Gatos Silver, Inc. (GATO) Q3 2021 Earnings Call Transcript | The Motley Fool
Gatos Silver, Inc. (NYSE:GATO)
Q3 2021 Earnings Call
Nov 08, 2021, 12:00 p.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good day, and thank you for standing by. Welcome to the Gatos Silver third quarter 2021 earnings conference call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session.
[Operator instructions] Please be advised today’s conference is being recorded. [Operator instructions] I would now like to turn the conference over to your speaker today, Stephen Orr, CEO. Please go ahead.
Stephen Orr — Chief Executive Officer — Analyst
Thank you very much. I would like to welcome our attendees to Gatos Silver Q3 2021 earnings call. Now, before I begin, I would like to notify our attendees that I’ll be making forward-looking statements. And these statements are not guarantees of future performance.
They involve risks, uncertainties, and assumptions regarding future events that probably quite difficult to predict. So, turning to Slide No. 3. The subtitle of this highlight slide is quite important.
We believe the Los Gatos district has been unique modern-day discovery and development story. It is the discovery of an entirely new silver and zinc dominant district in an area that is surrounded by notable polymetallic mines. If the low-status area was not considered mineralogically perspective and that as a small exploration company, our success to explore, discover finance and develop the first mine in this district while remaining private and during the decade where the precious metals sector was out of favor with the investment community, we believe is quite unique. But also — or we also recognize that despite our hard work over the last decade, this achievement dependent upon a significant amount of good fortune, as most successes do.
Now, we have a mineral district with the first mine has been built, commissioned and it’s now generating significant cash flow to cover its operating and sustaining costs and double cash reserve. So, we believe in the unconstrained value potential in the Los Gatos district, and more importantly, in our responsibility to maximize that value to careful strategic initiatives to create endearing mining complex, which will provide a foundation for Gatos Silver’s growth for decades and it will provide a sustainable contribution to the zinc refining business by joint venture partner Dowa Metals and Mining. So, 2021 has been a year of financial and production optimization, building for the future through sustained capital projects and a return to resource growth through exploration. On the financial front, during July, Gatos Silver completed a successful follow-on offering raising 133 million to retire its portion on the Cerro Los Gatos construction term loan.
Dowa, a joint venture partner, also contributed its 30% share extinguishing the entire Cerro Los Gatos term debt facility. This now makes the Los Gatos joint venture net debt-free and provides significant liquidity to use cash flow from Cerro Los Gatos strategic value-adding initiatives. The company also secured a $50 million revolving credit facility with Bank of Montreal. That’s increasing our financial flexibility, and we qualified for this facility due to the strength of our Los Gatos district asset base.
And due to higher byproduct metal prices, we now expect our all-in sustaining costs guidance for 2021 to be between $16 an ounce to $17 an ounce. That’s reduced from our previous guidance of $17 to $17.50 per ounce. On the production front, we again exceeded our 2,500 ton per day design processing rates, averaging 2,544 tonnes per day. And I’ll touch on this later in the later slides, but Q4 is continuing the improvement trend in the process with plant’s production rates.
During October, the processing plant averaged 2,620 tonnes per day. On the exploration front, 25,000 meters of drilling were completed Cerro Los Gatos, on that exploration program, with another 20,000 meters remaining. This program is converting the remaining 3.7 million tonnes of inferred resource that exists along the Northwest and Southeast extensions of the Cerro Los Gatos deposit. The program will most likely extend into early 2022.
An initial 5,400-meter program was completed at our wholly owned Santa Valeria project and we’re currently interpreting the results and designing the phase 2 program. And we’re still in relatively early stages of the Esther resource exploration program with 7,200 meters drilled during Q3. That’s just only about four kilometers away to Cerro Los Gatos and it’s targeted to be the next development project in the Los Gatos district. By the end of Q3, we had deployed a drill on another district target called Cascabel and that’s located between Esther and Cerro Los Gatos.
This is a new target and it’s based on surface mapping from our exploration team. Regarding sustaining capital projects, we expect to spend between 70 million to 75 million in Cerro Los Gatos by the end of this year. These are projects that increased production efficiency and lower class. And Gatos Silver’s president, Dale Andres, will talk about that in some detail later in the presentation.
I would now like to introduce Dale to discuss the details of our key future performance.
Dale Andres — President
Thanks, Steve, and I’ll start on Slide 4. At our Cerro Los Gatos mine, we are continuing our strong and unwavering commitment to health and safety and to the surrounding communities. We finished the quarter with no lost time safety incidents, and we continue our constant focus on strengthening our safety culture. Our COVID management protocols are also continuing to work well, and we continue our daily screening and testing program, and the number of vaccinated employees is steadily rising, as the rollout continues in Mexico, and we currently have over 70% of our employees that are either fully or partially vaccinated.
Community engagement remains a major focus in an addition to our continued focus on local hiring. We are proud to support our local communities and with completed various projects that will leave a lasting and positive impact. During the quarter, we completed projects targeting mental health and well-being, education, and critical infrastructure. We will continue to focus on improving the lives of those within our areas influence.
Turning to the next slide on our operations and I’ll talk about this over the next few slides. We are very pleased with another record-setting performance in the third quarter. In the mine, we produced a record 242,904 tonnes from underground sources in both the Northwest and Central zones in Q3 and that’s exceeding our second quarter record tonnage by about 1.2%. During August and September, we did have some constraints and had the mine more tonnage from some lower grade areas in the Northwest zone as we dealt with water conditions in the higher-grade Central Zone, so there was some sequencing issues during the quarter.
However, the mine has consistently delivered expected feed rates to the plant since the shutdown in February caused by the storm-related power outage event that we experienced. We are continuing our development work underground to access deeper and higher-grade portions of the mine in both the Northwest and Central Zones. And over the coming months, we will build that significant flexibility into the mine plant as we open up access to new levels, which will allow us to further optimize as well. Turning to Slide 6, we also had record-setting performance at our plant operations in the quarter.
We processed an average of 2,544 tonnes per day to the plant and that’s per calendar day and at above design capacity and our second quarter records. And we know that the plant has capacity on a daily basis to process up to 3,000 tonnes per…