Q4 2023 Gatos Silver Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Gotham Silver's fourth quarter, and full year 2023 financial and operating results conference call.
Presenting today will be Dale Andres CEO of <unk>, silver and Andre Van Niekerk, Chief Financial Officer, We will conclude today's session with a question and answer period, where other members of Gatto Silver management team will be available.
If you would like to ask a question. During this time simply press star followed by the number one the onshore telephone keypad. If you would like to withdraw your question Press Star One again at this time all participant lines have been placed on mute for the duration of the presentation to prevent any background noise.
Turning your attention to slide two please note today's call contains forward looking statements various risks and uncertainties may cause actual results to vary.
Silver and does not assume the obligation to update any forward looking statements.
I'd now like to turn the call over to Dale Andres. Please go ahead.
Thank you operator, and good morning, everyone.
Turning to slide three I'd like to highlight three points for the quarter.
Number one we continue to further strengthen our balance sheet.
Creasing, the cash balance while remaining debt free including at the 70% owned most catalyst joint venture.
Andre will speak to this in more detail, but I want to highlight those fill versus free cash flow of 2000 $22 million in the fourth quarter and continuing distributions received in the first quarter of this year.
Number two point I want to highlight is that operations continue to perform very well with the Cerro Los Gatos mine setting another record throughput rate.
We ended the year within our upward upwardly revised production guidance range and we finished the year at the lower end of our cost guidance range, our all in sustaining costs.
As a result.
As a result, our free cash flow was approximately 22 million for Q4 and $85 million and Thats at the Los Gatos joint venture for the full year 2023.
And the third point is.
Yet again, we're aiming to extend the mine life by an additional three years when we update our life of mine in the third quarter of 2024, and we continue to drive operational performance with a medium term goal of ramping up production to 3500 tonnes per day on a sustainable basis.
Turning to slide four.
Throughput in the quarter was over 3000 tonnes per day, while silver grades improved compared to the prior quarter, which resulted in a 15% increase in silver production of approximately $2 6 million ounces.
Importantly, we demonstrated in December that the current capacity of the mill is closer to 3500 tonnes per day, and we are planning some minor upgrades to make sure. It can sustain those kinds of rates.
Silver equivalent production, which include zinc lead and gold was $3 9 million ounces for the quarter.
For 2023, we produced $9 2 million ounces of silver and $14 3 million ounces of silver equivalent.
Cost of sales for the fourth quarter increased by 10% compared to the comparable quarter last year, primarily due to the increased milling rates.
However cost of sales for 2023, we're only 4% higher and on a cash cost basis were only 1% higher than in 2020 or in 2023 compared to 2022, and thats, despite mining and processing, 10% more tons year over year.
And Thats also despite the strong Mexican peso and the play inflationary pressures, which we managed to largely offset.
All in sustaining costs per payable ounce of silver for the full year after byproducts.
Byproduct credits were $11 33.
Per ounce compared to $10 24 per ounce in 2022, which is a great result, considering the lower plant production in 2023.
Turning to slide five this shows our production and cost guidance for 2024.
We plan to increase throughput rates at the Cerro Los Gatos mine to average between 3030 300 tonnes per day in 2024.
With rates expected to increase through the year as we focused on ramping up mining rates that bill the extra mill capacity that we proved up in December.
The grades are expected to be lower in the first quarter versus the average grades expected for the full year.
Sustaining capital expenditures are expected to be similar to last year's guidance at $45 million with the majority of the spend on underground development with continued focus on opening up the southeast area.
Okay.
Exploration and definition drilling spend is expected to increase as we complete the current phase of conversion drilling in the south deep and start to switch our focus to both near mine and district targets.
We expect to produce between eight four and $9 2 million ounces of silver during 2024 at an all in sustaining cost after byproducts of between $9 50 to $1050 per ounce of payable silver.
And $13 $5 million to $15 million silver equivalent ounces at a 14% to $16 per house on a silver equivalent basis and that sort of co product basis.
I'll now turn the call over to Andre to present, our financial results.
Thank you Dale good morning, everyone.
The 70% on both got US joint venture had another great quarter.
Cash flow from operations of approximately $38.
2% lower than cash flow generated in Q4 2022.
The joint venture generated free cash flow.
$2 $3 million this quarter, 19% more than Q4 2022.
This is due to lower capital expenditures offsetting the expected lower revenues.
Cash flow used in investing activities reduced from $24 million in Q2.
The $59 million this quarter due to lower sustaining capital expenditures.
Resource development drilling totaled $3 million for the quarter with most of the spending focused on the infill drilling of the southeast Asia.
For the full year.
We incurred $41 $6 million on sustaining capital expenditures and $30 5 million on resource development drilling.
Free cash flow for 2023 of approximately $85 million.
Plus 13% higher than the $75 million of free cash flow generated in 2022.
As a result of the free cash flow generation capital distributions made by the joint venture totaled $85 million in 2020.
III.
This is $30 million more than the $55 million of dividends distributed to the partners in 2022.
In addition, the joint venture made a further quarterly capital distributions to the partners of $30 million subsequent to the end of the year on.
February 15th.
Now turning to slide seven.
You look at the financial results of both gas joint venture for the quarter.
Revenues decreased by $73 $5 billion.
Yes.
2023.
Revenues before the provisional revenue adjustment for <unk>.
4% lower in the fourth quarter.
Silver sales volumes as expected, which were partially offset by higher silver prices and higher <unk> revenues.
In Q4 2022, we had we recorded a larger positive provisional revenue adjustment, which contributed to lower.
Q4, things you need to be revenues compared to 2022.
Yes.
Cost of sales for the quarter were 10% higher than Q4 2022, primarily as a result of higher throughput.
Our operating costs.
The LTE JV was impacted by the strengthening of the Mexican peso against the U S dollar, which was partly offset by productivity improvement and cost reduction initiatives.
One of our continuous improvement program.
Depreciation depletion and amortization expense decreased by approximately 8% primarily due to the increase in mineral reserves and the extension of the mine life.
An income tax recovery of $1 7 billion was recorded in Q4 2003 compared to income tax expense of $14 8 million in Q4 to anything too.
The income tax recoveries due to an increased recognition of deferred tax assets and additional tax deductions available for certain by development.
Expenditures that being cut.
Finally, <unk> recorded net income of approximately $25 million for the quarter.
16% lower than Q4 2000.
Now moving to slide eight to review the financial results for that with silver.
Net income and net income per basic and diluted share.
160%.
57%, respectively for the quarter.
<unk> recorded net income of $12 $3 million or <unk> <unk> per share for Q4 23.
Equity income decreased by 14%, primarily as a result of the lower net income recorded at the joint venture.
Corporate G&A was approximately $2 million lower in Q4 2018.
Mainly due to lower audit consulting and severance costs incurred.
In the fourth quarter.
So fair to Q4 2022.
For the full year, we incurred general and administrative expenses of $25 6 million.
Third to $25 $5 million in 2022.
Hey, Ginnie Fannie three general and administrative expenses included non cash stock based compensation of $6 million nonrecurring legal fees.
Fees of $3 2 million costs related to the restatement of that finished anyone had been spending two financial statements.
$2 3 million and <unk>.
<unk> to add.
Dollars.
Moving to slide nine.
Total silver asset joint venture continue to remain debt free.
JV ended with a cash balance of $34 3 million.
The cash balance of $43 1 million at January 31, 2024.
Sure.
As I've mentioned earlier, the joint venture by the capital distribution of 30 million to its partners.
The silver dollar on February 15th.
Of which we received $21 million.
Jonathan Silver ended Q3 with the cash balance offset the bottom.
$5 million and had a cash balance of $53 $1 million at January 31.
Just a few weeks before the receipt of the additional $21 million capital distribution type of a joint venture partner on February 15.
<unk>.
The company and the Los Gatos joint venture remains well positioned to continue to execute contract opportunities.
I will now hand, it back to Deb.
Thanks, Andre and on Slide 10 I'd.
I'd like to highlight our updated life of mine and the mineral reserves that we announced on September six that extended our current mine life to the end of 2030 and.
And we continue to believe we have substantial additional upside and we're focused on realize realizing that upside with a target this year to add another three years.
We're on track to announce that in the third quarter of.
Of 2024.
Since last April we have had numerous drills working on our southeast deep zone with the aim of having the higher grade areas of the <unk> drilled $2 50.
<unk> meter spacing for conversion.
Or that reserve and resource update that we have planned for the third quarter of this year.
So right now the southeast deeps as our major focus and we currently have seven surface drills focus on that infill drilling.
We also have four rigs underground focused on definition and resource expansion across the mine.
We recently added another surface rig, which is on our Portugal annual near mine targets.
The total number of drills on site up to 12.
In December we showed our mill is capable of processing 3500 tonnes per day consistently on an operating basis and we are now advancing future value enhancement projects, including the potential expansion to 4000 tons and of course, that's linked with additional reserve growth.
On the recovery side, we are completing studies for our copper separation circuit and evaluating technology and various auctions screened increasing the recovery of silver gold and zinc.
Turning to slide 11. This figure shows a few of the key targets that are within a few kilometers of the existing mine workings and potentially accessible from existing underground infrastructure.
Our geologists have been hard at work for the last couple of years getting this healthy steep defined and adding to our life of mine and now in 2024, we are excited by the chance to ramp up the exploration work on the rest of our 103000 hectare land package.
We will still be doing a lot of work within three to four kilometers of the mine operations.
It will be easiest to bring anything we find in this area close to the mine into production and the type of manner.
You can clearly see the large number of veins, we already know of just within that close rates.
We will be getting the drill rigs out beyond this area as well with some very prospective targets in the San Luis area, which is about five kilometers to the northwest of the mine and we have a number of targets further to the northwest about 22 kilometers from the mine in the lids area.
So turning to slide 12 in summary, we continued to safely drive mill throughput increases together with productivity improvements and cost optimization, which is a core part of our business and operating strategy.
We remain focused on extending the mine life.
And that's why the third quarter of 2024.
Other with other value enhancing initiatives.
And we continue to be very excited as we start to increase our near mine and district drilling in the large and highly perspective, Los Gatos districts.
And finally, and importantly, we continue to generate strong operating margins and cash flow with regular distributions expected from Los Gatos joint venture and a growing cash balance.
I will now hand, it back to the operator for questions.
At this time I would like to remind everyone in order to ask a question simply press Star then the number one to onto our telephone keypad will pause for a moment to compile the Q&A roster.
Okay.
Okay.
Once again, everyone. If you would like to ask a question simply press Star then the number one al Dor telephone keypad.
Okay.
And your first question is from the line of Lukas <unk> with Canaccord. Please go ahead.
Lucas Your line is open.
Lucas you may need to check your line to see if you placed it on mute.
Sorry, guys I was on hold.
Hey, Dale and team thanks for taking my questions.
Just wanted to hit on the head.
Can you provide more color on the mill or sorry, the mine debottlenecking efforts that youre undertaking to get you to 3500 tonnes a day.
Yes sure. Thanks, Thanks Lucas.
Right now we have developments well ahead of production and so to sustain.
Mining rates above 3000 tonnes per day, we need to continue to open up new areas and cycle through stopes faster than our goal as stated our midterm goal is to get up to that 3500 ton per day to fill the mill.
That's just cycling through the stopes quicker. So it's not really a matter of developing it's more just on the day to day basis equipment productivity is.
Utilizations.
Making maximum use of our paste plant.
To cycle through both cut and fill.
Long haul stoping faster and then importantly, it's opening up the southeast zone, what we want to make sure.
Obviously for short periods of time, we can do 3500 tonnes per day, but our goal is to drive towards that as a long term sustainable rate.
And for that we are going to need to open up the southeast area and Thats a lot of our focus on development as well.
Got you. Thank you and as you undertake this drilling and understand more about the southeast Steve do you think you'll be able to include that sort of 3500 tonne a day scenario and your new mine plan later this year.
Yeah like I said, we're making.
Put in our guidance, we're guiding to average between 3030 300.
So we're making good progress towards that 3500 ton goal already.
Our guidance range, but.
But yes, that's what that's what we're going to work towards Lucas.
Great. Thank you guys all the best.
Again, if he would like to ask a question simply press Star then the number one on your telephone keypad.
And at this time there appear to be no further questions. Mr. Andreas I will turn the call back over to you.
Thanks.
So everyone who participated we are very excited about 2024, we think we're very well positioned to deliver additional shareholder value and we look forward to providing updates as the year progresses. Thanks, everyone.
Okay.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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Yes.
Okay.