Q2 2023 Gatos Silver Inc Earnings Call

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Yes.

Ladies and gentlemen, thank you for standing by and welcome to the Gatto Silver's second quarter 2023 results conference call.

Presenting today will be Dale Andres CEO of Gatto, silver and Andre Van near Kirk Chief Financial Officer.

To conclude today's session with a question and answer period, where other members of the gases silver management team will be available.

If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

To withdraw your question press the pound key.

At this time all participant lines have been placed on mute for the duration of the presentation to prevent any background noise.

To your attention to slide two please note today's call contains forward looking statements.

Risks and uncertainties may cause actual results to vary doctors silver does not assume the obligation to update any forward looking statements I would now like to turn the call over to Dale Andres. Please go ahead.

Thank you operator, and good morning, everyone.

Turning to slide three we continued to build on the foundations last year with strong liquidity throughout 2023, a $50 million capital distribution was paid by the less count those joint venture to its partners on July 20th.

Of which two silver received $35 million.

We received $9 million or we used $9 million of that 35 to retire the outstanding balance of our revolving credit facility and GSI is now debt free with the full $50 million available under the revolving credit facility.

From an operating perspective, the Los Gatos joint venture continued to perform well with record mill throughput rate of over 2900 tonnes per day.

Our cost optimization initiatives contributed to offset the impact of the stronger Mexican peso against the dollar as well as other inflationary cost pressures.

And we are now focused on completing the new reserves and resource estimate this quarter and continue to do bolt resource expansion drilling and Greenfields exploration on our over 100000 hectare land package in the Los Gatos District.

We currently have nine drill rigs and Thats and then we'll talk about this a bit later soon to be 10 working to extend the mine lives and unlock the district potential.

Turning to slide four this shows our continued strong operating performance at the Cerro Los Gatos mine.

As expected in the mine plan, we mined lower silver grades during the second quarter.

We expect that silver feed grades will gradually decrease towards reserve grades over coming quarters and years as we move deeper in our deposits.

<unk> had another record quarter of mill throughput and ore in the second quarter and we are continuing our debottlenecking efforts in the mine with a focus on productivity and equipment efficiencies.

We are also continuing to push down on operating costs at the same time with a robust pipeline of continuous improvement and cost reduction initiatives.

For our all in sustaining costs, we continue to expect to finish this year within guidance and for after byproduct steps within the 11% to $13 per payable ounce range.

I'll now turn.

Turn the call over to Andre to walk through some of the financials Andre.

Thank you Bill good morning, everyone.

Slide five shows why we remain confident in this asset as it continues to generate consistent strong cash flow period over period.

The algae JV generated $74 $4 million in cash flow from operations in the first half of page 23, compared to $80 5 million in the first half of 2022.

With free cash flow of $48 4 million for the first half.

An increase of 40% compared to the first half of 2022.

Our idose as sustaining capital spending is now decreasing as the operation has sailed into an optimization stage with cash flow from investing activities dropping from $19 million in Q2, 2022 to $14 6 million in Q2 of 2023.

We expect sustaining capital expenditures of $45 million for the full yet.

Of which $21 million of our spend to date.

In addition, exploration and capitalized resource development drilling is expected to be $3 million and $13 million respectively.

$1 1 million.

$7 million has been incurred to date.

So our cash flow from operations. During Q2, 2000 video was offset by lower capital expenditures, resulting in some of the free cash flow of $19 7 million versus $19 5 million in Q2 2022.

The joint venture ended the quarter with approximately $83 million of cash and cash equivalents and made a capital distribution of $15 million to the JV partners on July 20th.

Which got those received $35 million.

Turning to the financial performance for the quarter, we will start with the results of the 70% on algae JV.

Revenues increased by 2% to $58 3 million.

The increase in revenues, primarily due to the lower provisional revenue adjustment and a 19% increase in the realized solid price the.

The increase was partly offset by a 13 10 and 19% decrease in volume of silver zinc and lead sold.

In addition, then realizing prices dropped by 50%.

Cost of sales decreased by 7% primarily as a result of the decrease in concentrates sold in the period and continued cost reduction initiatives, which offset the impact of the strengthening peso against the U S dollar and other cost inflationary pressures.

Depreciation depletion and amortization expense.

And then in Q2 2022, primarily due to higher tons mined and the additional depreciation charge capital projects completed in late 2022.

Sweet.

Income tax expense increased by $2 $9 million, primarily due to an increase in noncash deferred tax expense, partially offset by a decrease in current income.

Tax expense.

Overall, the LTE JV had net income of approximately $750000 in Q2 2023 compared to $3 4 million in Q2 2022. The change in net income was primarily due to increases in DD&A and income tax expense, partially offset by decreases in your <unk>.

Lp's exploration expense gain on foreign exchange and an increase in interest income.

Turning to the financial results forecast the solar on slide seven.

For the quarter ended June 22, <unk> recorded a net loss of $3 6 million or <unk> <unk> per share.

Compared to net income of $5 2 million or <unk> <unk> per share for the quarter ended June .

Mainly due to the decrease in equity income in affiliates.

Hey, good income and affiliates decreased primarily as a result of the lower net income recorded at the joint venture.

In addition, corporate G&A was approximately $1 $9 million higher in Q2 2023 compared to Q2 2022.

Primarily due to nonrecurring audit and consulting fees related to the restatement of our financial statements as well as higher legal defense costs.

Looking at our balance sheets and liquidity on slide eight.

Algae JV continued to generate strong cash flow during the first half will they.

Generating approximately $74 million in cash flow from operations.

48 formal earnings free cash flow during the first half of that yet.

LTE JV ended the quarter with a cash balance of approximately $83 million.

As previously mentioned.

July Australia, the LTE JV paid a $50 million capital distributions to its partners got the silver Endo, all of which we received $35 million.

After the capital distribution, the algae JV remain well capitalized with approximately $30 million of cash.

Got it all ended the quarter with a cash balance of $9 $1 million and $9 million outstanding on its revolving credit facility.

After the end of the the company used 9 million almost three five capital distributions.

Seek to pay out the full outstanding balance on the revolving credit facility on July 21st.

Yes.

Got it that's all there is debt free with approximately $36 million in cash at July 31st.

Great.

The company and the algae JV are well positioned to continue to execute on growth opportunities.

Okay.

As shown on slide nine we are on track to meet previously announced production and cost guidance as per the mine plan. We expect this service to be high in the first half of the year and lower in the second half of it yet.

Result of lower grade scheduled to be mined in the second half of the year.

We still expect full year co product all in sustaining cost per ounce to be within that $15 50.

And $17 50.

First of all our equivalent range and between 11 and $13 per silver ounce on a byproduct basis.

We are also on track to meet our sustaining capital guidance of $45 million for 2023.

In addition to the $13 million, which we anticipate spending on resource development drilling on the South east each set on this yet.

I will now hand, it back to Delta and tell me more about the life of mine and exploration outside of the <unk>.

Angie.

Thanks Andre.

Turning to slide 10.

Let's talk about some of our exciting growth potential and this slide shows a long section through our deposit.

We currently have five.

Surface drill rigs and three underground rigs actively drilling at the mine and that's targeting up to add up to six years to the mine life by mid 2024.

Our first stage of this life extension as a new life of mine and reserves incorporating recent resource conversion drilling.

We're on track to complete before the end of this current quarter in Q3.

We also plan to report an initial resource for the southeast deep area as part of this update.

The <unk> surface rigs that we have on the southeast states are in selling to about a 50 meter spacing with him with the objective of converting this to the reserves to our reserve status.

2024 mine plan update.

Our plan is to have the drilling is finished by the first quarter of next year and that subsequent update.

In the second half of next year targeting the third quarter again.

We are really pleased with the progress in and around the <unk> mine the biggest potential upside is our district.

The joint venture holds a concession package that is roughly 50 kilometers by 40 kilometers and extended.

We currently have more than 50 individual prospects identified with one drill active at the current time on the near mine Santa Ana target.

And as I've said previously we plan to mobilize the seventh surface drill rig next year and we're continuing our detailed mapping of the district, which will.

I hope that helped to generate further targets as we progress.

Turning to slide 11, and looking forward to the catalysts for the remainder of the year, we will continue to drive productivity improvements and cost optimization.

And as mentioned earlier by Andre and myself, we are debt free.

Repeat that we are debt free in GSI has a strong cash balance of $36 million with $50 million available under our revolving credit facility.

We expect to continue to receive regular cash distributions from the Los Gatos joint venture as it.

It is expected to continue to generate robust margins and cash flow.

We remain focused on extending the mine life and we are on target to issue our updated mineral resource reserve and resource estimate before the end of this current quarter.

And that will hopefully provide further clarity on the enormous potential of this asset.

We are very excited to accelerate our drilling in the large and highly perspective, plus Gatos district later this year and into next year and that's going to have a near mine focus to start.

I'll now hand, it back over to the operator for questions.

At this time I would like to remind everyone in order to ask a question.

Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Okay.

Again, maybe you'd like to ask a question press Star then the number one on your telephone keypad.

There are no questions at this time, Mr. Andres I turn the call back over to you.

Thank you.

We look forward to updating you very soon in the coming weeks on our new life of mine plan and reserve and resource update.

<unk>.

And.

Further to that on our Q3 and Q4 performance as we progress throughout the year. Thank you. Thank you very much.

This concludes today's conference call you may now disconnect.

Please wait the conference will begin shortly.

Yes.

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