Gatos Silver, Inc. (NYSE/TSX: GATO) (“Gatos Silver” or the
“Company”) today reported an updated mineral reserve estimate (the
“2023 Mineral Reserve”), mineral resource estimate (the “2023
Mineral Resource”) and life of mine (“LOM”) plan (the “2023 LOM
Plan”, and together with the 2023 Mineral Reserve and 2023 Mineral
Resource, the “2023 Updates”) for the Cerro Los Gatos Mine (“CLG”)
with an effective date of July 1, 2023. The Company will host an
investor and analyst call on September 7, 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 CLG mine in Mexico.
All dollar amounts are expressed in, and references to “$” refer
to, United States dollars unless otherwise noted.
Dale Andres, CEO of Gatos Silver said: “We have
achieved significant life extension objectives with this updated
mineral reserve estimate, exceeding our target of adding one to two
years. The new life of mine plan, which is based on recent
operating performance, demonstrates our continued confidence in
CLG’s ability to deliver robust margins and consistent cash flow.
Gatos Silver has a strong balance sheet and remains debt free, with
regular cash distributions to the joint venture partners expected
throughout CLG’s mine life. We continue to believe
there remains substantial additional value at CLG and we are now
analyzing a number of projects with the potential to further
improve margins and mine life as we move forward. In the near term,
the LGJV is continuing to define the South-East Deeps area and ramp
up exploration efforts in the Los Gatos district with the
mobilization of a seventh surface drill rig this month.”
Summary
-
Robust CLG 2023 LOM Plan with strong and consistent annual cash
flow profile (100% basis):
-
Mine life extended from early 2028 through to the end of 2030, an
addition of 2.75 years
-
Average annual after-tax free cash flow1 of $75 million, resulting
in an after-tax net present value (“NPV”)2 of $462 million, an
increase of $123 million from the 2022 LOM from July 1, 2023
onwards
-
Sustaining capital costs of $160 million, a $93 million increase
from the 2022 LOM to support the longer mine life including
additional underground mine development and tailings storage
capacity
-
Attractive by-product all-in sustaining costs (“AISC”)1 of $7.703
per ounce of payable silver
-
Total silver production over the remaining mine life expected to
increase by 46% and total silver equivalent production4 expected to
increase by 50%
-
Average annual production of 7.7 million ounces of silver expected
during the 2024 to 2026 period
-
Average annual production over the LOM of 6.6 million ounces of
silver, 65 million pounds of zinc and 47 million pounds of lead, or
12.4 million ounces of silver equivalent4 production
-
Additional drilling has delivered a significant increase to the
2023 Mineral Reserve:
-
2023 Mineral Reserve of 8.1 million tonnes at 217 g/t silver, 4.32%
zinc, 2.20% lead, 0.25 g/t gold and 0.15% copper, with 56.3 million
ounces of contained silver
-
61,520 additional metres of diamond drilling used in the block
model estimation including 284 underground holes and 51 surface
holes, an increase of 28%
-
1.8 million tonnes of the 2023 Mineral Reserve increase is in the
South-East zone, inclusive of 328,000 tonnes below 1,100 metre
elevation level in the South-East Deeps area
-
South-East Deeps discovery in 2022 has resulted in a significant
increase to the 2023 Mineral Resource:
- As first announced in October 2022, a
deeper zone of mineralization, South-East Deeps, was discovered
extending up to 415m below the 2022 Mineral Reserve
-
The first stage of drilling completed on the South-East Deeps zone
(up until March 31, 2023) has resulted in an inferred resource
estimate for CLG of 4.6 million tonnes at 100 g/t silver, 3.40%
zinc, 2.32% lead, 0.21 g/t gold and 0.40% copper
-
2023 Mineral Resource includes 0.4 million tonnes of measured and
indicated resource at 93 g/t silver, 3.55% zinc, 1.88% lead, 0.25
g/t gold and 0.14% copper
-
Substantial opportunities remain to increase mine life and further
improve margins at CLG:
-
As previously announced, the infill drilling and exploration budget
for 2023 was increased by $3 million to $16 million with a seventh
surface drill rig being mobilized this month
-
Current drilling is focused on converting the higher-grade portions
of the inferred resource in the South-East Deeps zone to measured
and indicated resources, with a target of adding 3 to 4 years of
mine life over the next 12 months
-
Increased drilling of near mine and district exploration targets
planned during Q4-2023 and 2024
-
Capital efficient modifications to the existing plant are being
evaluated in conjunction with further mine life extension efforts
including; a pyrite leach circuit to increase silver and gold
recovery, a copper separation circuit to produce copper concentrate
and potential mill throughput growth up to 4,000 tpd
1 See Non-GAAP Financial Measures below.2 NPV is as of July 1,
2023 using a 5% discount rate. NPV and free cash flow assume base
case prices of $22/oz silver, $1.20/lb zinc, $0.90/lb lead,
$1,700/oz gold, $3.50/lb copper and a Mexican Peso exchange rate of
MXN 20.00 per US$1.00.3 Includes LGJV management fee and
administrative costs. Refer to Table 11 for AISC details.4 Silver
equivalent production is calculated using base case price
assumptions to “convert” zinc, lead and gold production contained
in concentrate to “equivalent” silver ounces (contained metal,
multiplied by price, divided by silver price). Copper is excluded
due to relatively low payable terms for copper in lead
concentrate.
2023 CLG LOM Plan Update Summary
Table 1 presents a comparison of key metrics of
the 2023 LOM Plan to the 2022 LOM Plan considering the comparable
periods from July 1, 2023 onwards (the effective date of the 2023
LOM Plan).
Total silver production in the 2023 LOM Plan has
increased by 46% compared with the 2022 LOM Plan, with slightly
higher average mill throughput of 2,949 tpd and similar unit
operating costs. Silver production averages 6.6 million ounces per
year over the mine life and averages 7.7 million ounces during the
2024 to 2026 period. Figures 1 and 2 present annual mill throughput
rates and silver head grades, and silver production and by-product
AISC, respectively.
Table 1 – Summary of the 2023 LOM Plan and Comparison to
the 2022 LOM
Plan(1,2)
|
2023 LOM Plan(H2’23+) |
2022 LOM Plan(H2’23+) |
Change |
Change (%) |
Total Mill Throughput (Mt) |
8.08 |
5.03 |
3.05 |
61% |
Average Mill Throughput rate (tpd) |
2,949 |
2,900 |
49 |
2% |
Total Silver Production (Moz) |
49.7 |
34.1 |
15.6 |
46% |
Total Silver Equivalent Production (Moz) |
93.1 |
62.0 |
31.1 |
50% |
Average Silver Production (Moz / year)(1) |
6.6 |
7.2 |
(0.5) |
(8%) |
Average Zinc Production (Mlbs / year)(1) |
64.5 |
67.2 |
(2.7) |
(4%) |
Average Lead Production (Mlbs / year)(1) |
46.8 |
44.8 |
2.1 |
5% |
Average Silver Equivalent Production (Moz / year) |
12.4 |
13.1 |
(0.6) |
(5%) |
|
Site Operating Costs ($ / tonne milled) |
$88.67 |
$88.95 |
($0.28) |
0% |
Sustaining Capital ($M) |
$160.2 |
$67.6 |
$92.7 |
137% |
By-Product AISC ($/oz Ag pay.)(2) |
$7.70 |
$6.87 |
$0.82 |
12% |
Co-Product AISC ($/oz AgEq pay.)(2) |
$14.30 |
$13.55 |
$0.74 |
5% |
|
Total Undiscounted Free Cash Flow ($M) |
$547.5 |
$381.2 |
$166.3 |
44% |
Post-Tax NPV (5%, $M) |
$461.7 |
$338.6 |
$123.1 |
36% |
(1) |
Silver production is silver contained in Pb and Zn concentrates,
zinc production is zinc contained in Zn concentrate, lead
production is lead contained in Pb concentrate. |
(2) |
By-product AISC and Co-product
AISC include the LGJV management fee and administrative costs of
$1.09 / oz Ag payable and $0.59 / oz AgEq payable, respectively in
the 2023 LOM Plan and $0.89 / oz Ag payable and $0.50 AgEq payable,
respectively in the 2022 LOM Plan from July 1, 2023. Refer to Table
11 for AISC details. |
|
|
Figure 1 – Mill Throughput and Silver Grade (2023 LOM
Plan and 2022 LOM Plan)
Figure 2 – Silver Production and By-Product AISC (2023
LOM Plan and 2022 LOM Plan)
2023 CLG Mineral Reserve and Mineral Resource
Tables
The 2023 Mineral Reserve for CLG by reserve category is
summarized in Table 2 and the CLG 2023 Mineral Resource reported by
category is summarized in Table 3.
Table 2: 2023 CLG Mineral Reserve as at
July 1 2023
(1,2,3,4,5,6,7,8,9,10)
|
Mt |
Ag(g/t) |
Zn(%) |
Pb (%) |
Au(g/t) |
Cu (%) |
Ag (Moz) |
Zn (Mlbs) |
Pb (Mlbs) |
Au(koz) |
Cu (Mlbs) |
Proven |
3.46 |
317 |
4.39 |
2.17 |
0.31 |
0.09 |
35.3 |
335.0 |
165.7 |
34.7 |
6.9 |
Probable |
4.62 |
141 |
4.27 |
2.23 |
0.20 |
0.19 |
21.0 |
435.3 |
226.6 |
29.3 |
19.5 |
Proven and Probable |
8.08 |
217 |
4.32 |
2.20 |
0.25 |
0.15 |
56.3 |
770.2 |
392.3 |
64.0 |
26.4 |
(1) |
Mineral Reserves are reported on a 100% basis and exclude all
mineral reserve material mined prior to July 1, 2023. |
(2) |
Specific gravity has been assumed
on a dry basis. |
(3) |
Tonnage and contained metal have
been rounded to reflect the accuracy of the estimate and numbers
may not sum exactly. |
(4) |
Values are inclusive of mining
recovery and dilution. Values are determined as of delivery to the
mill and therefore not inclusive of milling recoveries. |
(5) |
Mineral Reserves are reported
within stope shapes using a variable cut-off basis with a Ag price
of US$22/oz, Zn price of US$1.20/lb, Pb price of US$0.90/lb, Au
price of US$1,700/oz and Cu price of $3.50/lb. |
(6) |
The Mineral Reserve is reported
on a fully diluted basis defined by mining method, stope geometry
and ground conditions. |
(7) |
Contained Metal (CM) is
calculated as follows: |
|
• Zn, Pb
and Cu, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6 |
|
• Ag and
Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035 ; multiply Au
CM (Moz) by 1000 to obtain Au CM (koz) |
(8) |
The SEC definitions for Mineral
Reserves in Regulation S-K 1300 were used for Mineral Reserve
classification and are consistent with Canadian Institute of
Mining, Metallurgy and Petroleum (CIM) Definition Standards for
Mineral Resources and Mineral Reserves (CIM (2014)
definitions). |
(9) |
Under SEC Regulation S-K 1300, a
Mineral Reserve is defined as an estimate of tonnage and grade or
quality of indicated and measured mineral resources that, in the
opinion of the qualified person, can be the basis of an
economically viable project. More specifically, it is the
economically mineable part of a measured or indicated mineral
resource, which includes diluting materials and allowances for
losses that may occur when the material is mined or extracted. |
(10) |
The Mineral Reserve estimates
were prepared under the supervision of Mr. Stephan Blaho, P.Eng. an
employee of WSP Canada Inc. who is the independent Qualified Person
for these Mineral Reserve estimates. |
|
|
Table 3: 2023 CLG Mineral Resource as
at July 1 2023 (Exclusive of Mineral Reserves)
(1,2,3,4,5,6,7,8,9,10,11)
|
Mt |
Ag(g/t) |
Zn (%) |
Pb (%) |
Au(g/t) |
Cu (%) |
Ag (Moz) |
Zn (Mlbs) |
Pb (Mlbs) |
Au(koz) |
Cu(Mlbs) |
Measured |
0.05 |
141 |
2.50 |
1.70 |
0.40 |
0.05 |
0.2 |
2.9 |
2.0 |
0.7 |
0.1 |
Indicated |
0.34 |
85 |
3.71 |
1.90 |
0.23 |
0.15 |
0.9 |
28.1 |
14.4 |
2.5 |
1.1 |
Measured and Indicated |
0.40 |
93 |
3.55 |
1.88 |
0.25 |
0.14 |
1.2 |
30.9 |
16.4 |
3.2 |
1.2 |
Inferred |
4.58 |
100 |
3.40 |
2.32 |
0.21 |
0.40 |
14.7 |
343.6 |
234.5 |
30.9 |
40.1 |
(1) |
Mineral Resources are reported on a 100% basis and are exclusive of
Mineral Reserves. |
(2) |
The SEC definitions for Mineral
Resources in S-K 1300 were used for Mineral Resource classification
which are consistent with Canadian Institute of Mining, Metallurgy
and Petroleum (CIM) Definition Standards for Mineral Resources and
Mineral Reserves (CIM (2014) definitions). |
(3) |
Under SEC Regulation S-K 1300, a
Mineral resource is defined as a concentration or occurrence of
material of economic interest in or on the Earth’s crust in such
form, grade or quality, and quantity that there are reasonable
prospects for economic extraction. A mineral resource is a
reasonable estimate of mineralization, taking into account relevant
factors such as cut-off grade, likely mining dimensions, location
or continuity, that, with the assumed and justifiable technical and
economic conditions, is likely to, in whole or in part, become
economically extractable. It is not merely an inventory of all
mineralization drilled or sampled. Mineral Resources which are not
Mineral Reserves do not have demonstrated economic viability. The
estimate of Mineral Resources may be materially affected by
environmental, permitting, legal, marketing, or other relevant
issues. |
(4) |
The quantity and grade of
reported Inferred Mineral Resources in this estimation are
uncertain in nature and there has been insufficient exploration to
define these Inferred Mineral Resources as an Indicated or Measured
Mineral Resource. It is uncertain if further exploration will
result in upgrading Inferred Mineral Resources to an Indicated or
Measured Mineral Resource category. |
(5) |
Specific gravity has been assumed
on a dry basis. |
(6) |
Tonnage and contained metal have
been rounded to reflect the accuracy of the estimate and numbers
may not sum exactly. |
(7) |
Mineral Resources exclude all
Mineral Resource material mined prior to July 1, 2023. |
(8) |
Mineral Resources are reported
within stope shapes using a $81.03/tonne Resource NSR cut-off
calculated using an Ag price of $22/oz, Zn price of $1.20/lb, Pb
price of $0.90/lb, Au price of $1,700/oz and Cu price of $3.50/lb.
The Resource NSR cutoff includes mill recoveries and payable metal
factors appropriate to the existing CLG processing circuit
augmented with a pyrite leach circuit and copper separation
circuit. The processing recoveries for these additional projects is
based on existing preliminary metallurgical testwork. |
(9) |
No dilution was applied to the
Mineral Resource. |
(10) |
Contained Metal (CM) is
calculated as follows: |
|
• Zn, Pb
and Cu CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6 |
|
• Ag and
Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035; multiply Au CM
(Moz) by 1000 to obtain Au CM (koz) |
(11) |
The Mineral Resource estimates
were prepared under the supervision of by Ronald Turner,
MAusIMM(CP) an employee of Golder Associates S.A. who is the
independent Qualified Person for these Mineral Resource
estimates. |
|
|
Diamond Drilling
The increases in mineral reserve and mineral
resource are primarily driven by a large amount of diamond drilling
completed between the 2022 and 2023 updates. The 2023 Mineral
Resource update for CLG used a total of 1,466 diamond drill holes
totaling 282,905 metres. Compared to the 2022 mineral resource
estimate, this represents a 28% increase from the database used for
the 2022 update with an additional 32,057 metres of surface
resource drilling from 51 holes and 29,462 metres of underground
definition drilling from 284 holes as shown in Figure 3 below. The
data cut-off date used for the 2023 Updates was the end of March
2023.
Various additional control measures are now in
place that further strengthen the CLG drilling data collection
process, including a new secure database system, additional quality
assurance and quality control measures and periodic reporting, gyro
downhole surveying for surface drill holes and increased diameter
of the diamond core of the two smaller underground drill rigs from
35mm to 42mm.
Figure 3 – New Drilling Added between
2022 and 2023 Mineral Reserve Updates
Mineral Resource Estimation
The 2023 Mineral Resource uses an estimation
methodology that is similar to the methodology used for the 2022
mineral resource estimate. Geological interpretation of 3D domain
solids was completed using all available information including
detailed underground mapping, channel sampling and surface and
underground diamond drilling. The block model estimation uses assay
information from diamond drill core only. The model interpolation
is by multiple pass ordinary kriging using locally varying
anisotropy to follow the changes in dip and azimuth of the veins.
Control of outlier grades is by high grade distance restriction.
The limits set for these restrictions are based on statistical
analysis and comparison of mined areas to actual production. CLG
mineral resources are reported exclusive of mineral reserves and
within stope shapes to define reasonable prospects of economic
extraction.
Changes since 2022 include the reduction in the
sub-block size from 2.5m to 1.25m to better represent the vein
solids and the addition of a fourth estimation pass with longer
ranges that is used for estimation of inferred resource only.
2023 Mine Design and Scheduling
The methodology used to prepare the 2023 mine
design is similar to the methodology that was implemented for the
2022 updates, only updated to account for changes in actual
operating performance over the last 12 months.
Long-hole (“LH”) mining methods were applied
where amenable throughout the mine which represents approximately
74% of total LOM stope production. This compares to 56% LH tonnage
in the 2022 mine design. Stope production in the mine plan
transitions from approximately 50% LH in 2024 to 95% LH towards the
end of the mine life. The increase in LH mining is a result of
increased reserves coming from LH in the Central and South-East
zones. The operation has successfully been mining steeper sections
of the Central zone using LH mining methods. In addition,
transverse LH mining is being used in certain areas in the Central
zone that are dipping less than 55° but where the width of
mineralization is greater than 8 metres. The mine design has been
modified to reflect these operational changes. The majority of the
South-East zone, where the largest reserve increase from drilling
has occurred, also has a steeply dipping geometry suitable for LH
mining. Other areas that are dipping less than 55° are still
planned to be extracted using cut and fill (“C+F”) methods. See
Figure 4 below for a comparison of the 2023 mine design versus the
2022 mine design.
Mineral reserve LH stopes are planned to be
filled using primarily paste fill, with cemented rock fill or
uncemented rock fill also considered in both the LH and C&F
areas. The paste fill plant commenced operations at the end of 2022
and is performing in line with design specifications.
Mine dilution and mine recovery estimates are
based on recent actual operating performance. These assumptions are
applied based on the mining method, stope width, zone inclination
and proximity to hanging-wall faults.
Operating and sustaining capital cost
assumptions are based on recent actual costs with minor specific
allowances for business improvement initiatives that are defined
and being implemented. Mine operating costs were developed
separately for LH and C+F mining methods.
Figure 4: Long Section of CLG 2023 and
2022 Mineral Reserve Solids
2023 LOM Production Plan
The 2023 LOM Plan is based on an average
processing rate of 2,949 tonnes per day, resulting in a mine plan
that exhausts current mineral reserves at the end of 2030. LOM
mining rates are similar to current operating rates, and
underground development for mining the current mineral reserve is
expected to be materially complete in 2027.
Mineral processing at the current operation uses
conventional sulphide flotation, producing separate lead and zinc
concentrates. Predicted metallurgical recoveries over the 2023 LOM
Plan average 88.2%, 62.8%, 89.4%, 54.2% and 60.0% for silver, zinc,
lead, gold and copper, respectively. The recoveries were estimated
based on recent actual plant performance. A total of 49.7 million
ounces of silver, 484 million pounds of zinc, 351 million pounds of
lead, 34.7 thousand ounces of gold and 11.8 million pounds of
copper are estimated to be produced according to the 2023 LOM
Plan.
Table 4: Life of Mine Projected
Processing and Production
Summary(1,2)
Plant Metrics |
Units |
H2 2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
LOM |
Processed Material |
Mt |
0.54 |
1.08 |
1.08 |
1.08 |
1.09 |
1.09 |
1.09 |
1.04 |
8.08 |
Process Rate |
tpd |
2,928 |
2,957 |
2,957 |
2,962 |
2,984 |
2,970 |
2,978 |
2,821 |
2,949 |
Ag Grade |
g/t |
271 |
267 |
268 |
223 |
193 |
201 |
171 |
165 |
217 |
Zn Grade |
% |
4.51 |
4.75 |
4.56 |
4.89 |
4.56 |
3.68 |
3.69 |
4.08 |
4.32 |
Pb Grade |
% |
2.11 |
2.14 |
2.22 |
2.33 |
2.26 |
2.03 |
2.17 |
2.34 |
2.20 |
Au Grade |
g/t |
0.28 |
0.27 |
0.28 |
0.26 |
0.27 |
0.24 |
0.19 |
0.21 |
0.25 |
Cu Grade |
% |
0.10 |
0.10 |
0.11 |
0.12 |
0.14 |
0.21 |
0.24 |
0.15 |
0.15 |
Ag Production |
Moz |
4.1 |
8.2 |
8.2 |
6.8 |
6.0 |
6.2 |
5.3 |
4.8 |
49.7 |
Zn Production |
Mlbs |
33.6 |
71.1 |
68.1 |
73.1 |
68.6 |
55.3 |
55.5 |
58.6 |
484.0 |
Pb Production |
Mlbs |
22.4 |
45.5 |
47.2 |
49.7 |
48.5 |
43.5 |
46.6 |
47.8 |
351.1 |
Au Production |
koz |
2.6 |
5.0 |
5.3 |
4.8 |
5.0 |
4.5 |
3.7 |
3.7 |
34.7 |
Cu Production |
Mlbs |
- |
- |
0.6 |
0.8 |
2.0 |
3.0 |
3.4 |
2.0 |
11.8 |
AgEq Production |
Moz |
7.1 |
14.3 |
14.3 |
13.2 |
12.1 |
11.3 |
10.5 |
10.3 |
93.1 |
(1) |
LOM begins on July 1, 2023. The
2023 Mineral Reserve excludes all mineral reserve material mined
prior to July 1, 2023. |
(2) |
Ag production is silver contained
in Pb and Zn concentrates, Zn production is zinc contained in Zn
concentrate, Pb production is lead contained in Pb concentrate, Au
production is gold contained in Pb concentrate and Cu production is
copper contained in Pb concentrate when Cu is expected to be above
the payable threshold. |
|
|
CLG’s short term definition drilling and short
term mine plan updates required for execution may cause actual
annual operating results to differ significantly from the 2023 LOM
Plan schedule shown in Table 4. Gatos Silver provides annual
production guidance and quarterly production results for CLG, and
such results can vary quarter over quarter based on short term
execution plans and constraints. Annual guidance for 2024 is
expected to be announced in early 2024 after detailed planning and
budgeting for the year is complete. The Company cautions investors
that guidance might differ from the 2023 LOM Plan, and actual
results might significantly differ from guidance.
2023 LOM Cash Flows
Table 5 presents a summary of 2023 LOM Plan
cash flows. In the 2023 LOM Plan, silver accounts for
54% of the total payable metal value, with zinc, lead, gold and
copper representing 27%, 16%, 2% and 1%, respectively.
Table 5: Summary of 2023 LOM Plan Free
Cash Flow
|
Units |
H2 2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
2031+ |
LOM |
Pre-tax Free Cash Flow |
$M |
44.6 |
101.7 |
101.5 |
90.9 |
81.5 |
91.4 |
89.0 |
91.0 |
(14.8) |
676.7 |
After-tax Free Cash Flow |
$M |
39.1 |
75.7 |
76.3 |
69.8 |
67.4 |
81.4 |
75.6 |
77.0 |
(14.8) |
547.5 |
Table 6 presents a sensitivity of 2023 LOM
Plan economic results to silver prices.
Table 6: Summary of 2023 LOM Plan
Economic Results at Various Silver Prices
Silver Price |
|
$20/oz |
2023 LOM$22/oz |
$24/oz |
$26/oz |
Total LOM Free Cash Flow (undiscounted) |
$M pre-tax |
586.8 |
676.7 |
766.6 |
856.5 |
$M post-tax |
482.8 |
547.5 |
612.2 |
676.9 |
Net Present Value(5.0% discount rate) |
$M pre-tax |
495.6 |
572.4 |
649.2 |
726.0 |
$M post-tax |
406.0 |
461.7 |
517.5 |
573.3 |
The total sustaining capital cost for the 2023
LOM Plan at CLG is estimated at $160.2 million. Sustaining capital
costs are summarized in Table 7 below.
Sustaining capital costs include underground
access development to the lower levels in the Central and
North-West Zones, and development of the South-East zone including
ventilation infrastructure, together with equipment replacements
and miscellaneous infrastructure projects including upgrades to the
underground dewatering system as the mine is further developed, and
two additional tailings dam raises anticipated to be completed in
2025 and 2028.
Table 7: 2023 LOM Plan Sustaining
Capital Costs Summary
Sustaining Capital Costs |
LOM ($M) |
Mine Development |
$91.1 |
Infrastructure and Equipment |
$69.1 |
Total Sustaining Capital Cost |
$160.2 |
The average 2023 LOM Plan site operating costs
are estimated at $88.67 per tonne milled and are summarized in
Table 8 below. Operating costs have been developed based on
recent actual costs considering minor specific allowances for
business improvement initiatives that are currently being
implemented. Operating costs are based on long term assumptions,
including a Mexican Peso exchange rate of MXN 20.00 per
US$1.00.
Table 8: 2023 LOM Plan Unit Operating
Costs Summary
Unit Operating Costs |
LOM ($/t) |
Mining |
$44.14 |
Processing |
$26.64 |
Mine General and Administrative |
$17.90 |
Total Operating Cost |
$88.67 |
All-in sustaining costs are defined in the
Non-GAAP Financial Performance Measures section and summarized in
Table 9 below.
Table 9: 2023 LOM Plan All-In Sustaining
Costs(1)
Cash Costs and All-In Sustaining Costs |
Units |
LOM |
Cash Costs |
$M |
$983.8 |
Sustaining Capital |
$M |
$160.2 |
All-In Sustaining Costs |
$M |
$1,144.0 |
Payable Silver Ounces |
Moz |
44.9 |
All-In Sustaining Costs before by-product
credits |
$/oz Ag payable |
$25.45 |
By-Product Credits |
$/oz Ag payable |
($18.84) |
By-product All-In Sustaining Costs |
$/oz Ag payable |
$6.61 |
Payable Silver Equivalent Ounces |
Moz AgEq |
83.4 |
Co-product All-In Sustaining Costs |
$/oz AgEq |
$13.71 |
(1) |
By-product AISC and Co-product AISC exclude the LGJV management
fee and administrative costs of $1.09 / oz Ag payable and $0.59 /
oz AgEq payable, respectively. Refer to Table 11 for AISC
details. |
|
|
Opportunities - Growth, Margin
Improvement and District-Scale Potential
The LGJV is analyzing multiple value enhancement
projects beyond the 2023 LOM Plan and 2023 Mineral Reserve. Capital
efficient modifications to the existing plant are being evaluated.
The LGJV has completed preliminary metallurgical testwork on
separation of a copper concentrate and increasing silver and gold
recovery through leaching a pyrite concentrate. These processing
concepts along with mill expansion projects will be analyzed over
the coming year in conjunction with targeted increases to mineral
reserves and further mine life extension initiatives, with the
potential to increase throughput rates up to 4,000 tpd.
There are currently five surface drill rigs
active on conversion drilling focused on the 2023 South-East Deeps
inferred resource. The LGJV is using 1,100 metre elevation level to
define the boundary of the South-East Deeps zone. The target of
this drilling is to complete infill of the higher-grade portions of
this zone to 50m spacing for classification upgrade in a mid-2024
mineral resource and reserve update. As reported in the Company’s
July 17, 2023 quarterly exploration update press release, drilling
continues to intercept high grade mineralization in this zone.
Since the March 2023 database cut-off used for the 2023 Updates, an
additional 27,769 metres of drilling has been completed (to the end
of August 2023) which will be used in the 2024 updates to mineral
reserves and resources together with further definition drilling
planned (32,000 to 35,000 metres) over the next six months, as
shown in Figure 5 below.
Figure 5 – Long Section of the CLG Mine
Showing Drilling since March 31, 2023 Database Cutoff (black) and
the Planned South East Deeps Surface Drilling (green)
Near mine exploration is underway with testing
of the Santa Ana zone approximately 1km north of the NW zone. There
remain a number of prospective targets close to CLG shown in Figure
6 below that if successful could be accessed from the existing
underground infrastructure. The LGJV intends to test these targets
during late 2023 and 2024.
Figure 6 – Plan View of Near Mine
Exploration Targets to be Tested During Q4 2023 and
2024
District exploration continues to be focused on
foundational data acquisition, primarily mapping, rock chip
sampling, drone air photos, and a magneto-telluric geophysical
survey. The geology team has been expanded to accelerate detailed
mapping of the district. A seventh drill rig is being mobilized in
September which will increase the number of drill rigs operating on
district targets to two starting in Q4-2023 and ramping up further
at the end of Q1-2024 after the current stage of definition
drilling on the South-East Deeps zone is completed.
Esther Resource Unchanged since
2022
The Esther Resource was not updated during 2023
and remains the same as reported in 2022.
Updated Technical Reports
The Company expects to file an updated technical report summary
(TRS) prepared in accordance with subpart 1300 of Regulation S-K
(“S-K 1300”) in the United States on the EDGAR section of the
Securities and Exchange Commission (“SEC”) website at www.sec.gov,
and file an updated technical report prepared in accordance with
National Instrument 43-101 - Standards of Disclosure for Mineral
Projects (“NI 43-101”) in Canada under the Company’s profile on
SEDAR+ at www.sedarplus.ca (collectively, the “2023 Technical
Reports”), to support the disclosure regarding the 2023 Updates.
The 2023 Technical Reports are expected to be filed within 45
days.
Webcast and Conference Call
Investors and analysts are invited to attend the
webcast and conference call as follows:
Date: September 7, 2023Time: 11:00 a.m.
ETListen-Only Webcast:
https://events.q4inc.com/attendee/533876347Direct Event
Registration Link (for Analysts only):
https://conferencingportals.com/event/GLfrdqKtDial-In Number: 1
(888) 330-2398 or 1 (240) 789-2709; press # to access an
operator
An archive of the webcast will be available on the
Company’s website 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 (“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 regarding the Cerro Los Gatos 2023 Mineral Resource
was based upon information prepared by or under the supervision of
Ronald Turner, MAusIMM(CP), an employee of Golder Associates S.A.
Scientific and technical disclosure in this press release regarding
the 2023 Mineral Reserve, the 2023 LOM Plan and other economic
analyses that will also be set out in the 2023 Technical Reports
was based upon information prepared by or under the supervision of
Stephan Blaho, P.Eng. an employee of WSP Canada Inc. Scientific and
technical disclosure in this press release regarding the
metallurgical assumptions for the 2023 LOM Plan and other economic
analyses that will also be set out in the 2023 Technical Reports
was based upon information prepared by or under the supervision of
Adam Johnston, FAusIMM(CP), Chief Metallurgist with Transmin
Metallurgical Consultants (UK). Other 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. Each of Ronald Turner,
MAusIMM(CP), Stephan Blaho, P.Eng., Adam Johnston, FAusIMM(CP), and
Tony Scott, P.Geo. is a “Qualified Person,” as defined in S-K 1300
and NI 43-101. Ronald Turner, MAusIMM(CP), Stephan Blaho, P.Eng.
and Adam Johnston, FAusIMM(CP) are all independent of Gatos Silver
and the LGJV. Each Qualified Person has verified the data disclosed
herein in respect of the subject matter associated with the
Qualified Person identified above, including sampling, analytical,
and test data underlying the related information or opinions.
Non-GAAP Financial 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 all-in sustaining costs (“AISC”)
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, we believe 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, and royalties. 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.
Free Cash Flow
Management uses free cash flow (“FCF”) as a
non-GAAP measure to analyze cash flows generated from operations.
As used herein, FCF is cash provided by operating activities less
cash used in investing activities. The Company believes that this
measure assists in evaluating the Company’s ability to generate
cash flow after capital investments. The most directly comparable
measure prepared in accordance with GAAP is cash provided by
operating activities. The Company believes FCF is also useful as
one of the bases for comparing the Company’s performance with its
competitors. Although FCF and similar measures are frequently used
as measures of cash flows generated from operations by other
companies, the Company’s calculation of FCF is not necessarily
comparable to such other similarly titled captions of other
companies. The Company is unable to provide without
unreasonable efforts a reconciliation of forward-looking free cash
flow on a per-year basis to cash flow provided by operating
activities due to the inherent difficulty in forecasting and
quantifying certain amounts, some of which may be material, that
are necessary for such reconciliation.
Table 10: Reconciliation of FCF to Cash
Flow from Operating Activities (as defined under US
GAAP)
Free Cash Flow |
Units |
2023 LOM Plan(H2'23+) |
Cash Flow provided by Operating Activities |
$M |
$707.7 |
Cash Flow used in Investing Activities |
$M |
($160.2) |
After-Tax Free Cash Flow |
$M |
$547.5 |
Mining and Income Taxes |
$M |
$129.2 |
Pre-Tax Free Cash Flow |
$M |
$676.7 |
Reconciliation of GAAP to non-GAAP
measures
Table 11 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 AISC and (iv) by-product AISC
for the Company’s operations. The Company is unable to provide
without unreasonable efforts a reconciliation of forward-looking
AISC and related measures on a per-year basis to cost of sales due
to the inherent difficulty in forecasting and quantifying certain
amounts, some of which may be material, that are necessary for such
reconciliation.
Table 11: Reconciliation of Cash Costs
and AISC to Cost of Sales (as defined under US GAAP)
Cash Costs and All-In Sustaining Costs |
Units |
2023 LOM Plan(H2’23+) |
2022 LOM Plan(H2’23+) |
Mining Costs |
$M |
$356.7 |
$230.7 |
Milling Costs |
$M |
$215.3 |
$131.3 |
Transportation Costs |
$M |
$116.4 |
$79.9 |
Cost of Sales |
$M |
$688.5 |
$442.0 |
Royalties |
$M |
$3.9 |
$3.7 |
General and Administrative |
$M |
$144.6 |
$85.7 |
Expenses |
$M |
$837.0 |
$531.4 |
Treatment and Refining Costs |
$M |
$146.9 |
$115.1 |
Cash Costs |
$M |
$983.8 |
$646.5 |
Sustaining Capital |
$M |
$160.2 |
$67.6 |
Accretion Expense |
$M |
$0.0 |
$7.2 |
All-in Sustaining Costs
(AISC)(1)(2) |
$M |
$1,144.0 |
$721.3 |
By-product Credits(3) |
$M |
$(846.9) |
$(536.9) |
Payable Silver |
Moz |
44.9 |
30.9 |
Cash Costs before By-product Credits |
$/oz Ag payable |
$21.89 |
$20.96 |
AISC before By-product Credits |
$/oz Ag payable |
$25.45 |
$23.38 |
By-product Credits(3) |
$/oz Ag payable |
$(18.84) |
$(17.40) |
By-product Cash Cost |
$/oz Ag payable |
$3.05 |
$3.55 |
By-product
AISC(1) |
$/oz Ag payable |
$6.61 |
$5.98 |
Payable Silver Equivalent(3)(4) |
Moz |
83.4 |
55.3 |
Co-product Cash Cost |
$/oz AgEq payable |
$11.79 |
$11.70 |
Co-product
AISC(1) |
$/oz AgEq payable |
$13.71 |
$13.05 |
(1) |
Excludes LGJV management fee and
administration costs of approximately $6 million per year,
equivalent to $1.09 / oz Ag payable and $0.59 / oz AgEq payable,
respectively in the 2023 LOM Plan and $0.89 / oz Ag payable and
$0.50 AgEq payable, respectively in the 2022 LOM Plan. |
(2) |
Excludes any exploration costs
related to future resource expansion and conversion. |
(3) |
Assumes prices of $22.00/oz
silver, $1.20/lb zinc, and $0.90/lb lead, $1,700/oz gold and
$3.50/lb copper. |
(4) |
Payable silver equivalent ounces
include copper aligned to current payable terms for copper in lead
concentrate. |
|
|
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 mineral resource and
reserve estimates, potential cash flow and cash distributions to
LGJV partners, life of mine, NPV, all-in sustaining costs,
operating costs, economic analysis, CLG’s annual production, cash
flow forecasts, projected capital and operating costs, future mill
throughput rates, timing of updated 2023 Technical Reports,
viability of potential modifications and projects to improve
efficiency, expected mining methods, timing of proposed drilling
and potential results from exploration including possible increases
to the LOM, are forward-looking statements. Forward-looking
statements are based on management’s beliefs, assumptions, current
expectations about future events and on information currently
available to management including without limitation assumptions
about commodity prices, mining methodologies, the accuracy of
Mineral Reserve and Resource estimates, operating and capital
costs, plant throughput and processing recoveries, operating
conditions, and including other assumptions set out herein and to
be set out in the 2023 Technical Reports. Such statements are
subject to risks, uncertainties, and other factors that could cause
actual results to differ materially from those expressed or implied
in the forward-looking statements including without limitation,
commodity prices, change in regulations, failure to retain or
obtain permits and licenses, environmental risks, cost and timing
of exploration, development and production, opposition to mining
may arise, labour interruptions, other general risks associated
with mining operations and such other risks and uncertainties
described in our filings with the U.S. Securities and Exchange
Commission and Canadian securities commissions. Further, although
the Company has attempted to identify factors that could cause
actual actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors
that cause actions, events or results not to be as anticipated,
estimated or intended. 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, and as such, readers should not place undue
reliance on forward-looking statements. 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
Photos accompanying this announcement are available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/98083b40-cf48-4a1c-9cf0-302f88473c56https://www.globenewswire.com/NewsRoom/AttachmentNg/3d7a2036-1a22-4f7c-bd6e-e03bd1f730f7https://www.globenewswire.com/NewsRoom/AttachmentNg/fa11d924-bd5c-4ca9-8d08-c920478c61c3https://www.globenewswire.com/NewsRoom/AttachmentNg/2b8bbf2d-e438-43df-b29d-929b92fd0f66https://www.globenewswire.com/NewsRoom/AttachmentNg/15138844-a3d0-4b71-9d3d-a9add2bf1138https://www.globenewswire.com/NewsRoom/AttachmentNg/958540a9-2466-4e23-92c3-b4bb89622c28
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