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Gatos Silver Reports Fourth Quarter and Full Year 2023 Results and Provides 2024 Guidance

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Gatos Silver Reports Fourth Quarter and Full Year 2023 Results and Provides 2024 Guidance

 

 

 

 

 

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

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

 

LGJV 100% Basis
Selected Financial Information (Unaudited)
Three Months Ended
December 31,
  Year Ended
December 31,
(in millions, except where otherwise stated) 2023   2022   2023   2022  
Revenue $73.5     $93.0     $268.7     $311.7    
Cost of sales $28.0     $25.5     $111.3     $107.1    
Royalties $0.3     $0.3     $1.4     $3.1    
Exploration $0.8     $3.6     $2.9     $9.8    
General and administrative $5.4     $4.5     $18.1     $14.3    
Depreciation, depletion and amortization $15.6     $17.0     $75.1     $69.4    
Other (income) expense $0.2     ($2.6 )   ($1.6 )   ($1.4 )  
Income tax expense ($1.7 )   $14.8     $8.1     $37.3    
Net income $24.9     $29.8     $53.4     $72.2    
               
Sustaining capital1 $11.7     $19.5     $41.6     $76.5    
Resource development drilling expenditures1 $3.0     $—     $13.5     $—    
EBITDA1 $38.6     $61.9     $135.8     $179.5    
Cash provided by operating activities $38.2     $39.1     $142.0     $157.4    
Free cash flow1 $22.3     $18.7     $84.9     $75.1    
               
Operating Results (CLG 100% Basis)              
Tonnes milled (dmt) 277,318     261,929     1,071,400     971,595    
Tonnes milled per day (dmt) 3,014     2,847     2,935     2,662    
Average Grades              
Silver grade (g/t) 318     387     299     368    
Zinc grade (%) 3.86     3.74     3.90     4.37    
Lead grade (%) 1.86     1.95     1.85     2.31    
Gold grade (g/t) 0.30     0.30     0.29     0.33    
Production – Contained Metal              
Silver ounces (millions) 2.6     2.9     9.2     10.3    
Zinc pounds – in zinc conc. (millions) 14.6     13.5     57.3     60.7    
Lead pounds – in lead conc. (millions) 10.2     9.7     38.9     43.9    
Gold ounces – in lead conc. (thousands) 1.4     1.3     5.3     5.3    
Silver equivalent ounces (millions)2 3.9     4.2     14.3     15.8    
Co-product cash cost per ounce of payable silver equivalent1 $11.26     $9.61     $12.11     $9.41    
By-product cash cost per ounce of payable silver1 $6.02     $4.83     $6.31     $2.17    
Co-product AISC per ounce of payable silver equivalent1 $14.73     $14.80     $15.51     $14.33    
By-product AISC per ounce of payable silver1 $11.12     $12.13     $11.33     $10.24    

See Non-GAAP Financial Measures below
Totals may not add up due to rounding
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.

 

Selected Financial Information (Unaudited) Three Months Ended
December 31,
  Year Ended
December 31,
(in millions, except where otherwise stated) 2023   2022   2023   2022  
Exploration $—     $—     $—     $ 0.1    
General and Administrative 6.5     8.5     25.7     25.5    
Amortization         0.1     0.2    
Total expenses 6.5     8.5     25.8     25.8    
Equity income in affiliates 17.7     20.7     33.6     45.2    
Other income, net 1.3     (6.7 )   5.1     (3.4 )  
Total net other income 19.0     14.0     38.8     41.9    
Income tax expense 0.1     0.7     0.1     1.6    
Net income $12.3     $4.7     $12.9     $14.5    
Net income per share basic $0.18     $0.07     $0.19     $0.21    
Net income per share diluted $0.18     $0.07     $0.18     $0.21    
               
EBITDA1 $11.8     $5.5     $12.4     $16.6    
Cash (used) provided by operating activities ($2.5 )   $5.9     ($12.0 )   $14.6    
Free cash flow1 $22.0     $5.8     $47.5     $14.5    

See Non-GAAP Financial Measures below
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:

 

CLG 2024 Full Year Guidance (100% Basis)
Production guidance – Contained Metal  
Silver ounces (millions) 8.4 – 9.2
Zinc pounds – in zinc conc. (millions) 61 – 69
Lead pounds – in zinc conc. (millions) 40 – 46
Gold ounces – in zinc conc. (thousands) 4.5 – 5.5
Silver Equivalent (“AgEq”) ounces – (millions)1 13.5 – 15.0
All-in Sustaining Cost (AISC)2  
By-product basis ($/oz Ag payable) $9.50 – $11.50
Co-product basis ($/oz AgEq payable) $14.00 – $16.00

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
)

  As of December 31,
(US$ in thousands)   2023       2022  
ASSETS      
Current Assets      
Cash and cash equivalents $ 55,484     $ 17,004  
Related party receivables   560       1,773  
Other current assets   22,642       16,871  
Total current assets   78,686       35,648  
Non-Current Assets      
Investment in affiliates   321,914       347,793  
Deferred tax assets   266        
Other non-current assets   38       60  
Total Assets $ 400,904     $ 383,501  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current Liabilities      
Accounts payable, accrued and other liabilities $ 33,357     $ 26,358  
Non-Current Liabilities      
Credit Facility, net of debt issuance costs         8,661  
Stockholders’ Equity      
Common Stock, $0.001 par value; 700,000,000 shares authorized; 69,181,047 and 69,162,223 shares outstanding as of December 31, 2023 and December 31, 2022, respectively   117       117  
Paid-in capital   553,319       547,114  
Accumulated deficit   (185,889 )     (198,749 )
Total stockholders’ equity   367,547       348,482  
Total Liabilities and Stockholders’ Equity $ 400,904     $ 383,501  

 

 

 

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

 

(US$ in thousands, except for share data) Three Months Ended December 31, Year Ended December 31,
  2023       2022       2023       2022  
Expenses            
Exploration $     $     $ 26     $ 110  
General and administrative   6,531       8,501       25,688       25,468  
Amortization   5       48       79       180  
Total expenses   6,536       8,549       25,793       25,758  
Other income            
Equity income in affiliates   17,700       20,703       33,622       45,230  
Legal settlement loss   (1,500 )     (7,900 )     (1,500 )     (7,900 )
Interest expense         (65 )     (679 )     (433 )
Interest income   656       105       1,332       154  
Other income   2,124       1,150       5,992       4,801  
Total net other income   18,980       13,993       38,767       41,852  
Income before taxes   12,444       5,444       12,974       16,094  
Income tax expense   114       700       114       1,565  
Net income $ 12,330     $ 4,744     $ 12,860     $ 14,529  
Net income per share:                  
Basic $ 0.18     $ 0.07     $ 0.19     $ 0.21  
Diluted $ 0.18     $ 0.07     $ 0.18     $ 0.21  
Weighted average shares outstanding:            
Basic   69,167,601       69,162,223       69,163,564       69,162,223  
Diluted   70,074,615       69,309,019       69,536,298       69,309,019  

 

 

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

 

  For the year ended December 31,
(US$ in thousands)   2023       2022  
OPERATING ACTIVITIES      
Net income $ 12,860     $ 14,529  
       
Adjustments to reconcile net loss to net cash used by operating activities:      
Amortization   79       180  
Stock-based compensation expense   5,336       2,840  
Equity income in affiliates   (33,622 )     (45,230 )
Other   1,159       199  
Deferred tax asset   (266 )      
Dividends from affiliates         30,775  
       
Changes in operating assets and liabilities:      
Receivables from related‑parties   1,213       (180 )
Accounts payable and other accrued liabilities   6,992       24,632  
Other current assets   (5,771 )     (13,191 )
Net cash (used) provided by operating activities   (12,020 )     14,554  
       
INVESTING ACTIVITIES      
Purchase of property, plant and equipment         (60 )
Capital distribution received from affiliate   59,500        
Net cash provided (used) by investing activities   59,500       (60 )
       
FINANCING ACTIVITIES      
Credit Facility repayment   (9,000 )     (4,000 )
Financing costs         (106 )
Net cash used by financing activities   (9,000 )     (4,106 )
Net increase in cash and cash equivalents   38,480       10,388  
Cash and cash equivalents, beginning of period   17,004       6,616  
Cash and cash equivalents, end of period $ 55,484     $ 17,004  
       
Interest paid $ 417     $ 645  
Supplemental disclosure of noncash transactions:      
Recognition of Right of Use Asset and Lease Liability $     $ 128  

 

 

LOS GATOS JOINT VENTURE
COMBINED BALANCE SHEETS
(UNAUDITED)

 

  As of December 31,
(US$ in thousands)   2023       2022  
ASSETS      
Current Assets      
Cash and cash equivalents $ 34,303     $ 34,936  
Receivables   12,634       26,655  
Inventories   16,397       11,542  
VAT receivable   12,610       21,531  
Income tax receivable   20,185       27,039  
Other current assets   1,253       4,138  
Total current assets   97,382       125,841  
Non-Current Assets      
Mine development, net   234,980       232,515  
Property, plant and equipment, net   171,965       198,600  
Deferred tax assets   9,568        
Total non-current assets   416,513       431,115  
Total Assets $ 513,895     $ 556,956  
LIABILITIES AND OWNERS’ CAPITAL      
Current Liabilities      
Accounts payable and accrued liabilities $ 38,704     $ 46,751  
Related party payable   560       1,792  
Equipment loans         480  
Total current liabilities   39,264       49,023  
Non-Current Liabilities      
Lease liability   208       268  
Asset retirement obligation   11,593       15,809  
Deferred tax liabilities   3,885       1,354  
Total non-current liabilities   15,686       17,431  
Owners’ Capital      
Capital contributions   455,638       540,638  
Paid-in capital   18,186       18,186  
Accumulated deficit   (14,879 )     (68,322 )
Total owners’ capital   458,945       490,502  
Total Liabilities and Owners’ Capital $ 513,895     $ 556,956  

 

 

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

 

  Three Months Ended December 31, Year Ended December 31,
(US$ in thousands)   2023       2022       2023       2022  
Revenue $ 73,509     $ 92,994     $ 268,671     $ 311,724  
Expenses            
Cost of sales   28,011       25,525       111,266       107,075  
Royalties   339       330       1,363       3,069  
Exploration   757       3,565       2,875       9,800  
General and administrative   5,375       4,461       18,068       14,307  
Depreciation, depletion and amortization   15,552       17,040       75,110       69,380  
Total expenses   50,034       50,921       208,682       203,631  
             
Other expense (income)            
Interest expense   176       214       660       582  
Interest income   (420 )           (1,567 )      
Accretion expense   279       276       1,145       1,103  
Other expense (income)   728       (766 )     741       (766 )
Foreign exchange gain   (564 )     (2,291 )     (2,580 )     (2,348 )
    199       (2,567 )     (1,601 )     (1,429 )
                   
Income before taxes   23,276       44,640       61,590       109,522  
Income tax expense/(recovery)   (1,667 )     14,818       8,147       37,306  
Net income $ 24,943     $ 29,822     $ 53,443     $ 72,216  

 

 

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

 

  For the year ended December 31,
(US$ in thousands)   2023       2022  
Cash flows from operating activities:      
Net income $ 53,443     $ 72,216  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation, depletion and amortization   75,110       69,380  
Accretion   1,145       1,103  
Deferred taxes   (7,623 )     21,013  
Unrealized gain on foreign currency rate change   (4,523 )     (4,434 )
Other         (174 )
       
Changes in operating assets and liabilities:      
VAT receivable   9,619       23,986  
Receivables   14,021       (15,393 )
Inventories   (5,273 )     (353 )
Unearned revenue         (1,714 )
Other current assets   2,494       661  
Income tax receivable   10,771       (27,039 )
Accounts payable and other accrued liabilities   (5,951 )     17,939  
Payables to related parties   (1,232 )     183  
Net cash provided by operating activities   142,001       157,374  
       
Cash flows from investing activities:      
Mine development   (36,637 )     (44,934 )
Purchase of property, plant and equipment   (19,850 )     (37,018 )
Materials and supplies inventory   (600 )     (327 )
Net cash used by investing activities   (57,087 )     (82,279 )
       
Cash flows from financing activities:      
Capital distributions   (85,000 )      
Equipment loan and Lease payments   (547 )     (5,439 )
Partner dividends         (55,000 )
Net cash used by financing activities   (85,547 )     (60,439 )
       
Net increase (decrease) in cash and cash equivalents   (633 )     14,656  
Cash and cash equivalents, beginning of period   34,936       20,280  
Cash and cash equivalents, end of period $ 34,303     $ 34,936  
Interest paid $ 660     $ 236  
       
Supplemental disclosure of noncash transactions:      
Asset retirement obligation $ 5,364     $  
Mine development costs included in accrued liabilities $ 10,205     $ 3,427  
Property, plant and equipment included in accrued liabilities $ 11,046     $ 2,648  
Materials and supplies included in accrued liabilities $ 1,018     $ 202  
Recognition of Right of Use Asset and Lease Liability $     $ 328  

 

Posted February 21, 2024

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