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Gatos Silver, Inc. (GATO)·Q2 2024 Earnings Summary

Executive Summary

  • LGJV delivered record revenue of $94.2M, record EBITDA of $54.1M, and record free cash flow of $40.8M; Gatos Silver reported net income of $9.2M and $0.13 EPS, reflecting stronger volumes and realized prices .
  • Costs improved materially: by-product AISC fell to $6.57/oz (down 54% YoY) and co-product AISC to $15.26/AgEq oz (down 13% YoY), driven by higher by-product production and sales and lower sustaining capital .
  • Management reiterated 2024 guidance, expecting throughput in the top half of 3,000–3,300 tpd and production in the top half of the silver and silver-equivalent ranges; AISC tracking in the lower half of ranges .
  • Near-term catalyst: updated life-of-mine plan targeted for September, with aims to increase throughput and extend mine life; LGJV distributed $40M in July (Gatos share $28M), lifting corporate cash to $108.9M at July 31, debt-free .

What Went Well and What Went Wrong

  • What Went Well

    • “Record revenues, record cash flow from operations and record free cash flow” at LGJV; throughput hit another quarterly record, positioning 2024 production to meet guidance .
    • AISC after by-product credits fell to $6.57/oz, below guidance range, aided by strong by-product production and sales; co-product AISC ~$15/AgEq oz, well within guidance .
    • Cash generation enabled regular distributions; corporate cash was nearly $109M at July 31 and both Gatos and LGJV remained debt-free .

  • What Went Wrong

    • Cost of sales rose 24% YoY on higher concentrate sales volumes and stronger Mexican peso; income tax expense increased to $12.5M vs $4.7M a year ago due to higher taxable income .
    • Corporate G&A increased to $7.9M on higher non-cash stock-based compensation ($1.6M) and legal/consulting expenses not expected to recur beyond 2024 .
    • Gold recovery was lower YoY (48.8% vs 53.9%), though overall throughput and grades offset at the mine level .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
LGJV Revenue ($USD Millions)$73.5 $72.2 $94.2
LGJV Net Income ($USD Millions)$24.9 $10.2 $20.5
LGJV EBITDA ($USD Millions)$38.6 $35.1 $54.1
By-Product AISC ($/oz Ag)$11.12 $10.08 $6.57
Co-Product AISC ($/AgEq oz)$14.73 $14.36 $15.26
Gatos Silver EPS ($)$0.18 $0.04 $0.13

Segment breakdown (Q2 2024):

EntityRevenue ($USD Millions)Net Income ($USD Millions)EBITDA ($USD Millions)Cash from Ops ($USD Millions)Free Cash Flow ($USD Millions)
LGJV (100% basis)$94.2 $20.5 $54.1 $54.5 $40.8
Gatos Silver (Corporate)N/A$9.2 $8.2 $11.8 $11.8

KPIs – sequential and YoY:

KPIQ1 2024Q2 2024
Tonnes milled per day (tpd)3,210 3,240
Silver production (Moz)2.37 2.30
Silver equivalent (Moz)3.70 3.88
Avg realized silver price ($/oz)$22.91 $29.00
KPIQ2 2023Q2 2024
Tonnes milled per day (tpd)2,916 3,240
Silver production (Moz)2.00 2.30
Silver equivalent (Moz)3.30 3.88
By-product AISC ($/oz Ag)$14.32 $6.57
Co-product AISC ($/AgEq oz)$17.55 $15.26

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Throughput (tpd)FY 20243,000–3,300 tpd Expect top half of 3,000–3,300 tpd Maintained range; expectation trending higher
Silver production (Moz)FY 20248.4–9.2 Expect top half of range Maintained range; expectation trending higher
Silver equivalent (Moz)FY 202413.5–15.0 Expect top half of range Maintained range; expectation trending higher
AISC (By-product, $/oz)FY 2024$9.50–$11.50 Tracking lower half Maintained range; expectation trending lower
AISC (Co-product, $/AgEq oz)FY 2024$14.00–$16.00 Tracking lower half Maintained range; expectation trending lower
Sustaining capex ($M)FY 2024~$45 ~$45; focus on underground development and fleet rebuilds Maintained
Exploration & definition ($M)FY 2024~$18 (half capitalized) ~$18; shift to greenfields post Q1 Maintained; mix shifting

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2024)Current Period (Q2 2024)Trend
Throughput & debottleneckingMill capacity at ~3,500 tpd; mining bottleneck; initiatives underway (fleet rebuild, maintenance, planning) Sixth consecutive throughput record; mill often at 3,500–3,700 tpd; mining remains bottleneck Improving throughput; continued mining focus
Cost discipline & AISCAISC expected to be in lower half of guidance despite stronger peso By-product AISC at $6.57/oz; co-product ~$15/AgEq oz, below/in-range Improving cost position
Life-of-mine planUpdate targeted Q3; based on 66 km drilling; copper circuit under evaluation Update targeted September; aim to increase throughput and extend mine life; copper separation engineering ongoing Near-term catalyst; scope expanding
Exploration rampBegin shifting rigs to near-mine and district; $18M budget 5–6 surface rigs; SE Deeps plus greenfields (San Luis, Central/NW Deeps, Portigueño) Accelerating exploration breadth
Macro/regulatory (Mexico)N/A in Q1Optimism about pro-business incoming administration; no immediate permit needs Constructive macro tone
Capital returns & liquidityRegular JV distributions; corporate cash >$85M at Apr 30 $40M JV distribution in July; corporate cash $108.9M at Jul 31; debt-free Strengthening balance sheet

Management Commentary

  • “The Los Gatos joint venture had record revenues, record cash flow from operations and record free cash flow…primarily due to the strong operating performance and higher metal prices” — Dale Andres, CEO .
  • “All-in sustaining costs per payable ounce of silver…were $6.57…below our guidance range for 2024” — Dale Andres .
  • “We remain on track to announce [the life-of-mine plan] in September. We are aiming to increase throughput and also extend the mine life” — Dale Andres .
  • “Cash flow provided by operations was approximately $54.5 million, a new quarterly record…free cash flow of $40.8 million…also a new record” — André van Niekerk, CFO .

Q&A Highlights

  • Mexican election outlook: Management expects a more pro-business stance; highlighted early engagement with the mining sector; no immediate permit needs for operations .
  • Exploration priorities and rig allocation: 5–6 surface rigs; two remain on SE Deeps; others focus on greenfields (Central/NW Deeps, San Luis), with potential expansion later in the year .
  • Equipment rebuild program: ~70–80% through the fleet rebuild, targeting completion of the bulk by Q1 2025; rebuilds plus operational efficiencies to support the 3,500 tpd medium-term target .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable for Gatos Silver (GATO); therefore, no estimates comparison is provided for Q2 2024 results.
  • Given management’s reiteration of top-half production and lower-half AISC guidance and record free cash flow, sell-side models may reassess FY AISC and free cash flow trajectories in light of stronger realized prices and volumes .

Key Takeaways for Investors

  • Cost leadership reinforced: By-product AISC fell to $6.57/oz, driven by strong by-product credits and disciplined sustaining capital, creating margin resilience even amid a strong peso .
  • Throughput momentum: Sixth consecutive quarterly record throughput with mill frequently at 3,500–3,700 tpd; mining debottlenecking remains the key lever to fully unlock capacity .
  • Near-term catalyst: Life-of-mine update targeted for September aims to extend mine life and potentially incorporate higher sustainable throughput and copper circuit economics .
  • Cash returns and balance sheet: Continued JV distributions ($40M in July), corporate cash of $108.9M at July 31, debt-free — enabling optionality for exploration and potential opportunistic growth .
  • Exploration ramp: Increased greenfields activity (San Luis, Central/NW Deeps, Portigueño) broadens resource pipeline beyond SE Deeps, supporting medium-term growth narratives .
  • Tax and G&A watch items: Higher income tax expense at JV and elevated corporate G&A due to stock comp/legal fees (largely nonrecurring) — monitor normalization through 2024 .
  • Trading implications: Strong FCF and cost performance are tailwinds; LOM update timing and details (throughput uplift, reserve extension, copper circuit decision) represent material stock catalysts in the coming weeks .