Gatos Silver, Inc. (NYSE/TSX: GATO) (“Gatos Silver” or the
“Company”) today filed its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2023 on both the EDGAR and SEDAR systems
and it is posted on the Company’s website at
https://gatossilver.com. The Company will host an investor and
analyst call on June 28, 2023, details of which are provided below.
The Company has a 70% interest in the Los Gatos
Joint Venture (“LGJV”), which in turn owns the Cerro Los Gatos
(“CLG”) mine in Mexico. Production for the first quarter of 2023
was disclosed on April 12, 2023. The Company’s reporting currency
is US dollars.
As a result of this filing, Gatos Silver is now
current with its U.S. and Canadian securities regulatory filing
requirements for its financial statements. The Company will
therefore request the Ontario Securities Commission to revoke the
related Management Cease Trade Orders.
Dale Andres, CEO of Gatos Silver, said: “CLG
delivered strong free cash flow in the first quarter of 2023 helped
by stable cost of sales and lower sustaining capital expenditures
compared to a year ago. We continue to maintain our current annual
production and cost guidance for the full year. The LGJV is focused
on mine life extension in 2023 with six active surface drill rigs
on the South-East Deeps zone and three underground drill rigs
operating in the NW and Central zones. We are on track to provide
an updated mineral resource and reserve estimate in the third
quarter of this year, including a new life of mine plan.”
LGJV Q1 2023 results compared to Q1 2022
(100% basis):
- Revenue of $69.9 million, down 20%
from $87.6 million
- Cost of sales of $26.0 million, up
4% from $25.1 million
- Cash flow from operations of $40.0
million, down 5% from $42.1 million (1)
- Net income of $12.7 million, down
51% from $26.1 million
- EBITDA of $39.6 million, down 30%
from $56.5 million (2)
- Free cash flow of $28.7 million, up
25% from $22.9 million (2)
- By-product cash cost of $2.66 per
payable ounce of silver, up from ($0.19) (2)
- By-product all-in sustaining costs
(“AISC”) of $6.11 per ounce of payable silver, down 22% from $7.88
(2)
(1) Previously disclosed cash flow from
operations for Q1 2023 at $44.5 million. Reduction due to
reclassification from investing activities with no change in
overall cash flow for the period.(2) These measures are non-GAAP
measures. See “Non-GAAP Financial Performance Measures” below for
additional information.
In Q1 2023, Gatos Silver’s net income was $0.8
million or $0.01 per share compared with net income of $1.1 million
or $0.02 per share in Q1 2022. The decline is attributable to lower
equity income from the LGJV primarily driven by negative
provisional pricing adjustments at quarter end at the LGJV.
2023 Guidance Unchanged
Gatos Silver is not changing its 2023 guidance
even though silver production was higher in the first quarter of
2023 than the annual guidance run rate. Based on current mine plan
sequencing at CLG, the Company expects the quarterly production run
rate for silver to be lower and zinc and lead to be slightly higher
for the remainder of the year.
The Company continues to expect sustaining
capital expenditures at CLG of $45 million in 2023 ($8 million
spent in Q1 2023). As a result, quarterly by-product cash costs and
by-product AISC are expected to be higher for the remainder of the
year compared to the first quarter. The Company expects ongoing
cost reduction initiatives to help offset impacts from current
lower by-product prices compared to the first quarter.
In addition, exploration and resource definition
drilling expenditures are expected to be $13 million in 2023, with
South-East Deeps resource drilling being capitalized as a
development expenditure associated with future mine life
extension.
Financial Results Webcast and Conference
Call
Investors and analysts are invited to attend the
financial results webcast and conference call as follows:
Date: Wednesday, June 28, 2023Time: 9:00 a.m.
ETListen-Only Webcast:
https://events.q4inc.com/attendee/235220837Direct Event
Registration Link (for Analysts only):
https://conferencingportals.com/event/EHovVyOG
An archive of the webcast will be available
at https://gatossilver.com within 24 hours.
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 Los Gatos Joint Venture, the Company is
primarily focused on operating the Cerro Los Gatos mine and on
growth and development of the Los Gatos district. The LGJV consists
of approximately 103,000 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 Anthony (Tony) Scott, P.Geo., Senior
Vice President of Corporate Development and Technical Services of
Gatos Silver who is a “Qualified Person” as defined in S-K 1300 and
NI 43-101.
Non-GAAP Financial Performance
Measures
The Company uses 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
Cash costs and AISC (defined above) are non-GAAP
measures. AISC was calculated based on guidance provided by the
World Gold Council (“WGC”). WGC is not a regulatory industry
organization and does not have the authority to develop accounting
standards for disclosure requirements. Other mining companies may
calculate AISC differently as a result of differences in underlying
accounting principles and policies applied, as well as definitional
differences of sustaining versus expansionary (i.e.,
non-sustaining) capital expenditures based upon each company’s
internal policies. Current GAAP measures used in the mining
industry, such as cost of sales, do not capture all of the
expenditures incurred to discover, develop and sustain production.
Therefore, the Company believes that cash costs and AISC are
non-GAAP measures that provide additional information to
management, investors and analysts that aid in the understanding of
the economics of the Company’s operations and performance compared
to other producers and provides investors visibility by better
defining the total costs associated with production.
Cash costs include all direct and indirect
operating cash costs related directly to the physical activities of
producing metals, including mining, processing and other plant
costs, treatment and refining costs, general and administrative
costs, royalties and mining production taxes. AISC includes total
production cash costs incurred at the LGJV’s mining operations plus
sustaining capital expenditures. 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.
EBITDA
Management uses EBITDA to evaluate the Company’s
operating performance, to plan and forecast its operations, and
assess leverage levels and liquidity measures. The Company believes
the use of EBITDA reflects the underlying operating performance of
our core mining business and allows investors and analysts to
compare results of the Company to similar results of other mining
companies. EBITDA do not represent, and should not be considered an
alternative to, net income or cash flow from operations as
determined under GAAP.
Free Cash Flow
Management uses Free Cash Flow as a non-GAAP
measure to analyze cash flows generated from operations. Free Cash
Flow is Cash Provided By (Used In) Operating Activities less Cash
flow from Investing Activities as presented on the Consolidated
Statements of Cash Flows. The Company believes Free Cash Flow is
also useful as one of the bases for comparing the Company’s
performance with its competitors. Although Free Cash Flow and
similar measures are frequently used as measures of cash flows
generated from operations by other companies, the Company’s
calculation of Free Cash Flow is not necessarily comparable to such
other similarly titled captions of other companies.
Reconciliation of GAAP to non-GAAP
measures
The table below presents a reconciliation
between the most comparable GAAP measure of the LGJV’s expenses to
the non-GAAP measures of (i) cash costs, (ii) cash costs, net of
by-product credits, (iii) co-product all-in sustaining costs and
(iv) by-product all-in sustaining costs for our operations.
CLG 100% Basis |
Three Months Ended |
|
March 31, |
Amounts in thousands unless otherwise stated |
|
2023 |
|
|
2022 |
|
Cost of sales |
$25,988 |
|
$25,088 |
|
Royalties |
|
418 |
|
|
1,494 |
|
Exploration |
|
463 |
|
|
2,121 |
|
General and administrative |
|
3,936 |
|
|
2,820 |
|
Depreciation, depletion and amortization |
|
20,819 |
|
|
16,342 |
|
Expenses |
$51,624 |
|
$47,865 |
|
Depreciation, depletion and amortization |
|
(20,819) |
|
|
(16,342) |
|
Exploration1 |
|
(463) |
|
|
(2,121) |
|
Treatment and refining costs2 |
|
4,155 |
|
|
4,964 |
|
Cash costs |
|
34,497 |
|
|
34,366 |
|
Sustaining capital3 |
|
7,642 |
|
|
17,773 |
|
All-in sustaining costs |
|
42,139 |
|
|
52,139 |
|
By-product credits4 |
|
(28,587) |
|
|
(34,791) |
|
All-in sustaining costs, net of by-product credits |
$13,552 |
|
$17,348 |
|
Cash costs, net of by-product costs |
|
5,910 |
|
|
(425) |
|
|
|
|
Payable ounces of silver equivalent5 |
|
3,294 |
|
|
3,661 |
|
Co-product cash cost per ounce of payable silver equivalent |
$10.47 |
|
$9.39 |
|
Co-product all-in sustaining cost per ounce of payable silver
equivalent |
$12.79 |
|
$14.24 |
|
|
|
|
Payable ounces of silver |
|
2,219 |
|
|
2,202 |
|
By-product cash cost per ounce of payable silver |
$2.66 |
|
$(0.19) |
|
By-product all-in sustaining cost per ounce of payable silver |
$6.11 |
|
$7.88 |
|
¹ Exploration costs are not related to current
mining operations.² Represent reductions on customer invoices and
included in Revenue of the LGJV combined statement of income
(loss). ³ Sustaining capital excludes capitalized exploration costs
related to resource development drilling of the South- East Deeps
zone.⁴ By-product credits reflect realized metal prices of zinc,
lead and gold for the applicable period, which includes any final
settlement adjustments from prior periods. ⁵ Silver equivalents
utilize the average realized prices during the three months ended
March 31, 2023 of $26.61/oz silver, $1.43/lb zinc, $1.05/lb lead
and $1,787/oz gold and average realized prices during the three
months ended March 31, 2022 of $23.85/oz silver, $2.11/lb zinc,
$1.01/lb lead and $1,832/oz gold.
The table below reconciles EBITDA, a non-GAAP
financial measure, to the Net Income of the LGJV.
|
|
Three Months Ended |
|
Three Months Ended |
(in thousands) |
|
March 31, 2023 |
|
March 31, 2022 |
Net Income |
|
$ 12,701 |
|
|
$ 26,079 |
|
Interest expense |
|
126 |
|
|
91 |
|
Income tax expense |
|
5,957 |
|
|
13,988 |
|
Depreciation, depletion and amortization |
|
20,819 |
|
|
16,342 |
|
EBITDA |
|
$ 39,603 |
|
|
$ 56,500 |
|
The following table sets forth a reconciliation
of Free Cash Flow, a non-GAAP financial measure, to Cash Flow
Provided By Operations for the LGJV.
|
|
Three Months Ended |
|
Three Months Ended |
(in thousands) |
|
March 31, 2023 |
|
March 31, 2022 |
Cash flow provided by operations |
|
$ 40,044 |
|
|
$ 42,054 |
|
Cash flow used in investing activities |
|
(11,366 |
) |
|
(19,166 |
) |
Free cash flow |
|
$ 28,678 |
|
|
$ 22,888 |
|
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
timing of an updated mineral resource and reserve report and life
of mine plan, drilling in CLG mine zones and potential resource
delineation and expansion, mine life extension, exploration in the
Los Gatos district, production and cost guidance for 2023, and
ongoing cost reduction initiatives at the CLG mine 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.
Investors and Media Contact
André van NiekerkChief Financial
Officerinvestors@gatossilver.com(604) 424-0984
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