Q1 2024 Gatos Silver Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Gatos Silver's first quarter 2024 results conference call. Presenting today will be Dale Andres, CEO of Gatos Silver, and Andre Van Niekerk, Chief Financial Officer.

Operator: We will conclude today's session with a question and answer period where other members of the Gatos Silver management team will be available. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like 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.

Ladies and gentlemen, thank you for standing by welcome to got the Silver's first quarter 'twenty 'twenty four results conference call.

Operator: So I think that they will be bail undress C E O Scott the silver and Andre Van Niekerk Chief Financial Officer.

Operator: We will conclude today's session with a question and answer period for other members of the got the 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 on your telephone keypad. If you would like to withdraw your question press the pound key.

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

Operator: Turning your attention to slide 2, please note today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Gatos 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.

Operator: Turning your attention to slide two please note that this call contains forward looking statements various risks and uncertainties may cause actual results to vary got the 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.

Dale E. Andres: Thank you, operator, and good morning, everyone. Turning to slide three, our strong operating performance and cash flow generation continued in the first quarter of 2024. The Los Gatos Joint Venture set yet another record no-throughput rate. During the quarter, we averaged a mill throughput rate of over 3,200 tonnes per day, and we are well on our way to our medium-term target of sustainable production at 3,500 tonnes per day. Our first quarter production puts us in a strong position for the remainder of the year, and seroloskeletal production is expected in the top half of our guidance range as a result of the strong operating performance this quarter.

Dale E. Andres: Thank you operator, and good morning, everyone.

Dale E. Andres: Turning to slide three or our strong operating performance and cash flow generation continued in the first quarter of 2024.

Dale E. Andres: So lets got to its joint venture.

Dale E. Andres: Another record mill throughput rate.

Dale E. Andres: During the quarter, we averaged a mill throughput rate of over 3200 tonnes per day.

Dale E. Andres: And we are well on our way to our medium term target of sustainable production at 3500 tonnes per day.

Dale E. Andres: Our first quarter production puts us in a strong position for the remainder of the year.

Dale E. Andres: And the Cerro <unk> production is expected in the top half of our guidance range.

Dale E. Andres: As a result of the strong operating performance this quarter.

Dale E. Andres: Our all in sustaining cost metrics for the full year are expected to remain in the lower house of the guidance range, despite the strengthening peso and inflationary pressures.

Dale E. Andres: Our all-in sustaining cost metrics for the full year are expected to remain in the lower half of the guidance range, despite the strengthening peso and inflationary pressure. Gatos Silver continues to receive regular cash distributions from the joint ventures. Andres will talk about this in more detail, but I do want to highlight the Los Gatos Joint Venture's free cash flow of over $25 million in the first quarter of 2024 and continuing distributions received in April of this year. Gatos Silver had a cash balance of over $85 million at the end of April.

Dale E. Andres: Capsules silver continues to receive regular cash distributions from the joint venture.

Dale E. Andres: Andre will talk about this in more detail, but I do want to highlight the Los Gatos joint ventures free cash flow of over $25 million in the first quarter of 2024 and continuing distributions received in April of this year.

Dale E. Andres: Capsule of silver had a cash balance of over $85 million at the end of April.

Dale E. Andres: We are on track to update our life of mine plan in the third quarter this year and are aiming to increase throughput and also extend the mine life. Importantly, we have now started to ramp up exploration efforts on both near mine and other targets in the highly prospective Los Gatos District. Turning to slide four.

Dale E. Andres: Okay.

Andres: We are on track to update our life of mine plan in the third quarter. This year and are aiming to increase throughput and also extend the mine lives.

Dale E. Andres: Importantly, we have now started to ramp up exploration efforts on both near mine and other targets in the highly perspective, Los Gatos District.

Dale E. Andres: Turning to slide four as mentioned before mill throughput in the quarter was over 3200 tonnes per day.

Dale E. Andres: As mentioned before, mill throughput in the quarter was over 3,200 tons per day, with a higher throughput offset by lower silver grades as expected in the mine plant. Production was similar compared to the comparable quarter in 2023, with silver at 2.4 million ounces and silver equivalent production, which includes zinc, lead, and gold, and now starting copper soon, at 3.7 million ounces for the quarter. In March, we achieved an average milk throughput rate of over 3,300 tons per day, which was the best monthly performance on record.

Dale E. Andres: With the higher throughput offset by lower silver grades as expected in the mine plan.

Dale E. Andres: Production was similar compared to the comparable quarter in 2023 with silver at $2 4 million ounces and silver equivalent production, which include zinc lead and gold and now starting copper soon at $3 7 million ounces for the quarter.

Dale E. Andres: In March we achieved an average mill throughput rate of over 3300 tons per day, which was the best monthly performance on record.

Dale E. Andres: With the minor modifications to the mill made this year, we believe the current mill capacity is already at the 3500 ton per day rate on a calendar day basis. However, to achieve these levels through the mill, we need to first show that we can sustain and then increase mining rates, which continue to be the bottleneck. We have various initiatives underway to increase those mining rights, including rebuilding the core mining fleet and other Maintenance Improvement Projects, optimizing mine plans and schedules to support the higher rate, and a major focus on operational execution, including short interval control.

Dale E. Andres: With some minor modifications to the mill made this year. We believe the current mill capacity is already at the 3500 tonne per day rate on a calendar day basis.

Dale E. Andres: However to achieve these levels through the mill, we need to first show that we can sustain and then increase mining rates, which continue to be the bottleneck.

Dale E. Andres: We have various initiatives underway to increase those mining rates, including rebuilding the core mining fleet.

Dale E. Andres: Other maintenance improvement projects, optimizing mine plans and schedules to support the higher rates.

Dale E. Andres: The major focus on operational execution, including short interval control.

Dale E. Andres: Cost of sales for the first quarter increased by 18% compared to the comparable quarter last year, but this was primarily due to the 12% increase in tons processed and a 17% increase in concentrate tons sold. Cost of sales were also impacted by the continued strengthening of the Mexican peso during the quarter.

Dale E. Andres: Cost of sales for the first quarter increased by 18% compared to the comparable quarter last year, but this was primarily due to the 12% increase in tonnes processed and a 17% increase in the concentrate tons sold.

Dale E. Andres: Cost of sales were also impacted by the continued strengthening of the Mexican peso during the quarter.

Dale E. Andres: All in sustaining costs per payable ounce of silver, and that's after byproduct credit, were just over $10 an ounce compared to just over $6 an ounce in the first quarter of 2023, and that is in the lower half of our guidance range for 2024. We now expect full-year production to be in the upper half of our guidance range for 2024, and I'm speaking to slide five now. As you can see in the table, silver and silver equivalent production is at 27% and 26%, respectively, compared to the midpoint of guidance, and our unit cost metrics are tracking 4% below the midpoint in the first quarter.

Dale E. Andres: All in sustaining costs per payable ounce of silver and Thats. After byproduct credits were just over $10 an ounce compared to.

Dale E. Andres: Just over $6 an ounce in the first quarter of 2023.

Dale E. Andres: And that is in the lower house of our guidance range for 2021.

Dale E. Andres: We now expect full year production to be in the upper half of our guidance range for 2024, and I'm speaking to slide five now as you can see in the table silver and silver equivalent production.

Dale E. Andres: 27% and 26%, respectively compared to the midpoint of guidance and our unit cost metrics are tracking 4% below midpoint in the first quarter.

Dale E. Andres: Based on the strong performance in the first quarter, we now expect throughput rates at the Cerro Los Gatos mine to average in the top half of our 3,000 to 3,300 ton per day guidance range for the full year. We still expect exploration and definition drilling spend to be at $18 million for 2024 and our sustaining capital expenditures to be approximately $45 million. And that's what the majority of that was spent on underground development, with the continued focus on opening up the southeast area and some of those mine equipment rebuilds and other infrastructure projects, as I mentioned. I'll now turn the call over to Andres to present our financial results.

Dale E. Andres: Based on the strong performance in the first quarter, we now expect throughput rates at the Cerro Los Gatos mine to average in the top half of our 3000 to 3300 tonne per day guidance range in 2024 for the full year.

Andres: We still expect exploration and definition drilling spend to be at $18 million for 2024, and our sustaining capital expenditures to be approximately $45 million.

Andres: And thats with the majority of that spend on underground development with the continued focus on opening up the southeast area.

Andres: Some of those mine equipment rebuilds and other infrastructure projects as I mentioned.

Andres: I will now turn the call over to Andre to present, our financial results.

Pieter Andr van Niekerk: Thank you, Dale. Good morning, everyone.

Andres: Thank you Bill good morning, everyone.

Pieter Andr van Niekerk: The 70% and Los Gatos joint venture's strong operating performance is underscored by yet another quarter of robust cash flow generation. Cash flow provided by operations was approximately $37 million. The joint venture generated free cash flow of $25.5 million this quarter, 14% higher than the $22.3 million in Q4 2023 and 11% lower than the $28.7 million in Q1 2023. The drop from the comparable quarter last year was primarily due to lower realized metal prices and higher operating costs than in Q1 2023, associated largely with higher mining and processing rates.

Andres: The 70% Los Gatos joint venture strong operating performance is underscored by yet another quarter of robust cash flow generation.

Pieter Andr van Niekerk: Cash flow provided by operations was approximately $37 million.

Pieter Andr van Niekerk: The joint venture generated free cash flow of $25 $5 million this quarter, 14% higher than the $22 3 million in Q4, 2023, and 11% lower than the $28 7 million in Q1 2023.

Pieter Andr van Niekerk: The drop from the comparable quarter last year was primarily due to lower realized metal prices and higher operating costs in Q1, 2023 associated largely with higher mining and processing rates.

Pieter Andr van Niekerk: Cash flow used in investing activities was $11.8 million in Q1 2024, and similar to the $11.4 million in Q1 2023. Of that amount, resource development drilling totaled $3.2 million for the quarter, with most of the spending focused on infill drilling on the southeast deep.

Pieter Andr van Niekerk: Cash flow used in investing activities was $11 $8 million in Q1 2024.

Pieter Andr van Niekerk: And similar to the $11 4 million in Q1 2023 of that amount resource development drilling totaled $3 2 million for the quarter with most of the spending focused on the infill drilling in the southeast Steves.

Pieter Andr van Niekerk: As a result of the continued strong free cash for generation, in the first quarter, the joint venture made a capital distribution of $30 million in February. As a reminder, a total of $85 million will be distributed in 2023. Subsequent to the end of the quarter in April, the joint venture made a further quarterly capital distribution to the partners of $25 million. Now, turning to slide 7 to look at the financial results of the Los Gatos Joint Venture for the quarter.

Pieter Andr van Niekerk: As a result of the continued strong free cash flow generation in the first quarter. The joint venture made a capital distribution of $30 million in February.

Pieter Andr van Niekerk: As a reminder, a total of $85 million was distributed in 2023.

Pieter Andr van Niekerk: Subsequent to the end of the quarter in April.

Pieter Andr van Niekerk: Joint venture made a further quarterly capital distributions to the partners of $25 million.

Pieter Andr van Niekerk: Now turning to slide seven to look at the financial results of the Los Gatos joint venture for the quarter.

Pieter Andr van Niekerk: Revenue increased to $72.2 million in the first quarter of 2024, but higher volumes of metal sold were offset by significantly lower silver, zinc, and lead prices. The provisional revenue adjustment was a $900,000 negative adjustment in this quarter compared to a $13.6 million negative adjustment in Q1 2023. Cost of sales increased by 18%, primarily due to higher mining and processing costs as a result of a 12% increase in mold throughput and a 17% increase in the tonnage of concentrate sold. Cost of sales was further impacted by the strengthening of the Mexican price against the US dollar, which was partly offset by productivity improvement and cost reduction initiatives as part of our continuous improvement program.

Pieter Andr van Niekerk: Revenue increased to $72 2 million in the first quarter opportunity to any for higher volumes of metal sold were offset by significantly lower silver zinc and lead prices.

Pieter Andr van Niekerk: Divisional revenue adjustment was a 900000 negative adjustment in this quarter compared to $13 6 million negative adjustment in Q1 2023.

Pieter Andr van Niekerk: Cost of sales increased by 18%, primarily due to higher mining and processing costs as a result of a 12% increase in most of it but and a 17% increase in the tonnage up constantly so.

Pieter Andr van Niekerk: Golf ball sales were further impacted by the strengthening of the Mexican peso against the U S dollar, which was partially offset by productivity improvements and cost reduction initiatives as part of our continuous improvement program.

Pieter Andr van Niekerk: Depreciation, depletion, and amortization expense decreased by approximately 3 percent, primarily due to the increase in the mineral reserves and the extension of the mine life, offset by additional dDNA on recent capital additions. The income tax expense of $4.8 million for the quarter was 20% lower than in Q1 2023, primarily due to lower taxable income for the period. Finally, the LGJV recorded net income of approximately $10.2 million for the quarter, 20% lower than in Q1 2023.

Pieter Andr van Niekerk: Depreciation depletion and amortization expense decreased by approximately 3% primarily due to the increase in the mineral reserves and the extension of the mine life offset by additional DD&A on recent capital additions.

Pieter Andr van Niekerk: The income tax expense of $4 8 million for the quarter was 20% lower than in Q1, <unk>, primarily due to lower taxable income for the period.

Pieter Andr van Niekerk: Finally, the algae JV recorded net income of approximately $10 $2 million for the quarter, 20% lower than in Q1 2023.

Pieter Andr van Niekerk: Moving on to slide 8, to review the financial results for Gatos Silver, Gatos Silver recorded a net income of $2.5 million, or $0.04 per basic and diluted share. That's up 203% from Q1 2023. Equity income in affiliates increased to $7.3 million primarily due to a reduction in the obligation under the Priority Distribution Agreement with DELA, partly offset by lower equity income from the LGJV. Corporate GNI was approximately $1.4 million higher in Q1 2024 than in Q1 2023, mainly due to a $900,000 increase in non-cash stock-based compensation expense as a result of 2023 and 2024 equity grants and a $600,000 increase in non-recurring legal fees. Turning to slide 9.

Pieter Andr van Niekerk: Okay.

Pieter Andr van Niekerk: Moving on to slide eight to review the financial results, regardless silver.

Pieter Andr van Niekerk: Schedule. So we recorded net income of $2 5 million or <unk> <unk> per basic and diluted share.

Pieter Andr van Niekerk: That's up 203% from Q1 2023.

Pieter Andr van Niekerk: Equity income in affiliates increased to $7 3 million.

Pieter Andr van Niekerk: Primarily due to a reduction in the obligation under the priority distribution agreement with Delta.

Pieter Andr van Niekerk: Partially offset by lower equity income from the algae JV.

Pieter Andr van Niekerk: Yes.

Pieter Andr van Niekerk: Corporate G&A was approximately $1 $4 million higher than.

Pieter Andr van Niekerk: In Q1 2024 than in Q1, 2023, mainly due to a $900000 increase in non cash stock based compensation expense as a result of <unk> 23 in 2020 for equity grants.

Pieter Andr van Niekerk: And a $600000 increase in nonrecurring legal fees.

Pieter Andr van Niekerk: Turning to slide nine.

Pieter Andr van Niekerk: As mentioned earlier, the joint venture paid a capital distribution of 30 million dollars to its partners, Gatos Silver and DABA, during the first quarter, of which we received 21 million dollars. As a result, Gatos Silver ended the first quarter with a cash balance of $70.6 million. After the end of the quarter in April, the LGJV made another capital distribution of $25 million, of which we received $17.5 million, bringing the company's cash balance to $85.4 million on April 30, 2024.

Pieter Andr van Niekerk: As was mentioned earlier, the joint venture capital distribution of $30 million to its partners got the silver Entebbe during the first quarter of which we received $21 million.

Pieter Andr van Niekerk: As a result, Caddo slower ended the first quarter with a cash balance of $70 6 million.

Pieter Andr van Niekerk: After the end of the quarter in April the LTE JV made another capital distribution of $25 million.

Pieter Andr van Niekerk: Of which we received $17 5 million.

Pieter Andr van Niekerk: The company's cash balance to $85 4 million at April 30th JD dreadful.

Pieter Andr van Niekerk: The company, along with its insurers, has also fully funded both the US and Canadian gas action lawsuits, and the cash balance at the end of April is after our portion of the payments has been made. The distribution of the settlement amounts is now pending final court approval, which we expect by the end of Q2. The LGJV ended the first quarter with a cash balance of $29.8 million and had a cash balance of $20 million at April 30th, 2024. Both GSI and the LGJV remain debt-free, and the company's $50 million revolver remains in place.

Pieter Andr van Niekerk: The company along with its insurers is also fully funded both the U S and Canadian class action lawsuits and a cash balance at the end of April is after our portion of the payments have been made.

Pieter Andr van Niekerk: The distributions of the settlement announced is now pending final court approval, which we expect by the end of Q2.

Pieter Andr van Niekerk: The LTE JV ended the first quarter with a cash balance of $29 $8 billion and had a cash balance of $20 million at April 32024.

Pieter Andr van Niekerk: Both GSI in the algae JV remained debt free and the company is $50 million revolver remains in place.

Pieter Andr van Niekerk: I'll now hand, it back to Dan.

Dale E. Andres: Thanks, Andres. And turning to slide 10, we wanted to highlight how our business improvement initiatives and increased throughput are delivering results. Specifically, site operating costs per tonne have decreased by 9% over the past three years, despite inflationary pressures, including the 5.5% per year increase in labor costs and the substantial strengthening of the Mexican peso. Our numerous continuous improvement and cost optimization programs also contribute to the lower cost per ton.

Speaker Change: Thanks, Andreas turning to slide 10, we wanted to highlight how our business improvement initiatives and increased throughput are delivering results at the mine.

Dale E. Andres: Site operating costs per ton have decreased by 9% over the past three years.

Dale E. Andres: <unk> inflationary pressures.

Dale E. Andres: <unk>, the five 5% per year increase in labor costs.

Dale E. Andres: The substantial strengthening of the Mexican peso.

Dale E. Andres: Our numerous continuous improvement and cost optimization programs also contribute to the lower cost per ton.

Dale E. Andres: On the design side, we have successfully switched more of our mining areas from cut and fill to long-haul stoping, including transverse stopes where the geometry and ground conditions are suitable, which is a more cost-effective mining method. We are continuing our equipment rebuild program this year and working on our underground productivity initiatives to work towards first sustainably mining at the 3,200 to 3,300 ton per day rate, which we're currently achieving, and then to further extend that towards 3,500 tons per day in the medium term.

Dale E. Andres: On the design side, we have successfully switched to more of our mining areas from cut and fill to long hole stoping.

Dale E. Andres: Including transfer stopes, where the geometry and ground conditions are suitable which is a more cost effective mining method.

Dale E. Andres: We are continuing our equipment rebuild program this year and working on our underground productivity initiatives too.

Dale E. Andres: To work towards first sustainable sustainably mining at the 32 to 3300 tonne per day rate, which we're currently achieving.

Dale E. Andres: And then to further extend that towards that 3500 tonnes per day in the medium term.

Dale E. Andres: Turning to slide 11, we are on track to provide our updated life-of-mine plan and mineral reserves in the third quarter of 2024 this year and targeting the throughput rate in the plan. The current plan averages 2,950 tons per day, and we're looking at increasing that. Even with mining more of our mineral reserves faster, we still expect an extension to the life of mine.

Dale E. Andres: Turning to slide 11, we are on track to provide our updated life of mine plan and mineral reserves in the third quarter of 2024 this year.

Dale E. Andres: And the throughput and targeting the throughput rate in the plan.

Dale E. Andres: Current plan averages 20, 950 tons per day, and we're looking at increasing that.

Dale E. Andres: Even with some even with mining more of our mineral reserves.

Dale E. Andres: Faster, we still expect an extension to the life of mine.

Dale E. Andres: The new life of mine plan will be based on an additional 66 kilometers of drilling that's been completed over the past 12 months up to the end of the first quarter, and we've now made that data cutoff. And the Southeast Deeps conversion drilling that we did between that April 2023 to the end of March 2024 timeframe was done on 50 meter spacing, targeting the higher grade trends in the zone. We still have two drills dedicated to further infill drilling and resource expansion on the Southeast Deep.

Dale E. Andres: The new life of mine plan will be based on an additional 66 kilometers of drilling that's complete been completed over the past 12 month period up to the end of the first quarter and was now made that data cutoff.

Dale E. Andres: In the southeast Steeps conversion drilling that we did between that April 2023 at the end of March 2024 timeframe was done on 50 meter spacing targeting the higher grade trends in the zone.

Dale E. Andres: We still have two drills dedicated to further until drilling and resource expansion on the southeast States.

Dale E. Andres: On the recovery side of things, we are completing detailed engineering for a copper separation circuit and anticipate making a decision in the third quarter of this year. We are also evaluating technology and various options for increasing the recovery of silver, gold, and zinc.

Dale E. Andres: On the recovery side of things, we are completing detailed engineering for our copper separation circuit and anticipate making a decision in the third quarter of this year.

Dale E. Andres: We are also evaluating technology and various options for increasing the recovery of silver gold and zinc.

Dale E. Andres: Turning to slide 12, 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. Now that we have passed that database cutoff for this year's reserve update, we are excited by the opportunity to ramp up the exploration work on the rest of our 103,000 hectare land package. After the end of the quarter, we announced the appointment of Chad Uhasz, our new Vice President of Exploration and Technical Services, and we are really pleased to have Chad on board to guide these critical parts of our business.

Dale E. Andres: Turning to slide 12. 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.

Dale E. Andres: Now that we have passed that database cutoff for this year's reserve update we are excited by the opportunity to ramp up the exploration work on the rest of our 103000 hectare land package.

Dale E. Andres: After the end of the quarter, we announced the appointment of Chad you have our new Vice President of exploration and technical services and we're really pleased to have Chad on board to guide these critical parts of our business.

Dale E. Andres: First up, we are starting on targets within three to four kilometers of the mine operations, as it'll be easiest to bring anything we find here into production. We do have two rigs working now to the southeast of the mine in the Puerto Guayno area. The first holes stepped along the Gatos Fault and are now stepping south along the Dragon Fault towards the Thule and Roja Fault targets. A third greenfield rig will be moving on to the northwest deeps target and the central deeps target, and then further out from the Cerro Los Gatos mine in the basin within the next few weeks.

Dale E. Andres: First up we are starting on targets within three to four kilometers of the mine operations as it will be easiest to bring anything we find here into production.

Dale E. Andres: We do have two rigs working now towards the southeast of the mine and the port of <unk> area.

Dale E. Andres: First totals stepped along the gasoline pulse and are now stepping south along the Dragon fault.

Dale E. Andres: The two lei and Rojas salt target targets.

Dale E. Andres: A third Greenfield this rig will be moving on to the northwest deeps target.

Dale E. Andres: And central deep target.

Dale E. Andres: <unk>.

Dale E. Andres: And Thats and then further out from the start of Los Gatos mine in the basin within the next few weeks.

Dale E. Andres: We will be getting the drill rigs further out from Cerro Los Gatos and the surrounding mine later in the year with some very prospective targets in the San Luis area, about five kilometers northwest of the mine, and a number of targets in the Lintz area, about 20 kilometers to the northwest. On slide 13, and in summary, we continue to safely drive mill throughput increases together with productivity improvements and cost optimization, which is a core part of our business and operating strategy.

Dale E. Andres: We will be getting the drill rigs further out from Cerro Los Gatos and the.

Dale E. Andres: Surrounding mine later in the year with some very prospective targets and the San Luis area about five kilometers northwest of the mine and there are a number of targets and the lengths area about 20 kilometers to the northwest.

Dale E. Andres: On slide 13 in summary, we continue to safely drive mill throughput increases together with productivity improvements and cost optimization, which is a core part of our business and operating strategy.

Dale E. Andres: We remain focused on developing a new life of mine plan by the third quarter of this year, which incorporates the Southeast Deeps conversion drilling, together with other value-enhancing initiatives, including higher throughput rates and copper supply. And we continue to be very excited as we start to increase our near mine and district drilling in the large and highly prospective districts, including Portugueo and the Northwest and Central Deeps, which I discussed. And importantly, we continue to generate strong operating margins and cash flow with regular distributions expected from the Los Gatos Joint Venture and a growing cash balance. I will now hand it back to the operator.

Dale E. Andres: We remain focused on developing a new life of mine plan by the third quarter of this year, which incorporates the southeast keeps conversion drilling.

Dale E. Andres: Together with other value enhancing initiatives, including higher throughput rates and the copper circuit.

Dale E. Andres: We continue to be very excited as we start to increase our near mine and district drilling in the large and highly perspective district.

Dale E. Andres: Including Portugal, and the northwest in Central Deeps, which I discussed.

Dale E. Andres: And importantly, we continue to generate strong operating margins and cash flow with regular distributions expected from the <unk> joint venture and a growing cash balance.

Speaker Change: I will now hand, it back to the operator for questions.

Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster, and your first question comes from the line of Cosmos Chiu with CIBC.

Speaker Change: At this time I would like to remind everyone.

Operator: To ask a question press Star then the number one on your telephone keypad.

Operator: I'll pause for just a moment to compile the Q&A roster.

Cosmos Chiu: And your first question comes from the line of Kosmos Chu with CIBC.

Cosmos Chiu: All right. Thanks, Dale, Andre, and the team.

Cosmos Chiu: Alright, Thanks, Gail and Andrea and team.

Cosmos Chiu: As I read, you know, certainly a lot of exploration upside here. But my question is on Southeast Deeps, I guess. I was reading up on it.

Cosmos Chiu: As I read you know certainly a lot of exploration upside here.

Cosmos Chiu: And as you mentioned in your press release from early April, that silver grade decreases with higher byproduct credits when you look at Southeast Deeps versus central, the central zone, the northwest zone. So, you know, right now, your reserve grade is sitting at about 217 grams per ton. What can we expect to the extent that you can, you know, kind of describe it? What can we expect as we come through and with your Life of Mine plan that's getting updated in Q3?

Cosmos Chiu: Well my question is on southeast Deeps I guess.

Cosmos Chiu: I was reading up on it.

Cosmos Chiu: As you mentioned in your press release from early April that silver grade decreases.

Cosmos Chiu: With higher byproduct credits when you look at <unk> versus central Central is all in the northwest zones.

Cosmos Chiu: Right now your reserve grade is sitting at about 217 Gram per tonne what can we expect.

Cosmos Chiu: To the extent that you can.

Cosmos Chiu: Kind of describe what can we expect as we.

Cosmos Chiu: Yes.

Cosmos Chiu: Come through in <unk>.

Cosmos Chiu: With your life of mine plan, that's getting updated in Q2.

Speaker Change: And yes, thanks for the question.

Cosmos Chiu: Cosmos.

Cosmos Chiu: Yes.

Speaker Change: I'll ask Tony to provide some color on that but I will say, we're right in the process of.

Cosmos Chiu: Doing the resource modeling work.

Cosmos Chiu: And incorporating those drill results in the southeast Deeps and so I don't think there is a lot we can say on a specific.

Cosmos Chiu: Great Great target, but Tony do you want to comment further please.

Dale E. Andres: Yeah, hi Cosmos, and hopefully, I'm probably in it. Yay.

Speaker Change: Hi Cosmos.

Speaker Change: Probably got it okay. Thank.

Speaker Change: Thanks for the question I'll, probably just echo what al said leg.

Speaker Change: Like we've really just kicked it off.

Speaker Change: I'll wait until we've actually done the work.

Dale E. Andres: There's a lot of things that go into that in terms of where we end up on stope design, where we like how much dilution gets added that theres a whole bunch of stuff I can really just sort of recommend you have a look at those im sure.

Speaker Change: Sure Yes.

Speaker Change: Exploration press releases that we put out I mean, what you can see from that and we report those effectively sort of cutoff. So what we what we use for the reserve would so what youre seeing from that is that it's clear.

Speaker Change: Higher base metals, there is a lot of good.

Dale E. Andres: Led and particularly copper in those but the silver is lower and so I mean, all I can do to guide you as to have a look at those but we cant commit to final numbers until we've actually done the work.

Cosmos Chiu: Of course, and maybe ask a different way, Tony and Dale, you know, I see that your resource grade right now is 100 grand per ton. Could you remind us that there's a lot of that resource from...

Speaker Change: Of course, maybe asked a different way Tony at Dale I see that your resource grade right. Now is 100 Gram per ton could you remind us there's a lot of that resource from south.

Speaker Change: Southeast groups.

Dale E. Andres: Yes, a lot of them...

Cosmos Chiu: Yes, a lot of the debt.

Dale E. Andres: Debt.

Dale E. Andres: Yes.

Dale E. Andres: So that's what you should try to...

Dale E. Andres: So thats, what youre trying to convey.

Dale E. Andres: Yeah, and Tony, you can expand on this, but let's say we're trying to convert, I think it's just over four, I think it's four and a half or 4.6 million tons, if I recall correctly, Tony can correct me, of inferred resource in the Southeast East. And we're trying to convert the highest grade portions of that, obviously. But, as Tony mentioned, the silver grades are expected to be lower than reserve grades based on the results that we have. But base metals are holding in very nicely, and copper is a key differentiator for that zone as well.

Speaker Change: Yeah, and Tony you can expand on this but I'd say, we're trying to convert I think it's.

Speaker Change: Just over four <unk> I think it's 4445 for $4 6 million tons, if I, if I recall correctly, Tony can correct me.

Dale E. Andres: Of inferred resource in the southeast States.

Speaker Change: And we're trying to convert the highest the high.

Dale E. Andres: As grade portions of that obviously and but as Tony mentioned.

Dale E. Andres: The silver grades are expected to be lower than the reserve grades based on.

Dale E. Andres: Based on the results that we have but base metals are holding in very very nicely in the copper is a key differentiator for that so on as well.

Dale E. Andres: And Dale and Tony, when we talked about this in the past, when you talked about the updated Life of Mind plans last year and this year as well, there was always a dual track in terms of targeting both, you know, number one, the replacement of mind life, and also, number two, sort of to maintain, hopefully, reserve grade. Is that still kind of like the target, you know, in the background in terms of what you're trying to do with each and every one of these lives of mine?

Dale E. Andres: Hello.

Speaker Change: And Dale and Tony.

Dale E. Andres: We've talked about this in the past in the past when you've talked about.

Dale E. Andres: The updated life of mine plans last year and this year as well. So it was always a dual track in terms of targeting both.

Dale E. Andres: Number one the replacement of mine life, and also a number to sort of to maintain.

Dale E. Andres: Hopefully reserve grade is that still kind of like to target.

Dale E. Andres: And the background in terms of.

Dale E. Andres: What you are trying to do with each and every one of these.

Dale E. Andres: Life of mine plans.

Dale E. Andres: Yeah, I'd say we're trying to do this this time around three things. One, one, and I mentioned it in the script was to increase, continue to increase throughput rates, and we are driving towards That's 3,500 tonnes per day. We'll have to see, as we go through the mine planning work, whether we can sustain that and how we incorporate those higher throughput rates into our new life mine plan, but that's clearly a target for us.

Dale E. Andres: Yes.

Dale E. Andres: We're trying to do this time round the three things one one and I mentioned it in the.

Dale E. Andres: In the script was to increase continue to increase throughput rates and we are driving towards.

Dale E. Andres: So that 3500 tons per day, we will have to see as we go through the mine planning work, whether we can sustain that.

Dale E. Andres: And how we incorporate those higher throughput rates into a new life of mine plan.

Dale E. Andres: But but but.

Dale E. Andres: That's clearly a target for us.

Dale E. Andres: We do plan to extend the mine life, and just as we do higher throughput rates, we are taking and able to continue to lower, you know, able to take lower grades, and we're continuing to lower our unit cost, and that's just operating efficiencies, operating, you know, well above 3000 tons per day. And just as a reminder, our previous life of mine averaged 2,950 tons per day. And we do plan to extend the mine life, including those higher throughput rates.

Dale E. Andres: We do plan to extend the mine life and just as we do higher throughput rates, we are taking and able to continue to lower taking April to take lower grades and we're continuing to lower our unit cost and Thats just operating efficiencies operating.

Dale E. Andres: Well above 3000 tonnes per day.

Dale E. Andres: Just as a reminder, our previous life of mine average 2950 tons per day, and we do plan to extend the extend the mine life, including those higher throughput rates and then.

Dale E. Andres: And then, As I said, we'll make a decision on the copper circuit, and that's again a margin enhancement that we're looking to bake into the new life of mine plan as well, but we're just currently going through all of that work.

Dale E. Andres: As I said, we will make a decision on the copper circuit and Thats again.

Dale E. Andres: Our margin enhancement that we're looking to.

Dale E. Andres: To bake into some new life of mine plan as well, but we just we're just currently going through all of that work.

Cosmos Chiu: Great, thank you. And maybe as a follow-up and on a broader scale as well, you know, Dale, as you mentioned, a great looking balance sheet these days. You're getting cash sweeps from the joint venture and $85 million in cash, no debt, and you're only spending about $18 million in exploration. So what's next as you continue to grow the company? Is everything really organic, internal, or are you looking externally as well? Can you maybe talk about the growth plans with the new exploration team now in place? [inaudible]

Cosmos Chiu: Great. Thank you and maybe as a follow up broader scale as well.

Cosmos Chiu: Dale as you mentioned.

Cosmos Chiu: Great looking balance sheet. These days are getting.

Cosmos Chiu: Cash sweep from the joint venture and $85 million in cash.

Cosmos Chiu: No debt.

Cosmos Chiu: And you're only spending about $80 million in exploration. So what's what's next as you continue to grow the company is everything really organic internal when you're looking externally as well can you maybe talk about the growth plans with the new exploration team now in place.

Cosmos Chiu:

Cosmos Chiu: New VP exploration, and you're increasing potentially increasing exploration.

Cosmos Chiu: The exploration budgets again internal external how are you going to continue to grow the company.

Cosmos Chiu: And.

Cosmos Chiu: Can we see exploration budget increase.

Dale E. Andres: Yeah, thanks for highlighting that, Cosmos, including the cash, the cash balance. You know, we're sitting on over $85 million, as you pointed out. And if you take our share of the joint venture cash, which was $20 million at the end of April, the combination of that is over $100 million. Just to be clear, that $85 million and all the distributions made from the joint venture are after our exploration expenditures.

Cosmos Chiu: Yes.

Dale E. Andres: Thanks for highlighting that cosmos, including the cash the cash balance we're sitting on over 80 sites.

Dale E. Andres: And as you pointed out.

Dale E. Andres: And if you take our share of the joint venture cash, which was $20 million at the end of the.

Dale E. Andres: At the end of April.

Dale E. Andres: The combination of that is over $100 million.

Dale E. Andres: Just to be clear that that $85 million and all the distributions.

Dale E. Andres: And we do have plans for $18 million this year, and that is a ramp up from what we did last year. There is only so much we can do from an exploration perspective to execute that. And maybe, Tony, you can comment or provide some additional color.

Dale E. Andres: Made from the joint venture is after our exploration expenditures and we do have planned straight $18 million. This year and that is a ramp up from from what we did last year.

Tony: There is only so much we can do from an exploration perspective.

Dale E. Andres: Acute that and maybe Tony you can comment or provide some additional color right now we're working towards that $18 million.

Dale E. Andres: Right now, we're working towards that $18 million budget, about half of that on resource conversion and extension and half more on what I would call pure Greenfields Exploration, even though some of that is near the mine. If we tag into something really interesting, trust me, Cosmos, we will put the dollars and those to work on that. But it's important to make sure that we have a plethora of targets, and we need to make sure that we're properly prioritizing those doing the work to make sure we're attacking the best areas first.

Dale E. Andres: About half of that on on resource conversion and extension in house more on what I would call pure.

Dale E. Andres: <unk> field exploration, even though some of that is near mine.

Dale E. Andres: If we tag into something really interesting Trust me Cosmos, we will put the dollars and goes to work on that.

Dale E. Andres: But it's important to make sure that we're.

Dale E. Andres: We have a plethora of targets.

Dale E. Andres: And we need to make sure that we're properly prioritizing those doing doing the.

Dale E. Andres: The work to make sure we're attacking the best areas first and there's still lots of work to do we've done a lot of foundational work over the last 18 to 24 months.

Dale E. Andres: And there's still lots of work to do. We've done a lot of foundational work over the last 18 to 24 months. We're in a position to start drilling, and we are drilling. But yeah, we do need to be a bit careful about just ramping up. It's such a big property. We're going to be here for many years. Tony, I don't know if you want to expand on that.

Tony: We're in a position to start drilling and we are drilling.

Dale E. Andres: But.

Dale E. Andres: Yes.

Dale E. Andres: We do need to be a bit careful about just ramping up its such a big property, we're going to be here for many years, Tony I don't know if you want to expand on that.

Dale E. Andres: I mean, I think you captured it there pretty well, Dale. Realistically, look, we want to make sure that we're doing good exploration and that we're... We're sort of modifying the program based on the results that we get. We don't want to just go out and draw up a massive program and not be following it properly. So we are going to do it sensibly and do it within the sort of capacity that we have to actually make sure that we're doing the right work. So I think, I mean, we're ramping it up, but I think that this is a level where we can make sure that we're doing good, sensible exploration.

Tony: I think you captured it pretty well dialed realistically look we we want to make sure the way doing good exploration and where.

Dale E. Andres: With sort of modifying the program the results that we get so we don't want to just go out and drill a massive program and not be following it properly. So we are going to we are going to do it sensibly and do it within the sort of capacity that we have.

Dale E. Andres: I'd like to actually make sure that we're doing the right work. So I think I mean.

Dale E. Andres: We are ramping it up but I think that this is a this is a level where we can make sure that we're doing good thanks full exploration.

Dale E. Andres: And maybe just to pick up on the other part of your question, Cosmos, and we will look at, you know, opportunistically, other opportunities. We're not going to comment on anything specifically, but we are looking to grow the company. We don't need to do anything beyond our current district, but we will look at things opportunistically as well. We have a great balance sheet, as you pointed out.

Speaker Change: And then maybe just to pick up the other part of your question Cosmos.

Dale E. Andres: We will look at.

Dale E. Andres: Opportunistically or the other.

Dale E. Andres: Opportunities are not going to comment about anything specifically, but.

Dale E. Andres: We are looking to grow the company, we don't need to do anything.

Dale E. Andres: Beyond our current district, but we will look at things Opportunistically as well.

Dale E. Andres: Have a great balance sheet as you pointed out.

Cosmos Chiu: Great. Thanks, Dale, Tony, and Andre. Those are all the questions I have. Thank you.

Speaker Change: Great. Thanks, Dale Tony again, Andre those are all the questions I have thank you.

Operator: Again, if you would like to ask a question, press star, then the number one on your telephone keypad. There are no further questions at this time. Mr. Andres, I turn the call back over to you.

Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad.

Operator: There are no further questions at this time, Mr. <unk> I turn the call back over to you.

Dale E. Andres: Thank you, operator, and thanks to everyone participating in the call. We look forward to updating you as the year progresses. Thanks again.

Speaker Change: Thank you operator, and thanks to everyone participating in the call. We look forward to updating you as the year progresses. Thanks again.

Operator: This concludes today's conference call. You may now disconnect. Please wait; the next conference will begin shortly.

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

Operator: Please wait the conference will begin shortly.

Operator: [music].

Operator: Okay.

Operator: Okay.

Operator: [music].

Operator: Andres, Pieter Niekerk, Cosmos Chiu, Michael Siperco, Lucas Pamatat, Anthony Scott, Gatos Silver Andres, Pieter Niekerk, Cosmos Chiu, Michael Siperco, Gatos Silver

Operator: Yes.

Operator: Yes.

Operator: Yes.

Operator: Okay.

Operator: Yes.

Operator: [music].

Operator: Yes.

Operator: Okay.