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Gatos Silver Reports Third Quarter 2023 Financial Results and Increases 2023 Production Guidance

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Gatos Silver Reports Third Quarter 2023 Financial Results and Increases 2023 Production Guidance

 

 

 

 

 

Gatos Silver, Inc. (NYSE:GATO) (TSX: GATO) announced its third quarter 2023 financial and operating results. The Company will host an investor and analyst call on November 7, 2023, 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 third quarter of 2023 was previously disclosed on October 10, 2023. The Company’s reporting currency is US dollars.

 

Dale Andres, CEO of Gatos Silver, said: “The LGJV continues to generate robust cash flows with the CLG mine consistently producing high margin silver ounces. As a result of continued good operational performance in the first month of the fourth quarter along with recent optimization of the mine plan, we are increasing our 2023 full year silver and silver equivalent production guidance by 16% and 8% respectively, based on the midpoint of each guidance range. The LGJV has returned a total of $85 million to its partners in 2023, with the Company receiving another cash distribution of $24.5 million in October. Gatos Silver remains debt free with a strong cash balance. Conversion drilling of the South-East Deeps inferred resource is progressing well and the LGJV has started ramping up exploration efforts on near mine targets in the Los Gatos district.”

 

Summary

 

LGJV Q3 2023 results compared to Q3 2022 (100% basis):

  • Revenue of $67.0 million, down 9% from $73.9 million
  • Cost of sales $31.4 million, up 10% from $28.6 million
  • Net income $15.1 million, up 16% from $13.0 million
  • EBITDA $31.2 million, down 21% from $39.7 million1
  • Cash flow from operations of $29.4 million, down 24% from $38.5 million
  • Sustaining capital $9.1 million, down 47% from $17.1 million
  • Free cash flow $14.3 million, down 3% from $14.7 million1
  • Silver production 2.2 million ounces, down 19% from 2.7 million
  • Silver equivalent production of 3.5 million ounces, down 19% from 4.3 million
  • Co-product all-in sustaining costs (“AISC”) of $17.64 per ounce of payable silver, up 34% from $13.131
  • By-product AISC of $14.71 per ounce of payable silver, up 47% from $10.041

1 See Non-GAAP Financial Measures below.

 

Gatos Silver Q3 2023 results compared to Q3 2022:

 

Net income was $3.3 million, down 6% from $3.5 million primarily attributable to an increase in general and administrative expenses related to non-cash stock-based compensation, partially offset by higher equity income from the LGJV, higher interest income and a decrease in income tax expense. EBITDA1 was $3.6 million, down 14% from $4.2 million. Earnings per share of $0.05 was unchanged.

 

Cash flow used by operations was $1.7 million, compared to cash flow from operations of $8.0 million. Free cash flow1 was $33.3 million, up 317% from $8.0 million. The Company uses equity accounting for its 70% interest in the LGJV. 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.

 

Subsequent to the quarter end, on October 30, 2023, the Company received a $24.5 million capital distribution from the LGJV. As of October 31, 2023, the Company had a cash balance of $57.7 million, no debt and $50.0 million available under the Revolving Credit Facility after repaying the full outstanding balance on July 21, 2023. As of October 31, 2023 the LGJV had a cash balance of $20.9 million.

 

Financial and Operating Results

 

Below is select operational and financial information for the three and nine months ended September 30, 2023 and 2022. For a detailed discussion of the three and nine months financial and operating results refer to the Form 10-Q for the quarter ended September 30, 2023 filed on November 6, 2023 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 Three Months Ended Nine Months Ended
Selected Financial Information September 30, September 30,
(in millions, except where otherwise stated)  2023  2022  2023  2022
Revenue $ 67.0   $ 73.9 $ 195.2   $ 218.7
Cost of sales $ 31.4   $ 28.6 $ 83.3   $ 81.6
Royalties $ 0.3   $ 0.3 $ 1.0   $ 2.7
Exploration $ 1.0   $ 1.9 $ 2.1   $ 6.2
General and administrative $ 4.4   $ 3.4 $ 12.7   $ 9.8
Depreciation, depletion and amortization $ 16.7   $ 19.9 $ 59.6   $ 52.3
Other (income) expense $ (0.9 ) $ 0.1 $ (1.8 ) $ 1.1
Income tax (recovery) expense $ (0.9 ) $ 6.7 $ 9.8   $ 22.5
Net income $ 15.0   $ 13.0 $ 28.5   $ 42.4
         
Sustaining capital $ 9.1   $ 17.1 $ 29.9   $ 57.0
Resource development drilling expenditures $ 3.5   $ $ 10.5   $
EBITDA1 $ 31.2   $ 39.7 $ 98.4   $ 117.6
Cash provided by operating activities $ 29.4   $ 38.5 $ 103.8   $ 120.0
Free cash flow1 $ 14.3   $ 14.7 $ 62.6   $ 58.1
         
Operating Results (CLG 100% Basis)        
Tonnes milled (dmt)   268,312     263,331   794,082     709,666
Tonnes milled per day (dmt)   2,916     2,862   2,909     2,600
Average Grades        
Silver grade (g/t)   285     356   293     361
Zinc grade (%)   3.82     4.70   3.92     4.61
Lead grade (%)   1.84     2.38   1.85     2.45
Gold grade (g/t)   0.30     0.34   0.29     0.34
Production – Contained Metal        
Silver ounces (millions)   2.22     2.70   6.65     7.40
Zinc pounds – in zinc conc. (millions)   13.8     17.8   42.7     47.1
Lead pounds – in lead conc. (millions)   9.5     12.2   28.7     34.2
Gold ounces – in lead conc. (thousands)   1.28     1.40   3.86     3.98
Silver equivalent ounces (millions)2   3.46     4.29   10.45     11.68
Co-product cash cost per ounce of payable silver equivalent1 $ 14.42   $ 9.10 $ 12.43   $ 9.32
By-product cash cost per ounce of payable silver1 $ 10.04   $ 3.28 $ 6.42   $ 1.13
Co-product AISC per ounce of payable silver equivalent1 $ 17.64   $ 13.13 $ 15.81   $ 14.15
By-product AISC per ounce of payable silver1 $ 14.71   $ 10.04 $ 11.40   $ 9.49

1 See Non-GAAP Financial Measures below  

2 Total may not add due to rounding

3 Silver equivalent production 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.

 

  Three Months Ended Nine Months Ended
Select Financial information   September 30, September 30,
(in millions, except where otherwise stated)  2023  2022  2023  2022
Exploration $   $ $   $ 0.1
General and Administrative   7.5     5.9   19.2     17.0
Amortization         0.1     0.1
Total expenses   7.5     6.0   19.3     17.2
Equity income in affiliates   9.4     8.9   15.9     24.5
Other income, net   1.3     1.1   3.9     3.3
Other income   10.8     10.0   19.8     27.9
Income tax expense       0.5       0.9
Net income   3.3     3.5   0.5     9.8
Net income per share (basic and diluted) $ 0.05   $ 0.05 $ 0.01   $ 0.14
         
EBITDA1 $ 3.6   $ 4.2 $ 1.3   $ 11.2
Cash (used) provided by operating activities $ (1.7 ) $ 8.0 $ (9.5 ) $ 8.7
Free cash flow1 $ 33.3   $ 8.0 $ 25.5   $ 8.7

1 See Non-GAAP Financial Measures below

 

2023 Guidance Update (CLG 100% basis)

 

Gatos Silver is increasing its full year 2023 guidance for silver production and silver equivalent production as a result of good operational performance in the first month of the fourth quarter and recent optimization of the mine plan.

 

Silver production is now expected to be between 8.8 and 9.3 million ounces compared with original guidance of 7.4 to 8.2 million ounces. This represents an increase of 19% at the low end of the range and 13% at the high end. Silver equivalent production is now expected to be between 13.8 and 14.6 million ounces, compared with original guidance of 12.4 to 13.8 million silver equivalent ounces. This represents an increase of 11% at the low end of the range and 6% at the high end.

 

Based on the revised mine plan sequencing at CLG, the Company expects full year zinc and gold production to be near the low end of the original guidance range of 57 to 63 million pounds and 5.4 to 6.2 thousand ounces respectively. Full year lead production is expected to be within the upper half of the original guidance range of 36 to 40 million pounds.

 

The Company expects full year co-product and by-product AISCs to remain in the lower half of our original guidance ranges of $15.50 to $17.50 per ounce of payable silver equivalent and $11.00 to $13.00 per ounce of payable silver, with costs in the fourth quarter expected to be similar to the third quarter.

 

The Company remains on track to achieve sustaining capital expenditure guidance at CLG of $45 million in 2023 with $29.9 million spent in the first nine months of 2023.

 

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.

 

Posted November 7, 2023

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