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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-34857

GRAPHIC

Gold Resource Corporation

(Exact Name of Registrant as Specified in its charter)

Colorado

84-1473173

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2000 South Colorado Blvd, Tower One, Suite 10200, Denver, Colorado 80222

(Address of Principal Executive Offices) (Zip Code)

(303) 320-7708

(Registrant’s telephone number including area code) 

Securities registered pursuant to Section 12(b) of the Act:

a

Title of each class

Trading Symbol

Name of each exchange where registered

Common Stock

GORO

NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YesNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 74,439,205 shares of common stock outstanding as of April 27, 2021.

GOLD RESOURCE CORPORATION

FORM 10-Q

Index

Page

Part I - FINANCIAL INFORMATION

First Quarter Highlights

1

Item 1.

2

3

4

5

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

Part II - OTHER INFORMATION

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Signatures

30

FIRST QUARTER 2021 HIGHLIGHTS

Highlights for the three months ended March 31, 2021 are summarized below and discussed further in our Management’s Discussion and Analysis:

Strategic

In addition to a new and highly accomplished CEO, Mr. Allen Palmiere, we have added three new independent directors, Ms. Lila Manassa Murphy, Mr. Joe Driscoll and Mr. Ron Little, to the Board of Directors. These additions to the Company’s leadership add the expertise necessary to focus on unlocking the value of our assets while implementing best in class governance.
A Technical Advisory Committee of qualified professionals has been established that reports to the Board of Directors with respect to various technical aspects of exploration, operations and corporate development. Messrs Dale Finn and Joe Spiteri have been retained as initial members.
GRAPHIC
For the seventh consecutive year, the Don David Gold Mine earned the prestigious Empresa Socialmente Responsable (“ESR”) award from the Mexican Center for Philanthropy (CEMEFI). Awards are given to organizations who demonstrate a commitment to supporting social and environmental protection programs within their local communities.
Annual Meeting of Shareholders will be held on June 4, 2021 in a hybrid (virtual and in-person) meeting format. Information regarding notice, materials and voting can be found in the 2021 Proxy Statement filed at www.SEC.gov.
$0.7 million distributed in shareholder dividends, totaling over $117 million since 2010.

Operational

There have been no lost time incidents at the Don David Gold Mine during Q1 2021. The Company remains committed to safety, the environment and the communities around its operations.
The Don David Gold Mine produced 6,097 gold ounces and 307,610 silver ounces or a total of 10,750 gold equivalent ounces, of which 5,019 gold ounces and 253,061 silver ounces were payable ounces sold at an average price per ounce of $1,787 and $26.77, respectively.
Construction of the water filtration plant and dry stack tailings facilities progressed with an expected completion in the third quarter. The dry stack facilities will conserve water, accelerate reclamation of certain areas of the open pit mine as well as extend the life of tailings storage facilities.
A total 262 meters of exploration underground development was completed along with 14 underground diamond drill holes (totaling 4,099 meters) at our Arista and Switchback vein systems.

Financial

Our balance sheet remains strong with $27.2 million in cash as of March 31, 2021, an increase of $1.8 million since December 31, 2020.
Cash from operating activities is $6.8 million.
Net income of $2.5 million or $0.03 earnings per share for the period.
Working capital from continuing operations increased 5% to $32.5 million during the quarter.
Total cash cost is $408 per gold ounce equivalent (after co-product credits).1
Total all-in sustaining cost is $937 per gold ounce equivalent (after co-product credits).1

1 Total cash cost after co-product credits and all-in sustaining cost per gold equivalent ounce sold are non-GAAP financial measures. Please see the Non-GAAP Measures section of the Management's Discussion and Analysis and Results of Operations for a complete reconciliation of the non-GAAP measures.

1

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

GOLD RESOURCE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share and per share amounts)

(Unaudited)

March 31, 

December 31, 

2021

2020

ASSETS

Current assets:

Cash and cash equivalents

$

27,230

$

25,405

Gold and silver rounds/bullion

593

671

Accounts receivable, net

3,533

4,226

Inventories, net

11,584

9,995

Prepaid expenses and other current assets

1,552

2,576

Total current assets

44,492

42,873

Property, plant and mine development, net

62,965

62,511

Deferred tax assets, net

347

309

Other non-current assets

44

41

Total assets

$

107,848

$

105,734

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

7,725

$

8,782

Income taxes payable, net

1,368

73

Mining royalty taxes payable, net

853

955

Accrued expenses and other current liabilities

2,087

2,275

Total current liabilities

12,033

12,085

Reclamation and remediation liabilities

3,029

3,098

Other non-current liabilities

364

13

Total liabilities

15,426

15,196

Shareholders' equity:

Common stock - $0.001 par value, 100,000,000 shares authorized:

74,439,206 and 74,376,958 shares outstanding at March 31, 2021 and December 31, 2020, respectively

75

75

Additional paid-in capital

84,966

84,865

Retained earnings

14,436

12,653

Treasury stock at cost, 336,398 shares

(5,884)

(5,884)

Accumulated other comprehensive loss

(1,171)

(1,171)

Total shareholders' equity

92,422

90,538

Total liabilities and shareholders' equity

$

107,848

$

105,734

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2

GOLD RESOURCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except share and per share amounts)

(Unaudited)

Three months ended March 31, 

2021

2020

 

Sales, net

$

27,268

$

22,149

Mine cost of sales:

Production costs

15,243

15,959

Depreciation and amortization

3,399

6,013

Reclamation and remediation

51

49

Total mine cost of sales

18,693

22,021

Mine gross profit

8,575

128

Costs and expenses:

General and administrative expenses

1,581

1,805

Exploration expenses

1,207

978

Restructuring expenses

496

-

Stock-based compensation

484

470

Other (income) expense, net

(314)

1,465

Total costs and expenses

3,454

4,718

Income (loss) before income taxes

5,121

(4,590)

Provision for income taxes

2,594

(1,372)

Net income (loss) from continuing operations

2,527

(3,218)

Net income (loss) from discontinued operations, net of income taxes

-

97

Net income (loss)

$

2,527

$

(3,121)

Net income per common share:

Basic and diluted net income (loss) per common share from continuing operations

0.03

(0.05)

Weighted average shares outstanding:

Basic

74,405,031

66,022,202

Diluted

74,761,882

66,022,202

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

GOLD RESOURCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in thousands, except share amounts)

(Unaudited)

Three Months Ended March 31, 2021 and 2020

Number of
Common
Shares

Par Value of
Common
Shares

Additional Paid-
in Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total
Shareholders'
Equity

Balance, December 31, 2019

66,027,925

$

66

$

148,171

$

16,876

$

(5,884)

$

(1,171)

$

158,058

Stock-based compensation

-

-

470

-

-

-

470

Common stock issued for vested restricted stock units

-

-

-

-

-

-

-

Dividends declared

-

-

-

(665)

-

-

(665)

Issuance of stock, net of issuance costs

3,850,000

4

10,346

-

-

-

10,350

Net loss

-

-

-

(3,121)

-

-

(3,121)

Balance, March 31, 2020

69,877,925

$

70

$

158,987

$

13,090

$

(5,884)

$

(1,171)

$

165,092

Balance, December 31, 2020

74,713,356

$

75

$

84,865

$

12,653

$

(5,884)

$

(1,171)

$

90,538

Stock-based compensation

-

-

141

-

-

-

141

Net stock options exercised

125,000

-

165

-

-

-

165

Dividends declared

-

-

-

(744)

-

-

(744)

Common stock issued for vested restricted stock units

2,614

-

-

-

-

-

-

Surrender of stock for taxes due on vesting

(65,366)

-

(205)

-

-

-

(205)

Net income

-

-

-

2,527

-

-

2,527

Balance, March 31, 2021

74,775,604

$

75

$

84,966

$

14,436

$

(5,884)

$

(1,171)

$

92,422

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

GOLD RESOURCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

(Unaudited)

Three months ended March 31,

2021

2020

Cash flows from operating activities:

Net income (loss)

$

2,527

$

(3,121)

Net income from discontinuing operations

-

97

Net income (loss) from continuing operations

$

2,527

$

(3,218)

Adjustments to reconcile net income to net cash from operating activities:

Deferred income taxes

43

(3,885)

Depreciation and amortization

3,437

6,113

Stock-based compensation

484

470

Other operating adjustments

340

1,792

Changes in operating assets and liabilities:

Accounts receivable

693

4,488

Inventories

(1,063)

(1,709)

Prepaid expenses and other current assets

592

92

Other non-current assets

(4)

(10)

Accounts payable and other accrued liabilities

(1,141)

228

Mining royalty and income taxes payable, net

923

1,844

Net cash provided by operating activities from continuing operations

6,831

6,205

Cash flows from investing activities:

Capital expenditures

(4,320)

(3,482)

Proceeds from the sale of gold and silver bullion/rounds

3

1

Net cash used in investing activities from continuing operations

(4,317)

(3,481)

Cash flows from financing activities:

Proceeds from the exercise of stock options

165

-

Proceeds from issuance of stock

-

10,349

Dividends paid

(744)

(657)

Cash related to the Spin-off

-

292

Other financing activities

-

-

Net cash (used in) provided by financing activities from continuing operations

(579)

9,984

Effect of exchange rate changes on cash and cash equivalents from continuing operations

(110)

(127)

Cash flows from discontinued operations:

Net cash used in operating activities

-

(1,229)

Net cash used in investing activities

-

(3,447)

Net increase in cash and cash equivalents

1,825

7,905

Cash and cash equivalents of continuing operations at beginning of period

25,405

10,210

Cash and cash equivalents of continuing operations at end of period

$

27,230

$

18,115

Supplemental Cash Flow Information Continuing Operations

Interest expense paid

$

-

$

18

Income and mining taxes paid

$

1,328

$

3,743

Non-cash investing activities:

Change in capital expenditures in accounts payable

$

(259)

$

624

Change in estimate for asset retirement costs

$

7

$

443

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

GOLD RESOURCE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021
(Unaudited)

1. Basis of Preparation of Financial Statements

The interim Condensed Consolidated Financial Statements (“interim financial statements”) of Gold Resource Corporation and its subsidiaries (collectively, the “Company”) are unaudited and have been prepared in accordance with the rules of the Securities and Exchange Commission for interim statements. Certain information and footnote disclosures required by United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted as permitted by such rules, although the Company believes that the disclosures included are adequate to make the information presented not misleading. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K. The year-end balance sheet data was derived from the audited financial statements. Unless otherwise noted, there have been no material changes to the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s annual report on Form 10-K.

Certain items in the prior period’s Condensed Consolidated Financial Statements have been reclassified to conform to the current presentation. These reclassifications were mostly related to Discontinued Operations and separate presentation of stock-based compensation.

2. Recently Adopted Accounting Standards

Recent accounting pronouncements issued have been evaluated and do not presently impact our financial statements and supplemental data.

3. Discontinued Operations

On December 31, 2020, the Company completed its spin-off of its wholly-owned subsidiary Fortitude Gold Corporation and its subsidiaries (“FGC” or “Nevada Mining Unit”).

FGC is presented as discontinued operations in the Company’s Condensed Consolidated Financial Statements.

Results of discontinued operations for the three months ended March 31, 2020 are as follows (in thousands):

Three months ended March 31, 

2020

(Unaudited)

Sales, net

$

5,857

Mine cost of sales

6,300

Mine gross loss

(443)

Exploration expenses

177

Other expense, net

48

Loss before income taxes

(668)

Income tax benefit

(765)

Net income from discontinued operations

$

97

6

Selected Statements of Cash Flows presenting depreciation and amortization, capital expenditures, sale proceeds and significant operating noncash items of FGC were as follows:

Three months ended March 31,

2020

(Unaudited)

Cash flows from discontinued operating activities:

Net income

$

97

Adjustments to reconcile net income to net cash from operating activities:

Deferred income taxes

(765)

Depreciation and amortization

1,422

Other operating adjustments

(11)

Changes in operating assets and liabilities:

Accounts receivable

(169)

Inventories

(1,786)

Prepaid expenses and other current assets

82

Other non-current assets

931

Accounts payable and other accrued liabilities

(1,030)

Net cash used in discontinued operating activities

(1,229)

Cash flows from discontinued investing activities:

Capital expenditures

(3,447)

Net cash used in discontinued investing activities

(3,447)

Cash flows from discontinued financing activities:

Cash transferred from Gold Resource Corporation prior to Spin-off

4,508

Repayment of loans payable

(216)

Repayment of finance leases

(107)

Net cash provided by discontinued financing activities

4,185

Supplemental Cash Flow Information Discontinued Operations

Non-cash investing activities:

Change in capital expenditures in accounts payable

$

516

Change in estimate for asset retirement costs

$

435

Effective December 31, 2020, in connection with the Spin-Off, the Company entered into an agreement with FGC that govern the relationship of the parties following the Spin-Off. The Management Services Agreement provides that the Company and its subsidiaries will provide services to FGC to assist in the transition of FGC as a separate company including, managerial and technical supervision, advisory and consultation with respect to mining operations, exploration, environmental, safety and sustainability matters. The Company will provide certain administrative services related to information technology, accounting and financial advisory services, legal and compliance support and investor relation and shareholder communication services. The agreed upon charges for services rendered are based on market rates that align with the rates that an unaffiliated service provider would charge for similar services. The Management Services Agreement will terminate on December 31, 2021, unless cancelled upon 30 days written notice by one party to the other. Due to the successful development, by FGC, of their own corporate, administrative and technical capabilities, the Company decided to terminate the Agreement and delivered a notice of termination on April 14, 2021 and therefore termination of the Agreement will be effective on May 21, 2021.

7

4. Revenue

The Company derives its revenue from the sale of doré and concentrates. The following table presents the Company’s net sales for each period presented, disaggregated by source:

Three months ended March 31, 

2021

2020

(in thousands)

Doré sales, net

Gold

$

2,487

$

1,769

Silver

377

676

Less: Refining charges

(71)

(35)

Total doré sales, net

2,793

2,410

Concentrate sales

Gold

6,524

6,216

Silver

6,313

5,215

Copper

3,386

2,361

Lead

2,405

3,479

Zinc

8,766

9,040

Less: Treatment and refining charges

(2,884)

(5,834)

Total concentrate sales, net

24,510

20,477

Realized/unrealized embedded derivative, net

(35)

(738)

Total sales, net

$

27,268

$

22,149

5. Gold and Silver Rounds/Bullion

The Company sponsors a dividend exchange program under which shareholders may exchange their cash dividends for minted gold and silver rounds. No purchase or sales of gold and silver occurred during the current period.

At March 31, 2021 and December 31, 2020, the Company’s holdings of rounds/bullion, using quoted market prices, consisted of the following:

2021

2020

(Unaudited)

Ounces

Per Ounce

Amount

Ounces

Per Ounce

Amount

(in thousands)

(in thousands)

Gold

184

$

1,691

$

311

189

$

1,888

$

357

Silver

11,750

$

24.00

282

11,842

$

26.49

314

Total holdings

$

593

$

671

8

6. Inventories, net

At March 31, 2021 and December 31, 2020, inventories, net consisted of the following:

2021

2020

(Unaudited)

(in thousands)

Stockpiles - underground mine

$

461

$

648

Stockpiles - open pit mine

17

41

Concentrates

2,834

1,919

Doré, net (1)

1,107

459

Subtotal - product inventories

4,419

3,067

Materials and supplies (2)

7,165

6,928

Total

$

11,584

$

9,995

(1) Net of reserve of nil and $368 at March 31, 2021 and December 31, 2020, respectively.
(2) Net of reserve for obsolescence of $209 as of March 31, 2021 and December 31, 2020.

7. Income Taxes

The Company recorded an income tax expense of $2.6 million for the three months ended March 31, 2021. In accordance with applicable accounting rules, the interim provision for taxes is calculated using the consolidated effective tax rate. The consolidated effective tax rate is a function of the combined effective tax rates for the jurisdictions in which the Company operates. Variations in the relative proportions of jurisdictional income could result in fluctuations to the Company’s consolidated effective tax rate. At the federal level, the Company’s income in the U.S. is taxed at 21% and a 5% withholding tax applies to dividends received from Mexico. The U.S. tax results are combined with the Company’s income in Mexico, taxed at 37.5% (30% income tax and 7.5% mining tax), and in Canada at 26.5%, which results in a consolidated effective tax rate above statutory U.S. Federal rates. Both U.S. and Canada jurisdictions do not currently generate taxable income therefore have no impact on our consolidated effective tax rate.

Mexico Mining Taxation

Mining entities in Mexico are subject to two mining duties, in addition to the 30% Mexico corporate income tax: a “special” mining duty of 7.5% of taxable income as defined under Mexican tax law (also referred to as “mining royalty tax”) on extraction activities performed by concession holders. The mining royalty tax is generally applicable to earnings before income tax, depreciation, depletion, amortization, and interest. In calculating the mining royalty tax, there are no deductions related to depreciable costs from operational fixed assets. Both duties are tax deductible for income tax purposes. As a result, our effective tax rate applicable to the Company’s Mexican operations is substantially higher than the Mexico statutory rate. In addition, in Q1 2021 Mexico Tax Authorities introduced new tax regulation wherein exploration expenses that were previously 100% deductible in the year incurred are now being deducted at a rate of 10% per year for 10 years, same as for Income Tax purposes.

The Company periodically transfers funds from its Mexican wholly-owned subsidiary to the U.S. in the form of dividends. Mexico requires a 10% withholding tax on dividends to foreign parent companies unless otherwise provided per a tax treaty. According to the existing U.S. – Mexico tax treaty, the dividend withholding tax between these countries is limited to 5%, if certain requirements are met. Based on the Company’s review of these requirements, it estimates it will pay a 5% withholding tax on dividends received from Mexico in 2021. The impact of the planned annual dividends for 2021 is reflected in the estimated annual effective tax rate.

As of March 31, 2021, the Company believes that it has no liability for uncertain tax positions.

The U.S. Treasury Department issued final regulations in July 2020 concerning global intangible low-taxed income, commonly referred to as GILTI tax, and introduced by the Tax Act of 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The final tax regulations allow income to be excluded from GILTI tax that is subject to an effective tax rate higher than 90% of the U.S. tax rate (18.9%). The

9

Company completed its assessment of the new legislation during the three months ended March 31, 2021 and determined that due to this high tax exception, that GILTI tax was not incurred in Q1 2021.

8. Prepaid Expenses and Other Current Assets

At March 31, 2021 and December 31, 2020, prepaid expenses and other current assets consisted of the following:

2021

2020

(Unaudited)

(in thousands)

Advances to suppliers

$

365

$

374

Prepaid insurance

342

709

IVA taxes receivable, net

318

846

Other current assets

527

647

Total

$

1,552

$

2,576

9. Property, Plant and Mine Development, net

At March 31, 2021 and December 31, 2020, property, plant and mine development, net consisted of the following:

2021

2020

(Unaudited)

(in thousands)

Asset retirement costs

$

1,071

$

1,064

Construction-in-progress(1)

9,549

7,158

Furniture and office equipment

1,877

1,839

Land

230

230

Light vehicles and other mobile equipment

2,228

2,192

Machinery and equipment

31,273

31,227

Mill facilities and infrastructure

24,407

24,407

Mine Development

85,623

83,859

Software and licenses

1,619

1,619

Subtotal (2)

157,877

153,595

Accumulated depreciation and amortization

(94,912)

(91,084)

Total

$

62,965

$

62,511

(1) Includes accrued capital expenditures of $0.8 million and $1.0 million at March 31, 2021 and December 31, 2020, respectively.

The Company recorded depreciation and amortization expense of $3.4 and $6.1 million and for the three months ended March 31, 2021 and 2020, respectively. Depreciation is lower for the three months ending March 31, 2021 due to lower silver and base metal production.

10. Accrued Expenses and Other Current Liabilities

At March 31, 2021 and December 31, 2020, accrued expenses and other current liabilities consisted of the following:

2021

2020

(Unaudited)

(in thousands)

Accrued royalty payments

1,637

1,796

Dividends payable

248

247

Other payables

202

232

Total

$

2,087

$

2,275

10

11. Reclamation and Remediation

The following table presents the changes in reclamation and remediation obligations for the three months ended March 31, 2021 and year ended December 31, 2020:

2021

2020

(Unaudited)

(in thousands)

Reclamation liabilities – balance at beginning of period

$

1,890

$

2,003

Foreign currency exchange gain

(61)

(113)

Reclamation liabilities – balance at end of period

1,829

1,890

Asset retirement obligation – balance at beginning of period

1,208

1,105

Changes in estimate

7

82

Accretion

24

79

Foreign currency exchange gain

(39)

(58)

Asset retirement obligation – balance at end of period

1,200

1,208

Total period end balance

$

3,029

$

3,098

The Company’s undiscounted reclamation liabilities of $1.8 million as of March 31, 2021 and $1.9 million as of December 31, 2020, respectively, are related to the Aguila project in Mexico. These represent reclamation liabilities that were expensed through 2013 before proven and probable reserves were established and the Company was considered to be a development stage entity; therefore, most of the costs, including asset retirement costs, were not allowed to be capitalized as part of our Property, Plant & Mine Development.

The Company’s asset retirement obligations reflect the additions to the asset for reclamation and remediation costs in Property, Plant & Mine Development, post 2013 development stage status, which are discounted using a credit adjusted risk-free rate of 8%. As of March 31, 2021, and December 31, 2020, the Company’s asset retirement obligation related to the Don David Gold Mine in Mexico was $1.2 million.

12. Commitments and Contingencies

Commitments

As of March 31, 2021, the Company has equipment purchase commitments of approximately $0.7 million.

Other Contingencies

The Company has certain other contingencies resulting from litigation, claims, and other commitments that are subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. The Company currently has no basis to conclude that any or all of such contingencies will materially affect its financial position, results of operations or cash flows. However, in the future, there may be changes to these contingencies, or additional contingencies may occur, any of which might result in an accrual or a change in current accruals recorded by the Company, and there can be no assurance that their ultimate disposition will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

13. Embedded Derivatives

Concentrate sales contracts contain embedded derivatives due to the provisional pricing terms for unsettled shipments. At the end of each reporting period, the Company records an adjustment to accounts receivable and revenue to reflect the mark-to-market adjustments for outstanding provisional invoices based on forward metal prices. Please see Note 18 for additional information.

11

The following table summarizes the Company’s unsettled sales contracts as of March 31, 2021 with the quantities of metals under contract subject to final pricing occurring through April 2021:

Gold

Silver

Copper

Lead

Zinc

(ounces)

(ounces)

(tonnes)

(tonnes)

(tonnes)

Under contract

4,531

302,534

534

1,398

4,842

Average forward price (per ounce or tonne)

$

1,806

$

26.13

$

8,386

$

2,004

$

2,759

14. Stock-Based Compensation

The Gold Resource Corporation 2016 Equity Incentive Plan (the “Incentive Plan”) allows for the issuance of up to 5 million shares of common stock in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock units (“RSUs”), stock grants, stock units, performance shares, performance share units and performance cash. Additionally, pursuant to the terms of the Incentive Plan, any award outstanding under the prior plan that is terminated, expired, forfeited, or canceled for any reason, will be available for grant under the Incentive Plan.

Effective January 1, 2021, the Company’s Board of Directors, on the recommendation of the Compensation Committee, implemented a program to issue Deferred Stock Units (DSUs). DSUs are a qualifying instrument under the terms of the Company’s 2016 Equity Plan and therefore do not require additional shareholder approval. The vesting and settlement terms of the DSUs are determined by the Compensation Committee at the time the DSUs are awarded.

130,000 DSUs were granted to the Board of Directors during the period ended March 31, 2021 and are redeemable in cash or shares at the earlier of 10 years or upon the eligible directors’ termination. Termination is deemed to occur on the earliest of (1) the date of voluntary resignation or retirement of the director from the Board; (2) the date of death of the director; or (3) the date of removal of the director from the Board whether by shareholder resolution, failure to achieve re-election or otherwise; and on which date the director is not a director or employee of the Company or any of its affiliates. These awards contain a cash settlement feature and are therefore classified as a liability and are marked to fair value each reporting period. The Company recorded $0.3 million of other non-current liability and expense based on the fair value of the Company’s stock price as of March 31, 2021.

During the three months ended March 31, 2021, a total of 2,614 RSUs vested, and shares were issued with an intrinsic value and a fair value of $6,692. No RSU’s vested during the three months ended March 31, 2020.

 

During the three months ended March 31, 2021, stock options to purchase an aggregate of 125,000 shares of the Company’s common stock were exercised at a weighted average exercise price of $1.32 per share. No stock options were exercised during the three months ended March 31, 2020.

Stock-based compensation expense for stock options and RSUs and DSUs for the periods presented is as follows:

Three months ended March 31, 

2021

2020

(in thousands)

Stock options

$

227

$

222

Restricted stock units

(86)

248

Deferred stock units

343

-

Total

$

484

$

470

The Company has a short-term incentive plan for its executive officers that provides for the grant of either cash or stock-based bonus awards payable upon achievement of specified performance metrics (the “STIP”). As of March 31, 2021 and December 31, 2020, nil has been accrued related to the STIP.

12

15. Shareholders’ Equity

On April 3, 2018, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with an investment banking firm (“Agent”) pursuant to which the Agent agreed to act as the Company’s sales agent with respect to the offer and sale from time to time of the Company’s common stock having an aggregate gross sales price of up to $75.0 million (the “Shares”), which was subsequently renewed in June 2020. The ATM Agreement will remain in full force and effect until the earlier of (i) June 3, 2023 or (ii) the date that the ATM Agreement is terminated in accordance with its terms. An aggregate of 3,850,000 shares of the Company’s common stock were sold through the ATM Agreement during the three months ended March 31, 2020 for net proceeds to the Company, after deducting the Agent’s commissions and other expenses, of $10.4 million. No ATM shares were sold during the first quarter of 2021.

For both of the three months ended March 31, 2021 and 2020, the Company declared and paid dividends of $0.01 per common share, for an aggregate total of $0.7 million each three-month period.

16. Other (Income) Expense, net

Other (income) expense, net, for the periods presented consisted of the following:

Three months ended March 31, 

2021

2020

(in thousands)

Unrealized currency exchange loss

$

241

$

1,618

Realized currency exchange gain

(173)

(291)

Unrealized loss from gold and silver rounds/bullion, net (1)

66

151

Other income

(448)

(13)

Total

$

(314)

$

1,465

(1) Gains and losses due to changes in fair value are non-cash in nature until such time that they are realized through cash transactions. For additional information regarding the Company’s fair value measurements and investments, please see Note 18.

17. Net Income per Common Share

Basic earnings per common share are calculated based on the weighted average number of common shares outstanding for the period. Diluted earnings per common share are calculated based on the assumption that stock options and other dilutive securities outstanding, which have an exercise price less than the average market price of the Company’s common shares during the period, would have been exercised on the later of the beginning of the period or the date granted and that the funds obtained from the exercise were used to purchase common shares at the average market price during the period. All of the Company’s RSUs and DSUs are considered to be dilutive in periods with net income.

The effect of the Company’s dilutive securities is calculated using the treasury stock method and only those instruments that result in a reduction in net income per common share are included in the calculation. Options to purchase 3.9 million and 3.3 million shares of common stock at weighted average exercise prices of $7.20 and $9.48 were outstanding at March 31, 2021 and 2020, respectively, but were not included in the computation of diluted weighted average common shares outstanding, as the exercise price of the options exceeded the average price of the Company’s common stock during the reporting period, and therefore are anti-dilutive.

13

Basic and diluted net income per common share is calculated as follows:

Three months ended March 31, 

2021

2020

Numerator:

Net income (loss) from continuing operations

2,527

(3,218)

Net income from discontinued operations

-

97

Net income (loss) (in thousands)

$

2,527

$

(3,121)

Denominator:

Basic weighted average shares of common stock outstanding

74,405,031

66,022,202

Dilutive effect of share-based awards

356,851

-

Diluted weighted average common shares outstanding

74,761,882

66,022,202

Basic and diluted net income (loss) per common share:

 Continuing operations

0.03

(0.05)

 Discontinued operations

-

-

Basic and diluted net income (loss) per common share

$

0.03

$

(0.05)

18. Fair Value Measurement

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2

Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

As required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth certain of the Company’s assets measured at fair value by level within the fair value hierarchy as of March 31, 2021 and December 31, 2020:

2021

2020

Input Hierarchy Level

(in thousands)

Cash and cash equivalents

$

27,230

$

25,405

Level 1

Gold and silver rounds/bullion

$

593

$

671

Level 1

Accounts receivable, net

$

3,533

$

4,226

Level 2

Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value. Gold and silver rounds/bullion consist of precious metals used for investment purposes and in the dividend program which are valued using quoted market prices. Please see Note 5 for additional information.

Accounts receivable, net include amounts due to the Company for deliveries of concentrates and doré sold to customers, net of embedded derivatives mark-to-market value of $0.1 as of March 31, 2021, and $0.2 million as of December 31, 2020. Concentrate sales contracts provide for provisional pricing as specified in such contracts. These sales contain an embedded derivative related to the provisional pricing mechanism which is bifurcated and accounted for as a derivative. At the end of each reporting period, the Company records an adjustment to sales to reflect the mark-to-market of outstanding provisional invoices based on the forward price curve. Because these provisionally priced sales have not

14

yet settled as of the reporting date, the mark-to-market adjustment related to these invoices is included in accounts receivable as of each reporting date and included in its accounts receivable on the accompanying Condensed Consolidated Balance Sheets related to mark-to-market adjustments. Please see Note 13 for additional information.

Gains and losses related to changes in the fair value of these financial instruments were included in the Company’s Condensed Consolidated Statements of Operations as shown in the following table:

Three months ended March 31, 

2021

2020

Statement of Operations Classification

(in thousands)

Realized/unrealized derivative (loss) gain, net

$

(35)

$

(738)

Sales, net

Realized/unrealized gold and silver rounds/bullion gain (loss), net

$

(66)

$

(152)

Other expense, net

Realized/Unrealized Derivatives

The following tables summarize the Company’s realized/unrealized derivatives for the periods presented (in thousands):

Gold

Silver

Copper

Lead

Zinc

Total

Three months ended March 31, 2021

Realized (loss) gain

$

(44)

$

85

$

5

$

44

$

1

$

91

Unrealized (loss) gain

(100)

(82)

39

(66)

83

(126)

Total realized/unrealized derivatives, net

$

(144)

$

3

$

44

$

(22)

$

84

$

(35)

Gold

Silver

Copper

Lead

Zinc

Total

Three months ended March 31, 2020

Realized gain (loss)

$

351

$

160

$

5

$

(157)

$

(817)

$

(458)

Unrealized (loss) gain

(128)

(325)

(119)

50

242

(280)

Total realized/unrealized derivatives, net

$

223

$

(165)

$

(114)

$

(107)

$

(575)

$

(738)

19. Supplementary Cash Flow Information

Other operating adjustments and write-downs within the net cash provided by operations on the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 consisted of the following: