Gatos Silver, Inc. (NYSE/TSX: GATO) (“Gatos Silver” or the
“Company”) today reported unaudited operating and financial results
for the three months (“Q3 2022”) and nine months ending September
30, 2022.
Highlights
- Sales for the Los Gatos Joint Venture (“LGJV”) for Q3 2022
increased 30% compared to the same period in 2021.
- As previously disclosed, the Cerro Los Gatos (“CLG”) mine
achieved record production of 2.7 million ounces of silver, 17.8
million pounds of zinc and 12.2 million pounds of lead in Q3 2022.
1
- Mill throughput rates averaged a record 2,862 tonnes per day in
Q3 2022 as a result of continued debottlenecking efforts and
planned production sequencing.
- Based on the continued record performance of the CLG mine, the
Company reaffirms its improved 2022 full year silver production
guidance to between 9.35 and 9.65 million ounces of contained
metal.
- Numerous cost reduction initiatives being implemented are
helping to offset inflationary pressures, together with strong
by-product prices and production volumes. The Company lowered its
2022 full year all-in sustaining cost (“AISC”) guidance, after
by-product credits, to between $11.50 and $12.50 per payable silver
ounce, as previously disclosed.
- The Company has a cash balance of $15 million and the LGJV had
a cash balance of $39 million as of September 30, 2022, as
previously disclosed.
- On October 3, 2022, the Company announced an updated CLG
Mineral Reserve Estimate, Mineral Resource Estimate and Life of
Mine plan that continues to 2028, with average annual production of
7.4 million ounces of silver and average AISC of $7.062 per ounce
of payable silver, net of by-product credits.
- 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.
- In October, the Company completed the transition of its
executive office to Vancouver, British Columbia from Denver,
Colorado and Tony Scott was promoted to Senior Vice President,
Corporate Development and Technical Services.
- The Company plans to host a webcast and conference call on
November 22, 2022 at 12:00 pm Eastern Time to discuss the latest
mineral reserve and mineral resource estimates and the South-East
Deeps discovery at CLG, the exploration potential of the LGJV
mineral properties, and to provide a corporate update.
_______________
1 All production figures are on a 100%
basis.
2 See Non-GAAP Financial Performance
Measures below. Excludes $6 million per year in corporate overhead
paid by the Los Gatos Joint Venture, equivalent to $0.94 per ounce
of payable silver.
Operating and Financial Highlights
LGJV (100% Basis)
Three Months Ended September
30,
Nine Months Ended September
30,
Operating and Financial
Highlights
2022
2021
2022
2021
CLG Production
Tonnes milled (dmt)
263,331
234,054
709,666
669,876
Tonnes milled per day (dmt)
2,862
2,544
2,600
2,454
Feed Grades
Silver (g/t)
356
256
361
282
Zinc (%)
4.70
4.10
4.61
3.95
Lead (%)
2.38
2.35
2.45
2.30
Gold (g/t)
0.34
0.30
0.34
0.32
Contained Metal
Silver ounces (millions)
2.70
1.70
7.40
5.33
Zinc pounds – in zinc conc. (millions)
17.8
13.5
47.1
36.7
Lead pounds – in lead conc. (millions)
12.2
10.8
34.2
29.7
Gold ounces – in lead conc.
(thousands)
1.40
1.30
3.98
3.92
Recoveries*
Silver – in both lead and zinc
concentrates
89.6%
88.6%
89.9%
87.7%
Zinc – in zinc concentrate
65.4%
63.9%
65.4%
62.9%
Lead – in lead concentrate
88.5%
89.1%
89.4%
87.3%
Gold – in lead concentrate
48.9%
56.5%
51.3%
56.2%
Financial – Unaudited (amounts in
millions)
Sales
$ 73.9
$ 57.0
$ 216.8
$ 178.3
Cost of sales
$ 28.6
$ 26.4
$ 80.9
$ 70.3
Royalties
$ 0.3
$ 1.2
$ 2.7
$ 3.5
G&A expenses
$ 3.4
$ 3.4
$ 10.4
$ 9.5
Other expenses
$ 0.8
$ 5.4
$ 0.4
$ 12.7
Capital expenditures
$ 16.3
$ 21.2
$ 57.0
$ 51.9
*Recoveries are reported for payable
metals in the identified concentrate. Recoveries reported
previously in 2021 were based on total metal in both
concentrates.
CLG achieved record silver, zinc and lead production during Q3
2022, an increase of 59%, 32% and 13%, respectively, compared to
the third quarter of 2021, primarily due to record mill throughput
rates averaging 2,862 tonnes per day, significantly higher ore
grades and improved recoveries. Construction of the new paste
backfill plant is substantially complete and initial commissioning
of the plant started at the end of October.
LGJV sales for the quarter ended September 30, 2022 increased
30% compared to the same period in 2021, primarily as a result of
increased sales volumes due to higher production and higher zinc
prices partially offset by lower silver and lead prices. Sales for
the nine months ended September 30, 2022 were 22% higher compared
to the same period in 2021.
Cost of sales increased 8% and 15% for the three and nine months
ended September 30, 2022, respectively, compared to the same
periods in 2021, primarily due to higher production and sales
volumes. The transition to a new 100% renewable power supply
contract was completed in September, which together with other cost
improvement initiatives is expected to help lower operating costs
going forward.
Other expenses were significantly lower during both the three
and nine months ended September 30, 2022 compared to the same
period in 2021, primarily due to lower interest expenses and
finance related arrangement fees in 2022.
Royalties expense decreased by 75% and 23% for the three and
nine months ended September 30, 2022, respectively. In May 2022,
the LGJV surpassed $10 million in payments made to the royalty
owner, and as a result under the contract, the royalty rate was
reduced to 0.5% of net smelter returns from 2% of net smelter
returns.
Capital expenditures decreased 23% in Q3 2022 compared to the
same period in 2021, primarily due to lower tailings storage
facility construction costs. During the nine months ended September
30, 2022 capital expenditures increased 10% compared to the same
period in 2021, primarily due to additional sustaining projects
being executed in 2022, including construction of the new paste
backfill plant.
Gatos Silver
Three Months Ended
Nine Months Ended
Financial - Unaudited
September 30,
September 30,
Amounts in millions
2022
2021
2022
2021
Exploration expenses
$0.2
$0.5
$0.8
$1.4
G&A expenses
4.5
6.0
12.6
14.0
Amortization
0.0
0.0
0.1
0.0
Operating expense
$4.7
$6.5
$13.5
$15.4
G&A expenses for the quarter ended September 30, 2022
decreased by 25% compared to the same period in 2021 primarily due
to lower stock-based compensation expenses and estimated bonuses,
partially offset by higher legal and consulting expenses.
Corporate Update
The Company had a cash balance of $15 million and debt
outstanding of $13 million related to its credit facility as of
September 30, 2022.
On October 3, 2022, the Company announced an updated CLG Mineral
Reserve Estimate, Mineral Resource Estimate and Life of Mine plan
and expects to file new technical reports before November 17,
2022.
As announced on September 30, 2022, the Company is diligently
working to identify and engage an auditor licensed in British
Columbia, Canada 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, and its quarterly
reports on Forms 10-Q for the quarters ended March 31, 2022, June
30, 2022 and September 30, 2022. 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
anticipates completing an impairment assessment based on the
updated Mineral Reserve Estimate in the fourth quarter of 2022 and
is working towards completing all outstanding securities regulatory
filings as soon as practicable and expects to hold its annual
shareholder meeting once such reports have been filed. The
Company’s financial statements for the year ended December 31, 2021
and quarters ended March 31, 2022, June 30, 2022 and September 30,
2022 may be affected by the ongoing analysis of the aforementioned
mineral reserve matters.
Webcast and Conference Call
Gatos Silver will host a webcast and conference call to discuss
the latest mineral reserve and mineral resource estimates and the
South-East Deeps discovery at CLG, the exploration potential of the
LGJV mineral properties, and to provide a corporate update on
November 22, 2022, at 12:00 pm Eastern Time.
The Company will be providing the webcast and conference call
details separately.
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.
Qualified Person
Scientific and technical disclosure in this press release was
approved by Tony Scott, Senior Vice President of Corporate
Development and Technical Services of Gatos Silver who is a
“Qualified Person,” as defined in NI 43-101 Standards of Disclosure
for Mineral Projects of the Canadian Securities Administrators.
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 Metals and Mining 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.
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
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 CLG’s annual production and
cost guidance and future mill throughput rates, cost reduction
initiatives and anticipated benefits, timing of engaging a new
auditor and completion of the audited financial statements, timing
of providing the webcast and conference call details, timing of
filing the new technical reports, expected lower operating costs
after transitioning to the new renewable power supply contract, 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 and assumptions and on information currently
available to management. Such statements are subject to risks and
uncertainties, and actual results may differ materially from those
expressed or implied in the forward-looking statements, and such
other risks and uncertainties described in our filings with the
U.S. Securities and Exchange Commission and Canadian securities
commissions. 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.
Forward-looking statements speak only as of the date of this press
release.
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version on businesswire.com: https://www.businesswire.com/news/home/20221109006123/en/
Investors and Media Contact
Tiffany Osburn Director, Financial Reporting and Corporate
Communications investors@gatossilver.com (720) 726-9662
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