Gatos Silver, Inc. (NYSE/TSX: GATO) (“Gatos Silver” or the
“Company”) today reported operating and select unaudited financial
results for the three months ended March 31, 2023 (“Q1 2023”), the
three months ended December 31, 2022 (“Q4 2022”) and the year ended
December 31, 2022. The Company’s reporting currency is US$.
Gatos Silver also provided a corporate update
including the status of its financial restatements for 2021 and the
first three quarters of 2022. As previously disclosed, the report
of full financial results for the first quarter of 2023 and audited
financial results for 2022 have been delayed as the Company works
on the restatements.
The restatement work continues to progress, and
the Company continues to believe that required adjustments are
non-cash and primarily relate to timing and recognition of net
deferred tax assets and liabilities at the 70% owned Los Gatos
Joint Venture (“LGJV”) and the timing and recognition of the
priority distribution obligation on the previously recognized
income from affiliates for the Company.
The Company is hosting an analyst site visit at
the Cerro Los Gatos (“CLG”) mine on June 7, 2023 and the site visit
presentation will be posted on the Company’s website at
https://gatossilver.com.
Q1 2023 Summary
- LGJV revenue was $69.9 million,
down 20% from $87.6 million a year earlier, as lower realized metal
prices more than offset mostly higher metal production.
- LGJV cost of sales was $26.0
million, only 4% higher in Q1 2023 compared to Q1 2022, despite a
10% increase in mill throughput.
- Cash flow from operations for the
LGJV was $44.5 million, up 6% from $42.1 million a year
earlier.
- As previously disclosed, CLG mine
production in Q1 2023 was slightly higher for silver, zinc and
gold, and slightly lower for lead.
- Cash balance at May 31, 2023 was
$10.5 million for the Company and $78.9 million for the LGJV.
Q4 2022 and Full Year 2022
Summary
- LGJV revenue increased by 31% in Q4
2022 and by 25% for the full year 2022 compared with the
year-earlier periods, attributable to higher metal prices and
higher production.
- LGJV cost of sales declined by 7%
in Q4 2022 to $25.5 million but increased by 10% to $107.1 million
for the full year 2022 compared with the year-earlier periods.
- Cash flow from operations for the
LGJV was $39.1 million in Q4 2022 and $157.4 million for the full
year 2022, increases of 12% and 31%, respectively, compared with
the year-earlier periods.
- A large zone of mineralization
known as South-East Deeps was discovered that extends 415m below
the reported reserve.
Gatos Silver is on track to achieve its
previously stated production and cost guidance for 2023. As
previously disclosed, silver production is expected to be higher in
the first half of 2023 than in the second half of 2023 based on
sequencing of the mine plan. Zinc and lead production are expected
to be higher in the second half of the year than in the first
half.
Operating and Select Unaudited Financial
Highlights
LGJV (100% Basis)
|
Three Months Ended March 31, |
|
|
2023 |
|
|
2022 |
|
CLG Production |
|
|
Tonnes milled (dmt) |
|
260,428 |
|
|
234,985 |
|
Tonnes milled per day (dmt) |
|
2,894 |
|
|
2,611 |
|
Feed Grades |
|
|
Silver (g/t) |
|
329 |
|
|
353 |
|
Zinc (%) |
|
3.93 |
|
|
4.13 |
|
Lead (%) |
|
1.86 |
|
|
2.22 |
|
Gold (g/t) |
|
0.30 |
|
|
0.30 |
|
Contained Metal |
|
|
Silver ounces – in both lead and zinc conc. (millions) |
|
2.43 |
|
|
2.39 |
|
Zinc pounds – in zinc conc. (millions) |
|
14.0 |
|
|
13.8 |
|
Lead pounds – in lead conc. (millions) |
|
9.5 |
|
|
10.3 |
|
Gold ounces – in lead conc. (thousands) |
|
1.38 |
|
|
1.30 |
|
Recoveries(1) |
|
|
Silver – in both lead and zinc concentrates |
|
88.3% |
|
|
89.7% |
|
Zinc – in zinc concentrate |
|
62.2% |
|
|
64.3% |
|
Lead – in lead concentrate |
|
88.6% |
|
|
89.2% |
|
Gold – in lead concentrate |
|
55.3% |
|
|
57.1% |
|
|
|
|
Select Unaudited Financial Results ($
millions) |
|
|
Lead concentrate revenue |
$ |
65.0 |
|
$ |
60.1 |
|
Zinc concentrate revenue |
|
22.7 |
|
|
27.2 |
|
Treatment and refining charges |
|
(4.2) |
|
|
(5.0) |
|
Subtotal |
|
83.5 |
|
|
82.3 |
|
Provisional revenue adjustments |
|
(13.6) |
|
|
5.3 |
|
Total Revenue |
$ |
69.9 |
|
$ |
87.6 |
|
|
|
|
Cost of Sales |
$ |
26.0 |
|
$ |
25.1 |
|
Royalties |
|
0.4 |
|
|
1.5 |
|
Exploration |
|
0.5 |
|
|
2.1 |
|
General and Administrative |
|
3.9 |
|
|
2.8 |
|
Depreciation, depletion and amortization |
|
20.8 |
|
|
16.3 |
|
Other income |
|
(0.6) |
|
|
(0.3) |
|
Sustaining capital expenditures |
|
7.6 |
|
|
17.8 |
|
Capitalized exploration expenditures |
|
3.0 |
|
|
- |
|
Cash flow from operations |
$ |
44.5 |
|
$ |
42.1 |
|
1 – Recoveries are reported for payable metals in
the identified concentrate.
CLG achieved 2% higher silver and zinc
production and 8% lower lead production during Q1 2023 compared to
Q1 2022. Lower planned feed grades were offset by record mill
throughput rates, averaging 2,894 tonnes per day. Construction of
the new fluorine leach plant for zinc concentrate is substantially
complete and commissioning of the plant is expected this month.
Revenue decreased by 20% in Q1 2023 compared to
Q1 2022, primarily as a result of a decrease in realized metal
prices in Q1 2023 including impacts from provisional revenue
adjustments which decreased revenue by $13.6 million in the
quarter. Provisional revenue adjustments represent potential future
settlement adjustments based on commodity price changes for
concentrate sales volumes still subject to final settlement.
Cost of sales increased by 4% primarily as a
result of the increase in production, the strengthening of the
Mexican peso against the US dollar, and higher input costs. Royalty
expense decreased by $1.1 million in Q1 2023 compared to Q1 2022
due to a decrease in the royalty rate from 2% to 0.5% in Q2 2022,
upon reaching a payment threshold per the terms of the applicable
royalty agreement.
Exploration expense decreased by $1.6 million in
Q1 2023 mainly due to the capitalization of exploration costs
related to the ongoing resource expansion drilling of the
South-East Deeps zone. General and administrative expense in Q1
2023 was 28% higher than Q1 2022 primarily due to an increase in
insurance expenses.
Depreciation, depletion, and amortization
expense increased by approximately 27% quarter over quarter
primarily as a result of an increase in tonnes mined, the
completion of the third dam raise of the tailing storage facility
in Q4 2022 and the commissioning of the paste plant in Q1 2023.
LGJV (100% Basis)
|
Three Months Ended December 31, |
Year Ended December 31, |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
CLG Production |
|
|
|
|
Tonnes milled (dmt) |
|
261,929 |
|
|
241,397 |
|
|
971,595 |
|
|
909,586 |
|
Tonnes milled per day (dmt) |
|
2,847 |
|
|
2,624 |
|
|
2,662 |
|
|
2,492 |
|
Feed Grades |
|
|
|
|
Silver (g/t) |
|
387 |
|
|
331 |
|
|
368 |
|
|
295 |
|
Zinc (%) |
|
3.74 |
|
|
3.90 |
|
|
4.37 |
|
|
3.94 |
|
Lead (%) |
|
1.95 |
|
|
2.18 |
|
|
2.31 |
|
|
2.27 |
|
Gold (g/t) |
|
0.30 |
|
|
0.30 |
|
|
0.33 |
|
|
0.32 |
|
Contained Metal |
|
|
|
|
Silver ounces – in both lead and zinc conc. (millions) |
|
2.92 |
|
|
2.28 |
|
|
10.32 |
|
|
7.61 |
|
Zinc pounds – in zinc conc. (millions) |
|
13.5 |
|
|
12.9 |
|
|
60.7 |
|
|
49.6 |
|
Lead pounds – in lead conc. (millions) |
|
9.7 |
|
|
10.2 |
|
|
43.9 |
|
|
39.8 |
|
Gold ounces – in lead conc. (thousands) |
|
1.36 |
|
|
1.29 |
|
|
5.35 |
|
|
5.22 |
|
Recoveries(1) |
|
|
|
|
Silver – in both lead and zinc concentrates |
|
89.6% |
|
|
89.5% |
|
|
89.8% |
|
|
88.3% |
|
Zinc – in zinc concentrate |
|
62.7% |
|
|
62.7% |
|
|
64.8% |
|
|
62.9% |
|
Lead – in lead concentrate |
|
86.3% |
|
|
88.5% |
|
|
88.7% |
|
|
87.6% |
|
Gold – in lead concentrate |
|
53.9% |
|
|
56.8% |
|
|
52.0% |
|
|
56.3% |
|
|
|
|
|
|
Select Unaudited Financial Results ($
millions) |
|
|
|
|
Lead concentrate revenue |
$ |
59.3 |
|
$ |
50.1 |
|
$ |
220.9 |
|
$ |
196.4 |
|
Zinc concentrate revenue |
|
16.3 |
|
|
22.7 |
|
|
89.4 |
|
|
74.3 |
|
Treatment and refining charges |
|
(5.8) |
|
|
(5.2) |
|
|
(21.9) |
|
|
(21.6) |
|
Subtotal |
|
69.8 |
|
|
67.6 |
|
|
288.4 |
|
|
249.1 |
|
Provisional revenue adjustments |
|
23.2 |
|
|
3.3 |
|
|
23.3 |
|
|
0.1 |
|
Total Revenue |
$ |
93.0 |
|
$ |
70.9 |
|
$ |
311.7 |
|
$ |
249.2 |
|
|
|
|
|
|
Cost of Sales |
$ |
25.5 |
|
$ |
27.4 |
|
$ |
107.1 |
|
$ |
97.7 |
|
Royalties |
|
0.3 |
|
|
1.3 |
|
|
3.1 |
|
|
4.8 |
|
Exploration |
|
3.6 |
|
|
1.9 |
|
|
9.8 |
|
|
5.4 |
|
General and Administrative |
|
4.5 |
|
|
3.9 |
|
|
14.3 |
|
|
13.3 |
|
Depreciation, depletion and amortization |
|
17.0 |
|
|
16.0 |
|
|
69.4 |
|
|
52.4 |
|
Total other (income) expense |
|
(2.2) |
|
|
0.7 |
|
|
(0.6) |
|
|
13.4 |
|
Sustaining capital expenditures |
|
19.5 |
|
|
21.2 |
|
|
76.5 |
|
|
73.0 |
|
Cash flow from operations |
$ |
39.1 |
|
$ |
34.8 |
|
$ |
157.4 |
|
$ |
119.8 |
|
1 – 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 36%, 22% and 10% higher silver,
zinc and lead production during the full year 2022 compared to
2021, primarily a result of higher feed grades and mill throughput
rates which averaged 2,662 tonnes per day.
Revenue increased by 31% in Q4 2022 and 25% for
the full year 2022, compared to the year-earlier periods, as a
result of higher production and concentrate sales, which was partly
offset by lower realized silver prices.
Cost of sales were 7% lower in Q4 2022 and 10%
higher for the full year 2022, compared to Q4 2021 and the full
year 2021. The reduction in Q4 2022 was primarily a result of lower
electricity costs from the new renewable energy contract that came
into effect late in Q3 2022, the optimization of process plant
reagents, lower COVID-19 related expenses and lower concentrate
transportation costs. The increase in full year costs for 2022 was
primarily a result of increased mining and milling rates. Royalty
expense decreased by $1.0 million in Q4 2022 and $1.7 million for
the full year 2022 compared to the year-earlier periods due to the
decrease in the royalty rate upon reaching a payment threshold per
the terms of the royalty agreement.
Exploration expenditure increased by $1.7
million in Q4 2022 and by $4.4 million for the full year 2022
compared to the year-earlier periods as a result of increased
surface drilling at CLG for resource conversion targeting higher
grade inferred resources, as well as for resource expansion,
particularly in the recently discovered South-East Deeps zone.
General and administrative expenses for Q4 2022 were 16% higher
than in Q4 2021, primarily due to increased consulting costs, as
well as higher labour costs. General and administrative expenses
for the full year 2022 were 7% higher than in 2021, primarily due
to inflationary pressures which impacted specific labour,
contractor and service costs.
Depreciation, depletion, and amortization
expense increased by 6% in Q4 2022 compared to Q4 2021 primarily as
a result of an increase in tonnes mined, and increased by 32% for
the full year 2022 compared to 2021 primarily as a result of an
increase in tonnes mined as well as the decrease in the mineral
reserve and mine life based on the 2022 Los Gatos Technical Report,
which reduced the basis for the depreciation.
Other income (expense) changed for the full year
2022 compared to 2021 primarily due to the retirement of the
Working Capital Facility and the Term Loan in March and July 2021,
respectively.
Sustaining capital expenditures were similar in
Q4 2022 and for the full year 2022 compared to the same periods a
year ago. During Q4 2022, sustaining capital expenditures of $19.5
million included expenditures related to the final construction and
commissioning costs of the paste fill plant and the continued
construction of the fluorine leach plant. For the year ended
December 31, 2022, sustaining capital expenditures of $76.5 million
primarily consisted of $27.1 million of mine development, $19.5
million on the construction of the paste fill plant, $8.2 million
on the construction of the tailings storage facility dam raise,
$3.5 million for the purchase of mining equipment, $2.9 million on
underground power distribution infrastructure and $2.6 million on
the construction of a ventilation raise.
Gatos Silver, Inc.
Select Financial Results – Unaudited |
Three Months Ended March 31, |
Amounts in millions |
|
2023 |
|
2022 |
|
Exploration |
$ |
- |
$ |
0.1 |
|
General and administrative |
|
5.5 |
|
6.8 |
|
Interest expense |
|
0.2 |
|
(0.1) |
|
Other income |
$ |
1.4 |
$ |
1.1 |
|
During Q1 2023, the Company incurred general and
administration expense of $5.5 million compared to $6.8 million for
Q1 2022. The $1.3 million decrease in Q1 2023 compared to Q1 2022
is mainly due to lower compensation expenses of $1.4 million.
Select Financial
Results – Unaudited |
Three Months Ended December 31, |
Year Ended December 31, |
Amounts in millions |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Exploration |
$ |
- |
|
$ |
0.3 |
|
$ |
0.1 |
|
$ |
1.7 |
|
General and administrative |
|
8.5 |
|
|
3.1 |
|
|
25.5 |
|
|
20.9 |
|
Amortization |
|
- |
|
|
- |
|
|
0.2 |
|
|
0.1 |
|
Interest expense |
|
(0.4) |
|
|
(0.2) |
|
|
(0.4) |
|
|
(0.2) |
|
Other income (expense) |
$ |
1.6 |
|
$ |
1.3 |
|
$ |
5.0 |
|
$ |
(4.7) |
|
During Q4 2022, the Company incurred general and
administration expense of $8.5 million compared to $3.1 million in
Q4 2021. The $5.4 million increase is primarily due higher legal
fees, consulting fees and severance payments. The Company also
incurs expenses related to providing management and administration
services to the LGJV, for which it receives a management fee,
included in other income ($1.25 million for each of Q4 2022 and Q4
2021).
During 2022, the Company incurred general and
administration expense of $25.5 million compared to $20.9 million
in 2021. The $4.6 million increase is primarily due to higher
consulting, legal and audit fees associated with the announcement
of the 2020 Technical Report reserve errors and subsequent change
in auditors associated with move in corporate offices. The
management fee received from the LGJV was $5.0 million for each of
the years ended December 31, 2022 and 2021, which is included in
other income.
Corporate Update
The Company continues to expect to announce an
updated CLG Mineral Reserve Estimate, Mineral Resource Estimate and
Life of Mine plan before the end of the third quarter of 2023. The
update will include resource to reserve conversion drill results as
well as initial results from resource drilling in the South-East
Deeps zone. The Company continues to focus on mine life extension
as a priority and currently has 6 drills active on the South-East
Deeps zone drilling.
The Company had a cash balance of $10.5 million
and debt outstanding of $9 million related to its credit facility
as of May 31, 2023. The LGJV continues to generate cash and had a
cash balance of $78.9 million at May 31, 2023. Regular
distributions to partners are expected to resume after audited
financial statements are completed.
The Company has entered into a waiver to its
Amended and Restated Revolving Credit Agreement, dated December 20,
2022, among the Company, and certain Bank of Montreal entities (the
“Waiver”). The Waiver defers the Company’s obligation to deliver
the 2021, 2022 and first quarter of 2023 financial statements, and
corresponding compliance certificates until July 15, 2023.
Restatement update
The Company announced on March 31, 2023 that it
will restate previously issued financial statements of the Company
and of the LGJV for the year ended December 31, 2021 and the
quarters ended March 31, 2022, June 30, 2022 and September 30,
2022. As previously disclosed, the required adjustments to the
Company’s and the LGJV’s financial statements are non-cash and
primarily relate to timing and recognition of net deferred tax
assets and liabilities at the LGJV and the timing and recognition
of the priority distribution payment on the previously recognized
income from affiliates for the Company.
The Company has completed a detailed analysis in
conjunction with its tax consultants to determine the impact of the
required tax adjustments. The results of this analysis are being
reviewed to determine the impact on the restatements. The impact of
the adjustment to the priority distribution payment recognition
described above and the cumulative estimated impact of all
adjustments for the year ended December 31, 2021 and for the first
nine months of 2022 is being finalized.
The Company is continuing to work expeditiously
to complete the required adjustments for both 2021 and the first
three quarters of 2022, and continues to believe that these
adjustments are all non-cash items. Once the restatements are
completed and filed, the Company also intends to file its and the
LGJV’s financial results for the full year 2022. The financial
statements are subject to completion of a review and audit, as
applicable, by the Company’s independent registered public
accounting firm, Ernst & Young LLP which is ongoing. The
Company expects to file the Q1 2023 10-Q concurrently with or
shortly after making the 2021 and 2022 securities filings
containing the 2021 and 2022 financial statements.
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.
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, timing of completion of the audited, financial
statements and restatements, estimated adjustments in financial
restatements, expectations of performance versus annual guidance,
potential of exploration discoveries including the South-East Deeps
discovery and timing of filing the new technical reports are
forward-looking statements. In particular, until the restatements
of the financial statements have been completed and, where
applicable, audited or reviewed and the Company has filed required
filings with the SEC, there can be no assurance that estimated
adjustments in financial restatements will not be revised, and
therefore such financial information should be considered
preliminary and subject to change. 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.
Investors and Media Contact
André van Niekerk Chief Financial Officer
investors@gatossilver.com +1 604 424 0984
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