cause our actual results to differ materially from those expressed, stated, 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, May 8th, 2019, and we undertake no obligation to publicly update any of 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 31st, 2018. Q1 of 2019 was another good quarter for the company. Our Oaxaca mining unit produced 6,538 ounces of gold and 364,000 ounces of silver, which, along with substantial base metals, generated $26.8 million in net revenue or $0.01 per share in net income for the quarter.
Significant announcements during the quarter from our Oaxaca mining unit included updating our proven and probable reserves, boosting our global tons by 16%, our gold ounces by 18%, and silver ounces by 14%. We also announced connecting to the power grid, thereby lowering our unit power costs and significantly reducing our local environmental emissions. On our Mirador mine, development crosscut 6 meters of 992 grams per ton silver. It was a busy quarter for Oaxaca, and we remain on target for our Oaxaca mining unit annual production outlook. At our Nevada Mining unit, Isabella Pearl project, we announced on March 25th we commenced gold processing by circulating solution on the heap. About 30 days later, after the first quarter ended, we announced a major milestone by producing our first gold from the project. We did well to have produced gold in just over 10 months from breaking ground.
Building a project like this is so exciting. An incredible amount of planning, work, and problem-solving goes into bringing a project like this online. Our team is still working hard to complete the final portions of the ADR process facility, from which we expect to pour doré bars on-site in the future. After evaluating the ease of delivery and reasonable cost to utilize a third party to process our gold-infused carbon accumulating in the ADR plant, it was an easy decision to produce gold doré for sale sooner than anticipated. We believe this is just the beginning of a great gold project for Gold Resource Corporation shareholders. We remain focused on ADR construction completion over the next several months and now look toward the project production ramp-up phase at Isabella Pearl. We are placing more ore on the pad, more panels under leach, and increasing leach circulation flow.
Next steps include commercial production and a Nevada mining unit 2019 gold production outlook. During the quarter, we also announced our targets for Isabella Pearl pit expansion and additional pit discovery potential. As noted in the March 26th PR, we increased Isabella Pearl pit reserves by approximately 22,000 gold ounces with a modest 2018 drill program and look to possible further additions from the northern edge of the pit. We have also identified several high-grade targets near Isabella Pearl, with the Scarlet target close by to the west and the Civit Cat West target a bit further northwest. I encourage listeners to review that press release. East of Isabella Pearl were five historic open pits, with the closest producing about 300,000 ounces of gold. Isabella Pearl is the next open pit to now produce gold on this trend.
There is great potential that Scarlet and Civit Cat West and/or any of the numerous additional targets west along trend could become open pits as well. We have consolidated over six miles of this mineralized trend to the west and look to produce from this area for a very long time. We had a very busy and great first quarter. For perspective, last year at this time, I made the following statement during the 2018 Q1 conference call. I said then that we are very excited at the prospect of receiving our EA permit and permission to begin construction at the Isabella Pearl mine. Shortly after I made that statement, we received the permit.
We broke ground a month later, a little over 10 months after that, we have successfully produced first gold from the Isabella Pearl mine, and I am proud of our excellent team that makes all these accomplishments possible. Few people will ever be part of a team that builds a mine from scratch that produces gold. Those accomplishments are not without overcoming many challenges along the way. In the mining industry, there will always be challenges. The team of Gold Resource Corporation has now earned its place as the newest gold producer in Nevada. With that, I would like to thank everyone for their time on the conference call. Let's move on to the question and answer portion of the call.
In an effort to efficiently address the Q&A portion of the call without wasting anyone's time, and since we don't screen, filter, or limit who can call in, any distracting or antagonistic calls will be terminated, and I will simply move on to the next productive caller's question. Operator, please open up the lines for the Q&A, and we'll take our first question if there is one.
Thank you. Ladies and gentlemen, to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one, and we'll take our first question. Caller, your line is open. Please go ahead. Caller, please check your mute function.
Hey, it's Heiko from Wainwright. How are you? Can you hear me?
I can now, Heiko. How are you?
Perfect. Excellent, thank you. Hey, congratulations on all that progress with Isabella Pearl, frankly, actually across your asset base. On that same token, well done on turning a profit and paying a dividend while expanding your asset base. Good job. Given how close we are to Isabella Pearl being 100% done, specifically talking about the ADR plant here, can you provide some color on the final steps and expenditures needed to get that thing 100% done, please? Maybe even a timeline, if you could.
Sure. Well, you said the final timeline for construction?
For the ADR.
For the ADR? Yeah.
What's left to do?
We're still targeting June like we originally targeted to be done with that. We're still moving forward. We have had to deal with a couple of final change orders, mostly having to do with the electrical on it. We're dealing with those, but hopefully in the next couple of months, that is operating and we're pouring gold from our ADR. As I noted in the press release and in the call today, we were accumulating carbon-infused gold, so we decided we had the option to start sooner and we did. That's, to me, more important that we reached cash flow sooner than we originally thought. Having said that, we haven't taken our eye off the ball, and in the next couple of months, we should be done with the ADR and pouring gold doré on site.
As with any project, that final stretch, there's a lot of tying up loose ends, and that's what we're doing right now.
Okay. For Arista, I noticed you have some meaningful increases in lead and zinc, both when compared with fourth Q 2018 and also year-over-year, which is obviously less relevant. I was somewhat upset by decreases in gold production both year-over-year and sequentially. While silver was up a bit from fourth Q 2018, it's also down a little bit year-over-year. Just sort of conceptually and longer term, I mean, this current strength in lead and zinc, should we think of that as more of a temporary thing, or you think those higher grades are here to stay?
Well, as far as the base metals and the higher grades there, it's a function of where we are in the deposit. If we use the Arista vein system as a case study of what we've lived over the last eight years plus, as we mine through this epithermal system, some of the higher grade gold and silver are in the upper portions of the system that's congruent with an epithermal vein system. We still have gold and silver at the deeper elevations where we're mining now, but what's also congruent with an epithermal system is your base metals increase with depth. The grade and the gradation of where we are right now is a function of being deep in this mine.
Over time, as we now have drifted over to the Switchback and we plan to mine laterally and, more importantly, up, over time, I expect this trend, if you will, to reverse itself. It will take time. It's not going to happen over a quarter or even a year. Over time, we're going to see it reverse. Regardless, we're happy that this is a polymetallic deposit, and it was great when zinc was hitting its 10-year highs not too long ago, and we got the benefit of that. It's just a function of where we are and deep in the deposit, and that's what happens in an epithermal system, higher base metal grades with depth. As you go upwards, you're going to see higher precious metal grades. Does that answer your question?
Very much so it does. Thank you, guys. Congratulations again.
Thanks, Heiko. Appreciate it.
Once again, it is star one to ask a question. We'll take our next caller. Your line is open. Please go ahead.
Hi, Jason. Congratulations for your new mine.
Thank you. Who am I speaking with?
Oh, this is Chen Lin.
Hi, Chen. How are you?
Good. How are you? Yeah.
I'm doing great.
Yeah, I just have a question. I notice right now you're really at the crunch time. You're trying to start up the new mine to generate cash flow. On the balance sheet, I noticed this quarter you have about $10 million ATM on that. Is that what you planned? Then, just basically the question is going forward, right, what kind of cash and precious metal on your balance sheet you feel comfortable so that you can complete Isabella, make it cash flow positive until you try or you plan to draw more ATM at your comfort level?
Sure. Well, I want to be clear. We made very clear in our quarter that the ATM obviously was previously announced. We announced that in the previous quarter. We did tap the ATM from the first quarter till the quarter end with $4 million additional ATM. To be clear, we utilized an additional $4.1, mostly for working capital and a few of these final change orders I mentioned, having to do mostly with electrical, but primarily for working capital. As far as the ATM goes, I was just at a conference yesterday giving a presentation, I had this question, "Why didn't you even utilize the ATM?" We obviously set out to build this with cash flow, in the volatile market, we couldn't get there. We used $15.5 million of our own cash, we looked elsewhere. We looked at debt.
We looked at a typical equity deal, the typical equity deal was looking at, like, 14% cost of capital. Debt deal was 20%. They don't even get out of bed for 20%, plus covenants and hooks. The ATM, I want everybody to know, ATM is 3%. You cannot find, we could not find, I believe you can't find any cheaper cost of capital. We have kept dilution down tremendously by utilizing the ATM, I'm very proud of that. I'm a strong supporter of the ATM now, because we would have diluted substantially more if we had to raise money north of the 3%.
What I also mentioned yesterday at the conference, and I'll mention to everybody on the call today, as far as dilution is concerned, and everybody's focused on that in this company, I love your question, Chen. If I told you that we were going to increase 100% production for 20%, 30%, you'd be like, "Hey, that sounds pretty good." If I said 20%, you'd be like, "That's really good." If I said 10%, you'd say, "That's excellent." We're at seven. If we have to continue to tap the ATM a little bit, we will do it. I'd put our track record for keeping dilution down against anybody in this space. We only have 62 million shares outstanding, more or less.
We have done, I think, a really good job in putting ourselves in a position to have 100% increase. Coming back to your ATM, to be clear, most of the ATM you're seeing in the quarter was old, previously done. We did tap an additional four. If we don't have to use it going forward, we won't. If we need a little more, we will. Again, we're very focused on that tight capital structure. I'm very pleased at where we sit today, where we're just poured gold. We're at the final stretch. Yeah, things are tight, but we got it done, and we poured our first gold. Now it's just a ramp-up. We're waiting to ramp up as fast as we can. It will take a little bit of time, again, that first bar is the most important thing.
Hopefully I've answered your question on the ATM. Do you want to ask an additional question regarding that ATM? Did I get your question answered, Chen?
Oh, yes. I'm just curious because you have the cash at beginning of the period, $7.7 million, at the end is $8.5 million, so you have a little bit cash increase. What kind of cash will you feel comfortable going forward, or with the new mine coming, you're willing to let your cash balance dip further until, or maybe?
No, that's a great question. Yeah, I understand what you're asking, and that's a great question. We don't have a definitive, "Hey, this is what we go to." In the past, we drew our cash balance down below $4 million. We don't object to the company to doing that. We have a lot going on right now, and we want to make sure that we see this thing successful, and we're there. I can't give you an exact amount because we don't have this, "Okay, this is where we won't allow the cash to go below," because you can go back in history and look, and we've let it go much lower than where it is today. Again, we're now a two-jurisdiction operator.
We have to keep that in mind that now we're a company that has two mining units, not just one. There's more balls to juggle, so to speak. We're just doing what we believe is prudent and in the best interest of shareholders. I can't give you an exact number because I don't have one as far as what we'll let our cash go to.
Okay. Thank you, Jason. Congratulations for your new mine.
Thank you. I hope, Chen, you saw the picture in that press release of that doré bar. It's beautiful. It's absolutely beautiful. Some doré, there's a lot of silver in it. You just don't get that gold shine to it. Hopefully you saw that.
Okay. Thank you. Like to touch it one day.
Yep. Well, at some point, we'll be maybe doing mine tours and there's nothing better than holding gold. I mean, there's nothing. It puts a smile on everybody's face that I've ever seen that holds gold. Thanks, Chen.
Once again, ladies and gentlemen, it is star one to ask a question, and we will take our next caller. Your line is open. Please go ahead.
Hi, Jason, Mark Smith.
How are you?
Well, I'm doing okay. This could be for you or for John, actually. Just looking through this balance sheet, there's some things in there I just have some questions on. Specifically, I understand accounts payable kind of clogs up sometimes and gets pretty large. Man, $6 million increase in accounts payable, if you could address that. What's this deal on the change in inventory up 40% as well? Lastly, could you comment on the operating leases, both current long-term increasing over $12 million? Substantial changes in the balance sheet, just would like some comment on that, please.
Yeah, I'm going to turn that over to John . I think he's better apt to answer those questions.
Yeah. Kind of we accounting nerds stick together. Right, John ?
Good question, Mark. How are you?
I'm okay.
Good. Yep. Well, as far as accounts payable, that's going to vary. Since we've been ramping up at Isabella Pearl and we don't yet have sufficient revenues, you're going to see that being up a little bit higher, and now we're kicking into full mining mode. You'll see that. In terms of inventories, same thing. We added almost $5 million of inventories, mainly at Isabella Pearl. We also had about a million and a half dollars of doré inventory in Mexico, which we're not likely to continue to have. That pretty much flowed all the way through to sales shortly after the end of the quarter. That was more of a timing issue. Yeah, inventories will be higher because we're going to have a lot of pad inventory until sales get kicked into full mode in Isabella Pearl.
As far as operating leases, the lease accounting, basically, all public companies have to pick up this new pronouncement. As of January 1st, we implemented it. Basically, we have to look at all operating leases that qualify, and that's virtually anything a year or longer. As a lease that we have to put on the balance sheet, we had to determine basically the value of what they call a right-of-use asset, where the amount it to was about $13 million. You'll see that almost $13 million on a line item in the asset section. Unfortunately, in the liability section, you've got to separate short versus long-term. Of that $13 million, $8 million of that went as a current liability, which one might say it kind of distorts what we really owe because we don't owe it at this point in time.
We will pay out that over the course of the next year. That's basically the operating lease explanation. It's virtually just an accounting matter. It doesn't change the cash that we'll put out under our contract mining agreement whatsoever. It does gross up our assets and liabilities, so it just makes the balance sheet look bigger, but not necessarily better.
Yeah, Mark, I just might add that for those non-accountants like myself listening to this, the primary driver of the $8 million John referenced is the Mincore mining contract.
That being that we have that contract that's over 12 months triggered this, now we have to now account for that since this pronouncement January 1st. The new regulation, so to speak.
Okay. I can get that. All right. That was good, John. Thank you. That really made it a little bit clearer, and especially with the new mine, all those kinds of incidentals, lime and whatever all you're putting on that pad to have that inventory. AP, I understand that you want to space that out when paying that, okay. One other question, pretty quick, and I could be wrong, been a shareholder for quite a while, but I thought we were done with the Aguila open pit mine terms. Apparently not.
Yeah, the Aguila, the open pit is a gift that keeps on giving.
Okay.
We've been mining that on a small scale for a very long time, on and off. We think we're done, and then we'll go in.
Okay
a little more exploration to find some additional grade. We are mining that now. Yeah, it's a small amount, but technically we have three mines in Mexico and now one in Nevada.
Okay. That's it. Thank you, guys.
Thank you.
We'll take our next question. Caller, your line is open. Please go ahead.
Hi, guys. Brian Savage, a shareholder from Chicago, Illinois. I just had one question. Why was the production cost seemed a lot higher as a % than it was in the previous quarter?
John, do you have an opinion on that?
Yeah. Well, that's directly related to the increased throughput, to get the higher mill tons through the mill. I think that was about a 17% increase, and production costs increased about 14%. It's fairly directly related to our production. Now because we did lower grade that we were processing, production held pretty constant, and costs did increase. There is quite an impact to the grades. In terms of production costs, we'll continue to have higher costs as long as we have the higher throughput. Again, the grades, as Jason's already explained, will be changing over time.
Yeah, Brian, I might-
Okay. Do you-
Let me just add to that, Brian, that in the past, I don't get too focused on one quarter as opposed to the other, a prediction, and here's why. It was not too many quarters ago, we were in negative cost. That was a function of the high-grade base metals that we were in at that particular quarter and the fact zinc hit a 10-year high. Costs obviously vary, but on balance, we continue to be a low-cost producer.
Yeah. No, absolutely. That's the only question. I appreciate it, guys. Thanks.
Thanks, Brian.
Once again, you can star one to ask a question. We'll take our next caller. Your line is open. Please go ahead.
This is Bill Pace, a shareholder in Tucson, Arizona. First to say commendations to you for keeping on schedule and including getting all the permits for the [Damada mine]. That's excellent, good news to hear. My question is, briefly looking at.
First quarter results compared to first quarter of last year, comparisons were not favorable. I didn't hear any comments on that. I would appreciate some comments and explanation of what accounted for that. Thank you.
Sure. Well, I think some of it we addressed with the previous caller's question and they were saying, what about costs? Any given quarter can drive those costs up or down. Like I mentioned just a moment ago, we used to be a negative several hundred dollar cost. It's a function of where we are in the mine. Not to regurgitate everything I said earlier in the call, but we are deep in an epithermal system with high-grade base metals. There's still precious metals there, but as we mine up in Switchback, we're going to get into different grade, and that will change things over time. I guess that would be my answer. It's just a function of where we're mining. I don't want to lose sight of the bigger picture. We're focused now on ramping up in Nevada.
We're focused on announcing commercial production, and we're focused on increasing our annual global gold production. That'll be the catalyst, when we show the market what we can do. I think that's the growth catalyst I think everybody should be focused on. Once we hit our stride there, everybody expects the dividends to go up, and that'll be the next catalyst beyond that. Yeah, quarter-on-quarter, year-on-year, you'll have some variation, but we are in an exciting growth phase, and I don't want to have some quarter-on-quarter comparison shadow that, and that's the most important thing.
Jason, I might also add that the quarter last year was unusually favorable from a base metals point of view in that the prices were considerably higher. We had some positive adjustments that came into the first quarter of 2018 as well. You'll see that was the quarter where we had negative cost per ounce sold. As good as we are, that's not likely to continue.
Yep. Another time you said that, John, that triggered something that's important for everybody to hear. Last year, we had one of the most favorable concentrate buyers terms that we've ever had. This year, the whole industry got beaten up. We don't drive that discussion. The big base metal producers drive those negotiations and set the tone and set what we get paid, basically. We also went from last year getting paid on some of the best terms we've ever seen with the Trafigura to this year, where not so good, and on top of that, we actually moved our copper over to Glencore. We're now selling to Trafigura and Glencore, because we got better terms with Glencore on the copper.
That's a big factor, too, that the metal prices are less favorable this year to all mining companies as far as sales go.
Okay. Thank you. Just one follow-up point. With the good news and the good outlook for the company, any comment on why the stock price seems not to be reacting the way one would expect?
That's a great question, if you look at our news flow, tremendous news flow over the last month, a news flow that one would think would increase the share price. Having said that, my screen, and I'm looking at it right now, miners are mostly red. Teck was down 4%, Fortuna almost three, we're down five right now. Most of the miners are red. This is a very unloved space right now. You can't buck that trend, no matter what kind of good news you come out with, to some extent. It just is what it is. I don't have the answer for you. I don't think anybody does. I would have a crystal ball if I did, right? The most important thing is that we are in production in Nevada and we're building a successful operation there. It'll take care of itself.
The share price will take care of itself. The space will ultimately get some attention at some point and onward and upward. Yeah, I can't answer that.
Yeah, I understand. It is perplexing, and I agree with you, and hopefully that starts happening soon. Thanks for the comments. I appreciate it.
Hey, you're welcome. Have a good day. Thanks for the call.
As a final reminder, everyone, it is star one to ask a question, and we'll move to our next caller. Your line is open. Please go ahead. Caller, please check your mute.
Brett, are you on?
Yes, I'm here. I'm sorry, I didn't hear you. Hi, Jason. Brett Jones here. I'm calling to ask a little bit of color for the electrification project. It seemed like that got done pretty late in the quarter. I was wondering if we got any contribution from that, if not, with the increased throughput down in Mexico, what is the forecast for how much that might add to our earnings for the balance of the year?
We are very proud that after a five-year arduous project, being the grid power in Mexico, we finally hooked to the grid power in the first quarter, which is monumental for us. The estimated savings at this point is looking like $1 million-$2 million. To give you a sense for power on a cents per kilowatt hour, the grid is $0.13 versus the diesel, which is at $0.24. There is a diesel tax credit that we are still currently able to utilize, and we're utilizing, and that put it at $0.16 per kilowatt hour. There is talk that diesel credit may go away. If so, we'd be looking at the savings between the differential of $0.13 versus $0.24. As it stands now, it's a difference from $0.13 to $0.16. It will add several million, we estimate.
Over time, we'll see more of that impact. Also, it's going to take time in that some of the cost savings that I mentioned, the $1 million-$2 million, include the cost to replace generators. Generators only have a finite number of hours. You try to rebuild them, they always have a finite number of hours, we found ourselves, obviously, running on diesel for so long, we had to buy new generators on a consistent basis and rotate them in and replace the old ones. We don't have to do that anymore. Those costs obviously, will be seen over a longer term. A couple million is a good target, I think, as far as cost savings.
Okay.
If they do away with the diesel, which with the new president, they sure might. There's a good chance they do away with that diesel tax credit. Good for us, because I am getting to the power grid, because we would've gone from $0.16 up to $0.24. If they do away with it doesn't matter. We're at $0.13. Does that answer your question?
Yeah. Given the state of their petroleum production down in Mexico, I think that's probably something that we're going to see as far as the increases. Another question. I'm trying to understand, is it an ongoing process where we are doing the third-party refining, and what's the schedule for getting production out of that? Are we waiting for more to ship up there? Is there stuff in process now? Can you just give us a little color on what you see as the procedures going forward as far as a third-party refiner?
Sure. Every Tuesday, we have an Isabella Pearl conference call at 9:00 A.M. The one we just had, we discussed this. We'd like to be in the position to ship two to three times a week. Once we get stable at doing that would be good for us.
Do they have anything of ours in process now, or are they waiting for that?
As far as right this second, I don't know. I can't answer that.
Okay.
Whether it's being shipped, it's there, I don't know. The goal is to have it two to three times a month, It just ships to Utah. They process it. What's great about this group we're using is that we get the carbon back. We've looked at other groups, In their process, they destroy the carbon, which is quite expensive. It didn't really make that much sense. This group, we actually get the carbon back, It ships back and goes back through the circuit. It's really reasonable, It allows us to be producing gold now, Great. I mean, that's terrific.
Yeah. Okay.
We ship the doré to Johnson Matthey, what's now Asahi has received our first gold. Money's coming in from that.
Okay.
That's great.
Okay. Yeah, Greg had given me a little color that you had an option in Reno or going to Salt Lake, and that the carbon was the hook for that. I'm assuming that that, in addition to being ecologically more friendly, is it net out on a cost basis, too, to be favorable to recover the carbon with the perhaps higher refining costs?
Okay. I guess I'm not following you. Is it better just to stay with the carbon? Is that what you're saying?
No, I'm just saying, you're retrieving the carbon with the process we're using now.
It is savings.
Okay.
You don't want to burn that carbon. It's really expensive. It's very expensive. To have that destroyed, it just makes it far less attractive. This group in Utah actually gives you the carbon back, so it made far more sense. It was a no-brainer at that point.
So-
Go ahead.
Yeah, I just said, so the point was basically you get the carbon back and you get the gold refined and the net-net is as good as it would've been if you had just gotten the leach pad process to the point that you would be shipping it on to the actual guy that's punching out the gold.
Okay. To the refiner, you mean?
Right.
Yeah, I guess I'm not 100% following you, but all I can say is it's very attractive to-
Okay
use a third party. It's just a no-brainer. Yeah.
Okay. Thank you.
That's what we're doing. Yeah, sure. Okay, I do think we've gone over time. If you do have calls and you're in the queue, I apologize, but I think we're 7 minutes over time. Feel free to call the office here, and I will field any additional questions anybody has. With that, thank you everybody for their time on the conference call, and for all the shareholders out there, it's a pretty fun time. We poured our first gold in Nevada, pretty monumental. We'll talk to you next quarter. Thank you very much.
This does conclude today's conference. Thank you for your participation. You may now disconnect.