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Gold Resource Corporation (NYSEMKT:GORO)
Q2 2021 Earnings Call
Jul 28, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to the Gold Resource Corporation's second-quarter 2021 conference call. [Operator instructions] And the conference is being recorded. [Operator instructions] I would now like to turn the conference call over to Ann Wilkinson, vice president, investor relations and corporate affairs. Please go ahead.

Ann Wilkinson -- Vice President, Investor Relations and Corporate Affairs

Thank you Holly, and good morning, everyone. On behalf of the Gold Resource team, I would like to welcome everyone to our second-quarter 2021 results conference call. Before we begin the call, there are certain housekeeping matters I would like to cover. Please note that certain statements to be made today by the management team are forward-looking in nature and as such are subject to numerous risks and uncertainties as described in our quarterly report on Form 10-Q and other SEC filing.

On the call today, we have Allen Palmiere, president and chief executive officer; Kim Perry, chief financial officer; and Alberto Reyes, chief operating officer. Following Alan and Kim's prepared remarks, all three will be available to answer your questions. This conference call is being webcast. For those of you joining us on the webcast, you can download a PDF copy of conference call slides from the Material tab under the Ask a question tab.

The event will also be available for replay on our website later today. Yesterday's news release issued following the close of the market and the accompanying financial statement and MD&A contained in our 10-Q has been filed with the SEC on EDGAR and are available on our website at www.goldresourcecorp.com. Also, please note that all amounts mentioned in this call are in U.S. dollars unless otherwise stated.

I will now turn the call over to Allen.

Allen Palmiere -- President and Chief Executive Officer

Thank you, Ann, and good morning, everyone. I would like to thank the participants for taking the time to join us and to welcome Alberto Reyes, our new chief operating officer, to the call. Following my opening remarks, Kim Perry, our chief financial officer, will describe our financial results. I will then provide you with the picture of our plans for the balance of 2021 and a few closing remarks and then we will be able to take your questions.

Before discussing the operating results. I want to note that our operations team continues to demonstrate their ability to be nimble and adaptive operators all while focusing on excellent environmental, social, and governance practices. Notwithstanding an excellent work culture, there were two lost time incidents at the Don David gold mine during the second quarter. While these incidents did not result in serious injury, measures are ongoing to reinforce adherence to safety protocols and to strengthen the safety culture.

Accordingly, a series of programs are underway to improve the overall culture of safety. Turning to our infrastructure projects. We made significant construction progress on our filtration plant and dry stacks tailings project which is targeted for completion in Q3. As we've noted, the dry stack tailings will accelerate reclamation in certain areas of the open-pit mine, provide efficient storage of tailings, and importantly reduce water consumption as approximately 80% of the process water will be recycled and available for use.

During the quarter, we completed one hundred and 156 meters of underground development on the northern and southern exploration drifts. From these exploration drifts, we completed over 3,400 meters of diamond drilling in 12 drill holes. Surface drilling on the Aguila project is ongoing with 1,069 meters of diamond drilling and two holes. Exploration activities were focused on the Switchback vein system which extends for over a kilometer strike length and remains open both along strike and down depth and as well as parallel structures to this system, most notably the Sandy vein system, which is located between the Switchback and Arista systems.

Exploration drilling mainly targeted expansion and delineation of the principal Soledad vein to define additional resources, as well as a step-out drilling on the parallel Sandy system of veins for resource expansion. Drilling is also targeting strike extensions of the Arista system beyond the current mine plan. We have also renewed our focus on near-mine exploration with surface geological mapping and rock chip sampling in the Cerro Colorado area notably in the vicinity of the Aguila open pit and as well the surrounding area, with additional drilling planned for these areas in the second half of 2021. Turning to the second-quarter operating results.

I'm pleased to report that Gold Resource sold approximately 5,700 ounces of gold, 270,000 ounces of silver, 365 tons of copper, 1,200 tons of lead, and 3,200 tons of zinc. During the second quarter, we processed ore at an average rate of 1,500 tons per day, compared to 1,950 per day in 2020. While it was lower quarter over quarter, it was consistent with our mine plan for the year. The base plant continues to provide substantial efficiencies by returning -- the returning of processing waste to underground workings as backfill.

During the second quarter, we processed ore with average gold and silver grades 10 and 11% higher, respectively, in the same period last year. Overall base metal grades were lower during the three months ended June 30th, 2021, as a result of a change in the mine plan necessitated by challenging ground conditions encountered in the first quarter. We are happy that these challenges have been overcome and our mine plan is back on track. With that, I will turn the call over to Kim to discuss our financial results.

Kim Perry -- Chief Financial Officer

Thank you, Allen, and good morning, everyone. We closed the quarter with a strong balance sheet consisting of just over 30.5 million cash and no debt. Cash from operating activities was 9.3 million for the quarter and working capital from continuing operations was nearly 32.6 million at June 30, 2021. For the second quarter, we reported net income of 1.3 million.

Net income is a result of just over 30.8 million in revenue. Net revenues reflect a 12% decrease in concentrate treatment charges which are netted against concentrate sales. These treatment charges for the three months ended June 30 were 2.9 million or $609 per base metal tons sold, compared to 3.3 million or $864 per base metal tons sold for the same period 2020. This decrease is largely dependent on the spot treatment charge market for the zinc which can be volatile.

Total production cost of 19.5 million for the three months ended June 30, 2021, were 84% higher than the production cost of 10.6 million to the same period 2020. This increase is primarily related to the increase in production volume. Additionally, there was a $1.2 million impact related to the Mexican labor law reform. Finally, during the three months ended June 30, 2021, we were impacted by a 13% price increase in consumables used in the operations and a 5% increase in the balance in the volume of diesel consumed.

The increased diesel consumed relates to increased power consumption primarily from the diesel generators for the filtration plants and underground ventilation. The Don David gold mine total cash cost was 713 per ounce and total all-sustaining cash costs were 1,250. This is -- excuse me, 1,280 as an after co-product credits. We expect these costs to significantly lower in the second half of 2021 and maintain our full-year guidance, a total cash cost of between 210 and 225 per gold equivalent ounce and total all-in sustaining cost between $800 and $900 per gold equivalent ounce.

With that, I'll turn the call back over to Allen.

Allen Palmiere -- President and Chief Executive Officer

Thank you, Kim. Management continues to focus on unlocking the value of the mine existing infrastructure and our large property position and providing growth to our shareholders. Accordingly, we invested 11.2 million in infrastructure and exploration in the Don David gold mine. In our process plant, we completed metallurgical testing and initiated design and engineering of a tailings regrind circuit, including procuring certain parts and equipment.

The project, unfortunately, has been delayed due to longer lead times than expected. This project is now expected to be completed in early 2022. The new circuit is expected to increase gold recovery by between six and 10%. Please note it is unlikely that the total amount of 9.8 million for underground development will be spent in 2021 as a result of the mine sequence changes made during the first half of the year.

In closing, we remain on track for full-year guidance with exception of development capital as previously discussed. As we expect to see improvements in grades in the second half of the year, we have already seen encouraging and affirming results in July as we are back in the Soledad vein. With the expected second-half results, we are well-positioned to have more than 50 million in cash by the end of the year and a free cash flow yield greater than 15%. This, along with our dividend yield, substantially outperforms our peers.

I also want to repeat Kim's comment that the company has a strong balance sheet which provides us with flexibility for growth and exceptional returns for shareholders. Thank you all for taking your time to listen in. This concludes our prepared remarks. I'll now turn the call back over to the operator for any questions that may arise.

Questions & Answers:


Operator

[Operator instructions] Your first question for today is coming from Heiko Ihle. Please announce your affiliation then pose your question.

Allen Palmiere -- President and Chief Executive Officer

Are you there, Heiko?

Heiko Ihle -- H.C. Wainwright & Co., LLC -- Analyst

I can hear you fine.

Allen Palmiere -- President and Chief Executive Officer

I can hear you now.

Heiko Ihle -- H.C. Wainwright & Co., LLC -- Analyst

Excellent. Excellent. Perfect. Well, thank you guys for taking my questions.

I'm not sure what just transpired there. And I just want to point out that the company now has a bigger yield than the S&P 500. So clearly some optionality here. You stated in the release that you have started some profit-sharing with your employees.

Though there aren't really any details in the release, so just a couple of things I'm just trying to clarify. What factors are people ranked on? Is it safety? Is it production? Is there anything else?

Kim Perry -- Chief Financial Officer

Hi, Heiko. It's Kim. That's actually an excellent question, and there's actually very little guidance out regarding what factors will ultimately be -- companies will be able to incorporate, and there's a lot of legislation going on right now and discussions with the legislation regarding what that will look like. Right now, we are taking the basis that it's 10% of net income.

And so with maybe taking a bit more of a conservative approach, we know it won't exceed that. Obviously, we'll reward employees if it's appropriate to go higher than that. But at this point, that's the approach we're taking, the assumption we're taking, and the path we're following to determine that -- those factors.

Heiko Ihle -- H.C. Wainwright & Co., LLC -- Analyst

You already answered one of my next question which was how much is it gonna be. And then when does the whole thing start? And also can we trend line the same 10% figure or whatever it might come in this year into next year as well, please?

Kim Perry -- Chief Financial Officer

Yes, Heiko. I think that that's a fair assumption to -- we did take the assumption based on a full-year impact. So the 1.2 million for profit-sharing was calculated from January through June. And unless there is any other changes in the legislation, that should continue into the future.

Heiko Ihle -- H.C. Wainwright & Co., LLC -- Analyst

Got it. OK. Very good. And then -- and just one little clarification at the end here.

You came in at 1,280 for all-in sustaining costs for each CEO. Walk us through, I mean, as detailed as you can in this setting if you could. Would you expect to see for the remainder of the year there and factors that may sway this figure, either direction especially given all the capital improvements that are being undertaken at site, please?

Allen Palmiere -- President and Chief Executive Officer

Heiko, the reason that our all-in sustaining was higher than originally projected was the fact that during Q2, we are remining in alternative mining zones. You'll recall in late Q1, we had some ground control issues and that necessitated a change in plan. The result of that, we were in lower-grade areas and our byproduct credits suffered. We are now back on track with our original mine plan in the original areas that we had anticipated.

The result of that is our base metal credits, our byproduct credits, are going to increase significantly in the second half and bring our all-in sustaining and our cash costs back in line with our guidance. It was a timing issue necessitated by the ground control issues we had earlier in the year.

Heiko Ihle -- H.C. Wainwright & Co., LLC -- Analyst

Makes sense. Wonderful. That's it on my end. I'll hop back in queue.

Thank you very much.

Allen Palmiere -- President and Chief Executive Officer

Thanks, Heiko.

Ann Wilkinson -- Vice President, Investor Relations and Corporate Affairs

Holly, I think the next person in line is Ron Aubrey. Can you add him in?

Unknown speaker

Yes. This is Ron here. Can you hear me OK?

Operator

Your line is live.

Unknown speaker

Thank you. Allen, it's good to talk to you again, and thank you for taking my questions.

Allen Palmiere -- President and Chief Executive Officer

It's good to hear from you, Ron.

Unknown speaker

The company reached peak production last fall so this is the third quarter in a row of sequential decline. So it's obvious that you inherited a challenge in the midst of completely rebuilding your management team. I'm comforted to hear that the Q1 ground conditions are now resolved and behind you. So I'm trying to get a sense of when you get back to your production growth again including great improvements.

So can you just maybe take a step back and just summarize some of the mining challenges and your plans to address them going forward?

Allen Palmiere -- President and Chief Executive Officer

Yes, Ron. The plan for this year has and always has been to reduce our production rate down to 1,500 tons a day. Now last year we were running directionally at 1,980. The way that the company was able to sustain that level of production was to focus solely on the Soledad structure in Switchback.

So it's very wide width. It's a long home. It's. almost bulk mining underground.

So the volumes were relatively easy to sustain. However, if you focus exclusively on that, you miss opportunities for taking advantage of some of the narrow very high-grade veins in the Arista system in particular. So we made a very conscious decision to reduce our volume and to refocus on some of the high-grade veins in Arista. You're going to be seeing increased grades in the second half of this year coming from two areas: Soledad over in Switchback and the Candelaria and other veins in Arista.

It was a conscious decision because when you're mining in narrow veins, your productivity is, by definition, lower. You just cannot move material as fast. However, the grades are good. A mine -- the mine dictates what your level of production should be.

So I am not going to suggest to you that we will be on an ever-increasing production rate. Geology dictates what you can get. What I can tell you is our focus is to maximize what is available to us by the dictates of geology and to operate in the most efficient manner possible. Now part and parcel of that is programs that we have initiated in the past several weeks to effectively go in, strip down, analyze, and rebuild all of our systems within the mine.

Whether it's geology whether it's operations, maintenance, processing we are going in looking at them from an efficiency and a governance -- when I say governance it's not corporate governance per see, but it's operational governance perspective. And while this work is just beginning, I believe that relatively soon, potentially as soon as Q4, you're going to start seeing increased profitability for those tons that we are able to mine underground. Did that address your question, Ron?

Unknown speaker

Yes. It did. And I appreciate that color. Thank you.

I just wanted to follow on. I appreciate that you're sticking to your guidance for cash costs and all-in sustaining costs certainly after byproduct credits. Could you maybe then just take a step back and give us an updated outlook on just production specifically silver and zinc which I think has been below expectations so far it's implying that you're playing catchup there. Can you give us some maybe some color as to how confident you'll be, for example, meeting your 1.7, 1.8 million ounces of silver and 21,000 tonnes of zinc?

Allen Palmiere -- President and Chief Executive Officer

Ron, as I've already discussed, we ended up mining in lower-grade areas of the mine in particular in Q2 but also a good portion of Q1. We will not be able to get completely caught up in zinc and silver tonnage. However, the run rate that you will see for the second half of the year will exceed what we'd originally planned. So we are playing catchup to a certain extent, but the reality is we will never be able to completely recover.

The way that we're going to be hitting our targets, to be quite honestly, is the fact that we still got very strong commodity prices. And that, on one hand, I hate to take credit for something that I have no control over but a rising tide floats all boats. We are back on track in terms of our production profile, but it is not something that we can recover from completely this year, Ron.

Unknown speaker

All right. No. That's fine. But at least directionally, it appears that the worst is behind us and now we're back on a path to get to where we certainly would like to be and that's good enough for me.

Thank you. I'll get back and let others ask some questions.

Allen Palmiere -- President and Chief Executive Officer

OK. Thanks, Ron. We are back on track.

Ann Wilkinson -- Vice President, Investor Relations and Corporate Affairs

So, Holly, James [Inaudible] is up next. Could you please make his line live?

Operator

James, your line is live.

Unknown speaker

Good morning, Allen, Ann, and Kim, and congrats on the team's results on the quarterly cash flow yield. I think most of my questions on the pertinent stuff were answered. I just have some clarification points I want to ask. The first was probably to Kim.

The 1.9 million that was spent on onboarding of the third-party employees that was incurred in Q2, will that -- any of that continue on and bleed into Q3 or beyond, or is that onetime charge done for the last quarter?

Kim Perry -- Chief Financial Officer

Yes. James, thank you for that question. First of all, I want to clarify that the one -- the total 1.9 was not a cash impact during the quarter. It is 1.2 related to the profit-sharing that will continue and that's been reflected in short-term liabilities and will be paid in 2022.

The other 700,000 that you've seen is actually sitting in our long-term liabilities and relates to seven payments that if an employee is terminated you're obligated to pay under Mexican law. We did honor tenure by substituting our employees from the third party into our company, so we felt it was appropriate to record that liability so that those seniority payments would be paid upon termination should there be attrition. So that 700,000 really James is probably more of a onetime blip. There will be occasional adjustments to that for price increases but there's changes in employee headcount, inflation, etc.

But it will be rather minimal.

Unknown speaker

Great. And the next question I guess is for Allen. In terms of the reduction in the budget for the underground mine development, what led to that reduction and what impact will that have on operations going forward, if any?

Allen Palmiere -- President and Chief Executive Officer

It wasn't a reduction in budget. What it was is we have underperformed our plan. And the reason for that, James, is you'll recall we did suffer some ground control issues late Q1. That necessitated new development that was not in the plan to get back into the Soledad vein.

We have done that. But by doing that. We were unable to maintain our development rate as originally planned. Effectively, we diverted scarce resources to maintain our production profile at the expense of the longer-term development.

Will it have an impact? Yes. Do I expect to be something that you will see in the financial statements? No. We do have scarce resources in terms of its development. We've got limited development teams.

We've got limited development equipment. We are placing a great deal of emphasis on our exploration development. And at the same time, we need to recoup the lost meterage that we suffered because of the ground control issues. In a mine like this, typically you want about a year of developed workings ahead of you.

Today, we don't have that. So we are going to be making a huge push over the remainder of this year and most of next year to get back on track. I do not expect it to impact our operating results. It is certainly going to impact the schedule of the guys at the mine, but I don't think it will surface to the point of the financial statements.

Unknown speaker

OK. That's good news. And then in terms of the renewed emphasis on these satellite areas such as Cerro Colorado and the areas surrounding their Aguila project. Should we expect any increase in the original exploration budget above the 7.2 million that was allocated? And also can you give us any preview of the results to date on the drilling programs either for delineation and expansion and its potential impact on the resource estimate?

Allen Palmiere -- President and Chief Executive Officer

It's premature for me to be able to address the latter at this point. However, what we are doing is placing a great deal of emphasis on in-mine and near-mine exploration. Those areas that you've just mentioned are all near-mine exploration. What we're trying to do is build up our resource and then subsequently our reserves to take away the perception in the marketplace that we're a short-lived asset.

And that's really the thrust. We can go and focus on greenfields exploration miles away, but that doesn't move the dial in terms of resource growth. And we really do, I believe, need to be able to demonstrate increased resources just to put some investors at ease. Some investors do not understand that a mine of this type typically only has anywhere from three to five years ahead of it at any point in time.

Exploration is difficult mostly because it's primarily done underground. Driving exploration drifts is slow and time-consuming, so it's difficult to get a big resource ahead of us. That being said, that is our focus right now, both in terms of exploration drilling and infill drilling to upgrade mineralized material up into the proven and probable categories. Does that answer your question? I --

Unknown speaker

It does, Allen, and that's fine. There's two last questions I have if time permits. One was for Kim. You had mentioned, Kim, that there was an increase around the consumable prices as well as the volume of diesel.

Is that something we should be considering a ongoing increase for future quarters, or is that a temporary onetime charge.

Allen Palmiere -- President and Chief Executive Officer

I'm going to take part of that question, James. Right now, you're seeing increased cost for diesel for one primary reason and that is we have been, for this past quarter, running two of our gen-sets the supplement the grid power from Mexican authorities. We are anticipating that we will be getting an additional allocation of power from the grid beginning in September which will hopefully eliminate that bump in diesel consumption and you'll see that one decrease. There are, in fact -- and everybody knows it whether the Fed or anybody else is willing to admit it.

There is in fact inflation, and we are seeing the benefit -- the impact of it. Is it significant? It doesn't move the dial dramatically. Is it going to continue? Your guess is as good as mine. I actually -- personally, I think it will.

But typically what happens in that environment is your inputs increase because of rise in commodity prices so does your revenue. So that may be overly optimistic, I accept, but that's really what I think will happen.

Unknown speaker

Sure. And that is something I'm hoping for in some ways. I guess the last question was something I've heard with some of my readership which is concerns or questions about the large increase in the potential issuance of new shares outstanding. and the growth in the balance sheet.

On a prior call, Allen, you had mentioned that the company is looking and targeting potential acquisition opportunities. Do you have any further color on how that's progressing with any prospects, or are you still anticipating that's going to be a 2022 time frame?

Allen Palmiere -- President and Chief Executive Officer

James, I don't have a time line. Let me back up and address the first part of that question first and then I'll come back and talk about targets. The increase in authorized capital was a significant increase. However, one of the things that has to be no -- understood is we have a shelf prospectus for the AGM on file with the SEC.

And if we were to just issue the shares contemplated in that shelf prospectus, we would have exceeded our authorized capital. It was too tight to appropriately manage the capital structure of the company. And as a result, we felt it prudent just to increase flexibility. Yes.

If we identify targets that is appropriate, yes, we would consider using our stock to acquire it, but only in the situation where the transaction is accretive on almost every metric. We are not going to go and issue a bunch of stock and dilute the per-share net asset value attributable to our shareholders. That will not happen. We will not go and issue a bunch of shares and dilute our cash flow attributable to our shareholders.

That's not going to help. Now by imposing the discipline of ensuring that any transaction we contemplate is accretive, it reduces the universe of possible acquisitions. Historically, the mining industry -- and I'm a bit embarrassed to say this because I've been in the mining industry for a very long period of time. But historically, the mining industry has been very undisciplined when it comes to mergers and acquisitions.

And the industry is littered with the carcasses of bad deals because people have overpaid and they have not paid attention to fundamentals of M&A. You don't do it unless it makes sense. You don't do it unless it's going to create value, and you certainly don't do it just to get bigger. And unfortunately, the latter factor seems to be a motivating factor for a lot of M&A.

That is not what we're doing. Having said all that, that's what makes it difficult for me to give you a time line on any potential activities for the company. I've been looking all the time just by being in this seat, opportunities present themselves on a continual basis. I will tell you in particular in the pure gold sector, it is very, very, very difficult to find a transaction that makes sense.

You will see late development stage projects selling for 50 to 70% of NAV. Well, if you sit back and think about it, that doesn't leave a hell of a lot on the table for a purchaser. The only way that anybody could ever do that is they have to make the assumption that gold is going to go to 2,000 or 2,200. Then it makes sense.

But if gold goes back to 1,300, there's another carcass on the side of the road, and that is not something that I am prepared to do. Do I want to grow the company? Yes. I do. Am I willing to risk company by making a undisciplined and inappropriate transaction? No.

I'm not. I can't give you timing, James. I wish I could, but this whole initiative is by definition opportunistic and it happens if it happens. It happens when it happens.

Unknown speaker

No. That's fair, Allen. I appreciate the color especially on the ATM as well as the metrics you might be looking at. I think that's all for my questions.

I'll jump back in queue, and wish you guys the best for the next quarter.

Allen Palmiere -- President and Chief Executive Officer

Thank you very much. I look forward to talking to you soon.

Operator

Your next question is coming from John Bair. Please announce your affiliation then pose your question.

John Bair -- Ascend Wealth Advisors -- Analyst

Thank you. With Ascend Wealth advisors. Thanks for taking my questions. A number of them have been addressed here.

I do want to go back to the onboarding aspect. And I guess would it be fair to say that the requirements that you've had to address are across the board for other -- or not oil and gas -- energy. I'm sorry. My brain is in a different spot.

Other mineral companies, other exploration -- yes.

Allen Palmiere -- President and Chief Executive Officer

Let me answer. I think I know where you're going. This onboarding process was necessitated by a change of labor legislation in Mexico. Historically, most companies, mining, and other companies, hired their employees indirectly through, I will call it, a service provider who actually hired the employees and then the operating company would enter into a service contract with the third party.

Under the terms of this legislation, the government has determined they want to eliminate that and have companies employ their workers directly. This is across the board. This is not mining-specific. It's Mexico-specific.

The 10% that we've talked about in terms of bonus is mandated by legislation. However, there is no guidance within the legislation as to what that really means. When you talk to legal counsel, they would suggest that that is the top end of the bonus range. And there may, in fact, if you apply appropriate operating metrics and thresholds to it, it may be totally appropriate to pay a lesser amount but we don't know yet.

So we've taken a very conservative stance, taken the legislated amounts, so that's what we're paying. The onetime cost that Kim alluded to at $700,000 is something that we would have incurred anyway. Our third-party service provider had to make severance payments when employees left. When we move them across to our payroll, we carried with them their seniority and their history straight across and that 700,000 effectively represents accrued severance and retirement obligations arising from past service.

Does that put it in perspective for you a little bit?

John Bair -- Ascend Wealth Advisors -- Analyst

That's very helpful. And so essentially they're eliminating staffing companies as -- based what the legislation effectively does assuming, in fact, that happens for mining or oil and gas or agriculture or anything. it's pretty much across the board. Is that is that fair?

Allen Palmiere -- President and Chief Executive Officer

That is correct.

John Bair -- Ascend Wealth Advisors -- Analyst

OK. Along the same lines, are there -- does that mean you end up having to pick up, say, healthcare costs. I don't know what the structure down there is or real legislation requirements. Has that -- is -- in other words, is it very different from kind of a U.S.

framework if you're an employee of a company? There's certain [Inaudible] and so forth. Or is that all taken care of like healthcare benefits that kind of thing taken care of by the government?

Allen Palmiere -- President and Chief Executive Officer

We pay -- we provide to our employees healthcare benefits just as a U.S. employer would. The difference is cost of healthcare in Mexico is significantly lower than it is in the United States, and that portion of the cost is substantially lower. This is a move straight across.

So we were already paying all of those costs indirectly through our service provider, so we don't -- we haven't noticed any impact in terms of labor rates, in terms of benefits. Those were just a flow-through. The only impact was this legislative change of about the 10%. But keep in mind that we have in fact paid bonuses in the past.

So while it looks a little bit draconian, it's not really a major operational change in what we do. In some ways, it's almost formed over substance from a financial statement point of view.

John Bair -- Ascend Wealth Advisors -- Analyst

OK. Very good. Shifting to this -- the dry stack facilities and what you're doing there. Is this going to allow for increased processing of material, or is it simply improving your disposal tailings and so forth that could be perhaps reprocessed at a later date should commodity prices rise? And what minerals are within that? Is it your byproducts as well as gold, silver?

Allen Palmiere -- President and Chief Executive Officer

OK. Let me -- I'll start from the first question and work through them. The reason for dry stack, conventional tailings facilities fill up. And over time, you either expand them, build new ones, or you change your technology.

And then we're in an area that we felt would benefit from dry stack versus conventional tailings for two reasons: one, it allows us to reclaim the original open pit by using it as an area for dry stack deposition so we actually are moving way ahead in terms of site remediation.And in fact, we will be exceeding the standards required for site mediation by utilizing the dry stack technology. It is not -- it's not because it's less expensive. If you look at run-rate P&L on the two alternatives, filtration dry stack is going to be slightly higher than conventional tailings deposition. However, the cost of construction of a tailings management facility is exorbitant.

So you've got this capital versus operating cost trade-off. But from an environmental point of view, dry stack is far preferable. From a reclamation point of view, it's far preferable. From a water use perspective, it is incredibly preferable because we recycle 80% of our process water now.

That water used to go out the tailings facility and it was lost due to evaporation. So it substantially reduces our water consumption. As to what's in our tailings, there will be everything in our tailings that we produce. But if we are doing our job right, the amount of metals contained in our tailings is so de minimis that there really is no residual value nor would there likely ever be in the future.

Now you may have heard of situations where companies go in and reprocess historic tailings. In some old gold mines, they would have four and five grounds going out in their tailings. They were mining 30 grounds, so they didn't care. And they didn't take the time to really ensure that they extracted every bit of payable metal because they didn't need to.

But if you look at practices over the past 20 years, the recovery of metal by way of either leaching technology or flotation technology has increased to the point where there is very little in the way of payable metal going over into our tailings. Does that answer your question?

John Bair -- Ascend Wealth Advisors -- Analyst

Absolutely. No. That's very good. I appreciate that.

OK. That's pretty much what I have for today. Thank you so much for taking the questions, and good luck in the --

Allen Palmiere -- President and Chief Executive Officer

Thank you. I appreciate it.

John Bair -- Ascend Wealth Advisors -- Analyst

-- quarters going forward. OK. Very good.

Operator

Your next question is coming from Lawrence Denny. Please announce your affiliation then pose your question.

Unknown speaker

Hi. I'm a private investor and shareholder. And first of all, I'd like to congratulate you all on a good second quarter. Here's my question.

So given your strong cash flow and increased capital in the bank. Is it feasible -- I know you've got infrastructure that you're investing in, but is it feasible that in the next six to 18 months, a dividend increase is possible?

Allen Palmiere -- President and Chief Executive Officer

What's your -- your question is, on the surface, very simple. And when you drill down to it, it is incredibly complex. You're going to the heart of capital allocation and capital management. I've articulated consistently since I got into this seat the desire and need to grow the company.

If I am successful in doing that, there may be alternative uses of capital that should generate a higher return for investors than a modest increase in the dividend.

Unknown speaker

Gotcha.

Allen Palmiere -- President and Chief Executive Officer

If we are sitting here 18 months from now and we have accumulated directionally $80 million or so in the bank and I don't have a strong use of capital immediately in front of me, yes. I would consider doing that. What I think is prudent for a company in our situation, number one we want to maintain the dividend and I think our current yield is running around 2%. I do not want to discontinue that.

But what I do want to do is build up a sufficiently large cash reserve to enable us to take advantage of opportunities as they present themselves, and that's really the focus. So I'm not avoiding your question, but I am saying my priority is to establish cash reserves to give us flexibility to grow the company. And if in fact, those don't present themselves, yes. I would certainly consider giving some of that capital back to the shareholders.

Unknown speaker

No. It totally makes sense. Thank you so much.

Allen Palmiere -- President and Chief Executive Officer

You're very welcome.

Go ahead, Kim.

Kim Perry -- Chief Financial Officer

There was a question that came online from George regarding the number of employees that were impacted by the labor reforms. And, George, thank you for that question. It was approximately 500 employees. That's in round numbers, and we do have other individuals on site but they're working on construction and other projects.

Allen Palmiere -- President and Chief Executive Officer

And I have one question that was -- came in on the Internet. It was whether or not we had any thoughts about buying back shares of stock in the open market. This goes to the previous question that I was asked and it really is a capital allocation question. I am going to be -- I'm going to answer this by first declaring my bias.

I've been involved as a director and in management of a number of companies over the years that have in fact gone through as -- either a normal course issuer bid or a substantial issuer bid. And it's never accomplished what the intent was. In every case, the bank balance went down, the stock price didn't do anything, and your float was reduced. Can it work? It can work if you really want to go and have a substantial issuer bid and buy back 20% of your company.

But picking away on a normal course issuer bid really is not very effective. Personally -- and I'm one person on the board of directors. I do not speak for the entire board on this issue. I'm talking off the top of my head.

But, personally, I would rather see distributions to shareholders by way of dividends and I would buy a share buyback. Now that is a personal preference and bias. It is not going to be universally accepted, but I think that's a more effective way of returning capital to shareholders in stock buybacks. Well, I don't --

Ann Wilkinson -- Vice President, Investor Relations and Corporate Affairs

So, Allen, at this time, there are no further questions. So -- and as there are no further questions, we would like to thank you again for attending the call, and we will talk to you again next quarter.

Allen Palmiere -- President and Chief Executive Officer

Thanks, everyone.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Ann Wilkinson -- Vice President, Investor Relations and Corporate Affairs

Allen Palmiere -- President and Chief Executive Officer

Kim Perry -- Chief Financial Officer

Heiko Ihle -- H.C. Wainwright & Co., LLC -- Analyst

Unknown speaker

John Bair -- Ascend Wealth Advisors -- Analyst

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