Gatos Silver shares rise on record quarterly production

The Cerro Los Gatos silver-lead-zinc mine in Chihuahua, Mexico. Credit: Gatos Silver

Gatos Silver (NYSE, TSX: GATO) is coming off its best ever quarter of production, with the 70%-owned Cerro Los Gatos mine in Mexico producing a record 2.7 million oz. of silver for the three months ended September 30, a 59% increase over the third quarter of 2021.

Zinc production of 17.8 million lb. and lead production of 12.2 million lb. were also record highs, up 32% and 13% respectively from the comparable quarter in 2021.

The higher metals production from Cerro Los Gatos was primarily due to record mill throughput rates averaging 2,862 tonnes per day and significantly higher ore grades processed during the quarter. Silver and zinc recoveries were also higher than the comparable quarter in 2021.

Milling rates were 10% higher than the previous mill throughput record achieved in the first quarter of 2022, and 23% higher than the second quarter.

“Our continued strong operating performance at CLG during the quarter reflects planned production sequencing, with mill throughput exceeding design capacity by 15% and with higher ore grades compared with a year earlier,” CEO Dale Andres said in a news release.

Increased Q3 2022 output was supported by continued debottlenecking efforts and planned production sequencing in the highest-grade sections of the orebody, further helped by some stopes achieving higher than planned grades. In the fourth quarter, the company anticipates that mined ore grades will be lower than the third quarter, but processing rates are expected to be similar.

“Our priority exploration and definition drilling objectives are to extend our mine life by converting the higher-grade portion of our current mineral resource into reserves and to follow up on the mineralization recently discovered at depth in the new South-East Deeps zone while assessing its potential implications for the entire Los Gatos district,” Andres added.

Shares of Gatos Silver rose 16.7% following the Q3 2022 operating results. The US-based silver miner has a market capitalization of approximately $221 million.

Located approximately 120 km south of Chihuahua City in the heart of Mexico’s silver belt, the Los Gatos district consists of 14 mineralized zones to date, including three identified silver-lead-zinc deposits: Cerro Los Gatos – which achieved commercial production in 2019 – and the Esther and Amapola deposits. The other 11 mineralized zones have at least one mineralization intercept. The project area is characterized by a predominant silver-lead-zinc epithermal mineralization.

Prior to Gatos’ initial acquisition of concession rights in April 2006, very limited historical prospecting and exploration had been conducted in this district. To date, more than 85% of the 103,000-hectare land position has been drilled.

Earlier this month, the company updated the Cerro Los Gatos mineral reserves, resources, as well as mine plan following reconciliation work to correct certain errors from the 2020 technical report.

On a 100% basis, the deposit now contains reduced mineral reserves of 6.1 million tonnes grading 244 g/t silver, 4.48% zinc and 2.14% lead, enough to sustain the mine life to 2028. Measured and indicated resources (exclusive of reserves) were 1.94 million tonnes grading 96 g/t silver, 3.01% zinc and 1.56% lead. The post-tax net present value is estimated at $377 million (at a 5% discount rate).