Gatos Silver, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Colorado Silver Q4 and year-end 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, simply press star and the number one on your telephone keypad. If you require any further assistance at all, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Stephen Orr, CEO. Please go ahead.

Thank you. I'd like to welcome everyone to Gato Silver's year-end and Q4 2020 earnings call. Before I get started, I just want to remind participants on this call that I will be making forward-looking statements with regard to future events. And by their very nature, they're subject to some degree of variability. So turning to slide number three, Our initial public offering in October of 2020 raised $173 million of proceeds to continue adding value to Gato Silver's Cerro Los Gatos mine and the Los Gatos district. In March, we completed the purchase of 18.5% additional interest in the Los Gatos district, and we now are 70% owner of the entire district. And we're now turning our attention to district scale resource growth potential. Gotcha Silver has the second largest mineral rights package of our in-production peers at 103,000 contiguous hectares. The package spans a distance of about 60 kilometers along the mineralized trend. And we've reactivated drilling at Cerro Los Gatos and are 100% owned Santa Valeria project and soon at Esther, which is the zone that's closest to Cerro Los Gatos. And I'll speak more on that later in this presentation. But we're not just an exploration company. We've demonstrated that we know how to build and operate mines. And Cerro Los Gatos was built on time and below budget. And we capitalized it properly, knowing that we're not just building a mine, but we're developing an entire district. And we think this has already paid dividends. The processing plant is operating at its 2,500 ton per day design rate. And as of January, the underground mine achieved its 2,500 ton per day design rate. So we believe the commissioning has gone quite well given the challenges Dr. Silver has had to prevent the COVID-19 outbreak at the Cerro Los Gatos mine. Turning to slide number four, we devote a significant amount of attention to environmental, social, and governance factors at Los Gatos and have recognized its importance for the last 10 years. All of our achievements would not have been possible without the support of the regional government, regulatory agencies, and surrounding communities. And we recognize that it's essential to conduct our operations in a manner that protects our employees' safety, does not harm the environment, and ensures that the local communities benefit not only from employment opportunities, but also through educational assistance, medical care support, and provision of sustainable clean water. And we're very proud of our safety record at the mine. Through Q1 of 2021, our lost time injury frequency was zero. Over 99% of our employees reside in Mexico and 60% of them reside in Chihuahua State. This devotion to improving the lives of those impacted by our project has been recognized by the Mexican government and local communities, and we have never had any opposition to the project. Turning to slide five, this is a summary of our performance during 2020. Given the challenges of COVID-19 management, we were relatively pleased with Sara Lozcada's performance last year. And I'll speak more about this performance in detail later in the presentation. Turning to slide six. Despite interruption by Mexico's government mandated suspension for COVID-19 during April and a portion of May last year, we did achieve record production of 652,739 war tons. We also achieved record silver, zinc, and lead recoveries through the processing plant, and the third and fourth quarters of 2020 were profitable. Key to this achievement was effective COVID-19 management at the Cerro Los Gatos project. All of this positioned the company to take advantage of increasing investor interest in silver and silver equities and allowed us to successfully complete an initial public offering in late October of 2020. Turning to slide seven, this covers the 2020 mine operations. This is a fully mechanized mine that uses long-haul scoping and mechanized cut and fill mining methods. Following the COVID-19 mine suspension in April and May, We increased the mine production rate at a more moderate rate to ensure that we could maintain COVID-19 prevention protocols. Irrespective, we achieved our 2,500 ton per day design target in January of this year. As we increase the units in terms of more tons and metal ounces and pounds, the unit costs are getting closer to those expected in the feasibility study. Slide eight, the standout performance came from our processing plant. This plant is fully instrumented with an on-stream analyzer that is monitoring silver, lead, and zinc recovery in real time during the concentrate production. And it will automatically adjust reagent addition to adjust to the changing conditions to maximize recovery. I call your attention to the table in the right-hand side of this chart. This shows the improvement of our metal recoveries over the four quarters of 2020. The silver recovery now exceeds the expected recovery from the feasibility study. Zinc recovery has achieved our expectations and lead recovery also now has exceeded expectations. I would now like to introduce Roger Johnson, our Chief Financial Officer, to present our 2020 financial results. Thank you, Steve. I am on slide nine. For 2020, our loss from continuing operations was $35 million, or 80 cents per share. You can see from this information that half of the loss was from the equity loss in the Los Gatos Joint Venture. Adam will discuss the Los Gatos Joint Venture results in a moment. As Steve mentioned, the Los Gatos Joint Venture was profitable in the third and fourth quarters of 2020, so I expect income in the LGJB for 2021. As for our operating expenses, as we discussed in our recent Investor Day presentation, exploration of the Los Gatos district is increasing. In addition, we spent a modest $800,000 in 2020 for the non-Los Gatos Joint Venture activities at East Santa Valeria and for maintaining an exploration staff. Our general administrative expenses were almost $8 million in 2020, as we have higher costs associated with becoming a public company. These include legal consulting costs, additional personnel we've added, higher directors' fees and stock compensation, and higher insurance costs. The arrangement fees you see here are similar to interest costs, and they relate to DOA-provided loans in the Los Gatos Joint Venture. A substantial portion of such fees will no longer be incurred with the repayment of the working capital facility that we announced earlier this month. The interest expense you see here was for a convertible note provided by our majority shareholder, Electron. This note was converted to equity as part of our IPO, and therefore the cost is non-returning. With that, I'll turn it over to Adam.

Thank you, Roger. I'll direct everyone's attention to slide 10 of the presentation, and I'll be covering the Los Gatos Joint Venture financial results. Here we have the table for the financial results for the year into 2020, and it's important to note that this is on a 100% basis. Throughout 2020, Gato's silver share of these operating results was 51.5%. During the fourth quarter of 2020, this was our second consecutive profitable year with $2.9 million of income at the Los Gatos Touring Venture. We had $121.5 million of sales for the year into 2020. This was comprised of approximately 21,000 tons of lead concentrate at average grades of nearly 5,300 grams per tonne silver and nearly 59% lead. This also included near 28,000 tons of zinc concentrate at average grades of 619 grams per tonne silver and 55.6% zinc. The average metal prices realized during the year were nearly $20 per ounce silver and about $1.03 zinc, which are the two primary payable metals of this operation. Turning to operating expenses of $126 million for the year end of 2020. This is primarily consisted of $65 million in cost of sales, $45 million in depreciation, depletion, and amortization, nearly $10 million of G&A expenses, $3.4 million of non-recurring costs related to the COVID-19 shutdown in April and May of 2020, $2.1 million of royalty expenses, and a small component of just under $1 million for exploration expenses during the year. Exploration expenses were reinitiated in earnest in December when we commenced the CLG definitional drilling program as previously announced in prior press releases. Other expenses in the year consisted of about $12.5 million of interest expense, nearly $9 million of non-cash arrangement fee expenses, and about a $1 million foreign exchange loss. Altogether, this resulted in a net loss for the period of about $27.7 million for the Los Gatos Joint Venture, again, on a 100% basis. With that, I will turn it over to Steve Orr for our next slide.