Executives: Jason Reid - President and Chief Executive

Officer
Operator: Thank you for joining Gold Resource Corporation’s 2016 Year-End 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.

Thank you for joining Gold Resource Corporation’s 2016 fourth quarter and year-end conference call. I expect my comments to run approximately 25 minutes followed by a question-and-answer period. 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, March 1, 2017, and we undertake no obligation to publicly update 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 year-ended December 31, 2016. 2016 was a good year for Gold Resource Corporation. I’m very proud that the company delivered its 6th consecutive year of profitability.

In addition to being profitable, we succeeded on numerous fronts, including the following. We exceeded our annual gold production outlook range. We achieved our annual silver production outlook range. We dramatically expanded the strike length of Oaxaca Mining Units Arista Mine’s Switchback vein system. Arista Mine development reached a Switchback vein system with a second access ramp and we received the final mining permit for our Alta Gracia’s projects Mirador Mine.

At our Nevada Mining Unit, we acquired two high-grade gold properties adding critical mass to this unit with Isabella pearl representing near-term gold production potential and Mina Gold adding to our pipeline of potential projects. Our total cash cost per precious metal gold equivalent ounce sold was $548 and our total all-in sustaining cost per precious metal gold equivalent ounce was sub $1,970. We posted annual net income of $4.4 million, or $0.08 per share. We remain committed to shareholder dividends returning $1.7 million back to the owners of the company, our shareholders. We continue to invest in the company’s future growth in Mexico and Nevada, while growing our year-end cash balance to $14.2 million.

In addition, to this list of 2016 accomplishments, we recently announced the company’s best and strongest proven and probable reserve report to-date. We accomplished all of this along with other successes without raising money, without diluting shareholders through equity sales, and without going into debt. 2016 was a good year for the company. Before I walk you through the fourth quarter and year-end narratives, let’s breakdown our production numbers. Fourth quarter production for the Arista Mine totaled 5,088 gold ounces, 419,683 silver ounces, 258 tonnes of copper, 1,202 tonnes of lead, and 3,996 tonnes of zinc before payable metal deductions.

Calculating the gold and silver as precious metal gold equivalent, we produced 10,818 ounces at a

realized 73:1 silver to gold ratio. We milled an average of 1,373 tonnes per day, or 118,798 total milled tonnes for the quarter. Our total cash cost after base metal byproduct credits per precious metal gold equivalent ounce sold and including royalties during the quarter totaled $698 per ounce. Our all-in sustaining cash cost per ounce a non-GAAP measure for the fourth quarter totaled 1,215. During the quarter, we sold 4,330 gold ounces, 366,667 seven silver ounces, 224 tonnes of copper, 1,168 tonnes of lead, and 3,313 tonnes of zinc.

Average Arista Mine grades and recoveries for Q4 included gold grade at 1.53 grams per tonne with 87% recovery, silver grade at 121 grams per tonne with 91% recovery, copper grade at 0.26% with 82% recovery, lead grade at 1.28% with 79% recovery, and a zinc grade at 3.98% with an 84% recovery. Metal grades declined during the period due to the specific area of the Arista Mine being worked during the quarter. During the quarter, we generated revenues. Our revenues are net of smelter charges of $18.3 million, generating mine gross profit of $1.2 million and a net loss of $3.6 million, or $0.06 per share. Q4 average metal prices realized were $1,184 per ounce gold and $16.17 per ounce silver.

Please note, because our metal sales include an embedded of derivative, quarterly realized sales prices may be higher or lower than average quarterly metal prices. Turning to 2016 year-end numbers, annual production from the Arista Mine totaled 27,628 gold ounces, 1,857,658 silver ounces, 1,035 tonnes of copper, 4,049 tonnes of lead and 14,302 tonnes of zinc before payable metal deductions. Calculating the gold and silver as a precious metal gold equivalent, we produce 53,023 ounces at a

realized 73:1 silver to gold ratio. We milled an average of 1,295 tonnes per day, or 450,221 total milled tonnes for the year. Our total cash cost after base metal byproduct credits for precious metal gold equivalent ounce sold and including royalties totaled $584 per ounce, our all-in sustaining cash cost per ounce a non-GAAP measure for 2016 totaled $970.

During 2016, we sold 25,426 gold ounces and 1,704,336 silver ounces, 964 tonnes of copper, 3,797 tonnes of lead, and 11,816 tonnes of zinc. Average Arista Mine grade at 2.13 grams per tonne with 89% recovery, silver grade at 139 grams per tonne with 92% recovery, copper grade at 0.29% with 78% recovery, lead grade at 1.12% with 74% recovery, and a zinc grade at 3.78% with a 84% recovery. We generated annual revenues. Our revenues are net of smelter charges of $83.2 million. We generated mine gross profit of $22.4 million, and a net income of $4.4 million, or $0.08 per share for the 2016 year.

This marks the company’s 6th consecutive year of profitability, which is a rare accomplishment in the mining industry today, especially when four of those years were during consecutively brutal fair markets. Our annual average metal grade metal prices realized for $1,256 per ounce gold and $17.18 per ounce silver. Base metal sales during the year generated $37.8 million in revenues. During 2016, we distributed $1.7 million in dividends to shareholders, or $0.02 per share in instituted dividends, and a $0.01 per share as a special 50% year-end bonus shareholder dividend. Cash and cash equivalents at December 31, 2016 increased by $1.3 million over the prior year to $14.2 million.

The company beat its 2016 gold production outlook range with 27,628 gold ounces and met its annual silver production range at 1,857,658 ounces. In 2017, the company is targeting a similar production outlook range as 2016, with ranges based on plus or minus 5%, of approximately 27,500 gold ounces and 1,850,000 ounces of silver along with significant base metal production. The target range was established based on the company’s 2017 mine plan, the area of the deposit scheduled to be mined during 2017 years and planned development at Switchback during 2017. I would go into more detail on this in a moment. But generally speaking, we want to complete, at least, one full-year of mine development at the Switchback vein system prior to commencing, both tonnage mining there targeted in 2018.

We continue to focus on margin, while mining tonnes based on net smelter return or NSR values per tonne of all the metals to maximize cash flow. Base metal production generally results in lower production cost per tonne and per ounce when used as a credit against precious metal production cost. The company’s 2017 production outlook targets sufficient precious and base metal production during the year to support our budgets plans for capital expenditures, including ongoing mine development at the Arista and Mirador Mine and to begin Phase 4 construction of the tailings impoundment facility. We are targeting an increased exploration budget for 2017 of approximately $6.4 million between both Nevada and Oaxaca Mining Units compared to $4.3 million exploration spend for both mining units in 2016, assuming metal prices remain, at least, at current levels throughout the year. We plan to keep the current instituted annual dividend to $0.02 for the foreseeable future.

We target future dividend increases with primary consideration given when one or a combination of the following takes place. One, we begin processing both tonnage Switchback order; two, Isabella Pearl production comes online; and or three, metal prices increase. While that remains a goal to increase the monthly dividend when we are able, we must continue to balance the needs of the existing operations, exploration, potential Isabella Pearl project construction, as well as paying taxes. I will speak to the development of our Nevada Mining Units, Isabella Pearl gold project later in the call. Turning to our operations.

During 2016, we mined primarily from eight to 10 separate veins within the Arista Mine on levels ranging from four to 20. Arista Mine development and water management during 2016 was greatly improved, which was a welcome contrast compared to the water inflows and gas challenges of 2015. At the end of 2016, the main Arista vein system ramp advanced beyond level 23 and we reached the Switchback vein system with access ramp development on the level 24 as targeted. During 2016, we completed a major water pumping station on level 20 to handle expected water management needs from both the Arista and Switchback vein systems. We remain fortunate and we’re a bit surprised that no appreciable amounts of water were or have been intersected from the new drill stations or the access ramps to Switchback, which has benefited our development pace.

We do expect, we will have to deal with water flows at some point as we continue to develop this new area of the Arista Mine. We plan to continue the ongoing mine development at the Switchback vein system during the 2017 year before we commence bulk tonnage mining targeted in 2018. The 2017 mine plan incorporates processing a modest amount of Switchback development or through the mill as we access multiple levels and draw points with mine development. We have the opportunity to take the time to develop numerous or blocks of Switchbacks. So we can choose, so when we choose to commence bulk tonnage mining, we have more advanced development and mining optionality the likes of which we have never had as a company.

Prior to now, we have not had one year of mine development in place to long-haul open stope and or cut-and-fill bulk tonnage extraction. This plan should dramatically help us on numerous fronts not the least of which is optionality when we confront future water courses and or gas that may slow down development and operations in that part of the mine. I believe, this longer-term mine plan approach will pay dividends in the future, especially as we go deeper in the Arista Mine. This plan is in stark contrast to the mostly hand-to-mouth mining we have been doing at a Arista since commencing underground development in 2010. At the end of 2016, we secured the final mine permit to commence mining operations at our Alta Gracia project in Mexico.

We are currently improving old historic mine workings to access mineralization and target [indiscernible] through the Aguila mill by the end of Q1 2017. We are starting out targeting modest tonnage extraction rates that generate cash flow to help fund further development and exploration of the Mirador Mine. As we closed in on ore feed from the Mirador Mine, our goal to have multiple mines feeding ore to a strategically located mill is close at hand and we look to build on that in the future with other Oaxaca Mining Unit properties. We continue to push substantial cost reduction measures in Mexico, including the power grid program aimed at lowering our energy costs, which is our second highest cost up for manpower and the port facility program aimed at lowering our trucking costs. We remain optimistic, we will be able to execute on one or both of these programs in the future.

They both have challenges and our long lead time items, but are well worth the ongoing effort to continue to reduce costs. Turning to our development plans at our Nevada Mining Unit, the acquisition of the Isabella Pearl project launches us from zero to 60 miles per hour along the road toward gold production in Nevada. We acquired the property, but the third-party report showing proven and probable reserves of over 191,000 gold ounces grading at 2.18 grams per tonne gold. Advanced engineering in design plans and over three and one half years of advance mine permitting, we are targeting Nevada gold production at the earliest possible point in time subject to final mine permit, construction timing, and funding. It is possible this timeframe could be by the end of this year, or the first-half of next year for Nevada gold production.

We have engaged two Nevada-based engineering firms to assist us with our desire design and mining schedule changes. We drilled additional delineation holes for in-house modeling purposes and additional conformatory metallurgical work on the Isabella Pearl project. We completed drilling and pumping pump testing at $600,000 water well for the project. We are pleased to report we’ve resubmitted the plan of operations to obtain our mine permit. We are fine tuning the capital expenditures, operating costs and working capital costs for the project budget.

As we move the project forward, we remain focused on the potential in front of us to increase our company’s gold production by 100%, which is a material percentage that should substantially increase shareholder value. Turning to exploration. Our Oaxaca Mining Unit and Nevada Mining Unit exploration drill expenditures for 2016 totaled $2.1 million and $2.2 million, respectively. Our drill programs in Mexico were successful primarily focusing on the Arista mines Arista and Switchback vein systems. A particular note was the Switchback vein system expansion success with numerous 2016 high-grade drill intercepts, including eight meters of 6.9 grams per tonne gold and 618 grams per tonne silver, as well as 9.5 meters of 8.85 grams per tonne gold and 669 grams per ton silver.

Our corporate presentation has additional high-grade assays of the drilling completed in 2016. Early in 2017, we announced a 275 meter Switchback vein system extension intercepting five meters, or 3.98 grams per tonne gold dramatically extending the strike length and size of the Switchback vein system. Exploration success at the Oaxaca Mining Unit culminated into the recently announced 2016 Oaxaca Mining Unit proven and probable reserve report update in which we recorded the strongest Oaxaca Mining Unit PNP reserve report ever as a company. Proven and probable reserve tonne increased by 15%, gold ounces increased by 31%, and silver ounces increased by 17% over the prior year. We replaced all the tonnes we mined during the year putting them back into the reserve equally as exciting, we converted some of our first Switchback mineralized material from 2015 reserve report and the Switchback proven and probable reserves for 2016, while seeing an increase in estimated gold grades.

In addition, we now have over 2 million tonnes of mineralized material that we target future conversion of a substantial portion into proven and probable reserves. I believe Oaxaca Mining Units 2016 exploration efforts added tremendous value to the company and as a credit to our exploration team. The press release of the new reserve is currently on our website and the full PNP report will be uploaded at the site as soon as possible. As a side note, the proven and probable gold ounces and mineralized material on Isabella Pearl and our other Nevada properties was not included in the recent update reserve report. We target to combine both Oaxaca Mining Unit and Nevada Mining Unit reserves in the future.

At our Nevada Mining Unit, drilling at our Gold Mesa property returned exceptional results with surface and near surface high-grade gold mineralization, including 15.2 meters, or 6.27 grams per tonne just nine meters downhole, as well as 12.3 meters, or 1.88 – 1.89 grams per tonne gold starting at surface. At the end of the year, we completed a third drill program at Gold Mesa and our first drill program at our miner gold property and look forward to updating shareholders in the near future as those results are compiled. In addition to our acquisition of the mine and gold property in August of 2016, which has an historic third-party mineralized material estimate of 1.6 million tonnes creating 1.88 grams per tonne gold with exploration upside. We were working on another important acquisition and in early 2017, we completed and closed that deal announcing the acquisition of the East Camp Douglas property. This acquisition added to and solidified our large landholding in this portion of the Walker Lane Mineral Belt, providing additional district scale upside potential for our Nevada Mining Unit.

East Camp Douglas as third-party high-grade drill intercepts, including 23.86 meters of 1.99 grams per tonne gold and 9.1 meters of one gram per tonne gold with both intercepts starting at surface. I want to draw your attention to the high-grade gold at all four of our Nevada Mining Unit properties. We are looking at not only plus 1 gram gold, but also 2 grams gold, which is high-grade for potential open pit heap leach operations. This aspect will be relevant in a moment when I discuss quality ounces. We feel very fortunate to have acquired four exciting properties comprising over 27,000 acres that now makeup our growing Nevada Mining Unit.

All four have potential to become future high-grade gold open pit heap leach operations with low capital expenditures and high return on capital. We have near-term production with Isabella Pearl, mineral delineation and additional discovery potential at Gold Mesa and Mina Gold and very large district scale expiration in East Camp Douglas. Our Nevada Mining Unit was born out of a directive from our Board of Directors to diversify into another mining friendly jurisdiction with high-grade open pit heap leach potential as a complement to our operating high-grade underground mines in Mexico. We wanted to and successfully achieved property acquisitions during the bear market in metals and before metals make another strong bull market run as they did for over a decade peaking in 2011. We believe all four deals were accretive whereby moderate amounts of cash and equity shares were used to secure unique surface and near surface high-grade gold assets.

It seems most deals are consummated in this industry several years into bull markets, while history shows many companies often overpay for assets during bull markets. While most of the industry just focused on staying alive during the recent bear market years, we not only focused on staying alive and staying profitable, but we also focused on acquiring assets during depressed market conditions operating counter to the industry norm. In addition, many companies chased 0.5 grams gold project and try to make up for the low-grade with large tonnage operations, which often require large CapEx expenditures and poor return on capital. In my opinion, in most cases, one has to be an almost perfect miner and operator to succeed at a 0.5 gram per tonne gold project. The industry witnessed the demise of many of those projects and mining companies in the last couple bear market years.

I’m nowhere near perfect, so I avoid low-grade, large tonnage, large CapEx projects. We continue to advance this – with this philosophy by which the company was founded and with the belief that not all ounces are created equal, our Nevada properties surface and near surface high-grade gold doing our intercepts and high-grade open pit heap leach potential highlights this. Our estimated average gold grades are multiples of the aforementioned 0.5 gram low-grade deposits. I argue that our 1 to 2 gram per ton gold averages at our Nevada Mining Unit are far more valuable to our shareholders than mountains of 0.5 gram gold or lower per tonne deposits. Again, not all ounces are created equal as high-grade ounces are superior and have potential for greater margin than much larger quantities of low-grade ounces.

I believe when we reach production at our Nevada Mining Unit from Isabella Pearl with a pipeline of future projects for operational longevity and look back on these four acquisitions, shareholders will be pleased at their accretive nature all of which were acquired at the right time, in the right location, and for the right cost. As I’ve said repeatedly for many years, it is our goal to remain standing after the dust settles on the bear market years in metal – in the metal space, so that we can prosper during the bull market years to come. We continue to successfully position Gold Resource Corporation to do just that and a strong upward movement in the gold and silver prices during the first-half of 2016 validated and affirmed our optimism that we could continue to see upward movement in metals like – the likes of which we have seen thus far in 2017. To wrap up 2016, I’m very proud to report Gold Resource Corporation achieved its 6th consecutive year of profitability. We beat and met our production objectives.

We obtained our Mirador Mine permit and have commenced mine development. We reached the Switchback with our second access ramp and are actively developing Switchback for 2018 bulk tonnage mining. We dramatically expanded our Arista Mine by nearly doubling the strike length of Switchback recently. We acquired two high grade properties for our Nevada Mining Unit and target Nevada gold production as soon as possible. We continue to pay shareholder dividends and provide for a special $0.01 per share dividend at the end of 2016 as appreciation for our shareholders support.

We are well-positioned to achieve our goals in 2017 if metals hold the current price range and highly leverage to the gold price if they move up from here. The management and team here at Gold Resource Corporation remain committed to our shareholders and thank you for your continued support. With that, I would like to thank everyone for their time today on the 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 do not screen filter or limit who can call in any distracting or antagonist calls will be terminated and I will simply move on to the next productive caller’s questions. Operator, please open up the lines for the Q&A, and if we have our first question, let’s take that.

Operator: Thank you. [Operator Instructions] And we do have a question in queue. Caller please go ahead.

Unidentified Analyst: Hi, Jason, this is Paul [indiscernible] longtime investor.

Jason Reid: Hi, Paul, how are you doing?

Unidentified Analyst: Pretty good.

It sounds like you have a really good year and…

Jason Reid: A great year. Thank you.

Unidentified Analyst: Yes, good to see that. Just curious about the Nevada properties and the high-grade ore there. At what point does it make sense to mill that ore rather than heap leach where you have the higher losses?

Jason Reid: No, it’s a great question, and we’ll be looking at that as a potential.

But for us with Isabella Pearl and how advanced Isabella Pearl is, we want to stay on track to create an open pit heap leach situation there. With some of our other properties with much higher grade, yes, we will be evaluating that. But I can’t really give you an exact grade in which that makes sense. But obviously, some of the grades that you can see on our corporate presentation are phenomenal especially…

Unidentified Analyst: Yes, that’s why I thought why heap leach where you’re going have substantial losses, I would think…

Jason Reid: Well…

Unidentified Analyst: It’s just not true on heap leaching, 70% recovery is pretty good?

Jason Reid: Yes. That you’re not going to recover at all that you’re absolutely right.

But again, we’re going to stay focused and really push to get Isabella Pearl into production as soon as possible with its current game plan. But again, the other properties and some of the grades we’re seeing, we’ll take a look at that optionality and see what makes sense. But I think, we’re really well positioned with these four properties and we now have district scale exploration, which is very important to us and that’s why we picked up this very exciting East Camp Douglas to add to our property portfolio. So I mean, like I said in the call, I think we’ve gone from zero to 60 miles an hour. We’re going to be probably the next producer in Nevada with a nice pipeline of projects and we did it during the bear market.

So we’re feeling really good about that.

Unidentified Analyst: Yes, that’s really exciting. Thanks for your answer on it.

Jason Reid: Hey, Paul, good to talk to you. Thank you for your question.

Unidentified Analyst: All right.

Operator: [Operator Instructions]

Jason Reid: It sounds like we don’t have any more questions. So that being the case, I’ll go ahead and just conclude this call. Again, thank you guys very much for listening and we’ll talk to you next quarter.

Operator: That does conclude today’s conference.

We thank you for your participation.