Company Also Reports on Exploration and
Provides Corporate Update
Gatos Silver, Inc. (NYSE/TSX: GATO) (“Gatos Silver” or the
“Company”) today reported an updated Mineral Reserve Estimate (the
“2022 Mineral Reserve”), Mineral Resource Estimate (the “2022
Mineral Resource”) and Life of Mine (“LOM”) plan (the “2022 LOM
Plan”, and together with the 2022 Mineral Reserve and 2022 Mineral
Resource, the “2022 Updates”) for the Cerro Los Gatos Mine (“CLG”)
in which Gatos Silver has a 70% interest.
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the full release here:
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Figure 1: Reduction in contained silver
between the 2020 Technical Report and the 2022 Updates (million
ounces) (Graphic: Business Wire)
All dollar amounts are expressed in, and references to “$” refer
to, United States dollars unless otherwise noted.
Highlights
- CLG 2022 LOM Plan summary using only the 2022 Mineral Reserve
(100% basis):
- CLG’s current reserve mine life continues to 2028;
- Average annual production of 7.4 million ounces of silver with
average annual cash flow of $79 million (after tax) through 2028 at
$22 per ounce silver price;
- Average all-in sustaining costs (“AISC”) of $7.06 per ounce1 of
payable silver, net of by-product credits;
- Average operating costs of $89.76 per tonne milled; and
- Pre-tax net present value (“NPV”) at a 5% discount rate of $491
million ($377 million after tax)2;
- Recent exploration success demonstrates extension potential
that could, with additional drilling, significantly extend the mine
life;
- The Company is focused on resource extension drilling at depth
in the North-West and Central zones, in addition to the undeveloped
South-East zone. Drilling highlights from this program include hole
GA-SE-467 that intercepted 17.0 meters (estimated 10.4 meters true
width) at 291 g/t Ag, 5.55% Zn, 6.14% Pb and 1.01% Cu. See Table 10
for complete intercept details; and
- Recent drilling at CLG beneath the South-East zone (referred to
as South-East Deeps) has discovered both silver-copper and
silver-zinc-lead mineralization at depth. Drilling highlights from
this program include hole GA-SE-477 that intercepted 7.5 meters
(estimated 5.9 meters true width) at 247 g/t Ag, 5.97% Zn and 3.58%
Pb and hole GA-SE-475 that intercepted 16.0 meters (estimated 12.0
meters true width) at 135 g/t Ag and 1.34% Cu. See Table 11 for
complete intercept details.
- The Company is in the process of transitioning its executive
office to Vancouver, BC, from Denver, Colorado, and has an
experienced executive management team in place, further
strengthened with the appointment of Stephen Bodley, General
Counsel and Chief Compliance Officer, effective October 16,
2022.
_________________________
1 Excludes $6 million per year in corporate overhead paid by the
Los Gatos Joint Venture, equivalent to $0.94 per ounce of payable
silver. See Non-GAAP Financial Performance Measures below. 2 NPV as
of July 1, 2022 at $22/oz silver, $1.20/lb zinc, $0.90/lb lead,
$1,700/oz gold and exchange rate of Mexican Peso MXN 20.00 per
US$1.00.
Dale Andres, CEO of Gatos Silver said:
“We have taken the necessary time to rebuild the 2022 Mineral
Reserve and 2022 Mineral Resource from the ground up and are
pleased to be able to deliver this update to our shareholders. The
2022 LOM Plan displays low average all-in sustaining costs and
strong cash flow until 2028 from our current reserve.
“Additionally, while still early days, it appears that there is
potential to extend mine life as a result of significant
mineralization that we have recently discovered in the South-East
Deeps zone, which extends more than 300 meters below the bottom of
the 2022 Mineral Reserve. By adding a new component to our
geological interpretation of the mineralization, this new zone
opens up geological prospects at depth – not only below the
existing workings, but across our land position. Now that we have
the solid foundation with this updated reserve, we can return our
attention towards realizing our district-scale upside with further
exploration.
“Demonstrated by our excellent operating performance and now
with a solid foundation at CLG with one of the industry’s lowest
cost operations throughout the 2022 LOM Plan, we are
well-positioned for future growth. I am excited to work with a
revitalized and experienced executive leadership team at Gatos
Silver, which is bringing a new perspective and depth as we look to
grow shareholder value. Moreover, we have added terrific
operational and technical talent to the CLG management team to help
optimize the operation of the mine. Together with our partner Dowa
Metals and Mining (‘Dowa’), our objectives are to extend the mine
life beyond 2028 and to further develop the 103,000-hectare Los
Gatos district. The integrated analyses that have gone into this
outcome have been comprehensive, and the outcome provides a secure
path forward to realizing the true value of CLG. We thank you for
your patience as we worked to get it right and can report that we
are confident in our ability to execute to the 2022 LOM Plan.”
2022 Updates – CLG
Summary
On January 25, 2022, Gatos Silver announced that, following
reconciliation work at its CLG mine, the Company concluded that
there were errors in the technical report entitled "Los Gatos
Project, Chihuahua, Mexico" with an effective date of July 1, 2020
(the "2020 Technical Report"), in addition to potential
overestimation in the then-existing resource model. On a
preliminary basis, the Company estimated a potential reduction of
CLG’s mineral reserve ranging from 30% to 50% of the metal content
remaining after depletion. Despite the 2020 Technical Report
issues, CLG operations have performed well so far in 2022 as a
result of underground drilling, geological mapping and sampling,
short term mine planning, and good operations execution.
Working with independent engineering consultants to better
understand the magnitude of the errors and overestimation, it has
been determined that the reduction in contained metal of the 2022
Mineral Reserve compared to the 2020 Technical Report is as
follows: 32% silver, 37% zinc, 36% lead and 35% gold, after
accounting for depletion. This reduction is within the bottom half
of the 30% to 50% range originally estimated.
The 2022 LOM Plan is a reserve plan and reflects current cost
estimates for mining only the 2022 Mineral Reserve using a
“ground-up” approach including new geological data and
interpretation, resource modelling, mine design and cost modelling.
Production and cost guidance for 2023 is expected to be issued in
the first quarter of 2023 after detailed planning and budgeting is
completed, which is expected to include additional expenditures to
further explore the district and support potential extension of the
2022 LOM Plan. The Company expects to file an updated technical
report summary (TRS) prepared in accordance with subpart 1300 of
Regulation S-K (“S-K 1300”) in the United States on the EDGAR
section of the Securities and Exchange Commission (“SEC”) website
at www.sec.gov, and file an updated technical report prepared in
accordance with National Instrument 43-101 - Standards of
Disclosure for Mineral Projects (“NI 43-101”) in Canada under the
Company’s profile on SEDAR at www.sedar.com (collectively, the
“2022 Technical Reports”), to support the disclosure regarding the
2022 Updates. The 2022 Technical Reports are expected to be filed
in the coming weeks and the Company intends to hold a public
webcast review of the 2022 Technical Reports in November.
The Company anticipates completing an impairment assessment
based on the 2022 Mineral Reserve in the fourth quarter of 2022 and
is working towards completing all outstanding SEC and OSC filings
as soon as possible.
2022 Mineral Reserve and 2022 Mineral Resource (CLG – 100%
basis)
- Mineral Reserve of 6.07 million tonnes grading 244 g/t silver,
4.48% zinc, 2.14% lead and 0.27 g/t gold containing 47.7 million
ounces silver, 599.1 million pounds zinc, 286.7 million pounds lead
and 51.8 thousand ounces gold
- Measured and Indicated Mineral Resource (exclusive of reserves)
of 1.94 million tonnes grading 96 g/t silver, 3.01% zinc, 1.56%
lead and 0.19 g/t gold
- Inferred Mineral Resource (exclusive of reserves) of 2.09
million tonnes grading 113 g/t silver, 4.30% zinc, 2.45% lead and
0.20 g/t gold
2022 LOM Plan Economics (100% basis)
Table 1: Summary of 2022 LOM Plan Economic Results Showing
Sensitivity to Various Silver Prices
Silver Price
$/ounce
$18.00
$20.00
$22.00
$24.00
Total LOM Free Cash Flow
$M pre-tax
$414
$491
$567
$644
(undiscounted)
$M post-tax
$310
$368
$437
$507
Net Present Value(1)
$M pre-tax
$356
$424
$491
$558
(5.0% discount rate)
$M post-tax
$264
$316
$377
$438
(1)
NPV is discounted to July 1, 2022.
2022 Mineral Reserve –
CLG
The methodology used to prepare the 2022 Updates has been
substantially revised from that used to prepare the 2020 Technical
Report. The changes that have been implemented, based on experience
through mining operations since 2019, include:
- New geological and geochemical data;
- Updated geological interpretation methodology;
- Updated Mineral Resource estimation methodology, including
correction of the reserve calculation errors disclosed in our
January 25, 2022 press release;
- Updated mining assumptions;
- Updated plant throughput and processing recovery assumptions;
and
- Updated operating and capital cost assumptions.
The updated mineral reserve estimates by reserve category are
summarized below in Table 2.
Table 2: 2022 Mineral Reserve as at July 1
2022(1,2,3,4,5,6,7,8,9,10)
Mt
Ag
(g/t)
Zn
(%)
Pb
(%)
Au
(g/t)
Ag
(Moz)
Zn
(Mlbs)
Pb
(Mlbs)
Au
(koz)
Proven
2.32
309
4.33
2.20
0.31
23.1
221.6
112.3
23.0
Probable
3.75
204
4.57
2.11
0.24
24.6
377.4
174.4
28.7
Proven and Probable
Reserve
6.07
244
4.48
2.14
0.27
47.7
599.1
286.7
51.8
(1)
Mineral Reserves are reported on a 100%
basis and exclude all Mineral Reserve material mined prior to July
1, 2022.
(2)
Specific gravity has been assumed on a dry
basis.
(3)
Tonnage and contained metal have been
rounded to reflect the accuracy of the estimate and numbers may not
sum exactly.
(4)
Values are inclusive of mining recovery
and dilution. Values are determined as of delivery to the mill and
therefore not inclusive of milling recoveries.
(5)
Mineral Reserves are reported within stope
shapes using a variable cut-off basis with a Ag price of US$22/oz,
Zn price of US$1.20/lb, Pb price of US$0.90/lb and Au price of
US$1,700/oz.
(6)
The Mineral Reserve is reported on a fully
diluted basis defined by mining method, stope geometry and ground
conditions.
(7)
Contained Metal (CM) is calculated as
follows:
- Zn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 *
2204.6
- Ag and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035 ;
multiply Au CM (Moz) by 1000 to obtain Au CM (koz)
(8)
The SEC definitions for Mineral Reserves
in S-K 1300 were used for Mineral Reserve classification which are
consistent with Canadian Institute of Mining, Metallurgy and
Petroleum (CIM) Definition Standards for Mineral Resources and
Mineral Reserves (CIM (2014) definitions).
(9)
Mineral Reserves are those parts of
Mineral Resources which, after the application of all mining
factors, result in an estimated tonnage and grade which, in the
opinion of the Qualified Person(s) making the estimates, is the
basis of an economically viable project after taking account of all
relevant Modifying Factors. Mineral Reserves are inclusive of
diluting material that will be mined in conjunction with the
Mineral Reserves and delivered to the treatment plant or equivalent
facility.
(10)
The Mineral Reserve estimates were
prepared by Mr. Paul Gauthier, P.Eng. an employee of Golder
Associates who is the independent Qualified Person for these
Mineral Reserve estimates.
2022 Mineral Resource – CLG and
Esther
The 2022 Mineral Resource uses additional geological and
geochemical data that has been collected since the 2020 Technical
Report up until March 31, 2022 for Cerro Los Gatos and July 31,
2022 for Esther. The 2022 Mineral Resource for CLG incorporates an
additional 36,233 meters of surface resource drilling in 100 holes
and 51,279 meters of underground definition drilling in 623 holes.
Detailed geological mapping from over 20 cut and fill production
levels was also available for geological interpretation. The 2022
Mineral Resource for Esther incorporates an additional 22,565
meters of surface resource drilling in 63 holes.
The 2022 Mineral Resource uses a different geological modelling
methodology than was used for the 2020 Technical Report. The
interpretation of the vein solids that were used to define the
estimation domains are now lithology based, rather than grade
shells used in the 2020 Technical Report. The interpretation was
completed by local CLG exploration staff in collaboration with the
underground mine geologists and the Qualified Person from Golder
Associates. The lithology-based interpretation utilized all
available information including surface drillholes, underground
drillholes, underground mapping, mine as-built surveys and mine
channel sampling. The geological modelling for the 2022 Mineral
Resource shows more veins but thinner veins in the Central zone and
different structural segmentation in the South-East zone when
compared to the geological interpretation in the 2020 Technical
Report. As shown by the recent strong operational performance, the
mine is able to successfully extract both long-hole stopes and cut
and fill stopes with the vein continuity experienced
underground.
The 2022 Mineral Resource uses a different estimation
methodology than previously used for the 2020 Technical Report. The
current methodology applies high grade restrictions specific to
individual vein estimation domains. The estimation was completed
using Ordinary Kriging in 3D, rather than flattened-space. The
estimation was completed using locally varying anisotropy to
account for the variable vein dip. The Mineral Resource
categorization methodology was modified to incorporate proximity to
underground geological mapping and drilling, both surface and
underground. The estimation was calibrated against production
channel sampling and plant production.
The CLG 2022 Mineral Resource reported by category is summarized
in Table 3 below, and the Esther 2022 Mineral Resource reported by
category is summarized in Table 4.
Table 3: 2022 Mineral Resource – CLG (Exclusive of Mineral
Reserves) (1,2,3,4,5,6,7,8,9,10,11)
Mt
Ag
(g/t)
Zn
(%)
Pb
(%)
Au
(g/t)
Ag
(Moz)
Zn
(Mlbs)
Pb
(Mlbs)
Au
(koz)
Measured
0.38
151
2.63
1.49
0.26
1.9
22.1
12.6
3.2
Indicated
1.55
82
3.11
1.57
0.17
4.1
106.4
53.8
8.6
Measured and Indicated
1.94
96
3.01
1.56
0.19
6.0
128.5
66.4
11.8
Inferred
2.09
113
4.30
2.45
0.20
7.6
198.4
113.1
13.3
(1)
Mineral Resources are reported on a 100%
basis and are exclusive of Mineral Reserves.
(2)
Mineral Resources which are not Mineral
Reserves do not have demonstrated economic viability. The estimate
of Mineral Resources may be materially affected by environmental,
permitting, legal, marketing, or other relevant issues.
(3)
The SEC definitions for Mineral Resources
in S-K 1300 were used for Mineral Resource classification which are
consistent with Canadian Institute of Mining, Metallurgy and
Petroleum (CIM) Definition Standards for Mineral Resources and
Mineral Reserves (CIM (2014) definitions).
(4)
The quantity and grade of reported
Inferred Mineral Resources in this estimation are uncertain in
nature and there has been insufficient exploration to define these
Inferred Mineral Resources as an Indicated or Measured Mineral
Resource. It is uncertain if further exploration will result in
upgrading Inferred Mineral Resources to an Indicated or Measured
Mineral Resource category.
(5)
Specific gravity has been assumed on a dry
basis.
(6)
Tonnage and contained metal have been
rounded to reflect the accuracy of the estimate and numbers may not
sum exactly.
(7)
Mineral Resources exclude all Mineral
Resource material mined prior to July 1, 2022.
(8)
Mineral Resources are reported within
stope shapes using a $42/tonne or $52/tonne NSR cut-off basis
depending on mining method with an Ag price of $22/oz, Zn price of
$1.20/lb, Pb price of $0.90/lb and Au price of $1,700/oz.
(9)
No dilution was applied to the Mineral
Resource.
(10)
Contained Metal (CM) is calculated as
follows:
- Zn and Pb, CM (Mlb) = Tonnage (Mt) *
Grade (%) / 100 * 2204.6
- Ag and Au, CM (Moz) = Tonnage (Mt) *
Grade (g/t) / 31.1035 ; multiply Au CM (Moz) by 1000 to obtain Au
CM (koz)
(11)
The Mineral Resource estimates were
prepared by Ronald Turner, MAusIMM(CP) an employee of Golder
Associates who is the independent Qualified Person for these
Mineral Resource estimates.
Stope optimizations have been generated to restrict the reported
Mineral Resource to areas that demonstrate reasonable prospects of
economic extraction.
Table 4: 2022 Mineral Resource – Esther
(1,2,3,4,5,6,7,8,9,10)
Mt
Ag
(g/t)
Zn
(%)
Pb
(%)
Au
(g/t)
Ag
(Moz)
Zn
(Mlbs)
Pb
(Mlbs)
Au
(koz)
Indicated
0.28
122
4.30
2.17
0.14
1.1
26.8
13.6
1.2
Inferred
1.20
133
3.69
1.53
0.09
5.1
98.0
40.6
3.3
(1)
Mineral Resources are reported on a 100%
basis.
(2)
Mineral Resources which are not Mineral
Reserves do not have demonstrated economic viability. The estimate
of Mineral Resources may be materially affected by environmental,
permitting, legal, marketing, or other relevant issues.
(3)
The SEC definitions for Mineral Resources
in S-K 1300 were used for Mineral Resource classification which are
consistent with Canadian Institute of Mining, Metallurgy and
Petroleum (CIM) Definition Standards for Mineral Resources and
Mineral Reserves (CIM (2014) definitions).
(4)
The quantity and grade of reported
Inferred Mineral Resources in this estimation are uncertain in
nature and there has been insufficient exploration to define these
Inferred Mineral Resources as an Indicated or Measured Mineral
Resource. It is uncertain if further exploration will result in
upgrading Inferred Mineral Resources to an Indicated or Measured
Mineral Resource category.
(5)
Specific gravity has been assumed on a dry
basis.
(6)
Tonnage and contained metal have been
rounded to reflect the accuracy of the estimate and numbers may not
sum exactly.
(7)
Mineral Resources are reported within
stope shapes using a $52/tonne NSR cut-off basis assuming
processing recoveries equivalent to CLG with an Ag price of $22/oz,
Zn price of $1.20/lb, Pb price of $0.90/lb and Au price of
$1,700/oz. There is a portion of the Esther deposit that is
oxidized and metallurgical test work is required to define
processing recoveries.
(8)
No dilution was applied to the Mineral
Resource.
(9)
Contained Metal (CM) is calculated as
follows:
- Zn and Pb, CM (Mlb) = Tonnage (Mt) *
Grade (%) / 100 * 2204.6
- Ag and Au, CM (Moz) = Tonnage (Mt) *
Grade (g/t) / 31.1035 ; multiply Au CM (Moz) by 1000 to obtain Au
CM (koz)
(10)
The Mineral Resource estimates were
prepared by Ronald Turner, MAusIMM(CP) an employee of Golder
Associates who is the independent Qualified Person for these
Mineral Resource estimates.
2022 Mineral Reserve – CLG Changes and
Key Assumptions
The reserve numbers reported in the 2020 Technical Report were
impacted by two material and compounding errors. First, the block
model used in preparation of the reserve estimate was distorted
during transfer between software packages resulting in reduced
block dimensions and unestimated spaces between blocks. Second, an
incorrect software parameter was used in calculating tonnes and
grades within designed stope solids that resulted in any
unestimated volume (both planned intentional dilution outside the
estimated vein and unestimated spaces resulting from the
distortion) being applied at the average mineralized grade instead
of zero grade for dilution. The effective result of the combination
of these errors is that metal grades were significantly overstated
in the 2020 Technical Report. There were other minor errors
identified during the analysis of the 2020 Mineral Reserve,
including overlapping reserve stope solids, incorrect external
dilution calculations and the inclusion of a small amount of
Inferred grades within stope solids. In addition to correcting the
errors identified in the 2020 Technical Report, which was the
majority of the reduction, we previously disclosed the need to make
additional adjustments in the 2020 Mineral Reserve. There are
multiple factors that have contributed to the remaining adjustments
in the 2022 Mineral Reserve since the 2020 Technical Report, and
these adjustments have been addressed in the new 2022 Mineral
Reserve, with all underlying assumptions modified based on actual
operating experience since plant operations commenced in August
2019.
The factors that have reduced the metal content in the Mineral
Reserve include the South-East zone infill drilling data, updated
geological modelling, updated mining dilution and recovery
assumptions, increased operating cost assumptions and decreased
zinc plant recoveries. The factors that have increased the metal
content in the Mineral Reserve include increased plant throughput,
increased silver and lead processing recoveries and higher metal
price assumptions compared to the 2020 Technical Report.
Table 5: Summary of changes from the 2020 Technical Report to
the 2022 Mineral Reserve
2020
Technical
Report
LOM
(A)
Depletion
from July 1,
2020 to June
30, 2022
(B)
2022 Mineral
Reserve
(C)
2022 Mineral
Reserve +
Depletion
(B+C)
% Change
(B+C)/A-1
P&P Reserve
Mt
9.62
1.73
6.07
7.79
(19)%
Ag Grade
g/t
305
305
244
258
(16)%
Zn Grade
%
5.65
4.07
4.48
4.39
(22)%
Pb Grade
%
2.76
2.33
2.14
2.19
(21)%
Au Grade
g/t
0.35
0.34
0.27
0.28
(20)%
Ag Contained
Moz
94.5
16.9
47.7
64.5
(32)%
Zn Contained
Mlbs
1,199
155
599
754
(37)%
Pb Contained
Mlbs
585
89
287
375
(36)%
Au Contained
kOz
109
19
52
71
(35)%
Figure 1 shows the Reduction in contained silver between the
2020 Technical Report and the 2022 Updates.
Key Assumptions Generally
The 2022 Updates are based on a variety of estimates and
assumptions relating to, among other things, geological
interpretation, statistical inferences, commodity prices, mining
methodologies, operating and capital costs, plant throughput and
processing recoveries and operating conditions. In particular,
material assumptions and risks include those described below and
elsewhere in this press release, including metal prices, as well as
our ability to reduce operating costs, increase ramp development
rates and dewater the mine in a cost-effective manner. There can be
no assurance that the assumptions underlying the 2022 Updates will
actualize or be correct, and changes to any of these assumptions or
our inability to achieve these assumptions may result in actual
results to deviate significantly from the 2022 Updates.
Mine Design
Long-hole (“LH”) mining methods were applied where applicable
throughout the mine. The operation has successfully been mining
steeper sections of the Central zone using LH mining methods and we
expect to be able to mine appropriate areas of the South-East zone
using the same methodology. The zones that are dipping at less than
55° are still planned to be extracted using cut and fill (“C+F”)
methods.
Mineral Reserve stopes are planned to be filled using paste
fill, cemented rock fill or uncemented rock fill. The paste fill
plant is in the final stages of construction and the plant is
anticipated to be commissioned in Q4-2022.
Mine dilution and mine recovery estimates are based on recent
actual performance, with consideration for business improvement
initiatives. These assumptions are applied based on the mining
method, stope width, zone inclination and proximity to hanging-wall
faults.
Operating and sustaining capital cost assumptions are based on
recent actual costs with specific allowances for business
improvement initiatives underway. Mine operating costs were
developed separately for LH and C+F mining methods.
Figure 2 shows a Long Section of CLG 2022 Mineral Reserve
solids.
Processing
The 2022 LOM Plan is based on an average processing rate of
2,891 tonnes per day, resulting in a mine plan that exhausts
current reserves in Q1-2028.
Mineral processing at the current operation uses conventional
sulphide flotation, producing separate lead and zinc concentrates.
Predicted metallurgical recoveries over the 2022 LOM Plan average
89.0%, 63.4%, 89.4% and 56.9% for silver, zinc, lead and gold,
respectively.
A total of 42.4 million ounces of silver, 380 million pounds of
zinc, 256 million pounds of lead and 29.5 thousand ounces of gold
are estimated to be produced according to the 2022 LOM Plan.
Table 6: Life of Mine Projected Processing and Production
Summary(1,2)
Plant Metrics
Units
2022-
H2
2023
2024
2025
2026
2027
2028
LOM
Processed Material
Mt
0.52
1.04
1.06
1.06
1.07
1.06
0.25
6.07
Process Rate
tpd
2,872
2,854
2,890
2,898
2,925
2,917
2,773
2,890
Ag Grade
g/t
288
257
255
241
206
236
272
244
Zn Grade
%
3.96
4.48
4.47
5.07
4.59
4.01
4.58
4.48
Pb Grade
%
2.14
2.06
1.93
2.33
2.31
2.08
2.15
2.14
Au Grade
g/t
0.30
0.30
0.32
0.25
0.22
0.23
0.25
0.27
Ag Production
Moz
4.3
7.6
7.7
7.3
6.3
7.2
2.0
42.4
Zn Production
Mlbs
29.0
65.3
66.2
74.9
68.5
59.7
16.3
379.9
Pb Production
Mlbs
22.1
42.4
40.3
48.6
48.6
43.6
10.7
256.4
Au Production
koz
2.9
5.6
6.2
4.9
4.3
4.5
1.2
29.5
(1)
LOM begins on July 1, 2022. The 2022
Mineral Reserve excludes all Mineral Reserve material mined prior
to July 1, 2022.
(2)
Ag production is silver contained in Pb
and Zn concentrates, Zn production is zinc contained in Zn
concentrate, Pb production is lead contained in Pb concentrate, and
Au production is gold contained in Pb concentrate.
CLG’s short term definition drilling and mine plan updates may
cause actual results to differ from the 2022 LOM Plan schedule
shown in Table 6. Gatos Silver provides annual production guidance
and quarterly production results, which can vary quarter over
quarter based on short term execution plans and constraints. The
Company expects to provide third quarter production results and any
updates to 2022 guidance on or about October 10, 2022. Annual
guidance for 2023 is expected to be announced in early 2023 after
detailed planning and budgeting for the year is complete. The
Company cautions investors that guidance might significantly differ
from the 2022 LOM Plan, and actual results might significantly
differ from guidance.
Capital and Operating Costs
The total sustaining capital cost for the 2022 LOM Plan at CLG
is estimated at $123.4 million. Sustaining capital costs are
summarized in Table 7 below.
Sustaining capital costs include underground access development
to the lower levels in the Central and North-West Zones, and
development of the South-East zone, together with equipment
replacements and miscellaneous infrastructure projects including
upgrades to the underground dewatering system as the mine is
further developed, a final tailings dam raise to be completed in
2025 and a zinc concentrate fluorine leach plant expected to be
commissioned in the first half of 2023.
Table 7: Life of Mine Sustaining Capital Costs
Summary
Sustaining Capital
Costs
LOM ($M)
Mine Development
$56.5
Infrastructure and Equipment
$66.9
Total Sustaining Capital
Cost
$123.4
The average 2022 LOM Plan operating cost is estimated at $89.76
per tonne milled. Operating costs are summarized in Table 8 below.
Operating costs have been developed based on recent actual costs
considering business improvement initiatives that are currently
being implemented.
Table 8: Life of Mine Unit Operating Costs Summary
Unit Operating Costs
LOM ($/t)
Mining
$46.45
Processing
$26.00
Mine General and
Administrative
$17.31
Total Operating Cost
$89.76
All-in sustaining costs are defined in the Non-GAAP Financial
Performance Measures section and summarized in Table 9 below.
Table 9: Life of Mine All-In Sustaining Costs(1,2,3)
Cash Costs and All-In
Sustaining Costs
Units
LOM
Cash Costs
$M
$783.1
Sustaining Capital & Asset
Retirement Obligation Accretion
$M
$131.6
All-In Sustaining
Costs
$M
$914.7
Payable Silver Ounces
Moz
38.4
All-In Sustaining Costs before
by-product credits
$/oz Ag payable
$23.81
By-Product Credits
$/oz Ag payable
($16.75)
All-In Sustaining Costs net of
by-product credits
$/oz Ag payable
$7.06
(1)
Net of by-product credits at prices of
$22.00/oz silver, $1.20/lb zinc, and $0.90/lb lead, and $1,700/oz
gold.
(2)
Silver represents approximately 57% of the
revenue mix at the above price assumptions over the 2022 LOM
Plan.
(3)
Includes all site level costs but excludes
Gatos Silver and Dowa corporate costs and allocations paid by the
Los Gatos Joint Venture of approximately $6m / year ($0.94 / oz
payable Ag) and excludes all exploration costs.
CLG Exploration Update
Exploration has continued throughout 2022 on the CLG deposit as
well as on regional targets in the Los Gatos Joint Venture (“LGJV”)
district. Over 63,000 meters of surface drilling have been
completed since mid-2021 with a focus on both resource definition
and expansion on the CLG deposit, as well as on the adjacent Esther
deposit.
Recent drilling in the area beneath the main South-East zone
(referred to as South-East Deeps) on the CLG deposit has discovered
both silver-copper and silver-lead-zinc mineralization down to an
elevation of 820 meters above sea level (“masl”) which is
approximately 330 meters in elevation below the bottom of the 2022
Mineral Reserve.
The drill results for drillholes used in the 2022 Mineral
Resource will be described in the 2022 Technical Reports. The drill
results since the cutoff dates for the 2022 Mineral Resource
estimate, of March 31, 2022 for CLG and July 31, 2022 for Esther,
are shown in the following sections.
Resource definition drilling up until early April 2022 remained
focused on the main South-East zone block that was previously being
infill drilled from surface. Drillhole GA-SE-467 showed
particularly strong widths and grades, including silver and copper,
and further drilling is planned to define the limits of this
high-grade zone. The CLG processing plant does not currently
recover copper from processed material.
Resource definition drilling is now focused on higher grade
areas of Inferred within the 2022 Mineral Resource. The first two
holes in the Central Zone, GA-CZ-478 and GA-CZ-479, showed thin but
high-grade results. GA-SE-478 intersected higher than expected gold
however the LGJV does not expect this to be representative of
mineralization in this area.
Table 10: Cerro Los Gatos Resource conversion drilling
results
Drillhole
From
(m)
To
(m)
Drill
Width
(m)
Estimated
True Width
(m)
Ag
(g/t)
Zn
(%)
Pb
(%)
Au
(g/t)
Cu
(%)
GA-SE-461A
286
289.5
3.5
3.2
216
10.69
5.82
0.34
0.19
GA-SE-464
324.8
330.3
5.5
4.3
79
7.56
3.64
0.09
0.23
445.8
450.8
5.0
2.8
80
3.29
1.68
0.14
0.12
GA-SE-465
and
484.4
489.5
5.1
3.4
146
2.86
1.90
0.12
0.34
and
496
498
2.0
1.3
23
7.21
1.77
0.52
0.18
GA-SE-466
435.5
437.3
1.8
1.4
141
5.52
4.75
0.05
0.68
and
441.3
447.3
6.0
5.0
204
1.54
3.85
0.35
0.42
GA-SE-467
457.0
498.0
41.0
25.2
156
4.41
3.19
0.09
0.75
including
481.0
498.0
17.0
10.4
291
5.55
6.14
0.10
1.01
GA-CZ-478
434.0
436.0
2.0
1.8
147
4.58
2.60
0.04
0.44
and
448.0
450.0
2.0
1.8
17
2.95
1.40
5.27
0.06
GA-CZ-479
466.5
471.5
5.0
3.9
60
12.01
3.15
0.16
0.30
and
478.3
480.3
2.0
1.6
32
14.40
1.40
0.06
0.30
Hole GA-SE-463 encountered drilling difficulties and did not
reach the projected target. Holes GA-SE-468 and GA-SE-469 drilled
above the Antigatos-2 Fault and did not intercept significant
mineralization.
South-East Deeps
Resource expansion drilling after April 2022 has been focused on
the South-East Deeps zone. Since the discovery of Cerro Los Gatos,
mineralization has been recognized between the elevations of
~1,050masl and ~1,500masl. The LGJV has recently drilled holes
beneath these elevations and intercepted mineralization down to
820masl.
The intercepts in this deeper zone contain silver, zinc, lead
and in some instances copper. Most intersected structures contain
Ag-Zn-Pb while the deepest structure in drillhole GA-SE-475 is high
in Ag-Cu but low in Zn-Pb. The vertical extent of the
mineralization and the mix of vein types indicates that Cerro Los
Gatos contains stacked mineralization zones. While very early days,
the LGJV is excited about the geological implications of this
discovery.
Table 11: Cerro Los Gatos South-East Deeps zone drilling
results
Drillhole
From
(m)
To
(m)
Drill
Width
(m)
Estimated
True Width
(m)
Ag
(g/t)
Zn
(%)
Pb
(%)
Au
(g/t)
Cu
(%)
GA-SE-470
670.5
675.5
5.0
3.1
78
9.45
1.55
0.26
0.70
and
690.0
692.0
2.0
1.3
415
15.15
14.90
0.20
0.82
GA-SE-471
620.35
635.5
15.2
10.4
75
2.75
1.70
0.27
0.34
including
630.0
635.5
5.5
3.9
119
2.70
2.04
0.58
0.46
GA-SE-472
650.0
651.5
1.5
1.1
197
0.27
0.14
0.01
0.01
and
655.0
660.0
5.0
3.5
31
4.67
2.57
0.33
0.06
and
669.5
671.0
1.5
1.1
125
3.58
4.86
0.09
0.46
and
674.3
675.9
1.6
1.2
36
6.72
3.42
0.14
0.06
GA-SE-475
774.0
778.0
4.0
3.0
39
2.90
2.84
0.37
0.50
and
785.0
790.0
5.0
3.7
87
5.21
6.42
0.82
0.32
and
792.0
808.0
16.0
12.0
135
0.65
0.45
0.04
1.34
including
792.0
800.0
8.0
6.0
178
0.21
0.41
0.01
1.43
GA-SE-477
717.0
724.5
7.5
5.9
247
5.97
3.58
0.11
0.12
and
752.0
754.0
2.0
1.6
217
5.51
14.40
0.45
0.13
GA-SE-473 drillhole encountered drilling difficulty and did not
reach the target. GA-SE-474 was a wedge attempt from GA-SE-472 that
was cancelled due to insufficient change of direction. GA-SE-476
and GA-SE-481 are awaiting final assay results. Neither drillhole
exhibited visually high content of base metal sulphides.
Figure 3 shows Long Section of 2022 Mineral Reserve and Resource
solids for CLG showing South-East Deeps intercepts.
Figure 4 shows a Long section showing selected South-East Deeps
drilling intercepts.
Regional Exploration
Update
Drill testing was conducted on four regional targets during the
second half of 2021 and early 2022.
Esther (LGJV)
The Esther deposit is located approximately 3 km SW from the
underground access development for CLG. The last five drillholes
comprised of 1,467 meters of the Esther definition program were
returned after the July 31, 2022 cutoff date for the 2022 Updates.
Of these five drillholes, ES-104 through ES-108, only ES-106
contained a significant intercept and is shown in Table 12.
Table 12: Significant Esther drilling results
Drillhole
From
(m)
To
(m)
Drill
Width
(m)
Estimated
True Width
(m)
Ag
(g/t)
Zn
(%)
Pb
(%)
Au
(g/t)
Cu
(%)
ES-106
100.65
104.65
4.0
3.2
109
0.14
0.15
0.01
0.01
The LGJV has updated the Esther Mineral Resource, as shown in
Table 4, and plans to complete economic analysis to determine
options for this zone.
Cascabel and El Valle (LGJV)
During late 2021 and early 2022, the LGJV drilled the Cascabel
and El Valle targets, 1.5 km SW and 1.5 km W of the CLG underground
development, respectively. The LGJV drilled 14 holes for 9,110
meters, with no significant mineralization.
The Cascabel fault is a very strong structural feature and the
LGJV still considers the area prospective for hosting
mineralization. The LGJV is completing detailed mapping of the area
between Cerro Los Gatos and Esther, including the Cascabel and
Amber faults. The results of this mapping and the drilling
information will be compiled to assess optimal locations for future
drilling.
Wall-e / Eva (LGJV)
During 2022, five holes for 2,676 meters were drilled at Wall-e
/ Eva area, approximately 11 km northwest of CLG.
The first four drillholes contained geological indications that
the drilled intercepts were above the potential mineralization
zone. The fifth drillhole (DDH-WA-05) was targeted to go below
these initial intercepts and intersected Ag-Pb-Zn-Cu mineralization
as shown in Table 13. DDH-WA-01 through DDH-WA-04 did not intercept
significant mineralization.
Table 13: Significant Wall-e / Eva drilling results
Drillhole
From
(m)
To
(m)
Drill
Width
(m)
Estimated
True Width
(m)
Ag
(g/t)
Zn
(%)
Pb
(%)
Au
(g/t)
Cu
(%)
DDH-WA-05
582.4
588.5
6.1
3.7
23
2.77
0.83
0.18
0.15
including
585.8
587.0
1.2
0.7
79
6.62
1.95
0.54
0.68
The LGJV has now permitted new platforms to drill down beneath
the intercept in hole DDH-WA-05 and has completed detailed mapping
of the area. The LGJV intends to use this mapping and drilling
information to determine the highest priority for the next round of
drilling which it expects to commence during Q4-2022.
Santa Valeria (100% Gatos Silver)
During 2021, the Company drilled 15 drillholes on the Santa
Valeria concession, located 16 km west of the CLG operations, for a
total of 4,953 meters drilled. The drilling did not intercept
significant mineralization. The area remains of interest to Gatos
Silver and work will advance depending on the prospect
prioritization analysis that is being implemented for the LGJV
property.
Updated District Exploration
Strategy
The LGJV has a large land package covering over 103,000 ha.
Gatos Silver considers the property to be very prospective for
hosting other Ag-Zn-Pb-Au-Cu deposits. The geological map of the
property is shown in Figure 5. The LGJV is prioritizing work to
maximize the probability of finding the highest value deposits.
Previous exploration work identified 14 different mineralized
zones. Work is underway to determine the best targets within those
zones and to identify other zones not previously recognized.
The updated approach is focused on two streams. One stream of
work has started on the horst (exposed) section of the andesite
running from the far north-west of the property and down to Esther
and CLG in the centre of the property. The other stream of work is
for the area of the basin that is underlain by the andesite.
On the horst section of the andesite, the LGJV exploration team
has started detailed mapping between the Wall-e and Amapola areas
in the north and the CLG-Cascabel-Esther area in the south.
Follow-up drilling is expected over the coming months on Wall-e and
Amapola as the new detailed mapping is analyzed with the results of
historic and recent drilling.
On the basin section of the andesite, the LGJV has acquired
magnetic and radiometric data for the area and is contemplating
other geophysical surveys to identify the basement structures.
Depending on the results of the geophysical analysis the LGJV is
considering some deep stratigraphic holes east of CLG.
Figure 5 shows the LGJV District Surface Lithology map.
Corporate Update
Gatos Silver is in the process of transitioning its executive
office from Denver, Colorado to Vancouver, British Columbia, Canada
which is expected to be completed during the fourth quarter of
2022. The transition is expected to require a change in auditor due
to licensing requirements. The relocation of the executive office
to Vancouver is expected to help the Company attract highly
qualified talent as the Company continues to rebuild the foundation
of the business and provide management with better access to the
mining community and the Company’s business partners.
The Company has refreshed the executive management team and is
pleased to announce the appointment of Stephen Bodley as General
Counsel and Chief Compliance Officer, effective October 16, 2022.
Steve brings nearly 30 years of relevant experience to Gatos
Silver, serving at both Ma’aden and Sherritt International in
similar roles. In addition, the LGJV has significantly strengthened
the management team at CLG with the recent appointment of Percy
Pascal as the new General Manager of Operations, together with
recent appointments of new leadership for the health, safety,
environment and community areas and in both the mine operations and
technical service areas.
Dale Andres commented, “I am excited to welcome Steve to Gatos
Silver as our new general counsel and chief compliance officer.
Steve’s legal expertise and prior experiences in the mining
industry make him the ideal person to lead Gatos Silver’s legal
function.”
At the request of the LGJV and the Company’s Board of Directors,
an independent review of the 2022 Updates was performed by AMC
Mining Consultants (Canada) Ltd (“AMC”). Reporting directly to the
LGJV and the Technical, Environmental, Health and Safety Committee
of the Board, AMC concluded that CLG’s 2022 Mineral Resource and
2022 Mineral Reserve estimates appear sound, the methods and
parameters appear appropriate, and the reported numbers have been
replicated.
As announced on September 30, 2022, the Company is diligently
working to identify and engage an auditor to conduct the audit and
review of the financial statements required to be included in its
annual report on Form 10-K for the year ended December 31, 2021,
its quarterly report on Form 10-Q for the quarter ended March 31,
2022 and its quarterly report on Form 10-Q for the quarter ended
June 30, 2022. The Company intends to file such SEC reports as soon
as practicable and expects to hold its annual shareholder meeting
promptly once its annual report has been filed. While the Company
is continuing to evaluate material weaknesses in its internal
controls over financial reporting related to the mineral reserve
reporting errors, the Company expects that it will determine that
at least one material weakness exists. The Company is still
evaluating the extent of this and other potential material
weaknesses. The Company’s financial statements for the year ended
December 31, 2021 and quarters ended March 31, 2022 and June 30,
2022 may be affected by the ongoing analysis of the aforementioned
mineral reserve matters.
About Gatos Silver
Gatos Silver is a silver dominant exploration, development and
production company that discovered a new silver and zinc-rich
mineral district in southern Chihuahua State, Mexico. As a 70%
owner of the LGJV, the Company is primarily focused on operating
the mine and mineral processing plant at the LGJV’s CLG deposit.
The LGJV consists of approximately 103,087 hectares of mineral
rights, representing a highly prospective and under-explored
district with numerous silver-zinc-lead epithermal mineralized
zones identified as priority targets.
Quality Assurance
The half core samples from the LGJV’s surface exploration
drillholes are shipped directly in sealed bags to ALS-Laboratories
preparation facilities in Chihuahua City, Mexico. Sample batches
include intermittent blanks, duplicates and certified standards.
After sample preparation in Chihuahua, sample pulps are shipped to
ALS in North Vancouver, Canada for analysis. The remaining half
core is retained on site.
Qualified Persons
Scientific and technical disclosure in this press release
regarding the Cerro Los Gatos and Esther 2022 Mineral Resource was
based upon information prepared by or under the supervision of
Ronald Turner, MAusIMM(CP), an employee of Golder Associates.
Scientific and technical disclosure in this press release regarding
the 2022 Mineral Reserve, the 2022 LOM Plan and other economic
analyses that will also be set out in the 2022 Technical Reports
was based upon information prepared by or under the supervision of
Paul Gauthier, P.Eng. an employee of Golder Associates. Scientific
and technical disclosure in this press release regarding the
metallurgical assumptions for the 2022 LOM Plan and other economic
analyses that will also be set out in the 2022 Technical Reports
was based upon information prepared by or under the supervision of
Adam Johnston, FAusIMM(CP), Chief Metallurgist with Transmin
Metallurgical Consultants (UK). Other scientific and technical
disclosure in this press release regarding comparisons to the 2020
Technical Report and the exploration update was approved by Anthony
(Tony) Scott, P.Geo., Vice President of Evaluations and Technical
Services of Gatos Silver. Each of Ronald Turner, MAusIMM(CP), Paul
Gauthier, P.Eng., Adam Johnston, FAusIMM(CP), and Tony Scott,
P.Geo. is a “Qualified Person,” as defined in S-K 1300 and NI
43-101. Ronald Turner, MAusIMM(CP), Paul Gauthier, P.Eng. and Adam
Johnston, FAusIMM(CP) are all independent of Gatos Silver and the
LGJV. Tony Scott, P.Geo., is an employee of Gatos Silver.
Non-GAAP Financial Performance Measures
This press release includes certain measures that are not
defined by GAAP to evaluate various aspects of our business. These
non-GAAP financial measures are intended to provide additional
information only and do not have any standardized meaning
prescribed by GAAP and should not be considered in isolation or as
a substitute for measures of performance prepared in accordance
with GAAP. The measures are not necessarily indicative of operating
profit or cash flow from operations as determined under GAAP.
Cash Costs and All-In Sustaining Costs (“AISC”), before and
after by-product credits
Cash costs include all direct and indirect operating cash costs
related to the physical activities of producing metals, including
mining, processing and other plant costs, treatment and refining
costs, freight and handling, general and administrative costs and
royalties. AISC or AISC before by-product credits includes total
production cash costs incurred at the LGJV’s mining operations plus
sustaining capital expenditures and reclamation accretion expense
and excludes Gatos Silver and Dowa corporate costs and allocations
paid by the LGJV. AISC after by-product credits includes the AISC
costs minus revenues from the sale of zinc, lead and gold
(“by-product credits”). The Company believes this measure
represents the total sustainable costs of producing silver from
current operations and provides additional information of the
LGJV’s operational performance and ability to generate cash flows.
As the measure seeks to reflect the full cost of silver production
from current operations, new project and expansionary capital at
current operations are not included. Certain cash expenditures such
as new project spending, tax payments, dividends, and financing
costs are not included. A reconciliation between cost of sales (as
defined under US GAAP), cash costs, and all-in sustaining costs is
presented in Table 14 below.
Table 14: Reconciliation of Cash Costs and AISC to Cost of
Sales (as defined under US GAAP)
Cash Costs and All-In
Sustaining Costs
Units
LOM
Cost of Sales
$M
$534.1
Royalties
$M
$4.9
General and Administrative
$M
$105.0
Expenses
$M
$644.0
Treatment and Refining
$M
$139.1
Cash Costs
$M
$783.1
Sustaining Capital
$M
$123.4
Accretion Expense
$M
$8.2
All-in Sustaining Costs
(AISC)
$M
$914.7
By-Product Credits
$M
$643.5
LOM Payable Silver
Moz
38.4
Cash Costs before By-Product
Credits
$/oz Ag payable
$20.38
AISC before By-Product
Credits
$/oz Ag payable
$23.81
By-Product Credits
$/oz Ag payable
$(16.75)
Cash Costs after By-Product
Credits
$/oz Ag payable
$3.63
AISC after By-Product
Credits
$/oz Ag payable
$7.06
Notice Regarding Inferred Mineral Resources
Disclosure
“Inferred Mineral Resources” are subject to uncertainty as to
their existence and as to their economic and legal feasibility. The
level of geological uncertainty associated with an Inferred Mineral
Resource is too high to apply relevant technical and economic
factors likely to influence the prospects of economic extraction in
a manner useful for evaluation of economic viability.
Forward-Looking Statements
This press release contains statements that constitute “forward
looking information” and “forward-looking statements” within the
meaning of U.S. and Canadian securities laws. All statements other
than statements of historical facts contained in this press
release, including statements regarding mineral resource and
reserve estimates, life of mine, NPV, all-in sustaining costs,
operating costs, economic analysis, timing for final tailings dam
raise and zinc fluorine leach plant, CLG’s annual production, cost
guidance and future mill throughput rates, timing of completion of
the new paste fill plant, timing of updated 2022 Technical Reports,
expected results from exploration, and the outcomes of the
Company’s evaluation of the material weaknesses in its internal
controls over financial reporting, are forward-looking statements.
Forward-looking statements are based on management’s beliefs,
assumptions, current expectations about future events and on
information currently available to management including without
limitation assumptions about commodity prices, mining
methodologies, the accuracy of Mineral Reserve and Resource
estimates, operating and capital costs, plant throughput and
processing recoveries, favourable operating conditions, and
including other assumptions set out herein and to be set out in the
2022 Technical Reports. Such statements are subject to risks,
uncertainties, and other factors that could cause actual results to
differ materially from those expressed or implied in the
forward-looking statements including without limitation, commodity
prices, change in regulations, failure to retain or obtain permits
and licenses, environmental risks, cost and timing of exploration,
development and production, opposition to mining may arise, labour
interruptions, other general risks associated with mining
operations and such other risks and uncertainties described in our
filings with the U.S. Securities and Exchange Commission and
Canadian securities commissions. Further, although the Company has
attempted to identify factors that could cause actual actions,
events or results to differ materially from those described in
forward-looking statements, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or
intended. Gatos Silver expressly disclaims any obligation or
undertaking to update the forward-looking statements contained in
this press release to reflect any change in its expectations or any
change in events, conditions, or circumstances on which such
statements are based unless required to do so by applicable law. No
assurance can be given that such future results will be achieved,
and as such, readers should not place undue reliance on
forward-looking statements. Forward-looking statements speak only
as of the date of this press release.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221003005310/en/
Investors and Media Contact Dale Andres Chief Executive
Officer
Tiffany Osburn Director, Financial Reporting and Corporate
Communications
investors@gatossilver.com (720) 726-9662
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