Executives: Jason Reid - President and

CEO
Analysts:

Operator: Thank you for joining Gold Resource Corporation’s First Quarter 2016 Conference Call. Mr. Jason Reid, CEO, will be hosting today’s call. Following Mr. Reid’s opening remarks there will be question and answer session.

As a remainder, today’s call is being recorded. Please go ahead, Mr. Reid.

Jason Reid: Thank you. Good morning everyone and thank you for joining Gold Resource Corporation’s 2016 first quarter conference call.

I expect this call to be a short conference call as my quarterly review update and comments on the metal markets should run only approximately 10 minutes, followed by a Q&A. Joining me on the call today for the Q&A portion will be Mr. John Labate, our Chief Financial Officer. Let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued yesterday, along with the comments on this call are made only as of today, May 5th, 2016, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in our Form 10-K filed with the SEC for the quarter ended March 31, 2016. For the first quarter of 2016, it was a decent quarter and we remain on track for our annual targeted production levels. Let’s break down the quarterly production numbers. First quarter production from the Arista mine totaled 6,463 gold ounces, 434,142 silver ounces, 244 tons of copper, 838 tons of lead and 3,261 tons of zinc before payable metal deductions.

Calculating the gold and silver as precious metal gold equivalent, we produced 11,669 ounces at a realized 83 to 1 silver-to-gold ratio. We milled an average of 1,301 tons per day or 113,145 total milled tons for the quarter. Our total cash cost after base metal byproduct credits per precious metal gold equivalent ounce sold and including royalties totaled $667 per ounce. Our all-in sustaining cash cost per ounce on a non-GAAP measure for Q1 totaled $1317. During the quarter, we sold 6,215 gold ounces and 378,794 silver ounces, 220 tons of copper, 762 tons of lead and 2,599 tons of zinc.

Average grades and recoveries for Q1 included gold grade at 1.99 grams per ton with 89% recovery, silver grade at 131 grams per ton at 91% recovery, copper grade at 0.29% with 74% recovery, lead grade at 1.06% with 70% recovery and a zinc grade at 3.43% with an 84% recovery. We generated revenues. Our revenues are net of smelter charges of $17.4 million, generated mine gross profit of $3.5 million and net income of $800,000 or $0.01 per share. Our Q1 average metal prices realized were $1,199 per ounce gold and $14.38 per ounce silver. We distributed $271,000 in dividends to shareholders or $0.05 per share during the quarter.

The company remained debt free during the quarter, except for short-term capital equipment leases of which we paid down $424,000 during the first quarter, and added $295,000 in near term equivalent leases for a CAT 730 mine haul truck for underground mine. The company paid $256,000 in mining taxes during the first quarter. The company estimates approximately $3.9 million in tax, refunds from 2015 and expects to apply this available credit to 2016 tax year lowering the overall tax burden for 2016. Turning to our operations. During the quarter, we mined primarily from 8 to 10 separate veins on levels ranging predominantly from 16 to 21 as well as on levels 13 and 14.

Arista mine development was on target operationally with no water management or CO2 gas issues during the quarter. We are in the process of modifying our original mine plan to include sum of the smaller, thin, but often very high grade range remaining on certain upper level and brought in a mine contractor that specializes in this work. We planned to also utilize this contractor at our Alta Gracia property. I’ll have more on Alta Gracia in a moment. The recent modification is the mine plan target the same production outlook.

During the quarter, approximately 15% of the milled throughput came from old stockpiled of lower grade open pit ore from our open pit mining of years passed. The reason to run this material through our floatation circuit now is twofold. First, it floats well and we have additional capacity in the floatation circuit as our underground mine is yet to deliver a consistent 1500 tons per day mine rate. The second reason is a large open pit stockpile sits above the potential mineralized extension of the open pit. Processing the lower grade open pit stockpiles add to gold ounces produced but unfortunately the open pit material contains only gold with negligible silver and no base metals.

So the 15% open pit mill feed dilutes the Arista mine sulfide mill feed and overall throughput grade of silver, copper, lead and zinc for the quarter bringing those grade averages down. For example, the Arista mine’s quarterly average silver grade in the sulfide ore was 151 grams per ton while the open pit stockpile average silver grade was 19 grams per ton. The open pit stockpiles decreased the overall silver throughput grade from 151 grams per ton to 131 grams per ton for the quarter or approximately 13%. Similarly, zinc grades were decreased by 15% due to the lack of zinc in the open pit ore and it representing 15% of the throughput for the quarter. Other metal grades were impacted in the same manner.

But the gold grade in the open pit ore was very close to the average of the Arista mine sulfide ore grade at 1.8 grams per ton gold and 2 grams per ton gold respectively leaving the quarterly gold average throughput grade nominally unaffected by running the old open pit or stockpiles. We plan to continue to run the remaining lower grade open pit or stock piles for the time being but may choose to stop at any time. During any future quarter that we process some of the lower grade open pit stockpiles we expect to stockpiles to dilute the quarterly grade averages of the higher grade Arista underground mine. Development on the second Switchback drift from level 21 of the Arista vein system has reached approximately the halfway mark. Thus far, good rock competency and stable ground conditions coupled with no appreciable amounts of water or CO2 gas have enabled drift advancement to progress as expected and on target.

We do expect to deal with Switchback water flows at some point in the future as we develop that new area of the Arista mine but thus far we have not encountered any appreciable amounts. Exact timing of Switchback ore feed will dependent on continued decline in drift advancement which is subject to rock competency, potential water flows, CO2 gas management and mine development rates. At this point in the development of this new area of the mine, we target processing Switchback ore during the fourth quarter 2016. In addition, we continue to advance our Alta Gracia property toward production having secured the mining permit. However, we still await the blasting permit before we can commence mining, which we are hopeful we will have in hand in the near future.

We plan to mine mineralization utilizing historic edits and working to access existing mineralized spaces from which to further develop the Alta Gracia mine. We initially target small scale mining of 100 to 200 ore tons per day, hauled from the mine to our Aguila mill for processing. The mineral is predominantly silver and gold with no base metal and is therefore targeted to be processed through our now ideal agitated leach circuit which sits paralleled to the floatation circuit currently in operation. If and when Alta Gracia comes online with supplemented ore feed the additional optionality and flexibility of having multiple mines feeding a strategically located mill will be welcomed progress in advancement in our long term business plan. Turning to exploration, our drill program continues to expand high grade Switchback mineralization with both steps out and in fill holes.

We plan to provide an update in the very near future in this regard. We also recently announced the approval of the drilled permit for Gold Mesa property in Mineral County, Nevada, USA. The property has potential for a high-grade gold open pit or multiple gold open pits with mineralization beginning at shallow depths below surface. As we recently announced, a rig is onsite and drilling -- the drill is turning the first of 30 planned holes in this initial drill program. With the first batch of assay sent to ALS Chemex, we hope to start seeing some drill results in the next several weeks.

We continue to push substantial cost reduction measures including the power grid program and delivering our energy cost which is our second highest cost after manpower and the new port facility program and lowering our trucking cost. We are also working on a new diesel field tax credit that targets more immediate cost savings from ongoing diesel purchases. If we are successful at implementing these programs, we could see immediate cost reductions. We remain optimistic. We will be able to execute on all of these substantial cost reduction measures in 2016 or 2017 to further drive down cost.

The gold and silver prices have launched lately the harsh bear market of the recent past is all to freshened mines and we remain committed to further cost reduction measures. To wrap up, the first quarter of 2016 was a good one from an operational production and profitability prospective. Exploration continues on our Aguila Project in Mexico targeting additional high grade of the Switchback in Arista vein systems and our first drill program kicked off at Gold Mesa in Nevada targeting additional high grade open pit potential. And we continue to look for cost cuts and efficiencies to lower cost even further. Looking further into 2016, the strong upward movement in gold and silver thus far is a welcome change in precious metal prices and could be a signal of potentially better days ahead for our industry.

Reasons for the upward movement could include China’s launching of a Shanghai Gold Exchange and new daily Yuan price fix for gold as the World largest gold producer China is asserting more control over the price of gold which also reduces gold’s price dependency on the U.S. dollar. China is also participating in setting the daily silver price by way of China construction banks bidding alongside HSBC, JP Morgan Chase, Bank of Nova Scotia, Toronto Dominion Bank and UBS. China’s direct influence on price setting, and perhaps, keeping other banks honest maybe showing its impact with silver strong move as of late. In addition and perhaps, one of the most in compelling reasons gold and silver have shown strength in the recent is the recent announcement by Deutsche Bank with their admission to manipulating the gold and silver price.

Not only did Deutsche Bank admit wrong doing, they agreed to pay fines and also agreed to turnover names of other banks involved in manipulating gold and silver prices. This completely validates those of us in the metal spaces that are believed gold and silver prices have been manipulated historically. Hopefully, this proof of metal price manipulation by Deutsche Bank reopens the past failed CFTC’s investigation of silver price manipulation in which the CFTC was apparently a slip of the Switch as they close their investigation in 2013 incorrectly concluding that there was no metal price manipulation. Perhaps, we have some shareholders that they may want to bring this issue up with the U.S. Commodity Futures Trading Commission chairman by emailing Tim Massad at tmassad@cftc.gov and ask if the CFTC is going to reopen their investigation in the gold and silver price manipulation in light of Deutsche Bank’s recent admission.

Or perhaps push CFTC to explain why the COMEX synthetic paper the physical gold ratio climbs north of 500 to 1. That’s 500 ounces of synthetic paper goal backed by just 1 ounce of physical gold on the COMEX Exchange. Or perhaps, the CFTC instant rush and look into who dumps billions of dollars’ worth of synthetic paper gold into the market in a matter of minutes often during slow trading windows and contrary to trying to sale a position for profit without driving down price. As a mining executive, I believe it is my duty to call spade to spade when it comes to admissions by banks like Deutsche Bank or other groups manipulating the price of gold and silver at the ultimate determent of our company shareholders. It is troubling when our regulatory bodies are either incompetent or don’t want to find the answers to an investigations regarding manipulation.

I’ve sent Mr. Massad letters and emails in this regard and I encourage all shareholders of mining equities to do the same. Unfortunately, gold and silver markets are rigged. We have suspected this for a long time and Deutsche Bank’s admission and manipulation in the debt by proving this. But of those like Deutsche Bank are going to roll over on other banks to manipulate we may be seeing the rains of manipulation being dropped which could further free gold and silver to price discovery and potentially higher metal prices.

I am keeping the faith that this is the case and optimistically watch for continued higher gold and silver prices, the likes of which we have seen thus far in 2016. We welcome higher metal prices for numerous reasons not the least of which could include potential increases in our share price additional profitability and dividend increases. With that, I would like to thank everyone for their time on this conference call. Let’s move on to the question and answer portion of the call, an effort to efficiently address the Q&A portion of the call without wasting anyone’s time and since we don’t scream, filter or limit who can call in, any distracting or antagonistic call will be terminated and I will simply move on to the next productive caller’s question. Operator, please open up the lines for our Q&A and take the first caller’s question if there is one.

Operator: Thank you. [Operator Instructions] And we will take our first question. Caller, please go ahead.

Unidentified Analyst: Jason?

Jason Reid: Yes. Who is this?

Unidentified Analyst: Hi.

This is Harvey Holland.

Jason Reid: Hi, Harvey. How are you?

Unidentified Analyst: I’m good. I have a couple of questions. In your guidance, you specifically said that it does not include any income from Switchback, Alta Gracia and any of the Nevada properties.

So I wonder if you expect any time during 2016 those properties to contribute to revenues.

Jason Reid: Right. You’re referring to original outlook put out prior to the date and as I mentioned we have modified a bit and the reason being as we make great advancements going forward with the drift. They were moving over towards Switchback and we haven’t had any water or anything slowing us down. We have modified our plan a bit.

We do include a little bit of Switchback but not much. Mostly, the modifications had to do around going back up to some of the higher levels where their veins of pinch, but it is still really quality grade or really high grade and so we brought in a mine contractor that specializes in shrink stopping and small vein mining and so that was – major driving force behind the modification. But the long and short of it is we’re still going after the same outlook and now we are not relying heavily on Switchback is predominantly Arista that’s where the production is coming from.

Unidentified Analyst: So are you saying that there is not going to be any additional revenues coming from these properties, not only Switchback, but Alta Gracia and Nevada?

Jason Reid: I’m not saying one way or the other. I am very optimistic that any day now we could finally get our blasting permit at Alta Gracia and because we’re going to accessing that mineral through all that as we’re going to go right to the face to of mineral start.

That would add. Yes, but I’m not going to put that in any outlook because that is dependent on obtaining a permit from a regulatory body and it’s anybody’s guess. I mean we have general guidelines of how long that takes, but I’m not going to put that in an outlook. So I don’t want to say either way whether that will or won’t add we remain like I said in the past conference call with an outlook today we remain with that same outlook, but could those add? Sure, they could. But I’m not -- again, I don’t want to say one way or the other or quantify that for that matter.

Unidentified Analyst: Okay. So obviously, more things have to happen before you can feel confident about any contribution in 2016. So I guess I’m asking do you expect to address this issue as we get further into the year and is it possible.

Jason Reid: Sure. I’ll address if -- I guess I can expect your question every quarter and I’m happy to answer, but its influx.

Harvey, I mean I don’t want to have an outlook that relies on us getting the permit at Alta Gracia when this permit is taking far longer than we ever thought is going to take. So sure, that could come online and could assure your help, but I don’t want to put our outlook in the hands of a regulatory body on that.

Unidentified Analyst: I understand.

Jason Reid: I’ll update you as we go along throughout the year.

Unidentified Analyst: Sounds good.

One other question unrelated. The last part of your commentary talked about manipulation of the gold and silver markets and it kind of made me wonder whether other executives from other companies also feel the same way. Have you been in touch with others and is this feeling that you’re expressing common among other companies?

Jason Reid: There are few other executives I know that share the same feelings and there is a few I know who have reached out to regulatory bodies and try to point this out. For the most part, we get very little traction that’s why I mentioned in my conference call at shareholders if we had several hundred peoples right in the CFTC Mr. Massad, he might be pushed into action as opposed to just an email or sending him a letter.

I think the more critical math of the drumbeat of hey manipulation has been proven by a bank who came out and admitted it. Now if you look back at CFTC was supposedly looking into this manipulation and then they close their case in 2013 said no there isn’t any. They’ve been proven wrong and they need to be hold accountable for that. So there is little bit we can do here, but I’m trying to do what I can and in the end of the day we have a bank that’s come out and said yes, we manipulated the price. That hurt every single shareholder I have any myself and I’m a shareholder.

So what would it have done if they wouldn’t manipulated the price perhaps, our revenue would have been the hell of a lot larger, our profit, or share price wouldn’t drop this far. I mean this is damaging stuff. So I can’t speak for the rest of the executives out there, but I know there is a few and I’ve been involved with several letters where we got together and have sent letters out, but -- and I still keep trying. But again if shareholders stand up and say what’s going on, you need to reopen your case that’s something.

Unidentified Analyst: I hear you.

Okay. Thanks so much, Jason.

Jason Reid: Thank you, Harvey.

Operator: [Operator Instructions]

Jason Reid: Let me interject before we – if there is another question, before we go on, let me interject we had a couple of email questions. One I’d like to get to – this is by Christopher Lewis, he is long time shareholder.

Two questions, comparing Q1 of this year versus Q1 of last year, there was a huge drop in grade. More tons were milled, what is the cause? And what is the gross plan to address this? And has it had a significant impact on cash? I address some of this in the call, but I’ll reiterate it here. The open pit, whenever we run that because it only has a goal that no other metals basically. It’s going to lower all those other metal grades. So any time that we’re going to run that it will have an impact the Arista grade is more or less 15% higher in those other metals.

Now generally speaking, in this time of deposits the deeper you go the grade in precious metals typically drops a bit and base metals increases. And we’re seeing some of that as well, so that accounts for some of it. But also it depends on where you are in any particular quarter or month or week in a mine -- mining and that has some variation. Looking long term, you guys have all seen Switchback results come out and you’re going to see some come out here in the near future. Switchback is our future and it is some great grade.

And once we’re mining that that will be terrific and we’re closing in on that. So, I just want to address that, yes, we’re seeing some drop, but then we’re hit again with an additional dropping grade because we’re processing open pit or that doesn’t silver, copper, lead or zinc. Okay. Second question is where are we on the cost reduction opportunities and I didn’t [indiscernible] but I’ll reiterate them. The electricity and looking to the power grid we’re still actively working with the regulatory bodies to make this happen.

And it’s just slow. It takes time, but we’re making headway and that’s good. That could lower our cost substantially and so do we or highly incentivized to do that. As far as the port change, I think all of the shareholders being us to know we’ve seen our first test run and it was sent to the port loaded on a boat and sent out from there and went great. So we are currently negotiating with the truckers union to haul to this port.

We still have a couple of more hoops to jump through, but we’re making progress – good progress. I don’t want to stick a timeframe to this, but hey, we’ve done our first test run and that’s great. Where else can we drive down cost reductions? I mentioned the diesel. There is some changes happening in Mexico with their energy. They’re opening up their borders and so they’re making a lot of modifications and changes and we have just been made aware of a potential tax advantage in buying diesel in which we could get a tax credit or credit for buying the amount of diesel we’re doing.

That is a new development and one more pursuing as we speak and if that happens we’re going to see some immediate cost savings and could be quite substantial actually in our diesel purchases while we wait to get hooked up to the electricity. So we’re very much incentivizing an active on all of these fronts because these are the big fish. If we get some of these done and we’re going to see our cost comes down even more. Okay. I think that answers Chris Lewis’s questions and operator, do we have any other questions or is that it?

Operator: We have no other questions from the phone at this time.

Jason Reid: Perfect. Well, thank you everybody for attending the conference call. And we look forward to updating you next quarter and happy think of the mile. Thank you.

Operator: Ladies and gentlemen, this does conclude today’s conference.

We thank you for your participation. And you may now disconnect.