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spk01: At this time, all participants are placed on mute 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. Garret Silver does not assume the obligation to update any forward-looking statements. And now I would like to turn the call over to Dale Andrus. Please go ahead, sir.
spk03: Thank you, operator, and good morning, everyone. Turning to slide three, I'd like to start with highlighting the excellent financial performance in the quarter. The Los Gatos String Venture had record revenues, record cash flow from operations, and record free cash flow. This was primarily due to the strong operating performance and higher metal prices in the quarter. As previously announced, the Los Gatos String Venture set yet another record for mill throughput during the quarter, and we continue to make meaningful progress towards achieving our medium-term target of sustaining a 3,500 ton per day rate through the mill. Second quarter production results puts us in a strong position to achieve our annual guidance. As a result of the strong operating performance this quarter, our all-in sustaining cost metrics for the full year are expected to remain in the lower half of our guidance range despite the continued strong pace, although that is starting to weaken, and inflationary pressures in the first half of the year. I would also like to highlight the Los Gatos String Venture's free cash flow of almost $41 million in the second quarter of 2024, a 60% increase compared to the first quarter. Keeping to our quarterly cadence, the joint venture made a $40 million distribution in July, and as a result, Gatos Silver had a cash balance of nearly $109 million at the end of July. Work on our new Life of Mine plan is progressing well, and we are on track to announce the new mills in September. We are aiming to increase throughput and also extend the mine life. During the second quarter, we shifted our main focus from infill drilling in the southeast deeps to more greenfields exploration drilling on both near mine and other targets in the highly prospective Los Gatos district. I'll talk about that more later on in the presentation. But first, turning to slide four, mill throughput for the second quarter was 32, 3240 tons per day, the sixth consecutive quarterly record. Mill throughput and metal grades were higher than in the second quarter of 2023, resulting in silver production being 15% higher compared to the second quarter of last year. And finishing this past quarter at 2.3 million ounces in silver equivalent production, which includes zinc, lead and gold, and a little bit of copper at 3.9 million ounces for the quarter. Mill throughput increased 1% quarter over quarter, with the mill regularly running at an operating rate of between 3,500 and 3,700 tons per day, and that's on a calendar day basis. As we have stated previously, mining is the bottleneck to achieve further throughput improvements, and we have a number of initiatives underway to address this bottleneck, including rebuilding the underground equipment fleet and various operational improvement projects, which are focused on planning, maintenance, and operational execution. Site operating unit costs were approximately $101 per ton this quarter, and that's 3% lower than the comparable quarter in last year. Cash costs for the quarter were 14% higher than in the second quarter last year, and that's primarily due to the higher production rates. Our continuous improvement initiatives continued to offset the strong pay soul and the inflationary cost pressures. All in sustaining costs per payable ounce of silver, and that's after byproduct credits, were $6.57, and that's 57% lower than the second quarter last year, and below our guidance range for 2024. And again, that was helped by strong byproduct production and sales. All in sustaining costs per payable ounce on a silver equivalent basis, which is co-product basis, were just over $15, and that's 13% lower than in the second quarter last year, and well within our guidance range for 2024. And a bit more on guidance, moving to slide five, based on the strong production in the first half of the year, we continue to expect throughput rates at Cerro Los Gatos to average in the top half of our 3,000 to 3,300 ton per day guidance range for the year, and we continue to expect full year production to be in the upper half of our guidance range for 2024. As you can see in the table, silver and silver equivalent production are at approximately 53% on a -to-date basis compared to the midpoint of guidance, and our unit cost metrics are tracking below the midpoint in the first half of the year. We still expect exploration and definition drilling spend to be about $18 million for 2024 and sustaining capital expenditures to be approximately $45 million, with the majority of the capex spent on underground development, with continued focus on opening up the southeast area and mine equipment rebuilds. I'll now turn the call over to André to present our financial results.
spk02: Thank you, Dale. Moving to slide six. Good morning, everyone. The 70% on Los Gatos Joint Ventures strong operating performance and strong realized metal prices resulted in another quarter of robust cash flow generation. Cash flow provided by operations was approximately $54.5 million, a new quarterly record. The LGJV generated free cash flow of $40.8 million this quarter, 60% higher than the $35.5 million in Q1 2024 and 107% higher than the $19.7 million in Q2 2023, also a new record for the LGJV. The increase from the comparable quarter last year was primarily due to significantly higher revenues partially offset by our operating costs, largely due to higher volumes. Cash flow used in investing activities was $13.7 million in Q2 2024, $900,000 lower than in Q2 2023. Of that amount, $11.4 million was spent on sustaining capital expenditures and $1.9 million on resource development drilling. The LGJV made a capital distribution of $25 million in April 2024, and as a result of continued strong free cash flow generation in the second quarter, the joint venture made a $40 million capital distribution in July, subsequent to the end of the quarter. Now turning to slide seven to look at the financial results of the Los Gatos joint venture for the quarter. Revenues increased 62% to $94.2 million in the second quarter of 2024. Higher volumes of metal sold and higher realized metal prices contributed to the significant increase in revenue for the quarter. The provisional revenue adjustment was a $700,000 positive adjustment compared to a $3.1 million negative adjustment in Q2 2023. Cost of sales increased by 24%, primarily due to a 29% increase in the tonnage of concentrate sold and the associated higher mining and processing costs as a result of an 11% increase in world throughput. Cost of sales were further impacted by the stronger Mexican peso in Q2 2024 compared to Q2 2023. Depreciation, depletion and amortization expense decreased by approximately 5%, primarily due to the increase in mineral reserves and the extension of the life of mine, partially offset by capital additions. An income tax expense of $12.5 million was recorded compared to $4.7 million in Q2 2023. Income tax expense increased primarily due to higher taxable income at the LGJV. Finally, the LGJV recorded net income of approximately $20.5 million, a significant increase from the $700,000 net income recorded in Q2 2023, mainly as a result of the higher revenues. During to slide 8, to review the financial results, we'll go to solar. Net income for the second quarter of 2024 was $9.2 million compared to a net loss of $3.6 million in Q2 last year. Basic and diluted earnings were 13 cents per share this quarter compared to a net loss of $5.2 million in Q2 2023. Equity income and affiliates increased to $14.5 million, primarily due to the increase in net income of the LGJV. The company incurred general and administrative expenses of $7.9 million compared to $6.2 in Q2 2023. The $1.7 million increase is primarily due to a $1.2 million increase in non-cash stock-based compensation expense as a result of equity grants since September 2023 after an extended back-up period, and also a $600,000 increase in legal and consulting fees. Most of these higher costs are non-recurring and we do not expect it to continue beyond 2024. GNI excluding non-cash stock-based compensation expense was $6.3 million compared to $5.7 in Q2 2023. Lastly, other income includes $1.5 million of the quarterly management fees received from the LGJV for the quarter. Turning to slide 9, as was mentioned earlier, the joint venture-prior capital distribution of $25 million to its partners, Katos, Fulver and Della, during the second quarter, of which we received $17.5 million. As a result, Katos Fulver ended the second quarter with a cash balance of $82.5 million. In July, the LGJV made another capital distribution of $40 million, of which the company received $28 million, bringing the company's cash balance to $108.9 million at July 31, 2024. The LGJV ended the second quarter with a cash balance of $45.5 million and had a cash balance of $24.4 million at July 31, 2024. Both the JSI and the joint venture continue to remain debt-free. I will now hand it back to Della.
spk03: Thanks, Andre. On slide 10, it highlights how our business improvement initiatives are helping to drive cost performance together with the increased mill throughput. Site operating costs per ton have decreased by 9% over the past three years, and that's despite inflationary pressures and the substantial strengthening of the Mexican peso over that time period.
spk00: We are continuing to
spk03: focus on the efficiency of our underground workforce and equipment, including continuing our rebuild program on our equipment and advancing other productivity initiatives to sustainably mine at our current 3,200 to 3,300 ton per day rate, with targets to further extend up to 3,500 tons per day in the medium term. Turning to slide 11, we remain on track to provide our updated life of mine plan and mineral reserves in the third quarter of 2024. And as I said previously, we're targeting September. We are working to incorporate a higher throughput rate in the new mine plan, as the current plan averages 2,950 tons per day. So driving towards our 3,500 target would be a significant increase. However, we still expect an extension to the life of mine, notwithstanding this higher rate. The new reserve will be based on an additional 66 kilometers of drilling that's been completed over the previous 12 month period, and that was up to the end of the first quarter of this year. And as a reminder, the Southeast Deep's conversion drilling, which was completed during that 12 month period up to March 2024, was done on 50 meter spacing. We still have two drills dedicated to further expansion of this zone along strike, with additional strong results for this area reported in our most recent exploration release in late July. On the plan recovery side of things, we are completing detailed engineering for a copper separation circuit and anticipate making a decision in the second half of this year on that. We are also evaluating technology and various options for increasing the recovery of silver, gold, and zinc from fines that are currently being lost to tailings. Turning to slide 12, we are highlighting a balanced approach to our organic growth strategy. The images on this slide show a few of the key targets that are located within kilometers of the existing mine workings. The second quarter marked a clear pivot in our execution towards unlocking value in the Los Gatos district. With the completion of the Southeast Deep's infill program for the 2024 reserve and resource update, efforts were immediately redirected towards brownfield extension and growth-related drilling. At the same time, our significant increase in greenfields work in the district provides the required balance between life extension and district exploration, ensuring we can continue to advance our knowledge of key targets across all levels of the exploration pipeline, and that's from early stage mapping across our ,000-hectare property through to resource and hopefully reserve additions. While we advance our drilling programs, we remain committed and excited about the potential of our field mapping programs, which is continuing to help unlock value in this exciting district. And firm up additional targets for us to drill. On slide 13, it shows tangible results of how we're executing on this strategy in the district. Starting in the Northwest, we have our San Luis target located 4.5 kilometers from Cero Los Gatos infrastructure. We mobilized a drill rig to this target in the mid part of the last quarter, and we've already completed two holes. Both holes in San Luis have returned wide intervals of faulting, veining, and solicit breaches with elevated precious and base metal results. We are excited about the potential results that lay ahead of us, and we continue to drill test this target. Moving closer to the mine, we have the Cero Los Gatos deeps, which we're targeting the potential faulted portion of the central and Northwest stones at depth. And so this is similar to the Southeast deeps. We are mobilizing a new drill rig, and we actually have mobilized a new drill rig to site, and this was done last quarter. That began drilling a 1200 meter deep geological framework hole within the target footprint in the central deeps. This target is a key priority in our strategy, as any success will immediately open up a large and currently untested search area directly below our current mine infrastructure. Further to the Southeast, we also have our Portugueño target, and that's located approximately two kilometers from the mine. Our drill results are confirming a complex structural corridor, returning geochemically anomalous results. Our initial drill program continues to indicate all the right ingredients are present for a possible discovery. We will continue to advance our balanced strategy to unlock value in the Los Gatos district through the remainder of 2024, and plan to build off the exciting start realized in the second quarter. So in summary, on slide 14, we continue to safely drive mill throughput increases together with our productivity improvements and cost optimization, which continues to be a core part of our business and operating strategy. We remain focused on developing our new Life of Mine plan by September that incorporates the Southeast deeps conversion drilling, and together with other value enhancing initiatives, including higher throughput rates and the copper circuit, which I mentioned earlier. And we continue to be very excited as we continue our exploration drilling on our near mine targets, and that's on Portugueño, both the Northwest and Central deeps targets, and our district drilling in the large and highly prospective district that we have, and that includes the San Luis Prospect. And importantly, we continue to generate strong operating margins and cash flow with regular distributions expected from the joint venture and a growing cash balance at the corporate level that now exceeds $100 million, which is available to support future growth of the company. I'll now hand it back to the operator for questions.
spk01: At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Kevin O'Halleran from BMO Capital Markets. Your line is mentioned. I'll now open.
spk04: Hey, Dale and team. Thanks for taking my question. Maybe starting with the bigger picture question, can you give us any thoughts around the Mexican election in June and any expectations or anything you're hearing or seeing from the incoming administration with respect to mining that might impact you?
spk03: Yeah, thanks. Thanks, Kevin. Yeah, we're optimistic that things will be more pro-business under the new administration. We're seeing the bulk of the ministerial appointments to date being pro-business. And I would just point out the Minister of Economy in particular, Marcelo Herber. And I know the new incoming minister has also already met with the mining industry as a priority. So we're hopeful that things will improve for the industry. Just as a reminder, we don't need any immediate permits to continue operating, but I think it is healthy and for the future growth of our district, obviously, we'd like to see that area improve for the industry. And we're hopeful that that will be the case with the new administration coming in in October.
spk04: Great. Thanks for that. My second question, you addressed this a little bit in your comments already, but can you give us a sense of your exploration priorities and maybe the pace of drilling that we can expect? On near mine targets versus regional exploration now that the infilling is wrapped up?
spk03: Yeah, so I think we're currently, if I'm not mistaken, we're at five surface rigs. I think we're going to be going up to six. And two of those will remain on the southeast deeps and continuing to extend mineralization and ultimately reserves and resources and ultimately reserves. As you would have seen from our July release, we have hit some additional intersections in the second quarter since the cutoff date for our new life of mine plan. So we're going to continue to extend and expand the mineralization in that area. So that continues to be a priority. But I would say the other four rigs, we plan to have at least two of those on Greenfield. And right now we have one on central, you know, the central deeps. We may look at putting the sixth rig either on that or more broadly out in the district. And that's really speaking to the third quarter. Obviously, it depends on success. But as we ramp up to the fourth quarter, we're also looking at going further afield into the northwest of the property around the Linz area. And we definitely want to get the drills turning up in that area, which is just as a reminder, it's about 15 or so kilometers to the northwest of the mine. And we haven't done drilling in that area, I don't think since, you know, for more than 10 years, since the early days. But there's some really exciting mapping and targeting that we're doing out there. Our geologists come back from the field every day more and more excited about that area. And, yeah, we're looking forward to getting the drills up there.
spk04: Great, thanks. That's helpful. Final one for me, just a quick one on the rebuild program. Can you remind us about the timing on that? Is it still on track to wrap up in H2 here? And then should we expect to see that helping to bump up mining rates in the second half?
spk03: Yeah, we started our rebuild. Thanks again for the follow up, Kevin. We started our rebuild program on our mining equipment last year. We've been continuing that program this year and it continues into the first part of 2025. Obviously, our priority equipment was up first and foremost. But that would include, you know, our trucks, our loaders, our boulders, our jumbos. We really are refreshing the entire underground fleet. And we've been able to accomplish these increases that we've seen. You know, we've used some rental equipment to help offset while we've had the equipment help for rebuild. But the program probably has less than a year to go or probably about 70 to 80 percent of the way through. We should be finished the bulk of that by the first quarter of next year. And the priority equipment is obviously first. So we've done the vast majority of that. That helps us. That's not the only answer to increasing up to 3500 tons per day, which we've said is our medium term target. We're making good progress towards that. But it's using that equipment and it's everything like shift change times, blasting efficiencies. All continuing to optimize our backfill program, our cycling of long haul stoves. All of these types of things help us drive to that 3500 ton per day mark. But definitely having a refreshed equipment fleet is going to help that as well.
spk04: Great. Thanks for that, Dale. That's it for me. Congrats on the strong quarter and I'll jump back in the queue.
spk03: Thanks. Thanks,
spk04: Kevin.
spk01: Again, if you would like to ask a question, please press star than the number one on your telephone keypad. There are no further questions at this time, Mr. Andres. I turn the call back over to you.
spk03: OK, thanks. Thanks for listening, everyone. We look forward to updating you on our progress in the third quarter. Thank you.
spk01: This concludes today's call. You may now disconnect.
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