Gatos Silver, Inc. (NYSE:GATO) (TSX: GATO) announced its fourth quarter and full year 2023 financial and operating results. The Company will host an investor and analyst call on February 21, 2024, details of which are provided below.

The Company has a 70% interest in the Los Gatos Joint Venture, which in turn owns the Cerro Los Gatos mine in Mexico. Production for the fourth quarter of 2023 was previously disclosed on January 9, 2024. The Company’s reporting currency is US dollars.

Dale Andres, CEO said: “During the fourth quarter we continued to add cash to the balance sheet, generated from another quarter of strong operational performance at the LGJV. All-in sustaining cost per silver ounce was at the lower end of 2023 guidance thanks to improved operating efficiencies, which helped to offset inflationary cost pressures and the impact of the stronger Mexican peso.”

“For 2024, we expect silver production of 8.4 million ounces to 9.2 million ounces at an AISC, after by-product credits, of $9.50 to $11.50 per payable ounce produced. On a quarterly basis, we expect production will gradually increase throughout the year as we debottleneck the mine and further optimize the mill at CLG. Conversion drilling of the South-East Deeps inferred resource to extend mine life is progressing well and the LGJV has started ramping up exploration efforts on near mine targets in the Los Gatos district.”

Summary

LGJV 2023 results (100% basis):

• CLG life of mine extended by 2.75 years to the end of 2030 with a 46% increase in total silver production
• Cost of sales only 4% higher than 2022, despite mining and processing 10% more tonnes year over year
• Cash from operating activities of $142.0 million and free cash flow of $84.9 million¹
• AISC after by-product credits of $11.33¹ per payable silver ounce produced on our previously disclosed production of 9.2 million ounces

Gatos Silver 2023 results:

• Net income of $12.9 million or $0.19 per basic and $0.18 per diluted share
• Received capital distribution of $59.5 million from the LGJV
• Cash used by operating activities of $12.0 million and free cash flow of $47.5 million¹
• Year-end cash balance of $55.5 million and no debt

LGJV Q4 2023 results compared to Q4 2022 (100% basis):

• Revenue of $73.5 million, down 21% from $93.0 million
• Cost of sales $28.0 million, up 10% from $25.5 million
• Net income $24.9 million, down 16% from $29.8 million
• EBITDA $38.6 million, down 38% from $61.9 million¹
• Cash from operating activities of $38.2 million, down 2% from $39.1 million
• Sustaining capital $11.7 million, down 40% from $19.5 million¹
• Free cash flow $22.3 million, up 19% from $18.7 million¹
• Co-product AISC of $14.73 per ounce of payable silver, down 0.5% from $14.80¹
• By-product AISC of $11.12 per ounce of payable silver, down 8% from $12.13¹

Gatos Silver Q4 2023 results compared to Q4 2022:

• Net income of $12.3 million, up 160% from $4.7 million
• Basic and diluted earnings per share of $0.18, up 157% from $0.07
• EBITDA $11.8 million, up 116% from $5.5 million¹
• Cash used in operating activities of $2.5 million, compared to cash provided by operations of $5.9 million
• Free cash flow $22.0 million, up 277% from $5.8 million¹

1 _{See “Non-GAAP Financial Measures” below}

For Gatos Silver, higher net income, earnings per share and EBITDA¹ for Q4 2023 were primarily attributable to a decrease in general and administrative expenses and lower legal settlement expenses. The change in operating cash flow was primarily attributable to the dividend payment received in Q4 2022. The increase in free cash flow¹ was a result of the capital distribution received in Q4 2023.

Cash distributions to the LGJV partners in 2023 have been made through capital distributions which is more tax efficient than distributing cash dividends. As a result, cash distributions are currently shown on the balance sheet as cash flow received from investing activities, as opposed to being included as cash flows from operating activities as in 2022 when dividends were paid by the LGJV.

As of December 31, 2023, the Company had a cash balance of $55.5 million, up 226% from $17.0 million a year earlier. The increase in cash was primarily due to receipt of $59.5 million in capital distributions and a $6.0 million management fee from the LGJV, partly offset by general and administrative costs incurred in the year.

As of January 31, 2023, the Company had a cash balance of $53.1 million and the LGJV had a cash balance of $43.1 million. On February 15, 2024, the LGJV made a capital distribution to its partners of $30.0 million of which the Company received $21.0 million.

The Company continues to be debt free with $50.0 million available under the Revolving Credit Facility.

Financial and Operating Results

Below is select operational and financial information for the three months and years ended December 31, 2023 and 2022. For a detailed discussion of the year ended December 31, 2023 financial and operating results refer to the Form 10-K for the year ended December 31, 2023, filed on February 20, 2024, on both the EDGAR and SEDAR+ systems and posted on the Company’s website at https://gatossilver.com.

Los Gatos Joint Venture

¹ _{See Non-GAAP Financial Measures below}
² _{Totals may not add up due to rounding}
³ _{Silver equivalent production for both 2022 and 2023 is calculated using prices of $22/oz silver, $1.20/lb zinc, $0.90/lb lead and $1,700/oz gold to “convert” zinc, lead and gold production contained in concentrate to “equivalent” silver ounces (contained metal, multiplied by price, divided by silver price).}

Gatos Silver, Inc.

¹ _{See Non-GAAP Financial Measures below}
² _{Totals may not add up due to rounding}

2024 Guidance (CLG 100% basis)

Production and cost guidance for 2024 is shown in the table below:

¹ _{Silver equivalent production is calculated using prices of $23/oz silver, $1.20/lb zinc, $0.90/lb lead and $1,800/oz gold to “convert” zinc, lead and gold production contained in concentrate to “equivalent” silver ounces (contained metal, multiplied by price, divided by silver price). For 2022 and 2023, silver equivalent production was calculated using prices of $22/oz silver, $1.20/lb zinc, $0.90/lb lead and $1,700/oz gold. For comparative purposes, the calculated silver equivalent production in the table above at these price assumptions would be 13.7 – 15.3 million ounces.}
² _{Financial metrics assume an exchange rate of 18.50 Mexican Pesos per US$1.00. In 2022 and 2023, an exchange rate of 20.00 Mexican Pesos per US$1.00 was assumed. Costs used in calculating financial metrics include an allocation for Gatos Silver and Dowa corporate costs paid by the Los Gatos Joint Venture (“LGJV”) of approximately $7 million per year. See “Non-GAAP Financial Performance Measures” for additional information.}

Gatos Silver expects plant throughput to average between 3,000 and 3,300 tonnes processed per day in 2024, compared to 2,935 tonnes per day in 2023. Feed grades to the mill are expected to be lower in the first quarter versus the average grades expected during the year. Following previously disclosed mill throughput tests conducted in December 2023 demonstrating higher capacity with good metallurgical performance, the LGJV plans to continue to strive to achieve sustainably higher plant throughput rates as mine debottlenecking efforts continue with a medium-term target to sustain 3,500 tonnes per day beyond 2024, or 40% above original design capacity.

The Company expects sustaining capital expenditures at CLG (100% basis) to be approximately $45 million in 2024, of which $25 million is for underground development primarily to access the lower levels of the NW and Central zones and to further develop access to the SE zone. The remainder of capital expenditures are expected to be primarily associated with minor upgrades to the processing plant, equipment replacements and rebuilds, and dewatering and other infrastructure work including projects to help improve operating efficiencies and to support debottlenecking efforts in the mine.

Exploration and definition drilling expenditures are expected to be approximately $18 million in 2024, of which $9 million is expected to be capitalized and incurred on resource development drilling primarily in the South East Deeps zone and $9 million expensed and incurred on greenfield exploration. The LGJV currently has eight active drill rigs on surface and four underground. The primary focus until the end of the first quarter of 2024 is infilling the South East Deeps zone to approximately 50 metre spacing for the 2024 mineral resource and mineral reserve update anticipated to be announced in the third quarter of 2024. After the end of the first quarter, the focus for the surface drilling rigs is expected to shift to other district targets including Portigueño, San Luis and El Lince.

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 (“LGJV”), the Company is primarily focused on operating the Cerro Los Gatos mine and on growth and development of the Los Gatos district. The LGJV includes 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.

APPENDIX A

GATOS SILVER, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

GATOS SILVER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

GATOS SILVER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

LOS GATOS JOINT VENTURE
COMBINED BALANCE SHEETS
(UNAUDITED)

LOS GATOS JOINT VENTURE
COMBINED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)

LOS GATOS JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)