Santacruz Silver Mining Ltd. (TSX-V: SCZ) reports its financial and operating results for the third quarter of 2021. The full version of the consolidated financial statements and accompanying management discussion and analysis can be viewed on the Company’s website at www.santacruzsilver.com or on SEDAR at www.sedar.com. All financial information is prepared in accordance with International Financial Reporting Standards and all dollar amounts are expressed in thousands of United States dollars, except per unit amounts, unless otherwise indicated.

• Revenues increased by 55% to $14.6 million during Q3 2021 (Q3 2020 – $9.4 million).
• Gross profit increased by 190% to $3.7 million during Q3 2021 (Q3 2020 – $1.3 million).
• On October 13, 2021, the Company announced it had entered into a definitive share purchase agreement with Glencore plc whereby Santacruz has the right to acquire a portfolio of Bolivian silver-base metal assets from Glencore plc.

Carlos Silva, CEO of Santacruz, stated; “We continue to increase our mine production and revenue for the third and fifth consecutive quarter respectively. Production costs were impacted as a result of a Mexican labour reform that came into effect during the quarter. This labour reform required the Company to recognize certain labour liability accruals for their employees, including but not limited to vacation, holiday bonuses, annual bonuses, savings funds, and seniority departure payments which totaled approximately $1.3 million. In addition, a non-recurring charge to administrative expenses of $0.4 million related to severance payments resulting from the decision to place the Rosario mine on care and maintenance, various non-recurring costs associated with the Zimapan Mine acquisition and other non-cash charges also impacted the quarter-end results.”

Financial Results

Selected financial information for the three-month periods ended September 30, June 30 and March 31, 2021 and December 31 and September 30, 2020 is presented below:

⁽¹⁾ The Company reports additional non-IFRS measures which include Gross Profit (Loss) and Adjusted EBITDA. These additional financial disclosure measures are intended to provide additional information. See the Company’s MD&A filed on SEDAR or its website for a reconciliation of these amounts to the unaudited interim financial statements for the respective periods.

As compared to Q2 2021, the Q3 2021 working capital deficiency has increased by 9%. The Company has capital management processes in place to manage liquidity risk.

Selected financial information for the Zimapan Mine and Rosario Project for the three months ended September 30, June 30 and March 31, 2021 and December 31 and September 30, 2020 is presented below:

Operating Results

Selected operating results for the Zimapan Mine and Rosario Project for the three months ended September 30, June 30 and March 31, 2021 and December 31 and September 30, 2020 is presented below:

(1)Silver equivalent ounces produced in 2021 have been calculated using prices of $25.00/oz, $1,925/oz, $0.85/lb, $1.05/lb, and $3.00/lb for silver, gold, lead, zinc and copper respectively applied to the metal content of the concentrates produced by the Rosario Project and the Zimapan Mine. Silver equivalent ounces produced in 2020 have been calculated using prices of $17.85/oz, $1,480/oz, $0.92/lb, $1.09/lb and $2.80/lb for silver, gold, lead, zinc and copper respectively applied to the metal content of the concentrates produced by the Rosario Project and the Zimapan Mine.
⁽²⁾ Silver equivalent sold ounces have been calculated using the realized silver prices stated in the table above, applied to the payable metal content of the concentrates sold from the Zimapan Mine and Rosario Project in 2021 and 2020.
⁽³⁾ The Company reports non-IFRS measures which include Cash Cost per Silver Equivalent, All-in Sustaining Cash Cost per Silver Equivalent, Cash Cost of Production per Tonne, and Average Realized Silver Price per Ounce. These measures are widely used in the mining industry as a benchmark for performance, but do not have a standardized meaning and may differ from methods used by other companies with similar descriptions. See the Company’s MD&A filed on SEDAR or its website for a discussion of these amounts.
⁽⁴⁾ The Company is not including production and unit cost results from the Veta Grande Project in this MD&A as operations at Veta Grande were suspended during Q1 2020 and to date have not recommenced.
⁽⁵⁾ Operations at the Rosario Project are suspended and there was minimal production in July 2021 and no production in August and September 2021.

Discussion of Financial Results

The Company recorded a net loss of $3,849 for Q3 2021 (Q3 2020 – $163) and a gross operating profit of $3,656 (Q3 2020 – $1,259). The gross profit increase reflects a 100% increase in gross profit at the Zimapan Mine driven by a 61% increase in revenue that arose as a result of improved metal prices and significant increases in production of silver, zinc and copper as compared to Q3 2020.

The increase in net loss resulted primarily from a $2,066 increase in operating expenses, a $1,163 increase in net finance expense, a $1,014 increase in loss on foreign exchange, and a $1,836 unrealized loss on marketable securities from Q3 2020. Operating expenses increased primarily due to the growth in the Company in addition to non-recurring costs associated with the Zimapan Mine acquisition and a $431 charge in administrative severance costs paid as a result of placing the Rosario Project on care and maintenance. Also impacting operating expense is a $466 increase in share-based compensation as a result of additional stock options granted compared to Q3 2020. The increase in net finance expense is primarily due to a $665 increase IVA recovery inflationary loss which results from changes in the Mexican inflation rate, an additional $162 in interest charges associated with the increased Trafigura loan balance compared to Q3 2020 and an additional $169 of accretion of the Zimapan Mine decommissioning and restoration provision.

Also impacting the net loss for Q3 2021 are production costs resulting from a non-recurring charge of $1,294 due to a Mexican labour reform that became effective September 2021. The Company was required to recognize certain labour liability accruals for their employees, including but not limited to vacation, holiday bonuses, annual bonuses, savings funds and seniority departure payments.

Discussion of Operational Results and Costs

Zimapan Mine

As compared to Q3 2020, the Q3 2021 silver equivalent production decreased by 6% due to the impact of using different metal price decks for the respective 2021 and 2020 fiscal years. The Q3 2021 silver equivalent production increased by 20% (after adjusting for the metal price deck) as compared to Q3 2020.

As compared to Q2 2021, the Q3 2021 silver equivalent production increased 14%. This increase arose primarily as a result of a 20% increase in tonnes milled during the period.

Operations during Q2 2021 reflect reduced milling availability with operations negatively impacted by challenges with the dewatering circuit. This was remedied in early Q3 as a result of replacing the original drum filters with a filter press. The impact of this change in equipment was immediate as production for July 2021 improved to over 60,000 tonnes of material processed at the milling facility with August and September seeing further production improvements.

The cash cost of production per tonne of mineralized material processed increased by 35% in Q3 2021 to $53.88/t as compared to Q3 2020. This resulted from a 53% increase in the cash cost of production which included a non-recurring charge of $6.93/t due to a Mexican labour reform that came into effect during the quarter, offset by a 13% increase in the tonnes of mineralized material processed.

As compared to Q2 2021, the cash cost of production per tonne of mineralized material processed decreased by $0.04/t. This result reflects a 20% increase in the cash cost of production offset by a 20% increase in the tonnes of mineralized material processed during Q3 2021.

The cash cost of production per silver equivalent ounce sold increased by 2% to $17.72/oz in Q3 2021 compared to Q3 2020. This resulted from a 35% increase in the cash cost of sales of silver equivalent ounces which included a non-recurring charge of $1.56/oz due to the Mexican labour reform that came into effect during the quarter, while the silver equivalent payable ounce produced increased by 33%.

As compared to Q2 2021, the cash cost of production per silver equivalent ounce sold in Q3 2021 decreased by 4%. This resulted from a 21% increase in the cash cost of sales of silver equivalent ounces while the silver equivalent payable ounces produced increased by 26%. As noted earlier, the increase in silver equivalent production arose primarily as a result of a 20% increase in tonnes milled during the period.

All-in sustaining cash cost of production per silver equivalent ounce sold increased by 15% to $21.33/oz as compared to Q3 2020. This resulted from a 51% increase in the cash cost of sales which included a non-recurring charge of $1.56/oz due to the Mexican labour reform that came into effect during the quarter, while the silver equivalent payable ounces produced increased by 33%.

As compared to Q2 2021, the AISC in Q3 2021 decreased by $0.02/oz. This resulted from a 24% increase in the cash cost of sales of silver equivalent ounces while the silver equivalent payable ounces sold increased by 26%. This change occurred largely for the same reasons as referenced above in the discussion regarding cash cost of silver equivalent ounces sold.

Production at the Zimapan Mine is not supported by a feasibility study on mineral reserves demonstrating economic and technical viability or any other independent economic study under NI 43-101. Accordingly, there is increased uncertainty and economic and technical risks of failure associated with production operations at the Zimapan Mine. Production and economic variables may vary considerably due to the absence of a complete and detailed site analysis in accordance with NI 43-101.

Rosario Project

As compared to Q2 2021, the Q3 2021 silver equivalent production decreased by 86%. This decrease occurred due to an 86% decrease in mineralized material processed at the milling facility and in part from processing lower grade material. As noted above, subsequent to Q3 2021, the Company announced it had suspended operations at the Rosario Mine and placed the asset on care and maintenance. As a consequence of the minimal production during Q3 2021, reflective of the suspension of operations, no comparative analysis of Q3 2021 to Q3 2020 and Q2 2021 is provided.

About Santacruz Silver Mining Ltd.

Santacruz is a Mexican focused silver company with one producing silver project, the Zimapan Mine and two exploration properties, the La Pechuga property and Santa Gorgonia prospect. The Company is managed by a technical team of professionals with proven track records in developing, operating and discovering silver mines in Mexico. Our corporate objective is to become a mid-tier silver producer.