Operator: Good afternoon, ladies and gentlemen, and welcome to the Gold Resource Q1 2024 Earnings Conference Call. [Operator Instructions] This call is being recorded on Friday, May 3, 2024. I would now like to turn the conference over to Chet Holyoak. Please go ahead, sir.

Chet Holyoak: Thank you, Ludy, and good morning to everyone.

On behalf of the Gold Resource team, I would like to welcome you to our conference call covering our first quarter 2024 results. Before we begin the call, there are a couple of housekeeping matters I would like to address. Please note that certain statements to be made today are forward-looking in nature and, as such, are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings. Please note, all amounts referenced during this presentation are in U.S. dollars unless otherwise stated.

Joining me on the call today is Allen Palmiere, our President and CEO; and Alberto Reyes, our Chief Operating Officer. Following Allen, Alberto, and my prepared remarks, we will be available to answer questions. The conference call is being webcast. For those of you joining us on the webcast, you can download a PDF copy of the conference call slides. The event will also be available for replay on our website later today.

Yesterday's news release that was issued following the close of the market and the accompanying Form 10-Q have been filed with the SEC on EDGAR and are also available on our website at www.goldresourcecorp.com. I will now turn the call over to Allen.

Allen Palmiere: Thank you, Chet, and good morning, everyone. I'd like to thank you all for joining our Q1 conference call. I will address a few points first and then Alberto will address operations, followed by Chet with the financial results.

Following their remarks, I'll make a few closing comments and then we will open up to questions. I was reviewing prior comments I've made and realized that I always start off by addressing challenges that we faced in the quarter or year. The reality is that mining is a challenging business. Each mine brings its unique challenges, and given that we can't see the rock ahead of the active mining areas, there are always surprises. Our job is to be able to deal with those surprises as they occur while maintaining a reasonably steady level of production.

The noncontrollable factors such as commodity prices and foreign exchange rates add an additional layer of complexity. During the first quarter, we experienced some equipment availability issues due to an aging fleet. We also encountered unexpected poor ground conditions resulting in our mine plan being redeveloped. The Mexican peso continued to remain stronger than planned against the U.S. dollar, which adversely affected our production and capital costs.

A lower-than-forecast price of zinc also adversely affected our byproduct revenues. While the foreign exchange rates and commodity prices are not controllable, we remain focused on those factors that we can control, including reducing costs and increasing productivity. To achieve these goals, we selectively mined higher-grade ore veins this quarter and achieved better grade control by improving geotech designed to reduce overbreak and dilution. Early in the first quarter of 2024, we also undertook a process review in the concentrator to identify opportunities to improve recoveries. The trial-and-error nature of this testing resulted in lower-than-anticipated recoveries for a few weeks, but by the end of the quarter, we started to see positive results and stabilized recoveries.

Cash continues to be tight and remains a key focus for the company. Now turn to Slide 4, and I will briefly address our exploration results. We continue to focus our activities in the areas of mineralization known as the

Three Sisters: Gloria, Marena, and a continuation of Splay 31 as we discussed in the past. These areas will be a critical part of the future of Don David. And we continue to spend money to explore them with the goal of adding higher-grade material to our resource and reserves.

I can't say that when we redo our S-K 1300 for this year, everyone will see the results of our work, but it is fairly encouraging. I'll now turn the call over to Alberto for an update on the operations.

Alberto Reyes: Hello, everyone, and good morning to you all. Quarter 1 concluded safety with zero lost time incidents, however, not without facing multiple challenges. The discipline of certain teams to achieve their safety results is the same discipline we observed under daily activities and cost saving initiatives.

Despite major operational and external difficulties, the team showcased resilience in overcoming challenges. Preparations for TSF closure, limited water volume for processing affecting pH levels. Although balance was achieved in February, same processing remains suboptimal. Our system reviews for early quarter 2 to optimize the same circuit. External factors included fluctuating base metal prices and stronger Mexican peso against the dollar.

Cost reduction strategies continue to be integral against rising costs and maintaining productivity levels. Production for quarter 1 reached approximately 98,000 tonnes while operating with a reduced throughput compared to 2023, [indiscernible] at 1,330 tonnes per day and in line with our 2024 targets. I am pleased to report that we processed nearly 98,900 tonnes of ore and sold approximately 3,567 ounces of gold and 216,000 ounces of silver, equating to over 5,965 gold equivalent ounces. In addition, we sold 264 tonnes of copper, approximately 667 tonnes of lead, and more than 1,682 tonnes of zinc. Now turning to Slide 6.

DDGM's capital expenditure aligned with the year's plan, investing $1.35 million in underground development, $283,000 in other sustaining and $440,000 in infill drilling. Sustaining capital investment totaled $2.1 million while growing investment for $899,000, meeting annual guidance. Exploration development for 250 meters will commence in quarter 2. We recognize the effort and achievements by the DDGM team who showcased resilience, effective communication and organization, promoting health and safety while maintaining focus on business objectives. I'll now pass the presentation over to Chet to discuss financial results.

Chet Holyoak: Thank you, Alberto. During the first quarter, we experienced a small decrease in our cash balance and we ended the quarter with $5.7 million. The decline in cash is primarily due to lower sales and increased cash costs at DDGM, which we will discuss in just a moment, and spend related to our exploration program as was mentioned earlier by Allen. Cash provided by operating activities was $1.5 million for the year and includes $900,000 spent on exploration in Mexico and over $200,000 spent in Michigan related to the Back Forty optimization project. For the first quarter of 2024, we reported net loss of $4 million or $0.05 per share.

During the quarter, net sales of $18.7 million were 40% lower than the same period in 2023 due mainly to lower volumes of all metals sold and a 22% lower zinc price. While production costs for the quarter of approximately $16.1 million are slightly lower than the prior year, the significantly lower tonnes processed along with lower gold equivalent ounces sold resulted in an unfavorable impact on unit costs such as cost per tonne processed and cost per gold equivalent ounce sold. We will discuss this a bit more on the next page. Depreciation for the period is lower than depreciation for the same period in 2023, mainly due to lower UOP depreciation as a result of less tonnes mined. Finally, gross mining profit is lower in 2023, primarily due to the lower sales not being proportionately offset by lower production costs.

For the quarter, Don David Gold Mine's total cash cost after co-product credit was $1,667 per gold equivalent ounce sold, and total all-in sustaining cash cost per gold equivalent ounce sold was $2,295 per ounce. Turning to Slide 8, we will discuss cash costs for the quarter. The 2 key drivers related to the increase in cash cost per gold equivalent ounce sold are the reduction in gold equivalent ounces sold and a reduction in co-product credits. The gold equivalent ounces are lower due to the lower tonnes processed and the lower grade ore and recoveries realized during the quarter. Some of our final shipments during the quarter were also delayed as our customers couldn't receive them due to the Easter holiday.

The lower co-product credit was the result of lower copper, lead, and zinc tonnes being sold as compared to their respective 2023 periods and the significantly lower realized metal price for zinc during the quarter. Similar to the lower gold equivalent ounces, some shipments of co-products were delayed due to the Easter holiday. While the above-mentioned drivers resulted in a negative impact for the quarter, we are seeing an increasing trend in metal prices, and the metallurgical testing has resulted in positive results through our processing plant. Allen, back to you.

Allen Palmiere: Thank you, Chet.

With increase in commodity prices and the softening peso we have seen lately, our cash generation is improving and relieving some of the cash pressure that we've been under for the past several months. Per share price has recovered a little, but we still feel that it does not reflect the underlying value of the company. We still have a relatively strong balance sheet and excellent technical and operating teams, and our exploration results are very encouraging and point to a bright future. The Board of Directors and management continue to explore and evaluate strategic alternatives to unlock value for our shareholders. While no decision has been made and there is no certainty around the outcome, we are confident that the process is necessary to ensure that we are acting in the best interest of all stakeholders.

With that, I'll turn the call over to the operator for questions.

Operator: [Operator Instructions] And your first question comes from the line of Heiko Ihle from H.C. Wainwright.

Heiko Ihle: So plant throughput was reduced in the quarter. Recoveries were a bit lower in Q1, given the reparations for the closure of the third cell of the TSF.

But then it also says, until solutions were achieved and work will continue. What have exactly you've seen in regards to improvements during the second quarter? I mean we're now in May, right?

Allen Palmiere: Heiko, let me answer the question somewhat indirectly. Throughput was down. That was primarily through design. We're effectively on budget.

We're looking at about 1,200 tonnes per day throughput this year. Recoveries were down, and recoveries were down for 2 primary reasons. One, I alluded to it in my opening remarks, but we were trying to work with the plant to increase metal recovery going. And the net result of that for a couple of several weeks actually was decreased recovery. That occurs because when you optimize the copper circuit, your lead circuit gets out of whack.

And then when you come in to try and optimize a lead circuit, your zinc circuit is out of whack. It's a -- I'm hesitant to use a term, but really it's trial and error as you try and get all 3 circuits balanced and optimized. We did get -- achieve stability in the latter part of Q1 and we're seeing the benefit of that in Q2. The other issue, while all of this was necessitated by the cessation of utilization of TSF 3, what that did was reduce the volume of water we have available for process water and changed the makeup of the water going into the plant. As we work through that process, optimizing the water purity, our recoveries are anticipated to improve going forward.

That really, I think, is the answer to your question.

Heiko Ihle: That's a fair answer. Building on what you just said, in the release, you said pretty much exactly what you just said, that you're focusing on higher-grade ore and also lower cost. Can you quantify some of the lower costs that we saw, especially given you were talking about the aging fleet earlier on this very call?

Allen Palmiere: One of our major costs right now is repair and maintenance of the mining fleet. And what we are looking at doing, and I expect to get the results of the study within the next week or so, is replacing certain pieces of mining equipment, notably our low-profile trucks.

We're looking to rebuild our replacement of our development jumbos. And by replacing those pieces of equipment, we anticipate a very significant reduction in operating costs. And to put it in context, and I'm just going to use 1 example, Heiko, but our development costs underground currently are running about $2,800 a meter. With equipment that does not require so much maintenance, we expect that we can get that down to as low as $2,200 a meter. Given that development is both a significant capital and operating expenditure, that would obviously have a very dramatic impact on our P&L.

That is just 1 example, but that runs throughout the mine. Old equipment translates into higher operating costs, and that translates into higher levels of asset. By replacing some of this fleet, we will be able to drop that pretty significantly.

Heiko Ihle: Fair enough, perfect. That was useful.

Operator: [Operator Instructions] Your next question comes from the line of Jake Sekelsky from Alliance Global Partners.

Jacob Sekelsky: So we saw gold grades pick up a bit quarter-over-quarter. And I'm just curious, given the recent strength in gold and silver prices, have you identified any opportunities to target more precious metal-rich areas as we head into the second half of the year? And I guess, have these higher prices sort of changed the way you're looking at things from a cutoff perspective?

Allen Palmiere: The mine fund for this year is somewhat inflexible. To the extent possible, we will be targeting those areas that have got higher precious metal grades, but we don't have a lot of flexibility. The drill results from our exploration, and you've heard me talk about Marena, Three Sisters, Gloria ad nauseam, but we're anticipating that once we get into those areas in 2025, we will be seeing higher precious metal prices and higher NSRs per tonne.

Given the nature of the operation, we don't have, unfortunately, a great deal of flexibility, Jake.

Jacob Sekelsky: Okay, that's helpful. And then just on costs. I mean, you mentioned the sensitivity to base metal prices and movements in the peso. Can you just touch on your hedging strategies here? Have you seen the peso soft enough to where you might look at hedging out some of that exposure? Or just high-level thoughts there would be helpful.

Allen Palmiere: Precious metal, we tend to not want to hedge. A lot of our shareholders want to have exposure to the upside on precious metals. In terms of base metals, we have hedged zinc in the past. Zinc has been so low for the last period of time that there's really no opportunity to hedge. But as zinc comes back up to close to $1.30, it's something that is on the radar and it is something that we would consider.

In terms of peso hedge, peso today is, last time I checked, was MXN 16.96, MXN 16.98. The peso is pretty volatile right now. It's been running between MXN 16.40 and MXN 17.30, MXN 17.40, but it is probably one of the most volatile currencies vis-à-vis the U.S. dollar out there right now. Peso is being held up, and I'm not going to say it's artificial, but it's being held up by the carry trade.

U.S. prime rate is running, I'm just going to use our own numbers, 5%. The Mexican peso is running at 11.5%. That spread is what's holding the peso up. As the U.S.

dollar strengthens -- I'll approach it a different way. As the Mexican Central Bank backs off on high interest rate policy, the expectation is that the carry trade will unwind and the peso will soften against the dollar. We actually expect that the peso should be, by the end of the year, well, it should be MXN 18 or higher. At that point, we would consider hedging it. But at this point, all we could do is lock in the lower exchange rate.

Does that address it, Jake?

Jacob Sekelsky: It does, thanks. That's all on my end.

Operator: And there are no further questions at this time. I would like to turn it back to Allen Palmiere for closing remarks.

Allen Palmiere: Thank you, operator, and thank you all for joining us for our Q1 conference call.

It hasn't been very long since we did our year end so there hasn't been a lot of change. But I do look forward to being able to update you all with progress for our Q2 conference call that will take place late July or early August. Again, thank you all for taking the time to listen, and have a great afternoon.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating.

You may now disconnect. Have a lovely day.