Gatos Silver, Inc. [GATO] Filings

10-Q 1 gato-20240930.htm 10-Q gato-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-39649

GATOS SILVER, INC.

(Exact name of registrant as specified in its charter)


Delaware			27-2654848
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

925 W Georgia Street, Suite 910

Vancouver, British Columbia, Canada V6C 3L2

(Address of principal executive offices) (Zip Code)

(604) 424-0984

(Registrant’s telephone number, including area code)

N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

GATO

New York Stock Exchange

Toronto Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
		Emerging growth company	☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The Company has 700,000,000 shares of common stock, par value $0.001, authorized of which 69,376,647 were issued and outstanding as of November 12, 2024.

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TABLE OF CONTENTS


		Page
	Part I
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income and Comprehensive Income	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	35
	Part II
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 5.	Other Information	37
Item 6.	Exhibits	40

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

GATOS SILVER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands of United States dollars, except share amounts)



	Notes	September 30, 2024		December 31, 2023
ASSETS
Current Assets
Cash and cash equivalents		$	116,732	$	55,484
Related party receivables	5	292		560
Other current assets	3	1,215		22,642
Total current assets		118,239		78,686
Non-Current Assets
Investment in affiliates	11	285,454		321,914
Deferred tax assets		222		266
Other non-current assets	3	348		38
Total Assets		$	404,263	$	400,904
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and other accrued liabilities	4	$	12,226	$	33,357
Non-Current Liabilities
Lease liability		187		—
Stockholders’ Equity
Common Stock, $0.001 par value; 700,000,000 shares authorized; 69,352,645 and 69,181,047 shares outstanding as of September 30, 2024 and December 31, 2023, respectively		117		117
Paid-in capital		556,050		553,319
Accumulated deficit		(164,317)		(185,889)
Total stockholders’ equity		391,850		367,547
Total Liabilities and Stockholders' Equity		$	404,263	$	400,904

See accompanying notes to the condensed consolidated financial statements.

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GATOS SILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands of United States dollars, except share amounts)



		Three Months Ended September 30,				Nine Months Ended September 30,
	Notes	2024		2023		2024		2023
Expenses
Exploration		$	144	$	—	$	219	$	26
General and administrative		10,435		7,494		25,270		19,157
Amortization		4		3		11		74
Total expenses		10,583		7,497		25,500		19,257
Other income (expense)
Equity income in affiliates	11	18,171		9,437		39,985		15,922

Interest expense		—		(332)		—		(679)
Interest income		1,322		389		3,206		676
Other income	5	1,503		1,291		4,582		3,868
Other income		20,996		10,785		47,773		19,787
Income before taxes		10,413		3,288		22,273		530
Income tax expense		529		—		701		—
Net income and comprehensive income		$	9,884	$	3,288	$	21,572	$	530
Net income per share:	7
Basic		$	0.14	$	0.05	$	0.31	$	0.01
Diluted		$	0.14	$	0.05	$	0.30	$	0.01
Weighted average shares outstanding:
Basic		69,343,979		69,162,223		69,247,280		69,162,223
Diluted		71,613,178		69,524,838		71,110,386		69,381,222

See accompanying notes to the condensed consolidated financial statements.

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GATOS SILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands of United States dollars, except share amounts)



	Number	Amount
	Common Stock		Common Stock	Paid-in Capital	Accumulated deficit	Total
Balance at December 31, 2023	69,181,047		117	553,319	(185,889)	367,547
Stock-based compensation	—		—	1,681	—	1,681
DSU compensation	—		—	8	—	8
Net income	—		—	—	2,532	2,532
Balance at March 31, 2024	69,181,047		117	555,008	(183,357)	371,768
Stock-based compensation	—		—	1,615	—	1,615
RSU settlement	139,839		—	(1,778)	—	(1,778)
Stock option exercises	20,341		—	110	—	110
DSU compensation	—		—	7	—	7
Net income	—		—	—	9,156	9,156
Balance at June 30, 2024	69,341,227		117	554,962	(174,201)	380,878
Stock-based compensation	—		—	1,024	—	1,024
Stock option exercises	11,418		—	56	—	56
DSU compensation				8	—	8
Net income	—		—	—	9,884	9,884
Balance at September 30, 2024	69,352,645		117	556,050	(164,317)	391,850

	Number	Amount
	Common Stock		Common Stock	Paid-in Capital	Accumulated deficit	Total
Balance at December 31, 2022	69,162,223		117	547,114	(198,749)	348,482
Stock-based compensation	—		—	783	—	783
Net income	—		—	—	835	835
Balance at March 31, 2023	69,162,223		117	547,897	(197,914)	350,100
Stock-based compensation	—		—	416	—	416
Net loss	—		—	—	(3,593)	(3,593)
Balance at June 30, 2023	69,162,223		117	548,313	(201,507)	346,923
Stock-based compensation	—		—	2,122	—	2,122
DSU compensation	—		—	554	—	554
Net income	—		—	—	3,288	3,288
Balance at September 30, 2023	69,162,223		117	550,989	(198,219)	352,887

See accompanying notes to the condensed consolidated financial statements.

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GATOS SILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of United States dollars, except share amounts)



		Nine Months Ended September 30,
	Notes	2024		2023
OPERATING ACTIVITIES
Net income		$	21,572	$	530

Adjustments to reconcile net income to net cash provided (used) by operating activities:
Amortization		11		74
Stock-based compensation expense	6	4,319		3,327
Equity income in affiliates	11	(39,985)		(15,922)

Other		94		837
Distributions and dividends received from affiliate	11	76,445		35,000

Changes in operating assets and liabilities:
Receivables from related‑parties		268		678
Accounts payable and other accrued liabilities		(23,007)		5
Other current assets		21,454		936
Net cash provided by operating activities		61,171		25,465

INVESTING ACTIVITIES

Net cash used by investing activities		—		—

FINANCING ACTIVITIES
Proceeds from exercise of stock options		166		—
Lease payments		(89)		—
Repayment of Credit facility		—		(9,000)
Net cash provided (used) by financing activities		77		(9,000)
Net increase in cash and cash equivalents		61,248		16,465
Cash and cash equivalents, beginning of period		55,484		17,004
Cash and cash equivalents, end of period		$	116,732	$	33,469

Interest paid		$	16	$	417
Interest earned		$	3,206	$	690

See accompanying notes to the condensed consolidated financial statements.

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GATOS SILVER, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of United States dollars, except share amounts)

1. Basis of Presentation

Basis of Consolidation and Presentation

The financial statements represent the condensed consolidated financial position and results of operations of Gatos Silver, Inc. and its subsidiaries, Gatos Silver Canada Corporation and Minera Luz del Sol S. de R.L. de C.V. Unless the context otherwise requires, references to “Gatos Silver” or the “Company” mean Gatos Silver, Inc. and its consolidated subsidiaries.

The interim condensed consolidated financial statements are unaudited, but include all adjustments, consisting of normal recurring entries, which are necessary for a fair presentation for the dates and periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“the SEC”) on February 20, 2024, as amended by Amendment No 1. on Form 10-K/A filed with the SEC on May 6, 2024 (as amended, the “2023 10-K”).

Merger Agreement with First Majestic

On September 5, 2024, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with First Majestic Silver Corp. ("First Majestic") and Ocelot Transaction Corporation, a wholly-owned subsidiary of First Majestic (“Merger Sub”) that provides for the acquisition of Gatos Silver by First Majestic. On the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving the Merger as a direct, wholly-owned subsidiary of First Majestic (the "Merger"). Under the terms of the Merger Agreement, if the Merger is completed, the Company's stockholders will have the right to receive 2.55 First Majestic common shares in exchange for each share of Gatos Silver common stock owned immediately prior to the effective time of the Merger, with any fractional shares to be paid in cash, without interest. The Merger will result in our stockholders owning approximately 38% of the outstanding First Majestic common shares immediately following the effective time of the Merger (based on current outstanding shares). The closing of the Merger is expected to occur in early 2025, subject to the satisfaction or waiver of the conditions precedent to such closing, but in any event, not earlier than January 15, 2025.

2. Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The consolidated financial statements for the year ended December 31, 2023, disclose those accounting policies considered significant in determining the Company's results of operations and financial position. There have been no material changes to, or in the application of, the accounting policies previously identified and described in the 2023 10-K.

Recent Accounting Pronouncements

In March 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2024-02, Codification Improvements: Amendments to Remove References to the Concepts Statements. This ASU contains amendments to the Accounting Standards Codification (the "ASC") that remove references to various FASB Concepts Statements. The FASB has a standing project on its agenda to address suggestions received from stakeholders on the ASC and other incremental improvements to GAAP. This effort facilitates ASC updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. The resulting amendments are referred to as ASC improvements. The amendments of this update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is still assessing the impact of this ASU, but does not expect it to have a material impact on the financial statements.

In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. The amendments in this ASU modify the disclosure or presentation requirements of a

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variety of Topics in the ASC. Certain amendments represent clarifications to or technical corrections of the current requirements. Each amendment in this ASU will only become effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027. The Company is still assessing the impact of the standard.

There have been no other accounting pronouncements issued or adopted during the nine months ended September 30, 2024, which are expected to have a material impact on the financial statements.

3. Other Current Assets


	September 30, 2024		December 31, 2023
Value added tax receivable	$	647	$	691
Prepaid expenses	558		1,914
Insurance proceeds receivable	—		20,000
Other assets	10		37
Total other current assets	$	1,215	$	22,642

The insurance proceeds receivable represents estimated insurance payable by the Company’s insurers to claimants on behalf of the Company related to the settlement of the U.S. Class Action and Canadian Class Action (each, as defined in Note 9) lawsuits. On March 22, 2024, the Company and its insurers made payments in escrow of $1,403 and $19,597, respectively, to fund the U.S. Class Action settlement. On April 26, 2024, the Company and its insurers made a payment in escrow of $2,597 and $403, respectively, to fund the Canadian Class Action settlement. See Note 9 Commitments, Contingencies and Guarantees, for further discussion on the U.S. Class Action and Canadian Class Action lawsuits and related settlements.

As at September 30, 2024, other non-current assets include the right of use asset of $319 for the office lease with the term until January 30, 2027. The corresponding current lease liability of $132 as at September 30, 2024, and $11 as at December 31, 2023, is included in accounts payable, accrued and other liabilities, and a long-term lease liability of $187 at September 30, 2024, and nil at December 31, 2023, are included in non-current liabilities.

4. Accounts Payable and Other Accrued Liabilities


	September 30, 2024		December 31, 2023
Accounts payable	$	2,686	$	2,713
Accrued expenses	6,379		3,031
Accrued compensation	2,481		3,215
Legal settlement payable	—		24,000
Current tax payable	548		387
Other liabilities	132		11
Total accounts payable and other current liabilities	$	12,226	$	33,357

The legal settlement payable represents the estimated settlement amount payable to claimants included in the U.S. Class Action and Canadian Class Action lawsuits. On March 22, 2024, the Company and its insurers made payments in escrow of $1,403 and $19,597, respectively, to fund the U.S. Class Action settlement. On April 26, 2024, the Company and its insurers made payments in escrow of $2,597 and $403, respectively, to fund the Canadian Class Action settlement. See Note 9 Commitments, Contingencies and Guarantees, for further discussion on the U.S. Class Action and Canadian Class Action lawsuits and related settlements.

5. Related Party Transactions

Los Gatos Joint Venture (the "LGJV")

Under the Unanimous Omnibus Partner Agreement, which governs the respective LGJV rights of the Company and Dowa Metals and Mining Co., Ltd., the Company provides certain management and administrative services to the LGJV. The Company earned $1,500 and $1,250 under this agreement for the three months ended September 30, 2024 and 2023, respectively, and for the nine months ended September 30, 2024 and 2023, the Company earned $4,500 and $3,750, respectively. The income from these services has been recorded on the consolidated statements of income and comprehensive income under other income. The Company received $1,500 and $1,666 from the LGJV under this agreement for the three months ended September 30, 2024 and 2023, respectively, and for the nine months ended September 30, 2024 and 2023, the Company received $4,500 and $3,333, respectively. The Company had no

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receivables outstanding under this agreement as of September 30, 2024, and December 31, 2023. The Company also incurs certain LGJV costs that are subsequently reimbursed by the LGJV, of which $292 was outstanding at September 30, 2024, and nil as of December 31, 2023.

6. Stockholders’ Equity

The Company is authorized to issue 700,000,000 shares of $0.001 par value common stock and 50,000,000 shares of $0.001 par value preferred stock.

Stock-Based Compensation

The Company recognized stock-based compensation expense as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Stock Options	$	479	$	1,873	$	1,808	$	2,980
Performance share units	41		62		132		160
Restricted share units	504		187		2,379		187
Total stock-based compensation	$	1,024	$	2,122	$	4,319	$	3,327

Stock Option Transactions

No stock options were granted during the three months ended September 30, 2024, and 647,753 stock options were granted during nine months ended September 30, 2024, with a weighted-average grant-date Black-Scholes fair value per share of $3.88. The Company granted 1,132,520 stock options during the three and nine months ended September 30, 2023, with a weighted-average grant-date fair value per share of $2.93. During three and nine months ended September 30, 2024, 52,475 and 98,760 stock options were exercised, respectively. There were no stock options exercised during the three and nine months ended September 30, 2023.

Total unrecognized stock-based compensation expense as of September 30, 2024, was $2,716, which is expected to be recognized over a weighted average period of 1.9 years.

Stock option activity for the nine months ended September 30, 2024, is summarized in the following tables:


Employee & Director Stock Options	Number of options	Weighted‑ Average Exercise Price
Outstanding at December 31, 2023	2,616,515	$	8.83
Granted	647,753	$	6.70
Exercised	(98,760)	$	9.87
Forfeited	(17,818)	$	6.82
Expired	(9,946)	$	11.62
Outstanding at September 30, 2024	3,137,744	$	8.36
Vested at September 30, 2024	2,108,816	$	9.26

The following assumptions were used to compute the fair value of the options granted using the Black-Scholes option valuation model:


	April 2024		January 2024
Risk-free interest rate	4.56	%	3.86	%
Dividend yield	—		—
Estimated volatility	58.42	%	58.00	%
Expected option life	6 years		6 years

At September 30, 2024, the Company had 24,501 stock options previously granted to LGJV personnel outstanding with a weighted-average exercise price of $7.41 and a weighted-average remaining life of 1.3 years. There were no stock option grants to LGJV-

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personnel during the three and nine months ended September 30, 2024 and 2023. During three and nine months ended September 30, 2024, 7,892 stock options granted to LGJV personnel were exercised. There were no stock option exercises during the three and nine months ended September 30, 2023.

Performance Share Unit ("PSU") Transactions

On December 17, 2021, 119,790 PSUs were granted to the Company’s employees with a weighted-average grant date fair value per share of $14.22. At September 30, 2024, there were 40,802 PSUs outstanding. On September 30, 2024, unrecognized compensation expense related to the PSUs was $34, which is expected to be recognized over a weighted-average period of 0.2 years.

Restricted Stock Unit ("RSU") Transactions

RSUs granted are reported as equity awards with a fair value of each RSU equal to the fair value of the Company's common stock on the grant date. Each earned RSU represents the right to receive one share of the Company's common stock, subject to the terms of the grant agreement, and generally vest on or before the third year-end following the grant date.

The following table summarizes the RSU activity for the nine months ended September 30, 2024:


Employee RSUs	Number of RSUs	Weighted‑ Average Price Per Share
Outstanding at December 31, 2023	925,172	$	5.04
Granted	323,875	$	6.70
Settled	(300,729)	$	5.04
Forfeited	(11,948)	$	5.50

Outstanding at September 30, 2024	936,370	$	5.61

No RSUs were granted during the three months ended September 30, 2024 and 323,875 RSUs were granted during nine months ended September 30, 2024, with a weighted-average grant-date fair value per share of $6.70. During the three and nine months ended September 30, 2023, the Company granted 925,172 RSUs with a grant-date fair value per share of $5.04. Compensation expense is recognized ratably from the grant date over the requisite vesting period. On September 30, 2024, unrecognized compensation expense related to the RSUs was $3,341, which is expected to be recognized over a weighted-average period of 1.6 years.

Deferred Stock Unit ("DSU") Transactions

DSUs are awarded to directors at the discretion of the Company's Board of Directors. The DSUs are fully vested on the grant date and each DSU entitles the holder to receive one share of the Company’s common stock upon the director’s cessation of continuous service. Non-employee directors are eligible to elect to defer receipt of any portion of annual retainers or meeting fees and take payment in the form of DSUs. The fair value of the DSUs is equal to the fair value of the Company’s common stock on the grant date.

The following table summarizes the DSU activity for the nine months ended September 30, 2024:


Director DSUs	Number of DSUs	Weighted‑ Average Price per Share
Outstanding at December 31, 2023	302,920	$	7.76
Granted	2,194	$	10.76
Outstanding at September 30, 2024	305,114	$	7.78

7. Net income per share

Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed similarly, except that weighted-average common shares are increased to reflect the potential dilution that would occur if in-the-money stock options were exercised or common shares were issued upon settlement of PSUs, DSUs or RSUs. The dilutive effects are calculated using the treasury stock method.

For the three and nine months ended September 30, 2024 and 2023, weighted average outstanding in-the-money stock options, and dilutive PSUs, RSUs and DSUs, are included in dilutive net income per common share calculation.

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A reconciliation of basic and diluted net income per common share for the three and nine months ended September 30, 2024 and 2023, is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income	$	9,884	$	3,288	$	21,572	$	530

Weighted average shares:
Basic	69,343,979		69,162,223		69,247,280		69,162,223
Effect of dilutive stock options	1,247,400		—		885,438		—
Effect of dilutive PSUs	61,203		—		61,203		—
Effect of dilutive RSUs	656,031		193,168		612,685		64,626
Effect of dilutive DSUs	304,565		169,447		303,780		154,373
Diluted	71,613,178		69,524,838		71,110,386		69,381,222

Net income:
Basic	$	0.14	$	0.05	$	0.31	$	0.01
Diluted	$	0.14	$	0.05	$	0.30	$	0.01

8. Fair Value Measurements

The Company establishes a framework for measuring the fair value of assets and liabilities in the form of a fair value hierarchy that prioritizes the inputs into valuation techniques used to measure fair value into three broad levels. This hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs. Further, financial assets and liabilities should be classified by level in their entirety based upon the lowest level of input that was significant to the fair value measurement. The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2: Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.

Level 3: Unobservable inputs due to the fact there is little or no market activity. This entails using assumptions in models which estimate what market participants would use in pricing the asset or liability.

Assets and Liabilities that are Measured at Fair Value on a Non-recurring Basis

The Company discloses and recognizes its non-financial assets and liabilities at fair value on a non-recurring basis and makes adjustments to fair value, as needed (for example, when there is evidence of impairment).

The Company recorded its initial investment in affiliates at fair value within Level 3 of the fair value hierarchy, as the valuation was determined based on internally developed assumptions with few observable inputs and no market activity.

9. Commitments, Contingencies and Guarantees

In determining its accruals and disclosures with respect to loss contingencies, the Company will charge to income an estimated loss if information available prior to the issuance of the condensed consolidated financial statements indicates that it is probable that a liability has been incurred at the date of the condensed consolidated financial statements and the amount of the loss can be reasonably estimated. Legal expenses associated with the commitments and contingencies are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the condensed consolidated financial statements when it is at least reasonably possible that a material loss could be incurred.

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Environmental Contingencies

The Company’s mining and exploration activities are subject to various laws, regulations and permits governing the protection of the environment. These laws, regulations and permits are continually changing and are generally becoming more restrictive. The Company has made, and expects to make in the future, expenditures to comply with such laws, regulations and permits, but cannot predict the full amount of such future expenditures.

Merger Fee Payable

In connection with the Merger, a fee is payable to the Company's financial advisors based on the aggregate value of the consideration received by the Company's shareholders. The payment of the fee is conditional upon the closing of the Merger.

Legal

On February 22, 2022, a purported Company stockholder filed a putative class action lawsuit in the United States District Court for the District of Colorado (the "District Court") against the Company, certain of our former officers, and several directors (the "U.S. Class Action"). An amended complaint was filed on August 15, 2022. The amended complaint, allegedly brought on behalf of certain purchasers of the Company’s common stock and certain traders of call and put options on the Company’s common stock from December 9, 2020 through January 25, 2022, seeks, among other things, damages, costs, and expenses, and asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 as well as Sections 11 and 15 of the Securities Act of 1933. The amended complaint alleges that certain individual defendants and the Company, pursuant to the control and authority of the individual defendants, made false and misleading statements and/or omitted certain material information regarding the mineral resources and reserves at the Cerro Los Gatos ("CLG") mine. The Company and all defendants filed a motion to dismiss this action on October 14, 2022. That motion was fully briefed as of December 23, 2022. On April 26, 2023, following a joint motion, the District Court postponed its ruling on the defendants’ motion to dismiss until on or after June 16, 2023.

On June 13, 2023, the Company entered into an agreement in principle to settle the U.S. Class Action. Subject to certain conditions, including class certification by the District Court, the execution of a definitive stipulation of settlement and approval of the settlement by the District Court, the settling parties agreed to resolve the U.S. Class Action for an aggregate payment by the Company and its insurers of $21,000 to a settlement fund. On June 16, 2023, the parties filed a joint status report requesting that the District Court grant a temporary stay of all proceedings in the case pending submission of proposed settlement documentation on or before July 13, 2023. On July 13, 2023, the plaintiffs filed an unopposed motion for an order preliminarily approving a stipulation of settlement agreed by the parties and providing for class notice which will provide for (i) preliminary approval of the settlement; (ii) approval of the form and manner of giving notice of the settlement to the settlement class; and (iii) a hearing date and time to consider final and approval of the settlement and related matters (the “Preliminary Order”). On September 12, 2023, the plaintiffs filed an unopposed motion to amend the Preliminary Order to reflect certain changes to the form of release proposed to be executed by the plaintiffs.

The District Court issued its Preliminary Order on February 29, 2024, approving the proposed settlement. Consistent with the stipulation of settlement requiring that a settlement account be funded within 30 days of the Preliminary Order, the Company and its insurers have fully funded that account, with $1,403 funded by the Company and $19,597 funded by the Company’s insurers. The final fairness hearing with the District Court was held on May 29, 2024. On October 15, 2024, the District Court issued (i) an Order which included the grant of the plaintiff’s motion for final approval of the settlement and approved the plan of allocation and (ii) its Final Judgment which dismissed the action with prejudice.

By Notice of Action issued February 9, 2022, and subsequent Statement of Claim dated March 11, 2022, Izabela Przybylska (the "Plaintiff") commenced a putative class action against the Company, certain of its former officers, and others in the Ontario Superior Court of Justice on behalf of a purported class of all persons or entities, wherever they may reside or be domiciled, who acquired securities of the Company in both the primary and secondary markets during the period from October 28, 2020 until January 25, 2022 (the “Canadian Class Action”). The action asserts claims under Canadian securities legislation and at common law and seeks unspecified monetary damages and other relief in respect of allegations the defendants made false and misleading statements and omitted material information regarding the mineral resources and reserves of the Company.

On January 26, 2024, counsel for the Company and counsel for the Plaintiff executed a term sheet wherein any claims against the Company and the named individuals would be settled for a payment by the Company of $3,000. Such counsel subsequently agreed to and executed a definitive settlement agreement. On April 16, 2024, the Ontario Superior Court approved the settlement on a preliminary basis. Consistent with the terms of the settlement requiring that an escrow account be funded within 30 days of preliminary court approval, the Company and its insurers have fully funded an escrow account, with $2,597 funded by the Company and $403 funded by the Company’s insurers. The final fairness hearing with the Ontario Superior Court was held on June 28, 2024, and the Ontario Superior Court issued orders on that day approving the settlement.

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The Company has made disclosures to the U.S. Department of Justice (the "DOJ") and the SEC regarding its January 25, 2022 press release and issues related to CLG’s mineral reserves and mineral resources at the time. The Company has been cooperating with those agencies’ investigations. The Company was advised on July 15, 2024, that the DOJ has closed its investigation in relation to the Company. The Company understands that the SEC's investigation has not been completed and cannot reasonably predict any outcome.

There can be no assurance that any of the foregoing matters individually or in aggregate will not result in outcomes that are materially adverse for the Company.

10. Segment Information

The Company operates in a single industry as a corporation engaged in the acquisition, exploration and development of primarily silver mineral interests. The Company has mineral property interests in Mexico. The Company’s reportable segments are based on the Company’s mineral interests and management structure and include Mexico and Corporate segments. The Mexico segment engages in the exploration, development and operation of the Company’s Mexican mineral properties and includes the Company’s investment in the LGJV. Financial information relating to the Company’s segments is as follows:


	Three Months Ended September 30, 2024						Three Months Ended September 30, 2023
	Mexico		Corporate		Total		Mexico		Corporate		Total
Exploration expense	$	36	$	108	$	144	$	—	$	—	$	—
General and administrative expense	257		10,178		10,435		187		7,307		7,494
Amortization expense	4		—		4		3		—		3
Equity income in affiliates	(18,171)		—		(18,171)		(9,437)		—		(9,437)
Interest expense	—		—		—		—		332		332
Interest income	—		(1,322)		(1,322)		—		(389)		(389)
Other income	(44)		(1,459)		(1,503)		(12)		(1,279)		(1,291)
Income tax expense	—		529		529		—		—		—
Total assets	92,872		311,391		404,263		36,872		342,378		379,250

	Nine Months Ended September 30, 2024						Nine Months Ended September 30, 2023
	Mexico		Corporate		Total		Mexico		Corporate		Total
Exploration expense	$	111	$	108	$	219	$	26	$	—	$	26
General and administrative expense	704		24,566		25,270		425		18,732		19,157
Amortization expense	11		—		11		10		64		74
Equity income in affiliates	(39,985)		—		(39,985)		(15,922)		—		(15,922)
Interest expense	—		—		—		—		679		679
Interest income	—		(3,206)		(3,206)		—		(676)		(676)
Other income	(105)		(4,477)		(4,582)		(88)		(3,780)		(3,868)
Income tax expense	—		701		701		—		—		—
Total assets	92,872		311,391		404,263		36,872		342,378		379,250

11. Investment in Affiliates

Equity income in affiliates represents the Company's ownership share of the LGJV Entities' results, including the effect of the priority distribution payment and amortization of the carrying value of the investment in excess of the underlying net assets of the LGJV Entities. This basis difference of $1,207 at September 30, 2024 ($699 at December 31, 2023) is being amortized as the LGJV Entities' proven and probable reserves are processed.

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The table below presents a reconciliation of the investment in affiliates at September 30, 2024:


Balance at December 31, 2023		$	321,914
LGJV net income and comprehensive income (70%)	39,465
Basis amortization	(120)
Impact of the priority distribution payment	640
Equity income in affiliates		39,985
Distributions received from the LGJV		(66,500)
Dividend received from the LGJV		(9,945)
Balance at September 30, 2024		$	285,454

The table below presents equity income in affiliates recognized in the three and nine months ended September 30, 2024 and 2023:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Equity income in affiliates	$	18,171	$	9,437	$	39,985	$	15,922

The table below shows the capital distributions and dividends made to the LGJV partners by the LGJV and the Company's respective share during 2024:


	LGJV		Company's Share
Capital distribution on February 15, 2024	$	30,000	$	21,000
Capital distribution on April 22, 2024	25,000		17,500
Capital distribution on July 29, 2024	40,000		28,000
Dividend on September 26, 2024	14,207		9,945
Total	$	109,207	$	76,445

On November 7, 2024, the LGJV made a $40,000 capital distribution to the LGJV partners, of which the Company’s share was $28,000.

On September 26, 2024, the LGJV paid dividends of $14,207 to its partners, of which the Company's share was $9,945 before withholding taxes of $497.

On September 25, 2024, the Company reported an updated mineral reserve and mineral resource estimate and life of mine plan for the CLG mine with an effective date of July 1, 2024. The mine life was extended to October 2032 from the previously estimated mine life and the mineral reserve estimate was increased. This change in mineral reserve estimate was applied effective July 1, 2024, and resulted in a reduction of depletion, depreciation and amortization expense of $3,700 in the three and nine months ended September 30, 2024. On October 22, 2024, the Company published an updated Technical Report Summary, dated October 22, 2024, concerning the Los Gatos Joint Venture (the "Technical Report Summary"), with an effective date of July 1, 2024.

The LGJV combined balance sheets as of September 30, 2024, and December 31, 2023, the combined statements of operations and comprehensive income for the three and nine months ended September 30, 2024 and 2023, and the statement of cash flows for the nine months ended September 30, 2024 and 2023, are as follows:

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LOS GATOS JOINT VENTURE

COMBINED BALANCE SHEETS (UNAUDITED)


(in thousands)	September 30, 2024		December 31, 2023
ASSETS
Current Assets
Cash and cash equivalents	$	33,884	$	34,303
Receivables	13,646		12,634
Inventories	16,180		16,397
VAT receivable	13,417		12,610
Income tax receivable	9,296		20,185
Other current assets	3,435		1,253
Total current assets	89,858		97,382
Non-Current Assets
Mine development, net	231,060		234,980
Property, plant and equipment, net	159,220		171,965
Deferred tax assets	699		9,568
Total non-current assets	390,979		416,513
Total Assets	$	480,837	$	513,895
LIABILITIES AND OWNERS’ CAPITAL
Current Liabilities
Accounts payable and accrued liabilities	$	33,999	$	29,100
VAT payable	11,873		8,684
Income taxes payable	11,204		920
Related party payable	270		560

Total current liabilities	57,346		39,264
Non-Current Liabilities
Lease liability	155		208
Asset retirement obligation	12,245		11,593
Deferred tax liabilities	4,974		3,885
Total non-current liabilities	17,374		15,686
Owners’ Capital
Capital contributions	360,638		455,638
Paid-in capital	18,186		18,186
Retained earnings (accumulated deficit)	27,293		(14,879)
Total owners’ capital	406,117		458,945
Total Liabilities and Owners’ Capital	$	480,837	$	513,895

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LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended, September 30,				Nine Months Ended, September 30,
(in thousands)	2024		2023		2024		2023
Revenue	$	93,839	$	67,038	$	260,255	$	195,162
Expenses
Cost of sales	31,204		31,446		93,931		83,255
Royalties and duties	639		298		1,682		1,024
Exploration	1,605		998		4,577		2,118
General and administrative	3,943		4,355		12,317		12,693
Depreciation, depletion and amortization	17,824		16,712		58,901		59,558
Total expenses	55,215		53,809		171,408		158,648
Other (income) expense
Accretion expense	217		273		652		866
Interest expense	102		343		851		484
Interest income	(349)		(592)		(892)		(1,147)
Other (income) expense	(13)		(18)		635		13
Foreign exchange (gain) loss	(920)		(946)		36		(2,016)
	(963)		(940)		1,282		(1,800)

Income before taxes	39,587		14,169		87,565		38,314
Income tax expense (recovery)	13,867		(884)		31,186		9,814
Net income and comprehensive income	$	25,720	$	15,053	$	56,379	$	28,500

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LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
(in thousands)	2024		2023
Cash flows from operating activities:
Net income	$	56,379	$	28,500
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	58,901		59,558
Accretion	652		866
Deferred taxes	10,210		4,743
Unrealized loss (gain) on foreign currency rate change	105		(5,007)
Other	—		(6)

Changes in operating assets and liabilities:
VAT receivable	(1,326)		11,215
Receivables	(1,012)		16,725
Inventories	(1,379)		(1,429)

Other current assets	(2,190)		403
Income tax receivable	8,495		(633)
Accounts payable and other accrued liabilities	21,438		(8,596)
Payables to related parties	(290)		(730)

Asset Retirement Obligation	—		(1,820)
Net cash provided by operating activities	149,983		103,789

Cash flows from investing activities:
Mine development	(32,263)		(27,151)
Purchase of property, plant and equipment	(8,885)		(13,506)
Materials and supplies inventory	—		(503)
Net cash used by investing activities	(41,148)		(41,160)

Cash flows from financing activities:
Equipment loan and lease payments	(47)		(532)
Capital distributions	(95,000)		(50,000)
Dividends paid to partners	(14,207)		—
Net cash used by financing activities	(109,254)		(50,532)

Net (decrease) increase in cash and cash equivalents	(419)		12,097
Cash and cash equivalents, beginning of period	34,303		34,936
Cash and cash equivalents, end of period	$	33,884	$	47,033
Interest paid	$	851	$	484
Interest earned	$	892	$	1,147

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of the Company and should be read in conjunction with the Company’s condensed consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023, and the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the "SEC”) on February 20, 2024, as amended by Amendment No 1. on Form 10-K/A filed with the SEC on May 6, 2024 (as amended, the “2023 10-K”). References to the “Company," “Gatos Silver,” “we,” “us,” “our” and other similar words refer to Gatos Silver, Inc. and its consolidated subsidiaries, unless the context suggests otherwise.

Forward-Looking Statements

This Report contains statements that constitute “forward looking information” and “forward-looking statements” within the meaning of U.S. and Canadian securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by words such as “may,” “might,” “could,” “would,” “achieve,” “budget,” “scheduled,” “forecasts,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” "intends," "projects," “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements may include, but are not limited to, the following:

•statements regarding expected benefits, impacts, timing and completion of the proposed Merger with First Majestic;

•estimates of future mineral production and sales;

•estimates of future production costs, other expenses and taxes for specific operations and on a consolidated basis;

•estimates of future cash flows and the sensitivity of cash flows to gold, copper, silver, lead, zinc and other metal prices;

•estimates of future capital expenditures, construction, production or closure activities and other cash needs, for specific operations and on a consolidated basis, and expectations as to the funding or timing thereof;

•estimates as to the projected development of certain ore deposits, including the timing of such development, the costs of such development and other capital costs, financing plans for these deposits and expected production commencement dates;

•estimates of mineral reserves and mineral resources statements regarding future exploration results and mineral reserve and mineral resource replacement and the sensitivity of mineral reserves to metal price changes;

•statements regarding the availability of, and terms and costs related to, future borrowing or financing and expectations regarding future debt repayments;

•statements regarding future dividends and returns to shareholders;

•estimates regarding future exploration expenditures, programs and discoveries;

•statements regarding fluctuations in financial and currency markets;

•estimates regarding potential cost savings, productivity, operating performance and ownership and cost structures;

•expectations regarding statements regarding future transactions, including, without limitation, statements related to future acquisitions and projected benefits, synergies and costs associated with acquisitions and related matters;

•expectations of future equity and enterprise value;

•expectations regarding the start-up time, design, mine life, production and costs applicable to sales and exploration potential of our projects;

•statements regarding future hedge and derivative positions or modifications thereto;

•statements regarding local, community, political, economic or governmental conditions and environments;

•statements regarding the outcome of any legal, regulatory or judicial proceeding;

•statements regarding the impacts of changes in the legal and regulatory environment in which we operate, including, without limitation, relating to state, regional, national, domestic and foreign laws;

•statements regarding climate strategy and expectations regarding greenhouse gas emission targets and related operating costs and capital expenditures;

•statements regarding expected changes in the tax regimes in which we operate, including, without limitation, estimates of future tax rates and estimates of the impacts to income tax expense, valuation of deferred tax assets and liabilities, and other financial impacts;

•estimates of income taxes and expectations relating to tax contingencies or tax audits;

•estimates of future costs, accruals for reclamation costs and other liabilities for certain environmental matters, including without limitation, in connection with water treatment and tailings management;

•statements relating to potential impairments, revisions or write-offs, including without limitation, the result of fluctuation in metal prices, unexpected production or capital costs, or unrealized mineral reserve potential;

•estimates of pension and other post-retirement costs;

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•statements regarding estimates of timing of adoption of recent accounting pronouncements and expectations regarding future impacts to the financial statements resulting from accounting pronouncements;

•estimates of future cost reductions, synergies, savings and efficiencies in connection with full potential programs and initiatives; and

•expectations regarding future exploration and the development, growth and potential of operations, projects and investments, including in respect of the Cerro Los Gatos ("CLG") and the Los Gatos District ("LGD").

Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements.

All forward-looking statements speak only as of the date on which they are made. These statements are not a guarantee of future performance and involve certain risks, uncertainties and assumptions concerning future events that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. Important factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the risks set forth under Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q and under “Risk Factors Summary,” and under “Item 1A. Risk Factors.” in the 2023 10-K. Such factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements included in this Report and those described from time to time in our filings with the SEC, including, but not limited to, the 2023 10-K and the Company’s Current Report on Form 8-K filed with the SEC on September 6, 2024. These risks and uncertainties, as well as other risks of which we are not aware or which we currently do not believe to be material, may cause our actual future results to be materially different than those expressed in our forward-looking statements. Undue reliance should not be placed on these forward-looking statements. We do not undertake any obligation to make any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events, except as required by law. Certain forward-looking statements are based on assumptions, qualifications and procedures which are set out only in the Technical Report Summary. For a complete description of assumptions, qualifications and procedures associated with such information, reference should be made to the full text of the Technical Report Summary.

Third Quarter and Year to Date 2024 Highlights

Gatos Silver

Third Quarter 2024

•Net cash provided by operating activities and free cash flow1 totaled $34.2 million for the three months ended September 30, 2024, compared to net cash provided by operating activities and free cash flow1 of $33.3 million for the same period in 2023.

•Net income of $9.9 million for the three months ended September 30, 2024, compared to $3.3 million for the same period in 2023.

•Adjusted net income1 was $15.2 million for the three months ended September 30, 2024, compared $3.3 million for the same period in 2023.

•Earnings before interest, tax, depreciation and amortization (“EBITDA”)1 were $9.1 million for the three months ended September 30, 2024, compared to $3.2 million for the same period in 2023.

•Adjusted EBITDA1 was $14.4 million for the three months ended September 30, 2024, compared to $3.2 million for the same period in 2023.

Year to Date 2024

•Net cash provided by operating activities and free cash flow1 totaled $61.2 million for the nine months ended September 30, 2024, compared to net cash provided by operating activities and free cash flow1 of $25.5 million for the same period in 2023.

•Net income of $21.6 million for the nine months ended September 30, 2024, compared to $0.5 million for the same period in 2023.

•Adjusted net income1 of $28.3 million for the nine months ended September 30, 2024, compared to $0.5 million for the same period in 2023.

•EBITDA1 was $19.1 million for the nine months ended September 30, 2024, compared to $0.6 million for the same period in 2023.

•Adjusted EBITDA1 was $25.8 million for the nine months ended September 30, 2024, compared to $0.6 million for the same period in 2023.

1 "See Non-GAAP Financial Measures" below

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•Cash and cash equivalents at September 30, 2024, were $116.7 million, compared to $55.5 million at December 31, 2023, and the Company had $50.0 million available for withdrawal from its revolving credit facility (the "Credit Facility").

•Cash and cash equivalents at October 31, 2024, were $114.8 million before receipt by the Company of a capital distribution of $28.0 million from the Los Gatos Joint Venture ("LGJV") on November 7, 2024.

Merger Agreement with First Majestic

On September 5, 2024, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with First Majestic Silver Corp. ("First Majestic") and Ocelot Transaction Corporation, a wholly-owned subsidiary of First Majestic (“Merger Sub”) that provides for the acquisition of Gatos Silver by First Majestic. On the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving the Merger as a direct, wholly-owned subsidiary of First Majestic (the "Merger"). Under the terms of the Merger Agreement, if the Merger is completed, our stockholders will have the right to receive 2.55 First Majestic common shares in exchange for each share of our common stock owned immediately prior to the effective time of the Merger, with any fractional shares to be paid in cash, without interest. The Merger will result in our stockholders owning approximately 38% of the outstanding First Majestic common shares immediately following the effective time of the Merger (based on current outstanding shares). The closing of the Merger is expected to occur in early 2025, subject to the satisfaction or waiver of the conditions precedent to such closing, but in any event, not earlier than January 15, 2025.

Mineral Reserve and Resource Update

On September 25, 2024, the Company reported an updated mineral reserve and mineral resource estimate and life of mine plan for the Cerro Los Gatos mine with an effective date of July 1, 2024. The CLG mine life was extended to October 2032, with a 36% increase in silver equivalent production compared with the prior life of mine plan. On October 22, 2024, the Company published an updated Technical Report Summary, dated October 22, 2024, concerning the Los Gatos Joint Venture (the "Technical Report Summary"), with an effective date of July 1, 2024.

LGJV (100% basis)

Operational highlights

Third Quarter 2024

•CLG produced 2.42 million ounces of silver, 11.4 million pounds of lead and 16.5 million pounds of zinc for the three months ended September 30, 2024, compared to 2.22 million ounces of silver, 9.5 million pounds of lead and 13.8 million pounds of zinc for the three months ended September 30, 2023.

•The processing plant processed 298,586 tonnes, compared to 268,312 tonnes in the third quarter of 2023. CLG had process plant throughput rates averaging 3,246 tonnes per day ("tpd"), an 11% increase from 2,916 tpd for the three months ended September 30, 2023.

•On September 25, 2024, the Company reported an updated mineral reserve and mineral resource estimate and life of mine plan for the CLG mine with an effective date of July 1, 2024. The mine life was extended to October 2032 compared to the previous life of mine plan and the mineral reserve estimate (the "2024 Mineral Reserve") was increased.

•Step-out exploration drilling in a previously untested area beneath the main Central zone (“Central Deeps”) resulted in the discovery of a new zone of mineralization located below the 2024 Mineral Reserve, indicating vertical mineralization extensions up to 175 meters.

•Resource extension drilling in the South-East Deeps (“SE Deeps”) zone continued to intercept additional mineralization along strike and down-plunge, continuing to extend the known mineralized zone.

•Exploration in the third quarter of 2024 included the broader district's Portigueño and San Luis zones, as well as early-stage generative work at Lince and Los Veranos in the district.

Year to Date 2024

•CLG produced 7.10 million ounces of silver, 33.5 million pounds of lead and 51.5 million pounds of zinc for the nine months ended September 30, 2024, compared to 6.65 million ounces of silver, 28.7 million pounds of lead and 42.7 million pounds of zinc for the nine months ended September 30, 2023.

•The processing plant processed 885,570 tonnes, compared to 794,082 tonnes for the nine months ended September 30, 2023. Process plant throughput rates averaged 3,232 tpd, an 11% increase from 2,909 tpd for the nine months ended September 30, 2023.

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Financial highlights

Third Quarter 2024

•Revenue of $93.8 million for the three months ended September 30, 2024, increased by 40% compared to the three months ended September 30, 2023.

•Cost of sales totaled $31.2 million for the three months ended September 30, 2024, a decrease of 1% compared to the same period in 2023.

•For the three months ended September 30, 2024, co-product all-in-sustaining1 ("AISC") cost per ounce of payable silver equivalent and by-product AISC1 per ounce of payable silver decreased to $16.13 and $9.61, respectively, compared to $17.64 and $14.71 for the three months ended September 30, 2023, respectively.

•Net income totaled $25.7 million for the three months ended September 30, 2024, compared to $15.1 million for the same period in 2023.

•EBITDA1 for the three months ended September 30, 2024, was $57.2 million, compared to $30.6 million for the same period in 2023.

•Net cash provided by operating activities was $58.2 million and $29.4 million for the three months ended September 30, 2024 and 2023, respectively.

◦Free cash flow1 for the three months ended September 30, 2024, was $42.6 million, compared to $14.3 million for the same period in 2023.

Year to Date 2024

•Revenue of $260.3 million increased by 33% for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

•Cost of sales of $93.9 million increased by 13% for the nine months ended September 30, 2024, compared to the same period in 2023.

•Co-product AISC1 per ounce of payable silver equivalent and by-product AISC1 per ounce of payable silver decreased to $15.21 and $8.82, respectively, compared to $15.81 and $11.40 for the nine months ended September 30, 2023, respectively.

•Net income of $56.4 million for the nine months ended September 30, 2024, increased from $28.5 million for the same period in 2023.

•EBITDA1 for the nine months ended September 30, 2024, was $146.4 million, compared to $97.2 million for the same period 2023.

•Net cash provided by operating activities was $150.0 million and $103.8 million for the nine months ended September 30, 2024 and 2023, respectively.

•Free cash flow1 for the nine months ended September 30, 2024, was $108.8 million, compared to $62.6 million for the comparable period in 2023.

•Cash and cash equivalents at September 30, 2024, were $33.9 million, compared to $34.3 million at December 31, 2023.

•Cash and cash equivalents at October 31, 2024, were $47.3 million before making a capital distribution of $40.0 million to the LGJV partners on November 7, 2024.

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1 See “Non-GAAP Financial Measures” below.

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2024 Guidance Update

On October 9, 2024, Gatos Silver announced improved annual production and cost guidance for 2024 as described below.

As a result of continued strong production performance, Gatos Silver increased its full year 2024 guidance for silver production and silver equivalent production. Silver production is now expected to be between 9.2 million and 9.7 million ounces compared with original guidance of 8.4 million to 9.2 million ounces. This represents an increase of 10% at the low end of the range and 5% at the high end. Silver equivalent production is now expected to be between 14.7 million and 15.5 million ounces, compared with original guidance of 13.5 million to 15.0 million silver equivalent ounces. This represents an increase of 9% at the low end of the range and 3% at the high end.

Based on current mine plan sequencing at CLG, the Company expects full year zinc, lead and gold production to be near the high end of the original guidance range of 61 million to 69 million pounds, 40 million to 46 million pounds and 4.5 thousand to 5.5 thousand ounces, respectively.

The Company now expects full year by-product AISC1 to be between $8.50 and $10.00 per ounce of payable silver compared to the original guidance range of $9.50 to $11.50 per ounce of payable silver. This represents a decrease of 11% at the low end of the range and 13% at the high end. Full year co-product AISC1 is expected to remain within our original guidance ranges of $14.00 to $16.00 per ounce of payable silver equivalent.

The Company remains on track to meet sustaining capital expenditure guidance at CLG of $45 million and total exploration and resource development drilling expenditures of $18 million in 2024.

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Results of Operations

Results of Operations - Gatos Silver

The following table presents certain select financial information of Gatos Silver for the three and nine months ended September 30, 2024 and 2023. In accordance with generally accepted accounting principles in the United States (‘‘U.S. GAAP’’), these financial results represent the consolidated results of operations of our Company and its subsidiaries.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands expect per share data)	2024		2023		2024		2023
Expenses
Exploration	$	144	$	—	$	219	$	26
General and administrative	10,435		7,494		25,270		19,157
Amortization	4		3		11		74
Total expenses	10,583		7,497		25,500		19,257
Other income
Equity income in affiliates	18,171		9,437		39,985		15,922
Interest expense	—		(332)		—		(679)
Interest income	1,322		389		3,206		676
Other income	1,503		1,291		4,582		3,868
Net other income	20,996		10,785		47,773		19,787
Income before taxes	10,413		3,288		22,273		530
Income tax expense	529		—		701		—
Net income and comprehensive income	$	9,884	$	3,288	$	21,572	$	530
Net income per share (basic)	$	0.14	$	0.05	$	0.31	$	0.01
Net income per share (diluted)	$	0.14	$	0.05	$	0.30	$	0.01

Adjusted net income1	$	15,198	$	3,288	$	28,319	$	530
Adjusted net income per share (basic)1	$	0.22	$	0.05	$	0.41	$	0.01
Adjusted net income per share (diluted)1	$	0.21	$	0.05	$	0.40	$	0.01

EBITDA1	$	9,095	$	3,234	$	19,078	$	607
Adjusted EBITDA1	$	14,409	$	3,234	$	25,825	$	607

Net cash provided by operating activities	$	34,236	$	33,330	$	61,171	$	25,465
Free cash flow1	$	34,236	$	33,330	$	61,171	$	25,465

__________________________

1 See “Non-GAAP Financial Measures” below.

Gatos Silver

Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023

General and administrative expenses

The $2.9 million increase in general and administration expenses for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, is primarily due to $5.3 million of costs related to a strategic review resulting in the proposed Merger with First Majestic (as described above), partly offset by a decrease of $1.1 million in non-cash stock-based compensation expense primarily due to no stock-based compensation grants during the third quarter of 2024 compared to stock-based compensation

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grants in the third quarter of 2023 after a prolonged blackout period, a decrease of $0.9 million in legal and consulting fees (not associated with the proposed Merger), and a decrease of $0.4 million in insurance expense .

Equity income in affiliates

The increase in equity income resulted primarily from the LGJV reporting net income of $25.7 million for the three months ended September 30, 2024, compared to $15.1 million for the three months ended September 30, 2023. See “Results of Operations LGJV” below.

Interest income

The $0.9 million increase in interest income is attributed to higher cash balances during the period and higher interest rates on cash deposits.

Other income

Other income increased by $0.2 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, due to an increase in the LGJV management fees effective October 2023.

Income tax expense

Income tax expense of $0.5 million for the three months ended September 30, 2024, is related to $0.5 million of withholding taxes on the dividend received from the LGJV in September 2024. No dividends were paid by the LGJV during the three months ended September 30, 2023.

Net income

For the three months ended September 30, 2024, the Company recorded net income of $9.9 million, or $0.14 per share, compared to net income of $3.3 million, or $0.05 per share, for the three months ended September 30, 2023. The increase is mainly due to the increase in equity income in affiliates, interest income and other income, partly offset by an increase in general and administrative expenses.

Adjusted net income

For the three months ended September 30, 2024, the Company had adjusted net income of $15.2 million, or $0.22 per basic share, compared to adjusted net income of $3.3 million, or $0.05 per share, for the three months ended September 30, 2023. Adjusted net income excludes expenses related to strategic review resulting in the proposed Merger with First Majestic. The increase is mainly due to the increase in equity income in affiliates, interest income and other income, partly offset by an increase in general and administrative expenses.

Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

General and administrative expenses

The $6.1 million increase in general and administrative expenses for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, is primarily due to $6.7 million of costs related to a strategic review resulting in the proposed Merger with First Majestic (as described above), and an increase of $1.1 million in non-cash stock-based compensation expense due to additional stock-based compensation grants since September 2023, partly offset by a decrease of $1.1 million in directors and officers insurance expense, and a decrease of $0.6 million in legal and consulting fees (not associated with the proposed Merger).

Equity income in affiliates

The $24.1 million increase in equity income is due to the increase in LGJV net income. The LGJV reported net income of $56.4 million for the nine months ended September 30, 2024, compared to $28.5 million for the nine months ended September 30, 2023. See “Results of Operations LGJV” below.

Interest income

The $2.5 million increase in interest income is attributed to higher cash balances during the period and higher interest rates on cash deposits.

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Other income

For the nine months ended September 30, 2024 and 2023, other income consists of $4.5 million and $3.8 million, respectively, in management fees the Company received from the LGJV, which increased by $1.0 million annually, effective October 2023.

Income tax expense

Income tax expense of $0.7 million for the nine months ended September 30, 2024, is primarily related to $0.5 million of withholding taxes on the dividend received from the LGJV in September 2024. No dividends were paid by the LGJV during the nine months ended September 30, 2023.

Net income

For the nine months ended September 30, 2024, the Company recorded net income of $21.6 million, or $0.31 per basic share, compared to a net income of $0.5 million, or $0.01 per share, for the nine months ended September 30, 2023, mainly due to the increase in equity income in affiliates and interest income, partly offset by an increase in general and administrative expenses.

Adjusted net income

For the nine months ended September 30, 2024, the Company had adjusted net income of $28.3 million, or $0.41 per share, compared to adjusted net income of $0.5 million, or $0.01 per share, for the nine months ended September 30, 2023. Adjusted net income excludes expenses related to the strategic review resulting in the proposed Merger with First Majestic. The increase is mainly due to the increase in equity income in affiliates, interest income and other income, partly offset by an increase in general and administrative expenses.

Results of Operations - LGJV

The following table presents operational information and select financial information of the LGJV for the three and nine months ended September 30, 2024 and 2023. The financial and operational information of the LGJV and CLG is shown on a 100% basis. As of September 30, 2024 and 2023, our ownership of the LGJV was 70%.

Financial Results


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Revenue	$	93,839	$	67,038	$	260,255	$	195,162
Cost of sales	31,204		31,446		93,931		83,255
Royalties and duties	639		298		1,682		1,024
Exploration	1,605		998		4,577		2,118
General and administrative	3,943		4,355		12,317		12,693
Depreciation, depletion and amortization	17,824		16,712		58,901		59,558
Other (income) expense	(963)		(940)		1,282		(1,800)
Income tax expense (recovery)	13,867		(884)		31,186		9,814
Net income and comprehensive income	$	25,720	$	15,053	$	56,379	$	28,500
EBITDA1	$	57,164	$	30,632	146,425		97,209
Net cash provided by operating activities	$	58,175	$	29,424	149,983		103,789
Free cash flow1	$	42,584	$	14,256	108,835		62,629
Sustaining capital1	$	12,919	$	9,128	$	33,220	29,870
Resource development drilling expenditures1	$	2,092	$	3,452	$	7,199	$	10,499

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1 See “Non-GAAP Financial Measures” below.

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Operating Results


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except where otherwise stated)	2024			2023			2024			2023
Tonnes milled (dry metric tonnes, "dmt")	298,586			268,312			885,570			794,082
Tonnes milled per day (dmt)	3,246			2,916			3,232			2,909
Average Grades
Silver grade (g/t)	285			285			281			293
Zinc grade (%)	4.04			3.82			4.19			3.92
Lead grade (%)	1.97			1.84			1.93			1.85
Gold grade (g/t)	0.30			0.30			0.29			0.29
Contained Metal
Silver ounces (millions)	2.42			2.22			7.10			6.65
Zinc pounds - in zinc conc. (millions)	16.5			13.8			51.5			42.7
Lead pounds - in lead conc. (millions)	11.4			9.5			33.5			28.7
Gold ounces - in lead conc. (thousands)	1.45			1.28			4.20			3.86
Recoveries1
Silver - in both lead and zinc concentrates	88.4		%	90.3		%	88.7		%	89.1		%
Zinc - in zinc concentrate	62.2		%	61.1		%	62.7		%	62.3		%
Lead - in lead concentrate	87.8		%	87.4		%	88.8		%	88.4		%
Gold - in gold concentrate	49.9		%	49.2		%	50.2		%	52.7		%
Average realized price per silver ounce2	$	29.62		$	24.24		$	27.09		$	25.08
Average realized price per zinc pound2	$	1.26		$	0.89		$	1.30		$	1.10
Average realized price per lead pound2	$	0.93		$	0.97		$	0.92		$	0.98
Average realized price per gold ounce2	$	2,362		$	1,885		$	2,162		$	1,828
Co-product cash cost per ounce of payable silver equivalent3	$	12.13		$	14.42		$	11.86		$	12.43
By-product cash cost per ounce of payable silver3	$	3.69		$	10.04		$	3.67		$	6.42
Co-product AISC per ounce of payable silver equivalent3	$	16.13		$	17.64		$	15.21		$	15.81
By-product AISC per ounce of payable silver3	$	9.61		$	14.71		$	8.82		$	11.40

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1 Recoveries are reported for payable metals in the identified concentrate.

2 Realized prices include the impact of final settlement adjustments from sales.

3 See “Non-GAAP Financial Measures” below.

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The table below provides a breakdown of the LGJV’s concentrate sales including volumes of payable metal and realized sales prices for the three and nine months ended September 30, 2024 and 2023:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Sales volumes by payable metal
Silver ounces (millions)	2.18	1.96	6.45	5.99
Zinc pounds - in zinc conc. (millions)	14.7	12.4	44.3	36.2
Lead pounds - in lead conc. (millions)	10.6	8.7

Gatos Silver, Inc. [GATO] Filings
10-Q	[2024-11-12]
10-Q	[2024-08-06]
10-Q	[2024-05-06]
10-K	[2024-02-21]
10-Q	[2023-11-06]
10-Q	[2023-08-09]
10-Q	[2023-06-28]
10-K	[2023-06-27]
10-Q	[2023-03-30]
10-Q	[2023-03-30]
10-Q	[2023-03-30]
10-K	[2023-03-20]
10-Q	[2021-11-08]
10-Q	[2021-08-09]
S-1	[2021-07-12]
10-Q	[2021-05-07]
10-K	[2021-03-29]
10-Q	[2020-12-09]
S-1	[2020-10-01]