Operator: Good day, ladies and gentlemen, and welcome to your Gold Resource Corporation Third Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]
At this time, it is my pleasure to turn the floor over to your host, Jason Reid, CEO of Gold Resource Corporation. Sir, the floor is yours.

Jason Reid: Thank you.

Good morning, everyone, and thank you for joining Gold Resource Corporation's 2020 Third Quarter Conference Call. I expect my comments to run approximately 15 to 20 minutes, followed by a question-and-answer period.
Joining me on the call today for the Q&A portion will be Ms. Kim Perry, our Chief Financial Officer. We welcomed Kim to the management team of Gold Resource Corporation.

As you know, Kim transitioned from her Board seat with the company to join the management team, which I believe speaks volumes for the company and its future.
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, the quarterly report on 10-Q 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, November 3, 2020, 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 and our Form 10-K filed with the SEC for the year ended December 31, 2019, as well as this current quarterly report on 10-Q.


We are very excited to embark on a new chapter of Gold Resource Corporation with our announcement to spin off our Nevada Mining Unit 100% to shareholders at a future date as Fortitude Gold Corporation. But before jumping into that exciting news, I will briefly summarize the third quarter results.
With both mining units operating continuously during the third quarter, the company delivered strong quarterly earnings of $5 million or $0.07 per share, with positive cash flow from both Mexico and Nevada delivering positive earnings for the year.
Strong gold and silver production in the third quarter totaled 12,575 ounces and 333,761 ounces, respectively, along with substantial base metals. Mexico production was up substantially coming off the prior quarter's mandatory 2-month shutdown with third quarter gold, silver, copper, lead and zinc production increases of 94%, 85%, 74%, 89% and 84% for each of those metals, respectively.

We also recorded record gold production from the Nevada Mining Unit, totaled 7,847 ounces of gold, a gold production increase of 51% over the prior quarter as the Isabella Pearl mine continues to demonstrate a strong production ramp-up phase.
The third quarter was the first full quarter that the company was able to regularly access portion of the deposit's high-grade Pearl zone while also mining the deposit's lower-grade Isabella zone. The Pearl zone is estimated to contain 80% of the gold ounces at the Isabella Pearl deposit, with an estimated average gold grade of 4 grams per tonne.
We remain on track for our targeted gold production ramp-up into the fourth quarter, positioning the mine for its 40,000 ounce gold production target in 2021.
We continued strong health screening protocols for COVID-19 prevention and mitigation.

Nevada identified one positive employee COVID case, while Mexico identified 29 positive employee cases. In addition to the 29 positive cases in Mexico, 138 additional employees were quarantined as potentially exposed or otherwise suspected cases, resulting in 1,201 lost workdays for those individuals.
It is noteworthy that of the positive COVID tests, only one individual resulted in illness warranting hospitalization. Many of the positive cases reported asymptomatic as the individuals felt fine.
While the Oaxaca Mining Unit operate -- while our Oaxaca operations were up and running the entire quarter, production was impacted as we managed through the COVID screening, testing and quarantine.

Since we anticipate the presence of COVID-19 periodically in both Nevada and Oaxaca for this foreseeable future. We remain vigilant with our protocols with safety and health as the top priority.
Following up on the zinc market comments from the last call, continued indications of potential 2021 zinc treatment charge terms are looking to be far more favorable in 2021 compared to 2020. Zinc prices have also strengthened in the back half of 2020 as more world economies continue to open after the mandated shutdowns. These are good signs for 2021, not to mention the strong precious metal prices.


With a strong Q3 behind us, we look to focus on both Q4 production and the upcoming spin-off transaction and creation of Fortitude Gold Corporation. We took the spin-off decision very seriously after over 1 year of due diligence and analysis.
The impetus for the spin-off was driven by the Oaxaca Mining Unit. While the Mexico operations historically achieved both aggressive growth and aggressive dividends in the early years, it has grown into a large operation, requiring a different approach. I will walk you through some of the specifics later.


For the Oaxaca Mining Unit's long-term longevity, efficiency and profitability, we must focus primarily on growth going forward and less on dividends. This new focus in Mexico is irrespective of the spin-off. To be clear, the Oaxaca mine unit can and still plans to distribute dividends, but the primary focus for future cash flow allocation will be on putting more money into the ground, targeting aggressive growth.
Focuses include increased exploration, mine development and continued operational efficiency programs, a few of which were previously mentioned in the spin-off press release.
Over the years, we have done very well expanding the Arista Mine's Arista vein system and then discovering the Switchback vein system.

We believe we can add to the known vein systems and also believe there are other vein systems yet to be discovered in the near vicinity. We are currently positioning our exploration programs to find them with dedicated exploration drifts from which to set up drill pads to explore numerous untested targets.
Deploying more exploration capital should put us in a position of expediting mineral expansions and accelerating new discoveries. It is very exciting to think about what discovering another Arista or Switchback vein system and additional deposit discoveries on our other properties would do for Gold Resource Corporation's longevity, production and overall shareholder value.
This transition of deploying more capital into the ground has slowly been building over several years and very recently reached the point where the Board made the correct decision to apply this new primary business strategy for the Oaxaca Mining Unit.

In addition, the company will be evaluating merger and acquisitions focused on advanced stage or bolt-on regional acquisition opportunities.
With this required modification at our Oaxaca Mining Unit, taking Mexico down the common business strategy of most all other mining companies, comes an incredible opportunity for our Nevada Mining Unit, an opportunity to continue the business strategy the company was originally built for, that of aggressive dividends. Spinning off the Nevada Mining unit into Fortitude Gold Corporation focused on growth and dividends accomplishes the continuation of the original dividend strategy but in a much more efficient and strategic company vehicle to distribute dividends.
Many of our shareholders over the last decade have experienced substantial dividends and expect them in the future. We look to replicate GORO's success in its early years with market valuations based off yield due to substantial dividends.


Assuming the trajectory of Fortitude Gold's production, with a 41% increase in gold production in Q2 and now 51% production increase in Q3, we look toward to the potential to deploy future cash flows of Fortitude Gold towards exploration, organic growth and substantial dividends.
Deploying these deliberate strategies will allow us to focus on our very large underexplored land position at our Oaxaca Mining Unit. We have a 55-kilometer or 30-mile mineralized trend with known mineralization at each end and along trend. We have drilled less than 2% of our huge 560 square kilometer land position.
It would be a competing interest to exploration to continue to try to pull substantial dividends out of Oaxaca.

Dedicating more to exploration budgets will put the Oaxaca Mining Unit back in position for exciting and aggressive growth.
Operationally, the Arista Mine started out small, lean and mean and could distribute substantial dividends, which it did. Over the last decade, it has grown into a larger mine with larger capital requirements.
Early in the mine's evolution, capital projects, including a paste plant, wasn't warranted. Additional tailings facilities weren't warranted and a dry stack plant wasn't warranted.

These large capital expenditures have taken place over the last few years, with the latter dry stack project still underway.
As the mine continues to grow, so too will these projects and others like them in the future, not to mention additional expenditures on mine development infrastructure as the deposit grows. The Arista Mine is becoming a large mine and requires the mainstream mining industry approach toward capital allocation, which demands more capital put back into operations.
Sure, a dividend still can be paid along the way, but in the future, most of the next $115 million that had been previously paid in dividends will now go back into operations for more efficient and aggressive growth. The Oaxaca Mining Unit demands it and will be much better off in the long run for it.


To highlight the benefit of separating the mining units regarding aggressive dividends, consider the deployment of any dividend amount over a tighter capital structure of approximately 20 million shares versus that same dividend amount over GORO's 72 million shares outstanding. The market impact of a dividend with a tight capital structure is multiples of what could be achieved by deploying that same dividend amount over the larger capital structure. That's well over 3x the impact in this case.
A substantial dividend per share is likely to attract, as it did in the early years of GORO, a pool of new investment capital much larger than the gold investment space. New investors chasing large dividends and yield often look to a substantial dividend as an interest rate and purchase stock based on that rate of return.

Historic gold resource yields in the first 3 to 4 years of operations reached 2% and 3% rate, which was one of the primary drivers of Gold Resource going from $1 per share and reaching a high of $30 per share. Probably half of that valuation was based on substantial dividends. At that time, the market was rewarding the company with premium yield valuation metrics.
Fortitude Gold will be in a strong position to deliver a targeted future dividend substantial enough to both reward current shareholders and attract new yield investors. This is a known path we have walked before with great success maximizing shareholder value.

We are confident we can walk the same path again.
What all of this highlights is the strategic nature of continuing to deliver to shareholders both an aggressive growth strategy and an aggressive dividend strategy by separating the mining units.
There are, of course, other ancillary benefits, like isolating Nevada within one of the world's premier mining jurisdictions. The market regularly rewards companies as such with a market premium. Each unit can also be better evaluated and valued in the marketplace for what it produces.

One is simply a gold play while the other is a polymetallic gold and silver play with substantial base metals of copper, lead and zinc.
In addition, by separating the units, each unit is set free to be far more efficient and effective at each business strategy without juggling the competing interests and opposite demands of resources which detract from one another under the combined scenario.
It is management's job to maximize long-term shareholder value. After the spin-off, shareholders are -- who are content with both strategies continue to own them both. However, each strategy will be in a company vehicle far more suited to achieve their strategic business plan.

Those shareholders that may want a strategy -- those shareholders that may want one strategy more than the other may now choose on their own accord which strategy they prefer.
Spinning off Fortitude Gold out of Gold Resource positions us to maximize future shareholder value at both mining units and continue to deliver on both business strategies shareholders have experienced and continue to demand.
We have had numerous shareholders express their excitement on the creation of Fortitude. This transaction underscores our commitment to shareholders to continue to deliver on both a growth and dividend story rather than to walk away from one or the other strategy.
We believe unleashing Gold Resources' Oaxaca Mining Unit at this stage in its evolution to achieve its full growth potential is in the best interest of our Mexico operations long term, which is ultimately in the best interest of all shareholders.

At the same time, creating Fortitude Gold Oaxaca's separate but well-known path that previously demonstrated maximizing shareholder value is in the best interest of shareholders and in the Nevada Mining Unit.
I believe this is the best of both worlds. History will be the judge, but I can't be more excited with each operation and its future prospects, and we'll continue to be a fervent supporter of both companies.
It's been a challenging year for most everyone and most every company, Gold Resource included. As one supportive shareholder wrote me the other day, "Between the unsettled zinc market and the mandatory mine closure due to COVID, both of which were out of your control, this management adjusted well to those challenges." I appreciate those comments.

So thank you. That's what we do. We solve challenges as evidenced by the solid third quarter results.
So to conclude the third quarter review, we delivered a strong -- delivered on strong production numbers, are positive on earnings, having bounced back from the previous quarter, achieved a record in Nevada with a 51% gold production increase, all while remaining and remain vigilant mitigating the impacts of COVID-19.
On a personal note, this is likely my last quarter call as CEO of Gold Resource depending on the timing of obtaining an effective registration statement and the spin-off of Fortitude Gold.

If it is the last time I speak as such, I humbly thank all those colleagues and shareholders who have given their support over the last 14 years, which helped enable the company's milestones like -- the likes of which few of the mining companies will ever achieve.
Gold Resource will remain in solid hands with experienced and dedicated mining professionals poised to achieve additional industry milestones. And I look forward to speaking with you again as Fortitude Gold's CEO when it officially launches.
After Fortitude Gold's registration statement is declared effective, please note we will go into a mandatory 40-day quiet period. Please don't read anything into that temporary silence.

We have exciting things in store for both Gold Resource and Fortitude Gold.
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. But before opening up the live Q&A lines, I want to reiterate and address the most frequently asked questions on the spin-off.
The most frequently asked questions include, how long has the company been considering the transaction? I want to reiterate that the company has been evaluating the concept of a potential spin-off for more than a year.

Extensive due diligence and evaluation of the requirements and criteria for the spin-off were reviewed and satisfied over time.
With the Nevada Mining Unit's gold production in ramp-up phase and final due diligence recently completed, the Board made the decision to move forward with the transaction.
Another question we continually get is GORO's dividend. The most common misconception is that GORO is eliminating its dividend, or some shareholders assume that GORO will not pay future dividend. The answer is that for the foreseeable future, GORO intends to continue to pay a dividend and will be in a position to do so.


Another one is on owning of the assets. Shareholders continue to voice their concerns that they were somehow losing a portion of the Nevada Mine Unit in the transaction. This couldn't be further from the truth. The answer is that shareholders are not losing any part of the Nevada Mining Unit in the transaction.
At the time of the distribution of shares, 100% of the Nevada Mining Unit will go to shareholders.

Shareholders will own the exact same assets post spin-off as they own pre spin-off. If you have 100 shares of GORO pre spin-off, you will have 100 shares of GORO post spin-off. And in addition, new shares of Fortitude Gold will be issued to you at a specific ratio to be determined at the execution date.
Another one is on the OTC listing, why not list on a major exchange? After spinning out the Nevada Mining Unit, it will become a junior gold producer with a yet-to-be-determined market cap and share price. Market cap and share price are 2 of the primary factors of exchange listing threshold, and we do not want to run the risk of being delisted if we do not hold these other -- these and other thresholds and requirements for a major exchange listing.

Our goal is to start on the OTC, just like we did with GORO early on, and once we consistently demonstrate we can hold minimum exchange threshold requirements consider up-listing to an exchange. It is far better to up-list to an exchange than to be forced to delist by trying to join an exchange before a company can continually meet the required exchange listing. Another question is why the sell-off, was it unexpected? In a spin-off where each company is going to take a different business strategy, we expect the share registry to change and we were advised as such. In addition, certain institutional shareholders cannot own OTC stock and may sell due to the internal requirements of their own self-imposed charters.
Adding to this are the high-frequency traders pushing on the momentum.

Some of the selling pressure could be shareholders that choose not to own OTC stock. While spinco will be a U.S. company planning to list in the OTC market, there is a reason why the majority of the Canadian junior mining industry lists on the OTC market. It is a good market for junior mining companies to start out on until they reach thresholds to up-list to a major exchange.
We have had numerous shareholders call us with concerns that their broker won't take an OTC share only to find out later after they speak with their broker that they can and will, in fact, accept OTC shares.


Why is the CEO leaving GORO? In order to satisfy certain requirements necessary to obtain tax-free treatment of the transaction, post separation, there must be 2 independent companies, which generally require separate management, specifically the CEO and Board of Directors, with little overlap. In addition to the tax treatment issue, overlapping executives may also create independent issues for each company.
For additional color on this, I lobbied to remain the CEO of both companies. My arguments where that I'm the CEO of each mining unit now, why can't I be CEO of each company post spin just because they're in separate companies? It's clearly not that I can't handle the work. To which our SEC counsel advised that for a transaction to remain tax-free, it is imperative to demonstrate independence between the companies at the highest level, specifically CEO and Board Chairman.

The IRS would likely view the same CEO and Chairman of the Board of each company as not being truly independent companies, and I don't disagree with that advice. It is not worth the risk of potentially failing an independence test and triggering taxes. This is not any -- this was not an easy revelation for me to digest. I've been with Gold Resource for almost 15 years, and I love this company.
We were in deep due diligence and analysis of the spin-off and we had already identified the strategic and positive reasons to consider moving forward with it, subject to checking additional due diligence questions.

I put my ego aside and did the right thing for each mining unit and shareholders.
This decision makes itself as to why I must move to the CEO of Fortitude. Me and Bill Conrad are the only remaining team members that were part of the GORO team that executed on outsized dividends and garnered yield valuations for GORO early on. We have walked that path. We know it.

We believe we can do it again at Fortitude.
On an emotional level, this is very difficult for me. But we are a public company, it's not about me. It's about management's primary task of maximizing shareholder value. We are currently evaluating very qualified candidates for the CEO role at GORO.

Whomever the new CEO is, they will be walking into a great company poised for continued success. Another question is, is the company being sold? There is no plan to sell either company. One requirement for the tax-free nature of the spin-off is that management must attest the spin-off will not be sold for at least 1 year.
Another question we get are concerns over possible increased G&A expenses. Each mining unit already has its own independent team for general management from the General Manager down, with no overlapping expenses.

On the corporate side, there are about 10 total shared executives and managers that work on both mining units. Under the proposed annual management services agreement, this small management group will continue to work on both mining units post spin to the same extent as they were currently doing now. This will actually lower the cost for each mining unit, respectively, for this group of shared managers.
As an example, let's take a Vice President in this group and look at what can transpire under the services agreement. The Vice President will allocate and record their time as they do now between Oaxaca and Nevada.

For example, if Oaxaca is 70% of the Vice President's time and Nevada is 30%, Fortitude will pay Gold Resource for the 30% of the Vice President's time. This actually lowers Gold Resource's overhead on the VP by 30%.
Fortitude Gold is paying the 30% as opposed to 100% for the same time and work that would have been completed under no spin-off. The VP is doing the same job at the same pay as before. But under the services agreement, the allocation of time results in less cost to each company and no duplication of cost for the VP position at Gold Resource.

This is a win-win scenario.
There are only 2 duplicative costs for management under the spin-off, the CEO position and one shared Board member. Gold Resource will hire a new CEO and add one Board member. Fortitude Gold will have its own CEO. Fortitude will only have 2 Board members to start out.

One member is the CEO, which is a nonpaid position for Board service; and one is an independent. This will keep initial cost to a minimum at first.
Fortitude will be looking to add additional Board members or members down the road at a later date. So duplicative costs are one CEO and one Board member. They are not material costs in the larger picture of the transaction as proposed under the management services agreement.


As for infrastructure, for instance, on the corporate side, Gold Resource currently has 2 corporate offices. Post-spin, one office will go with Gold Resource, one office will go with Fortitude, effectively lowering office overhead for each company by not having 2 offices.
Even if there was complete duplicity in this group of 10 managers, the benefits of the transaction would still warrant the spin-off. All considered, nothing about the G&A of this transaction is concerning. And under the services agreement, the duplicative costs are countered by the cost savings of time allocation mentioned in my example, the Vice President.


And my last and most common question is why now. It is the charge of the company's Board of Directors to maximize shareholder value. Once all the analysis and due diligence questions were answered on the spin-off, the choices and decision became very clear. We could keep the mining units combined, but maximizing value would be hamstrung trying to be both an aggressive growth and aggressive dividend company for the aforementioned reasons given during the shareholder call.
To have a chance at maximizing shareholder value for each mining unit, Mexico needs one strategy and Nevada needs another.

Executing on the spin-off has a much greater opportunity to maximize shareholder value for each mining unit. The Board would be remiss in waiting. Now that all the due diligence and analysis are complete and both mining units are cash-flowing and positioned for success, waiting will just prolong the inevitable.
Several shareholders have asked us why don't we wait until a few more quarters or a year out to do the spin-off. My answer to that is we make business decisions when we deem them appropriate and in the best interest of the company and its shareholders.

We believe this is the perfect time.
To put this in perspective, one can always take the approach of wait and see or wait until a potentially better time exists in the future. To wait ignores the need to separate the mining units so they can begin down the path identified to best deliver long-term value. To me, the view to wait and see is counter to most good business decisions and opportunities.
The question of why not wait for Nevada to grow another year so it could potentially enable it to list on the exchange as opposed to the OTC market, that wait-and-see approach would delay what needs to happen now to try to maximize long-term value.

That's 1 full year of not allowing each company to begin down the path it needs to go. That's identifying an opportunity and then prolonging it.
Let me give you the perfect example. Take the "wait for a better time" rationale and apply it to the Nevada Mining Unit. We built our Nevada Mining Unit during the last bear market.

It was a difficult time and we didn't have much money doing everything to survive like all other mining companies back then. Many shareholders pushed back on our goals to build the Nevada Mining Unit. Numerous shareholders labeled it a distraction at the time and stated it would be a decade before our company would have production from Nevada.
Had we waited for a "better time", we would have missed the best buying opportunity in the Walker Lane Mineral Belt in Nevada in the last 20 years. Had we waited, we could not and would not have compiled the exceptional property portfolio in Nevada we now have.

Had we "waited for a better time", it would have been far more costly and -- as competition in the Walker Lane area is fierce today. While we had shareholder pushback against building our Nevada Mining Unit at the time, we were in the trenches, making the decisions we deemed fit in the best interest of shareholders.
And where are we today? We have 5 high-grade gold properties, one in production in just 10 months from groundbreaking, cash flowing and poised for success. Everyone now loves Nevada, and the pushback is all gone. Had we taken the "wait for a better time" approach being suggested by so many shareholders back then, we most likely would have missed the opportunity of our Nevada Mining Unit that we all enjoy today.


We as management identified the opportunity and acted on it. We made the correct call. Waiting for a better time once an opportunity has been identified and due diligence is complete often translates into waiting for missed opportunities.
So with that, I would like to open up the live Q&A. And in an effort to efficiently address the Q&A., if there's any distracting or antagonistic calls, we'll move on to another productive caller's question.

So operator, if there are any questions, if you can please open up the lines for the live Q&A, please?

Operator: [Operator Instructions] We'll take our first question from Heiko Ihle with H.C. Wainwright.

Heiko Ihle: And thank you so much, by the way, for going through all that Q&A here on the call, Jason. I appreciate that.

Jason Reid: Yes.

Yes. Thanks, Heiko. I was just trying to get in front of it. It's amazing there's still the misconceptions as some shareholders, I guess, haven't read fully the press releases or what we've talked about. But I just wanted to get out in front of all of it, so maybe we could have additional new questions.

Heiko Ihle: It blows my mind that people think that one asset just disappears with a spinco.

Jason Reid: So many people were thinking that.

Heiko Ihle: I also want to point out that -- sorry?

Jason Reid: Heiko, we lost you. Yes, it kind of broke up. Say your question again.

Heiko Ihle: I said I also want to point out that it's really nice to see you guys pay a dividend because, I mean, less than a handful of other companies we cover do. But anyways, off to my questions. Profitability going forward, I mean, you guys just put out an extremely strong quarter, how much of that can we trend line into Q4 and then also on a combined basis into next year?

Jason Reid: Yes. I can't give you specific numbers, obviously. We don't even have an outlook for this year due to the COVID situation.

But it is our goal to remain profitable every quarter. They all won't be. But going forward, we're -- we think we're out of the woods. At least for the COVID, we still have to fight it. We'll still have to be proactive.

But out of the woods meaning I don't believe they'll do another shutdown. They might, and hence, we don't have an outlook for this year.
But as we look at Q4, I'm optimistic it's going to be another good quarter and then I think 2021 is going to be an exciting year for Gold Resource. As I mentioned early in the call, the zinc price, I mean, we were just talking about it before this call, it was $1.15. We were in the $0.90 back last -- a year ago.

$1.15 is incredible. That will add millions to the bottom line. Every half -- every penny is almost $0.5 million to the bottom line. So it's terrific on metal prices. We just need to stay vigilant on COVID, keeping it to the least impact it can possibly be on our operations, and I think we're going to have a good Q4 and a great year next year.

Heiko Ihle: Fair enough. Speaking of next year and just general outlook, you answered my second question, but one more that I had, the regulatory environment in Mexico and Nevada, I mean post-COVID, do you anticipate any longer-term changes? Have you seen anything that people are trying to enact? Is there anything that maybe we wouldn't be as privy to as you?

Jason Reid: Yes. No, it's a great question. I don't have any additional color that everybody else that's paying attention doesn't have. Governments are always x factors, whether it's in Mexico or the U.S., and this election will have a big impact on -- going forward on the U.S.

for that matter, the election that's happening today. So I don't have any color on that. All we -- we can't worry too much about that. All we can do is do everything we can to make sure each operation is running as efficiently as possible, and we'll roll with any punch that's thrown our way in that regard. But yes, sorry, Heiko, I can't give you any additional color on that.

Heiko Ihle: Fair enough. Well, keep doing what you're doing. I think you're doing a great job at it.

Jason Reid: Thank you, Heiko.

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

Unknown Analyst: Jason and Kim, first, congratulations on an amazing quarter during a very difficult time.

Jason Reid: Thank you.

Unknown Analyst: No problem. I had a few questions. The first was related to the OMU.

Obviously, it's a difficult time, and my thoughts are with the team there. But do you have any visibility on how production might ramp back up to normalized levels over the next few quarters, how quickly we could see that?

Jason Reid: Yes. No, it's a great question. The impact of COVID is there. I mean, it ebbs and flows given on the week and how many cases we have, given on how many people go into quarantine because they were exposed to somebody.

It's not fun. I mean it's not -- it's a challenge. So is that going to go away next quarter, this quarter? No. Is it going away next year, probably no. All we can do is stay vigilant and keep our protocols in place, and we've shown that we can operate with COVID at our site and still do good.

That will be a challenge, and for every company. I mean it doesn't matter what industry you're in, that's life as we know it, I guess.
But as far as other aspects. I mentioned it on the -- we mentioned it on the press release of the spinco, there's some optimization that we're targeting for the Oaxaca Mining Unit like an ore pass or a regrind circuit. That ore pass could help us not double-handle as much underground.

It could save us in cost and be far more efficient miners. That is slated to happen next year. That's on the preliminary budget. The regrind circuit, we're evaluating that. That could have more gold mine recovery.

So we're positioning ourselves by taking this approach where we're putting more money into the ground to optimize everything we can optimize. And just your question kind of underscores why the spin-off happens. The spin-off needs to happen because Mexico needs to put more money to work underground. Sure, we could continue down the same exact path, but people have to understand there's a push and a pull to everything.
If you're going to pay outside dividends, you have to give up some projects.

And taking this new strategy is very exciting because we're going to be able to take our exploration budgets that went from the last 7, 8 years from $10 million down to $2 million, back up towards $10 million. That's very exciting to me. That's finding additional ore. That's finding new deposits. That's adding tremendous value.

So the new strategy, I think, is going to unlock a lot of value, not that our previous operations -- operating strategy was wrong. I'd do it all again in the exact same way, but now it's evolved to a point where it needs to go this way. And between the optimization programs, between our fervent health screenings, I think we're going to have a really good year 2021.

Unknown Analyst: Great. Another question related to what you just mentioned.

OMU has done extremely well in part because of the base metal prices and particularly zinc. One of the headwinds for this year and 2021 was related to the TC charges -- or treatment charges. Do you have any guidance on what kind of cost adjustment we can expect going into 2021 as you look at renewing that contract?

Jason Reid: Yes. I can't speak to specifics until we're actually done with a contract. So I'm going to be really reserved on what I say here.

What we are seeing is far more favorable TC terms. So that will have a big impact. If we can secure those favorable TCs, that will have a huge impact, not to mention what you meant -- what you just said with the higher zinc price. But I'm hesitant to go into specifics until we actually signed a contract. So I think that's probably best to flesh out in a future call.

But point being -- I've mentioned this in previous calls. Years ago, when the zinc price was really dropping, we didn't know it was going to drop to the extent it did. And for other reasons, internally, we set a goal to lower our cost by $10 million. And so we did all these cost-cutting measures. We did it.

And in one fell swoop, the TC charges eliminated that whole savings. And so what would be nice is to see that $10 million come back in. And we'll see -- we'll have to wait and see once we get the final -- a contract signed. But it's just too early to speak to specifics on that until we get something signed. But it's looking good.

Unknown Analyst: And that's fair. And I've seen the current market price, it seemed to reflect a couple of hundred dollars potential in savings, which I just wanted to see if I can validate, but I understand. In terms of an update, looking at the exploration side, can you provide any update on the drilling that was done at either East Camp Douglas and/or the Golden Mile, and maybe any exploration efforts being done at the OMU as well?

Jason Reid: Yes. As far as exploration in Nevada, we started our first East Camp Douglas program. So that's very exciting.

We're only a couple of holes into it. And this is a really big property. It's going to take a while, but we are drilling it. So that's exciting. We don't have any results back yet.

As far as Golden Mile goes, we are, I think, right now mobilizing a drill or soon to be mobilizing a drill there to drill it. So that's very exciting as well. We're going to go in -- there's 2 known areas of mineralization, and previous companies have put their own resource around it. We haven't come out with that number because we want to own it, meaning trust but verify. So we're going to go in and drill it, if you will, to confirm what they've drilled is there and try to delineate it and make it a little larger with an initial, just to get our arms around the resource, if you will.

And how soon we can do that, it's still a little early to talk about timing, but the sooner the better. And for sure, by next year, I want to come out with the first resource there. So both of those properties are being explored as we speak and both soon to be drilled as we speak. As far as the Oaxaca Mining Unit, very exciting in putting out these exploration drifts. We as a company have never had the luxury of deploying capital for exploration drifts only.

So what I mean by that is until we were able to be in this position, we always had to put a drill wherever the mining wasn't happening and they had space to put a drill, and that's commonplace for a mine, underground mines, and it's this push and pull between exploration and production. But we're pushing out these exploration drifts, which you can see the schematic on our website presentation of these exploration drifts, and you can see that we're going to be able to test new areas that have never been tested before around the Arista.
Now the Arista is very structurally controlled. It's the Arista -- the Switchback has to do with ridges, you can see the surface expression with ridges on the surface. There's numerous other ridges that are parallel to these that make us think there are more Switchbacks out there, and these drifts are putting us in the position to find them.

So not only do we expect to add to known vein systems, but finding new ones will be very exciting.
So as I mentioned earlier in the call, this new strategy where we're not going to be a gating factor of, oh, we're pushing this out in dividends. No, we're pushing a lot of money back into exploration. It's very exciting. We're going to be able to expedite, I think, some of these expansions in discovery.

So exploration is exciting on both fronts.

Unknown Analyst: And Jason, and this may be a question for Kim as well. In looking and thinking about the CapEx requirements over the next year as you expand exploration and continue building out the dry stack, how should we model or think about the future CapEx over the next 4 or 5 quarters?

Jason Reid: Yes. The biggest CapEx as we -- everybody here -- most people are aware, we've been through a lot of capital expenditure projects. The tailings lift.

We had an electrical power grid brought in. We did a paste fill plant. All these are capital-intensive. But it's a good thing you're doing them. And what that means is the mine is growing, the mine -- and that's what's happening.

We're currently doing a thickened tail. So that CapEx will continue on into next year.
Before COVID, we had planned to be done with that project this year. But when we got shut down, nobody -- we didn't know how long you're going to get shut down. Obviously, you're shut down so you can't move projects forward.

So the long and short of it is the -- that project got pushed into next year. So that CapEx project will continue. There are these optional CapEx projects that I've alluded to, this ore pass, this regrind, all these things we don't have to do but we were looking at them seriously in an effort to make our project more efficient down there. Those could potentially go into the CapEx budget.
But then as this mine grows, which we expect it to keep growing and faster once we deploy more exploration capital, the infrastructure is going to be additional CapEx.

I mean we're going to be -- obviously, you have to push air and power to all these new areas. So we don't have -- we're working as we speak on our budget for next year. So we don't have it all nailed down.
But how you can model it -- I mean, we've spent $10 million a year on average on these CapEx projects. If we're not doing big CapEx projects, we're probably allocating that $10 million for mine development.

So I'm not saying $10 million is the exact number. I'm just trying to give you something, and that's probably a number that's going to be deployed irrespective of whether you have CapEx projects or not. It's going to be put back into the ground.

Unknown Analyst: No, that's fair, and that's helpful. The last question, and then I'll jump back in the queue is, as you mentioned, there are certain key milestones that you're going to be looking for as it relates to up-listing to the NYSE.

Do you have a sense of what the time line that you might be examining the market cap and share price or any other milestones? Will it be -- are you looking at a 2-quarter process, a year? If you can give us some guidance before considering that up-list that would be great.

Jason Reid: Yes. The market is going to tell us, I think, in large part. There's very little value in Gold Resource that represents Nevada. The market just isn't valuing it yet, so it's tough to put a number on it.

When we do the spinco, the market will put a number on it, and we'll just see once we continue to execute on our production.
And once we initiate the dividend -- and it won't happen right out of the gate, but once we do initiate a dividend and then do a dividend increases, the market, I believe, will respond quite favorably. And then that will dictate share price. That will dictate market cap. Those are some of the primary drivers for an up-listing.

But yes, the market is going to tell us. It's not like we can force that. That's one of the issues.
And then the heavy part of that portion of the due diligence of the spinco is do we try to stretch ourselves and go list on a major exchange? But the risk of failing and then getting delisted is a death spiral. You don't want that.

You want to up-list when you're confident that the market is going grant the market cap and share price necessary to stay on.
So could it happen in 6 months? Possibly, but I think that would be the most aggressive. Could it happen in a year? I wouldn't see why not if we execute on the plan. But again, we don't call those shots. All we can do is execute on the plan on production and then issue dividends and then increase dividends, and the market is going to tell us when we go.

Unknown Analyst: Fair enough. And with the cash flows that I'm projecting out, you guys should have a very successful 2021. All right. I'll go ahead and jump off the questions and jump back in the queue. Good luck with the job and keep up with the good work.

Jason Reid: Thanks, [ James ].

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

Unknown Analyst: Jason, great quarter and great job on the conference call kind of explaining the reasoning behind the spin-off transaction. And I guess my question, or I'll ask you to confirm this for me, it's my understanding that in a spin-off transaction there's a great deal more protocol and regulations in terms of -- the extent to which you're able to kind of promote or put out forecast for the entity being spun off. Is that accurate?

Jason Reid: It is, but only for a certain amount of time.

The SEC does not like you to what they call, I think, prepare the market. So we will, as I mentioned, be going into a 40-day quiet period. So the next steps are -- obviously, we turned in our S-1 to the SEC. They'll review it. A couple of outcomes could happen.

A, they'll review it and give it back with no comments, which means it's declared effective and then we'll move forward to finalize the spinco and the quiet period starts. Or they come back and say, we have these questions, answer them, and you're good. And so we would do that. Or they come back and say, answer these questions and resubmit, and so then we set another 30 days.
So we'll just wait and see what the SEC comes back with.

We put a lot of time and effort into that document. We think it's a very good S-1 document. So I'm hopeful, I'm optimistic that it goes with no comment. We'll hear, I think, at the end of next week or the week after. That will be the 30 days.

So it's coming up.
Now once they declare it effective, then we'll move forward, give the 10-day record date, so -- with the SEC, that's a requirement with the SEC. And then effectuate the spin-off and then we go into a quiet period for 40 days. And you're not going to hear any talk on the company until we come out of that 40 -- until we come out of that. All we can speak to is what will be in the S-1.

So -- yes. But after that, we will see...

Unknown Analyst: So you're kind of limited in terms of your ability at this point to promote the spin-off, which is no fault of yours, it's just a function of the regulation surrounding that.

Jason Reid: Those are rules and regulations, yes. Correct.

We are limited on what we can say.

Unknown Analyst: And the reason I bring that up is I sense that, that may have been a contributing factor to maybe a bit of the downdraft over the last 2 or 3 weeks in the stock price. And I imagine you're chomping at the bit, but if you're not allowed to be out there doing a roadshow or issuing projections or anything like that, that it might be a little frustrating.

Jason Reid: Yes. It just is what it is.

Just -- I don't view the world like so many shareholders on a quarter-by-quarter basis. I view the world long term, and so this is temporary. This pullback is temporary. It's like the example I gave in Nevada, right? Nobody wanted us to be in Nevada. Everybody thought it was a distraction.

Now everybody loves it.
Talk to me a year from now. Everybody is going to love this spinco. Mexico, who will have gone down an incredible path, and it's going to succeed. I'm confident.

And Fortitude will do the same. And they'll look back and everybody will forget this noise. Everybody will forgive this pushback, and both companies will be better off for it and it's exciting. It's just an exciting time. So 40-day quiet period, no problem.

I mean for the bigger picture, it means nothing to me. Yes.

Unknown Analyst: Yes. Will that 40-day quiet period -- I mean, I would think that over the next couple of months, we're going to -- there'll be a good level of news coming out of the company, new CEO, those types of things. That won't -- I mean you'd still be able to do -- right.

Jason Reid: For GORO, yes.

Unknown Analyst: For GORO, correct. I mean but that won't -- well, I guess that wouldn't affect the spinco then, would it? So if you're going to announce a new CEO for GORO. But they're -- I'm anticipating -- go ahead.

Jason Reid: Okay.

No, sorry. I interrupted. Go ahead.

Unknown Analyst: Well, I just -- it feels like there's going to be a decent amount of news flow coming out of the company over the next 2 to 3 months. And I was wondering to what extent the quiet period would affect the ability to release news items.

Jason Reid: The quiet period only affects Fortitude Gold.

Unknown Analyst: Got you. Right. And I...

Jason Reid: Gold's Resource -- yes, Gold Resource will be able to -- it will be -- it will have news on the new Board member, on the new CEO.

It will have additional news on like normal course. The quiet period only affects the spinco.

Unknown Analyst: Okay. And one final comment. In my due diligence on the company, I've listened to 4 years' worth of conference calls and read through 4 years of your press releases.

And one thing that struck me is that you have -- and I've heard other callers comment on this, that you always keep the long-term best interest of the company and the shareholders at heart. And I think you're, in my opinion, from having listened to hundreds of conference calls and talked to a lot of people in the industry, you're just a great honest leader and I appreciate all your work.

Jason Reid: Yes. I appreciate the comments. Thank you very much.

So with that, if you are in the queue for the question-and-answer period and that we didn't get to you, please call us. And we'll just -- we'll talk to you one-on-one.
With that, I bid you farewell and look forward to hearing -- talking to you on another conference call down the road. Thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference.

We thank you again for your participation. You may disconnect your lines at this time, and have a great day.