Interview With The CEO And Chairman: Gold Resource Corporation (GORO) - William Reid
December 16, 2011 - The Wall Street Transcript has just published Gold and Precious Metals Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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William Reid is Chief Executive Officer and Chairman at Gold Resource Corporation, which he co-founded in 1998. Mr. Reid has more than 30 years of industry experience. He previously cofounded and served as the CEO of US Gold Corporation from 1977 to 2005. During his tenure with US Gold, the company built six producing mines. Mr. Reid received a B.S. degree in physics in 1970 and a master's degree in economic geology in 1972, both from Purdue University.
TWST: Let's begin with an overview of Gold Resource.
Mr. Reid: Gold Resource Corporation (GORO) became a public company in September of 2006. Today, we operate a high-grade gold and silver mine in the southern state of Oaxaca, Mexico. It is a low-cost operation. We are profitable, and we have been paying back to the owners of the company, its shareholders, a cash dividend each month since declaring commercial production in July of 2010. We now have paid back to the shareholders approximately $33 million, and I might state we only have 53 million shares outstanding.
TWST: Please tell us about the history of what you have done as far as E And P. And what are you looking at today?
Mr. Reid: We discovered a very exciting high-grade gold and silver deposit that also has the base metals copper, lead and zinc. We made our production decision in 2007, and then proceeded to build the project. We started with a small open-pit mine while we were developing the underground mine, where most of our value is. And we built a very flexible mill. We think it's very positive that the initial capital cost to actually build the project was approximately $34 million. We generated about $36 million in the first 12 months of production from our gross mine profit, which we consider newly generated cash. We achieved our stated goal of paying back the initial capital necessary to build the project in the first 12 months of operation.
TWST: Would you update us on Gold Resource's recent Q3 earnings performance?
Mr. Reid: We are very pleased with this year's performance. In the third quarter, we actually increased our gold production by 134% and silver production by 82% over the second quarter of 2011. We had record earnings and record mine gross profit. Our record pretax earnings were $24 million, or $0.46 per share, and then record net earnings were $15.2 million, or $0.29 a share. We paid $7.4 million back, or $0.14 a share, to the shareholders as cash dividends in that quarter also. I might just mention that we consider Gold Resource a shareholder-friendly company. And what do I mean by that - that is we've stated that our target is to distribute one-third of our margin, which is our mine gross profit, back to the shareholders.
Since we are profitable, one-third of this margin goes to pay taxes, one-third of this margin goes to grow the company, and one-third of the margin is targeted to pay back to the shareholders in the form of dividends. We now have an instituted $0.05 per month per share dividend in cash. We've also stated, and we are currently working on the procedure that we want to be able to pay that dividend in kind for those shareholders who would like to receive their dividends in either gold or silver. We've also begun to buy back some of our company's stock on dips. The board of directors has approved a $20 million buyback over time, and we've bought, at this point, about $2 million worth of our stock back. So we are very proshareholder, and we think that we have somewhat of a unique approach.
TWST: Please let's talk about the Arista deposit's current mine life and average grades.
Mr. Reid: What we drilled out and what we based the initial production decision on was about an eight- to nine-year mine life. We expect to increase this with our continued exploration. We are continuing to drill this deposit with infill and step-out drilling, primarily to help with the development of the mine. But also we're looking to do a resource report to the standards of the Canadian NI 43-101, with a view of possibly applying for a secondary listing in Canada. From our drilling, we estimate our average gold grade to be 6.5 g/t Au, 506 g/t Ag, 0.60% Cu, 2.24% Pb and 6.70% Zn. These grades really are considered quite high, which makes for a very positive mining operation.
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