8-K: Gatos Silver Updates Mineral Resource and Reserve Estimate for Los Gatos Joint Venture

Gatos Silver has released an updated technical report summary detailing the mineral resource and reserve estimates for the Los Gatos Joint Venture in Mexico, with an effective date of July 1, 2024.

Summary

• Gatos Silver has updated its technical report summary for the Los Gatos Joint Venture, with an effective date of July 1, 2024.
• The report includes updated mineral resource and reserve estimates for the Cerro Los Gatos (CLG) mine.
• The CLG mine has a current reserve mine life that continues to the end of 2032 at steady-state throughput rates of 3,500 tonnes per day.
• Average annual production is estimated at 6.1 million ounces of silver with an average annual cash flow of $80 million after-tax through 2032 at a silver price of $23 per ounce.
• The average all-in sustaining costs (AISC) are projected to be $4.94 per ounce of payable silver, net of by-product credits, and $14.24 per ounce of payable silver equivalent on a co-product basis.
• The average operating costs are estimated at $82.14 per tonne milled.
• The post-tax net present value (NPV) at a 5% discount rate is $538.8 million ($664.1 million pre-tax).
• The report also includes a mineral resource estimate for the Esther deposit, which remains unchanged from the 2023 report.
• The Los Gatos Joint Venture (LGJV) is 70% owned by Gatos Silver and 30% by Dowa Metals & Mining Co., Ltd.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting the extension of mine life, strong cash flow, and operational improvements. However, there are some risks and challenges noted, such as groundwater management and the need for additional permits, which temper the overall sentiment.

Positives

• The mine life has been extended to the end of 2032, providing long-term production visibility.
• The project demonstrates strong cash flow generation and a positive NPV.
• The plant is operating at a higher throughput than its original design capacity.
• The fluorine leaching plant is successfully reducing fluorine levels in zinc concentrate.
• The company has a strong community relations program and is committed to sustainability.

Negatives

• The report notes that the groundwater system, particularly the occurrence and quality of perched groundwater, is not well understood.
• The groundwater monitoring program does not meet international industry standards for the monitor well number, placement, design or sampling methods.
• Paste tailings were characterized as hazardous for toxicity and corrosivity and as potentially acid-generating based on Mexican environmental testing criteria.
• The closure plan is at a preliminary stage and closure costs could increase as closure planning advances.

Risks

• Accessing and mining the Mineral Reserves per the LOM production schedule will depend on success in managing the groundwater.
• The challenges with mine dewatering and inflows may increase as the mine deepens.
• The challenges with geothermal heat and controlling temperatures in the underground work environment could increase as the mine deepens.
• The plan to increase the proportion of LHS depends on the SE zone having suitable conditions for employing the method; however, the geotechnical data available for that part of the mine is limited.
• The company is waiting on final resolution documents for three permits: the modification of the environmental permit that added the fluorine leach plant to the metallurgical process; a permit for land occupied by the tailings facility; and a permit regarding the use of treated water from the personnel camp sewage treatment facilities.

Future Outlook

The CLG life of mine plan (LOM Plan) described in this TRS covers the period starting July 1, 2024, through to the end of the reserve life in 2032, with closure and reclamation activities expected to occur during 2033 through to the end of 2036.

Industry Context

This announcement is consistent with the ongoing need for mining companies to update their resource and reserve estimates to reflect new exploration data, changes in economic conditions, and operational improvements. The focus on cost management and sustainable production is also in line with current industry trends.

Comparison to Industry Standards

• The use of a Net Smelter Return (NSR) cut-off is a common practice in the mining industry for polymetallic deposits, ensuring that only economically viable material is included in the reserve estimate.
• The application of modifying factors, such as mining dilution and recovery, is consistent with industry best practices for converting Mineral Resources to Mineral Reserves.
• The use of Deswik software for mine design and scheduling is a standard practice in the mining industry.
• The use of Ordinary Kriging (OK) for grade estimation is a common geostatistical technique.
• The use of a 5% discount rate for NPV calculations is a common practice in the mining industry.
• The use of a three-year trailing average and long-term consensus estimates for metal prices is a common practice in the mining industry.

Stakeholder Impact

• Shareholders will benefit from the extended mine life and strong cash flow generation.
• Employees will continue to have employment opportunities at the mine.
• Local communities will continue to benefit from the company's social programs and investments.
• Customers will continue to receive high-quality lead and zinc concentrates.

Next Steps

• Continue with surface and underground drilling campaigns to upgrade Mineral Resource categorization and increase Mineral Resources.
• Evaluate whether specific mine closure and sustaining capital expenditures should be considered in determining NSR cut-offs.
• Conduct in-situ stress measurements to investigate the magnitude and orientation of the principal stresses.
• Continue research and development efforts on ultrafine particle recovery technologies.
• Execute plans for the copper-lead separation circuit.
• Develop a detailed deposition plan to support the TSF closure strategy.
• Develop a written environmental monitoring plan that includes a description of all media monitoring requirements based on Company and regulatory agency requirements, sampling procedures, protocol for the management of results and interpretation, action levels, corrective action plan and documentation procedures.

Key Dates

Keywords

Mineral Resources, Mineral Reserves, Gatos Silver, Los Gatos Joint Venture, Silver Production, Mining, Mexico, Technical Report, Net Present Value, All-in Sustaining Costs, Polymetallic