Please disable any adblockers if the video is not showing below.

Gatos Silver, Inc.

View Company Profile

September 17, 2024 at 10:10 AM (MDT)|Broadmoor Hotel & Resort

Dale Andres

CEO and Director

Dale Andres, Chief Executive Officer, who joined Gatos Silver in 2021, has more than 30 years of experience in the resource industry. Mr. Andres currently serves as Chief Executive Officer for the Company's wholly-owned Mexican subsidiary, Minera Luz del Sol. Previously, Mr. Andres served as Senior Vice President, Base Metals; as Senior Vice President, Copper; as Vice President, Copper Strategy and North American Operations; as Vice President, Gold and International Mining; and as General Manager, Underground Mines, at Teck Resources Limited.

This is an automatically generated transcript. Denver Gold Group cannot accept responsibility for mistakes, errors, omissions, or any action taken in reliance thereon. Use of this transcript is governed by Denver Gold Group’s Terms of Use.

Thanks Ralph and, and good morning, pleased to be presenting on Gatto Silver, particularly in light of the recent transaction announcement that we made. I would like to point to slides two and three. The presentation does contain forward looking statements that do have uncertainties and in particular on slide three in view of the transaction we announced last week with well, the week before with First Majestic, this slide does have important information about the proxy statement and prospectus which we anticipate filing shortly and that will have important information about gto's First Majestic, the transaction and related matters. We're, we're extremely excited to be for one, announcing this this recent transaction announcement with First Majestic. It's logical, it's very easy to understand what I view as great timing considering the future catalysts across the the combined portfolio and, and combined with the current silver market, combining Gatos into First Majestic, we believe creates a best in class intermediate primary silver producer. It consolidates three leading silver districts and that's with Cerra Los Gatos, San Damas and, and Santa Elena districts. The combined team has a strong track record of operating experience and value creation and performance and there's numerous synergies expected. in addition to optimization and and margin improvement potential combined annual production is expected to be over 30 million ounces of silver equivalent. And that would be at a low cost of between 18 and $20 and that's on a co product or silver equivalent basis. And more than half of that coming from silver, It does combine significant free cash flow from our 70% interest in the Cer locati mine combined with the strong expected free cash flow coming from First Majestic's assets as well. Furthermore, our shareholders will now be shareholders in a in a proforma company with improved capital markets, presence, significant trading liquidity and a very, very healthy balance sheet especially combining our current cash balance with with First Majestic and that will set up the company very well to advance in the future. But what excites me most and, and, and I'll finish with this on this slide is the combination of the three districts. There's over 350,000 hectares of very prospective ground and with a history of success, lots of new discovery potential. And what I believe is an excellent team to actively pursue that growth. a few highlights of the transaction, it is an all stock deal with a fixed exchange ratio of 2.55 1st Majestic shares for each Gatto's share. at the time of the announcement that represented a 16% premium to the to our closing price and our 20 day View app and a transaction deal just, just around $1 billion. Since that time, our share price has outperformed. We're up 33% as of yesterday's close. Since the transaction announcement, Gatto's shareholders will own 38% of the combined company. Electrum, our largest and, and founding shareholder at 32% of Gatto's has signed a voting support agreement for the transaction and both boards have approved the deal. It's now subject to shareholder votes on, on both sides and it does need to clear Mexican antitrust. We're expecting the deal to close in the first quarter of 2025 and, and our target is to do that before the end of January. Yeah. If we look at the pro for a company, it's gonna have an extremely strong balance sheet. as at the end of July, we had between our current corporate balance and our share of the joint venture cash balance, more than 100 and $25 million. the joint venture in that first seven months of the year, distributed $95 million to the partner to us and our partner do. I'd also like to draw your attention to the trading liquidity and and balance sheet liquidity as well as the dividend yield that will now be available to Gao's shareholders. When I, when I look at this transaction from, from a GTOs shareholder lens, there is a lot to like beyond the the premium and and recent share price performance. This is truly a unique opportunity to combine three world class producing silver mining districts in Mexico. I recently had the opportunity to visit both Santa Elena and San Damas. They're very experienced operating teams there. They're very capable importantly what I believe to be tremendous opportunity on, on both advancing production of those assets, but also on the exploration side. It's two fantastic districts to combine with, with ours. Keith's team has done a terrific job. I would point to Santa Elena in growing their reserves and resources together with production and I'm quite excited about the recent announcement they made on, on the Navidad Zone, high grade a little bit deeper than the current Matano deposit that they're mining. But, but much higher grade. and, and look, I look forward to seeing future results as they continue to drill there. We're equally excited about the San Damas district and, and the exploration potential there as well. this transaction significantly derisk GTOs as we move from being a single asset producer to being part of a multi asset silver focused producer with with four operating assets in, in Mexico. And again, what I believe to be three unrivaled exploration districts. The combined company has critical mass. it elevates GTOs to a new capital markets bracket and provides greatly enhanced trading liquidity as well. Just looking at the pro for a company in, in a little bit more detail. As I said, there's gonna be four operating assets all in Mexico and all containing significant amounts of silver production. In addition, first Majestic does have the Jarrett Canyon mine in Nevada that's currently on care and maintenance. And they're currently starting a new exploration program in the district there. And they do have a recent mint facility that commissioned early earlier this year in Nevada as well. For me combining those three districts, Santa Elena, San Damas and sir Los Caos in Mexico, I I think is truly exciting. When we look on a proforma basis, the combined company will have a sector leading exposure to silver amongst the intermediate peers. It will also have scale together with very attractive and competitive margins and and free cash flow going forward. Yeah. In addition to having larger critical mass. The combined company will have a leading trading liquidity and that's one particular area where Gatto silver had been lagging and significant lagging, significantly lagging its peers. Sir Los Los Cato is just taking a deeper dive into, into our asset. It is one of the largest primary silver mines in the world. It will be a foundational asset for the combined company. The C Los Katos mine has been operating since 2019. It's clearly a tier one asset. It produces high grade silver bearing lead and zinc concentrates. The lead is sold to the trade. and the zinc goes to our partner DUA Metals and mining Japanese partner and, and the zinc goes to the Akita Smelter and and refinery in, in Japan. Last year, the mine produced over 14 million silver equivalent ounces and 64% of that from silver. Our facilities are modern, they're very well capitalized. We do have a proven operating team in place and that and, and that operating team continues to drive performance and, and what I would say out, out performance, combining our 70% interest in Cer Los Gatos with two other world class silver assets in San Damas and Santa Elena, I think creates something that's truly unique and, and special. If we take a closer look at our guidance for 2024 we've had a great start to the year, first half of the year. We're well on track to achieve the top end of our production guidance and, and at the low end of our, our cost guidance for the year. If we look at the operational performance at Serra Los Gatos in more detail, we have been exceeding our design capacity. Design capacity was 2500 tons per day. We're currently operating at 3200 to 3300 and, and that's on a calendar day basis. So 30% above design, we've had record mill throughput for six consecutive quarters in a row. And, and we're trying driving towards continuing that, that, that trend. The mill has proven capacity to 3500 tons per day. And again, that's on a calendar day basis on an operating day we're doing in excess of 3700 on a, on a routine. That's, that's the way we operate. And we continue to de bottleneck the mine. So it's the mine has excess capacity and we're de bottlenecking the mine to, to fill the mill. Our site operating costs have decreased over the last three years by 9% on a per ton mined basis per ton mill basis. I don't think too many of our peers can say that and that's notwithstanding inflation the inflationary environment in Mexico over those last three years and the the stronger Mexican peso. Recently, we've seen some weakness in the peso and, and that should provide a very good tailwind to continue that, that cost performance trend. together with the higher throughput, the site team is continuing to focus on driving efficiency in our underground underground mine and, and that's both with our workforce and equipment. We're currently on, on the last stages of a complete rebuild program for all of our underground equipment. And we're continuing that through the year and, and, and early next year. So setting ourselves up very well to achieve that 3500 tons per day. And we believe that the mill has a capacity to go beyond. So our target is to get the 3500 in the short term and to bake that into our new life of mine plan, which should be coming out very shortly. But the mill I believe has capacity to go to 4000 tons or above with, with very low capital. When we look at our, our growth opportunities within Serra Los GTOs following the discovery and, and and recent definition drilling program focus on the Southeast Deeps, which is that blue zone you can see on the, on the slide. We've been focused on, on drilling that for the last two years, we're in the final stages. As I said, of updating our reserve and resource incorporating that resource to reserve conversion in the Southeast Deeps. And we plan to put out a new life for mine plan and a new R and R statement by the end of the month, which should both drive towards that higher perform through performance. Our target is 3500 tons per day in that new life of mine plan. Together with Life extension with this conversion of the Southeast Deeps, We put 66 kilometers of drilling into that resource to reserve conversion. We've continued to drill a database cut off was March of, of this year. We've continued to drill in the Southeast Deep Zone. You can see to the bottom right hand corner of the, of the figure and the top figure we've continued to hit a good grade mineralization. It, it is open and, and particularly to the Southeast of the, of the Southeast zone. We're also drilling on the central deeps and that's the green or, or, or the, the green oval in, in the center underneath our current workings. It is faulted. and we're looking at where that fault continues and, and mineralization at depth. We currently have two surface rigs. This area is completely unexplored and we're quite, quite excited about that and, and stay tuned for results. We're just on our fourth hole there. Now, as we look to expand resources, we're also focused on additional enhancement projects across the site. And, and again, that includes going up to 4000 tons per day. Should we be successful in finding additional resources and converting those to reserves? And we're also driving recovery improvements in our mill and various projects underway for for that. I think one thing I would also like to highlight, we do get higher copper grades in the southeast steep zone. And, and we are looking at putting a copper separation circuit, a lot of the copper reports to the lead con today. We get paid a little bit for that, but we want to increase the pay and, and so there's a low capital project that's on the books for a decision soon to, to put in that circuit as we develop and, and produce in the Southeast Zone. Turning to more broad in our district. This slide shows our concession package. It's 50 kilometers by 40 kilometers in extent, it's a big package, 103,000 hectares. We've already got more than 50 individual targets identified. We're starting to drill those. We made the switch from resource to reserve conversion in the Southeast deeps, more district drilling in the second quarter of this year. We're drilling both near mine and more broadly in the district near mine we're focused on kind of a 2 to 3 kilometer radius. And, and, and the reason for that is we can access that those resources that we hope to find from, from underground. We're currently drilling the Porto Guo Target, which is southeast of, of the current mine by about two kilometers. And also that central deeps that I showed on on the previous slide. Further a field we do have three priority targets across the district that we're focused on for the, for the remainder of this year. The San Luis target. So if you look at the concentric circles, it's about five kilometers away from the existing mine which is in the center of the figure. And our very first two holes, we've got one rig on San Luis, but our very first two holes did hit mineralization. And, and it is a complex structural area. We're finding big veins. And, and we'll be continuing to drill that target. We're quite excited about it. And then further a field if we look at a 20 kilometer concentric circle up to the northwest. So top left of the figure, we're will be drilling the, the Lintz area and, and quite excited about that area and then further to the southeast and about 10 to 15 kilometers to the southeast of the mine, a place a target called Los Verano and, and again, we're doing a lot of work there getting ready for, for drilling. So lots of exciting district targets that we've now turned our attention to just wrapping up in closing I bringing Gatto's into First Majestic, we believe creates the leading intermediate primary silver producer with Gatto's shareholders as a reminder to own 38% of the combined company. The combined entity will produce over 30 million silver equivalent ounces at, at a low cost and with strong expected free cash flow. What excites me most is that as I think you've heard on the previous slides is the exploration upside potential. bringing three fantastic districts together big large perspective districts between C Los Gatos, Santa Elena and San Damas. And with a history of success in the past, I think is very exciting for the for the future. And then as we look to our C at C Los Gatos and Gato Silver for our priorities for the remainder of 2024 we continue to focus on those priorities both at the corporate level and and at the with the site team, you can expect to see a new life of mine plan, new reserve resource out before the end of this month. And we continue to drill as I said, both near mine and district targets and I, and I really look forward to updating everyone and, and the market on that as we progress. Thank you. Great. Thank you. I'm gonna open up the Florida questions and if you can, please be patient while Bob reaches a, a microphone to you any questions from the audience. Dale, you, you talked about sort of the three districts on exploration potential. Can you, can you rank that for us in the context of what you feel in your due diligence may be the most, say undervalued or underappreciated opportunities? Yeah, I, you know, I would have a hard time picking between the three. to be honest, I know obviously our district the best. So it would be easy for me to say sir, lets GTOs and especially because it's part of our current company, but I did put boots on the ground both at Santa Elena and Santa Mas. I think it's fantastic what first Majestic has done growing that asset since acquisition in, in 2015 when I think it only had 2 to 3 years. It now has 5 to 6 years of, of reserve life. We think that's only going to extend with this recent navidad discovery. Very excited about Santa Elena and for Santa Mas, I mean, that district's been going for 200 years and you know, they're, they're in kind of year by year reserve replacement but just the, the, the, the the veins there, the ultimate potential there. It's a world-class district and, and, and I think will be for many decades to come is, is our belief. Thanks very much, Dale. And I encourage anyone with follow up questions.


NOTICE

The Denver Gold Group does not make any express or implied condition, representation, warranty or other term as to the accuracy, validity, reliability, timeliness or completeness of any information or materials in general or in connection with any particular use or purpose presented at the Gold Forum. Denver Gold Group cannot accept responsibility for sourcing variances, mistakes, errors or omissions or for any action taken in reliance thereon. Use of this data is governed by Denver Gold Group's Terms of Use.

The Denver Gold Group does not represent or endorse the accuracy or reliability of any third party advice, opinion, statement, information or materials received during the Gold Forum.

INVESTMENT ADVICE - NO OFFER OR RECOMMENDATION

The Gold Forum and the information and materials presented at the Gold Forum do not, and shall not be construed as, making any recommendation or providing any investment or other advice with respect to the purchase, sale or other disposition of any regulated gold related products or any other regulated products, securities or investments, including, without limitation, any advice to the effect that any gold related transaction is appropriate or suitable for any investment objective or financial situation of a prospective investor. A decision to invest in any regulated gold related products or any other regulated products, securities or investments should not be made in reliance on any of the information or materials presented or obtained during the Gold Forum. Before making any investment decision, prospective investors should seek advice from their financial, legal, tax and accounting advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.