Gatos Silver, Inc.

Welcome to the Gatto Silver second quarter 2023 results conference call. Presenting today will be Dale Andre, CEO of Gatto Silver, and Andre Van Neerkirk, Chief Financial Officer. We will conclude today's session with a question and answer period, where other members of the Gatto Silver management team will be available. If you'd like to ask a question during this time, simply press star. 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. Gatto 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.

Thank you, operator, and good morning, everyone. Turning to slide three, we continue to build on the foundation set last year. With strong liquidity throughout 2023, a $50 million capital distribution was paid by the Los Gatos Joint Venture to its partners on July 20th, of which Gatos Silver received $35 million. We received $9 million, or we used $9 million of that $35 million to retire the outstanding balance of the revolving credit facility, and GSI is now debt-free with the full $50 million available under the revolving credit facility. From an operating perspective, the Los Gatos Joint Venture continued to perform well with a record mill throughput rate of over 2,900 tons per day. Our cost optimization initiatives contributed to offset the impact of the stronger Mexican peso against the dollar, as well as other inflationary cost pressures. And we are now focused on completing the new reserve and resource estimate this quarter and continue to do both resource expansion drilling and greenfields exploration on our over 100,000 hectare land package in the Los Gatos district. We currently have nine drill rigs, and I'll talk about this a bit later, soon to be 10, working to extend mine life and unlock the district's potential. Turning to slide four, this shows our continued strong operating performance at the Cerro Los Gatos mine. As expected in the mine plan, we mined lower silver grades during the second quarter. We expect that silver feed grades will gradually decrease towards reserve-grade over coming quarters and years as we move deeper in our deposit. Suralus Gatos had another record quarter of mill throughput in the second quarter, and we are continuing our debottlenecking efforts in the mine with a focus on productivity and equipment efficiencies. We are also continuing to push down on operating costs at the same time with a robust pipeline of continuous improvement and cost-production initiatives. For our all-in sustaining costs, we continue to expect to finish this year within guidance, and for after-buy products, that's within the $11 to $13 per payable ounce range. I'll now turn the call over to Andre to walk through some of the financials. Andre?

Thank you, Dale. Good morning, everyone. Slide 5 shows why we remain confident in this asset, as it continues to generate consistent, strong cash flow, period over period. The LGJV generated $74.4 million in cash flow from operations in the first half of 2023, compared to $80.5 million in the first half of 2022, with free cash flow of $48.4 million for the first half of the year. an increase of 14% compared to the first half of 2022. Our rate of sustaining capital spending is now decreasing as the operation has settled into an optimization stage, with cash flow from investing activities dropping from 19 million in Q2 2022 to $14.6 million in Q2 of 2023. We expect sustaining capital expenditures of $45 million for the full year of which $21 million was spent to date. In addition, exploration and capitalized resource development growing is expected to be $3 million and $13 million respectively, of which $1.1 million and $7 million has been incurred to date. Lower cash flow from operations during Q2 2023 was offset by lower capital expenditures, resulting in similar free cash flow of $19.7 million versus $19.5 million in Q2 2022. The joint venture ended the quarter with approximately $83 million of cash and cash equivalents and made a capital distribution of $50 million to the JV partners on July 20th, of which Gatos received $35 million. Turning to the financial performance for the quarter, we will start with the results of the 70% owned LGJV. Revenues increased by 2% to $58.3 million. The increase in revenue is primarily due to a lower provisional revenue adjustment and a 19% increase in the realized solar price. The increase was partly offset by a 13%, 10%, and 19% decrease in volume of solar, zinc, and lead salts. In addition, the realizing price dropped by 50%. Cost of sales decreased by 7% primarily as a result of the decrease in volume of concentrates sold in the period and continued cost reduction initiatives which offset the impact of the strengthening peso against the US dollar and other cost inflationary pressures. Depreciation, depletion and amortization expense was higher than in Q2 2022, primarily due to higher times mine and the additional depreciation charge of capital projects completed in late 2022 and early 2023. Income tax expense increased by $2.9 million, primarily due to an increase in non-cash deferred tax expense, partially offset by a decrease in current income tax expense. Overall, the LTJV had net income of approximately $750,000 in Q2 2023, compared to $3.4 million in Q2 2022. The change in net income was primarily due to increases in DD&A and income tax expense, partially offset by decreases in royalties, exploration expense, a gain on foreign exchange, and an increase in interest income. Turning to the financial results for Gato Silver on slide seven, For the quarter ended June 30, 2022, Cuddle Silver recorded a net loss of $3.6 million, or $0.05 per share, compared to net income of $5.2 million, or $0.08 per share, for the quarter ended June 30, 2022, mainly due to the decrease in equity income in affiliates. Equity income in affiliates decreased primarily as a result of the lower net income recorded at the joint venture. In addition, corporate G&A was approximately $1.9 million higher in Q2 2023 compared to Q2 2022, primarily due to non-recurring audit and consulting fees related to the restatement of financial statements, as well as higher legal defense costs. Looking at our balance sheets and liquidity on slide 8, the LGJV continued to generate strong cash flow during the first half of the year, generating approximately $74 million in cash flow from operations and $48.4 million in free cash flow during the first half of the year. The LGJV entered the quarter with a cash balance of approximately $83 million. As previously mentioned, on July 20th, the LGJV paid a $50 million capital distribution to its partners, Guttos Silver and Doha, of which we received $35 million. After the capital distribution, the LGJV remained well capitalized with approximately $30 million of cash. Cuttle Silver ended the quarter with a cash balance of $9.1 million and $9 million outstanding on its revolving credit facility. After the end of the quarter, the company used $9 million of the 35 capital distribution received to pay off the full outstanding balance on the revolving credit facility on July 21st, 2023. Cut-off silver is debt-free with approximately $36 million in cash at July 31st, 2023. The company and the LGJB are well-positioned to continue to execute on growth opportunities. As shown on slide 9, we're on track to meet previously announced production and cost guidance. As per the mine plan, we expect the silver to be higher in the first half of the year and lower in the second half of the year. as a result of lower-grade schedule to be mined in the second half of the year. We still expect full-year COVID product all-interstanding cost per ounce to be within the $15.50 and $17.50 per silver equivalent downrange, and between $11 and $13 per silver ounce on a byproduct basis. We are also on track to meet our sustaining capital guidance of $45 million for 2023. In addition to the $13 million, which we anticipate spending on resource development drilling on the southeast deep zone this year. I will now hand it back to Dale to tell you more about the life of mine and exploration upside of the CLG.