
The accompanying notes are an integral part of these consolidated financial statements.
48
GOLD RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 2014, 2013 and 2012
(U.S. dollars in thousands, except share amounts)
Number of
Common
Shares
Par Value
of
Common
Shares
Additional
Paid-in
Capital
Retained
Earnings/
Accumulated
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders'
Equity
Treasury
Stock
Balance, December 31, 2011
52,998,303 $
53 $ 132,529 $
(39,522) $
(1,954) $
(3,978) $
87,128
Stock options granted
Stock options exercised
Purchase of treasury stock
Return of capital dividend
Currency translation adjustment
Net income
-
17,464
-
-
-
-
-
-
-
-
-
-
6,600
-
-
(36,455)
-
-
-
-
-
-
-
33,671
-
-
(3,930)
-
-
-
-
-
-
-
2,800
-
6,600
-
(3,930)
(36,455)
2,800
33,671
Balance, December 31, 2012
53,015,767 $
53 $ 102,674 $
(5,851) $
(5,884) $
(1,178) $
89,814
Stock options
-
Stock options exercised
1,100,000
Purchase of treasury stock
Return of capital dividend
Currency translation adjustment
Net income
-
-
-
-
-
1
-
-
-
-
7,617
644
-
(22,891)
-
-
-
-
-
-
-
85
-
-
-
-
-
-
-
-
-
-
7
-
7,617
645
-
(22,891)
7
85
Balance, December 31, 2013
54,115,767 $
54 $
88,044 $
(5,766) $
(5,884) $
(1,171) $
75,277
Stock options exercised
400,000
Stock option expense
Dividends paid
Net income
-
-
-
1
-
-
-
99
4,951
-
-
-
-
(6,497)
16,245
-
-
-
100
4,951
(6,497)
16,245
-
-
-
Balance, December 31, 2014
54,515,767 $
55 $
93,094 $
3,982 $
(5,884) $
(1,171) $
90,076
The accompanying notes are an integral part of these consolidated financial statements.
49
GOLD RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2014, 2013 and 2012
(U.S. dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation, depletion and amortization
Stock-based compensation
Deferred income taxes
Other (see footnote 18)
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable and other accrued liabilities
Income taxes payable/receivable
Total adjustments
Net cash provided by operating activities
Cash flows from (used in) investing activities:
Capital expenditures
Proceeds from sale of subsidiary, net of distributions
Proceeds from the sale of building
Purchases of marketable securities
Purchases of gold and silver bullion
Proceeds from conversion of gold and silver bullion
Net cash used in investing activities
Cash flows from (used in) financing activities:
Proceeds from exercise of stock options
Dividends paid
Treasury stock purchases
Proceeds from equipment financing
Repayment of capital leases
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and equivalents at beginning of period
Cash and equivalents at end of period
Supplemental Cash Flow Information
Interest expense paid
Income and mining taxes paid
2014
2013
2012
$
16,245 $
85 $
33,671
4,551
4,951
2,226
596
891
(231)
930
(2,832)
10,326
21,408
37,653
(17,898)
1,291
1,763
(1,805)
-
32
(16,617)
100
(6,494)
-
-
(1,469)
(7,863)
(605)
12,568
14,973
2,626
7,617
2,044
(1,147)
4,368
(32)
(5,127)
(548)
(3,012)
6,789
6,874
(6,703)
-
-
(231)
(1,050)
1,316
(6,668)
645
(25,514)
-
4,501
(645)
(21,013)
-
(20,807)
35,780
$
$
$
27,541 $
14,973 $
149 $
939 $
102 $
14,328 $
1,540
6,600
(3,046)
1,729
8,305
(4,098)
(14)
2,859
(16,406)
(2,531)
31,140
(4,461)
-
-
-
(5,164)
1,961
(7,664)
-
(35,940)
(3,931)
-
-
(39,871)
215
(16,180)
51,960
35,780
-
33,020
The accompanying notes are an integral part of these consolidated financial statements.
50
GOLD RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
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, as well as, doré
containing gold and silver at the El Aguila Project in the southern state of Oaxaca, Mexico. The El Aguila Project includes
the El Aguila open pit mine, which ceased operations in February 2011, and the La Arista underground mine, which is
currently in operation. The Company is also performing exploration and evaluation work on its portfolio of precious and base
metal exploration properties in Mexico and Nevada and is evaluating other properties for possible acquisition.
On April 30, 2014, the Company announced the completion of its reserve study and issued a report dated December 31,
2013 confirming the existence of proven and probable reserves as defined in Industry Guide 7 (“Guide 7”) promulgated by
the U.S. Securities and Exchange Commission (“SEC”). As a result of the completion of the reserve study, the Company has
transitioned from an Exploration Stage Enterprise to a Production Stage Enterprise in accordance with Guide 7. The
Company no longer considers itself to be a Development Stage Entity as defined in Accounting Standards Codification 915 –
Development Stage Entities (“ASC 915”).
Significant Accounting Policies
Basis of Presentation
The consolidated financial statements included herein are expressed in United States dollars, and conform to United
States generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements include the accounts
of the Company, its wholly-owned Mexican subsidiary, Don David Gold Mexico S.A. de C.V. (“Don David Gold Mexico”)
and its wholly-owned United States subsidiary Gold Resource Corporation, Nevada. Intercompany accounts and transactions
have been eliminated in consolidation.
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.
Adjustments
During 2014, the Company determined that it incorrectly classified the presentation of deferred income taxes, the
presentation of a deferred charge, and the presentation of an investment within the consolidated balance sheet. As of
December 31, 2013, the Company made certain tax related reclassifications on the consolidated balance sheet which resulted
in a $1.7 million decrease to current deferred tax assets, a $2.2 million increase to noncurrent deferred tax assets and a $0.5
million increase to current deferred tax liability. We also reclassified $3.5 million from income tax receivable to other
noncurrent assets and $0.2 million was reclassified from prepaid expenses and other current assets to investments.
Additionally, for 2013 the following immaterial corrections were made to the consolidated statements of cash flows
associated with the above changes; amounts previously presented as changes in income tax payable/receivable have been
reclassified as other and amounts previously presented as changes in prepaid expenses and other current assets have been
reclassified as purchases of marketable securities. There was an increase in the net cash provided by operating activities of
$0.2 million and a corresponding decrease in the net cash used in investing activities reported for the period ended December
31, 2013 as a result of these changes. The reclassification was made for presentation purposes and had no material impact on
the consolidated statements of operations and comprehensive income.
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.
51
Exploration Stage Company
As of January 1, 2014, the consolidated financial statements are no longer presented in accordance with ASC 915 and
the provisions of SEC Industry Guide 7 relating to Exploration Stage Enterprises. On April 30, 2014, the Company issued a
report on the reserve estimate for the La Arista underground mine at the El Aguila Project with an effective date of December
31, 2013. The report confirms the existence of proven and probable reserves, allowing the Company to transition from an
Exploration Stage Company to a Production Stage Company as defined in ASC 915 and an Exploration Stage Enterprise to a
Production Stage Enterprise as defined in Guide 7. Consistent with the Company’s transition from an Exploration Stage
Entity to a Production Stage Entity as defined in Guide 7, certain underground mine development costs associated with the
Company's El Aguila Project were capitalized beginning January 1, 2014. These costs include the cost of building access
ways, lateral development, drift development, ramps and infrastructure development. All such costs are amortized using the
units-of-production method over the estimated life of the ore body based on estimated recoverable ounces to be produced
from proven and probable reserves.
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.
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. The purchased gold and silver bullion is carried at the
lower of average purchase cost or quoted market value prices 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 doré and metals concentrate.
Inventories
Write-downs of inventory are reported as a component of production costs applicable to sales. The major inventory
categories are below.
Stockpile Inventories: Stockpile inventories represent ore that has been mined and is available for further processing.
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 stockpiles based
on relative values of material stockpiled and processed using current mining costs incurred, including applicable overhead,
depreciation and amortization relating to mining operations. Material is removed at each stockpile’s average cost per
tonne. Stockpiles are carried at the lower of average cost or market. Market 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. The current portion of stockpiles is determined based on the expected amounts to be processed within the next 12
months. Stockpiles not expected to be processed within the next 12 months are classified as long term. As of December 31,
2014, all underground mine stockpile inventory was classified as current and all open pit mine 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. Concentrate inventories are carried at the lower of full cost of production or market based on
current metals prices.
Doré Inventory: Doré includes gold and silver doré bars in transit to, or received by its customer prior to settlement.
Doré inventories are carried at the lower of full cost of production or market based on current metals prices.
Materials and Supplies Inventories: Materials and supplies inventories consist of chemical reagents, parts, fuels and
other materials and supplies. Cost includes applicable taxes and freights. Materials and supply inventory is carried at the
lower of cost or market.
Investments
We make elections, on an investment-by-investment basis, as to whether we measure our investments at fair value. Such
elections are generally irrevocable. We have elected the fair value method for most of our investments as we believe this method
generally provides the most meaningful information to our investors. However, for investments over which we have significant
influence, we consider the significance of transactions between our company and our equity affiliates and other factors in
determining whether the fair value method should be applied. In general, we elect the fair value option for those equity method
investments with which the Company or its consolidated subsidiaries have significant related-party transactions.
52
Under the fair value method, investments are recorded at fair value and any changes in fair value are reported in realized
and unrealized gains or losses due to changes in fair values of applicable investments and debt, in our consolidated statements
of operation, in other income (expense). All costs directly associated with the acquisition of an investment to be accounted for
using the fair value method are expensed as incurred. For additional information regarding our fair value method investments,
see Note 2 to the Consolidated Financial Statements for additional information.
IVA Taxes Receivable and Payable
In Mexico, value added taxes (“IVA”) that 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.
Property Plant and Mine Development
Land and Mineral Rights: The costs of acquiring land and mineral rights are considered tangible assets. Administrative
and holding costs to maintain an exploration property are expensed as incurred. If a mineable mineral deposit is discovered,
such capitalized costs are amortized when production begins using the UOP method. If no mineable mineral deposit 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.
Mine Development: The costs include engineering and metallurgical studies, drilling and other related costs to delineate
an ore body, the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure. Cost incurred before
mineralization is classified as proven and probable reserves are expensed and classified as exploration expenses.
Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified
as proven and probable reserves.
Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then
included as a component of production costs. All other drilling and related costs are expensed as incurred
Mine development costs are amortized using UOP based on estimated recoverable ounces in proven and probable
reserves.
Property and Equipment: All items of property and equipment are carried at cost. 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 other income.
Depreciation and Amortization: Capitalized costs are depreciated or amortized using the straight-line or UOP method at
rates sufficient to depreciate such costs over the shorter of estimated productive lives of such facilities or the useful life of the
individual assets. Productive lives range from 3 to 30 years, but do not exceed the useful life of the individual asset. Our
estimates for proven and probable reserves are a key component in determining our UOP depreciation rates. Our estimates of
proven and probable reserves may change, possibly in the near term, resulting in changes to depreciation and amortization
rates in future reporting periods.
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 expense on the Company’s consolidated
statements of operations and comprehensive income. In estimating future cash flows, assets are grouped at the lowest level
for which there are 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
Existing proven and probable reserves are included when estimating the fair value in determining whether the assets are
impaired. The Company’s estimates of future cash flows are based on numerous assumptions and 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.
53
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
The Company recognizes revenue when an arrangement exists, the price is fixed and determinable, the title and risk of
loss have transferred to the buyer and collection is reasonably assured.
Concentrate sales: 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 revenue each period prior to final settlement.
Changes in the prices of metals that the Company sells, 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 between us
and 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 the Company’s initial
estimates.
Doré sales: Doré sales are recognized using quoted metal prices when the title has been transferred and collection of the
sales price is reasonably assured, net of treatment and refining charges. Financing fees, resulting from early settlement with
the refinery are treated as other expenses.
Production Costs
Production costs include labor and benefits, royalties, concentrate and doré shipping costs, mining subcontractors, fuel
and lubricants, legal and professional fees related to mine operations, stock-based compensation attributable to mine workers,
materials and supplies, repairs and maintenance, explosives, housing and food, insurance, reagents, travel, medical services,
security equipment, office rent, tools and other costs that support our mining operations.
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 and probable reserves are considered exploration costs.
Stock-Based Compensation
The Company records compensation expense for the fair value of stock options that are granted. Expense is recognized
on a straight-line 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 option pricing model, which requires the input of subjective assumptions including
expected volatility of the underlying stock, 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, the Company estimates the expected forfeiture rate and only recognizes
expense for those options expected to vest.
Reclamation and Remediation Costs
Reclamation obligations are recognized when incurred and recorded as liabilities at fair value. Prior to 2014 the
Company had been recognizing only reclamation and remediation obligation and all associated asset retirement costs were
written off due to the exploration stage status of the company. The company had $3.0 million of reclamation and remediation
obligation at December 31, 2013.
In 2014 the company became a production stage company and therefore capitalized asset retirement costs (“ARC”) and
recorded an asset retirement obligation (“ARO”) of $0.4 million, partially offset by a $0.3 million foreign exchange gain on
the reclamation and remediation obligation. The ARO liability is accreted over time through periodic charges to earnings and
the ARC is amortized over the life of the related asset.
54
Reclamation obligations 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 estimated
reclamation obligation is based on when spending for an existing disturbance is expected to occur. The Company reviews, on
an annual basis, unless otherwise deemed necessary, the reclamation obligation at the mine site in accordance with
Accounting Standards Codification 410 – Asset Retirement and Environmental Obligations (“ASC 410”) guidance for
reclamation obligations.
Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) is presented in the consolidated statements of changes in shareholders’
equity. Accumulated other comprehensive income (loss) is composed of foreign currency translation adjustment effects
related to the historical adjustment when the functional currency was the Mexican peso.
Income and Mining Taxes
Income taxes are computed using the asset and 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 using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are evaluated to determine if it is more likely than not that they will
be realized
In December 2013, the Mexican president approved a tax reform bill that enacted a new Income Tax Law (“MITL”),
which increased the effective tax rate applicable to the Company’s Mexican operations effective January 1, 2014. The MITL
increases the future corporate income tax rate to 30%, creates a 10% withholding tax on dividends paid to non-resident
shareholders (subject to any reduction by an Income Tax Treaty), and creates a new royalty fee equal to 0.5% of gross
revenue from the sale of gold, silver and platinum.
In addition, the law requires taxpayers with mining concessions to pay a new 7.5% royalty tax. The royalty fee and
royalty tax will be tax deductible for income tax purposes. The royalty tax will generally be applicable to earnings before
income tax, depreciation, depletion, amortization, and interest. In calculating the royalty tax there will be no deductions
related to depreciable costs from operational fixed assets but exploration and prospecting depreciable costs are deductible
when incurred.
Net Income Per Share
Diluted income per share reflects the 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
The functional currency for all of the Company’s subsidiaries is United States dollars (“US dollars”).
Concentration of Credit Risk
During the years ended December 31, 2014, 2013 and 2012, most of the Company’s concentrate sales and accounts
receivable were through Consorcio Minero de Mexico Cormin Mex. S.A. de C.V., a Trafigura Group Company
(“Trafigura”). Sales and receivables related to Trafigura for those years ended comprised of 93% for 2014 and 100% for both
2012 and 2013. During 2014, the Company sold a small portion of its concentrates to a metal exporter. During the third
quarter of 2014, the Company also entered into a contract to sell all of its doré to Johnson Matthey Gold & Silver Refining
Inc. (“Johnson Matthey”).
The Company has carefully considered and assessed the credit risk resulting from its concentrate sales and doré sales
arrangements with Trafigura, Louis Dreyfus and Johnson Matthey 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 Trafigura, Louis Dreyfus or Johnson Matthey is interrupted for
any reason, the Company believes that it would be able to locate another entity to purchase its metals concentrates and doré
bars. However, any interruption could temporarily disrupt the Company’s sale of its 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 for the years ended December 31, 2014, 2013 and 2012.
55
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 Issued Accounting Standards Updates
Accounting Standards Update No. 2014-09—Revenue from Contracts with Customers (Topic 606)
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued guidance that requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The guidance will replace most existing revenue recognition guidance when it becomes effective. The new standard is
effective for the Company on September 1, 2017, and early application is not permitted. The standard permits the use of
either the retrospective or cumulative effect transition method. The Company is evaluating the effect that this new guidance
will have on its consolidated financial statements and related disclosures. The Company has not selected a transition method
nor has it determined the effect of the standard on its ongoing financial reporting.
2. Fair Value Measurement
Fair value accounting 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 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities;
Level 2 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
Level 3 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).
The following tables set forth the Company’s assets measured at fair value by level within the fair value hierarchy. As
required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to
the fair value measurement.
Fair Value as of December 31, 2014
Level 1
Level 2
Level 3
Total
Balance Sheet Classification
(in thousands)
Cash equivalents
$ 1,947 $
- $
Receivables related to unsettled invoices (1)
$
-
$ 1,416 $
- $ 1,947 Cash and cash equivalents
- $ 1,416 Accounts receivable
Investments in equity securities
$ 2,389 $
- $
- $ 2,389
Investments
Fair Value as of December 31, 2013
Level 1
Level 2
Level 3
Total
Balance Sheet Classification
(in thousands)
Cash equivalents
$ 4,160 $
- $
Receivables related to unsettled invoices (1)
$
- $ 2,307 $
- $ 4,160 Cash and cash equivalents
- $ 2,307 Accounts receivable
(1) 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 sales to reflect the mark-to-market of outstanding provisional invoices. Because these provisionally priced
sales have not yet settled as of the reporting date, the mark-to-market adjustment related to these invoices is included in accounts receivable as of
each reporting date. The receivable is the sales contract with no quoted market price, whereas the underlying metal values (inputs) are directly
observable for the full amount of the receivable (Level 2).
56
Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s
consolidated statements of operations and comprehensive income for the years ended December 31, 2014, 2013 and 2012,
respectively, as shown in the following table:
Years Ended December 31,
Type
2014
2013
2012
Statement of Operations
Classification
(in thousands)
Receivables related to unsettled invoices
Provisionally priced sales (1)
Derivative (loss)
gain
$
(1,121)
$
563
$
219
Sales, 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 sales to mark-to-market outstanding provisional invoices. Because
these provisionally priced sales have not settled as of the reporting date, the mark-to-market adjustment related to these invoices is included in
sales, net as of each reporting date.
3. Gold and Silver Bullion
The Company periodically purchases gold and silver bullion on the open market for investment purposes and to use
in its dividend exchange program under which shareholders may exchange their cash dividend for gold and silver bullion.
The Company’s investment in gold and silver bullion is carried at cost and evaluated for impairment at relevant financial
reporting dates.
During the year ended December 31, 2014, the Company made no purchases of gold or silver bullion. During the year
ended December 31, 2013, the Company purchased approximately 708 ounces of gold and 1,005 ounces of silver at market
prices for a total cost of $1.1 million. During the year ended December 31, 2014, approximately 47 ounces of gold and 1,024
ounces of silver were converted into gold and silver bullion and distributed under the dividend program, resulting in a nil
realized loss. During the year ended December 31, 2013, approximately 789 ounces of gold and 3,275 ounces of silver were
converted into gold and silver bullion and distributed under the dividend program, resulting in a realized loss of $0.1 million.
The Company recorded impairment write-downs on its silver bullion totaling $0.3 million for the year ended December
31, 2014 and $1.7 million for the year ended December 31, 2013.
The table below shows the balance of the Company’s holdings of bullion as of December 31, 2014 and 2013:
2014
2013
Gold
Silver
Gold
Silver
(in thousands, except ounces and per ounce )
(in thousands, except ounces and per ounce )
Ounces
Carrying value per ounce
Total carrying value
1,646
1,199.25
1,974
$
$
$
$
92,237
15.97
1,473
$
$
1,693
1,206.23
2,042
$
$
93,225
18.86
1,759
57
4. Inventories
Inventories at December 31, 2014 and 2013 consisted of the following:
2014
2013
Stockpiles - underground mine
Concentrates
Materials and supplies (1)
Inventories- current
Stockpiles - open pit mine
Inventories- non-current
Total inventories
$
$
(in thousands)
116
$
1,481
5,698
7,295
903
903
8,198
$
(1) Net of reserve for obsolescence of $217 and $654, respectively
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other assets at December 31, 2014 and 2013 consisted of the following:
Other receivable
Advances to suppliers
Prepaid insurance
Warranty deposits
Other
Prepaid expenses and other current assets
2014
2013
$
$
(in thousands)
179
$
1,193
329
921
313
2,935
$
6. Property, Plant and Mine Development
At December 31, 2014 and 2013, property, plant and mine development consisted of the following:
Machinery and equipment
Mine development
Furniture, computer and office equipment
Mill facilities and infrastructure
Light vehicles and other mobile equipment
Building (1)
Construction-in-progress
Asset retirement costs
Land and mineral rights
Subtotal
Accumulated depletion, depreciation and amortization
2014
2013
(in thousands)
$
19,398
$
13,393
2,899
2,825
1,942
-
592
448
227
41,724
(9,376)
Total property and equipment, net
$
32,348
$
1,586
480
5,402
7,468
903
903
8,371
1,489
1,705
1,440
925
249
5,808
17,510
-
2,698
-
1,875
1,737
-
-
227
24,047
(5,693)
18,354
(1)
In July 2014, the Company sold its office building located in Colorado Springs to a related party and is leasing a portion of the building back.
The Company received $1.7 million cash proceeds from the sale, which reflects the value in an arm’s length transaction. The transaction
resulted in a gain of $0.3 million.
58
Depletion, depreciation and amortization expense for years ended December 31, 2014, 2013 and 2012 was $4.6
million, $2.6 million and $1.5 million, respectively.
In May and June 2013, the Company entered into financing transactions with certain equipment financing companies
whereby the Company sold to them mining equipment that was purchased by the Company from February 2013 through June
2013. The equipment was subsequently leased back to the Company for a three-year period. The Company will retain full
use and all benefits attributable to the leased equipment.
The equipment leases qualify as capital leases and have been recorded at the present value of the future minimum lease
payments, including the transaction fees, which approximates the net carrying value of the equipment. The equipment leases
bear interest at 4.5% to 5.5% per annum, with monthly principal and interest payments of approximately $0.1 million over
the three-year lease term. The Company has an option to purchase the equipment at the end of the lease term for less than
$0.1million. The present value of the future minimum lease payments, including the bargain purchase options and up-front
transaction fees, totaled $4.8 million, of which $3.1 million represents machinery and equipment and $1.7 million represents
facilities and mine construction expenses. Depreciation on the leased assets is recorded over their estimated useful lives.
As of December 31, 2014, the Company’s obligations under capital leases are as follows:
Years Ended December 31,
2015
2016
Total payments due
Less amounts representing interest
Subtotal
Less current portion
Non-current portion
7. Investments
(in thousands)
1,578
853
2,431
(99)
2,332
(1,498)
834
$
$
Investments in equity securities at December 31, 2014 and December 31, 2013 consisted of the following:
Investments in equity securities
Canamex Resources Corporation - common shares
Laguna Gold Pty Ltd - common shares
Total Investments
Investments in equity securities
Laguna Gold Pty Ltd - common shares
Total Investments
Fair Value as of December 31, 2014
Cost
Accumulated
unrealized gain
(in thousands)
Total
1,805
231
2,036
$
$
584
-
584
$
$
2,389
231
2,620
Fair Value as of December 31, 2013
Cost
Accumulated
unrealized gain
(in thousands)
Total
231
231
$
$
-
-
$
$
231
231
$
$
$
$
59
8. 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 subsidiary files in Mexico. For financial reporting purposes, net income before income
taxes and extraordinary item include the following components:
U.S. Operations
Foreign Operations
Total income before income taxes
The Company’s income tax provision consisted of:
Current taxes:
Federal
State
Foreign
Total current taxes
Deferred taxes:
Federal
State
Foreign
Total deferred taxes
Total income provision
2014
Years Ended December 31,
2013
(in thousands)
2012
(8,396)
$
39,662
31,266
$
(5,900)
$
(13,045)
14,875
8,975
$
60,013
46,968
2014
Years Ended December 31,
2013
(in thousands)
2012
353
$
-
12,442
$
-
-
10,374
12,795
$
10,374
$
1,169
$
(2,186)
$
-
1,057
2,226
15,021
$
$
-
702
(1,484)
8,890
$
$
-
-
22,067
22,067
2,913
298
(11,981)
(8,770)
13,297
$
$
$
$
$
$
$
The provision for income taxes for the years ended December 31, 2014, 2013 and 2012 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:
Tax at statutory rates
U.S Operations - state income tax impact
Foreign rate differential
Dividends, net of foreign tax credits
Adjustments to deferred tax assets
Change in valuation allowance
Disposition of GTR
Mexico mining tax
Stock-based compensation
Nondeductible expenses and other
Impact of foreign exchange change
Tax provision
2014
Years Ended December 31,
2013
(in thousands)
2012
10,943 $
(116)
(1,906)
3,082
(1,345)
116
-
2,964
764
1,013
3,141 $
520
(2,434)
2,958
141
2,228
122
(380)
833
1,856
(494)
15,021 $
(95)
8,890 $
16,031
345
(2,826)
2,050
2,561
(4,644)
-
-
-
100
(320)
13,297
$
$
60
In December 2013, the Mexican president approved a tax reform bill that enacted a new Income Tax Law (“MITL”),
which increased the effective income tax rate applicable to the Company’s Mexican operations effective January 1, 2014. The
MITL increases the future corporate income tax rate to 30%, creates a 10% withholding tax on dividends paid to non-resident
shareholders (subject to any reduction by an Income Tax Treaty), and creates a new royalty fee equal to 0.5% of gross
revenue from the sale of gold, silver and platinum.
In addition, the law requires taxpayers with mining concessions to pay a new 7.5% royalty tax. The royalty fee and
royalty tax will be tax deductible for income tax purposes. The royalty tax will generally be applicable to earnings before
income tax, depreciation, depletion, amortization, and interest. In calculating the royalty tax there will be no deductions
related to depreciable costs from operational fixed assets but exploration and prospecting depreciable costs are deductible
when incurred.
The Company recorded a non-cash charge of $0.7 million related to the deferred tax impacts of the above tax changes
for the year ended December 31, 2013.
Undistributed earnings of the Company’s foreign subsidiaries were approximately $130.1 million at December 31,
2014. These earnings are considered to be indefinitely reinvested, and do not include earnings which are considered
distributed. Accordingly, no provision for U.S. federal and state income taxes has been provided for on those earnings. If the
Company were to repatriate 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, on an entity-by-entity basis, evaluates the evidence available to determine whether a valuation
allowance is required on the deferred tax assets. During the fourth quarter of 2012, the Company determined that the
remaining deferred tax assets of its Oaxaca Mining Unit were “more likely than not” recoverable and recorded a reduction in
the valuation allowance of $4.6 million.
During 2014 and 2013, the Company determined that the deferred tax asset related to the state net operating loss carry
forwards were not "more likely than not" to be realized and recorded a valuation allowance related to net operating loss carry
forwards of $0.1 million and $2.2 million, respectively.
Current deferred tax assets:
Other current assets
Foreign tax credits
Foreign mining tax
Total gross current deferred tax assets
Less: valuation allowance allocated to current
Net current deferred tax asset
Long-term deferred tax assets:
Tax loss carryforward
U.S. Operations
Mexico Operations
Property and equipment
Stock-based compensation
Foreign tax credits
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets after valuation allowance
Deferred tax liabilities
Net deferred tax asset
61
At December 31,
2014
2013
(in thousands)
1,498
$
1,721
756
3,975
(84)
3,891 $
$
1,626
-
15,006
7,831
2,523
1,056
28,042
(2,523)
25,519
$
842
1,540
-
2,382
(100)
2,282
1,320
-
18,892
6,753
4,570
407
31,942
(2,128)
29,814
- $
(460)
29,410
$
31,636
$
$
$
$
$
$
At December 31, 2014, the Company has U.S. tax loss carry-forwards for U. S. tax purposes approximating $35.9
million, which expire between 2020 and 2033, and foreign tax credits of $8.2 million that expire between 2022 and 2024.
As of December 31, 2014, the Company believes that it has no liability for uncertain tax positions. If the Company
were to determine there was an uncertain tax position, the Company would recognize the liability and related interest and
penalties within income tax expense.
The Company transferred fixed assets from the U.S. parent to its Mexico subsidiary within the consolidated group in
2013. This transfer created a difference in the tax basis of the assets in our Mexico subsidiary tax jurisdiction and
consolidated financial statement carrying amounts. The net tax effect of this intercompany transaction is deferred in
consolidation and recorded as a deferred charge of $3.5 million. This charge was recorded to income tax receivable in 2013
and reclassified to Non-current Other Assets in 2014 and 2013 for presentation purposes. This charge is being amortized to
income tax expense over 10 years to eliminate the deferred tax impact for the intercompany transaction.
Currently the Company is undergoing a tax examination by the Mexican tax authorities that spans back to 2011 and
2012 tax years. The tax examinations are open and ongoing and no further information has been communicated to the
Company by the Mexican tax authorities. Additionally, 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.
9. Accrued Liabilities and Other Current Liabilities
Accrued liabilities and other current liabilities at December 31, 2014 and 2013 consisted of the following:
Accrued royalty payments
Accrued vendor payables
Payroll and other taxes payable
Accrued bonus
Accrued insurance
Other
Accrued expenses and other current liabilities
2014
2013
(in thousands)
1,343
$
2,212
107
-
235
26
3,923
$
1,183
1,188
170
1,800
1,272
-
5,613
$
$
10. Reclamation and Remediation
The Company’s reclamation and remediation obligations relate to its El Aguila Project. The following table presents
the changes in reclamation and remediation obligation for the years ended December 31, 2014 and 2013:
Reclamation and remediation liabilities – opening balance
$
2,887
$
Additions and changes in estimate
Foreign currency exchange (loss)
Subtotal reclamation and remediation liabilities – ending balance
Asset retirement obligation addition
(17)
(325)
2,545
448
Total reclamation and remediation liabilities
$
2,993
$
2,790
112
(15)
2,887
-
2,887
2014
2013
(in thousands)
62
11. Commitments and Contingencies
Operating leases
In July 2014, as part of the sale of its office building located in Colorado Springs, the Company entered into a one year
lease agreement to lease a portion of the building back. In November 2012, the Company entered into a three year lease
agreement to lease office space in Denver, Colorado commencing January 1, 2013. The Company’s Mexico subsidiary
leases office space in Oaxaca City, Oaxaca. The subsidiary entered into a ten year lease commencing January 1, 2011.
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, 2014:
Years Ended December 31,
(in thousands)
2015
2016
2017
2018
2019
Thereafter
Total
$
$
146
72
72
72
72
72
506
12. Shareholders’ Equity
Dividends
The Company declared commercial production July 1, 2010, and between July 1, 2010 and December 31, 2014, has
declared monthly cash dividends totaling $1.92 per share of common stock to shareholders of record. The Company declared
dividends of $6.5 million and paid dividends of $6.5 million during the year ended December 31, 2014. During the year
ended December 31, 2013, the Company declared dividends of $22.9 million and paid dividends of $25.5 million. In 2013
the Board of Directors authorized the Company’s dividends to be charged to paid-in-capital until such time as the Company
has retained earnings, at which time dividends will be charged to retained earnings. For the year ended December 31, 2014,
$6.5 million of declared dividends were charged to retained earnings. For the year ended December 31, 2013, $22.9 million
of declared dividends were charged to paid-in capital. Subsequent to December 31, 2014, the Company declared a regular
monthly cash dividend of $0.01 per common share in January and February 2015.
Other Matters
On September 23, 2011, the Board of Directors approved a share repurchase program pursuant to which the Company
may repurchase up to $20.0 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, 2013, the Company had repurchased
336,398 shares of common stock for $5.9 million. As of December 31, 2014, the Company had not repurchased any
additional shares of common stock.
13. 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 decreases to sales of $4.1
million, $5.1 million and $3.1 million, respectively, for the years ended December 31, 2014, 2013 and 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 a
decrease to sales of $1.1 million for the year ended December 31, 2014, an decrease to sales of $0.6 million for the year
ended December 31, 2013 and an increase to sales of $0.2 million for the year ended December 31, 2012.
63
Sales of metal concentrates are recorded net of smelter refining fees, treatment charges and penalties. Total charges for
these items totaled $13.5 million, $14.8 million and $16.9 million for the years ended December 31, 2014, 2013 and 2012,
respectively.
14. 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 the IRS annual maximums. 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 in 2014, $0.1 million in 2013 and $0.1 million in 2012. The unfunded matching contribution
obligation was nil for the year ended December 31, 2014.
15. 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, 2014, there were 1.5 million shares available for future grant under the Plan.
A summary of activity under the Plan as of December 31, 2014, is presented below:
Outstanding as of January 1, 2014
Granted
Exercised
Forfeited
Outstanding as of December 31, 2014
Shares
Weighted
Average Exercise
Price (per share)
5,615,000 $
10,000
(400,000)
(550,000)
4,675,000 $
9.66
5.81
0.25
16.86
9.61
Weighted
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
(thousands)
6.7 $
3,364
5.9 $
-
-
Vested and exercisable as of December 31, 2014
3,901,669 $
8.68
5.5 $
The weighted-average grant date fair value of options granted during the years ended December 31, 2014, 2013, and
2012 was $2.27, $4.24 and $11.01, respectively. The total fair value of shares vested during the years ended December 31,
2014, 2013 and 2012 was $5.5 million, $8.3 million and $1.6 million, respectively. The Company received $0.1 million in
cash proceeds from options exercised during 2014.
64
The following table summarizes information about stock options outstanding at December 31, 2014:
Range of Exercise Prices
$3.40 - 3.95
$5.81 - $14.36
$17.10 - $20.51
Outstanding
Weighted
Average
Remaining
Contractual Term
(in years)
Exercisable
Weighted
Average
Exercise Price
(per share)
Number of
Options
Weighted
Average
Exercise Price
(per share)
3.7 $
7.4 $
7.6 $
5.9 $
3.66
10.87
17.97
1,900,000 $
1,255,002 $
746,667 $
9.61
3,901,669 $
3.66
10.77
17.96
8.68
Number of
Options
1,900,000
1,675,000
1,100,000
4,675,000
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, 2014, 2013 and 2012 was $5.0 million, $7.6 million, $6.6 million, respectively. Below is a table of stock-based
compensation expense allocated between production and general and administrative expense for the years ended December
31, 2014, 2013 and 2012:
2014
2013
(in thousands)
2012
Production costs
General and administrative expenses
Total stock-based compensation
$
$
2,182 $
2,769
4,951 $
2,380 $
5,237
7,617 $
1,737
4,863
6,600
The estimated unrecognized stock-based compensation expense from unvested options as of December 31, 2014, was
approximately $2.8 million, which is expected to be recognized over the remaining vesting periods of up to 2.0 years.
The assumptions used to determine the value of our stock-based awards under the Black-Scholes method are
summarized below:
Risk-free interest rate
Dividend yield
Expected volatility
Expected life in years
16. Other income (expense)
2014
0.69%
1.63%
53.63%
5
2013
2012
0.68% - 1.62%
2.87% - 3.40%
0.62% - 2.31%
2.47% - 3.14%
62.74% - 63.21%
62.94% - 67.20%
5
5
During the years ended December 31, 2014, 2013 and 2012, other income (expense) consisted of the following:
Currency exchange (loss)
Impairment (loss) on gold and silver bullion
Unrealized gain from investments
Realized gain (loss) from gold and silver bullion converted
Interest income
Other (expense) income
Total other income (expense)
$
$
65
2014
2013
(in thousands)
2012
(830)
$
(357)
$
(2,881)
(279)
702
4
161
(80)
(1,743)
-
(58)
166
637
-
-
(64)
122
87
(322)
$
(1,355)
$
(2,736)
17. Net Income per Common 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.
The effect of potentially dilutive stock options on the weighted average number of shares outstanding for the years
ended December 31, 2014, 2013 and 2012 is as follows:
Net income
Basic weighted average shares of common stock
Dilutive effect of stock options
Diluted weighted average common shares outstanding
Basic:
Net income per basic share
Diluted:
Net income per diluted share
Year Ended December 31,
2014
2013
(in thousands)
2012
16,245 $
85 $
54,119,095
501,237
54,620,332
53,255,259
2,044,216
55,299,475
33,671
52,846,163
3,469,722
56,315,885
0.30 $
0.00 $
0.30 $
0.00 $
0.64
0.60
$
$
$
Stock options totaling 2.8 million, 2.6 million and 1.3 million as of December 31, 2014, 2013 and 2012, respectively,
were excluded from the computation of diluted weighted average shares outstanding due to being anti-dilutive. The exercise
price of those stock options exceeded the average market price of the Company’s common shares of $4.78, $9.06 and $22.07
for the years ended December 31, 2014, 2013 and 2012, respectively.
18. Supplementary Cash-Flow Information
During the years ended December 31, 2014, 2013 and 2012, other within the net cash provided by operations on the
statement of cash flows consisted of the following:
Gain on disposition of property and plant
Impairment loss on gold and silver bullion
Reclamation and remediation
Reserve for uncollectible advances
Unrealized (gain) on investments
Unrealized foreign currency exchange loss
Allowance for uncollectible IVA
Write-down of obsolete material and supply inventory
Deferred charge (see footnote 8)
Other
Total other
2014
2013
(in thousands)
2012
(146) $
279
-
242
(702)
1,109
(1,126)
402
353
185
596 $
- $
1,743
112
-
-
526
-
-
(3,528)
-
(1,147) $
-
(58)
339
-
-
1,442
-
-
-
6
1,729
$
$
66
19. Quarterly Financial Data (Unaudited)
Revision of Prior Period Financial Statements
Misapplication of Other Receivable. During the third quarter of 2014, management identified a misapplication of a
$1.5 million receivable credit from our personnel contract service provider that was applied to our labor costs in the second
quarter of 2014. Management determined that the effect of the misstatement was not material to the financial statements for
the prior interim period. In order to correct the error, in accordance with the SEC’s Staff Accounting Bulletin No. 108, we
recorded the following immaterial corrections to the interim financial statements for the second quarter of 2014: (a) an
increase to inventory of $0.4 million and an increase to current liabilities of $1.0 million; and (b) an increase to cost of sales
of $1.1 million, a decrease to provision for income tax of $0.5 million and a corresponding decrease to net income.
The following represents selected information from our unaudited quarterly consolidated statements of operations and
comprehensive income (loss) for the years ended December 31, 2014 and 2013.
Sales, net
Mine gross profit
Operating income (loss)
Other income
Net income (loss)
Net income (loss) per common share:
Basic:
Diluted:
Weighted average shares outstanding:
Basic
Diluted
Sales of metals concentrate, net
Mine gross profit
Operating income (loss)
Other (expense) income
Net income (loss)
Net income (loss) per common share:
Basic:
Diluted:
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
$
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(in thousands)
2014
31,152 $
33,669 $
21,052 $
16,186
11,885
469
16,648
12,802
205
8,023
(415)
69
7,125 $
7,156 $
(1,455) $
0.13 $
0.13 $
0.13 $
0.13 $
(0.03) $
(0.03) $
29,532
10,014
7,316
(1,065)
3,419
0.06
0.06
53,934,925
54,697,710
54,179,369
54,556,217
54,179,369
54,179,369
54,119,095
54,326,169
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(in thousands)
2013
42,311 $
26,660 $
29,405 $
26,034
12,347
(36)
11,144
(768)
(1,862)
11,377
(1,884)
(660)
7,387 $
(1,373) $
(1,830) $
0.14 $
0.13 $
(0.03) $
(0.03) $
(0.03) $
(0.03) $
27,408
9,703
635
1,203
(4,099)
(0.08)
(0.08)
52,679,369
55,586,031
53,272,776
53,272,776
53,320,673
53,320,673
53,735,891
53,735,891
67
20. Legal Proceedings
A securities class action lawsuit subsequently captioned In re Gold Resource Corporation. Securities Litigation,
No.1:12-cv-02832 was filed in U.S. District Court for the District of Colorado naming us and certain of our current and
former officers and directors as defendants on October 25, 2012. The complaint alleged violations of federal securities laws
by us and certain of our officers and directors. On July 15, 2013, the federal district court granted our motion to dismiss the
lawsuit with prejudice. On January 16, 2015, the United States Court of Appeals for the Tenth Circuit affirmed the District
Court’s decision. While the securities class action lawsuit may be subject to rehearing or appealed to the U.S. Supreme Court
within a specified time period, we believe the plaintiff does not intend to take any further action regarding this lawsuit.
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 the 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. The action was stayed pending resolution of the appeal of the
dismissal of the securities class action lawsuit. Following the appellate court’s decision to affirm the District Court’s ruling,
all parties to the shareholder derivative lawsuit agreed to voluntarily dismiss the proceedings and the case was terminated on
February 25, 2015.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 18, 2013, our Audit Committee dismissed StarkSchenkein, LLP and engaged KPMG LLP to serve as our
independent registered public accounting firm for the fiscal year ending December 31, 2013. The audit reports of
StarkSchenkein, LLP on our consolidated financial statements as of and for the years December 31, 2012 and 2011, did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. During the two fiscal years ended December 31, 2012 and 2011, and the subsequent interim period
through March 18, 2013, there were no (1) disagreements between us and StarkSchenkein, LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to
their satisfaction would have caused them to make reference thereto in their reports on the consolidated financial statements
for such years, or (2) “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
During the two fiscal years ended December 31, 2013 and 2012 and the interim period through March 18, 2013, we
have not consulted with KPMG LLP regarding either (1) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements,
and no written report or oral advice was provided by KPMG LLP to us that was an important factor considered by us in
reaching a decision as to any accounting, auditing or financial reporting issue; or (2) any matter that was the subject of a
disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) or a “reportable event”
(as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
ITEM 9A.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed
by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures also include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the company’s management, including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were
not effective as of December 31, 2014, due to a material weakness in internal control over financial reporting described
below.
68
(b) Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for
the assessment of the effectiveness of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended. Management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2014, based on the framework set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013) (“Framework”).
Based on this assessment, management concluded that our internal control over financial reporting as of December 31, 2014,
was not effective because of the material weakness described below. A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is reasonable possibility that a material misstatement
in our annual or interim financial statements will not be prevented or detected on a timely basis.
As of December 31, 2014, we did not maintain effective controls over the accounting for income taxes, including the
income tax provision and related tax assets and liabilities. Specifically, the process level controls over the reconciliation of
the income tax receivable account were not performed, and management’s review of the income tax provision and related
accounts was not designed or operating at a sufficient level of precision to identify material misstatements.
These deficiencies resulted in errors in the amortization of an asset and the incorrect balance sheet classification in the
consolidated financial statements. These errors are not material and have been corrected in our consolidated financial
statements as of and for the year ended December 31, 2014.
A reasonable possibility exists that these control deficiencies could result in misstatements of the aforementioned
accounts and disclosures that would result in a material misstatement to the consolidated financial statements that would not
be prevented or detected in a timely manner. Accordingly, we have determined that these control deficiencies, in the
aggregate, constitute a material weakness.
KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements
included in this Annual Report on Form 10-K and, as part of its audit, has issued an adverse opinion on the effectiveness of
the Company’s internal control over financial reporting, which is included in this Form 10-K.
(c) Changes in Internal Control over Financial Reporting
The significant changes described below were made to the Company’s internal control over financial reporting that
occurred during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
In connection with the evaluation of internal control over financial reporting as of December 31, 2013, the Company
identified that material weaknesses in internal control over financial reporting existed relating to:
the effective design and operating effectiveness of controls over cash disbursements; and
the effective monitoring and oversight of external service providers. Specifically:
o
we did not maintain adequate monitoring and oversight of our external service provider engaged to assist
management in evaluating the internal control environment and testing of process level controls.
o we did not maintain adequate monitoring and oversight of our external service provider engaged to assist
management in the evaluation of the general information technology control environment, including
controls intended to prevent unauthorized system access and inappropriate change management.
o we did not maintain adequate monitoring and oversight of our external service provider engaged to assist
management in the recognition, measurement and presentation of income taxes.
To address these material weaknesses in the Company’s internal control over financial reporting, the Company
implemented the following:
We designed and implemented additional controls around the approval of cash disbursements related to certain
general and administrative expenses.
We engaged a new independent Sarbanes-Oxley compliance provider and designed and implemented controls to
ensure that internal control assessments were being performed timely and accurately to allow adequate timing for
the testing of controls in the general information technology control environment area.
We engaged a new independent income tax compliance provider and designed and implemented controls that
included additional internal control checklists for the income tax provision, a new income tax provision software
69
model and regular discussion meetings to anticipate any business developments that could affect the determination
or presentation of income tax expense.
The Company has completed the documentation and testing of the design and operating effectiveness of the
corrective actions described above and, as of December 31, 2014, has concluded that the material weaknesses related to cash
disbursements and monitoring and oversight of external service providers described above have been remediated as of
December 31, 2014.
During the quarter ended December 31, 2014, we identified a material weakness in internal controls relating to the
design and operating effectiveness of controls over the reconciliation of consolidation journal entries to the financial
statements. We have determined that the material weakness originated in periods prior to the fourth quarter of 2014. As a
result, we implemented new controls in the fourth quarter of 2014 to remediate the deficiencies. We have determined that the
actions taken to date have sufficiently addressed the control deficiencies such that as of December 31, 2014, there is not a
reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.
(d) Management’s Plans for Remediation of the Material Weakness
The Company has been and is continuing to implement changes in its internal control over financial reporting to
remediate the control deficiency that has given rise to a material weakness related to the accounting for income taxes. We are
undertaking the following remediation plans and actions:
Designing and implementing additional controls, and enhancing existing controls, related to the review and
reconciliation of income taxes.
Improving management’s oversight and monitoring of its income tax provision process by enhancing its quarterly
discussions with our outside tax advisors to anticipate any business developments that could affect the determination
or presentation of income tax expense.
As management implements these plans, management may determine that additional steps may be necessary to
remediate the material weaknesses.
70
Report of Independent Registered Public Accounting Firm
The Board of Directors
Gold Resource Corporation:
We have audited Gold Resource Corporation and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Gold Resource Corporation’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in Item 9A(b), Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit 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 audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
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.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not
be prevented or detected on a timely basis. A material weakness related to ineffective internal controls over income taxes,
which were not designed and operating effectively, has been identified and included in management’s assessment in Item
9A(b). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Gold Resource Corporation and subsidiaries as of December 31, 2014 and 2013, and
the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows
for each of the years in the two-year period ended December 31, 2014. This material weakness was considered in determining
the nature, timing, and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and this report
does not affect our report dated March 19, 2015, which expressed an unqualified opinion on those consolidated financial
statements.
In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the
control criteria, Gold Resource Corporation and subsidiaries have not maintained effective internal control over financial
reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
Denver, Colorado
March 19, 2015
71
ITEM 9B. OTHER INFORMATION
None.
Item 10. Directors, Executive Officers, and Corporate Governance
PART III
The information required by this item is incorporated by reference from the information to be contained in our Proxy
Statement for the 2015 Annual Meeting of Shareholders (“2014 Proxy Statement”) expected to be filed within 120 days after
the end of our fiscal year ended December 31, 2014.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the information to be contained in our 2015
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference from the information to be contained in our 2015
Proxy Statement.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated by reference from the information to be contained in our 2015
Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference from the information to be contained in our 2015
Proxy Statement.
72
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
The following exhibits are filed with or incorporated by referenced in this report:
Item No. Description
3.1
3.1.1
3.1.2
Articles of Incorporation of the Company as filed with the Colorado Secretary of State on August 24, 1998
(incorporated by reference from our registration statement on Form SB-2 filed on October 28, 2005, Exhibit
3.1, File No. 333-129321).
Articles of Amendment to the Articles of Incorporation as filed with the Colorado Secretary of State on
September 16, 2005 (incorporated by reference from our registration statement on Form SB-2 filed on October
28, 2005, Exhibit 3.1.1, File No. 333-129321).
Articles of Amendment to the Articles of Incorporation as filed with the Colorado Secretary of State on
November 8, 2010 (incorporated by reference from our quarterly report on Form 10-Q filed on November 10,
2010, Exhibit 3.1, File No. 001-34857).
3.2
Amended and Restated Bylaws of the Company dated August 9, 2010 (incorporated by reference from our
current report on Form 8-K filed on August 12, 2010, Exhibit 3.2, File No. 333-129321).
3.2.1
Amendment dated March 25, 2013 to Amended and Restated Bylaws of the Company dated August 9, 2010
(incorporated by reference from our current report on Form 8-K filed on March 27, 2013, Exhibit 3.2, File No.
001-34857).
10.1
10.2
10.3
Exploitation and Exploration Agreement between the Company and Jose Perez Reynoso dated October 14,
2002 (incorporated by reference from our registration statement on Form SB-2 filed on October 28, 2005,
Exhibit 10.1, File No. 333-129321).
Mining Exploration and Exploitation Agreement between Don David Gold, S.A. de C.V. and Jose Perez
Reynoso effective November 21, 2002 (incorporated by reference from our quarterly report on Form 10-Q
filed on August 9, 2012, Exhibit 10.15, File No. 001-34857).
Amendment to Mining Exploration and Exploitation Agreement between Don David Gold Mexico, S.A. de
C.V. and Jose Perez Reynoso effective August 3, 2012 (incorporated by reference from our quarterly report on
Form 10-Q filed on August 9, 2012, Exhibit 10.17, File No. 001-34857).
10.4
Amended and Restated Non-Qualified Stock Option and Stock Grant Plan (incorporated by reference from our
registration statement on Form S-8 filed on January 20, 2011, Exhibit 10.1, File No. 333-171779).
10.5
Form of Stock Option Agreement (incorporated by reference from our registration statement on Form SB-2 filed
on October 28, 2005, Exhibit 10.3, File No. 333-129321).
10.6
Strategic Alliance Agreement between the Company and Hochschild Mining Holdings Limited (incorporated by
reference from our report on Form 8-K dated December 5, 2008, Exhibit 10.1, File No. 333-129321).
10.7
Amended and Restated Executive Employment Agreement between the Company and Jason D. Reid
(incorporated by reference from our registration statement on Form S-1 filed on October 22, 2010, Exhibit
10.12, File No. 333-170101).
73
10.8
Office Lease between Don David Gold Mexico, S.A. de C.V. and Immobilaria & Construcciones Stipa S.A. de
C.V. effective January 1, 2012 (incorporated by reference from our annual report on Form 10-K filed March
18, 2013, Exhibit 10.28, File No. 001-34857).
10.9
Contract Services Agreement between the Company and Richard Irvine dated February 16, 2012 (incorporated
by reference from our annual report on Form 10-K filed March 18, 2013, Exhibit 10.27, File No. 001-34857).
10.10
Office Lease between the Company and Lincoln ASB Colorado Center LLC effective November 1, 2012
(incorporated by reference from our annual report on Form 10-K filed March 18, 2013, Exhibit 10.29, File No.
001-34857).
10.11
Executive Employment Agreement between the Company and Barry Devlin (incorporated by reference from our
current report on Form 8-K filed on November 13, 2012, Exhibit 10.1, File No. 001-34857).
10.12
Amendment No. 1 to Amended and Restated Employment Agreement between the Company and Jason Reid
dated September 9, 2013 (incorporated by reference to the current report on Form 8-K filed on September 10,
2013, Exhibit 10.1, File No. 001-34857).
10.13
Executive Employment Agreement between the Company and Joe A. Rodriguez (incorporated by reference
from our current report on Form 8-K filed on October 6, 2013, Exhibit 10.1, File No. 001-34857).
10.14
Form of Indemnification Agreement between the Company and its directors and officers (incorporated by
reference from our current report on Form 8-K filed on December 18, 2013, Exhibit 10.1, File No. 001-34857).
10.15
10.16
10.17
10.18
10.19
Purchase Contract 103-14CMX-011-0-P between Don David Gold, S.A. de C.V. and Consorcio Minero de
Mexico Cormin Mexico, S.A. de C.V. effective December 18, 2013 (incorporated by reference from our annual
report on Form 10-K filed on April 1, 2014 Exhibit 10.15, File No. 001-34857).
Purchase Contract 203-14CMX-012-0-P between Don David Gold, S.A. de C.V. and Consorcio Minero de
Mexico Cormin Mexico, S.A. de C.V. effective December 18, 2013 (incorporated by reference from our annual
report on Form 10-K filed on April 1, 2014, Exhibit 10.16, File No. 001-34857).
Purchase Contract 303-14CMX-010-0-P between Don David Gold, S.A. de C.V. and Consorcio Minero de
Mexico Cormin Mexico, S.A. de C.V. effective December 18, 2013 (incorporated by reference from our annual
report on Form 10-K filed on April 1, 2014, Exhibit 10.17, File No. 001-34857).
Executive Employment Agreement between the Company and Greg Patterson (incorporated by reference from
our annual report on Form 10-K filed on April 1, 2014, Exhibit 10.18, File No. 001-34857).
Consulting Agreement between the Company and William Reid (incorporated by reference from our current
report on Form 8-K filed on February 6, 2014, Exhibit 10.1, File No. 001-34857).
10.20* Amendment to Consulting Agreement between the Company and William Reid effective January 1, 2015.
10.21*
Amendment No. 2 to Amended and Restated Employment Agreement between the Company and Jason Reid
effective February 1, 2014.
10.22*
Amendment No. 2 to Employment Agreement between the Company and Joe Rodriguez effective February 1,
2014.
10.23*
Amendment No. 1 to Employment Agreement between the Company and Barry Devlin effective December 1,
2014.
10.24*
Amendment No. 1 to Purchase Contract 103-14CMX-011-0-P between Don David Gold, S.A. de C.V. and
Trafigura Mexico, S.A. de C.V. effective April 30, 2014.
74
10.25*
Amendment No. 1 to Purchase Contract 203-14CMX-012-0-P between Don David Gold, S.A. de C.V. and
Trafigura Mexico, S.A. de C.V. effective April 30, 2014.
10.26*
Purchase Contract between Don David Gold, S.A. de C.V. and Johnson Matthey Gold & Silver Refining Inc.
dated August 15, 2014.
16.1
Letter from StarkSchenkein, LLP addressed to the U.S. Securities and Exchange Commission dated March 18,
2013 (incorporated by reference from our current report on Form 8-K filed on March 18, 2013, Exhibit 16.1,
File No. 001-34857).
21*
Subsidiaries of the Company.
23.1*
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
23.2*
Consent of StarkSchenkein, LLP, Independent Registered Public Accounting Firm.
31.1*
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Jason D. Reid.
31.2*
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Joe A. Rodriguez.
32*
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jason D Reid and Joe A.
Rodriguez.
101*
The following financial statements from the Annual Report on Form 10-K for the year ended December 31,
2014 are furnished herewith, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated
Statements of Operations and Other Comprehensive Income, (iii) the Consolidated Statements of Changes in
Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated
Financial Statements.
* filed herewith
75
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 19, 2015
GOLD RESOURCE CORPORATION
/s/ Jason D. Reid
By: Jason D. Reid, Chief Executive Officer,
President and Director
In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
/s/ Jason D. Reid
Jason D. Reid
/s/ Joe A. Rodriguez
Joe A. Rodriguez
/s/ Bill M. Conrad
Bill M. Conrad
/s/ Tor Falck
Tor Falck
/s/ Gary C. Huber
Gary C. Huber
Chief Executive Officer, President and Director
March 19, 2015
Chief Financial Officer
March 19, 2015
Chairman of the Board of Directors
March 19, 2015
Director
Director
March 19, 2015
March 19, 2015
76
Item No. Description
EXHIBIT INDEX
3.1
3.1.1
3.1.2
Articles of Incorporation of the Company as filed with the Colorado Secretary of State on August 24, 1998
(incorporated by reference from our registration statement on Form SB-2 filed on October 28, 2005, Exhibit
3.1, File No. 333-129321).
Articles of Amendment to the Articles of Incorporation as filed with the Colorado Secretary of State on
September 16, 2005 (incorporated by reference from our registration statement on Form SB-2 filed on October
28, 2005, Exhibit 3.1.1, File No. 333-129321).
Articles of Amendment to the Articles of Incorporation as filed with the Colorado Secretary of State on
November 8, 2010 (incorporated by reference from our quarterly report on Form 10-Q filed on November 10,
2010, Exhibit 3.1, File No. 001-34857).
3.2
Amended and Restated Bylaws of the Company dated August 9, 2010 (incorporated by reference from our
current report on Form 8-K filed on August 12, 2010, Exhibit 3.2, File No. 333-129321).
3.2.1
Amendment dated March 25, 2013 to Amended and Restated Bylaws of the Company dated August 9, 2010
(incorporated by reference from our current report on Form 8-K filed on March 27, 2013, Exhibit 3.2, File No.
001-34857).
10.1
10.2
10.3
Exploitation and Exploration Agreement between the Company and Jose Perez Reynoso dated October 14,
2002 (incorporated by reference from our registration statement on Form SB-2 filed on October 28, 2005,
Exhibit 10.1, File No. 333-129321).
Mining Exploration and Exploitation Agreement between Don David Gold, S.A. de C.V. and Jose Perez
Reynoso effective November 21, 2002 (incorporated by reference from our quarterly report on Form 10-Q
filed on August 9, 2012, Exhibit 10.15, File No. 001-34857).
Amendment to Mining Exploration and Exploitation Agreement between Don David Gold Mexico, S.A. de
C.V. and Jose Perez Reynoso effective August 3, 2012 (incorporated by reference from our quarterly report on
Form 10-Q filed on August 9, 2012, Exhibit 10.17, File No. 001-34857).
10.4
Amended and Restated Non-Qualified Stock Option and Stock Grant Plan (incorporated by reference from our
registration statement on Form S-8 filed on January 20, 2011, Exhibit 10.1, File No. 333-171779).
10.5
Form of Stock Option Agreement (incorporated by reference from our registration statement on Form SB-2 filed
on October 28, 2005, Exhibit 10.3, File No. 333-129321).
10.6
Strategic Alliance Agreement between the Company and Hochschild Mining Holdings Limited (incorporated by
reference from our report on Form 8-K dated December 5, 2008, Exhibit 10.1, File No. 333-129321).
10.7
Amended and Restated Executive Employment Agreement between the Company and Jason D. Reid
(incorporated by reference from our registration statement on Form S-1 filed on October 22, 2010, Exhibit
10.12, File No. 333-170101).
77
10.8
Office Lease between Don David Gold Mexico, S.A. de C.V. and Immobilaria & Construcciones Stipa S.A. de
C.V. effective January 1, 2012 (incorporated by reference from our annual report on Form 10-K filed March
18, 2013, Exhibit 10.28, File No. 001-34857).
10.9
Contract Services Agreement between the Company and Richard Irvine dated February 16, 2012 (incorporated
by reference from our annual report on Form 10-K filed March 18, 2013, Exhibit 10.27, File No. 001-34857).
10.10
Office Lease between the Company and Lincoln ASB Colorado Center LLC effective November 1, 2012
(incorporated by reference from our annual report on Form 10-K filed March 18, 2013, Exhibit 10.29, File No.
001-34857).
10.11
Executive Employment Agreement between the Company and Barry Devlin (incorporated by reference from our
current report on Form 8-K filed on November 13, 2012, Exhibit 10.1, File No. 001-34857).
10.12
Amendment No. 1 to Amended and Restated Employment Agreement between the Company and Jason Reid
dated September 9, 2013 (incorporated by reference to the current report on Form 8-K filed on September 10,
2013, Exhibit 10.1, File No. 001-34857).
10.13
Executive Employment Agreement between the Company and Joe A. Rodriguez (incorporated by reference
from our current report on Form 8-K filed on October 6, 2013, Exhibit 10.1, File No. 001-34857).
10.14
Form of Indemnification Agreement between the Company and its directors and officers (incorporated by
reference from our current report on Form 8-K filed on December 18, 2013, Exhibit 10.1, File No. 001-34857).
10.15
10.16
10.17
10.18
10.19
Purchase Contract 103-14CMX-011-0-P between Don David Gold, S.A. de C.V. and Consorcio Minero de
Mexico Cormin Mexico, S.A. de C.V. effective December 18, 2013 (incorporated by reference from our annual
report on Form 10-K filed on April 1, 2014 Exhibit 10.15, File No. 001-34857).
Purchase Contract 203-14CMX-012-0-P between Don David Gold, S.A. de C.V. and Consorcio Minero de
Mexico Cormin Mexico, S.A. de C.V. effective December 18, 2013 (incorporated by reference from our annual
report on Form 10-K filed on April 1, 2014, Exhibit 10.16, File No. 001-34857).
Purchase Contract 303-14CMX-010-0-P between Don David Gold, S.A. de C.V. and Consorcio Minero de
Mexico Cormin Mexico, S.A. de C.V. effective December 18, 2013 (incorporated by reference from our annual
report on Form 10-K filed on April 1, 2014, Exhibit 10.17, File No. 001-34857).
Executive Employment Agreement between the Company and Greg Patterson (incorporated by reference from
our annual report on Form 10-K filed on April 1, 2014, Exhibit 10.18, File No. 001-34857).
Consulting Agreement between the Company and William Reid (incorporated by reference from our current
report on Form 8-K filed on February 6, 2014, Exhibit 10.1, File No. 001-34857).
10.20* Amendment to Consulting Agreement between the Company and William Reid effective January 1, 2015.
10.21*
Amendment No. 2 to Amended and Restated Employment Agreement between the Company and Jason Reid
effective February 1, 2014.
10.22*
Amendment No. 2 to Employment Agreement between the Company and Joe Rodriguez effective February 1,
2014.
10.23*
Amendment No. 1 to Employment Agreement between the Company and Barry Devlin effective December 1,
2014.
10.24*
Amendment No. 1 to Purchase Contract 103-14CMX-011-0-P between Don David Gold, S.A. de C.V. and
Trafigura Mexico, S.A. de C.V. effective April 30, 2014.
78
10.25*
Amendment No. 1 to Purchase Contract 203-14CMX-012-0-P between Don David Gold, S.A. de C.V. and
Trafigura Mexico, S.A. de C.V. effective April 30, 2014.
10.26*
Purchase Contract between Don David Gold, S.A. de C.V. and Johnson Matthey Gold & Silver Refining Inc.
dated August 15, 2014.
16.1
Letter from StarkSchenkein, LLP addressed to the U.S. Securities and Exchange Commission dated March 18,
2013 (incorporated by reference from our current report on Form 8-K filed on March 18, 2013, Exhibit 16.1,
File No. 001-34857).
21*
Subsidiaries of the Company.
23.1*
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
23.2*
Consent of StarkSchenkein, LLP, Independent Registered Public Accounting Firm.
31.1*
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Jason D. Reid.
31.2*
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Joe A. Rodriguez.
32*
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jason D Reid and Joe A.
Rodriguez.
101*
The following financial statements from the Annual Report on Form 10-K for the year ended December 31,
2014 are furnished herewith, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated
Statements of Operations and Other Comprehensive Income, (iii) the Consolidated Statements of Changes in
Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated
Financial Statements.
* filed herewith
79
G R
old
esource
C
orporation
2886 Carriage Manor Point
Colorado Springs, Colorado 80906
303-320-7708 (Office) - 303-320-7835 (Fax)
www.goldresourcecorp.com