Executives: Jason Reid – Chief Executive Officer John Labate – Chief Financial

Officer
Analysts: Mark Smith – Private

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

As a reminder, 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 second quarter conference call.

I expect this to be a short conference call with my comments running less than 10 minutes followed by 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, August 3, 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 our non-GAAP financial measures referred to in our remarks in our Form 10-Q filed with the SEC for the quarter ended June 30, 2016. The second quarter of 2016 was the solid quarter. Comparing Q2 to Q1, we saw increased gold and silver grades, increased metallurgical recoveries and increased production of gold and silver. We also saw increases in net income, gross mine profit and cash in the bank.

We accomplished this while decreasing payables, decreasing G&A, eliminating our capital equipment leases and lowering our cost per ounce. With the first half of 2016 behind us, we remain on track for our annual targeted production range. Let’s breakdown the quarterly production numbers. Second quarter production from the El Aguila project totaled 10,011 ounces of gold, 572,499 silver ounces, 320 tons of copper, 1,009 tons of lead, and 3,813 tons of zinc before payable metal deductions. Calculating the gold and silver as precious metal equivalent, we produced 17,706 ounces and at a realized 74.4:1 silver to gold ratio.

We milled an average of 1,228 tons per day or 104,333 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 $317 per ounce. Our all-in sustaining cash cost per ounce also a non-GAAP measure for Q2 totaled $649. During the quarter, we sold 8,197 gold ounces and 548,537 silver ounces, 319 tons of copper, 947 tons of lead, and 3,424 tons of zinc. Average grades and recoveries for Q2 included gold grade at 3.27 grams per ton with 92% recovery, silver grade at 182 grams per ton with 94% recovery, copper grade at 0.4% with 77% recovery, lead grade at 1.4% with 71% recovery and a zinc grade at 4.4% with an 84% recovery.

These are across the board increases in grades and recoveries of gold, silver, copper and lead and over the first quarter with exception for zinc recovery, which remained constant at 84%. In regards to grade and dilution, during the second quarter, the company processed approximately 10,608 tons of stockpiled ore from the historic open pit, which is primarily gold, negligible silver and no base metals. The net effect of running open pit stockpiled ore as it dilutes the Arista mine’s gold grade and all other metal grades processed in the mill. Though we may stop at anytime, we currently planned to continue to run the remaining lower grade open pit stockpiles and could finish processing the stockpiles by year-end. During any future quarter that we processed open pit stockpiles, we expect the stockpiles to dilute the quarterly grade averages of the higher grade Arista underground mine ore.

We generated revenues. Our revenues are net of smelter charges of $26.2 million, generated mine gross profit of $12.4 million, and a net income of $5.6 million, or $0.10 per share versus $0.01 per share in Q1. Our Q2 average metal prices realized were $1,271 per ounce gold and $17.08 per ounce silver. We distributed $271,000 in dividends to shareholders or one half of a cent per share during the quarter. The company remained long-term debt free during the quarter and paid off the remaining balance of capital equipment leases that totaled $720,000 at March 31.

The company paid $256,000 in mining taxes during the first half of 2016. Turning to our operations. During the quarter, we mined primarily from 5 to 6 separate veins on levels ranging predominantly from 16 to 21 as well as completed the recovery of an Arista Vein pillar from level 12. Arista mine development was on target operationally with adequate management of water and CO2 gas during the quarter. We modified our original mine plan to include sum of the smaller, higher grade Arista Veins while blending the lower grade open pit ore stockpiles for added tonnage.

Mining of these smaller higher grade veins has been completed by our new mine contractor that specializes in small vein mining. During the quarter, we pumped between 1,113 gallons of water per minute. We finally completed the major water pump station on level 20 for greater efficiency of our Arista mine water management systems, 2,500 gallons per minute capacity. This larger new pump station should allow us to eliminate several costly intermediate pump stations that require extensive pump maintenance and pump replacement. It is estimated that the potential exists to save approximately $2 million to $2.5 million per year from power consumption and pump maintenance and replacement cost from intermediate stations.

The new pump station also positions us to handle potential Switchback water flows when we encounter water in the future during the Switchback vein system development within the Arista mine. Development on the second drift towards Switchback from level 21 of the Arista vein system is on target. This drift will soon split to access the Switchback veins in two locations in the area for better mine development. We continue to encounter good rock competency and stable ground conditions coupled with no appreciable amounts of water or CO2 gas, which has enabled drift advancement to progress as expected. We do expect to deal with Switchback water flows at some point in the future as we developed this new area of the Arista Mine but thus far have not encountered any.

Exact timing of Switchback or feed remains dependent on continued decline and drift advancement, which is subject to the aforementioned rock competency potential water flow CO2 gas management and mine development rates. We are currently developing at a pace that could enable us to start processing Switchback development ore during the fourth quarter of 2016. Though we may choose to stockpile Switchback ore at the mill during the fourth quarter of 2016 in preparation for the 2017 production year. Turning to our Alta Gracia Property the powder magazine construction is complete and we await the final blasting permit. And once the permit is received we plan to mine the mineralization utilizing and improving historic adits and workings to access existing mineralized bases from which to further develop the Alta Gracia Mine.

Our small vein mine contractor that is working well in the Arista Mine should be ideal for mining Alta Gracia mineralization. If and when Alta Gracia comes on line with supplemental ore feed the additional optionality and flexibility of having multiple mines feeding a strategically located mill will be welcome progress and advancement of our long term business plan. Turning to exploration we continue to focus on our Oaxaca mining unit and Arista mines switchback vein system. Recent drill results announced on May 31, 2016 included 9.5 meters of 8.85 grams per ton gold, 3.15 meters of 15.79 grams per ton gold and 13.23 meters of 4.03 grams per ton gold. This was on the back of our May 10, 2016 press release from Switchback, which included 8.03 meters of 6.85 grams per ton gold and 10.36 meters of 4.2 grams per ton gold.

Additional assets from the Switchback drill program are pending. Our first drill program at our Nevada mining unit's Gold Mesa property returned 15.24 meters of 6.27 grams per ton gold just 9 meters downhole. And 33.54 meters of 1.89 grams per ton gold. The property has potential for a high grade gold open pit or multiple gold open pits with mineralization beginning at shallow depths just below surface. A second drill program is currently underway following up on these and other mineralized dumps.

Though we have seen progress in our cost reduction efforts thus far we continue to push substantial cost reduction measures. These include the two long lead-time reduction measures of the power grid program aimed at lowering our energy costs which is our second highest cost after man-power and the new port facility program aimed at lowering our transportation costs. The power grid program continues to move forward as we work with the Federal Power Commission to access electrical power. We feel this program is gaining solid momentum as we work to obtain the necessary approvals for construction to begin. We continue to push the port facility project and are negotiating with the truckers union for reasonable trucking rates and with the port for consistent service.

The new diesel tax credit recently applied to mining companies has delivered more immediate cost savings from ongoing diesel purchases. We are optimistic this beneficial fuel tax credit will remain in effect for 2017 and the years ahead. The gold and silver prices continue to be strong in 2016 the harsh bear market of the prior four years remains all too fresh in our minds and we are committed to further cost reduction measures. To wrap up, the second quarter of 2016 was a solid one from an operational, production, exploration, and profitability perspective. We welcome higher metal prices for numerous reasons not the least of which counter the damaging effects sustained on the industry and the Company from the bear market over the prior four years.

With our cost reductions and the return of precious metal bull markets. We target greater profitability larger drill program budgets and growing share prices and hopefully in the future increases to our dividend With that I would like to thank everyone for their time today on this conference call. Let's move on to the question and answer portion of the call in an effort to officially address the Q&A portion of the call without wasting anyone's time. And since we don't screen, filter, or limit who can call in any distracting or antagonistic calls will be terminated and I will simply move on to the next productive caller's question. Operator please open up the lines for the Q&A and take our first caller and question if there is one.

Operator: Thank you. [Operator Instructions] And we’ll take our first question from.

Unidentified Analyst: Hi Jason, it’s Harvey Wollman [ph].

Jason Reid: Hi Harvey how are you?

Unidentified Analyst: I’m good, at last some good news. I’m sure you’re pretty psyched about the direction and the movement of metals prices in general not only gold and silver, but the base metals, as well.

Jason Reid: Yes, it’s a welcome change.

Unidentified Analyst: Yes so welcome change indeed. So I have a few questions. I’m looking at the 10-Q. And toward the end of it, there is a paragraph entitled provisional sales contract risk.

What is that? And what’s the meaning of the figures under the title under contract?

Jason Reid: Okay I don’t have, I apologize, I don’t have the queue in front of me. John do you want to weigh in on this?

John Labate: Sure, the provisional contract risk relates to the final pricing of our concentrates. Our counter party can elect to take either M plus one which is the one month in the future or M plus two, which would be two for final price settlement. So we have to book essentially a derivative amount at the end of the reporting period, based on the futures prices and those close according to the terms that really are agreed by us and our counter party. So there is risk on unsettled sales.

Unidentified Analyst: So the figures that are under contract, like gold ounces mentioned, those are amounts and prices at which you’re obligated to sell in the future or does this relate to second quarter sales?

John Labate: No it relates to second quarter shipments that have been provisionally invoiced. And depending on the timing of the final settlements, it’s purely a price adjustment. We’re not committed to sell anything in addition to what we have already contracted to buy at the end of the reporting period.

Unidentified Analyst: Okay, I understand. Okay another question I have relating to Gold Mesa, you’re doing a lot of drilling at Gold Mesa exploratory drilling, I guess would be the term which you’re calling testing.

When this testing moved to development?

John Labate: Okay, testing will move to development when we have discovered and defined a deposit. So we have definitely intercepted some incredible high-grade mineralization, especially for an open pit heap leach situation which – this is what we’re looking for. But we have to find enough of it, we have to delineate this and find enough of it. And to justify moving it forward into a development phase or stage. So we’re still exploring there and will continue to do so until we find enough of it to warrant the production decision or development decision.

Unidentified Analyst: Based on what you’ve been drilling so far and your plans for the rest of the year, do you expect development to occur before the end of this year?

John Labate: I would say probably not. It’s possible but typically when you’re on a property, it takes awhile to explore it and we fully expect that here. So I don’t want to give a timeframe on when that might trigger, but it really ultimately depends on the drill program. And the first drill program we had here was incredible. I mean that does real phenomenal grades and I listed some of them.

One of it was just nine meters down hole. So you don’t have much overburden. So depending on how for instance that particular zone goes that could definitely expedite that process. However, mining is a long lead-time industry, a lot of work. And so I wouldn’t expect any kind of development decision this year, generally speaking.

There’s a lot that goes into that, we have to delay any deposits. Then you have to justify whether it’s worth putting into production whether it's economic whether you're going to make any money. I mean there's a lot of work has to go into it. So I wouldn't expect anything like that any decision this year.

Unidentified Analyst: Okay.

Thank you very much.

John Labate: Harvey, thanks for your question. Good to talk to you as always.

Unidentified Analyst: Yes, indeed. Bye-bye.

John Labate: Okay.

Operator: [Operator Instructions] We'll take our next question from.

Unidentified Analyst: Hi, Jason this is Paul Morland.

Jason Reid: Paul, how are you?

Unidentified Analyst: Fine, thanks. Good to hear that everything is going better.

Jason Reid: That’s a tough years of a bear market, so…

Unidentified Analyst: Oh, boy. Yes, nobody saw that coming. I had a question on El Rey is there any hope there obviously getting El Rey under production at some point?

Jason Reid: There is hope there and we continue to work with the people there. But it is our most challenge property position that's for sure. That's not our focus because of that but we have not given up on it and it's got some really high grade there.

Unidentified Analyst: Yes, I remember that.

Jason Reid: Yes, that some day we were optimistic will be chasing. Having said that…

Unidentified Analyst: What have some change there in order for that to become a viable possibility.

Jason Reid: Well, it's all about the local communities in that area. And this was this happened years ago and you probably remember this but we had one of our neighboring mining companies had an issue in which they had tremendous pushback from their local community which is close to El Rey.

I won't mention what they did but it wasn't good and two weeks later the local community pushed back from on us for the first time ever and I think there was a correlation there that wasn't a coincidence. So we’ve spent the time since trying to differentiate ourselves between us and that other mining companies show them look we're different, we operate different. We don't have armed guards running around our operation forcing our way into doing things. We don't do that kind of thing. But it's taken a long time to try to convince them of that.

So I think in large part our inability to operate there wasn’t our doing, it was our neighboring industry peer they caused that. And we're trying to overcome that challenge but we're not taking the approach of hey, we're the mining company we have every right to be here, move. And I think it's that attitude that got this whole situation escalate in the first place. And we're not going to take that approach. So we're – like we're going to – we expect to be here a very long time.

And so we're just taking a step back and saying look okay, if you're not okay with this now wait at some point in the future you'll see we're different. And so that's the approach we're taking. So El Rey is definitely the most challenged of all our properties and not our focus but someday definitely we want to be back there. And I think we will but it's going to take a long time.

Unidentified Analyst: Okay.

Well, yes, I understand the situation. And thanks for the update.

Jason Reid: Sure. No, I appreciate the question, Paul. Good to hear from you.

Operator: [Operator Instructions] We will take our next question from…

Mark Smith: Hi, this is Mark Smith, Private Investor. Forgive me, I just got on the call, I just heard Paul Vale Ray [ph] question and I was wondering if you had addressed dividends at all in the call up till now.

Jason Reid: You know I really didn't.

Mark Smith: Okay.

Jason Reid: I made one statement that in the future we sure hope to increase that dividend and absolutely.

Mark Smith: Okay.

Jason Reid: It's just the timing issue in my opinion. I’m very optimistic that it will happen.

Mark Smith: Okay.

Jason Reid: What I do mean by timing, we still come out or we're coming out of – it feels like we're coming out of this long four-year bear market that beat everybody up in the industry, and many of our peers, many of the Gold Resource peers went under, went bankrupt during that time.

We not only survived that four-year stretch, but we were profitable, albeit, by small amounts, but still profitable all four years.

Mark Smith: Yes.

Jason Reid: That was painful four years. And we had – you can’t dividend out what you don't make, so we had to cut our dividend. And as the metal prices went down, we had to cut our dividend and continue to cut it.

We still pay dividend, showing that we're very committed to the dividend, and we've returned over $108 million. So I don't necessarily think I have to convince anybody how serious we are with the dividend this company was created to pay a dividend, and at some point in the future we want to increase it. Now what might – what's in front of us, what's stopping us now, we get the questions, hey, gold's up, why aren’t you increasing your dividend? Well, there's a lot going on. We still haven't fully recovered from the beating we took over the last four years. We were seeing some recovery, for instance in this Q, in the results of this Q.

And so that's all positive and moves us toward that day in which we can increase the dividend. But we're also looking for other opportunities. I mean there’s window of opportunity to find properties and we picked up Gold Mesa during the downturn, we continue to look. At some point probably in the near future that window closes on us, and acquisitions won't be an option. So while it is an option, while that window is open, we'd like to have some cash in case we can find some opportunities.

So there's a lot of push and pull, but, yes, at some point I fully expect to increase the dividend.

Mark Smith: Okay. So, would it be a fair statement then to say that you're still committed to that roughly one-third, one-third, one-third plan that you’ve been talking about or have talked about in the past?

Jason Reid: We're not doing the one-third, one-third now because we couldn't afford it.

Mark Smith: Right.

Jason Reid: Unturned metal price is dropping.

So can we go back to that? Possibly, it would be great if we could. But to be clear, we are not doing the one-third, one-third, one-third right now.

Mark Smith: Okay.

Jason Reid: And if you run the numbers, you’d see that.

Mark Smith: Okay.

Jason Reid: But I think the best way to categorize our view on the dividends going forward is we will return as much back to the shareholders as soon as possible while balancing the needs of the operation. And that's what we've – I think done a pretty good job of it in the history of this company and I expect that trend to continue.

Mark Smith: Okay. And we’ll a playback of this call then be up on the website for 48 hours or something?

Jason Reid: It’s being recorded and soon as we receive it from the service, we’ll upload it to the website. You know we’d say three days, but sometimes it's up – but then shorter than that.

Mark Smith: Thank you.

Jason Reid: You’re welcome. Thanks, Mark.

Operator: We have no further questions in queue at this time.

Jason Reid: Perfect.

Well, thank you again everyone for listening to the second quarter conference call, and we will talk to you next quarter. Thank you.

Operator: And this does conclude today's conference call. Thank you all for your participation. You may now disconnect.