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TICKERS: GATO

Silver Co. Posts Record Production in Q3; Raises FY Guidance
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Shares of Gatos Silver Inc. traded 29% higher yesterday after the company reported it achieved record levels of production at its Cerro Los Gatos mine during Q3/22. The firm raised its FY/22 production guidance while lowering its operating cost estimates.

After U.S. markets closed Tuesday, silver explorer, developer, and producer Gatos Silver Inc. (GATO:TSX; GATO:NYSE) announced "record production results from its 70%-owned Cerro Los Gatos (CLG) mine for the quarter and nine months ended September 30, 2022."

The company highlighted that in Q3/22, silver production at GLG increased by 59% to 2.7 Moz Ag (million ounces silver), compared to 1.7 Moz Ag in Q3/21.

The firm advised that due to the positive results it achieved in Q3/22, it is raising its FY/22 production guidance and, at the same time, is lowering its FY/22 cost guidance.

Gatos Silver's CEO Dale Andres stated, "Our continued strong operating performance at CLG during the quarter reflects planned production sequencing, with mill throughput exceeding design capacity by 15% and with higher ore grades compared with a year earlier."

Gatos Silver raised its forward silver production guidance at the CLG mine by 9.2% over its previous estimates and advised that for FY/22, it expects the mine to produce 9.35-9.65 Moz Ag (silver), compared to its prior projections of 8.50-9.0 Moz Ag.

"Our priority exploration and definition drilling objectives are to extend our mine life by converting the higher-grade portion of our current Mineral Resource into Reserves and to follow up on the mineralization recently discovered at depth in the new South-East Deeps zone while assessing its potential implications for the entire Los Gatos district, Andres added."

In addition to the record silver production mentioned above, during Q3/22, the GLG mine also registered record production of both lead and zinc. Zinc production increased by 32% year-over-year to 17.8 Mlb (million pounds), and lead production rose 13% y-o-y to 12.2 Mlb.

The company explained that the gains in production were attributed to record amounts of higher-grade material processed at the mill, which averaged 2,862 tpd (tonnes per day). The firm stated that it expects to process the same volumes but of somewhat lower-grade ore in Q4/22 as the highest-grade sections of the orebody were milled in Q3/22.

The company said that in Q3/22, it completed a fourth lift of the tailings dam and indicated that the construction of its paste plant is nearly finished. These events are expected to increase productivity and lower operating costs beginning in Q4/22.

Gatos Silver raised its forward silver production guidance at the CLG mine by 9.2% over its previous estimates and advised that for FY/22, it expects the mine to produce 9.35-9.65 Moz Ag (silver), compared to its prior projections of 8.50-9.0 Moz Ag.

The company added that it is also raising its estimates for gold (Au), lead (Pb), and zinc (Zn) concentrates production by even higher per percentages and stated that for FY/22, it expects to produce 5.0-5.3 Koz Au (thousand ounces gold), 43-45 Mlb Pb (million pounds lead), and 58-61 Mlb Zn.

The firm pointed out that while it is increasing production, it is now incurring lower total operating expenses and now expects FY/22 all-in-sustaining costs (AISC) to decrease by about 14% compared to prior forecasts. The company said that for FY/22, it expects AISC on a co-product basis of $15.50-16.50 per Ag eq oz. Gatos added that AISC for payable silver ounces produced is expected to be even lower at $11.50 -12.50 per Ag eq oz.

The firm advised that it estimates that for FY/22, it will have total sustaining capital expenditures in the amount of $75 million.

Gatos Silver mentioned that after it finishes construction of its paste plant in Q4/22, it expects that all-in --sustaining costs (AISC) will fall substantially throughout FY/23. In addition, there are no large expenses projected for tailings dam construction in FY/23, which will also lower overall expenses.

The company noted that, as it previously announced, it is proceeding with its plans to move its executive offices to Vancouver, B.C., from Denver, Colo., and expects to complete the transition in Q4/22.

The firm indicated that as of September 30, 2022, the Los Gatos Joint Venture (LGJV) had a cash balance of $39 million, compared to $40 million on June 30, 2022. In addition, the company advised that because of the CLG mine's strong operating performance in Q3/22, it received its second quarterly dividend from the LGJV in the amount of $10 million.

The company stated that last week "it announced an updated CLG Mineral Reserve Estimate, Mineral Resource Estimate and Life of Mine plan and expects to produce a new technical report at the end of October 2022."

Gatos Silver reiterated that, as it advised in a prior news release, it is presently working to find a licensed auditor in B.C., Canada, to perform an audit and complete a review of its financial statements. The firm indicated that it anticipates that at least one material issue may exist and will take the necessary steps to remedy any items discovered in the audit process as soon as practicable.

Specifically, the company advised that "it anticipates completing an impairment assessment based on the 2022 Mineral Reserve in Q4/22 and is working towards completing all outstanding SEC and OSC filings as soon as practicable."

Gatos Silver is focused on exploration, development, and production at the Cerro Los Gatos deposit in the State of Chihuahua, Mexico, in which it owns a 70% interest through a joint venture. The property encompasses about 103,087 ha and is highly prospective for mining silver, zinc, lead, and some gold.

Gatos Silver started yesterday with a market cap of around $178.4 million, with approximately 69.1 million shares outstanding and a short interest of about 2.4%. GATO shares opened 8% higher yesterday at $2.79 (+$0.21, +8.14%) over the previous day's $2.58 closing price. The stock traded between $2.78 and $3.43 per share and closed for trading at $3.33 (+$0.78, +29.07%).


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