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spk02: Ladies and gentlemen, thank you for staying by. Welcome to Gato Silver's Financial Update Investor Conference Call. Presenting today will be Dale Andres, CEO of Gato Silver, and Andre van Niekerk, Chief Financial Officer. We will conclude today's session with a question and answer period, where other members of the Gato Silver management team will be available. If you would like to ask questions 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 star one key. At this time, all participant lines have been placed on mute for the duration of the presentation to prevent any background noise. Turning your attention to slide two, please note today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Gato 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.
spk05: Thank you and good morning everyone. Turning to slide three, we are very pleased to report that we have filed all outstanding financial filings. This has been a huge job for the team this quarter, including getting six quarters worth of financial statements and restatements finalized all at once. Now that we are current, we have scheduled our annual meeting for September 6th. And most importantly, having completed the outstanding filings allows us to focus on extending the mine life at Cerro Los Gatos and realizing the full potential of our highly prospective district. The CLG operation has been performing extremely well with record mill throughput, and we're very happy to finally be talking about our financial performance. The highlights include record-free cash flow at the Los Gatos joint venture of almost $29 million in the first quarter of this year, adding to the already strong cash balance at the joint venture level. While our corporate expenses contain several non-recurring items over the past few quarters, we continue to be net debt-free at the GSI level. Last year's discovery of the Southeast Deep Zone, with that discovery, we are targeting meaningful additions to the mine life. On top of the resource and reserve potential at Cerro Los Gatos, we are continuing to optimize to lower costs and drive margin. Later in the presentation, I will go through some of our exciting district targets that we are advancing. But first up is our CFO, Andre van Niekerk, and he'll take us through the recent restatements and financial statements that we've made over the last few days.
spk04: and present the financial metrics from 2022 and the first quarter of 2023. With that, over to you, Andre. Thanks, Del.
spk03: Slides four and five explain the impact of the research. Firstly, at our 70% mixed joint venture level, and then secondly, at the fair and cautious lower level. Slide four shows that the LTJV level changes were all tax-related. We identified that the JV did not properly recognize certain current and deferred tax assets and liabilities at December 31st, 2021. And these net deferred tax assets have been recognized during the nine months ended September 30th, 2022. Adjustments were required to the calculation of the deferred tax assets related to property, plant and equipment, mine development and historical net operating losses. In certain cases, the tax basis was also not calculated correctly. As a result, the LGJB understated the value of the deferred tax assets and its net book value at December 31st, 2021, and overstated it at September 30th, 2022. The graphs at the top show that the shifting of some of those assets earlier into 2021 resulted in higher income in 2021, offset by lower income in 2022. The net impact of that shift, however, is minimal on the net book value at the end of the restatement period, less than $4 million. Slide five shows the impact at the gut to silver level. As previously disclosed, it was necessary to take an impairment on the value of our investment in the LTJV related to the 2020 technical report reserve errors. The adjustments associated with the restatements increased the impairment from $51.6 million to $80.3 million as a result of three main factors. The first is related to the increase in the book value, specifically the increase in the net book value of the LGJV described previously. Secondly, the accounting recognition of a priority dividend payable to our joint venture partner was changed. And thirdly, there were several changes to the fair value model. The cumulative impact of those changes was a $29 million increase to the impairment at the end of 2021. Those changes also led to a reduction in book value at the end of the restatement period, September 30th, 2022, of just over $30 million. Slide six shows the financial results of the LGJV for the first quarter. Realized metal prices during the quarter were strong, but revenues were impacted by a $13.6 million negative provisional revenue adjustment on open sales, which resulted in revenues of just under $70 million for the quarter. The other impact on net income was higher depreciation and amortization. We depreciate assets based on tonnage, so the higher tonnage process during the quarter plus the capital that was added from the tailings dam raise and the PACE plan in 2022 drove the DD&A number higher. The final result was net income of $12.7 million for the quarter. Slide seven shows the financial results for Qatar Solar. We had expenses of $5.5 million for the quarter and net income of $0.8 million. It's important to note that we incur expenses to help manage the JV and the JV management fee of $5 million per year or $1.25 million per quarter is recorded as other income. As we announced last Friday, we have reached an agreement in principle on the U.S. class action lawsuit and the allowance for our portion of the funding, which is estimated at up to $7.9 million, where the risk coming from the insurers was accounted for in 2022. Some of our additional costs associated with the lawsuit may be accepted by the insurers, so the actual disbursement may be somewhat lower. Slide 8 shows why we are so confident in this asset, generating consistent strong cash flow period over period. The LGJD produced $157 million in cash flow from operations in 2022 and $40 million in the first quarter of 2023. Our rate of sustaining capital spending is now decreasing as the operation has settled into an optimization phase. You can see the quarterly spend has dropped from above $20 million in the third quarter of 2022 down to $11 million in the most recent quarter. The combination of continued strong operating cash flow and decrease in capital spend has also led to record-free cash flow and low oil and sustaining costs. With lower silver grades expected for the remainder of the year and slightly higher capital spending, we expect oil and sustaining costs will increase in subsequent quarters, but we expect to remain within our current guidance range for the year. During 2022, the joint venture started distributing dividends to the partners with $29 million received by GSI after accounting for the priority dividend and withholding taxes. I will now hand the presenting back over to Dale to take you through some of the operating factors that contributed to our strong cash flow.
spk05: Thanks very much, Andre. Slide 9 shows a few key metrics of the Cerro Los Gatos operation since the processing plant started up in 2019. The feasibility design for the project was 2,500 tons per day And since the middle of 2021, we have continued to optimize well beyond this level. And we know the plant still has more capacity. We think we can increase ore production from our underground mine through additional long-haul scoping, getting the most out of our new paste plant, and by increasing our mobile fleet productivities. We do expect that silver feed grades, which are shown in yellow in the graph, to decrease towards reserve grade over the coming quarters and years as we move deeper into our deposit, and we do expect base metal grades to increase somewhat as well. We are continuing to push down on costs at the same time as we increase our production. Last year, we saw big cost improvements related to our new renewable energy contract, and we have multiple continuous improvement projects currently underway to continue to offset the inflationary pressures that have been impacting both us and our peers. We were really happy with the last all-in sustaining cost marker on that bottom graph showing our first quarter performance, and we expect our all-in sustaining costs to increase over the next few quarters. But we do continue to expect to finish the year within guidance in the $11 to $13 per payable ounce range. Turning to slide 10, the figure shows a long section through our deposit. There are currently six surface drills and three underground rigs actively drilling at the mine. And we are targeting to add up to six years to the mine life by mid 2024. So that's just over 12 months away. The focus in the second half of last year was drilling to convert higher grade and third resources, which are shown in green on this slide, to the indicated status to add to the reserve and mine life. That drilling was very successful in hitting mineralization and a new life of mine plan and reserve incorporating this drilling is expected to be announced before the end of the upcoming quarter. So that's in quarter three. Last October, we announced the exciting Southeast deeps discovery shown below the reserve on this image, which has the potential to significantly extend the mine life. Drilling shows the mineralization in this new zone extends one kilometer along strike, and our deepest reported intercept is more than 400 meters below our current reserve. Our plan is to report inferred resources in this area in this year, so in the upcoming quarters, resource update, which we will complete shortly. We need to drill We need to drill it out to indicated status before it can be converted to reserve. And so we currently have six surface rigs that are drilling to 50-meter spacing, which should convert that to the indicated category. And we're aiming to have that ready for our 2024 mineral reserve and mine plan update, as I mentioned, in mid-2024, so mid-next year. Turning to slide 11, while we are really pleased with the progress in and around Cerro Los Gatos, the biggest potential upside is in our district. The joint venture holds a concession package that is roughly 50 kilometers by 40 kilometers in extent. We currently have more than 45 individual prospects identified, and most of these are in the andesite belt, shown in light green, that runs from the Cerro Los Gatos mine up to the edge of the property in the northwest. That's the top left-hand side. Closer to the mine, there are a series of large structures that appear to have all the right ingredients for mineralization sitting between the Cerro Los Gatos mine and the ester deposit, which is located less than five kilometers away, where we have a small resource already. Detailed mapping of this area is already underway, and we plan to drill more in this area in the second half of this year. We also have a large structural feature, the Rio Conchas Basin, shown in brown, that sits immediately to the northeast of Cerro Los Gatos. The area is covered by some gravels, but we feel this has great potential to have both big structures and the right rock types that could host more Cerro Los Gatos-sized deposits. The map on slide 12 shows some of our priority targets that are within a few kilometers of our current operation. We have already made a good start with the greenfields exploration so far this year and are improving our understanding of the district and the focus on mapping, with our focus on mapping, geochemistry and geophysics. Shown on the previous slide and located about 22 kilometers north of our current mine, we have completed a drone survey in the lint area that is delivering high resolution images to aid and direct our district mapping. The mapping and rock geochemistry completed already is promising and we expect to be drilling in this area later in the year as well, for this year. Back on this map, closer to the current mine, Cerro Los Gatos, we are in the process of conducting a magnetotelluric geophysics survey that we expect to help us track structures through the basin. Earlier this year, we identified veining that is extended up through the epiclastics in the Santa Ana area, which fits with our premise of big structures underneath the basin. The zone is within a couple of kilometers of our current underground development. Along our basin margin, northwest and southeast of the Cerro Los Gatos mine, we have identified the Porto Guaño and San Luis targets as high priority for follow-up, And these areas are also planned for drilling in the upcoming quarters. We are also really excited by the Cascabel and Mamba structures in between Cerro Los Gatos and Esther. And while we have started some drilling and haven't hit high grade there yet, we have great structures and alteration already defined and think that this area has all the right ingredients for a significant deposit to exist there. Turning back to the seroless Gatos operation and the table on the right of slide 13 shows our 2023 production and cost guidance for the annual for the year with silver production expected to be between 7.4 and 8.2 million ounces and silver equivalent at around 13 million ounces with all unsustaining costs similar to 2022. We plan to continue our focus on driving operational performance improvements, and that's on both production and on costs. I'll just turn to slide 14 to wrap up. And over the last 18 months, we have been extremely busy as we have reset the foundation for this company. We have built a new experienced management team in Vancouver. We completed a new mineral reserve at Cerro Los Gatos with the filing of our technical reports, which was a very important milestone that we achieved late last year. And then more recently, following that update, we had the big task of getting all the financial statements finalized, fixing up lots of historical issues in the process, and culminating in the announcements earlier this week. This has been a huge job for the team, including transitioning to a new auditor, and getting six sets of financial statements filed this week. We are now current on all our financial filings. Now that this is behind us, the team is really focused on delivering on the exploration and growth potential of this amazing district. I'm really happy with how our new team has come together to achieve all of this, and we are now focused on delivering the upside. That ends the presentation material for today, and I'd like it to turn back to the operator now for any questions. Thank you.
spk02: Thank you. At this time, I would like to remind everyone in order to ask a question, press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
spk04: Thank you, and your first question comes from the line of Michael Ciperco of RBC Capital Markets.
spk02: Please go ahead.
spk01: Thanks very much, Operator, and thanks Dale and team for the call. Maybe just first on the filings, can you provide a little bit more clarity on Everything else that's outstanding from a regulatory perspective with respect to the OSC, you mentioned you filed for the removal of the management fees trading order. Is there anything else outstanding with respect to the TSX, NYSE, any other regulatory agency or with respect to the credit facility?
spk05: Yeah, thanks, Mike. I'll start with the U.S. side on the New York Stock Exchange. Since we just filed late last night, we're informing them this morning. And we're now we expect to be taken off the delinquent filers list. And we're now clear on we should be clear on the New York Stock Exchange. So there's nothing left on that on that front. On the Canadian side, we still have an obligation to hold our annual meeting, which has now been scheduled for September 6th. So there's still regulatory commitments that we need to make to get current with our annual meeting, but it's just that it's scheduled and we don't anticipate any issues on that side. And, Andre, I'm not sure if you want to comment on the credit facility.
spk03: Regarding the credit facility, we have had waivers for the filing of the financial statements in place, plus the presentation of the financial covenants calculations, which has been provided to PMO now, and all within the timeline of the waivers, so we never were out of line on the credit facility.
spk01: Okay, great. Thanks. That's helpful. Congratulations on getting all of this done. Maybe flipping to operations, in the near term, you reiterated guidance for 2023. Can you give a little bit of color, and I know 2Q is pending here, but can you give a little bit of color on on what we should expect in terms of the grade profile over the rest of the year should we be expecting a steeper drop off in q4 or or will it be relatively uh relatively smooth throughout the year in terms of of seeing that lower grade yeah thanks mike um and what we've put out for for guidance um
spk05: is that we're going to see lower silver grades reverting back towards the reserve grade as the year progresses. I don't think we'll drop all the way down to reserve grade by the end of the year, but you can take that as guidance. And I think from a silver perspective, I would expect it to be relatively flat over the remaining three quarters. We may see a slightly stronger fourth quarter, but, yeah, it's going to be, you know, as we guided, less than the first quarter for the remaining three quarters is our expectation. And you'd see that from our guidance. We had 31% of the, you know, 31% of the midpoint performance in Q1. From a base metals perspective, And again, as you can see from our run rate in the first quarter, we expect slightly higher grades in production throughout the rest of the year, and I expect that to remain relatively smooth for the rest of the year.
spk02: Thank you. And again, if you'd like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Lucas Pematat of Canaccord. Please go ahead.
spk00: Hey, good morning, guys. Thanks for taking my question. Congratulations on getting the financials out. Just a question on your balance sheet here. It says in the presentation you have $10 million as of the end of May. Obviously, you guys have just settled the class action lawsuit, potential $8 million cash outflow there. What can you tell us about the dividends coming from the JV and why we didn't see one this quarter?
spk05: Maybe I'll start and then Andre can comment further. We're really, and it's very simple, we're waiting for financials to be completed at the Los Gatos joint venture before the partners agree to move cash back to both partners on a pro rata basis. Now that we've cleared the initial priority dividend last year, And I guess the only other comment I would make is we're looking at the most tax-efficient way to do that. Right now, just declaring dividends, there's a 5% withholding tax, and we're looking at other options that potentially can save that 5%. And so that was the other reason we held back for the first part of the year. But we do expect that to continue now back on a regular basis going forward.
spk04: Andre, I'm not sure if you want to comment. I think you covered it, though. That's great. Thank you, guys. Thanks, Lucas.
spk02: There are no further questions at this time. Mr. Andres, I turn the call back over to you.
spk05: Thanks, operator. And I guess just in closing, it's a tremendous accomplishment. I really do want to congratulate the finance team at Gatot Silver for getting this recent job done and mission accomplished. The team is now looking forward to the future on our extension of mine life and our great district. We look forward to updating the market and everyone on that as we progress. And we should see second quarter production results and back onto a normal financial reporting schedule coming out of the second quarter. So I'm really, really pleased with that. Thank you all, and we'll talk to you next quarter. Thank you.
spk02: This concludes today's conference call. You may now disconnect.
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