Q1 2021 Gatos Silver Inc Earnings Call
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Good day, and thank you for standing by and welcome to the Dayton Silver Q1, 2021 earnings call. At this time all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer question to ask a question. During today's session you will need to press star one on your telephone as a reminder, you can navigate through the participant view on your screen. If you require any further assistance. Please press star zero and I would now like to hand the conference.
Over to your speaker today, Steven or please go ahead.
Thank you good morning, and I'd like to welcome everyone to GAAP.
Silver is Q1 2021 earnings call.
Before I begin I want to caution and our attendees that I'll be making forward looking statements and these statements aren't guarantees and future performance and involve risks uncertainties and assumptions regarding future events that are quite difficult to predict.
So with that turning to slide number three.
And.
And for those who are watching this on the screen you'd be able to navigate the slides yourself. If you just friction mouse cursor over the top of the slide you'll see the navigation and arrows up here.
Since Scott Gold silver and <unk> IPO in late 2020.
And consistently executing initiatives to achieve expected operating performance ex aerolift guidance and.
And to increase the projects financial flexibility and resume meaningful exploration.
In and around the Los Gatos District and.
And during Q1, we used about $113 million and proceeds from our IPO to increase our ownership and the entire and loss guidance district to 70% by purchasing another 18, 5% from our JV partner filler metals and mining and we can't currently retired the projects working capital facility.
And thereby delivering on two of the key value, adding initiatives to increase shareholder exposure to this new silver and zinc rich district, and reduce the project's debt.
And as promised and we've also initiated all with near term exploration programs for which another portion of the IPO proceeds are directed there are currently five drills actively drilling to expand and resources at Cerro Los Gatos deposit and.
And Jason extra resource and conduct initial exploration and GATX silvers, 100% on set of malaria project near to that outside.
Los Gatos joint venture area of interest.
This is the first time that we've had this many girls active since 2012, and we couldnt be more excited.
Phil Pyle, our vice President of exploration and Chief geologist, we'll be talking about these programs in greater detail later in the presentation.
2021 will be a year of optimization for Bachelor of Silver where are we one focused on sustaining such as the development and ore production rates from the mine and concentrate production from the processing plant and secondly, adding additional infrastructure to improve the projects.
Operating efficiency.
Turning to slide number four.
All of our achievements at low Scott us would not have been possible without the support of the regional government and Mexico regulatory agencies and foremost the communities and they are impacted by the project.
Recognize that it's essential to conduct our operations in a manner that protects our employees safety doesn't.
It doesn't harm the environment and improves the lives of residents and the local communities. We believe we have an obligation to ensure that those impacted by Los gatos benefit not only to employment opportunities, but also education assistance medical care support and provision of sustainable clean water.
That's a priority we hire our employees locally.
60% are from Chihuahua state and 24% of those are from.
Diversity.
Spike and resource industries reputation and male employee dominance, we've managed to achieve a workforce, where 20% of women and they are working in all phases of the project for management to mine production the process plant operators engineering and operation services.
In terms and community support we built the first full time medical clinic in the Ajito of San Jose, just with you and and staffed by doctors for Mexico and social services.
We also have our own clinic at Tesoro loss guidance project with our own doctors.
And our doctors work collaboratively with the doctors and San Jose a CTO and clinic on all sorts of local community health improvement initiatives with a focus most recently on COVID-19 prevention and listen.
This involved for.
Personal protection seminars provision of molecular and <unk>.
Testing and now the initiation of vaccinations.
Our devotion to improving the lives of those impacted by a project has been recognized by the government and local communities and we have never had any opposition to the project.
Turning to slide number five these are the highlights for like covered earlier in my comments.
So moving to slide number six.
Several of <unk> guidance achieved its 2500 ton per day production target for all operating days during Q1.
However, you can see that we lost a few operating days due to grid power loss during the quarter with the most significant being the extraordinary winter storm in Texas and interrupted delivery of natural gas upon which northern Mexico, Japan and to provide power to its electrical grid.
The other events, where high wind events debt.
Caused arcing between power lines coming into the project.
The lines and those areas that are most vulnerable to high winds have now been further stabilize to prevent future occurrences.
The project development achieved an important milestone during Q1, we have now access to higher grade portions of the deposit and the northwest and central zones, which resulted in meaningfully improved performance during April of the second quarter and I'll provide further detail on that later in the press.
And patients with <unk>.
Processing plant finished commissioning, it's onstream analyzer and this provides constant data on concentrate metal recoveries that can adjust the processing plant operating parameters such as reagent addition to maximize metals recovery.
I would now like to have Adam <unk>, our chief administrative officer cover the next two slides.
Thank you Steve.
Continuing on slide seven and the presentation.
Q1, we had a solid start to beginning of this year with Q1 production on the payables side, we had one 3 million ounces of silver non.
<unk> 9000 ounces of gold and seven 2 million pounds, and bladder and $7 4 million pounds of zinc.
On the all in sustaining cost basis on a byproduct basis, we had approximately <unk> 19 $76 per silver ounce.
And it's important to note here too. This includes an element we estimate about $2 50 per silver ounce associated with COVID-19 costs.
Produced due to the power outages that Steve just covered on.
And on a co product basis, our costs was 20 129 on a silver equivalent ounce basis for on sustaining cost on.
On a cash cost on our byproduct basis for $2 44 per silver ounce and our co product basis, $50 21 per silver equivalent ounce.
Both the sustaining cost and the cash flow byproduct basis were calculated on 'twenty for 15 for silver.
116 for led.
Sorry, 2016 for zinc and 93 for led.
<unk> 12 per ounce for gold.
Our operating costs for the quarter were in line with our expectations given the temporary suspension of the power outage and the.
Here near term for the art slashing Capex.
Also we're able to success with the state and the 2500 tonnes per day for all of the operating data for Q1 for.
And with our processing plant.
Moving to slide eight.
As we've previously communicated and our Investor day, and and our Q4 earnings call 2021 was a year of optimization and we're happy to report that it is well underway numerous.
Numerous strategic capital initiatives were commenced during this period.
The paste plant engineering, which is expected.
Direction of that baseline is expected to be completed in Q2 of 2020 Q.
<unk> will have many efficiencies for refining operation.
And I believe it will help with the efficiency and the backfill operation itself and it will also free up the haulage trucks to be more efficient and streamlined to be only for haulage trucks, they won't have to move.
Trust Rockville underground on the return rate for pressure.
We're also now for commission and the second mine refrigeration unit construction with expected completion in Q3 of this year.
And third tailings lift also begun and its expected completion and early Q1 and 2022.
We've also been working on underground pumping stations and both of those are currently underway.
And the pumping stations firewall on more efficiency and our pumping operations by constructing clean water underground and pumping and immediate to surface and this will help keep for the areas for development to be clear water and throw a lot more efficiency and such development.
And once that was pumped on the surface, that's only true because thats required.
Given the temperature of the water prior to being released into the strength.
Both of those are expected to be completion are to be completed later this year, one and Q3, two one and Q4 of this year.
With respect to our production guidance for 2021, which we previously communicated that remains unchanged at this time and <unk>.
To recap that guidance is seven five to seven 9 million ounces.
Recovery and concentrate and stored.
And for five 5000 ounces of gold.
For $2 42 million pounds of lead and 49% to 52 million pounds of zinc.
Thank you, Matt and also our ASIC guidance also remains unchanged at $17 $17 50 per silver ounce and that is on a byproduct basis.
And I'd like to turn it over to our CFO to cover the next few slides on the financial results for the quarter.
Thank you Adam.
I'm looking at slide 10.
Which is the gastro silver financial results.
And almost broke even for the quarter, we had a net loss on.
Just one 6 million ounces, which represents <unk> <unk> per share.
Our exploration and general and administrative expenses for the quarter were essentially as we had expected.
The G&A costs in 2021 are significantly higher than 2020 as you can see that's due to the fact that we are we now deal with public company governance, and the reporting requirements under <unk>.
As a reminder, we became a public company and near the end of October and into 2020.
And accordingly, the Q1 2000 and in 'twenty, one and cost reflect this increased responsibilities.
Earlier, Steve talked about on a significant financial events from the quarter specifically on March 10th we completed the acquisition of 18, 5% ownership and the algae JV from Daiwa.
And we simultaneously.
Repaid.
And made a capital contribution to our net.
Repaying the advanced Cutoffs joint venture debt facility.
And of course debt, while also contributed $18 million.
Allow that folks.
And extinguishment and for somebody.
These transactions returned our ownership to 70% of joint venture for the first quarter, our equity income for the LNG JV was $2 $7 million and that represents and.
5% ownership through mid March 10th and our 70% ownership from March 11 to March 31.
I'll talk about the LG G and results in a moment.
But this is the third consecutive profitable quarter for the LNG JV.
We also on PE.
Sure.
And from previous financing arrangement fees and the first quarter of 2021 on the arrangement fees were significantly lower as the.
And working capital facility was extinguished and March.
Looking to the next slide.
And you'll see the joint venture performance on this slide and this slide.
11, sorry.
On slide 10.
On February.
February 2021, freezing temperatures and we've already mentioned restricted and natural gas availability, and Texas, and therefore and northern Mexico.
The lack of natural gas as a fuel source to generate electricity and.
<unk>, our Mexican power for the Mexican power plants to suspend their operations.
Or is it or two.
And what little power they could provide provided and at very high cost for me.
And operations were suspended for several days because of this.
And the mining operations were effectively stopped for.
At least eight days with dewatering and taken even longer to to recover from.
Unfortunately, these and the mine development delays caused the plan and high grade mining from March to go to April.
With this backdrop looking at Q1 and 2021 day.
<unk> prices were favorable and contributed to robust sales despite the power out and suspension.
And as I previously mentioned the both the throughput.
And the ore grades were impacted by this power outage.
Operating costs were essentially in line with the revenue short term and only slightly above the first quarter of 2020.
Our other expenses in Q1, 2020, one were $2 1 million.
Interest and $1 6 million and foreign exchange losses on peso denominated net assets primarily.
Value added taxes and receivable that we have on a positive note.
The high grade material delayed from March and processing began to be mined in April.
And resulting in April cash collections being the best month ever for the mine.
With that I will turn it over to Phil Pyle, our vice president of exploration and our chief geologist.
Thank you Roger I, just wanted to give everyone. A brief update on our definition drilling plans and exploration plans for the Los Gatos District, and our sales of malaria project.
As you can see on this slide we have from very large land position for mineral rights.
And covering 103000 hectares.
Okay.
S plans.
Within that block, we have total of 11 zones of interest with mineralization that has already been identified drilling and.
Three other zones, which have ni 43, one on one mineral resources.
Most important of which is for minus share almost got those and we also have two other zones with mineral resources at Esther and Am a poll on.
And presence we have three drills operating at the share of Wisconsin was positive.
And the principal focus of these drills is true.
First inferred resources, and and measured and indicated resource.
Long and northwestern South eastern flank.
Outside of the areas, where there for sure.
And as Luke.
Presently and completed 23 holes on the southeast.
From Si demonstrated continuous mineralization over a strike length of an additional 425 meters from the reserve block.
We've also identified a new thing.
Which has higher copper and very strong base metals, and silver and steeper and to the football and volcanic package.
Yes, no the extent of this new day.
Our targeting and additional future drilling.
On the northwestern side of it.
A total of eight.
Principally focused on adding definition.
The short term mine plan and over the next two years.
And so those holes and wrapping up and we'll be moving further to the northwest and the areas of inferred resources.
I'm on.
And also today, we are beginning our very first drilling at the Astro deposits since switches.
We did our drilling program and the early discovery phase and 2011.
This program is dedicated towards converting measured converting inferred resources and the measured and indicated resources and focusing on the.
Finding of new resources, along the <unk> vein and trends.
Which is very similar and strikingly share.
And most concepts.
And we're excited about this program and our objective is to try to move enough resources and to the measured indicated category perform a feasibility studies.
Ken.
We also have another project outside of the Los Gatos joint venture, which is 100% owned by got silver and Scott sense of malaria and it's that.
Only about four kilometers.
Most couples to try and metro.
Mark.
Within that we recognize and geologic setting and this is very similar to zero and Scott.
Principal.
Current trends on the other side for sedimentary basin.
For the sedimentary rocks are in contact with volcanic rocks.
Also within this area, we have recognized from surface and number of systems.
Joe values for silver.
We've completed our first three holes to 10th of malaria and we anticipate approximately another 15 holds here over the next couple of months.
We're very excited about our results so far.
Produced one press release on April 15th and we plan on continuing to put out releases on them.
Monthly basis to keep the market updated on the progress of all of our drilling activities.
And with that I'll turn it back over to Steve to wrap up.
Project timelines.
Thank you Phil.
Turning to slide number 12.
We've mentioned a couple of times and this presentation about the improved performance that we're seeing now in Q2 and this just ski and she is some stats from our April performance.
April we mined the highest monthly tonnage since commissioning furlough status in fact, the mine recovered 7000 tons of 17000 kind of ex shortfall from the February power loss. We also set a record for mined grade at 331 grams per tonne and.
And the mail and recovered 3000 tenants and Thats 23000 ton shortfall from Q1 slow.
Silver and recovery also set a record at 87, 3%, which contributed to the highest silver production since commissioning the project and we produced 698623 ounces.
<unk> guidance also set a record for zinc and lead production.
This performance combined combined with favorable silver and zinc prices resulted in a record $21 2 million.
And April we're confident that we can achieve our market guidance for 2021.
And that concludes our presentation.
I would like to ask the host now to open up lines for any questions.
As a reminder to ask a question via the phone. Please press star one on your telephone keypad to withdraw your question press the pound key.
So just a moment to compile the Q&A roster.
The first question comes from the line of Alex content with CIBC World markets.
Hi, everyone. Thanks for taking my questions and congrats on a pretty exciting sounding April as well and I want.
And to ask on Capex for for a combo of $12 million and sustaining capex and the quarter could.
Can you guys confirm how much is left.
And total capex for the rest of the year and sort of.
How that spend will play out over the next three quarters, it's been pretty even over the next three quarters or is it staggered a bit.
Rocco would you like to take that question.
Yes.
Okay.
Yeah.
And I am happy to field that question on.
And Steve.
Yes.
<unk> on the on the $12 million so the guidance for sustaining capital two remains unchanged and that was the $65 million to $75 million range weighted.
Previous communications we've made.
And the $12 million is in line with what we were expecting to spend during that first quarter as we ramp up through the rest of the year and gene.
Those are multiple large key.
And any initiatives.
For the year, so it would not be a linear relationship we do expect some bit.
Sustaining capital would increase therefore meeting that I guess for remainder, 53% to $73 million and that range.
Sorry for $50 $363 million range of additional sustaining capital to be completed and the remainder of the year.
Okay, and that will be sort of evenly over the next three years.
And from the from the recent past.
Medium term forecast and be done that would be on a fairly consistent basis quarter to quarter and then.
And quarter, yes.
Okay, I do need to apologize Alex I was speaking to you on mute and and so Adam and thanks for covering for me.
Larry from Merrill Lynch.
Okay. Okay, that's great and then so and just given the current metals prices.
And the cost guidance and you guys still comfortable about all of that Capex remaining can be funded.
Hey, good level with cash flow or do you see potentially youre going to have to put a little extra money and.
From from year end.
This is this is Roger.
Absolutely with prices, particularly where they are currently.
And about $27 per ounce silver.
Zinc is and the $1 30 per pound and led for the first time and a long time is above a dollar.
And we will we will be able and we would be able to fund it at the prices. We had previously planned which Adam pretty much quoted.
When you mentioned and what our <unk> numbers were based upon.
And so we are very confident that we will not be having to provide any further capital contributions to fund and the spending.
Okay. That's great to hear thank you for that and then.
And I just wanted to ask as well you talked about the additional pumping stations.
Can you just kind of give me a little more color on on how the water situation has been underground and has it impacted production at all yet or is it just something you wanted to get ahead of where and.
How are you.
Dealing with the water as it is right now.
So Alex and the only time will other impacts our production is win on the links Pilar and <unk> and so we lose our ability to maintain the pumps alright.
And the pumping is essential for us to be able to maintain our efficiencies at the mine.
So one of the things we learned from grid power loss is debt, we still have a backup power generation capabilities from diesel generators that we've used to power and the project and its construct construction phase we are now adding additional.
Diesel generation power and capacity so that even in the event on the power loss, we will be able to maintain power to all the essential items.
And and that includes all our pumping as well.
Okay. Okay.
For the confirm that water hasnt been a bigger issue than and expected that you're managing.
Yes, we're managing it very well now.
But we need to keep the pumps active.
Okay. Okay.
That's good.
And maybe just one more quickly then on the exploration updates.
When do you think we might see through the first results for master and to keep and clinical area.
In terms of timing this year.
Tell me why don't take that.
Maybe sales on mute sorry, sorry about that I was on mute.
Operating and Aster and one rig operating it sounds and malaria.
Complete each call approximately and.
Interim.
And.
And this normally takes about four weeks to get assays from analysts coming on.
So equal from the beginning to recede and resulted in about six weeks.
And we won't want to release the results from AST and worsening malaria and we have enough data.
Meaningful interpretation of what we can find it.
And my guess is because we've been really conservative and Larry a little bit longer we will be able to release results on a flurry of within the next month or so.
And then as you will probably be more like six weeks from two months out before we give a first release.
Okay. That's great all right. Thanks for all the info growth and good day.
Good luck in Q2.
Thanks, Alex.
Again, if you would like to ask a question press star one.
Our next question comes from the line of Ryan Thompson with BMO.
Hey, Steve and team thanks for the update.
And actually going to ask the same question on Capex and thanks for clarifying that maybe just on grade.
<unk> grades picking up and.
Q2, there are 331 grams per ton and I think you said can you just give us a little bit of color on Q1.
Aides, where were they sort of in line with budget and how we should be thinking about.
I guess the trends through the next couple of quarters here and even into 2022, if you could.
And a granularity on that that'd be great.
Yeah, well Youll see when you go through the quarterly and the grades were lower in Q1 and the reason that they were lower in Q1 is because.
We ended up mining in areas that were not originally budgeted for mining and it was particularly because.
Our development.
Okay.
And the constraints that we had.
Once we have the power loss.
Our development behind and so we were not able to access the higher grade areas.
And when we saw spot for you would be able to access and so we continued mining and other Asia and deposit debt for lower grade.
So not worry and loss areas and this is the good news Ryan and Holly This is debt.
Now that we are into those higher grade areas.
Grades are pretty much exactly what the resource model said they would be.
And so.
And as I mentioned, we were for the month of April we were 331 grams per tonne.
Exactly where we expected debt, we would be and.
And I have to say the beginning of May is as good if not better.
And then April was.
Perfect. Thanks, Thanks for that good to hear that.
Things are reconciling and can.
And you say the standard sort of lower grade areas that you are mining and Q1 are they sort of reconciling well to the model and.
If you can any sort of for.
For booking guidance, maybe even into Q3 and Q4 should we expect sort of.
And upward trend or sort of the number that you mentioned in April a good number to be thinking about.
The number in April so a good number to think about.
And then to your earlier question, we've actually we actually did a reconciliation for the resource model for all of the mining we did in 2020.
And interestingly enough.
And we actually ended up mining more silver and the resource modestly more silver and the resource model indicated.
And the difference was where we ended up mining because we didn't have access and we haven't yet achieved development access and into areas.
Yes, we anticipated we would have.
So we ended up going into areas that were lower grade and the resource model showed them as lower grade as well.
But.
The takeaway for us was debt.
The resource is total Watkins our calculation is turning out to be very reliable.
Which is terrific news.
And then secondly, we have to stick to plant.
Got it got it.
And that's very helpful and that that's good to hear that the reconciling well.
Maybe just a follow up question can you just give us some color I know on the lots of the Big call you mentioned that COVID-19 was still.
Pretty problematic and northern Mexico, and you had to deal with it can you just give us an update on.
And how things are on on that front and mitigation efforts and and so on and cost and for all I guess.
Yeah. So.
The COVID-19 infection rate and at least relative.
Relative to our employees seem to have peaked in December.
And in the late November and December timeframe, we were getting.
And 40 to 50 employees tested positive.
Free ship rotation.
As people that had been off for their 10 basically came back.
But it's now and.
And in January profit typically analysis and stabilize it bounces around between maybe <unk>.
Two two to 12.
Each location, which is very manageable for us when it was 40% to 15 that was difficult because.
People were replacing.
Other employees and.
So.
And a nine to 12 people. We can go back to the employee that was due to go off on their break and asked them if they'd like to stay for another location and normally they would do when we had so many in November and December we couldn't cover all of it. So we're really.
And quite encouraged what we're seeing but we haven't reduced any of our protocols and we're still fortunate that we have not had an outbreak at Cerro Los Gatos.
Alright.
Thanks, Brian.
On note.
And I know you asked about cost until the two and I had earlier.
Given that breakout of the cost per silver ounce on a byproduct basic basis.
It's to Steve's point, we did see the casket and spike a bit too along with the infection rates and.
And so from January February and then into March we saw display declining to the amount of cost we are incurring for the COVID-19 related.
Elements and protocols and.
Isolation.
The cost for the whole quarter were approximately $1 1 billion.
With all of our current efforts.
And our identified and that number that I earlier shown on an exit basis.
Got it okay perfect.
I think that was all I have thanks for the update and looking forward to Q2 results.
Thanks, Brian.
Again, if you would like to ask a question press star one.
Okay.
And there are no further questions at this time I will turn it back over to management.
Okay.
Well if there are no further questions. Thank you very much for attending our Q1 2021.
<unk> call and.
And.
This now concludes the call.
Okay.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
And.
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