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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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Washington, D.C. 20549

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FORM 10-K

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​☒​​ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934​

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

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For the fiscal year ended December 31, 2020

2022

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or

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

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

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For the transition period from to 

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Commission File Number: 001-39649

[MISSING IMAGE: lg_gatossilver-4c.jpg]

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Graphic

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GATOS SILVER, INC.

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(Exact name of registrant as specified in its charter)

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Delaware

27-2654848

(State or other jurisdiction
of incorporation or organization)

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27-2654848

(I.R.S. Employer
Identification No.)

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8400 E. Crescent Parkway,

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925 W Georgia Street, Suite 600
Greenwood Village, CO 80111

910

Vancouver, British Columbia, CanadaV6C 3L2

(Address of principal executive offices) (Zip Code)

(303) 784-5350

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(604) 424-0984

(Registrant’s telephone number, including area code)

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

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Title of each class

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Trading symbol(s)

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Name of each exchange on which registered

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Common Stock, par value $0.001 per share

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GATO

GATO

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New York Stock Exchange

Toronto Stock Exchange

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Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No ☒

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No ☒

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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 ☐

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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 ☐

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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 ☐

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Accelerated filer ☐

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Non-accelerated filer ☒

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Smaller reporting company ☒

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Emerging growth company ☒

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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.  ☒

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

☐ No  ☑

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As of June 30, 2020,2022, the last business day of the registrant’s most recently completed second fiscal quarter, there was no public market for the registrant’s common stock. The registrant’s common stock began trading on the New York Stock Exchange and the Toronto Stock Exchange on October 28, 2020. The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $115,071,927 based on the closing price of the registrant’s common stock on the New York Stock Exchange on March 23, 2021, was $326,610,768.

Exchange.

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As of March 23, 2021,June 26, 2023, the number of shares of Registrant’s common stock outstanding was 59,409,052.

69,162,223.

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DOCUMENTS INCORPORATED BY REFERENCE

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None.

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Certain information required by Part III of this Form 10-K is incorporated by reference from the registrant’s definitive proxy statement for the 2021 Annual Meeting of Stockholders which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
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TABLE OF CONTENTS

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Page​
Part I

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Page

Item 1.
Business
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Part I

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​6​​

Item 1A.
1.

Risk Factors
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Business

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​​15​​

8

Item 1A.

Risk Factors

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16

Item 1B.

Unresolved Staff Comments

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​​​35​​

36

Item 2.

Properties
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Properties

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36

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Item 3.

Legal Proceedings

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​​​52​​

42

Item 4.

Mine Safety Disclosures

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43

Part II

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Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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​​​53​​

44

Item 6.

[Reserved]

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​​​54​​

45

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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45

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

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56

Item 8.

Financial Statements and Supplementary Data

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​​​67​​

57

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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​​​105​​

95

Item 9A.

Controls and Procedures

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95

Item 9B.

Other Information

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​​​105​​

97

Part III

Item 9C.

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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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97

Part III

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98

Item 10.

Directors, Executive Officers and Corporate Governance

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​​​106​​

98

Item 11.

Executive Compensation

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102

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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​​​106​​

113

Item 13.

Certain Relationships and Related Transactions, and Director Independence

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​​​106​​

116

Item 14.

Principal Accountant Fees and Services

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​​​106​​

117

Part IV

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Item 15.

Exhibits and Financial Statement Schedules

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​​​107​​

119

Item 16.

Form 10-K Summary

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122

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About this Annual Report
On October 30, 2020, we effected a reorganization (the “Reorganization”) in which (i) our then-subsidiary Silver Opportunity Partners LLC (“SOP”) became a wholly owned subsidiary of a newly created Delaware corporation named Silver Opportunity Partners Corporation (“SOP Corporation”), (ii) each share of our common stock outstanding immediately prior

Notice Regarding Mineral Disclosure

Mineral Reserves and Resources

We are subject to the Reorganization was exchanged for (A) 0.394057448219062 shares of our common stock (subject to rounding to eliminate fractional shares) and (B) 0.105942551780938 shares of common stock of SOP Corporation (subject to rounding to eliminate fractional shares) and (iii) we changed our name from Sunshine Silver Mining & Refining Corporation to Gatos Silver, Inc. SOP held our interest in the Sunshine Complex, which is located in the Coeur d’Alene Mining District in Idaho and is comprisedreporting requirements of the Sunshine MineSecurities Exchange Act of 1934, as amended (the “Exchange Act”) and the Sunshine Big Creek Refinery. Through the Reorganization,applicable Canadian securities laws, and as a result, we distributed all ofhave separately reported our equity interest in SOP to our stockholders immediately priormineral reserves and mineral resources according to the Reorganization. As used in this Annual Report on Form 10-K (this “Report”), “SOP” refersstandards applicable to (i) SOP prior to the Reorganization and (ii) SOP Corporation from and after the Reorganization.

Where information relates to our company before the Reorganization and where the context otherwise requires, the “Company,” “we,” “us” and “our” refer to Sunshine Silver Mining & Refining Corporation and its consolidated subsidiaries, and, unless the context otherwise requires, to its affiliate entities, Minera Plata Real S. de R.L. de C.V. (“MPR”), Operaciones San Jose de Plata S. de R.L. de C.V. (“OSJ”) and Servicios San Jose de Plata S. de R.L. de C.V. (“SSJ”). We also refer to these entities collectively as the “Los Gatos Joint Venture” or “LGJV” where applicable. Where information relates to our company following the Reorganization and where the context otherwise requires, “Gatos,” the “Company,” “we,” “us” and “our” refer to Gatos Silver, Inc. and its consolidated subsidiaries, and, unless the context otherwise requires, to its affiliate entities thatthose requirements. U.S. reporting requirements are part of the Los Gatos Joint Venture. As of December 31, 2020, we owned approximately 51.5% of the LGJV. As of the date of this Report, we own 70.0% of the LGJV. Despite owning the majority interest in the LGJV, we do not exercise control over the LGJV due to certain provisions contained in the Unanimous Omnibus Partner Agreement effective as of January 1, 2015 among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Los Gatos Luxembourg S.a.r.l., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (the “Unanimous Omnibus Partner Agreement”) that currently require unanimous partner approval of all major operating decisions (such as certain approvals, the creation of security interests on property, any initial public offering of the joint venture, and litigation settlements).
References to the “Los Gatos Technical Report” are to the “NI 43-101 Technical Report: Los Gatos Project, Chihuahua, Mexico,” preparedgoverned by Tetra Tech Inc. (“Tetra Tech”), dated July 1, 2020, which was prepared in accordance with the requirements of subpart 1300 of Regulation S KS-K (“S-K 1300”), as issued by the U.S. Securities and Exchange Commission (the “SEC Mining Modernization Rules”“SEC”) and. Canadian reporting requirements are governed by National Instrument 43-101 — Standards of Disclosure for Mineral Projects (“NI 43-101”). , as adopted from the definitions provided by the Canadian Institute of Mining, Metallurgy and Petroleum. Both sets of reporting standards have similar goals in terms of conveying an appropriate level of consistency and confidence in the disclosures being reported, but the standards embody slightly different approaches and definitions. All disclosure of mineral resources and mineral reserves in this report is reported in accordance with S-K 1300. See “Item 1A. Risk Factors—Risks Related to Our Operations—Mineral reserve and mineral resource calculations at the CLG and at other deposits in the LGD are only estimates and actual production results and future estimates may vary significantly from the current estimates.”

The Los Gatos estimation of measured and indicated resources involve greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves, and therefore investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into reserves reported pursuant to S-K 1300. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources, and, therefore, investors are cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically. Definitions of technical terms are included below for reference.

Technical Report was filed as Exhibit 96.1Summaries and Qualified Persons

The technical information concerning our mineral projects in this Form 10-K have been reviewed and approved by Tony Scott P. Geo, Senior Vice President of Corporate Development and Technical Services. The technical information herein that relates to our Registration Statement on Form S-1 (File No. 333-249224), filed with the SEC on October 1, 2020. The mineral resource estimates containedCLG and Esther 2022 Mineral Resource set out in the Los Gatos Technical Report havewas prepared by or under the supervision of Ronald Turner, MAusIMM(CP), an effective dateemployee of September 6, 2019 and have not been updated sinceGolder Associates S.A. The technical information that time. We believe that activity at the CLG subsequentrelates to the effective date of2022 Mineral Reserve, the mineral resource estimates would not result in a material change to the2022 LOM plan and other economic analyses was based upon information contained in the Los Gatos Technical Report. The mineral reserve estimates and the economic analysis containedset out in the Los Gatos Technical Report and was based upon information prepared by or under the supervision of Paul Gauthier, P.Eng. an employee of WSP Canada Inc. (formerly Golder Associates Ltd.). Each of Mr. Scott, Mr. Turner and Mr. Gauthier is a “qualified person” under S-K 1300 and have an effective datereviewed the contents of July 1, 2020this Form 10-K. For a description of the key assumptions, parameters and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequentmethods used to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.

Allestimate mineral reserves and mineral resources contained herein for the Cerro Los Gatos Mine (“CLG”), the Esther deposit and the Amapola deposit are presented on both a 100% basisincluded in this Form 10-K, as well as ondata verification procedures and a 51.5% basisgeneral discussion of the extent to reflect our ownership interest inwhich the LGJVestimates may be affected by any known environmental, permitting, legal, title, taxation, sociopolitical, marketing or other relevant factors, please review the Los Gatos Technical Report which is included as of December 31, 2020.an exhibit to this Form 10-K.

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References to “$” or “dollars” are to United States dollars.

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Notice Regarding Mineral Disclosure
“Inferred mineral resources” are subject to uncertainty as to their existence and as to their economic and legal feasibility. The level of geological uncertainty associated with an inferred mineral resource is too high to apply relevant technical and economic factors likely to influence the prospects of economic extraction in a manner useful for evaluation of economic viability.

Glossary of Technical Terms

Certain terms and abbreviations used in this Report are defined below:

“Ag” means the chemical symbol for the element silver.

“AISC” means all-in sustaining cost.

“Au” means the chemical symbol for the element gold.

“By-Product” is a secondary metal or mineral product recovered in the milling process.

For the CLG operation, silver is the primary metal product by value and zinc, lead and gold are by-products.

“Concentrate” is the product of physical concentration process,processes, such as flotation or gravity concentration, which involves separating ore minerals from unwanted waste rock. Concentrates require subsequent processing (such as smelting or leaching) to break down or dissolve the ore minerals and obtain the desired elements, usually metals.

“Dilution” is an estimate of the amount of waste or low-grade mineralized rock which will be mined with the ore as part of normal mining practices in extracting an ore body.

orebody.

“Feasibility Study” is a comprehensive study of a mineral deposit in which all geological, engineering, legal, operating, economic, social, environmental and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final decision by a mining company and/or a financial institution to finance the development of the deposit for mineral production.

“Grade” means the concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t) or ounces per ton (oz/t), the grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from the deposit.

“g/t” means grams per tonne.

“Hectare” is a metric unit of area equal to 10,000 square meters (2.471 acres).

“Indicated Mineral Resources”indicated mineral resources” or “Indicated Resources”“indicated resources” is that part of a Mineral Resourcemineral resource for which quantity and grade or quality densities, shapeare estimated on the basis of adequate geological evidence and physical characteristics, can be estimated with asampling. The level of confidencegeological certainty associated with an indicated mineral resource is sufficient to allow the appropriate application of technical and economic parameters,a qualified person to apply modifying factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuityBecause an indicated mineral resource has a lower level of confidence than the level of confidence of a measured mineral resource, an indicated mineral resource may only be converted to be reasonably assumed.

a probable mineral reserve.

“Inferred Mineral Resources”inferred mineral resources” or “Inferred Resources”“inferred resources” is that part of a Mineral Resourcemineral resource for which quantity and grade or quality can beare estimated on the basis of limited geological evidence and limited samplingsampling. The level of geological uncertainty associated with an inferred mineral resource is too high to apply relevant technical and reasonably assumed, buteconomic factors likely to influence the prospects of economic extraction in a manner useful for evaluation of economic viability. Because an inferred mineral resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability, an inferred mineral resource may not verified, geologicalbe considered when assessing the economic viability of a mining project, and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

may not be converted to a mineral reserve.

“LOM” means life of mine.

“Los Gatos Technical Report” means “NI 43-101the Technical Report:Report titled “Mineral Resource and Reserve Update, Los Gatos Project,Joint Venture, Chihuahua, Mexico,” prepared by Tetra Tech Inc.,Golder Associates, dated November 10, 2022 with an effective date of July 1, 2020,2022, which was prepared in accordance with the requirements of the SEC Mining Modernization RulesS-K 1300 and NI 43-101.

“masl” is meters above sea level.

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“Mineral Reserves” meansmineral reserves” or “reserves” are the estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a Measuredmeasured or Indicated Resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserveindicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined.

“mined or extracted. Mineral Resources” meansreserves quantified herein are on a 100% basis unless otherwise stated.

“mineral resources” or “resources” are a concentration or occurrence of minerals, natural solid inorganic material or natural solid fossilized organic material including base and precious metals, coal, and industrial mineralsof economic interest in or on the earth’sEarth’s crust in such form, and quantity and of such a grade or quality, and quantity that it hasthere are reasonable prospects for economic extraction. TheA mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location quantity, grade, geological characteristicsor continuity, that, with the assumed and continuityjustifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled. Mineral resources quantified herein are on a Mineral Resource are known, estimated or interpreted from specific geological evidence100% basis and knowledge.

stated exclusive of mineral reserves, unless otherwise stated.

“Measured Mineral Resources”measured mineral resources” is that part of a Mineral Resourcemineral resource for which quantity and grade or quality densities, shape,are estimated on the basis of conclusive geological evidence and physical characteristics are so well established that they can be estimatedsampling. The level of geological certainty associated with confidencea measured mineral resource is sufficient to allow the appropriate application of technical and economic parameters,a qualified person to apply modifying factors, as defined in this section, in sufficient detail to support productiondetailed mine planning and final evaluation of the economic viability of the deposit. The estimate is based on detailedBecause a measured mineral resource has a higher level of confidence than the level of confidence of either an indicated mineral resource or an inferred mineral resource, a measured mineral resource may be converted to a proven mineral reserve or to a probable mineral reserve.

“M&I” means measured mineral resources and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.

“M&I” means Measured Mineral Resources and Indicated Mineral Resources.
indicated mineral resources.

“NI 43-101” means National Instrument 43-101 — 43-101-Standards of Disclosure for Mineral Projects adopted by the Canadian Securities Administrators.

“NSR” means Net Smelter Return:net smelter return: the proceeds returned from the smelter and/or refinery to the mine owner less certain costs.

“Ore Reserve” is the part ofoz” means a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination.

troy ounce.

“Pb” means the chemical symbol for the element lead.

“Probable Mineral Reserve”probable mineral reserve” means the economically mineable part of an Indicated,indicated and, in some circumstancescases, a Measured, Mineral Resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.

measured mineral resource.

“Proven Mineral Reserve”proven mineral reserve” means the economically mineable part of a Measured Mineral Resource demonstrated by at leastmeasured mineral resource and can only result from conversion of a preliminary feasibility study. This preliminary feasibility study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.

measured mineral resource.

“SEC Mining Modernization Rules”S-K 1300” means subpart 1300 of Regulation S-K.

17.C.F.R § 229.1300 through § 229.1305.

“Tailings”tailings” is the material that remains after all economically and technically recovered precious metals have been removed from the ore during processing.

“Ton”tonne,” means a short ton which ismetric tonne, equivalent to 2,000 pounds, unless otherwise specified. We will also reference “Tonne,” which is a metric ton1,000 kg or 2,204.6 pounds. “Tonne”“tonne” is referenced under the “Grade”“Grade” definition.

“toz” means a troy ounce.

“Zn” means the chemical symbol for the element zinc.

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Cautionary Information about 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,” “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:

●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 and expectations regarding the impacts of COVID-19 and variants thereof and other health and safety conditions;
●statements regarding the impacts of changes in the legal and regulatory environment in which we operate, including, without limitation, relating to regional, national, domestic and foreign laws;
●statements regarding climate strategy and expectations regarding greenhouse gas emission targets and related operating costs and capital expenditures;

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●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;
●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 Mine (“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 relating to projections of our future financial performance, our anticipated growth strategies and anticipated trends in our industry, production from the CLG and further exploration of the Los Gatos District, estimated calculations of mineral reserves and resources at our properties, anticipated expenses, tax benefits, future strategic infrastructure development at the CLG and our requirements for additional capital.

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 “Risk Factors Summary” below, which are discussed in further detail in “Item 1A — 1A—Risk Factors.”. 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 U.S. Securities and Exchange Commission (“SEC”).SEC. 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 Los Gatos Technical Report. For a complete description of assumptions, qualifications and procedures associated with such information, reference should be made to the full text of the Los Gatos Technical Report.

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Risk Factors Summary

We are subject to a variety of risks and uncertainties, including risks related to our business and industry; risks related to government regulations and international operations; risks related to the ownership of our common stock; and certain general risks, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. These risks include, but are not limited to, the following principal risks:

●we are currently dependent on the CLG and the LGD for our future operations and may not be successful in identifying additional proven or probable mineral reserves; we may not be able to extend the current CLG life of mine by adding proven or probable mineral reserves;
●we may not sustain profitability;
●mineral reserve and mineral resource calculations at the CLG and other deposits in the CLG are only estimates and actual production results or future estimates may vary significantly from the current estimates;
●our and the Los Gatos Joint Venture’s (the “LGJV”) mineral exploration efforts are highly speculative in nature and may be unsuccessful;
●actual capital costs, operating costs, production and economic returns may differ significantly from those we have anticipated and there are no assurances that any future development activities will result in profitable mining operations;
●our operations involve significant risks and hazards inherent to the mining industry;
●the ability to mine and process ore at the CLG or other future operations may be adversely impacted in certain circumstances, some of which may be unexpected and not in our control;
●land reclamation and mine closure may be burdensome and costly and such costs may exceed our estimates;
●we may be materially and adversely affected by challenges relating to stability of underground openings;
●the title to some of the mineral properties may be uncertain or defective and we may be unable to obtain necessary surface and other rights to explore and exploit some mineral properties;
●we are subject to the risk of labor disputes, which could adversely affect our business, and which risk may be increased due to the unionization in the LGJV workforce;
●our success depends on developing and maintaining relationships with local communities and stakeholders;
●the prices of silver, zinc and lead are subject to change and a substantial or extended decline in the prices of silver, zinc or lead could materially and adversely affect our revenues of the LGJV and the value of our mineral properties;
●the Mexican federal and state governments, as well as local governments, extensively regulate mining operations, which impose significant actual and potential costs on us, and future regulation could increase those costs, delay receipt of regulatory refunds or limit our ability to produce silver and other metals;
●the Mexican federal government recently promulgated significant amendments to laws affecting the mining industry; while it is difficult to ascertain if and when the amendments will be fully implemented, and there is some lack of clarity in their drafting including their intended retroactive effect, the amendments could have a material adverse effect on the mining industry, and the LGJV’s and our Mexican businesses, particularly in respect of any new concessions, new mining permits, and new operations;
●our operations are subject to additional political, economic and other uncertainties not generally associated with U.S. operations;
•
we have a history of negative operating cash flows and net losses and we may never achieve or sustain profitability;
​
•
we are dependent on two principal projects for our future operations;
​
•
the LGJV has debt and may incur further debt in the future, which could adversely affect the LGJV’s and our financial health and ability to obtain financing in the future and pursue certain business opportunities;
​
•
mineral reserve and mineral resource calculations at the CLG and the Los Gatos District are only estimates and actual production results may vary significantly from the estimates;
​
•
our mineral exploration efforts are highly speculative in nature and may be unsuccessful;
​
•
actual capital costs, operating costs, production and economic returns may differ significantly from those we have anticipated and there are no assurances that any future development activities will result in profitable mining operations;
​
•
our operations involve significant risks and hazards inherent to the mining industry;
​
•
the title to some of the mineral properties may be uncertain or defective;
​

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●we are required to obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process and may ultimately not be possible;
●Electrum and its affiliates and MERS have a substantial degree of influence over us, which could delay or prevent a change of corporate control or result in the entrenchment of our management and/or Board of Directors;
●we are currently, and may in the future be, subject to claims and legal proceedings, including class action lawsuits, that could materially and adversely impact our financial position, financial performance and results of operations; and
●we have identified material weaknesses in our internal control over financial reporting. If we fail to remediate these deficiencies (or fail to identify and/or remediate other possible material weaknesses), we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
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•
the widespread outbreak of the COVID-19 pandemic and any other health epidemics, communicable diseases or public health crises could also adversely affect us, particularly in regions where we conduct our business operations;
​
•
the prices of silver, zinc and lead are subject to change and a substantial or extended decline in the prices of silver, zinc or lead could materially and adversely affect our revenues and the value of our mineral properties;
​
•
the Mexican government, as well as local governments, extensively regulate mining operations, which impose significant actual and potential costs on us, and future regulation could increase those costs, delay receipt of regulatory refunds or limit our ability to produce silver and other metals;
​
•
our operations are subject to additional political, economic and other uncertainties not generally associated with U.S. operations; and
​
•
we are required to obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process and may ultimately not be possible.
​

For a more complete discussion of the material risk factors applicable to us, see “Item 1A —1A. Risk Factors.”

​

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PART I

Item 1.  Business

Our Company

We are a U.S.-basedCanadian-headquartered, Delaware-incorporated precious metals production,exploration, development and explorationproduction company with the objective of becoming a premierleading silver producer. We were formed on February 2, 2011, when our predecessor Precious Metals Opportunities LLC, which was formed in December 2009, converted to a Delaware corporation. On March 1, 2011, Los Gatos Ltd. merged with and into us to form Sunshine Silver Mines Corporation. In 2014, we changed our name to Sunshine Silver Mining & Refining Corporation. On

We completed our initial public offering in October 30, 2020, as part of which we distributed our equity interest in Silver Opportunity Partners LLC, which held our interest in the Reorganization, weSunshine Complex in Idaho, to our stockholders and changed our name to Gatos Silver, Inc. For additional information regarding the Reorganization, see “About this Annual Report.”

Our primary efforts are focused on the operation of the LGJV in Chihuahua, Mexico. OnThe LGJV was formed on January 1, 2015, when we entered into the LGJVUnanimous Omnibus Partner Agreement with Dowa Metals and Mining Co., Ltd. (“Dowa”) to further explore, and potentially develop and operate mining properties within the LosLGD. The entities comprising the LGJV are Minera Plata Real S. de R.L. de C.V. (‘‘MPR’’) and Operaciones San Jose de Plata S. de R.L. de C.V (“OSJ”) (collectively, the ‘‘LGJV Entities’’). The LGJV Entities own mineral rights and certain surface associated with the LGD. The LGJV ownership is currently 70% Gatos District.Silver and 30% Dowa. On September 1, 2019, the LGJV commenced commercial production of its two concentrate products: aat CLG, which produces silver-containing lead concentrate and a zinc concentrate. The LGJV’s lead and zinc concentrates are sold to third-party customers.

Pursuant to the Unanimous Omnibus Partner Agreement, Dowa has the right to purchase 100% of the zinc concentrate produced from the CLG, at rates negotiated in good faith based on industry pricing benchmarks, and agreed between Dowa and MPR. The Unanimous Omnibus Partner Agreement requires unanimous partner approval of all major operating decisions (such as annual budgets, the creation of security interests on property, and certain major expenditures); therefore, despite our 70% ownership of the LGJV, we do not exercise control of the LGJV.

In addition to our 70% interest in the Los Gatos District,LGD, we have 100% ownership of the Santa Valeria property, located in Chihuahua, Mexico, which comprises 1,543 hectares and could provide additional opportunities for resource growth.

Our Principal Projects

We are currently focused on the production and continued development of the CLG and the further exploration and development of the Los Gatos District:LGD:

●The CLG, located within the LGD, described below, consists of a polymetallic mine and processing facility that commenced commercial production on September 1, 2019 and currently processes over 2,800 tonnes per day (“tpd”) of ore. The Los Gatos Technical Report estimates that, as of July 1, 2022, the deposit contains approximately 6.07 million diluted tonnes of proven and probable mineral reserves, with approximately 2.32 million diluted tonnes of proven mineral reserves and approximately 3.75 million tonnes of probable mineral reserves. Average proven and probable mineral reserve grades are 244 g/t silver, 4.48% zinc, 2.14% lead and 0.27 g/t gold. As of July 1, 2022, the measured and indicated mineral resource was 1.94 million tonnes grading 96 g/t silver, 3.01% zinc, 1.56% lead and 0.19 g/t gold with 0.38 million tonnes of measured resource and 1.55 million tonnes of indicated resource and the inferred mineral resource was 2.09 million tonnes grading 113 g/t silver, 4.30% zinc, 2.45% lead and 0.20 g/t gold at the CLG. The mineral reserve and resource estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2022 and exclude material that was mined before that effective date. From July 1, 2022 to March 31, 2023, approximately 786,000 tonnes of material was processed by the CLG mill. This processed material included mineral reserve tonnes, and to a lesser extent mineral resource tonnes as well as mineralized material not included in the mineral resource estimates. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery.
•
The CLG, located within the Los Gatos District, Chihuahua, Mexico, consists of a 2,500 tonnes per day (“tpd”) polymetallic mine and processing facility that commenced concentrate sales on September 1, 2019.
​
For the year ended December 31, 2020, the CLG mined 652,739 tonnes and processed 667,422 tonnes at average grades of 229 g/t silver, 0.42 g/t gold, 2.27% lead and 3.64% zinc, with metallurgical recovery of 84.1% silver, 61.9% gold, 86.6% lead and 72.8% zinc. A total of 21,176 tonnes of lead concentrate were produced at average grades of 5,295 g/t silver, 7.3 g/t gold, 58.9% lead and 10.1% zinc, with metallurgical recovery of 72.7% silver, 55.4% gold, 82.3% lead and 8.8% zinc. A total of 27,879 tonnes of zinc concentrate were produced at average grades of 619 g/t silver, 0.66 g/t gold, 2.4% lead and 55.6% zinc, with metallurgical recovery of 11.3% silver, 6.6% gold, 4.3% lead and 63.9% zinc. For the year ended December 31, 2019, the CLG mined 357,342 tonnes and processed 269,853 tonnes at average grades of 229 g/t silver, 0.52 g/t gold, 1.97% lead and 3.03% zinc, with metallurgical recovery of 82.1% silver, 63.5% gold, 83.4% lead and 72.3% zinc. A total of 7,188 tonnes of lead concentrate were produced at average grades of 5,774 g/t silver, 10.9 g/t gold, 56.3% lead and 12.6% zinc, with metallurgical recovery of 67.3% silver, 55.2% gold, 76.0% lead and 11.1% zinc. A total of 9,320 tonnes of zinc concentrate were produced at average grades of 978 g/t silver, 1.26 g/t gold, 4.2% lead and 53.7% zinc, with metallurgical recovery of 14.8% silver, 8.3% gold, 7.4% lead and 61.2% zinc.
The Los Gatos Technical Report estimates that the deposit contains approximately 9.6 million diluted tonnes of proven and probable mineral reserves (or approximately 5.0 million diluted tonnes of proven and probable mineral reserves on a 51.5% basis), with approximately 6.4 million diluted tonnes of proven mineral reserves (or approximately 3.3 million diluted tonnes of proven mineral reserves on a 51.5% basis) and approximately 3.3 million diluted tonnes of probable mineral reserves (or approximately 1.7 million diluted tonnes of probable mineral reserves on a 51.5% basis). Average proven and probable mineral reserve grades are 306 g/t silver, 0.35 g/t gold, 2.76% lead and 5.65% zinc. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have

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●The LGD, located in Chihuahua, Mexico, is approximately 120 kilometers south of Chihuahua City and is comprised of a 103,087 hectare land position, constituting a new mining district. The LGD consists of multiple mineralized zones. Two of the identified mineralized zones, Cerro Los Gatos and Esther, have reported mineral resources. The Los Gatos Technical Report estimates that the Esther deposit contains 0.28 million tonnes of indicated mineral resources at average grades of 122 g/t silver, 4.30% zinc, 2.17% lead and 0.14 g/t gold, and 1.20 million tonnes of inferred mineral resources at average grades of 133 g/t silver, 3.69% zinc, 1.53% lead and 0.09 g/t gold. The mineral resource estimates for the Esther deposit have an effective date of July 1, 2022 and have not been updated since that time. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery. The deposits in the LGD are characterized by predominantly silver-lead-zinc epithermal mineralization. A core component of the LGJV’s business plan is to explore the highly prospective, underexplored LGD with the objective of identifying additional mineral deposits that can be developed, mined and processed, possibly utilizing the CLG plant infrastructure. The history of mineral exploration in relation to the LGD is described below.
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been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.
•
The Los Gatos District, located in Chihuahua, Mexico, is located approximately 120 kilometers south of Chihuahua City and is comprised of a 103,087-hectare land position, constituting a new mining district. The Los Gatos District consists of 14 mineralized zones, which include three identified silver-lead-zinc deposits that contain mineral resources — the CLG, the Esther deposit and the Amapola deposit — as well as 11 additional high-priority targets defined by high-grade drill intersections and over 150 kilometers of outcropping quartz and calcite veins. The area is characterized by a predominantly silver-lead-zinc epithermal mineralization. On September 1, 2020, the LGJV commenced concentrate sales at the CLG. A core component of the LGJV’s business plan is to explore the highly prospective, underexplored Los Gatos District with the objective of identifying additional mineral deposits that can be mined and processed, possibly utilizing the CLG plant infrastructure.
​

Prior to our initial acquisition of exploration concession rights in April 2006, very limited historical prospecting and exploration activities had been conducted in the Los Gatos District.LGD. We were able to acquire mineral concessions covering approximately 103,087 hectares and, through our exploration, discovered a virginnew silver region containing potential high-grade epithermal vein-style mineralization throughout the Los Gatos DistrictLGD concession package.

In 2008, we negotiated certain surface access rights with local ranch owners and obtained the necessary environmental permits for drilling and road construction.construction necessary for the development of the CLG. Through 2015, we purchased all the surface lands required for the CLG development. Environmental baseline data collection began in May 2010 and was completed in 2016 and approved in 2017 to prepare for the development of future environmental studies required for the CLG. In 2014, we partnered with Dowa to finance and develop the CLG and pursue exploration in the Los Gatos District. Together with Dowa, we formed the LGJV, which owns certain surfaceLGD and, mineral rights associated with the Los Gatos District. In connection with the formation of the LGJV, weas noted above, entered into the Unanimous Omnibus Partner Agreement which governs our and Dowa’s respective rights over the LGJV. As of December 31, 2020, we owned approximately 51.5% of the LGJV. As of the date of this Report, we own 70.0% of the LGJV and Dowa owns the remainder. Despite owning the majority interest in the LGJV, we do not exercise control over the LGJV due to certain provisions contained in the Unanimous Omnibus Partner Agreement that currently require unanimous partner approval of all major operating decisions (such as certain approvals, the creation of security interests on property, any initial public offering of the joint venture, and litigation settlements).
early 2015.

We believe that we have strong support from the local community, with about 150195 employees from the local community working across multiple areas involving the operation of the CLG, continued underground development, and construction of the surface facilities and operation of the CLG.sustaining development projects. Over 99% of the approximate 620824 employees at the CLG hailare from Mexico, highlighting our commitment to the local workforce.

Our primary areas of focus have been constructingoperating and commissioningdeveloping the CLG, and defining and expanding the mineral reserves and mineral resources associated with the CLG and exploring and delineating resources within the Esther deposit and the Amapola deposit.LGD. As of DecemberMarch 31, 2020, 7392023, 1,926 exploration and definition drill holes have been completed in both CLG and the Los Gatos District,LGD, totaling 267,060466,104 meters. The Los Gatos Technical Report estimates that theIn 2022, LGD exploration drilling was completed at Esther, Cascabel, Wall-e and El Valle targets and detailed mapping occurred and Wall-e and Cascabel. Definition and expansion drilling was completed around CLG contains 10.4 million tonnes of measuredboth from surface and indicated resources (or 5.4 million tonnes of measured and indicated resources on a 51.5% basis) inclusive of mineral reserves, at average grades of 269 g/t silver, 2.7% lead, 5.5% zinc, 0.34 g/t gold and 0.11% copper, or 3.5 million tonnes of measured and indicated resources (or 1.8 million tonnes of measured and indicated resources on a 51.5% basis) exclusive of mineral reserves, at average grades of 154 g/t silver, 2.2% lead, 4.3% zinc and 0.29 g/t gold, and 3.7 million tonnes of inferred resources (or 1.9 million tonnes of inferred resources on a 51.5% basis), at average grades of 107 g/t silver, 2.8% lead, 4.0% zinc and 0.28 g/t gold. The mineral resource estimates for the CLG have an effective date of September 6, 2019 and have not been updated since that time. We believe that activityunderground.

Our objectives at the CLG subsequentare to, among other things:

●continue strong operating and cost performance;
●maximize margins and extend the LOM;
●complete key capital projects and other initiatives to enhance mining efficiencies and reduce operating costs; and
●perform additional in-fill and step-out drilling to convert mineral resources to reserves and delineate mineral resources and reserves from the recently discovered mineralization below the South-East zone of the CLG (“South-East Deeps”).

Our objectives at the effective dateLGD are to realize the district potential through, among other things:

●detailed mapping and drill testing at the Esther, Amapola and El Lince Area deposits;
●district mapping and geophysics in the Rio Conchos basin and additional exposed and underlying andesite in the region to identify additional drill targets; and
●continued expansion of the LGJV’s interest in prospective mineral and surface rights.

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For the years ended December 31, 2022 and 2021, the LGJV achieved the following production from CLG:

​

​

​

​

​

​

​

​

CLG Production (100% Basis)

    

2022

    

2021

​

Tonnes milled (dmt - reconciled)

 

​

971,595

 

​

909,586

​

Tonnes milled per day (dmt)

 

​

2,662

 

​

2,492

​

Average Feed Grades

 

​

​

 

​

​

​

Silver grade (g/t)

 

​

368

 

​

295

​

Zinc grade (%)

 

​

4.37

 

​

3.94

​

Lead grade (%)

 

​

2.31

 

​

2.27

​

Gold grade (g/t)

 

​

0.33

 

​

0.32

​

Contained Metal

 

​

​

 

​

​

​

Silver ounces (millions)

 

​

10.3

 

​

7.6

​

Zinc pounds - in zinc conc. (millions)

 

​

60.7

 

​

49.6

​

Lead pounds - in lead conc. (millions)

 

​

43.9

 

​

39.8

​

Gold ounces - in lead conc. (thousands)

 

​

5.3

 

​

5.2

​

Recoveries*

 

​

​

 

​

​

​

Silver - in both lead and zinc concentrates

 

​

89.8

%

​

88.3

%

Zinc - in zinc concentrate

 

​

64.8

%

​

62.9

%

Lead - in lead concentrate

 

​

88.7

%

​

87.6

%

Gold - in lead concentrate

 

​

52.0

%

​

56.3

%

Average realized price per silver ounce

​

$

20.72

​

$

24.38

​

Average realized price per zinc pound

​

$

1.58

​

$

1.38

​

Average realized price per lead pound

​

$

0.90

​

$

1.01

​

Average realized price per gold ounce

​

$

1,678

​

$

1,761

​

*

Recoveries are reported for payable metals in the identified concentrate.

Strategic Developments

Our business strategy is focused on creating value for stakeholders through the ownership and advancement of the CLG and the LGD and through the pursuit and the development of other attractive silver-focused projects. The following outlines key strategic developments since January 1, 2022:

●Inaugural Dividends Paid to LGJV Partners. In 2022, the LGJV paid three dividends to its partners, totaling $55 million, of which the Company’s share was $29.2 million, net of withholding taxes and after initial priority distribution payments to Dowa.
●Reestablished and Extended our Revolving Credit Facility (the “Credit Facility”): On July 12, 2021, we entered into the Credit Facility with Bank of Montreal (“BMO”) that provides for a $50 million revolving line of credit with an accordion feature. On March 7, 2022, we amended the Credit Facility with BMO, to address potential loan covenant deficiencies, which resulted, inter alia, in the credit limit being reduced to $30 million.

On December 19, 2022, we entered into an amended and restated Credit Facility with BMO, extending the maturity date to December 31, 2025, and re-establishing a credit limit of $50 million, with an accordion feature.

●New Mineral Resource and Mineral Reserve Estimates. In the fourth quarter of 2022, we completed a full re-estimation of the Company’s mineral resources and mineral reserves as published in the Los Gatos Technical Report. The mineral resources and mineral reserves were completely rebuilt from base data, including data compilation of surface drilling, underground drilling, underground mapping and production data, comprehensive data validation, structural and geological interpretation, resource estimation, reconciliation to actual production, and a new mine design including updates to operating and capital costs.
●Discovery of South-East Deeps Zone at CLG and further exploration success. In 2022, through the LGJV, we discovered mineralization below the South-East zone of the CLG. This newly identified zone extends approximately 415 meters below the reported mineral reserve. On January 23, 2023 we announced continued exploration drilling success demonstrating significant mine life extension potential through resource conversion and expansion at CLG. On April 19,

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2023 we announced that we were continuing to intercept strong widths and grades of silver, zinc, lead, gold and, copper in the case of the South-East and South-East Deeps zones. We also announced encouraging results from our resource conversion and extension drilling which will be reflected in an updated mineral reserve and mineral resource estimate that is expected to be completed in the third quarter of 2023. We also announced that we continued to see significant potential for new discoveries beyond the CLG deposit, highlighted by progress in our district exploration program.
●Demonstrated Excellent Operational Performance. For 2022, we reported record silver production at the CLG, that exceeded our 2022 guidance. Silver production was 10.3 million ounces in 2022, up 36% from 7.6 million ounces in 2021, and above the high-end of the 2022 guidance range. Zinc, lead and gold production also increased during 2022, with zinc and gold near the high-end of guidance, and lead near the guidance midpoint. Compared with 2021, in 2022, zinc production increased by 22%, lead production increased by 10%, and gold production increased by 2%. The higher silver production for 2022 was primarily due to higher silver ore grades and higher mill throughput rates. Production sequencing in 2022 was from the highest-grade sections of the orebody, as considered in the LOM plan included in the Los Gatos Technical Report. We expect to produce 7.4 to 8.2 million ounces of silver, 57 to 63 million pounds of zinc, 36 to 40 million pounds of lead and 5.4 thousand to 6.2 thousand ounces of gold in 2023. On April 12, 2023, we announced record CLG production results for the first quarter ended March 31, 2023, with record mill throughput of 2,894 tonnes milled per day and production of 2.43 million ounces of silver, 14 million pounds of zinc, 9.5 million pounds of lead and 1.38 thousand ounces of gold.
●Fluorine Leach Plant Construction and Operation to Serve as Payment Towards Priority Distribution to Dowa. As agreed with Dowa, the initial payment of the priority distribution was reduced to reflect a portion of both the construction and future estimated operating costs of the new fluorine leach plant, subject to the successful construction and operation of the plant.
●Optimization of CLG Assets and Capital Improvements. Mill throughput averaged 2,847 tpd during the fourth quarter of 2022, an increase of 9% compared to the fourth quarter of 2021, and significantly exceeded the mill design rate of 2,500 tpd. During 2022, the mill achieved a record 2,662 tpd, which was 7% higher than in 2021. Silver, zinc and lead recoveries for 2022 were also higher than in 2021. During the fourth quarter of 2022, we completed the construction and commissioning of the paste backfill plant. The paste backfill plant is expected to increase operational flexibility and productivity as well as help lower operating costs going forward. Construction of the fluorine leach plant is progressing well and it is expected to be commissioned in the second quarter of 2023, and reduce the amount of deleterious content in zinc concentrates being sent to Dowa. The LGJV expects to spend $45 million on sustaining capital during 2023 of which $25 million is expected to be incurred on underground development to access the lower levels of the Northwest and Central zones and to further develop the Southeast zone. The remainder of capital expenditures for 2023 are expected to be primarily associated with equipment replacements and rebuilds, dewatering infrastructure, and for completion of the fluorine leach plant. Commissioning of the fluorine leach plant is expected to commence in the second half of June 2023.
●Strong Financial Performance. On June 6, 2023 we reported operating and select unaudited financial results for the three months ended March 31, 2023 (“Q1 2023”), the three months ended December 31, 2022 (“Q4 2022”) and the year ended December 31, 2022. For Q1 2023, cash flow from operations for the LGJV was $44.5 million, up 6% from $42.1 million a year earlier. For Q4 2022 and the full year 2022 cash flow from operations for the LGJV was $39.1 million in Q4 2022 and $157.4 million for the full year 2022, increases of 12% and 31%, respectively, compared with the year-earlier periods. We also announced that we were on track to achieve our previously stated production and cost guidance for 2023 noting that silver production is expected to be higher in the first half of 2023 than in the second half of 2023 based on sequencing of the mine plan while zinc and lead production are expected to be higher in the second half of the year than in the first half.
●Corporate Developments. We relocated our corporate office from Denver, Colorado, to Vancouver, British Columbia, providing improved access to experienced mining managerial talent. We strengthened the executive management team with the appointments of a new Chief Financial Officer, a General Counsel and Chief Compliance Officer, and a Senior Vice President, Corporate Development and Technical Services, all with extensive experience working for large multinational mining companies.

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Our Strengths

We believe the following provide us with significant competitive advantages:

●Our Assets are High Quality: As noted above, the CLG achieved strong operational performance in 2022. Per the Los Gatos Technical Report, the CLG is expected to produce an average of 7.4 million ounces of silver per annum at low all-in-sustaining-costs over the LOM.
●Our Assets are Located in an Established Mining Region: The CLG and the LGD are located in one of the world’s premier silver mining regions: the Mexican Silver Belt, which was the world’s largest silver producing region in 2021. Mexico is a leading silver mining jurisdiction and has a long history of successful mineral development and operations. We have access to experienced and capable mining employees in Mexico.
●Further Optimization Potential at CLG: At the CLG, we apply continuous improvement practices designed to reduce costs, and improve throughput and recoveries. For example, during 2023, we anticipate completing a scoping study on the possible future expansion of the grinding circuit to 3,500 tpd to better utilize the capacity in the existing flotation circuit.
●Growth Potential in our Mineral Reserves and Resources from Further Exploration of the CLG and the LGD: Through the LGJV, we have continued our in-mine and near-mine exploration program in the CLG and our exploration activities in the LGD. In the CLG, we expect to convert inferred resources from higher-grade areas located adjacent to planned mine development and also expect there to be further LOM extension opportunity in the South-East Deeps area of the CLG. We expect to complete new mineral resource and mineral resource estimates for the Company in the third quarter of 2023. We also believe the LGD is a highly prospective area, with 103,087 contiguous hectares of mineral rights. The LGD is located in the Mexican Silver Belt, a geologic zone that hosts numerous significant silver producing operations. The LGD represents an underexplored property within this productive belt, where there has been little historical workings or previous exploration. On November 22, 2022, we disclosed our exploration strategy for the LGD which entails a focus on two key areas: an exposed section of andesite running from the northwest boundary of the district to Esther and the CLG, and a large basin southeast of the CLG underlain by andesite and which we anticipate may contain other large, district-scale fault structures conducive to large deposits. We are currently prioritizing exploration efforts on areas closer to the CLG and areas with the highest potential to leverage existing surface and underground infrastructure. The LGJV is expected to incur drilling and exploration expenditures of approximately $13 million in 2023. At the CLG, there are currently five active drill rigs on surface and three underground, with the primary focus on CLG life extension including drilling of the South-East Deeps zone and gradually shifting focus towards exploration drilling of the LGD in the second half of 2023. We also plan to conduct detailed mapping of the district and undertake a geophysics survey program aiming to define structures and future drilling targets across the property.
●Management Team and Board of Directors are Highly Experienced: We have an experienced management team whose members have successful track records in the mining industry. Our Chief Executive Officer, Dale Andres; Chief Financial Officer, André van Niekerk; Senior Vice President of Evaluations and Technical Services, Tony Scott; and General Counsel and Chief Compliance Officer, Stephen Bodley, each has significant experience in developing, financing, and operating successful mining projects. Our Board of Directors is comprised of senior mining, financial and business executives who have broad domestic and international experience in mineral exploration, development and mining operations at notable mining companies. We believe that the specialized skills and knowledge of the management team and the Board of Directors will significantly enhance our ability to cost-effectively operate the CLG and extend its LOM, explore and develop the LGD and pursue other growth opportunities.

Summary of Mineral Reserves and Mineral Resources

Below is a summary table of estimated mineral resources and mineral reserves. Further information can be found in "Item 2. Properties." The mineral reserve and mineral resource estimates would not result in a material change to the information contained in the Los Gatos Technical Report.Report have an effective date of July 1, 2022 and exclude mineral reserves that have previously been mined prior to this date. From July 1, 2022 to March 31, 2023, approximately 786,000 tonnes of material were processed by the CLG mill. This processed material included mineral reserve tonnes, and to a lesser extent mineral resource tonnes as well as mineralized material not included in the mineral resource estimates. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery.

The Los Gatos Technical Report estimates that the Esther deposit contains 0.46 million tonnes of indicated resources (or 0.24 million tonnes of indicated resources on a 51.5% basis) at average grades of

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133 g/t silver, 0.04 g/t gold, 0.02% copper, 0.70% lead and 2.10% zinc, and 2.29 million tonnes of inferred resources (or 1.18 million tonnes of inferred resources on a 51.5% basis) at average grades of 98 g/t silver, 0.12 g/t gold, 0.05% copper, 1.60% lead and 3.00% zinc; and the Amapola deposit contains 0.25 million tonnes of indicated resources (or 0.13 million tonnes of indicated resources on a 51.5% basis) at average grades of 135 g/t silver, 0.10 g/t gold, 0.02% copper, 0.10% lead and 0.30% zinc, and 3.44 million tonnes of inferred resources (or 1.77 million tonnes of inferred resources on a 51.5% basis) at average grades of 140 g/t silver, 0.10 g/t gold, 0.03% copper, 0.20% lead and 0.30% zinc. The mineral resource estimates for the Esther and Amapola deposits have an effective date of December 21, 2012 and have not been updated since that time. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery.
The CLG is currently in production. The first lead concentrate was shipped on September 3, 2019, and the first zinc concentrate was shipped on September 4, 2019. We increased production to the designed 2,500 tpd rate by the end of 2020.
Our objectives at the CLG are to, among other things:
•
continue production at the designed 2,500 tpd rate;
​
•
produce and sell concentrate material containing zinc, lead, silver and gold metals to smelting facilities in Japan, Mexico and other locations;
​
•
initiate a feasibility study, prepared in accordance with the SEC Mining Modernization Rules and NI 43-101, on expanding the production rate from 2,500 to 3,000 tpd; and
​
•
perform additional in-fill and step-out drilling to further define mineral resources at the CLG.
​
Our objectives at the Los Gatos District are to, among other things:
•
perform additional in-fill and expansion drilling to further define and expand mineralization at the Esther and Amapola deposits;
​
•
conduct social, environmental and technical work on the property with the objective of completing a scoping study on the Esther and Amapola deposits;
​
•
expand the exploration drilling program on the Esther deposit, the Amapola deposit and the other 11 mineralized zones within the Los Gatos District; and
​
•
continue to expand the LGJV’s interest in prospective mineral and surface rights.
​
Business Strategy and Competitive Strengths
Our business strategy is focused on creating value for stakeholders through the ownership and advancement of two principal projects — the CLG and the Los Gatos District — and through the pursuit of similarly attractive silver-focused projects. We have undertaken and intend to undertake the following value-enhancing near-term and long-term initiatives:
•
Extinguished the Los Gatos Working Capital Facility (“WCF”): On March 11, 2021, the WCF provided to the LGJV by Dowa was extinguished. The WCF carried an annual interest rate of LIBOR plus 3%. In addition, we were required to pay an arrangement fee on the borrowing, calculated as 15.0% per annum of 70.0% of the average daily principal amount outstanding during the relevant fiscal quarter. We believe that by extinguishing the WCF, we are able to reduce our borrowing costs in future periods.
​
•
Repurchased an 18.5% interest in the Los Gatos Joint Venture to increase our ownership to 70.0%: On March 11, 2021, we repurchased an approximate 18.5% interest in the LGJV from Dowa, increasing our ownership to 70.0%. The repurchase represented an attractive investment opportunity that we believe is immediately value-accretive. With increased ownership, we will further benefit from the production at the CLG, supported by the attractive cash flow generation profile and fully funded nature of the project. In addition to increasing our economic interest in the CLG, this repurchase also provides us with greater exposure to potential upside from additional exploration within the Los Gatos District, in particular the Esther and Amapola deposits.
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•
Complete a feasibility study expanding the CLG production rate to 3,000 tpd: Our desktop study estimated that a production rate expansion from 2,500 to 3,000 tpd could significantly improve the economics of the CLG. Given the appealing potential return, we intend to complete a feasibility study, prepared in accordance with the SEC Mining Modernization Rules and NI 43-101, to assess a CLG production rate increase.
​
•
Further exploration of the Los Gatos District: In December 2020, we and Dowa commenced a 27,000-meter exploration program to convert the CLG’s established 3.2 million tonnes of inferred resources to the measured and indicated category and to discover additional resources along the northwest and southeast extensions of the CLG deposit. In 2021, the LGJV intends to initiate a second exploration program to expand resources throughout the Los Gatos District. The initial target is an estimated 19,000-meter campaign at the Esther deposit, to expand its initial NI 43-101-compliant indicated resource of 0.46 million tonnes at 133 g/t silver, 2.1% zinc, 0.7% lead and inferred resource of 2.29 million tonnes at 98 g/t silver, 3.0% zinc, and 1.6% lead. Esther is located about four kilometers from Cerro Los Gatos and contains similar styles of mineralization and geochemistry. We believe that further drilling may materially expand the size and mineral tenor of this resource.
​
•
Explore our wholly-owned Santa Valeria property: In March 2021, we commenced a 5,400-meter exploration program on our wholly-owned Santa Valeria property. The Santa Valeria target has been developed through regional geologic work by our exploration team, which defined a large basin structure hosting the mineralization zones within the Los Gatos District. Santa Valeria is geologically comparable to Cerro Los Gatos and may contain similar mineral content.
​
We believe the following strengths provide us with significant competitive advantages:
•
High Quality and Long Life Assets: CLG is expected to generate average life-of-mine (“LOM”) unlevered, after-tax free cash flow of approximately $76 million per year on a 100% basis (or approximately $53 million per year on a 70.0% basis). We successfully commissioned the CLG in 2019 and the CLG commenced concentrate sales on September 1, 2019.
​
•
Assets Located in Geopolitically Safe and Established Mining Regions: The Los Gatos District is located in one of the world’s premier silver mining regions: the Mexican Silver Belt, which was the world’s largest silver producing region. Mexico is highly ranked among silver mining jurisdictions worldwide in terms of the attractiveness of investment and has a long history of successful mineral development and operations, which we believe makes it a desirable jurisdiction in which to conduct mining operations due to stable political, tax and regulatory policies.
​
•
Resource Growth Potential from Exploration of the Los Gatos District: We believe that our properties have significant exploration upside with numerous opportunities to define additional mineral resources through continued exploration. The Los Gatos District is located in the Mexican Silver Belt, near several other silver assets owned by large public companies. The Mexican Silver Belt has experienced significant exploration success, and the Los Gatos District represents an underexplored property where there has been little historical workings or previous exploration. The Los Gatos District contains numerous significant high-grade targets throughout. Previous work done has resulted in a 190% increase in measured and indicated silver equivalent resources from March 2014 to September 2019, with additional exploration planned. In addition to the significant existing resources at the CLG, the Los Gatos District also contains the Esther and Amapola deposits and 11 other mineralized zones. With the LGJV’s control of the concessions, the ability to develop the entire 103,087-hectare land position and more than 85% of the land position yet to be explored, we expect that we will benefit from additional exploration that has the potential to expand mineralization beyond that already identified in the 14 mineralized zones, which include the CLG, the Esther deposit and the Amapola deposit.
​
•
Experienced Management Team and Board of Directors: We have an experienced and growing management team with a track record of successfully identifying and developing mineral discoveries. Our Chief Executive Officer, Stephen Orr, Chief Financial Officer, Roger Johnson, Vice President of Exploration and Chief Geologist, Philip Pyle, and Chief Operating Officer, John Kinyon, each has significant experience in the mining industry. Our Board of Directors is comprised of senior mining and financial executives who have broad domestic and international experience in mineral exploration,
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development and mining. Our Board of Directors has been established with individuals who have career backgrounds at notable mining companies. We believe that the specialized skills and knowledge of the management team and of the Board of Directors will significantly enhance our ability to explore and develop the Los Gatos District and to pursue other regional growth opportunities.
Summary of Mineral Resources and Mineral Reserves
Below is a summary table of estimated mineral resources and reserves. Further information can be found in “Item 2. Properties.” The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019 and have not been updated since that time. We believe that activity at the CLG subsequent to the effective date of the mineral resource estimates would not result in a material change to the information contained in the Los Gatos Technical Report. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.

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Summary Mineral Resources Inclusive of Mineral Reserves as of December 31, 2020
​​​
Measured
Mineral Resources
​​
Indicated
Mineral Resources
​​
Measured & Indicated
Mineral Resources
​​
Inferred
Mineral Resources
​
​
Amount
(100%
basis)
​​
Amount
(51.5%
basis)
​​
Grade /​
Qualities
​​
Amount
(100%
basis)
​​
Amount
(51.5%
basis)
​​
Grade /​
Qualities
​​
Amount
(100%
basis)
​​
Amount
(51.5%
basis)
​​
Grade /​
Qualities
​​
Amount
(100%
basis)
​​
Amount
(51.5%
basis)
​​
Grade /​
Qualities
​
​
(in millions of
tonnes)
​​
(g/t Ag or Au)
(% Pb, Zn or Cu)
​​
(in millions of
tonnes)
​​
(g/t Ag or Au)
(% Pb, Zn or Cu)
​​
(in millions of
tonnes)
​​
(g/t Ag or Au)
(% Pb, Zn or Cu)
​​
(in millions of
tonnes)
​​
(g/t Ag or Au)
(% Pb, Zn or Cu)
​
Ag:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los Gatos Mine(1)
​​​​5.8​​​​​3.0​​​​​324​​​​​4.6​​​​​2.4​​​​​202​​​​​10.4​​​​​5.4​​​​​269​​​​​3.7​​​​​1.9​​​​​107​​
Esther Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.46​​​​​0.24​​​​​133​​​​​0.46​​​​​0.24​​​​​133​​​​​2.29​​​​​1.18​​​​​98​​
Amapola Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.25​​​​​0.13​​​​​135​​​​​0.25​​​​​0.13​​​​​135​​​​​3.44​​​​​1.77​​​​​140​​
Total​​​​5.8​​​​​3.0​​​​​324​​​​​5.3​​​​​2.7​​​​​193​​​​​11.1​​​​​5.8​​​​​260​​​​​9.4​​​​​4.9​​​​​117​​
Au:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los Gatos Mine(1)
​​​​5.8​​​​​3.0​​​​​0.39​​​​​4.6​​​​​2.4​​​​​0.28​​​​​10.4​​​​​5.4​​​​​0.34​​​​​3.7​​​​​1.9​​​​​0.28​​
Esther Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.46​​​​​0.24​​​​​0.04​​​​​0.46​​​​​0.24​​​​​0.04​​​​​2.29​​​​​1.18​​​​​0.12​​
Amapola Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.25​​​​​0.13​​​​​0.10​​​​​0.25​​​​​0.13​​​​​0.10​​​​​3.44​​​​​1.77​​​​​0.10​​
Total​​​​5.8​​​​​3.0​​​​​0.39​​​​​5.3​​​​​2.7​​​​​0.25​​​​​11.1​​​​​5.8​​​​​0.32​​​​​9.4​​​​​4.9​​​​​0.18​​
Pb:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los Gatos Mine(1)
​​​​5.8​​​​​3.0​​​​​2.90​​​​​4.6​​​​​2.4​​​​​2.50​​​​​10.4​​​​​5.4​​​​​2.70​​​​​3.7​​​​​1.9​​​​​2.80​​
Esther Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.46​​​​​0.24​​​​​0.70​​​​​0.46​​​​​0.24​​​​​0.70​​​​​2.29​​​​​1.18​​​​​1.60​​
Amapola Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.25​​​​​0.13​​​​​0.10​​​​​0.25​​​​​0.13​​​​​0.10​​​​​3.44​​​​​1.77​​​​​0.20​​
Total​​​​5.8​​​​​3.0​​​​​2.90​​​​​5.3​​​​​2.7​​​​​2.2​​​​​11.1​​​​​5.8​​​​​2.6​​​​​9.4​​​​​4.9​​​​​1.6​​
Zn:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los Gatos Mine(1)
​​​​5.8​​​​​3.0​​​​​5.80​​​​​4.6​​​​​2.4​​​​​5.2​​​​​10.4​​​​​5.4​​​​​5.5​​​​​3.7​​​​​1.9​​​​​4.00​​
Esther Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.46​​​​​0.24​​​​​2.10​​​​​0.46​​​​​0.24​​​​​2.10​​​​​2.29​​​​​1.18​​​​​3.00​​
Amapola Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.25​​​​​0.13​​​​​0.30​​​​​0.25​​​​​0.13​​​​​0.30​​​​​3.44​​​​​1.77​​​​​0.30​​
Total​​​​5.8​​​​​3.0​​​​​5.8​​​​​5.3​​​​​2.7​​​​​4.7​​​​​11.1​​​​​5.8​​​​​5.2​​​​​9.4​​​​​4.9​​​​​2.4​​
Cu:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los Gatos Mine(1)
​​​​5.8​​​​​3.0​​​​​0.11​​​​​4.6​​​​​2.4​​​​​0.11​​​​​10.4​​​​​5.4​​​​​0.11​​​​​3.7​​​​​1.9​​​​​0.14​​
Esther Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.46​​​​​0.24​​​​​0.02​​​​​0.46​​​​​0.24​​​​​0.02​​​​​2.29​​​​​1.18​​​​​0.05​​
Amapola Deposit(2)
​​​​—​​​​​—​​​​​—​​​​​0.25​​​​​0.13​​​​​0.02​​​​​0.25​​​​​0.13​​​​​0.02​​​​​3.44​​​​​1.77​​​​​0.03​​
Total​​​​5.8​​​​​3.0​​​​​0.11​​​​​5.3​​​​​2.7​​​​​0.10​​​​​11.1​​​​​5.8​​​​​0.10​​​​​9.4​​​​​4.9​​​​​0.08​​
​
(1)
Based on a cut-off grade of 150 grams silver equivalent/tonne at assumed metal prices of $18.00/toz silver, $0.92/lb lead and $1.01/lb zinc; gold was not considered in silver equivalent calculation. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019 and include mineral reserves. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for metallurgical recovery. For a discussion of the mineral resource estimates contained in the Los Gatos Technical Report, see “Item 2. Properties — The Los Gatos District — Mineral Resource Estimates — CLG, Esther and Amapola Deposits.”
​
(2)
Based on a cut-off grade of 100 grams silver equivalent/tonne using metal prices of $22.30/toz silver, $0.97/lb lead, and $0.91/lb zinc. The mineral resource estimates for the Esther and Amapola deposits have an effective date of December 21, 2012. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for metallurgical recovery.
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TABLE OF CONTENTS

For a discussion of the mineral resource estimates contained in the Los Gatos Technical Report, see “Item 2. Properties — The Los Gatos District — Mineral Resource Estimates — CLG, Esther and Amapola Deposits.”

Summary Mineral Reserves as of December 31, 2020

​​​
Proven Mineral
Reserves
​​
Probable Mineral
Reserves
​​
Total Mineral
Reserves
​
​​​
Amount
(100%
basis)
​​
Amount
(51.5%
basis)
​​
Grades /​
Qualities
​​
Amount
(100%
basis)
​​
Amount
(51.5%
basis)
​​
Grades /​
Qualities
​​
Amount
(100%
basis)
​​
Amount
(51.5%
basis)
​​
Grades /​
Qualities
​
​​​
(in millions of
tonnes)
​​
(g/t Ag or Au)
(% Pb or Zn)
​​
(in millions of
tonnes)
​​
(g/t Ag or Au)
(% Pb or Zn)
​​
(in millions of
tonnes)
​​
(g/t Ag or Au)
(% Pb or Zn)
​
Ag:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los
Gatos Mine
​​​​6.4​​​​​3.3​​​​​332​​​​​3.3​​​​​1.7​​​​​254​​​​​9.6​​​​​5.0​​​​​306​​
Total​​​​6.4​​​​​3.3​​​​​332​​​​​3.3​​​​​1.7​​​​​254​​​​​9.6​​​​​5.0​​​​​306​​
Au:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los
Gatos Mine
​​​​6.4​​​​​3.3​​​​​0.36​​​​​3.3​​​​​1.7​​​​​0.34​​​​​9.6​​​​​5.0​​​​​0.35​​
Total​​​​6.4​​​​​3.3​​​​​0.36​​​​​3.3​​​​​1.7​​​​​0.34​​​​​9.6​​​​​5.0​​​​​0.35​​
Pb:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los
Gatos Mine
​​​​6.4​​​​​3.3​​​​​2.77​​​​​3.3​​​​​1.7​​​​​2.74​​​​​9.6​​​​​5.0​​​​​2.76​​
Total​​​​6.4​​​​​3.3​​​​​2.77​​​​​3.3​​​​​1.7​​​​​2.74​​​​​9.6​​​​​5.0​​​​​2.76​​
Zn:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Los Gatos District​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
Cerro Los
Gatos Mine
​​​​6.4​​​​​3.3​​​​​5.55​​​​​3.3​​​​​1.7​​​​​5.86​​​​​9.6​​​​​5.0​​​​​5.65​​
Total​​​​6.4​​​​​3.3​​​​​5.55​​​​​3.3​​​​​1.7​​​​​5.86​​​​​9.6​​​​​5.0​​​​​5.65​​
July 1, 2022

CLG Mineral Reserves Statement

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Reserve

    

​

    

Ag 

    

Zn 

    

Pb 

    

Au 

    

Ag 

    

Zn 

    

Pb 

    

Au 

Classification

​

Mt

​

(g/t)

​

(%)

​

(%)

​

(g/t)

​

(Moz)

​

(Mlbs)

​

(Mlbs)

​

(koz)

Proven

 

2.32

 

309

 

4.33

 

2.20

 

0.31

 

23.1

 

221.6

 

112.3

 

23.0

Probable

 

3.75

 

204

 

4.57

 

2.11

 

0.24

 

24.6

 

377.4

 

174.4

 

28.7

Proven and Probable Reserve

 

6.07

 

244

 

4.48

 

2.14

 

0.27

 

47.7

 

599.1

 

286.7

 

51.8

​
Reserves based on a $75 Net Smelter Return (“NSR”) cut-off value. NSR

1.

Mineral Reserves are reported on a 100% basis and exclude all Mineral Reserve material mined prior to July 1, 2022.

2.

Specific gravity has been assumed on a dry basis.

3.

Tonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.

4.

Values are inclusive of mining recovery and dilution. Values are determined as of delivery to the mill and therefore not inclusive of milling recoveries.

5.

Mineral Reserves are reported within stope shapes using a variable cut-off basis with a Ag price of US$22/oz, Zn price of US$1.20/lb, Pb price of US$0.90/lb and Au price of US$1,700/oz. The metal prices used for the Mineral Reserves are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM.

6.

The Mineral Reserve is reported on a fully diluted basis defined by mining method, stope geometry and ground conditions.

7.

Contained Metal (CM) is calculated as follows:

●Zn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6
●Ag and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035 ; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)

8.

The SEC definitions for Mineral Reserves in S-K 1300 were used for Mineral Reserve classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions).

9.

Mineral Reserves are those parts of Mineral Resources which, after the application of all mining factors, result in an estimated tonnage and grade which, in the opinion of the Qualified Person(s) making the estimates, is the basis of an economically viable project after taking account of all relevant Modifying Factors. Mineral Reserves are inclusive of diluting material that will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility.

10.

Proven Reserves include a 15.4-kt stockpile at June 30, 2022. The in-situ Reserve is 6,052 kt. Rounding and significant figures may result in apparent summation differences between tonnes and grade.

11.

The Mineral Reserve estimates were prepared by Mr. Paul Gauthier, P.Eng. an employee of WSP Canada Inc. who is the independent Qualified Person for these Mineral Reserve estimates.

Summary Mineral Resources (Exclusive of Mineral Reserves) as revenue per tonne mined less the sum of concentrate refining, treatment and transportation costs per tonne mined. The mineral reserve estimates for the CLG reflect diluted grades with adjustment for metallurgical recovery. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes2022

CLG Mineral Resource Estimate

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​

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​

​

    

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​

    

Zn

    

Pb 

    

​

    

​

    

​

    

​

    

​

Resource Classification

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Mt

​

Ag (g/t)

​

(%)

​

(%)

​

Au (g/t)

​

Ag (Moz)

​

Zn (Mlbs)

​

Pb (Mlbs)

​

Au (koz)

Measured

 

0.38

 

151

 

2.63

 

1.49

 

0.26

 

1.9

 

22.1

 

12.6

 

3.2

Indicated

 

1.55

 

82

 

3.11

 

1.57

 

0.17

 

4.1

 

106.4

 

53.8

 

8.6

Measured and Indicated

 

1.94

 

96

 

3.01

 

1.56

 

0.19

 

6.0

 

128.5

 

66.4

 

11.8

Inferred

 

2.09

 

113

 

4.30

 

2.45

 

0.20

 

7.6

 

198.4

 

113.1

 

13.3

1.

Mineral Resources are reported on a 100% basis and are exclusive of Mineral Reserves.

2.

Mineral Resources, which are not Mineral Reserves, do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.

3.

The SEC definitions for Mineral Resources in S-K 1300 were used for Mineral Resource classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions).

4.

The quantity and grade of reported Inferred Mineral Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Mineral Resources as an Indicated or Measured Mineral Resource. It is uncertain if further exploration will result in upgrading Inferred Mineral Resources to an Indicated or Measured Mineral Resource category.

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Table of mineral reserves that have been mined through June 30, 2020. For a discussion of the mineral reserve estimates contained in the Los Gatos Technical Report, see “Item 2. Properties — The Los Gatos District —Contents

5.

Specific gravity has been assumed on a dry basis.

6.

Tonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.

7.

Mineral Resources exclude all Mineral Resource material mined prior to July 1, 2022.

8.

Mineral Resources are reported within stope shapes using a $42/tonne or $52/tonne NSR cut-off basis depending on mining method with an Ag price of $22/oz, Zn price of $1.20/lb, Pb price of $0.90/lb and Au price of $1,700/oz. The metal prices used for the Mineral Resource are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM.

9.

No dilution was applied to the Mineral Resource.

10.

Contained Metal (CM) is calculated as follows:

●Zn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6
●Ag and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)

11.

The Mineral Resource estimates were prepared by Ronald Turner, MAusIMM(CP) an employee of Golder Associates S.A. who is the independent Qualified Person for these Mineral Resource estimates.

Esther Mineral Reserve Estimates — CLG.”Resource Estimate

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​

​

​

​

​

​

​

​

​

    

​

    

Ag 

    

Zn

    

Pb

    

Au 

    

Ag 

    

Zn 

    

Pb

    

Au 

Resource Classification

​

Mt

​

(g/t)

​

 (%)

​

 (%)

​

(g/t)

​

(Moz)

​

(Mlbs)

​

(Mlbs)

​

(koz)

Indicated

​

0.28

​

122

​

4.30

​

2.17

​

0.14

​

1.1

​

26.8

​

13.6

​

1.2

Inferred

 

1.20

 

133

 

3.69

 

1.53

 

0.09

 

5.1

 

98.0

 

40.6

 

3.3

1.

Mineral Resources are reported on a 100% basis.

2.

Mineral Resources, which are not Mineral Reserves, do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.

3.

The SEC definitions for Mineral Resources in S-K 1300 were used for Mineral Resource classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions).

4.

The quantity and grade of reported Inferred Mineral Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Mineral Resources as an Indicated or Measured Mineral Resource. It is uncertain if further exploration will result in upgrading Inferred Mineral Resources to an Indicated or Measured Mineral Resource category.

5.

Specific gravity has been assumed on a dry basis.

6.

Tonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.

7.

Mineral Resources are reported within stope shapes using a $52/tonne NSR cut-off basis assuming processing recoveries equivalent to CLG with an Ag price of $22/oz, Zn price of $1.20/lb, Pb price of $0.90/lb and Au price of $1,700/oz. The metal prices used for the Mineral Resource are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM. There is a portion of the Esther deposit that is oxidized and metallurgical test work is required to define processing recoveries.

8.

No dilution was applied to the Mineral Resource.

9.

Contained Metal (CM) is calculated as follows:

●Zn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6
●Ag and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035 ; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)

10.

The Mineral Resource estimates were prepared by Ronald Turner, MAusIMM(CP) an employee of Golder Associates S.A. who is the independent Qualified Person for these Mineral Resource estimates.

Competition

There is aggressive competition within the mining and precious metals industry. We compete with other precious metals mining companies, such as Coeur Mining Inc., Pan American Silver Corp. and First Majestic Silver Corp., as well as other mineral miners, in efforts to obtain financing to explore and develop its projects. TheseMany of these mining companies currently have greater resources than we do. In the future, we may compete with such companies to acquire additional properties.

In addition, we also encounter competition for the hiring of key personnel. The mining industry is currently facing a shortage of experienced mining professionals, particularly experienced mine construction


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and mine management personnel. This competition affects our operations. Larger regional companies can offer better employment terms than smaller companies such as us. In addition, the volatility in our stock price reduces our ability to attract and retain such personnel through the use of share-based compensation.

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We also compete for the services of mine service companies, such as project coordinators and drilling companies. Potential suppliers may choose to provide better terms and scheduling to larger companies in the industry due to the scale and scope of their operations.

Environmental, Health and Safety Matters

We are subject to stringent and complex environmental laws, regulations and permits in the various jurisdictionsjurisdiction in which we operate. These requirements are a significant consideration for us as our operations involve, or may in the future involve, among other things, the removal, extraction and processing of natural resources, emission and discharge of materials into the environment, remediation of soil and groundwater contamination, workplace health and safety, reclamation and closure of waste impoundments and other properties, and handling, storage, transport and disposal of wastes and hazardous materials. Compliance with these laws, regulations and permits can require substantial capital or operating costs or otherwise delay, limit or prohibit our development or future operation of our properties. These laws, regulations and permits, and the enforcement and interpretation thereof, change frequently and generally have become more stringent over time. If we violate these environmental requirements, we may be subject to litigation, fines or other sanctions, including the revocation of permits and suspension of operations. Pursuant to such requirements, we also may be subject to inspections or reviews by governmental authorities.

Permits and Approvals

To obtain, maintain

We were issued the major government approvals required to construct and renew our environmental permits, weoperate the CLG facilities during 2017. While there are multiple approvals from multiple levels of government, the key government approval for the project is the MIA (Environmental Impact Assessment), issued in July 2017 and valid until 2041. As the mine plan changes, it may be requirednecessary to conduct environmental studies and collect and present to governmental authorities data pertaining to the potential impact that our current or future operations may have upon the environment. For example,Since the original MIA approval was granted in order2017, we have successfully achieved three amendments to commence underground exploration activities atthe MIA approval to reflect changes to the mine plan and facilities.

We have the approvals necessary to extract and process the mineral reserve as described in the Los Gatos Technical Report. In 2022, the LGJV applied for a permit amendment for the operation of the fluorine leach project and timely submitted all required information. The LGJV has not received a final response from the relevant government authorities within the required timeframe and the permit amendment has, therefore, been presumptively approved by operation of Mexican law. Even if the approval were revoked, we would not expect a material impact to the economics of the CLG we were requiredoperation.

Our and the LGJV’s ability to submit an environmental analysisobtain permits and approvals in future may be adversely affected by the significant amendments to laws affecting the applicable governmental authorities. Inmining industry promulgated by the Mexican federal government on May 2010, we began collecting the environmental baseline data for the CLG and received the permit in 2015.

8, 2023

Hazardous Substances and Waste Management

We could be liable for environmental contamination at or from our or our predecessors’ currently or formerly owned or operated properties or third-party waste disposal sites. Certain environmental laws impose joint and several strict liability for releases of hazardous substances at such properties or sites, without regard to fault or the legality of the original conduct. A generator of waste can be held responsible for contamination resulting from the treatment or disposal of such waste at any off-site location (such as a landfill), regardless of whether the generator arranged for the treatment or disposal of the waste in compliance with applicable laws. Costs associated with liability for removal or remediation of contamination or damage to natural resources could be substantial and liability under these laws may attach without regard to whether the responsible party knew of, or was responsible for, the presence of the contaminants. In addition to potentially significant investigation and remediation costs, such matters can give rise to claims from governmental authorities and other third parties for fines or penalties, natural resource damages, personal injury and property damage.

Mine Health and Safety Laws

Our Mexican

All of our current properties are located in Mexico and are subject to regulation by the Political Constitution of the United Mexican States, and are subject to various legislation in Mexico, including the Mining Law, the Federal Law of Waters, the Federal Labor Law, the Federal Law of Firearms and Explosives, the General Law on Ecological Balance and Environmental Protection and the Federal Law on Metrology Standards, as well as the accompanying regulations and regulatory authorities. Mining, environmental and labor authorities may inspect our operations on a regular basis and issue various citations and orders when they believe a violation has occurred under the relevant statute. Regulations and the results of inspections may have a significant effect on our operating costs.

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At this time, it is not possible to predict the full effect that the new or proposed statutes, regulations and policies will have on our operating costs, but it may increase our costs and those of our competitors.

Other Environmental Laws

We are required to comply with numerous other environmental laws, regulations and permits in addition to those previously discussed. These additional requirements include, for example, various permits regulating road construction and drilling at the Mexican properties.

We endeavor to conduct our mining operations in compliance with all applicable laws and regulations. However, because of extensive and comprehensive regulatory requirements, violations during mining operations occur from time to time in the industry.

Facilities and Employees

We own and lease land at our other exploration properties in Mexico and at the Los Gatos DistrictLGD through our ownership interest in the LGJV.

As of DecemberMay 31, 2020,2023, we had 11no full-time employees in the United States, twelve full time employees in Canada and 10eight full-time employees in Mexico, and theMexico. The LGJV had approximately 620824 employees in Mexico.Mexico, including approximately 577 unionized employees as of December 2022. We believe that our employee relations are good and plan to continue to hire employees as our operations expand.

expand at the LGJV. The health and safety of our employees and the employees of the LGJV is our highest priority, consistent with our business culture and values. In addition to tracking common lagging indicators, such as injury performance, we focus on leading indicators such as high potential incidents and safety observations, as well as other proactive actions taken at site to ensure worker safety. We are committed to operating in accordance with high ethical standards and believe this is a key motivational factor for our employees. In 2022, we updated our Code of Conduct as well as other core compliance policies and conducted training and compliance certification with all our employees, employees of our wholly-owned subsidiaries and employees of the LGJV. We continue to emphasize employee development and training to empower employees both at the corporate level and at the LGJV level to enhance employees’ potential and benefit the business. We leverage both formal and informal programs to identify, foster, and retain top talent at both the corporate and the LGJV level.

Available Information

Our internet address is www.gatossilver.comwww.gatossilver.com. We make available free of charge through our investor relations website, https://investor.gatossilver.cominvestor.gatossilver.com, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC. The information contained on our website is not included as a part of, or incorporated by reference into, this Report.


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Item 1A.  Risk Factors

The following risks could materially and adversely affect our business, financial condition, cash flows, and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face; our operationswe could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.immaterial. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Refer also to the other information set forth in this this Report, including our consolidated financial statements and the related notes and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Related to Our Financial Condition

We are currently dependent on the CLG and the LGD for our future operations and may not be successful in identifying additional proven or probable mineral reserves. We may not be able to extend the current CLG life of mine by adding proven or probable mineral reserves.

The LGD (other than the CLG) does not have identified proven and probable mineral reserves. Mineral exploration and development involve a high degree of risk that even a combination of careful evaluation, experience and knowledge cannot eliminate,

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and few properties that are explored are ultimately developed into producing mines. There is no assurance that our mineral exploration programs at the LGD will establish the presence of any additional proven or probable mineral reserves. The failure to establish additional proven or probable mineral reserves would severely restrict our ability to implement our strategies for long-term growth, which include extending the current CLG life of mine.

We havemay not sustain profitability.

Prior to 2022, we had a history of negative operating cash flows and net losses and we may never achieve or sustain profitability.

We have a history of negative operating cash flows andcumulative net losses. We expect to continue to incur negative operating cash flows and net losses until such time as one or more of our mineral properties generates sufficient revenues to fund our continuing operations. For the years ended December 31, 20202022 and 2019, our2021, we reported net income of $14.5 million and net loss was $40.4of $65.9 million, respectively. For the years ended December 31, 2022 and 2021, operating activities provided $14.6 million and $37.8used 21.5 million, respectively.
respectively, of cash flow.

We may never achieve ornot sustain profitability. The CLG commenced production on September 1, 2019. To become and remain profitable, we must succeed in generating significant revenues at the CLG,LGJV, which will require us to be successful in a range of challenging activities and is subject to numerous risks, including the risk factors set forth in this “Risk Factors” section. In addition, we may encounter unforeseen expenses, difficulties, complications, delays, inflation and other unknown factors that may adversely affect our revenues, expenses and profitability. Our failure to achieve or sustain profitability would depress our market value, could impair our ability to execute our business plan, raise capital or continue our operations and could cause our shareholders to lose all or part of their investment.

We are dependent on two principal projects for our future operations, the CLG and the Los Gatos District. The Los Gatos District (other than the CLG) does not currently have proven or probable mineral reserves.
The Los Gatos District (other than the CLG) does not have identified proven and probable mineral reserves. Mineral exploration and development involve a high degree of risk that even a combination of careful evaluation, experience and knowledge cannot eliminate, and few properties that are explored are ultimately developed into producing mines. There is no assurance that our mineral exploration programs at the Los Gatos District will establish the presence of any additional proven or probable mineral reserves. The failure to establish additional proven or probable mineral reserves would severely restrict our ability to implement our strategies for long-term growth.

Deliveries under concentrate sales agreements may be suspended or cancelled by our customers in certain cases.

Under concentrate sales agreements, our customers may suspend or cancel delivery of our products in some cases, such as force majeure. Events of force majeure under these agreements generally include, among others, acts of God, strikes, fires, floods, wars, government actions or other events that are beyond the control of the parties involved. Any suspension or cancellation by our customers of deliveries under our sales contracts that are not replaced by deliveries under new contracts would reduce our cash flow and could materially and adversely affect our financial condition and results of operations.

We do not currently intend to enter into hedging arrangements with respect to silver and other minerals and our hedging activities,metal prices or our decision not to hedge, with respect to our expensescurrencies, which could expose us to losses. We are also subject to risks relating to fluctuations in the exchange rate of the Mexican peso to the U.S. dollar.

fluctuations.

We do not currently intend to enter into hedging arrangements with respect to silver and other minerals.metal prices or currencies. As such,a result, we will not be protected from a decline in the price of silver and other minerals.minerals or fluctuations in exchange rates. This strategy may have a material adverse effect upon our financial performance, financial position and results of operations.


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We report our financial statements in U.S. dollars. A portion of our costs and expenses are incurred in Mexican pesos.pesos and, to a lesser extent, Canadian dollars. As a result, any significant and sustained appreciation of the Mexican pesothese currencies against the U.S. dollar may materially increase our costs and expenses. Additionally, we are, and will be, exposed to the potentially adverse effects of fluctuations in input costs, such as diesel fuel, and if we borrow funds at floating interest rates. We may seek to enter into hedging arrangements to hedge some of our input costs, such as diesel fuel, and our currency exposure with respect to the portion of our costs and expenses incurred in Mexican pesos. In the future we may also seek to enter into interest rate hedge agreements in connection with future indebtedness we may incur that bears interest at a floating rate. We currently, however, have not entered into any such hedging arrangements, or made a decision to do so, and there can be no assurance that we will be able to do so on acceptable terms, or at all. Even if we seek and are able to enter into hedging contracts, there is no assurance that such hedging program will be effective, and any hedging program would also prevent us from benefitting fully from applicable input cost or rate decreases. In addition, we may in the future experience losses if a counterparty fails to perform under a hedge arrangement.

The

We and/or the LGJV hashave historically had significant debt and may incur further debt in the future, which could adversely affect our and the LGJV’s and our financial health and limit our ability to obtain financing in the future and pursue certain business opportunities.

The LGJV

We have a Credit Facility providing for a revolving line of credit in the principal amount of $50 million that has debt service obligations pursuantan accordion feature, which allows for an increase in the total line of credit up to the agreements governing its outstanding debt.$75 million, subject to certain conditions. As of December 31, 2020,2022, we had $9 million of outstanding indebtedness under the Credit Facility. The Credit Facility contains affirmative and negative covenants. If we are unable to comply with the requirements of the Credit Facility, the facility may be terminated or the credit available thereunder may be materially reduced, and we may not be able to obtain additional or alternate funding on satisfactory terms, if at all. See Note 11 — Debt in our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” for additional information regarding our Credit Facility. Our borrowings under the Credit Facility accrues interest based on SOFR; therefore, any increases in interest rates could adversely affect our financial conditions and ability to service our indebtedness.

While the LGJV had $222.8 million ofcurrently has no significant debt outstanding under a term loan agreement with Dowa, dated July 11, 2017, as amended from timeservice obligations, the LGJV may in the future incur debt obligations and the above factors would apply to time (the “Term Loan”) and $60.0 million of debt outstanding under the WCF(together with the Term Loan, the “Dowa Debt Agreements”). On March 11, 2021, the WCF was extinguished.such debt. For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operations—Liquidity and Capital Resources — Resources—Dowa Debt Agreements.”

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The Term Loan contains certain restrictive covenants,Company’s effective tax rate could be volatile and materially change as a result of changes in tax laws, mix of earnings and other factors.

We are subject to tax laws in the United States and foreign jurisdictions including restrictionsMexico and Canada.

Changes in tax laws or policy could have a negative impact on the LGJV’s ability to incur additional indebtedness and create liens on its properties, to dispose of property other thanCompany’s effective tax rate. The Company operates in the ordinary course of business, to liquidate or dissolve itself or to enter into acquisitions or mergers, to make investments or other capital expenditures and to make distributions or dividends. In addition, the LGJV is required to retain sufficient funds at all times to pay one semi-annual payment of principal under the Term Loan and to fund the LGJV’s operations for at least three months. These covenants and restrictions reduce funds available for operations and capital expenditures, future business opportunities, future dividends to us and other purposes; make the LGJV more vulnerable to economic and industry downturns and reduce flexibility in responding to changing business and economic conditions; limit flexibility in planning for, or reacting to,countries which have different statutory rates. Consequently, changes in the businessmix and source of earnings between countries could have a material impact on the industry in which we operate; place us at a competitive disadvantage comparedCompany’s overall effective tax rate.

The LGJV is subject to our competitors that have less debt; limit our ability to borrow more money for operationsMexican income and sustaining capital or to finance acquisitions in the future; or require us to make future capital contributions to the LGJV, if needed, in order to make required payments of interestother taxes, and principal. If we, as a 70.0% guarantor of the Term Loan, ordistributions from the LGJV are unablesubject to meet debt service obligationsMexican withholding taxes. Any change in such taxes could materially adversely affect our effective tax rate and the future, our financial position, financial performance and resultsquantum of operations maycash available to be materially and adversely affected.

distributed to us.

Risks Related to Our Operations

Mineral reserve and mineral resource calculations at the CLG and at other deposits in the Los Gatos DistrictLGD are only estimates and actual production results and future estimates may vary significantly from the current estimates.

Calculations of mineral reserves and mineral resources at the CLG and of the mineral resources at other deposits in the Los Gatos DistrictLGD are only estimates and depend on geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which might prove to be materially inaccurate. There is a degree of uncertainty attributable to the calculation of mineral reserves and mineral resources. Until mineral reserves and mineral resources are actually mined and processed, the quantity of metal and grades must be considered as estimates only and no assurance can be given that the indicated levels of metals will be produced. In making determinations about whether to advance any of our projects to development, we must rely upon estimated calculations for the mineral reserves and mineral resources and grades of mineralization on our properties.


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The estimation of mineral reserves and mineral resources is a subjective process that is partially dependent upon the judgment of the persons preparing the estimates. The process relies on the quantity and quality of available data and is based on knowledge, mining experience, statistical analysis of drilling results and industry practices. Valid estimates made at a given time may significantly change when new information becomes available.

Estimated mineral reserves and mineral resources may have to be recalculated based on changes in metal prices, further exploration or development activity or actual production experience. This could materially and adversely affect estimates of the volume or grade of mineralization, estimated recovery rates or other important factors that influence mineral reserves and mineral resources estimates. The extent to which mineral resources may ultimately be reclassified as mineral reserves is dependent upon the demonstration of their profitable recovery. Any material changes in volume and grades of mineralization will affect the economic viability of placing a property into production and a property’s return on capital. We cannot provide assurance that mineralization can be mined or processed profitably.

Mineral reserve and mineral resource estimates have been determined and valued based on assumed future metal prices, cut-offcutoff grades and operating costs that may prove to be inaccurate. The mineral reserve and mineral resource estimates may be adversely affected by:

●declines in the market price of silver, lead or zinc;
●increased production or capital costs;
●decreased throughput;
●reduction in grade;
●increase in the dilution of ore;
●inflation rates, future foreign exchange rates and applicable tax rates;
●changes in environmental, permitting and regulatory requirements; and

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●reduced metal recovery.

Extended declines in the market price for silver, lead and zinc may render portions of our mineralization uneconomic and result in reduced reported volume and grades, which in turn could have a material adverse effect on our financial performance, financial position and results of operations.

In addition, inferred mineral resources have a great amount of uncertainty as to their existence and their economic and legal feasibility. There should be no assumption that any part of an inferred mineral resource will be upgraded to a higher category or that any of the mineral resources not already classified as mineral reserves will be reclassified as mineral reserves.

Our and the LGJV’s mineral exploration efforts are highly speculative in nature and may be unsuccessful.

Mineral exploration is highly speculative in nature, involves many uncertainties and risks and is frequently unsuccessful. It is performed to demonstrate the dimensions, position and mineral characteristics of mineral deposits, estimate mineral resources, assess amenability of the deposit to mining and processing scenarios and estimate potential deposit value. Once mineralization is discovered, it may take a number of years from the initial exploration phases before production is possible, during which time the potential feasibility of the project may change adversely. Substantial expenditures are required to establish additional proven and probable mineral reserves, to determine processes to extract the metals and, if required, to permit and construct mining and processing facilities and obtain the rights to the land and resources required to develop the mining activities.

Development projects and newly constructed mines have no or little operating history upon which to base estimates of proven and probable mineral reserves and estimates of future operating costs. Estimates are, to a large extent, based upon the interpretation of geological data and modeling obtained from drill holes and other sampling techniques, feasibility studies that derive estimates of operating costs based upon anticipated tonnage and grades of material to be mined and processed, the configuration of the deposit, expected recovery rates of metal from the mill feed material, facility and equipment capital and operating costs, anticipated climatic conditions and other factors. As a result, actual operating costs and economic returns based upon development of proven and probable mineral reserves may differ significantly from those originally estimated. Moreover, significant decreases in actual or expected commodity prices may mean mineralization, once found, will be uneconomical to mine.

Our processing

The ability to mine and process materials at the CLG or other future operations may be adversely impacted byin certain circumstances.

circumstances, some of which may be unexpected and not in our control.

A number of factors could affect our ability to mine materials and process the quantities of metalsmined materials that we recover and ourrecover. Our ability to efficiently mine materials and to handle certain quantities of processed materials, including, but not limited to, the presence of oversized material at the crushing stage; material showing breakage characteristics different than those planned; material with grades outside of planned grade range; the presence of deleterious materials in ratios different than expected; material drier or wetter than expected, due to natural or environmental effects; and materials having viscosity or density different than expected.


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The occurrence of one or more of the circumstances described above could affect our ability to process the number of tonnes planned, recover valuable materials, remove deleterious materials, and produce planned quantities of concentrates. In turn, this may result in lower throughput, lower recoveries, increased downtime or some combination of all of the foregoing. While issues of this nature are part of normal operations, there is no assurance that unexpected conditions may not materially and adversely affect our business, results of operations or financial condition.

Our ability to efficiently mine materials at the CLG is also affected by the hydrogeology of areas within the mine, which requires the installation of dewatering infrastructure to manage underground water. As the mine expands, additional infrastructure will be required. Existing dewatering infrastructure may be ineffective at managing underground water, and although additional capital for dewatering infrastructure is contemplated in the LOM plan included in the Los Gatos Technical Report, further dewatering infrastructure may be more costly than planned or may otherwise be ineffective.

Actual capital costs, operating costs, production and economic returns may differ significantly from those we have anticipated and there are no assurances that any future development activities will result in profitable mining operations.

The actual capital and operating costs at the CLG will depend upon changes in the availability and prices of labor, equipment and infrastructure, variances in ore recovery and mining rates from those assumed in the mining plan, operational risks, changes in governmental regulation, including taxation, environmental, permitting and other regulations and other factors, many of which are beyond our control. Due to any of these or other factors, the capital and operating costs at the CLG may be significantly higher than

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those set forth in the Los Gatos Technical Report. As a result of higher capital and operating costs, production and economic returns may differ significantly from those set forth in the Los Gatos Technical Report and there are no assurances that any future development activities will result in profitable mining operations.

Land reclamation and mine closure may be burdensome and costly.

costly and such costs may exceed our estimates.

Land reclamation and mine closure requirements are generally imposed on mining and exploration companies, such as ours, which require us, among other things, to minimize the effects of land disturbance. Such requirements may include controlling the discharge of potentially dangerous effluents from a site and restoring a site’s landscape to its pre-exploration form. The actual costs of reclamation and mine closure are uncertain and planned expenditures may differ from the actual expenditures required. Therefore, the amount that we are required to spend could be materially higher than current estimates. Any additional amounts required to be spent on reclamation and mine closure may have a material adverse effect on our financial performance, financial position and results of operations and may cause us to alter our operations. In addition, we are required to maintain financial assurances, such as letters of credit, to secure reclamation obligations under certain laws and regulations. The failure to acquire, maintain or renew such financial assurances could subject us to fines and penalties or suspension of our operations. Letters of credit or other forms of financial assurance represent only a portion of the total amount of money that will be spent on reclamation over the life of a mine’s operation. Although we include liabilities for estimated reclamation and mine closure costs in our financial statements, it may be necessary to spend more than what is projected to fund required reclamation and mine closure activities.

The development of one or more of our mineral projects that have been, or may in the future be, found to be economically feasible will be subject to all of the risks associated with establishing new mining operations.

The Los Gatos Technical Report indicates that the CLG is a profitable silver-zinc-lead project with an estimated 11-year5-year mine life currently, at modeled metals prices. If the development of one of our other mineral projectsproperties is found to be economically feasible, the development of such projects will require obtaining permits and financing, and the construction and operation of mines, processing plants and related infrastructure. As a result, we will be subject to certain risks associated with establishing new mining operations, including:

●the timing and cost, which can be considerable, of the construction of mining and processing facilities and related infrastructure;
●the availability and cost of skilled labor, mining equipment and principal supplies needed for operations, including explosives, fuels, chemical reagents, water, power, equipment parts and lubricants;
●the availability and cost of appropriate smelting and refining arrangements;
●the need to obtain necessary environmental and other governmental approvals and permits and the timing of the receipt of those approvals and permits;
●the availability of funds to finance construction and development activities;
●industrial accidents;
●mine failures, shaft failures or equipment failures;
●natural phenomena such as inclement weather conditions, floods, droughts, rock slides and seismic activity;
●unusual or unexpected geological and metallurgical conditions, including excess water in underground mining;
●exchange rate and commodity price fluctuations;
●high rates of inflation;
●health pandemics;
●potential opposition from nongovernmental organizations, environmental groups or local groups, which may delay or prevent development activities; and
•
the timing and cost, which can be considerable, of the construction of mining and processing facilities and related infrastructure;
​
•
the availability and cost of skilled labor, mining equipment and principal supplies needed for operations, including explosives, fuels, chemical reagents, water, power, equipment parts and lubricants;
​
•
the availability and cost of appropriate smelting and refining arrangements;
​
•
the need to obtain necessary environmental and other governmental approvals and permits and the timing of the receipt of those approvals and permits;
​
•
the availability of funds to finance construction and development activities;
​

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●restrictions or regulations imposed by governmental or regulatory authorities, including with respect to environmental matters.
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•
industrial accidents;
​
•
mine failures, shaft failures or equipment failures;
​
•
natural phenomena such as inclement weather conditions, floods, droughts, rock slides and seismic activity;
​
•
unusual or unexpected geological and metallurgical conditions;
​
•
exchange rate and commodity price fluctuations;
​
•
high rates of inflation;
​
•
health pandemics, including the COVID-19 pandemic;
​
•
potential opposition from non-governmental organizations, environmental groups or local groups, which may delay or prevent development activities; and
​
•
restrictions or regulations imposed by governmental or regulatory authorities, including with respect to environmental matters.
​

The costs, timing and complexities of developing these projects, as well as for the projectsCLG, may be greater than anticipated. Cost estimates may increase significantly as more detailed engineering work is completed on a project. It is common in mining operations to experience unexpected costs, problems and delays during construction, development and mine startup. In addition, the cost of producing silver bearing concentrates that are of acceptable quality to smelters may be significantly higher than expected. We may encounter higher than acceptable contaminants in our concentrates such as arsenic, antimony, mercury, copper, iron, selenium, fluorine or other contaminants that, when present in high concentrations, can result in penalties or outright rejection of the metals concentrates by the smelters or offtakers.traders. For example, due to the high fluorine content at the CLG, it was necessary to provide additional cleaning stageswe are finalizing the construction of a leaching plant designed to reduce thefluorine levels in zinc concentrates produced. Additional investments to further reduce fluorine content of the concentrateconcentrates produced at the CLG.may be required. Accordingly, we cannot provide assurance that our activities will result in profitable mining operations at the mineral properties.

Our operations involve significant risks and hazards inherent to the mining industry.

Our operations involve the operation of large machines, heavy mobile equipment and drilling equipment. Hazards such as adverse environmental conditions, industrial accidents, labor disputes, unusual or unexpected geological conditions, ground control problems, cave-ins, changes in the regulatory environment, metallurgical and other processing problems, mechanical equipment failure, facility performance problems, fire and natural phenomena such as inclement weather conditions, floods and earthquakes are inherent risks in our operations. Certain of these hazards may be more severe or frequent as a result of climate change. Hazards inherent to the mining industry canhave in the past caused and may in the future cause injuries or death to employees, contractors or other persons at our mineral properties, severe damage to and destruction of our property, plant and equipment, and contamination of, or damage to, the environment, and can result in the suspension of our exploration activities and future development and production activities. While we aim to maintain best safety practices as part of itsour culture, safety measures implemented by us may not be successful in preventing or mitigating future accidents.

In addition, from time to time we may be subject to governmental investigations and claims and litigation filed on behalf of persons who are harmed while at our properties or otherwise in connection with our operations. To the extent that we are subject to personal injury or other claims or lawsuits in the future, it may not be possible to predict the ultimate outcome of these claims and lawsuits due to the nature of personal injury litigation. Similarly, if we are subject to governmental investigations or proceedings, we may incur significant penalties and fines, and enforcement actions against us could result in the closing of certain of our mining operations. If claims and lawsuits or governmental investigations or proceedings are ultimately resolved against us, it could have a material adverse effect on our financial performance, financial position and results of operations. Also, if we mine on property without the appropriate licenses and approvals, we could incur liability, or our operations could be suspended.

We may be materially and adversely affected by challenges relating to slope and stability of underground openings.

Our underground mines get deeper and our waste and tailings deposits increase in size as we continue with and expand our mining activities, presenting certain geotechnical challenges, including the possibility


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of failure of underground openings. If we are required to reinforce such openings or take additional actions to prevent such a failure, we could incur additional expenses, and our operations and stated mineral reserves could be negatively affected. We have taken the actions we determined to be proper in order to maintain the stability of underground openings, but additional action may be required in the future. Unexpected failures or additional requirements to prevent such failures may adversely affect our costs and expose us to health and safety and other liabilities in the event of an accident, and in turn materially and adversely affect the results of our operations and financial condition, as well as potentially have the effect of diminishing our stated mineral reserves.

The title to some of the mineral properties may be uncertain or defective, and we may be unable to obtain necessary surface and other rights to explore and develop some mineral properties, thus risking our investment in such properties.

Under the laws of Mexico, mineral resources belong to the state, and government concessions are required to explore for or exploit mineral reserves. Mineral rights derive from concessions granted, on a discretionary basis, by the Ministry of Economy, pursuant to the Mexican mining law and the regulations thereunder. While we and the LGJV hold title to the mineral properties in Mexico described in this Report, including the CLG, through these government concessions, there is no assurance that title to the concessions comprising the CLG or our or the LGJV’s other properties will not be challenged or impaired. TheOne of our concessions, comprising over 19,000 hectares, the Los Gatos concession, is held by us subject to the terms of an agreement with the original holder

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of that concession. The CLG and our or the LGJV’s other properties may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by such undetected defects. A title defect on any of our mineral properties (or any portion thereof) could adversely affect our ability to mine the property and/or process the minerals that we mine.

The mineral properties’ mining concessions in Mexico may be terminated if the obligations to maintain the concessions in good standing are not satisfied or are not considered to be satisfied, including obligations to explore or exploit the relevant concession, to pay any relevant fees, to comply with all environmental and safety standards, to provide information to the Mexican Ministry of Economy and to allow inspections by the Mexican Ministry of Economy. In addition to termination, failure to make timely concession maintenance payments and otherwise comply, or be considered to comply with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in reduction or expropriation of entitlements.

Title insurance is generally not available for mineral properties and our ability to ensure that we have obtained secure claim to individual mineral properties or mining concessions may be severely constrained. We rely on title information and/or representations and warranties provided by our grantors. Any challenge to our title could result in litigation, insurance claims and potential losses, delay the exploration and development of a property and ultimately result in the loss of some or all of our interest in the property. In addition, if we mine on property without the appropriate title, we could incur liability for such activities. While we have received a title opinion in relation to the Los Gatos DistrictLGD dated as of November 5, 2019, which opinion was updated as of August 18, 2021, such opinion is not a guarantee of title and such title may be challenged.

In addition, surface rights are required to explore and to potentially develop the mineral properties. Currently, of the 103,087 hectares of mineral rights owned in the LGD, MPR owns surface rights covering the known extents of the CLG, and Esther Resource areas, totaling 5,479 hectares. We negotiate surface access rights for exploration in other areas.

Suitable infrastructure may not be available or damage to existing infrastructure may occur.

Mining, processing, development and exploration activities depend on adequate infrastructure. Reliable roads, bridges, port and/or rail transportation, power sources, water supply and access to key consumables are important determinants for capital and operating costs. The lack of availability on acceptable terms or the delay in the availability of any one or more of these items could prevent or delay exploration, development or exploitation of our projects. If adequate infrastructure is not available in a timely manner, there can be no assurance that the exploitation or development of our projects will be commenced or completed on a timely basis, or at all, or that the resulting operations will achieve the anticipated production volume, or that the construction costs and operating costs associated with the exploitation and/or development of our projects will not be higher than anticipated. In addition, extreme weather phenomena, sabotage, vandalism, government, non-governmental organization and community or other interference in the maintenance or provision of such infrastructure could adversely affect our operations and profitability.


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Risks Related to Our Business and Industry

The prices of silver, zinc and lead are subject to change and a substantial or extended decline in the prices of silver, zinc or lead could materially and adversely affect revenues of the LGJV and the value of our mineral properties.

Our business and financial performance will be significantly affected by fluctuations in the prices of silver, zinc and lead. The prices of silver, zinc and lead are volatile, can fluctuate substantially and are affected by numerous factors that are beyond our control. For the year ended December 31, 2022, the LBMA silver price ranged from a low of $17.77 per ounce on September 1, 2022 to a high of $26.18 per ounce on March 9, 2022; the LME Official Settlement zinc price ranged from a low of $2,682 per tonne ($1.22 per pound) on November 3, 2022 to a high of $4,530 per tonne ($2.05 per pound) on April 19, 2022; the LME Official Settlement lead price ranged from a low of $1,754 per tonne ($0.80 per pound) on September 27, 2022, to a high of $2,513 per tonne ($1.14 per pound) on March 7, 2022. Prices are affected by numerous factors beyond our control, including:

●prevailing interest rates and returns on other asset classes;
●expectations regarding inflation, monetary policy and currency values;
●speculation;
●governmental and exchange decisions regarding the disposal of precious metals stockpiles, including the decision by the CME Group, the owner and operator of the futures exchange, to raise silver’s initial margin requirements on futures contracts;

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●political and economic conditions;
●available supplies of silver, zinc and lead from mine production, inventories and recycled metal;
●sales by holders and producers of silver, zinc and lead; and
●demand for products containing silver, zinc and lead.

Because the LGJV expects to derive the substantial majority of our revenues from sales of silver, zinc and lead, its results of operations and cash flows will fluctuate as the prices for these metals increase or decrease. A sustained period of declining prices would materially and adversely affect our financial performance, financial position and results of operations.

Changes in the future demand for the silver, zinc and lead we produce could adversely affect future sales volume and revenues of the LGJV and our earnings.

The LGJV’s future revenues and our earnings will depend, in substantial part, on the volume of silver, zinc and lead we sell and the prices at which we sell, which in turn will depend on the level of industrial and consumer demand. Based on 2021 data from the Silver Institute, demand for silver is driven by industrial demand (including photovoltaic, electrical and electronics) (c. 48%), bar and coin demand (c. 27%) jewelry and silverware (c. 21%) and other demand, especially photography (c. 4%). An increase in the production of silver worldwide or changes in technology, industrial processes or consumer habits, including increased demand for substitute materials, may decrease the demand for silver. Increased demand for substitute materials may be either technologically induced, when technological improvements render alternative products more attractive for first use or end use than silver or allow for reduced application of silver, or price induced, when a sustained increase in the price of silver leads to partial substitution for silver by a less expensive product or reduced application of silver. Demand for zinc is primarily driven by the demand for galvanized steel, used in construction, automobile and other industrial applications. Demand for lead is primarily driven by the demand for batteries, used in vehicles, emergency systems and other industrial battery applications. Any substitution of these materials may decrease the demand for the silver, zinc and lead we produce. A fall in demand, resulting from economic slowdowns or recessions or other factors, could also decrease the price and volume of silver, zinc and lead we sell and therefore materially and adversely impact our results of operations and financial condition. Increases in the supply of silver, zinc and lead, including from new mining sources or increased recycling (driven by technological changes, pricing incentives or otherwise) may act to suppress the market prices for these commodities.

We are subject to the risk of labor disputes, which could adversely affect our business, and which risk may be increased due to the unionization in the LGJV workforce.

Although we have not experienced any significant labor disputes in recent years, there can be no assurances that we will not experience labor disputes in the future, including protests, blockades and strikes, which could disrupt our business operations and have an adverse effect on our business and results of operation. Although we consider our relations with our employees to be good, there can be no assurance that we will be able to maintain a satisfactory working relationship with our employees in the future. The LGJV’s hourly work force is unionized, which may increase the risk of such disruptions. In addition, the unionized workforce, or further unionization of the workforce, may, among other things, require more extensive human resources staff, increase legal costs, increase involvement with regulatory agencies, result in lost workforce flexibility, and increase labor costs due to rules, grievances and arbitration proceedings.

Our success depends on developing and maintaining relationships with local communities and stakeholders.

Our ongoing and future success depends on developing and maintaining productive relationships with the communities surrounding our operations, including local indigenous people who may have rights or may assert rights to certain of our properties, and other stakeholders in our operating locations. We believe our operations can provide valuable benefits to surrounding communities in terms of direct employment, training and skills development and other benefits associated with ongoing payment of taxes. In addition, we seek to maintain partnerships and relationships with local communities. Notwithstanding our ongoing efforts, local communities and stakeholders can become dissatisfied with our activities or the level of benefits provided, which may result in legal or administrative proceedings, civil unrest, protests, direct action or campaigns against us. Any such occurrence could materially and adversely affect our business, financial condition or results of operations.

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We are subject to class action lawsuits.

We are currently subject to class actions lawsuits. See Note 10—Commitments, Contingencies and Guarantees in our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” for additional information regarding our assessment of contingencies related to legal matters. See also “Item 3. Legal Proceedings.” Such actions subject us to significant costs, which may not be adequately covered by insurance, divert management’s time and attention from our operations and reduce our ability to attract and retain qualified personnel. Our inability to successfully defend against such actions could have a material adverse effect on our business and financial condition.

The COVID-19 pandemic has adversely affected our business and operations. The widespread outbreak of any other health pandemics, epidemics, communicable diseases or public health crises could also adversely affect us, particularly in regions where we conduct our business operations.

Our business could be adversely affected by the widespread outbreak of a health epidemic, communicable disease or any other public health crisis.

For example, the outbreak of COVID-19 in the United States, Mexico and elsewhere has created significant business disruption and adversely affected our business and operations. The outbreak has resulted in governments implementing numerous measures to contain COVID-19, such as travel bans and restrictions, particularly quarantines, shelter-in-place or total lockdown orders and business limitations and shutdowns. These containment measures are subject to change and the respective government authorities may tighten the restrictions at any time.

In late March 2020, the Mexican government declared a national health emergency due to increasing infection rates from the COVID-19 pandemic. Pursuant to the health emergency declaration, the Mexican government ordered a temporary suspension of all “non-essential” operations nationwide in Mexico, including mining operations, in order to help combat the spread of COVID-19. In response to the order, the LGJV effected a 45-day temporary suspension of all non-essential activities at the CLG site, which reduced the number of employees and contractors at the site and at the Chihuahua corporate office. During the temporary suspension, the LGJV implemented health protocols, allowed most administrative and technical services employees to work remotely, reduced mining and milling, completed project enhancements and finalized a mine plan upon reactivation of mining activities after the temporary suspension.
In late May 2020, the Mexican government designated mining an essential service and allowed mines to resume production, subject to deploying COVID-19 prevention protocols. Our existing COVID-19 protocols exceeded those mandated by the Mexican government and, accordingly, the LGJV reactivated mine development and mining in late May 2020 and hired additional employees. Ore processing resumed in early June 2020. In order to maintain social distancing and best practice protocols, public areas, such as the residential camps’ cafeterias, limited the number of personnel. Food service periods were extended with employees assigned specific times for meals. Face masks are required in offices and other public areas. Daily working shift times are staggered to limit the number of employees in changing areas and pre-shift work meetings. Two sterilization tunnels have been installed at the main entry gate and at the entrance to the cafeteria. All individuals entering the CLG site are subject to a molecular COVID-19 test. If an individual tests positive, the individual will be subject to quarantine protocols and denied entry to the mine site. In the event of an outbreak of COVID-19 on site, we could determine that a full suspension of our operations is necessary for the safety and protection of the workers.
The COVID-19 pandemic temporarily affected our financial condition in 2020, in part due to the loss of revenue resulting from the 45-day temporary suspension of all nonessential activities at the LGJV’s CLG site, reduced production rates and the additional expenses associated with the development and implementation of COVID-19 protocols. In addition, as the LGJV reactivated mine development and mining, it implemented a scalable optimized plan with a lower employee complement and with reduced average monthly production rate at 1,750 tpd until September 2020, targeting higher ore grades. This resulted in higher per tonne mining, processing and sustaining capital costs than previously anticipated. We began ramping up to the 2,500 tpd design capacity beginning in September 2020 and met our goal of reaching the 2,500 tpd design capacity in late December.
If the Mexican government were to reinstate the suspension order caused by the COVID-19 pandemic, or if all mining activities at the CLG site were suspended for an undefined period of time, there could be additional costs incurred, production and development delays, cost overruns and operational restart costs. In addition, given that our management travels regularly between Mexico City and the CLG site, any restrictions on travel within Mexico may adversely affect our management’s ability to oversee ongoing mining activities at the CLG and our ability to achieve our business objectives and milestones.
We may take further actions as may be required by government authorities or as we determine are in the best interests of our employees and business partners. There is no guarantee that we will not experience significant disruptions to or additional closures of some or all of our operations in the future. Such modifications to our business practices may negatively impact productivity, divert resources away from or

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otherwise disrupt our or the LGJV’s business operations and delay and disrupt exploration and production timelines. Any long-term closures or suspensions may also result in the loss of personnel or the workforce in general as employees seek employment elsewhere.
While the full impact of this pandemic is unknown at this time, we are closely monitoring the developments of the COVID-19 pandemic and continually assessing the potential impact on our business.

Any prolonged disruption of our or the LGJV’s operations and closures of facilities resulting from health pandemic, epidemics communicable diseases or public health crises would delay our current exploration and production timelines and negatively impact our business, financial condition and results of operations. Although vaccines for COVID-19 have been approved for use, the distribution of the vaccines did not begin until late 2020,operations and a majority of the public will likely not be vaccinated until sometime in 2021 or later. Additionally, new strains of COVID-19 are surfacing, and the effectiveness of the approved vaccines against these new strains is unknown.

The degree to which the pandemic impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain, continuously evolving and in many cases cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity and the actions to contain the virus or treat its impact, such as the efficacy of vaccines (particularly with respect to emerging strains of the virus). Accordingly, there remains significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic. However, the COVID-19 pandemic may heighten the other risk factors discussed in this “Risk Factors” section.

The mining industry is very competitive.

The mining industry is very competitive. Much of our competition is from larger, established mining companies with greater liquidity, greater access to credit and other financial resources, newer or more efficient equipment, lower cost structures, more effective risk management policies and procedures and/or a greater ability than us to withstand losses. Our competitors may be able to respond more quickly to new laws or regulations or emerging technologies or devote greater resources to the expansion or efficiency of their operations than we can. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and gain significant market share to our detriment. We may not be able to compete successfully against current and future competitors, and any failure to do so could have a material adverse effect on our business, financial condition or results of operations.

Our insurance may not provide adequate coverage.

Our business and operations are subject to a number of risks and hazards, including, but not limited to, adverse environmental conditions, industrial accidents, labor disputes, unusual or unexpected geological conditions, ground control problems, cave-ins, changes in the regulatory environment, metallurgical and other processing problems, mechanical equipment failure, facility performance problems, fires and natural phenomena such as inclement weather conditions, floods and earthquakes. These risks could result in damage to, or destruction of, our mineral properties or production facilities, personal injury or death, environmental damage, delays in exploration, mining or processing, increased production costs, asset write downs, monetary losses and legal liability.

Our property and liability insurance may not provide sufficient coverage for losses related to these or other hazards. Insurance against certain risks, including those related to environmental matters or other hazards resulting from exploration and production, is generally not available to us or to other companies within the mining industry. Our current insurance coverage may not continue to be available at economically feasible premiums, or at all. In addition, our business interruption insurance relating to our properties has long waiting periods before coverage begins. Accordingly, delays in returning to any future production could produce near-term severe impact to our business. Our director and officer liability insurance may be insufficient to cover losses from claims relating to matters for which directors and officers are indemnified by us or for which we are determined to be directly responsible, and regardless are and may continue to be subject to significant retentions or deductibles, including current class action lawsuits. See “Item 3. Legal Proceedings.” Any losses from these events may cause us to incur significant costs that could have a material adverse effect on our financial performance, financial position and results of operations.

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Our business is sensitive to nature and climate conditions.

A number of governments have introduced or are moving to introduce climate change legislation and treaties at the international, national, state/provincial and local levels. Regulations relating to emission levels (such as carbon taxes) and energy efficiency are becoming more stringent. If the current regulatory trend continues, this may result in increased costs at some or all of our business locations. In addition, the physical risks of climate change may also have an adverse effect on our operations. Extreme weather events, which may become more common and severe due to climate change, have the potential to disrupt our power supply, surface operations and exploration at our mines and may require us to make additional expenditures to mitigate the impact of such events.

If we are unable to retain key members of management, our business might be harmed.

Our exploration activities and any future development and construction or mining and processing activities depend to a significant extent on the continued service and performance of our senior management team, including our Chief Executive Officer. We depend on a relatively small number of key officers, and we currently do not, and do not intend to, have key-personkeyperson insurance for these individuals. Departures by members of our senior management could have a negative impact on our business, as we may not be able to find suitable personnel to replace departing management on a timely basis, or at all. The loss of any member of our senior management team could impair our ability to execute our business plan and could, therefore, have a material adverse effect on our business, results of operations and financial condition. In addition, the international mining industry is very active and we are facing increased competition for personnel in all disciplines and areas of operation. There is no assurance that we will be able to attract and retain personnel to sufficiently staff our development and operating teams.

The prices of silver, zinc and lead are subject to change and a substantial or extended decline in the prices of silver, zinc or lead could materially and adversely affect our revenues and the value of our mineral properties.
Our business and financial performance will be significantly affected by fluctuations in the prices of silver, zinc and lead. The prices of silver, zinc and lead are volatile, can fluctuate substantially and are affected by numerous factors that are beyond our control. For the year ended December 31, 2020, the LBMA silver price ranged from a low of $12.01 per ounce on March 19, 2020 to a high of $28.89 per ounce on September 1, 2020; the LME Official Settlement zinc price ranged from a low of $1,774 per tonne ($0.80 per pound) on March 24, 2020 to a high of $2,842 per tonne ($1.29 per pound) on December 17, 2020; the LME Official Settlement lead price ranged from a low of $1,587 per tonne ($0.72 per pound) on May 14, 2020 to a high of $2,118 per tonne ($0.96 per pound) on November 30, 2020. Prices are affected by numerous factors beyond our control, including:
•
prevailing interest rates and returns on other asset classes;
​
•
expectations regarding inflation, monetary policy and currency values;
​
•
speculation;
​
•
governmental and exchange decisions regarding the disposal of precious metals stockpiles, including the decision by the CME Group, the owner and operator of the futures exchange, to raise silver’s initial margin requirements on futures contracts;
​
•
political and economic conditions;
​
•
available supplies of silver, zinc and lead from mine production, inventories and recycled metal;
​
•
sales by holders and producers of silver, zinc and lead; and
​
•
demand for products containing silver, zinc and lead.
​
Additionally, the COVID-19 pandemic and efforts to contain it, including restrictions on travel and other advisories issued may have a significant effect on silver, zinc and lead prices as well as demand. Because we expect to derive the substantial majority of our revenues from sales of silver, zinc and lead, our results of operations and cash flows will fluctuate as the prices for these metals increase or decrease. A sustained period of declining prices would materially and adversely affect our financial performance, financial position and results of operations.

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Changes in the future demand for the silver, zinc and lead we produce could adversely affect our future sales volume and revenues.
Our future revenues will depend, in substantial part, on the volume of silver, zinc and lead we sell and the prices at which we sell, which in turn will depend on the level of industrial and consumer demand. Demand for silver is mostly driven by its general perception as a store of value as well as its uses in industrial processes and products, such as batteries, bearings, brazing and soldering, catalysts, electronics and photographic material, and its use by direct consumers, such as for jewelry, silverware and coins. An increase in the production of silver worldwide or changes in technology, industrial processes or consumer habits, including increased demand for substitute materials, may decrease the demand for silver. Increased demand for substitute materials may be either technologically induced, when technological improvements render alternative products more attractive for first-use or end-use than silver or allow for reduced application of silver, or price induced, when a sustained increase in the price of silver leads to partial substitution for silver by a less expensive product or reduced application of silver. Demand for zinc is primarily driven by the demand for galvanized steel, used in construction, automobile and other industrial applications. Demand for lead is primarily driven by the demand for batteries, used in vehicles, emergency systems and other industrial battery application. Any substitution of these materials may decrease the demand for the silver, zinc and lead we produce. A fall in demand, resulting from economic slow-downs or recessions or other factors, could also decrease the price and volume of silver, zinc and lead we sell and therefore materially and adversely impact our results of operations and financial condition.

We may fail to identify attractive acquisition candidates or joint ventures with strategic partners or may fail to successfully integrate acquired mineral properties or successfully manage joint ventures.

As part of our developmentgrowth strategy, we may acquire additional mineral properties or enter into joint ventures with strategic partners. However, there can be no assurance that we will be able to identify attractive acquisition or joint venture candidates in the future or that we will succeed at effectively managing their integration or operation. In particular, significant and increasing competition exists for mineral acquisition opportunities throughout the world. We face strong competition from other mining companies in connection with the acquisition of properties producing, or capable of producing, metals as well as in entering into joint ventures with other parties. If the expected synergies from such transactions do not materialize or if we fail to integrate them successfully into our existing business or operate them successfully with our joint venture partners, or if there are unexpected liabilities, our results of operations could be adversely affected.

Pursuant to the Unanimous Omnibus Partner Agreement, which governs our and Dowa’s respective rights over the LGJV, we and Dowa must jointly approve certain major decisions involving the LGJV, including decisions relating to the merger, amalgamation or restructuring of the LGJV and key strategic decisions, including with respect to expansion, among others. If we are unable to obtain the consent of Dowa, we may be unable to make decisions relating to the LGJV that we believe are beneficial for its operations, which may materially and adversely impact our results of operations and financial condition.

In connection with any future acquisitions or joint ventures, we may incur indebtedness or issue equity securities, resulting in increased interest expense or dilution of the percentage ownership of existing shareholders. Unprofitable acquisitions or joint ventures, or additional indebtedness or issuances of securities in connection with such acquisitions or joint ventures, may adversely affect the price of our common stock and negatively affect our results of operations.

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Our information technology systems may be vulnerable to disruption, which could place our systems at risk from data loss, operational failure or compromise of confidential information.

We rely on various information technology systems. These systems remain vulnerable to disruption, damage or failure from a variety of sources, including, but not limited to, errors by employees or contractors, computer viruses, cyberattacks, including phishing, ransomware, and similar malware, misappropriation of data by outside parties, and various other threats. Techniques used to obtain unauthorized access to or sabotage our systems are under continuous and rapid evolution, and we may be unable to detect efforts to disrupt our data and systems in advance. Breaches and unauthorized access carry the potential to cause losses of assets or production, operational delays, equipment failure that could cause other risks to be realized, inaccurate recordkeeping, or disclosure of confidential information, any of which could result in financial


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losses and regulatory or legal exposure, and could have a material adverse effect on our cash flows, financial condition or results of operations. Although to date we have not experienced any material losses relating to cyberattacks or other information security breaches, there can be no assurance that we will not incur such losses in the future. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As such threats continue to evolve, we may be required to expend additional resources to modify or enhance any protective measures or to investigate and remediate any security vulnerabilities.
We are subject to the risk of labor disputes, which could adversely affect our business.
Although we have not experienced any significant labor disputes in recent years, there can be no assurances that we will not experience labor disputes in the future, including protests, blockades and strikes, which could disrupt our business operations and have an adverse effect on our business and results of operation. Although we consider our relations with our employees to be good, there can be no assurance that we will be able to maintain a satisfactory working relationship with our employees in the future.
Our success depends on developing and maintaining relationships with local communities and stakeholders.
Our ongoing and future success depends on developing and maintaining productive relationships with the communities surrounding our operations, including local indigenous people who may have rights or may assert rights to certain of our properties, and other stakeholders in our operating locations. We believe our operations can provide valuable benefits to surrounding communities in terms of direct employment, training and skills development and other benefits associated with ongoing payment of taxes. In addition, we seek to maintain partnerships and relationships with local communities. Notwithstanding our ongoing efforts, local communities and stakeholders can become dissatisfied with our activities or the level of benefits provided, which may result in legal or administrative proceedings, civil unrest, protests, direct action or campaigns against us. Any such occurrence could materially and adversely affect our business, financial condition or results of operations.

Our directors may have conflicts of interest as a result of their relationships with other mining companies.

Our directors are also directors, officers and shareholders of other companies that are similarly engaged in the business of developing and exploiting natural resource properties. Consequently, there is a possibility that our directors may be in a position of conflict in the future.

We have identified material weaknesses in our internal control over financial reporting. If we fail to remediate these deficiencies (or fail to identify and/or remediate other possible material weaknesses), we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. Under standards established by the United States Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting for fiscal year 2022. This assessment includes disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. Additionally, we are required to disclose changes made in our internal controls and procedures on a quarterly basis.

However, for as long as we are an emerging growth company, or a smaller reporting company that is a non-accelerated filer, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b). At such time, this attestation will be required, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our relationship with SOPremediation efforts may strain our senior management resourcesnot enable us to avoid a material weakness in the future. We may need to undertake various actions, such as implementing new internal controls and could potentially result in conflicts of interest.

procedures and hiring additional accounting or internal audit staff.

In connection with our review of the Reorganization,internal control structure related to the preparation of the financial statements for the fiscal years ended December 31, 2021 and 2022, we entered into a Management Services Agreementidentified the following material weaknesses in our internal controls over financial reporting:

●We did not demonstrate the appropriate tone at the top including failing to design or maintain an effective control environment commensurate with the financial reporting requirements of a public company in the United States and Canada. In particular, we did not design control activities to adequately address identified risks or operate at a sufficient level of precision that would identify material misstatements to our financial statements and did not design and maintain sufficient formal documentation of accounting policies and procedures to support the operation of key control procedures.
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●We failed to design and maintain effective controls relating to our risk assessment process as it pertained to the assessment of key assumptions, inputs and outputs contained in our July 2020 technical report.

In connection with SOP, pursuantour review of the internal control structure related to the preparation of the restated financial statements for the fiscal year ended December 31, 2021, we have identified the following additional material weaknesses in our internal controls over financial reporting:

●We failed to design and maintain effective controls over accounting for current and deferred taxes. This material weakness resulted in a material misstatement of our previously issued financial statements for the year ended December 31, 2021 which resulted in an overstatement of the current income tax expense. Specifically, the financial statements of the LGJV at December 31, 2021, did not accurately reflect the current and deferred tax assets and liabilities at December 31, 2021. Consequently, the impairment of investment in affiliates and the investment in affiliates and the equity income in affiliates were also not accurately presented in the Company’s financial statements at December 31, 2021.
●We did not have adequate technical accounting expertise to ensure that complex accounting matters such as the impact of the priority distribution payment due to our joint venture partner and the impairment charge was recognized in accordance with GAAP. This material weakness resulted in a material misstatement of our previously issued financial statement for the year ended December 31, 2021. The financial statements did not accurately reflect the investment in affiliates and the equity income in affiliates. Additionally, caused the impairment of investment in affiliates to be misstated.

We are in the process of implementing measures designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weaknesses described above. To date, we have:

●engaged a third-party expert to assist management in documenting key processes related to our internal control environment, designing and implementing an effective risk assessment and monitoring program to identify risks of material misstatements and ensuring that the internal controls have been appropriately designed to address and effectively monitor identified risk;
●hired a new executive leadership team, including a new CEO, CFO and senior executive responsible for technical services, each of which has appropriate experience and has demonstrated a commitment to improving the Company’s control environment;
●hired additional personnel with accounting and technical expertise, including hiring new accounting staff in connection with the relocation of the Company’s headquarters to Vancouver;
●enhanced the procedures and functioning of our disclosure committee relating to the appropriate reporting of information and review and approval of the Company’s public disclosures;
●engaged a new independent third-party subject matter specialist to perform a technical review of the 2022 mineral resource and mineral reserve estimates; and
●enhanced our procedures, including implementing appropriate controls, relating to management verification of the key assumptions, inputs and outputs for our Technical Reports.
●engaged a new independent third-party tax specialist to perform a review of the tax provision calculation at the LGJV and the recognition of deferred tax assets and liabilities; and
●implemented process to identify complex technical accounting matters that would require technical accounting analysis by a technical accounting expert in a timely manner.

We have incurred significant costs in connection with our efforts to remediate these material weaknesses, and we expect to incur additional costs in the future. Neither we nor our independent registered public accounting firm have tested the effectiveness of our internal control over financial reporting and we cannot provide assurance that we will be able to successfully remediate the material weaknesses described above. Even if we successfully remediate such material weaknesses, we cannot provide certain executiveany assurance that we will not suffer from these or other material weaknesses in the future.

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Our remediation efforts may not enable us to avoid a material weakness in the future. We may need to undertake various actions, such as implementing new internal controls and managerial advisory servicesprocedures and hiring additional accounting or internal audit staff. If we continue to SOP. SOP reimburses us for costs representingbe unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion on the proportioneffectiveness of our advisory services allocatedinternal controls to it under the Management Services Agreement. However, providing such advisory services to SOP may strain our resourcesextent required, we could lose investor confidence in the accuracy and divert management’s attention from our principal projects and other business concerns, which would adversely affect our business and operating results. Certaincompleteness of our directors are also directors of SOP,financial reports, which could create,cause the price of our common stock to decline, and we may be subject to investigation or appear to create, conflicts of interest with respect to matters involving both us and SOP.

sanctions by the SEC.

Risks Related to Government Regulations

The Mexican government, as well as local governments, extensively regulate mining operations, which impose significant actual and potential costs on us, and future regulation could increase those costs, delay receipt of regulatory refunds or limit our ability to produce silver and other metals.

The mining industry is subject to increasingly strict regulation by federal, state and local authorities in Mexico, and other jurisdictions in which we may operate, including in relation to:

●limitations on land use;
●mine permitting and licensing requirements;
●reclamation and restoration of properties after mining is completed;
●management of materials generated by mining operations; and
●storage, treatment and disposal of wastes and hazardous materials.
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limitations on land use;
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mine permitting and licensing requirements;
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reclamation and restoration of properties after mining is completed;
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management of materials generated by mining operations; and
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storage, treatment and disposal of wastes and hazardous materials.
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The liabilities and requirements associated with the laws and regulations related to these and other matters, including with respect to air emissions, water discharges and other environmental matters, may be costly and time-consumingtime consuming and may restrict, delay or prevent commencement or continuation of exploration or production operations. There can be no assurance that we have been or will be at all times in compliance with all applicable laws and regulations. Failure to comply with, or the assertion that we have failed to comply with, applicable laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits or authorizations and other enforcement measures that could have the effect of limiting or preventing production from our operations. We may incur material costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations. If we are pursued for sanctions, costs and liabilities in respect of these matters, our mining operations and, as a result, our financial performance, financial position and results of operations, could be materially and adversely affected.

Any new legislation or administrative regulations or new judicial interpretations or administrative enforcement of existing laws and regulations that would further regulate and tax the mining industry may also require us to change operations significantly or incur increased costs. Such changes could have a material adverse effect on our financial performance, financial position and results of operations.

Our Mexican properties are subject to regulation by the Political Constitution of the United Mexican States, and are subject to various legislation in Mexico, including the Mining Law, the Federal Law of Waters, the Federal Labor Law, the Federal Law of Firearms and Explosives, the General Law on Ecological Balance and Environmental Protection and the Federal Law on Metrology Standards. Our operations at our Mexican properties also require us to obtain local authorizations and, under the Agrarian Law, to comply with the uses and customs of communities located within the properties. Mining, environmental and labor authorities may inspect our Mexican operations on a regular basis and issue various citations and orders when they believe a violation has occurred under the relevant statute.

If inspections in Mexico result in an actual or alleged violation, we may be subject to fines, penalties or sanctions, our mining operations could be subject to temporary or extended closures, and we may be required to incur capital expenditures to re-commencerecommence our operations. Any of these actions could have a material adverse effect on our financial performance, financial position and results of operations.

In late March 2020, in response

The Mexican federal government recently promulgated significant amendments to laws affecting the COVID-19 pandemic,mining industry; while it is difficult to ascertain if and when the Mexican government ordered a temporary suspension of all “non-essential” operations nationwide in Mexico, including mining operations. In late May 2020, the Mexican government designated mining an essential serviceamendments will be fully implemented, and allowed mines to resume production, subject to deploying COVID-19 prevention protocols. However, there is no certainty thatsome lack of clarity in their drafting including their intended retroactive effect, the Mexican regulators will not require further limitations on, or even a full shut down of, the operations at the CLG in connection with COVID-19. The potential costs of complying with these COVID-19 requirements is unknown andamendments could have a material adverse effect on us.the mining industry, and the LGJV’s and our Mexican businesses, particularly in respect of any new concessions, new mining permits, and new operations.

On May 8, 2023, legislative amendments were promulgated by the Mexican federal government (the “Amendments”). If fully implemented, the Amendments would include the following attributes: new concessions would only be granted through public

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bidding and letters of credit would be required; new mining concessions would be granted in respect of specified minerals; the potential to expropriate private land would be discontinued; the term and extension period of new mining concessions would be reduced to 30 and 25 years, respectively; the approval of transferees of mining concessions would be required; minimum payments of 5% of profits to local communities would be imposed; social impact studies and community consultation would be required; restoration, closure and post closure programs would be required; water availability would be a condition for granting new mining concessions; the concept of presumptive approval (afirmativa ficta) for approval matters properly and timely submitted to regulatory agencies would be removed; parastatal entities could be created and would enjoy preferential rights to exploration; environmental obligations and prohibitions would be increased; and water concessions could be significantly modified by governmental authorities in certain circumstances. The foregoing is a non-exhaustive summary of the Amendments.

The Amendments are stated to be immediately effective, but regulations are required for the Amendments to be fully implemented. Although it is not clear in all instances, the Amendments are generally stated to not have retroactive effect, and as such their most significant impact would be expected to be on new mining concessions rather than existing concessions and operations, including those of the LGJV and ours. Certain of the Amendments may also apply to existing operations, such as the requirement for approval of any concession transferee, establishing a closure and post-closure program and additional environmental obligations. We understand that the Amendments could be challenged on the basis of the legislative process followed or by parties directly affected by the Amendments on constitutional or other grounds. The impact of the Amendments on the LGJV and us will depend on the extent and timing of their implementation and the extent of their retroactive effect. We will be continuing to monitor and assess the potential impact of the Amendments on the LGJV, us, and any future opportunities in Mexico.

Our operations are subject to additional political, economic and other uncertainties not generally associated with U.S. operations.

We currently have two properties in Mexico: the Los Gatos District,LGD, which the LGJV controls, and the Santa Valeria property, which is owned 100% by us. Our operations are subject to significant risks inherent in exploration and resource extraction by foreign companies in Mexico. Exploration, development, production and closure activities in Mexico are potentially subject to heightened political, economic, regulatory and social risks that are beyond our control. These risks include:

●the possible unilateral cancellation or forced renegotiation of contracts and licenses;
●unfavorable changes in laws and regulations;
●royalty and tax increases;
●claims by governmental entities or indigenous communities;
●expropriation or nationalization of property;
●political instability;
●fluctuations in currency exchange rates;
●social and labor unrest, organized crime, hostage taking, terrorism and violent crime;
●uncertainty regarding the availability of reasonable electric power costs;
●uncertainty regarding the enforceability of contractual rights and judgments; and
●other risks arising out of foreign governmental sovereignty over areas in which our mineral properties are located.
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the possible unilateral cancellation or forced re-negotiation of contracts and licenses;
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unfavorable changes in laws and regulations;
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royalty and tax increases;
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claims by governmental entities or indigenous communities;
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expropriation or nationalization of property;
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political instability;
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fluctuations in currency exchange rates;
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social and labor unrest, organized crime, hostage taking, terrorism and violent crime;
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uncertainty regarding the availability of reasonable electric power costs;
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uncertainty regarding the enforceability of contractual rights and judgments; and
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other risks arising out of foreign governmental sovereignty over areas in which our mineral properties are located.
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Local economic conditions also can increase costs and adversely affect the security of our operations and the availability of skilled workers and supplies. Higher incidences of criminal activity and violence in the area of some of our properties could adversely affect the LGJV’s ability to operate in an optimal fashion or at all, and may impose greater risks of theft and higher costs, which would adversely affect results of operations and cash flows.

Acts of civil disobedience are common in Mexico. In recent years, many mining companies have been targets of actions to restrict their legally entitled access to mining concessions or property. Such acts of civil disobedience often occur with no warning and

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can result in significant direct and indirect costs. We cannot provide assurance that there will be no disruptions to site access in the future, which could adversely affect our business.

Local and regional meteorological conditions can increase our operating costs and adversely affect our ability to mine and process ore. Such inclement conditions, including severe precipitation events, extremely high winds or wildfires could directly impact our surface operations. Northern Mexico is highly dependent upon natural gas from Texas to generate power. Regional inclement weather conditions in the state of Chihuahua, Mexico, or Texas, such as the recent severe winter storms in Texas, could adversely impact our ability to maintain sufficient power from the national Mexico power grid. The CLG project was designed to allow the mine and processing plant to operate independently. The project has diesel-powered generators with sufficient capacity to maintain power to the residential camp, surface administrative facilities and the underground mine but not the processing plant. During such events, our ability to mine and process at design capacities could become constrained.

The right to export silver-bearing concentrateconcentrates and other metals may depend on obtaining certain licenses, which could be delayed or denied at the discretion of the relevant regulatory authorities, or meeting certain quotas. The United States and Mexico began implementation of the United States-Mexico-Canada Agreement (USMCA) in 2020. The United States and Mexico, and any other country in which we may operate in the future, could alter their trade agreements, including terminating trade agreements, instituting economic sanctions on individuals, corporations or countries, and introducing other government regulations affecting trade between the United States and other countries. It may be time consumingtime-consuming and expensive for us to alter our operations in order to adapt to or comply with any such changes. If the United States were to withdraw from or materially modify international trade agreements to which it is a party, or if other countries imposed or increased tariffs on the minerals we may extract in the future, the costs of such products could increase significantly. Any of these conditions could lead to lower productivity and higher costs, which would adversely affect our financial performance, financial position and results of operations. Generally, our operations may be affected in varying degrees by changing government regulations in the United States and/or Mexico with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, importation of products and supplies, income and other taxes, royalties, the repatriation of profits, expropriation of mineral property, foreign investment, maintenance of concessions, licenses, approvals and permit, environmental matters, land use, land claims of local indigenous people and workplace safety.


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Such developments could require us to curtail or terminate operations at our mineral properties in Mexico, incur significant costs to meet newly imposed environmental or other standards, pay greater royalties or higher prices for labor or services and recognize higher taxes, which could materially and adversely affect our results of operations, cash flows and financial condition. Furthermore, failure to comply strictly with applicable laws, regulations and local practices could result in loss, reduction or expropriation of licenses, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests.

We continue to monitor developments and policies in Mexico and assess the impact thereof on our operations; however, such developments cannot be accurately predicted and could have an adverse effect on our business, financial condition and results of operations.

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We are required to obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process and may ultimately not be possible.

Mining companies, including ours, need many environmental, construction and mining permits, each of which can be time consuming and costly to obtain, maintain and renew. In connection with our current and future operations, we must obtain and maintain a number of permits that impose strict conditions, requirements and obligations, including those relating to various environmental and health and safety matters. To obtain, maintain and renew certain permits, we have been and may in the future be required to conduct environmental studies, and make associated presentations to governmental authorities, pertaining to the potential impact of our current and future operations upon the environment and to take steps to avoid or mitigate those impacts. Permit terms and conditions can impose restrictions on how we conduct our operations and limit our flexibility in developing our mineral properties. Many of our permits are subject to renewal from time to time, and applications for renewal may be denied or the renewed permits may contain more restrictive conditions than our existing permits, including those governing impacts on the environment. We may be required to obtain new permits to expand our operations, and the grant of such permits may be subject to an expansive governmental review of our operations. We may not be successful in obtaining such permits, which could prevent us from commencing, continuing or expanding operations or otherwise adversely affect our business. Renewal of existing permits or obtaining new permits may be more difficult if we are not able to comply with our existing permits. Applications for permits, permit area expansions and permit renewals can also be subject to challenge by interested parties, which can delay or prevent receipt of needed permits. The permitting process can vary by jurisdiction in terms of its complexity and likely outcomes. The applicable laws and regulations, and the related judicial interpretations and enforcement policies, change frequently, which can make it difficult for us to obtain and renew permits and to comply with applicable requirements. Accordingly, permits required for our operations may not be issued, maintained or renewed in a timely fashion or at all, may be issued or renewed upon conditions that restrict our ability to conduct our operations economically, or may be subsequently revoked. Any such failure to obtain, maintain or renew permits, or other permitting delays or conditions, including in connection with any environmental impact analyses, could have a material adverse effect on our business, results of operations and financial condition.

In regard to the CLG, the Los Gatos DistrictLGD and other Mexican projects, Mexico has adopted laws and guidelines for environmental permitting that are similar to those in effect in the United States and South American countries. We are currently operating under permits regulating mining, processing, use of explosives, water use and discharge and surface disturbance in relation to the Los Gatos DistrictLGD and the Santa Valeria property. We will be required to apply for corresponding authorizations prior to any production at our other Mexican properties and there can be no certainty as to whether, or the terms under which, such authorizations will be granted or renewed. Any failure to obtain authorizations and permits, or other authorization or permitting delays or conditions, could have a material adverse effect on our business, results of operations and financial condition.

We are subject to environmental and health and safety laws, regulations and permits that may subject us to material costs, liabilities and obligations.

We are subject to environmental laws, regulations and permits in the various jurisdictions in which we operate, including those relating to, among other things, the removal and extraction of natural resources,


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the emission and discharge of materials into the environment, including plant and wildlife protection, remediation of soil and groundwater contamination, reclamation and closure of properties, including tailings and waste storage facilities, groundwater quality and availability, and the handling, storage, transport and disposal of wastes and hazardous materials. Pursuant to such requirements, we may be subject to inspections or reviews by governmental authorities. Failure to comply with these environmental requirements may expose us to litigation, fines or other sanctions, including the revocation of permits and suspension of operations. We expect to continue to incur significant capital and other compliance costs related to such requirements. These laws, regulations and permits, and the enforcement and interpretation thereof, change frequently and generally have become more stringent over time. If our noncompliance with such regulations were to result in a release of hazardous materials into the environment, such as soil or groundwater, we could be required to remediate such contamination, which could be costly. Moreover, noncompliance could subject us to private claims for property damage or personal injury based on exposure to hazardous materials or unsafe working conditions. In addition, changes in applicable requirements or stricter interpretation of existing requirements may result in costly compliance requirements or otherwise subject us to future liabilities. The occurrence of any of the foregoing, as well as any new environmental, health and safety laws and regulations applicable to our business or stricter interpretation or enforcement of existing laws and regulations, could have a material adverse effect on our business, financial condition and results of operations.

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We could be liable for any environmental contamination at, under or released from our or our predecessors’ currently or formerly owned or operated properties or third-party waste disposal sites. Certain environmental laws impose joint and several strict liability for releases of hazardous substances at such properties or sites, without regard to fault or the legality of the original conduct. A generator of waste can be held responsible for contamination resulting from the treatment or disposal of such waste at any offsite location (such as a landfill), regardless of whether the generator arranged for the treatment or disposal of the waste in compliance with applicable laws. Costs associated with liability for removal or remediation of contamination or damage to natural resources could be substantial and liability under these laws may attach without regard to whether the responsible party knew of, or was responsible for, the presence of the contaminants. Accordingly, we may be held responsible for more than our share of the contamination or other damages, up to and including the entire amount of such damages. In addition to potentially significant investigation and remediation costs, such matters can give rise to claims from governmental authorities and other third parties, including for orders, inspections, fines or penalties, natural resource damages, personal injury, property damage, toxic torts and other damages.

Our costs, liabilities and obligations relating to environmental matters could have a material adverse effect on our financial performance, financial position and results of operations.

We may be responsible for anti-corruptionanticorruption and anti-briberyantibribery law violations.

Our operations are governed by, and involve interactions with, various levels of government in foreign countries. We are required to comply with anti-corruptionanticorruption and anti-briberyantibribery laws, including the Corruption of Foreign Public Officials Act (Canada) and the U.S. Foreign Corrupt Practices Act (the “FCPA”)(together, the “Corruption Legislation ”) and similar laws in Mexico. These laws generally prohibit companies and company employees from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. The FCPACorruption Legislation also requires companies to maintain accurate books and records and internal controls. Because our interests are located in Mexico, there is a risk of potential FCPACorruption Legislation violations.

In recent years, there has been a general increase in both the frequency of enforcement and the severity of penalties under such laws, resulting in greater scrutiny and punishment to companies convicted of violating anti-corruption and anti-bribery laws. A company may be found liable for violations by not only its employees, but also by its contractors and third-party agents. Our internal procedures and programs may not always be effective in ensuring that we, our employees, contractors or third-party agents will comply strictly with all such applicable laws. If we become subject to an enforcement action or we are found to be in violation of such laws, this may have a material adverse effect on our reputation and may possibly result in significant penalties or sanctions, and may have a material adverse effect on our cash flows, financial condition or results of operations.


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We may be required by human rights laws to take actions that delay our operations or the advancement of our projects.

Various international and national laws, codes, resolutions, conventions, guidelines and other materials relate to human rights (including rights with respect to health and safety and the environment surrounding our operations). Many of these materials impose obligations on government and companies to respect human rights. Some mandate that governments consult with communities surrounding our projects regarding government actions that may affect local stakeholders, including actions to approve or grant mining rights or permits. The obligations of government and private parties under the various international and national materials pertaining to human rights continue to evolve and be defined. One or more groups of people may oppose our current and future operations or further development or new development of our projects or operations. Such opposition may be directed through legal or administrative proceedings or expressed in manifestations such as protests, roadblocks or other forms of public expression against our activities, and may have a negative impact on our reputation. Opposition by such groups to our operations may require modification of, or preclude the operation or development of, our projects or may require us to enter into agreements with such groups or local governments with respect to our projects, in some cases causing considerable delays to the advancement of our projects.

Risks Related to Ownership of Our Common Stock

The market price of our common stock has been, and may continue to be, volatile.

The trading price of our common stock couldhas been, and may continue to be, volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:

●failure to identify mineral reserves at our properties;
●failure to achieve or continue production at our mineral properties;
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●actual or anticipated changes in the price of silver and base metal byproducts;
●fluctuations in our quarterly and annual financial results or the quarterly and annual financial results of companies perceived to be similar to us;
●changes in market valuations of similar companies;
●success or failure of competitor mining companies;
●changes in our capital structure, such as future issuances of securities or the incurrence of debt;
●sales of large blocks of our common stock;
●announcements by us or our competitors of significant developments, contracts, acquisitions or strategic alliances;
●changes in regulatory requirements and the political climate in the United States, Mexico, Canada or all;
●litigation and/or investigations involving our Company, our general industry or both;
●additions or departures of key personnel;
●investors’ general perception of us, including any perception of misuse of sensitive information;
●changes in general economic, industry and market conditions;
●accidents at mining properties, whether owned by us or otherwise;
●natural disasters, terrorist attacks and acts of war; and
●our ability to control our costs.
failure to achieve production at our mineral properties;
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actual or anticipated changes in the price of silver and base metal by-products;
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fluctuations in our quarterly and annual financial results or the quarterly and annual financial results of companies perceived to be similar to us;
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changes in market valuations of similar companies;
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success or failure of competitor mining companies;
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changes in our capital structure, such as future issuances of securities or the incurrence of debt;
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sales of large blocks of our common stock;
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announcements by us or our competitors of significant developments, contracts, acquisitions or strategic alliances;
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changes in regulatory requirements and the political climate in the United States, Mexico or both;
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litigation involving our Company, our general industry or both;
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additions or departures of key personnel;
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investors’ general perception of us, including any perception of misuse of sensitive information;
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changes in general economic, industry and market conditions;
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accidents at mining properties, whether owned by us or otherwise;
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natural disasters, terrorist attacks and acts of war; and
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our ability to control our costs.
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If the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling


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their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.

If any of the foregoing occurs it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be both costly to defend against and a distraction to management.

Our anti-takeover defense provisions may cause our common stock to trade at market prices lower than it might absent such provisions.

Our Board of Directors has the authority to issue blank check preferred stock. Additionally, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our Board of Directors. These include provisions setting forth advance notice procedures for shareholders’ nominations of directors and proposals of topics for consideration at meetings of shareholders, provisions restricting shareholders from calling a special meeting of shareholders or requiring one to be called, provisions limiting the ability of shareholders to act by written consent and provisions requiring a 66.67% shareholder vote to amend our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws. These provisions may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our shareholders receiving a premium over the market price for their common stock. In addition, these provisions may cause our common stock to trade at a market price lower than it might absent such provisions.

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Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could cause the market price of our common stock to drop significantly.

Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of March 23, 2021, we had 59,409,052 shares of common stock outstanding. In connection with our initial public offering, all of our directors and executive officers and the holders of substantially all of our common stock entered into lockup agreements in which they agreed, subject to certain exceptions, not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock. The shares of our common stock covered by these lockup agreements will become eligible to be sold beginning on April 26, 2021. The representatives of the underwriters in our initial public offering may, in their sole discretion and without notice, release all or any portion of the common stock subject to lockup agreements. As restrictions on resale end, the market price of our common stock could drop significantly if the holders of these shares sell them. or are perceived by the market as intending to sell them.

Moreover, certain

Certain stockholders will have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have also registered all shares of common stock that we may issue under our equity compensation plans, which can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliatesaffiliates. Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that holder of a large number of shares intends to sell shares, could cause the market price of our common stock to drop significantly and the lock-up agreements described above. These factors could also make it more difficult for us to raise additional funds through future offerings of our common stock or other securities.

We do not currently intend to pay dividends on our common stock and, consequently, shareholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividend on our capital stock. We do not intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain all future


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earnings, if any, to finance our business. The payment of any future dividends, if any, will be determined by our Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, business conditions, growth opportunities, corporate law requirements and other factors.
In addition, our Credit Facility contains, and any of our future contractual arrangements may contain, restrictions on our ability to pay cash dividends on our capital stock.

Electrum and its affiliates and MERS have a substantial degree of influence over us, which could delay or prevent a change of corporate control or result in the entrenchment of our management and/or Board of Directors.

As of March 23, 2021,27, 2023, the Electrum Group, LLC and its affiliates (collectively, “Electrum”) and the Municipal Employees’ Retirement System of Michigan (“MERS”) beneficially own approximately 42%32% and 10%9% of our outstanding common stock, respectively. We have entered into a shareholdersshareholder’s agreement with Electrum and MERS pursuant to which Electrum and MERS have certain director nomination rights. The shareholders agreement also provides that Electrum approval must be obtained prior to us engaging in certain corporate actions. As a result, Electrum has significant influence over our management and affairs and, so long asif Electrum owns at least 35% of our outstanding common stock, will have approval rights over certain corporate actions, including, among others, any merger, consolidation or sale of all or substantially all of our assets, the incurrence of more than $100 million of indebtedness and the issuance of more than $100 million of equity securities.

The concentration of ownership and our shareholders agreement may harm the market price of our common stock by, among other things:

●delaying, deferring or preventing a change of control, even at a per share price that is in excess of the then current price of our common stock;
●impeding a merger, consolidation, takeover or other business combination involving us, even at a per share price that is in excess of the then current price of our common stock; or
●discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even at a per share price that is in excess of the then-current price of our common stock.
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delaying, deferring or preventing a change

Table of control, even at a per share price that is in excess of the then-current price of our common stock;Contents

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impeding a merger, consolidation, takeover or other business combination involving us, even at a per share price that is in excess of the then-current price of our common stock; or
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discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even at a per share price that is in excess of the then-current price of our common stock.
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We are an “emerging growth company” and a smaller“smaller reporting company,company”, and we cannot be certain if the reduced disclosure requirements applicable to us will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We would also be exempt from the requirement to obtain an external audit on the effectiveness of internal control over financial reporting provided in Section 404(b) of the Sarbanes-OxleySarbanes Oxley Act. These exemptions and reduced disclosures in our SEC filings due to our status as a smaller reporting company mean our auditors do not review our internal control over financial reporting and may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock prices may be more volatile.


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Our Amended and Restated Certificate of Incorporation and shareholders agreement contain a provision renouncing our interest and expectancy in certain corporate opportunities.

Our Amended and Restated Certificate of Incorporation and shareholders agreement provide for the allocation of certain corporate opportunities between us and Electrum and MERS. Under these provisions, neither Electrum nor MERS, their affiliates and subsidiaries, nor any of their officers, directors, agents, stockholders, members or partners will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. For instance, a director of our Company who is not also our employee and also serves as a director, officer or employee of Electrum or MERS or any of their subsidiaries or affiliates may pursue certain acquisition or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our financial performance, financial position and results of operations if attractive corporate opportunities are allocated by Electrum or MERS to themselves or their subsidiaries or affiliates instead of to us.

Our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

●any derivative action or proceeding brought on our behalf;
●any action asserting a breach of fiduciary duty;
●any action asserting a claim against us arising under the Delaware General Corporation Law; and
●any action asserting a claim against us that is governed by the internal affairs doctrine.
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any derivative action or proceeding brought on our behalf;
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any action asserting a breach of fiduciary duty;
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any action asserting a claim against us arising under the Delaware General Corporation Law; and
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•
any action asserting a claim against us that is governed by the internal affairs doctrine.
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The foregoing provision does not apply to claims under the Securities Act, the Exchange Act or any claim for which the U.S. federal courts have exclusive jurisdiction. Our Amended and Restated Certificate of Incorporation further provides that the federal district courts of the United States will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.

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Our Amended and Restated Certificate of Incorporation also provides that any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and to have consented to these choice of forum provisions. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers, and other employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.

While Delaware courts have determined that choice of forum provisions are facially valid, it is possible that a court of law in another jurisdiction could rule that the choice of forum provisions contained in our Amended and Restated Certificate of Incorporation are inapplicable or unenforceable if they are challenged in a proceeding or otherwise. If a court were to find the choice of forum provision in our Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

General Risk Factors

We may be subject to claims and legal proceedings that could materially and adversely impact our financial position, financial performance and results of operations.
We may be subject to claims or legal proceedings covering a wide range of matters that arise in the ordinary course of business activities. These matters may result in litigation or unfavorable resolution,

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which could materially and adversely impact our financial performance, financial position and results of operations. See “Item 3. Legal Proceedings.”

We will continue to incur significantly increased costs and devote substantial management time as a result of operating as a public company.

As a public company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. For example, weWe are subject to the reporting requirements of the Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations of the SEC, NYSE and TSX, including the establishment and maintenance of effective disclosure and financial controls, changes in corporate governance practices and required filing of annual, quarterly and current reports with respect to our business and results of operations. We expect that complianceCompliance with these requirements has increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company. We have hired additional accounting personnel and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and willmay need to establish an internal audit function within one year of our initial public offering.

We are requiredincur additional costs to develop and maintain proper and effective internal controls over financial reporting. We may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result,ensure we meet the value of our common stock.
We are required, pursuant to Section 404applicable requirements of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting for the first fiscal year beginning with the year following our first annual report required to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. Additionally, we are required to disclose changes made in our internal controls and procedures on a quarterly basis.
However, for as long as we are an emerging growth company, or a smaller reporting company that is a non-accelerated filer, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b). At such time this attestation will be required, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. We may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff.
We are in the early stages of the process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal controls over financial reporting, we will be unable to assert that our internal controls are effective.
If we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls to the extent required, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.

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Act.

If securities or industry analysts do not continue to publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that securities or industry analysts publish about us or our business. If analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business model or our stock performance, or if our results of operations fail to meet the expectations of analysts, the price of our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn might cause the price of our common stock and trading volume to decline.

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Item 1B.  Unresolved Staff Comments

Not applicable.


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Item 2.  Properties

The Los Gatos District

The technical information appearing below and elsewhere in this Report concerning the Los Gatos DistrictForm 10-K was derived from the Los Gatos Technical Report dated November 10, 2022, with an effective date of July 1, 2020 prepared2022, and updated with additional information up to the date of this Form 10-K where required

The CLG

The CLG, operated by Tetra Tech.GSI and located in Chihuahua, Mexico, is within the LGD, described below. The Los Gatos Technical Report was preparedCLG mineral deposit contains silver, zinc, lead, gold and copper. The deposit that is being mined, and the other deposits known in the area, are considered to be examples of epithermal vein deposits. The economic mineralization at CLG is characterized by silver, lead, zinc and copper sulfides with small amounts of gold. The quartz and calcite veins also contain fluorite, manganese and barite.

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Site infrastructure consists of a polymetallic mine and processing facility that currently processes over 2,800 tpd of mined material. The processing methodology used for the following qualified persons, eachCLG’s silver-lead-zinc deposit is conventional sequential silver-lead-zinc flotation processing, which includes a grinding circuit, flotation circuit, concentrate and tailing thickeners, concentrate loadout and tailings detoxification. Historically, all tailings were disposed of whomin the tailings storage facility. With the construction and commissioning of a paste backfill plant completed in December 2022, it is an employee of Tetra Tech: Guillermo Dante Ramírez Rodríguez, Leonel Lopez, Kira Johnson, Keith Thompson, Kenneth Smith, Luis Quirindongo and Max Johnson. Noneexpected that approximately 40% of the qualifiedfinal tailings will now be pumped to the paste backfill plant and be used to back fill previously mined stopes and the remaining 60% will be deposited in the tailings storage facility. In addition, a new leaching plant is under construction which is designed to further reduce fluorine levels in zinc concentrates. The leaching plant is expected to be commissioned in the second quarter of 2023. The underground mine and associated life of mine production plans support our expected steady-state production rate of 2,900 tpd of mined material. MPR has arranged permissions to enter and perform exploration and mining activities on several land properties in the project area, including surface rights to access the operating mine and processing and tailings facilities.

In addition to the CLG processing plant and other facilities, the LGJV has a community office located in nearby San José del Sitio, a community of approximately 800 persons, who preparedwith electrical and water services, an elementary school and basic health services. Water resources in the region are mostly related to the Conchos River Basin, which includes the San Pedro, San Francisco de Borja and Satevó River Sub-Basins. Locally, there are significant amounts of water, with shallow groundwater recorded from most exploration drilling. Other infrastructure at CLG includes administration offices, mine dry, fuel storage, mine maintenance workshop, jaw crushing station, dome-covered crushed ore stockpile, process plant, tailing storage facility, electrical substation, 66 kilometers of power line connecting high voltage to the grid substation at San Francisco de Borja, assay lab, mill maintenance workshop, dewatering wells and water cooling and distribution systems, and residential camps and associated infrastructure. Power to the site is supplied via a 115 kV utility transmission line. This originates from the San Francisco de Borja substation in Satevó (Chihuahua), where a 115 kV connection has recently been installed. In early 2022, the LGJV reached an agreement with a local energy supplier to provide 100% of CLG’s electrical power requirements from renewable energy sources, enabling the CLG to significantly reduce its dependency on fossil fuels and materially reducing the mine’s carbon footprint. All raw water to meet potable and non-potable water demand is supplied by groundwater pumped from dewatering wells. The well water is cooled to below 40°C prior to use. Sewage water treatment systems were included to handle waste as required on the project.

We are committed to safety at the CLG. The CLG is built to higher environmental standards than required by Mexican law, with a fully lined tailings impoundment facility, enclosure of the conveyors and an ore storage dome. The CLG also has state-of-the-art rescue capsules to hoist personnel to surface in the event of an emergency.

Effective as of the date of the Los Gatos Technical Report, is affiliated with us or any other entity that has an ownership, royalty or other interest in the CLG oris expected to produce, on average, 7.4 million ounces of silver annually at a low all-in sustaining cost through the Los Gatos District.

LocationLOM. In 2022, the CLG had record silver production of 10.3 million ounces, up 36% from 7.6 million ounces in 2021 and 4.2 million ounces in 2020. Zinc, lead and gold production were 60.7 million pounds, 43.9 million pounds, and 5.3 thousand ounces, respectively. Compared to 2021 zinc production increased by 22% from 49.6 million pounds, lead production by 10% from 39.8 million pounds, and gold production by 2% from 5.2 thousand ounces. In 2020, zinc production was 34.2 million pounds, lead production was 27.4 million pounds and gold 4.9 thousand ounces. In the Los Gatos Districtfirst quarter of 2023, silver, zinc, lead and Access
gold production were 2.43 million ounces, 14.0 million pounds, 9.5 million pounds, and 1.38 thousand ounces, respectively.
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The Los Gatos DistrictLGD

The LGD covers approximately 103,087 hectares in the south-central part of the State of Chihuahua in northern Mexico, within the municipality of Satevó. The Los Gatos DistrictLGD is roughly centered on Latitude 27° 34’ 17” N, Longitude 106° 21’ 33” W, near the town of San José del Sitio. The Los Gatos DistrictLGD is located approximately 120 kilometers south of the state capital of Chihuahua City and approximately 100 kilometers northwest of the mining city of Hidalgo del Parral.

San José del Sitio is accessible by a nearly 100% paved road from the turnoff of Federal Highway 24 at the 81 kilometer marker between the cities of Chihuahua and Hidalgo de Parral. The access road can be traveled by any motorized vehicle and has regular bus services to the surrounding communities. The Los Gatos District area is accessible by a large network of dirt and gravel roads that are used by local owners and lessees to access grazing areas for cattle and local ranches. Northern areas of the Los Gatos District are also accessible from several gravel roads connecting with Mexican Federal Highway 24 between the 60 kilometer to 81 kilometer markers. In more remote areas, the rolling topography permits easy access by foot into areas where roads do not exist.
There are a limited number of qualified workers in San José del Sitio, but technical workers (e.g., miners, electricians, mechanics, computer technicians, etc.), heavy equipment and specialized operators can be found in the surrounding area and at Parral, 88 kilometers southeast. Primary and secondary-level technical schools are available in Valle de Zaragoza, and all levels of schooling are available in Parral and/or Chihuahua, each 2.5 hours away by vehicle.
See “Item 1A. Risk Factors — Risks Related to Our Business and Industry — The title to some of the mineral properties may be uncertain or defective, thus risking our investment in such properties” for a discussion of factors or risks that may affect access or title or the right or ability to perform work on the property.
See Section 4.1 of the Los Gatos Technical Report for further specific information of the location of the Los Gatos District.

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Mining Concessions
The Los Gatos DistrictLGD is made up of a series of 17 claim titles covering approximately 103,087 hectares. The titled mining concessions are summarized below:
Los Gatos District — Titled Mining Concessions
Concession Name​​Title Number​​
Date Granted
mm/dd/yy
​​Hectares​​
Current
Concessionaire
​
Los Gatos​​​​231498​​​​​3/4/08​​​​​19,712​​​Minera Plata Real​
Los Gatos 2​​​​228950​​​​​2/22/07​​​​​10,720​​​Minera Plata Real​
Los Gatos 3​​​​231076​​​​​1/16/08​​​​​27​​​Minera Plata Real​
Mezcalera​​​​228249​​​​​10/17/06​​​​​4,992​​​Minera Plata Real​
Mezcalera 2 Fracción I​​​​228929​​​​​2/21/07​​​​​39​​​Minera Plata Real​
Mezcalera 2 Fracción II​​​​228930​​​​​2/21/07​​​​​26​​​Minera Plata Real​
Mezcalera 2 Fracción III​​​​228931​​​​​2/21/07​​​​​29​​​Minera Plata Real​
Paula Adorada​​​​223392​​​​​12/9/04​​​​​40​​​Minera Plata Real​
La Gavilana​​​​237137​​​​​11/19/10​​​​​10​​​Minera Plata Real​
San Luis​​​​236908​​​​​10/5/10​​​​​16​​​Minera Plata Real​
La Gavilana Fracción I​​​​237461​​​​​12/21/10​​​​​44​​​Minera Plata Real​
Los Estados Fracción I​​​​237694​​​​​4/25/11​​​​​9​​​Minera Plata Real​
Los Estados Fracción II​​​​237695​​​​​4/25/11​​​​​44​​​Minera Plata Real​
Los Gatos 4​​​​238511​​​​​9/23/11​​​​​52,597​​​Minera Plata Real​
San Luis 2​​​​238694​​​​​10/18/11​​​​​42​​​Minera Plata Real​
Los Veranos​​​​238573​​​​​9/23/11​​​​​14,740​​​Minera Plata Real​
San Luis 3​​​​240452​​​​​5/23/12​​​​​0.01​​​Minera Plata Real​
Total​​​​​​​​​​​​​​​​103,087​​​​​
In addition, there are several small concessions within the Los Gatos District area that have been cancelled and not yet liberated by the Dirección General de Minas, which we intend to apply for once liberated. We have also arranged for permission to enter and perform exploration activities on a number of private land properties in the district area.
titles. These concessions are held by MPR. The concessions have a period of validity that ranges between the years 2054 and 2062. MPR holds the rights to thetwo concessions of Los Gatos and Paula Adorada(comprising approximately 20,000 hectares) subject to the terms of an agreement with the original holder of the concession. These agreements have been duly recorded inMPR has purchased surface lands covering the Mexican Public Registryknown extents of Mines. Detailsthe CLG, and Esther Resource areas, totaling 5,479 hectares.

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Table of these agreements are provided below.Contents

Location of LGD

Graphic

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Royalty and Agreement on Los Gatos Concession

- La Cuesta International S.A. de C.V. (La Cuesta)

The Los Gatos concessionLGJV is subject to the terms of an exploration, exploitation and unilateral promise of assignment of rights agreement made between La Cuesta International S.A. de C.V. and MPR dated May 4, 2006. Pursuant to this agreement, title to the Los Gatos concession was transferred to MPR and, in connection with the transfer, MPR is required to make semi-annual advanced royalty payments of $20,000 to La Cuesta International, S.A. de C.V. until the commencement of commercial production and thereafterThe LGJV is required to pay a production royalty of a) 2% net smelter returns royaltyreturn on production from the Los Gatos concession until all payments reach $10 million and ab) 0.5% net smelter returns royaltyreturn on production from landsthe concession after total payments have reached $10 million and c) 0.5% net smelter return on production from other property within a one-kilometer boundary of the Los Gatos concession, subject to a minimum royalty payment in the same amount as the advanced royalty payment. Once total royalty payments reach $10 million, the 2% net smelter returns royalty will decrease to 0.5% and onceconcession. After total payments have reachedreach $15 million, the royaltyLos Gatos concession ownership will no longer be payable. MPR paid a royalty payment of $40,000 per year during the preproduction period. Upon commencing production, payments under this agreement were deferred until March 31, 2021 with an annual interest rate of 4.5% appliedtransferred to the outstanding balance. DuringLGJV. The agreement has no expiration date; however, the deferral period, MPR willLGJV may terminate the agreement upon a 30-day notice. The agreement was revised in 2019 to allow a portion of production royalty payments to be deferred. Under the terms of the revised agreement, the LGJV was to pay an advance royalty payment of $100,000 per year until


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January 2021. Subsequent to March 31,$500,000 quarterly through 2021, while incurring interest at 4.5% annually on the outstanding balance, from the deferral period will be repaid in four quarterly payments of $500,000 with the remaining outstanding balance paid in full by March 31, 2022. As of December 31, 2020, $13,865,000 remained for future royalty obligations. During the term of the production royalty due in the first quarter of 2022. The agreement MPR is requiredwas revised further in September 2021, which allowed for payment of the production royalty due and elimination of the interest on the unpaid portion of the production royalty. Following the payment of the balance due in September 2021, the LGJV made its first quarterly payment of the production royalty in October 2021. In May 2022 the production royalty was reduced to comply with all mining, environmental and other applicable laws in order to maintain its right and title to the Los Gatos concession.
Unanimous Omnibus 0.5% after total payments reached $10 million. The LGJV paid $11.2 million through May 31, 2023.

Partner Agreement

with Dowa

The Los Gatos District isLGD and the CLG are owned and operated through the Unanimous Omnibus Partner Agreement. Pursuant to this agreement, the LGJV cannot make any “Major Decisions” without first having obtainedrequire Dowa’s consent or without first having obtained the consentconsent. “Major Decisions” include decisions in respect of holders of at least 90% of the interest in the LGJV, depending on the time such Major Decisions are made. Major Decisions, as defined in the agreement, include the significant operating decisions of the LGJV, such as, amongannual budgets, project financing, capital projects, expansions, major expenditures and other decisions, budgeting, development and exploitation approvals, loan and outside financing approvals, expansion of area of interest, surrendering claims, the creation of security interests on property, any initial public offering of the joint venture, and litigation settlements.matters. Therefore, despite holding a majority equity interest in the LGJV, we do not exercise control over the LGJV.

On March 11, 2021, we repurchased an approximate 18.5% interest in the LGJV from Dowa, increasing our ownership to 70.0%. Following this increase in our ownership interest in the LGJV, we continue to not exercise control over the LGJV due to certain provisions contained in the Unanimous Omnibus Partner Agreement that currently require unanimous partner approval of all major operating decisions (such as certain approvals, the creation of security interests on property, any initial public offering of the joint venture, and litigation settlements).
Priority Distribution Agreement

On May 30, 2019, and in connection with the memorandum of understanding dated April 16, 2019, we entered into a priority distribution agreement with MPR, OSJ and Dowa, pursuant to which we directed the LGJV to contribute dividend payments to an escrow account until an aggregate amount equal to $20 million has been deposited into the account, which iswas payable to Dowa as a priority dividend.

Sales Agreements
OSJ (the “Seller”),

On March 17, 2022, we entered into a definitive agreement with Dowa to build and operate a leaching plant to reduce fluorine levels in zinc concentrates produced at an entity that formsexpected construction cost of $6 million. As part of the agreement, the initial payment towards the $20 million priority payment due to Dowa under the partner’s priority distribution agreement was reduced to $10.3 million, after which each partner will retain its pro rata share of any dividends. The reduced priority dividend amount reflects a portion of both the construction and future estimated operating costs of the leaching plant and is dependent on the successful construction and operation of the leaching plant, which is expected to be commissioned in the second quarter of 2023. Should the leaching plant construction not be completed, or the leaching plant not operate according to certain parameters during the first five years, portions of the $9.7 million priority dividend reduction could be reinstated.

In April 2022, the LGJV entered into a delivery contract, dated April 14, 2019, with Metagri S.A. de C.V. (“Metagri”), whereby Metagri agreedpaid its first dividend of $20 million to buyits partners. After withholding taxes and accept deliverypayment of the initial $10.3 million priority dividend to Dowa, we received $6 million. In July 2022 and November 2022, the Seller agreedLGJV paid additional dividends in the amount of $15 million and $20 million, respectively, to sellits partners. The Company’s share, after withholding taxes, was $10 million and deliver$13.3 million, respectively, for the July 2022 and November 2022 dividend payments.

Under the Unanimous Omnibus Partner Agreement Dowa has the right to Metagri, all leadpurchase 100% of the zinc concentrate that will be produced from the CLG, until Decemberat rates negotiated in good faith and agreed between Dowa and us taking into consideration the then prevailing market price based on benchmark terms as reported in industry publications such as Brook Hunt, CRU or Metal Bulletin of London, and to consume or resell or deliver such concentrates for processing by any Dowa affiliate or third party.

Exploration

Exploration on the LGD property has included geophysical analysis, surface mapping, rock and soil sampling and drilling. As of March 31, 2021. The lead concentrate will ultimately be delivered2023, 1,926 drill holes relevant to Metagri’s warehousethe LGJV property had been completed by MPR, for a total of 466,104 meters drilled. Drilling has been dominantly by conventional diamond drilling techniques. Surface drillholes are commonly HQ or NQ in Manzanillo, Mexico.diameter. Underground drilling is NQ or LTK48 (35mm) diameter.

The Seller also entered into

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As noted above, our exploration strategy for the CLG and the LGD entails a delivery contract, dated July 15, 2019, with Ocean Partners, whereby Ocean Partners agreed to buy and accept deliveryfocus on two key areas: an exposed section of and Seller agreed to sell and deliver to Ocean Partners, all zinc concentrate that will be producedandesite running from the CLG until June 30, 2022. The zinc concentrate will ultimately be delivered to Dowa’s zinc smelter in Akita, Japan, unless otherwise agreed to by Dowa. The Seller, from time to time, will enter into memoranda of agreement setting forth the terms and conditions for the sales of zinc concentrate.

From time to time, the Seller may enter into certain spot sale contracts should impurities in lead and zinc concentrate exceed certain specifications. Since the commencement of production, the Seller has entered into spot sale contracts due to high fluorine content for some production, including substantially all the lead concentrate produced in 2020.
Climate and Topography
The Los Gatos District area is located in the Sierras y Llanuras del Norte Physiographic Province near the boundaries between the Gran Meseta, Cañones, the Sierras and Llanuras Tarahumara Sub Provinces. The general physiographynorthwest boundary of the Los Gatos District is characterized by lowdistrict to middle rolling volcanic hills

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TABLE OF CONTENTS

with local escarpmentsEsther and flat valley floors. Altitudes vary with between 1,550 masl at the baseCLG, and a large basin southeast of the Santo Toribio Creek and 1,780 masl atCLG underlain by andesite which we anticipate may contain other large district-scale fault structures conducive to large deposits. We are currently prioritizing exploration efforts on areas most proximate to the top of the Los Gatos Hill, one ofCLG; areas with the highest peaks ofpotential to leverage existing surface and underground infrastructure.

Mineral Reserves and Resources

The table below summarizes the Los Gatos District area.

Vegetation is characterized by a semi-desert landscape, with typical low brush vegetation in the slopes, including lechuguilla, sotol, yucca, sage, bear grass and other types of indigenous grasses. Larger brush and trees are common along the main watercourses, with the presence of oak, cypress, poplar, huizache and mesquite, among others.
The climate in the area is typical of desert areas of northwest Mexico, extreme semi-arid. Exploration and mining activities at the Los Gatos District are seldom interrupted by adverse weather conditions, with the exception of short-lived storms producing floods and damage to access roads.
Geological Setting
The Los Gatos District is located in the transition zone between the Sierra Madre Occidental volcanic province of western Mexico and the Mesozoic Chihuahua basin to the east. It is also located in the general contact zone between the Sierra Madre Occidental, Chihuahua and Parral tectonostratigraphic terranes.
The area is largely characterized by a thick sequence of Tertiary volcanic rocks that are generally dissected by a strong north-northwest bearing fault system that divides the area into the plateau and barranca sections and are subdivided in two major units, the Lower Volcanic Group and Upper Volcanic Group. The area is one of the largest known epithermal, precious-metal metallogenic provinces and is host to several well-known gold-silver producing mining districts in Mexico, such as Concheño, Batopilas, San Dimas-Tayoltita and Ocampo.
The dominant rocks of the Los Gatos District area are thick accumulations of intermediate tuffs and lavas, with lesser felsic rocks, and Upper Cretaceous (Cenomanian) to Lower Paleocene aged sandstones, shales and limestones correlative with the Mezcalera formation, locally metamorphosed to phyllites, quartzites and marbles near areas of igneous activity. Rocks of this oldest sedimentary sequence occur within a small horst block located to the northwest of the Cerro Los Gatos District, with prominent high-angle fault boundaries on the north and south, parallel to the regional trend of faulting. Intruding and deposited on the entire section are locally important rhyolite flows, flow domes and dikes, usually strongly silicified, that have all of the varied textures expected with the development of flow domes, including breccias, flow banding and intrusive/extrusive transitions. Each of the rocks in the section contains observable hydrothermal alteration that suggests that mineralization in the area probably occurred late in the history of the development of the volcanic section. It is important to stress, however, that economic grades of mineralization have only thus far been identified in the andesite and dacite sections.
History of the Los Gatos District
The Los Gatos District has been the subject of very limited historical prospecting and mineral exploration, including the development of shallow workings and preliminary exploration activities by Consejo de Recursos Minerales (now the Servicio Geológico Mexicano, the Mexican Geologic Survey) at the Esther, Gavilana (Paula) and San Luis zones with references to the occurrence of silver, lead and zinc. The construction and development work has not uncovered any evidence of past modern prospecting activities in the area. The Los Gatos District was initially recognized by reconnaissance activities by La Cuesta International Inc. in 2005 and later offered to Los Gatos Ltd. (original parent of MPR). An initial letter of agreement for exploration work on the Los Gatos District was negotiated and a final contract ratified in April 2006 between MPR and La Cuesta International S. A. de C.V. (the Mexican subsidiary of La Cuesta International Inc.). Only minor field work was conducted in 2006 and 2007 on the Los Gatos District during the waiting period for the initial concession to be titled, and formal exploration activities and drilling were conducted by MPR from and after 2008.
Exploration
The Los Gatos District consists of three identified silver discoveries — the CLG, the Esther deposit and the Amapola deposit — and 11 other mineralized zones with over 150 kilometers of outcropping quartz and calcite veins are also located in the Los Gatos District.

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As of December 31, 2020, 739 exploration drill holes have been completed in the Los Gatos District, totaling 267,060 meters. In late 2020, the LGJV recommenced its definitional drilling campaign at Cerro Los Gatos.
Drill sites are selected based on surface vein outcrops and geometric projections into the subsurface, as well as geochemical, geophysical and geological targets. Drilling is conducted using a wire line rig with diamond core capabilities. Holes begin with HQ size and are reduced, if necessary, to NQ and very rarely BQ, if difficult drilling conditions are encountered. Holes are surveyed with a Flexit EZ trac device at 50-meter intervals as the holes are completed. Surveys of drill hole-collar coordinates locations are completed by a local contract topographer using a Topcon Total Station GTS-236W. All information pertinent to the drilling is stored in a master database in Microsoft Access®. Additional drillingreserve estimates at the CLG is aimed at upgrading the confidence of the resource and identifying mineralized extensions along strike and down dip.
In addition to the drilling conducted at the CLG, the Esther deposit and the Amapola deposit, MPR has conducted limited exploration drilling programs in other areas in the Los Gatos District which include Boca de Leon, Cieneguita, El Lince, El Rodeo, La Paula, Los Torunos Mezcalera, Ocelote, San Agustin, San Luis and Wall-E/Ava. While anomalous levels of mineralization have been identified in each of these zones other than Wall-E/Ava, drilling data is too limited to speculate as to the presence of economic quantities of mineralization. Additional drilling will be required in each area to delineate the mineralization identified.
Los Gatos District Mineralogy
The Los Gatos District hosts a series of quartz, quartz-calcite and calcite veins in at least fifteen separate vein systems that are exposed along a strike length of approximately 30 kilometers and an outcrop belt width of approximately five kilometers. Vein width is generally in the order of one meter, but local wide zones up to eight meters in outcrop and true vein widths in excess of 30 meters have been identified by diamond drilling. Structurally, the veins form two sets, with north and northwest strikes and mostly steep dips. West/northwest trending fault and fracture zones probably reflect reactivated basement structures, whereas many of the north/northwest trending faults probably are associated with basin-and-range extension. Epithermal mineralization is associated with both phases of extension, so both trends have exploration potential; however, the basement architecture has overall control on the distribution of magmatic centers and hydrothermal systems.
Mineralization at the Los Gatos District is characterized by silver, lead, zinc and copper sulphides and their oxides, along with fluorite, manganese, barite and traces of gold associated with quartz and calcite veins. The veins vary in orientation from west-northwest to northwest to north-northwest to north-northeast and vary in thickness from one meter to eight meters outcrop, but with much greater true width at depth based upon diamond drilling. Study of the veins in hand specimen and thin section suggests that they are epithermal in origin and are likely of intermediate sulfidation composition, showing vein textures and gangue mineralogy that indicate a relatively high-level hydrothermal system in the boiling environment. Breccia with clasts of vein quartz indicates a protracted hydrothermal system during multiple faulting events, a positive sign for economic epithermal veins. It has been interpreted that mineralized-ore shoots may extend relatively far down dip, possibly to at least 250 meters.
The CLG vein system is persistent, with a general northwest trend dipping to the east, a mapped extension in the order of ten kilometers, and true widths of as much as 30 meters and local associated veining up to 50 meters wide. Banded quartz veins and breccias are cemented by quartz, calcite and abundant manganese oxides. A study based on geological characteristics and silver-lead-zinc (arsenic-antimony-mercury) anomalous sections of the vein resulted in the discovery of the Los Gatos listric-shaped mineralized horizon hosting the steeply to shallowly dipping mineralized-shoots at depth. Mineralization of interest is seen for approximately 2,500 meters in length and for an estimated average vertical extension in the order of 200 meters. The reported average drilled true width of the structure is in the order of 8.9 meters. It has been interpreted that the top of the mineralized horizon at Los Gatos is generally located at an elevation of 1,400 masl.
Original exploration activities at the Esther vein system indicated the presence of a narrow quartz vein, less than one meter, with minor veining and silicification and noticeable lack of calcite. However, the presence of a small high-grade mineralized-shoot, probably 60 meters deep, attracted interest in the area. Drilling of

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TABLE OF CONTENTS

this area also resulted in the discovery of the Esther mineralized-shoot, which has a known length of 800 meters for the main mineralized-shoot, as well as up to 1,200 meters of additional mineralized vein. The height of the mineralized interval is indicated by two drill holes to be in the order of 100 meters; most mineral intersections range in the order of two meters to eight meters, with a probable average slightly over three meters. It has been interpreted that the top of the favorable horizon at Esther is generally located about 120 meters below the surface.
The Amapola deposit contains several vein systems at varying degrees of strike and dip that are the target of exploration. Currently, four of these veins comprise adequate Ag grade and thickness to be considered as mineralized material and geologically modeled. The four veins include the Albita, Elizabeth, Cascajal and Julia. The mineral resources are principally present on the Albita and Elizabeth veins, which together comprise a “corridor” of mineralization up to approximately 50 meters thick.
Sampling, Analysis and Data Verification
MPR has carried out sampling campaigns that have included surface, limited underground and core samples. Samples were taken by local crews under the supervision of either a geologist of MPR or one of their contractors. Sampling intervals were, in most cases, two meters, with local variations depending on vein geology, to a minimum of 0.8 meters where structures were found. Detailed sampling was carried out at intervals directed by geological criteria, with priority given to testing high-grade zones in the vein structures and attention also given to identifying possible mineralization in the wall rock and quartz stockwork veining.
MPR established a sampling protocol, which was followed through the drilling campaign, that in summary includes: supervision by MPR personnel, with the verification of core handling, recovery, core accommodation and depth recording by the contractor; and core collection, measurement, core recovery, photographing, specific gravity, geotechnical information and sampling interval selection by MPR geologists.
Detailed logging of the sample intervals is conducted once the core samples are sawed, with detailed descriptions and estimations of mineralogy and mineral content, hydrothermal alteration, veining and fracturing. Assay intervals are divided in two equal parts by diamond saw, with most sampling conducted on two-meter intervals, except for specific vein intervals. Vein intervals are selected for more detailed sampling, with a minimum of 0.8 meters per interval in the sample and a maximum of two meters.
Samples are collected in standard plastic sample bags and tagged with a unique sample number recorded for each interval. Samples are grouped by drill hole and transported by pickup truck to the ALS Chemex laboratories sample receiving location in Chihuahua City, Mexico. From the time the core samples leave the drill site to the time the samples are delivered to ALS Chemex, they are escorted and under the supervision of personnel from MPR.
Samples are dried, crushed and pulverized by ALS Chemex in Chihuahua City. Assay orders are delivered to the lab, and a copy of the receipt obtained is filed and registered in MPR’s database. Sample pulps are then shipped by ALS Chemex to their laboratory in Vancouver, Canada for ICP analyses of silver, base metals and trace elements using a four-acid digestion technique. Gold assays are also completed using fire assay-AA preparation on 30-gram splits of the sample material.
ALS Chemex has developed and implemented at each of its locations a Quality Management System (QMS) designed to ensure the production of consistently reliable data. As a result, the lab has received, including its sample preparation section in Guadalajara, the ISO 9001:2000 QMS registration from QMI. The ALS Laboratory Vancouver branch has also been accredited as conforming to requirements of Canadian regulations in this matter.
MPR has set up a Quality Assurance/Quality Control (QA/QC) program to monitor the drilling program at the Los Gatos District, including the use of: (1) blanks (barren silica sand or barren andesitic flow material inserted wherever the geologist deems appropriate, but no less than one for every 40 samples focused on areas of higher metal values, which could lead to contamination); (2) standards are added every 20th sample (MPR has purchased 12 different standards from Rocklabs Ltd.); and (3) duplicates are also analyzed every 50 samples (each batch) by placing two sample tickets in the same sample bag and having the lab generate two pulps of the same sample for analysis.

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It is believed that core sampling is representative of mineralized intersections, with minor variations due to irregularities in mineralization, and that the QA/QC programs established by MPR and the sampling process follow industry standards and support the estimation of mineral resource.
A review was made of available information derived from previous exploration work. This information included geological and sampling reports, drill logs, as well as assay results. Verification consisted of a general review of geological characteristics of the main mineralized areas, shown by the MPR field checking of geological maps in all areas and of sampling procedures by MPR as well as a review of all vein intersections and discussions of detailed sample handling, sampling and security procedures established by MPR. The original locations of samples reviewed were located, although most require re-painting. Tetra Tech verified several drill hole location monuments with a handheld global positioning system.
Tetra Tech has conducted sample verification to evaluate whether the samples selected by MPR for metallurgical and hardness testing were geologically representative of the material in the mine plan. The review found that: samples were well selected with respect to various grades, alterations and host rock; there was no apparent metal domaining or zoning in the deposit; and that most of the samples fall within the bulk of the grade distributions and sampling of the higher-grade material has been accounted.
Mineral Resource Estimates — CLG, Esther and Amapola Deposits
All blocks in mineral resource estimates contained in the Los Gatos Technical Report have been delineated by appropriately spaced drilling. Grade and tonnage have been estimated within a digital three-dimensional block model using the Kriging method. Mineral resources have been estimated for three individual deposit areas: the CLG, Esther and Amapola deposits. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019 and have not been updated since that time. We believe that activity at the CLG subsequent to the effective date of the mineral resource estimates would not result in a material change to the information contained in the Los Gatos Technical Report. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery.
For the CLG, a cut-off grade of 150 grams silver equivalent/tonne was estimated using generalized parameters, including the following: $40/tonne for mining costs; $20/tonne for processing costs; $4/tonne for general and administrative costs; 83% recovery at an assumed price of $18.00/oz silver; 92% recovery at an assumed price of $0.92/lb lead; and 77% recovery at an assumed price of $1.01/lb zinc. For the Esther deposit, a cut-off grade of 100 grams silver equivalent/tonne was estimated using generalized parameters, including the following: $40/tonne for mining costs; $20/tonne for processing costs; $3/tonne for general and administrative costs; 100% recovery at an assumed price of $22.30/oz silver; 95% recovery at an assumed price of $0.97/lb lead; and 88% recovery at an assumed price of $0.91/lb zinc. For the Amapola deposit, a cut-off grade of 100 grams silver equivalent/tonne was estimated using generalized parameters, including the following: $40/tonne for mining costs; $20/tonne for processing costs; $3/tonne for general and administrative costs; 100% recovery at an assumed price of $22.30/oz silver; 95% recovery at an assumed price of $0.97/lb lead; and 88% recovery at an assumed price of $0.91/lb zinc.
Projected revenues from the sale of silver, zinc and lead are based upon long-term consensus prices that were the averages of long-term forecast prices that MPR obtained from various financial institutions as of the effective dateJuly 1, 2022, which includes dilution and recovery factors.

CLG Mineral Reserve Estimates as of the respective mineral resource estimates. AsJuly 1, 2022

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Reserve

    

​

    

Ag

    

Zn

    

Pb

    

Au

    

​

    

​

​

​

    

Au

Classification

​

Mt

​

(g/t)

​

(%)

​

(%)

​

(g/t)

​

Ag (Moz)

​

Zn (Mlbs)

    

Pb (Mlbs)

​

(koz)

Proven

 

2.32

 

309

 

4.33

 

2.20

 

0.31

 

23.1

 

221.6

 

112.3

 

23.0

Probable

 

3.75

 

204

 

4.57

 

2.11

 

0.24

 

24.6

 

377.4

 

174.4

 

28.7

Proven and Probable Reserve

 

6.07

 

244

 

4.48

 

2.14

 

0.27

 

47.7

 

599.1

 

286.7

 

51.8

1.

Mineral Reserves are reported on a 100% basis and exclude all Mineral Reserve material mined prior to July 1, 2022.

2.

Specific gravity has been assumed on a dry basis.

3.

Tonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.

4.

Values are inclusive of mining recovery and dilution. Values are determined as of delivery to the mill and therefore not inclusive of milling recoveries.

5.

Mineral Reserves are reported within stope shapes using a variable cut-off basis with a Ag price of US$22/oz, Zn price of US$1.20/lb, Pb price of US$0.90/lb and Au price of US$1,700/oz. The metal prices used for the Mineral Reserves are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM.

6.

The Mineral Reserve is reported on a fully diluted basis defined by mining method, stope geometry and ground conditions.

7.

Contained Metal (CM) is calculated as follows:

oZn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6
oAg and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035 ; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)

8.

The SEC definitions for Mineral Reserves in S-K 1300 were used for Mineral Reserve classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions).

9.

Mineral Reserves are those parts of Mineral Resources which, after the application of all mining factors, result in an estimated tonnage and grade which, in the opinion of the Qualified Person(s) making the estimates, is the basis of an economically viable project after taking account of all relevant Modifying Factors. Mineral Reserves are inclusive of diluting material that will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility.

10.

Proven Reserves include a 15.4 kt stockpile at June 30, 2022. The in-situ Reserve is 6,052 kt. Rounding and significant figures may result in apparent summation differences between tonnes and grade.

11.

The Mineral Reserve estimates were prepared by Mr. Paul Gauthier, P.Eng. an employee of WSP Canada Inc. who is the independent Qualified Person for these Mineral Reserve estimates.

40

Table of the effective date of the respective mineral resource estimates, the long-term consensus prices reflected the best estimate of the sales price that may be realized in the future from the mineral resources. Gold and copper, being part of the epithermal system, are included in the Mineral Resource estimate as comparisons, however they have not been considered for purposes of determining the Ag/Eq cut-off grade since copper in the final concentrates sold would not receive any payment and gold revenue is estimated at only 2.78% of the payable metal.Contents

The tonne and grade estimates in the block model are based on drill hole assay sample intervals. The vein widths are constrained by three-dimensional solids and have not been diluted.
Sample intervals were composited to two meters, which is the mode sample length. Compositing was initiated and terminated at the top and bottom of continuous selected vein samples, resulting composites were permitted to be one to two meters in length and intervals less than one meter were rejected. As part of

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the Kriging process, composite influence was additionally weighted by interval length to provide further normalization. Compositing greater than two meters was determined not to be appropriate because three-meter composites would cause samples to be split and four-meter composites are too large to represent the vein across drip in some areas. At the Amapola deposit, ordinary Kriging was used. A single Kriging pass was made on each of the four veins and their secondary nearest neighbor. An inferred pass was only made for the Albita and Elizabeth veins. Similarly, at the Esther deposit, grade estimation was completed using ordinary Kriging. An initial Kriging pass was made on each of the three veins and followed by a secondary nearest inferred pass.
Density of each block was determined from measured density samples within the mineralized zones and Kriged as a block attribute.

The table below summarizes the mineral resource estimates at the CLG and the Esther and Amapola deposits as of December 31, 2020.

July 1, 2022.

Los Gatos District Mineral Resource Estimates Inclusive of Mineral Reserves as of December 31, 2020

​​​Category​​
Tonnes
(million;
100% basis)
​​
Tonnes
(million;
51.5% basis)
​​Ag (g/t)​​Au (g/t)​​Pb (%)​​Zn (%)​​Cu (%)​
Cerro Los Gatos Mine(1)
​​Measured​​​​5.8​​​​​3.0​​​​​324​​​​​0.39​​​​​2.9​​​​​5.8​​​​​0.11​​
​​​Indicated​​​​4.6​​​​​2.4​​​​​202​​​​​0.28​​​​​2.5​​​​​5.2​​​​​0.11​​
​​​M&I​​​​10.4​​​​​5.4​​​​​269​​​​​0.34​​​​​2.7​​​​​5.5​​​​​0.11​​
​​​Inferred​​​​3.7​​​​​1.9​​​​​107​​​​​0.28​​​​​2.8​​​​​4.0​​​​​0.14​​
Esther Deposit(2)
​​Indicated​​​​0.46​​​​​0.24​​​​​133​​​​​0.04​​​​​0.70​​​​​2.10​​​​​0.02​​
​​​Inferred​​​​2.29​​​​​1.18​​​​​98​​​​​0.12​​​​​1.60​​​​​3.00​​​​​0.05​​
Amapola Deposit(2)
​​Indicated​​​​0.25​​​​​0.13​​​​​135​​​​​0.10​​​​​0.10​​​​​0.30​​​​​0.02​​
​​​Inferred​​​​3.44​​​​​1.77​​​​​140​​​​​0.10​​​​​0.20​​​​​0.30​​​​​0.03​​
​
(1)
Based on a cut-off grade of 150 grams silver equivalent/tonne at assumed metal prices of $18.00/toz silver, $0.92/lb lead and $1.01/lb zinc; gold was not considered in silver equivalent calculation. Mineral reserve estimates and mineral resource estimates contained in the Los Gatos Technical Report have different effective dates and are based on different dilution and recovery factors and cut-off grades. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019 and include mineral reserves. We believe that activity at the CLG subsequent to the effective date of the mineral resource estimates would not result in a material change to the information contained in the Los Gatos Technical Report. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for metallurgical recovery. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.
​
(2)
Based on a cut-off grade of 100 grams silver equivalent/tonne using metal prices of $22.30/toz silver, $0.97/lb lead, and $0.91/lb zinc. The mineral resource estimates for the Esther and Amapola deposits have an effective date of December 21, 2012. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for metallurgical recovery.
​

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TABLE OF CONTENTS

The table below summarizes the mineral resource estimates exclusive of reserves at the CLG as of December 31, 2020.
CLG Mineral Resource Estimates Exclusive of Mineral Reserves as of December 31, 2020July 1, 2022

CLG Mineral Resource Estimate

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

​

    

Zn

    

Pb

    

​

    

​

​

​

​

​

​

​

Resource Classification

​

Mt

​

Ag (g/t)

​

(%)

​

 (%)

​

Au (g/t)

​

Ag (Moz)

    

Zn (Mlbs)

    

Pb (Mlbs)

    

Au (koz)

Measured

 

0.38

 

151

 

2.63

 

1.49

 

0.26

 

1.9

 

22.1

 

12.6

 

3.2

Indicated

 

1.55

 

82

 

3.11

 

1.57

 

0.17

 

4.1

 

106.4

 

53.8

 

8.6

Measured and Indicated

 

1.94

 

96

 

3.01

 

1.56

 

0.19

 

6.0

 

128.5

 

66.4

 

11.8

Inferred

 

2.09

 

113

 

4.30

 

2.45

 

0.20

 

7.6

 

198.4

 

113.1

 

13.3

​​​Category​​
Tonnes
(million;
100%
basis)
​​
Tonnes
(million;
51.5%
basis)
​​
AgEq
(g/t)
​​
Ag
(g/t)
​​
Au
(g/t)
​​
Pb
(%)
​​
Zn
(%)
​​
AgEq toz
(millions)
​​
Ag toz
(millions)
​​
Au toz
(thousands)
​​
Pb lbs
(millions)
​​
Zn lbs
(millions)
​
Cerro Los Gatos
Mine
​​Measured​​​​1.3​​​​​0.7​​​​​442​​​​​181​​​​​0.39​​​​​2.4​​​​​4.5​​​​​19​​​​​8​​​​​16​​​​​71​​​​​131​​
​​​Indicated​​​​2.2​​​​​1.1​​​​​368​​​​​139​​​​​0.23​​​​​2.1​​​​​4.2​​​​​26​​​​​10​​​​​17​​​​​101​​​​​205​​
​​​M&I​​​​3.5​​​​​1.8​​​​​395​​​​​154​​​​​0.29​​​​​2.2​​​​​4.3​​​​​45​​​​​17​​​​​33​​​​​172​​​​​337​​
​​​Inferred​​​​3.7​​​​​1.9​​​​​361​​​​​107​​​​​0.28​​​​​2.8​​​​​4.0​​​​​43​​​​​13​​​​​34​​​​​231​​​​​330​​

1.

Mineral Resources are reported on a 100% basis and are exclusive of Mineral Reserves.

2.

Mineral Resources, which are not Mineral Reserves, do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.

3.

The SEC definitions for Mineral Resources in S-K 1300 were used for Mineral Resource classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions).

4.

The quantity and grade of reported Inferred Mineral Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Mineral Resources as an Indicated or Measured Mineral Resource. It is uncertain if further exploration will result in upgrading Inferred Mineral Resources to an Indicated or Measured Mineral Resource category.

5.

Specific gravity has been assumed on a dry basis.

6.

Tonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.

7.

Mineral Resources exclude all Mineral Resource material mined prior to July 1, 2022.

8.

Mineral Resources are reported within stope shapes using a $42/tonne or $52/tonne NSR cut-off basis depending on mining method with an Ag price of $22/oz, Zn price of $1.20/lb, Pb price of $0.90/lb and Au price of $1,700/oz. The metal prices used for the Mineral Resource are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM.

9.

No dilution was applied to the Mineral Resource.

10.

Contained Metal (CM) is calculated as follows:

oZn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6
oAg and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)

11.

The Mineral Resource estimates were prepared by Ronald Turner, MAusIMM(CP) an employee of Golder Associates S.A. who is the independent Qualified Person for these Mineral Resource estimates.

Esther Mineral Resource Estimate

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​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

​

    

Zn

    

Pb

    

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​

​

​

​

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Resource Classification

​

Mt

​

Ag (g/t)

​

(%)

​

(%)

​

Au (g/t)

    

Ag (Moz)

    

Zn (Mlbs)

    

Pb (Mlbs)

    

Au (koz)

Indicated

 

0.28

 

122

 

4.30

 

2.17

 

0.14

 

1.1

 

26.8

 

13.6

 

1.2

Inferred

 

1.20

 

133

 

3.69

 

1.53

 

0.09

 

5.1

 

98.0

 

40.6

 

3.3

Resources based on a cut-off
1.Mineral Resources are reported on a 100% basis.
2.Mineral Resources, which are not Mineral Reserves, do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.
3.The SEC definitions for Mineral Resources in S-K 1300 were used for Mineral Resource classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions).
4.The quantity and grade of reported Inferred Mineral Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Mineral Resources as an Indicated or Measured Mineral Resource. It is uncertain if further exploration will result in upgrading Inferred Mineral Resources to an Indicated or Measured Mineral Resource category.
5.Specific gravity has been assumed on a dry basis.
6.Tonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.

41

Table of 150 grams silver equivalent/tonne at assumed metal prices of $18.00/toz silver, $0.92/lb leadContents

7.Mineral Resources are reported within stope shapes using a $52/tonne NSR cut-off basis assuming processing recoveries equivalent to CLG with an Ag price of $22/oz, Zn price of $1.20/lb, Pb price of $0.90/lb and Au price of $1,700/oz. The metal prices used for the Mineral Resource are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM. There is a portion of the Esther deposit that is oxidized and metallurgical test work is required to define processing recoveries.
8.No dilution was applied to the Mineral Resource.
9.Contained Metal (CM) is calculated as follows:
oZn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6
oAg and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035 ; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)
10.The Mineral Resource estimates were prepared by Ronald Turner, MAusIMM(CP) an employee of Golder Associates S.A. who is the independent Qualified Person for these Mineral Resource estimates.

​

Internal Controls

Exploration and $1.01/lb zinc; gold was not considered in silver equivalent calculation. Mineral reserve estimatesdevelopment drilling programs are performed using industry-standard quality control methods for drilling, sampling, and mineral resource estimates contained in the Los Gatos Technical Report have different effective datesanalytical procedures. Standard operating procedure manuals for geology logging, sampling, and assaying are based on different dilution and recovery factors and cut-off grades. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019. We believe that activitykept at the CLG subsequentoperations and updated as required. A secure sample chain-of-custody is established to promote the security of samples during transport from the projects to the effective dateanalytical facilities. Sample preparation and analytical procedures are industry-standard methods for the metals of interest.

Sample batches sent for analysis are controlled by a system of reference samples of known grade inserted into the sample stream and other control samples. Coarse and fine ‘blank,’ sterile, sample materials are used to monitor contamination at the sample preparation and analytical stages; Standard Reference Materials (“SRM”) of known grades are used to measure accuracy of the mineral resource estimates would notanalytical results; and pulp duplicate samples and field duplicate samples are used to monitor precision of the analytical results. Blanks and SRM are inserted according to the analytical batch size and overall number of samples but normally result in a material change1:10 to the information contained in the Los Gatos Technical Report. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for metallurgical recovery. Reserves are based on a $75 NSR cut off value. NSR is defined as revenue per tonne mined less the sum of concentrate refining, treatment and transportation costs per tonne mined. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report. The mineral reserve estimates for the Cerro Los Gatos Mine reflect diluted grades with adjustment for metallurgical recovery.

The material assumptions for the mineral resource estimates at the CLG include (i) resource estimation completed by Tetra Tech in MicroMine mining software using drill hole data provided by MPR, (ii) usage of histograms and probability plots to determine where high-grade distribution tails became unsupported or deviated from lognormal and application of upper limits for grade capping, (iii) compositing sample intervals to two meters to match the mode sample length, (iv) using geological modeling and vein modeling, (v) using specific gravity measurements and (vi) no dilution being accounted for in the mineral resource estimates. See Section 14.1 of the Los Gatos Technical Report. The material assumptions for the mineral resource estimates at the Amapola deposit include (i) resource estimation completed by Tetra Tech in MicroMine software technology using drill hole data provided by MPR, (ii) using ordinary Kriging, with a single Kriging pass being made on the four veins of the Amapola deposit and a secondary nearest neighbor inferred pass made only for two of the veins and (iii) using specific gravity measurements to estimate vein density. See Section 14.2 of the Los Gatos Technical Report. The material assumptions for the mineral resource estimates at the Esther deposit include (i) resource estimation completed by Tetra Tech in MicroMine software technology using drill hole data provided by MPR, (ii) using ordinary Kriging, with a single Kriging pass made on each of the three veins of the Esther deposit followed by a secondary nearest neighbor inferred pass and (iii) using specific gravity measurements to estimate vein density. See Section 14.3 of the Los Gatos Technical Report.
The CLG mineral resource estimates inclusive and exclusive of mineral reserves as of December 31, 2019 are substantially similar as those set forth in the tables above as of December 31, 2020. On September 1, 2019, the LGJV commenced commercial production. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019 and have not been updated since that time. We believe that activity at the CLG subsequent to the effective date of the mineral resource estimates would not result in a material change to the information contained in the Los Gatos Technical Report. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent

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to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.
We are unaware of any title, taxations, socio-economic, marketing, political or other relevant factors that could materially affect this mineral resources estimate.
Mineral Reserve Estimates — CLG
The mineral reserve estimates contained in the Los Gatos Technical Report include the portion of the measured and indicated resource that can be mined economically. Economic criteria and mining constraints (based on the selected mining methods) are applied to the resource blocks to define mineable blocks. Mineral reserves are determined after applying dilution and recovery factors to these mineable blocks.
Mineral reserve estimates are calculated from the mine plan created from the September 2019 resource update. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.
The table below shows the reconciliation of mined tonnage and grades to the modeled reserve depletion through December 31, 2020, with differences resulting primarily from different sequencing of stopes and variances in ore tonnes:
​​​Tonnes​​Au (g/t)​​Ag (g/t)​​Pb (%)​​Zn (%)​
Production Statistics​​​​1,019,603​​​​​0.42​​​​​240.27​​​​​2.71​​​​​3.63​​
Modelled Reserve Depletion​​​​1,065,883​​​​​0.47​​​​​244.59​​​​​1.85​​​​​3.27​​
A cut-off grade of $75/tonne NSR value was used to calculate reserves. Projected revenues from the sale of silver, gold, zinc and lead are based upon long-term consensus prices of $18.99/oz silver, $1,472/oz gold, $0.87/lb lead and $1.09/lb zinc. These prices were the averages of long-term forecast prices that MPR obtained from nine financial institutions. As of the effective date of the mineral reserve estimates, the long-term consensus prices reflected the best estimate of the sales price that may be realized in the future from the mineral reserves. See Section 21 of the Los Gatos Technical Report.
We are unaware of any title, taxation, socio-economic, marketing, political or other relevant factors that could materially affect this mineral reserve estimate.
The table below summarizes the mineral reserve estimates at the CLG as of December 31, 2020, which includes dilution and recovery factors.
CLG Mineral Reserve Estimates as of December 31, 2020
Zone​​Category​​
Tonnes
(millions;
100% basis)
​​
Tonnes
(millions;
51.5% basis)
​​Ag (g/t)​​Au (g/t)​​Pb (%)​​Zn (%)​
Northwest Zone​​Proven​​​​2.6​​​​​1.3​​​​​359​​​​​0.43​​​​​3.09​​​​​5.88​​
​​​Probable​​​​0.5​​​​​0.3​​​​​333​​​​​0.34​​​​​2.86​​​​​5.88​​
Central Zone​​Proven​​​​3.8​​​​​1.9​​​​​314​​​​​0.31​​​​​2.55​​​​​5.32​​
​​​Probable​​​​1.8​​​​​0.9​​​​​299​​​​​0.44​​​​​2.32​​​​​5.82​​
Southeast Zone​​Proven​​​​0.0​​​​​0.0​​​​​148​​​​​0.16​​​​​3.69​​​​​7.23​​
​​​Probable​​​​0.6​​​​​0.3​​​​​148​​​​​0.16​​​​​3.69​​​​​7.23​​
Southeast Zone Block 2​​Probable​​​​0.4​​​​​0.2​​​​​118​​​​​0.17​​​​​3.11​​​​​4.16​​
Total (Proven)​​​​​​​6.4​​​​​3.3​​​​​332​​​​​0.36​​​​​2.77​​​​​5.55​​
Total (Probable)​​​​​​​3.3​​​​​1.7​​​​​254​​​​​0.34​​​​​2.74​​​​​5.86​​
Total (Proven & Probable)​​​​​​​9.6​​​​​5.0​​​​​306​​​​​0.35​​​​​2.76​​​​​5.65​​

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Reserves based on a $75 NSR cut-off value. NSR is defined as revenue per tonne mined less the sum of concentrate refining, treatment and transportation costs per tonne mined. The mineral reserve estimates for the CLG reflect diluted grades with adjustment for metallurgical recovery. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.
Proven reserves exceed measured resources as a result of the different dilution and recovery factors and cut-off grades being used for mineral reserve estimates compared to mineral resource estimates. Mineral reserve estimates have an effective date of July 1, 2020, account for dilution and recovery factors and are based on a cut-off grade of $75/tonne NSR. In contrast, mineral resource estimates for the CLG have an effective date of September 6, 2019, are presented on an undiluted basis without adjustment for mining recovery and are based on a cut-off grade of 150 grams silver equivalent/tonne.
The material assumptions for the mineral reserve estimates at the CLG include (i) assigning NSR values to the block model, (ii) using a dilution strategy developed by a geomechanical consultant, (iii) application of mining recovery factors, including stope recovery and drift-and-fill recovery and (iv) application of dilution and recovery factors to stope tonnage and using Deswik scheduling software to develop a LOM development and production schedule. See Section 15 of the Los Gatos Technical Report.
The CLG mineral reserve estimates as of December 31, 2019 are substantially similar as those set forth in the tables above as of December 31, 2020. On September 1, 2019, the LGJV commenced commercial production. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.
Mineral Processing and Metallurgical Testing
The CLG is a silver-lead-zinc deposit with relatively complex mineralogy. Upon review of the metallurgical testing data, it was clear that the CLG mineralization responded well to a conventional sequential silver-lead-zinc flotation processing. Zinc rougher flotation tailings and zinc first cleaner scavenger tailings are combined to become the final tailings. Tailings thickener underflow (100%) is pumped to a cyanide destruction facility. Currently, all tailings are disposed of in the tailings storage facility. Once the backfill plant is in operation, and after detox, 40% of final tailings will be pumped to the backfill plant and the remaining 60% will be pumped to the tailings storage facility. Operational results have indicated that additional removal of fluorine will be required. Additional floatation cells have been added to the lead and zinc circuits, with a goal of reducing the fluorine in the final concentrates.
The expected grades and recoveries for lead, zinc, and silver to individual flotation concentrates were further investigated by a pilot plant program at SGS Lakefield using a sample composed of a bulk sample accessed by an underground decline into the orebody. The results of that program are being finalized but preliminary indications generally support the study grade and recovery estimates provided herein.
Positive lead and silver flotation results were achieved from the SGS Vancouver Metallurgical Lab. The final lead cleaner concentrates of the locked cycle tests averaged 60.9% lead at 5,404 g/t silver at average recoveries of 89% lead and 68.7% silver. The zinc cleaner concentrates averaged 54.2% at an average recovery of 66.0% due to the high willemite content.
Mining Operations
The underground mine design supports a steady-state production rate of 2,500 tpd of ore. As of the effective date of the Los Gatos Technical Report, over the life of the mine, the mine is projected to produce 81 million ounces of silver, 69 thousand ounces of gold, 878 million pounds of zinc, and 499 million pounds of lead in concentrate. The sequence of mining began with the Central Zone, which had already been accessed via the existing decline developed down to the 1400 Level. The bulk of the Central Zone will

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be mined using the drift-and-fill method, as the dips, widths and thicknesses of the vein structures are amenable to this mining method.
The Northwest Zone is being mined concurrently with the Central Zone via longhole stoping methods with sublevels developed at 1:20 meter vertical intervals. Portions of the Northwest Zone that are thicker than nine meters (footwall to hanging wall) will be mined using transverse longhole mining. Areas that are less than nine meters in width will be mined using longitudinal longhole mining. In the Central Zone, operations confirmed that backfill deficiencies caused unstable conditions on the hanging-wall zone, as it was experienced in stope 625, where the stability problems created blocks causing the support to yield. The predicted conditions in this zone have been accurate. In the Northwest Zone, the operating geotechnical conditions have been better than the anticipated conditions. This has allowed the excavation of bigger dimensions in the stope length (more than 12 meters), and the planned activities have considered excavating more in the vertical dimension of the stope (25 meters height). Some of the stability problems found in this zone are mainly due to drilling deficiencies, which have reached areas near the hanging-wall fault zone. The 3D modeling of the Southeast Zone did not identify any issues except for potential hanging wall failure.
Modern trackless mobile equipment is being employed for most mining activities. Load-Haul-Dump (“LHD”) trucks and dedicated underground trucks are used for ore/waste loading and transport from the underground workings through an internal ramp system and portal that connects all levels to surface. Ongoing waste development to sustain the 2,500 tpd production rate averages approximately 211 meters/month during the production period.
Based on the deposit geometry and anticipated geomechanical conditions, underground mining of the CLG resource will incorporate both longhole and drift-and-fill mining methods. The existing exploration decline from surface will be extended to provide primary access and delivery of services. The ramp will also be used for haulage of ore and waste from the underground operations.
Processing and Recovery Operations
The processing facility is designed to treat 2,500 tpd of silver, lead and zinc material at an operational availability of 92%. The processing flow sheet for the project is a standard flow sheet commonly used in the mining industry, including conventional flotation recovery methods typical for lead-zinc material. The production plant has been constructed and adjustments will continue to optimize performance. Additional flotation cells have been installed to remove fluorine from the concentrates.
Run-of-mine (“ROM”) material is crushed in a primary jaw crusher located near the underground mine portal. It is then conveyed to the processing facilities where it is ground to 80% finer than 45 microns in a semi-autogenous grinding and ball milling circuit. The ore is further processed in a flotation circuit, consisting of lead flotation followed by zinc flotation. The majority of the silver will be recovered in the lead flotation circuit and some silver will also be collected in the zinc flotation circuit. Lead sulfide is recovered in a rougher flotation bank, producing a concentrate that is then upgraded to smelter specifications in three stages of cleaning. Tails from the lead flotation section is then conditioned for zinc sulfide flotation. The process scheme for zinc flotation also includes a rougher bank and five stages of cleaning to produce smelter-grade zinc concentrates. For both lead and zinc sections, the rougher flotation concentrates are reground to 80% finer than 25 microns prior to cleaner flotation to liberate the sulfides for further upgrading. An additional deep-froth flotation cell has been added to the zinc circuit, and one additional deep-froth flotation cell has been added to the zinc and lead circuits during 2020, to remove more fluorine, a deleterious mineral for sales. Both final lead and zinc concentrates are thickened, filtered and stored in concentrate storage facilities prior to being loaded in trucks for shipment.
Infrastructure, Permitting and Compliance Activities
In addition to the recently constructed CLG processing plant and other facilities, we have a field camp located in nearby San José del Sitio, a community of approximately 264 persons, with electrical and water services, an elementary school and basic health services. Water resources in the region are mostly related to the Conchos River Basin, which includes the San Pedro, San Francisco de Borja and Satevó River Sub-Basins. Locally, there are significant amounts of water, with shallow groundwater recorded from most exploration drilling conducted by us.

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Underground development of the CLG commenced in 2015 and surface infrastructure development commenced in 2017. All significant surface infrastructure was completed in mid-2019 and the CLG commenced production of lead and zinc concentrates on September 1, 2019. The CLG processing plant is currently designed for 2,500 tpd capacity and the grinding circuit was engineered for expansion to 3,000 tpd in the future.
The CLG is located in the Municipality of Satevó, Chihuahua, Mexico, approximately 160 kilometers southwest of the state capital of Chihuahua City and approximately 8 kilometers west of San José del Sitio, Chihuahua. The access road from Chihuahua, Mexico is newly paved. A portion of the road from San José del Sitio was rerouted to the mine site to minimize interference with the stream that runs near the mine property.
Construction of required infrastructure has been completed, including administration offices, mine dry, fuel storage, mine maintenance shop, jaw crushing station, dome-covered crushed ore stockpile, process plant (including grinding circuit, flotation circuit, concentrate and tailing thickeners, concentrate loadout and tailings detoxification), tailing storage facility, electrical substation, 66 kilometers of power line connecting high voltage to the grid substation at San Francisco de Borja, assay lab, mill maintenance, dewatering wells and water cooling and distribution system, and residential camps and associated infrastructure.
The camps consist of structural steel pre-engineered buildings capable of housing over 350 people. The camps include kitchen and cafeteria, laundry, infirmary, and other buildings required to maintain this facility. Emergency power is provided for in the camp to deliver 100% backup in the event of a power outage.
The entire project is served by satellite-dish based internet and telephone communications.
Power to the site is supplied via a 115 kV utility transmission line. This originates from the San Francisco de Borja substation in Satevó (Chihuahua), where a 115 kV connection has recently been installed.
All raw water to meet potable and non-potable water demand is supplied by groundwater pumped from dewatering wells. The well water is cooled from 50°C to 40°C prior to use. Sewage water treatment systems were included to handle waste as required on the project.
Storage and management of landfill disposal is housed in a single building, separated into two zones — one for non-hazardous waste and a second zone for hazardous waste. The hazardous waste is to be collected and disposal by a certified and authorized company per Mexican regulations.
In 2008, we negotiated surface access rights with local ranch owners and obtained environmental permits for drilling. In April 2012, we entered into a mine and land access agreement with the local community, the Ejido La Esperanza (the “Ejido”), which provides annual land access with a renewal fee of $11,200. We also maintain an easement contract for 30 years with the Ejido for the access road to the mine.
On December 12, 2016, MPR submitted an environmental impact statement to the Mexican Secretary of Environment and Natural Resources, which regulates the environmental aspects of mining projects and issued the permits once such statement is approved. The statement was approved in 2017. We also received approval for the permits for land use, authorization and approval for initiation of construction of mining workings and infrastructure and official alignment and number from the Municipality of Satevó, Chihuahua in June and July of 2018. In May 2019, we received approval for Environmental Unique License for the production of 2,500 tpd.
On July 17, 2017, the Mexican Secretary of Environment and Natural Resources approved a mining exploitation project in Satevó, Chihuahua to develop work and activities (site preparation, construction, operation and others) needed to mine and explore the area. The authorized permit period is for 24 years ending July 17, 2041, with the possibility to extend for a similar period. Additionally, on September 4, 2017, we received the permitting to develop, construct and operate a project named Línea Eléctrica 115 KV Los Gatos, which consists of opening an 18-meter wide corridor over 58.0 kilometers. This project affects an area of 105 hectares to support the power lines in the municipalities of San Francisco de Borja and San Javier Satevó, Chihuahua. The authorized permit period is until September 4, 2037. We also received the relevant change of land use permitting to remove forest vegetation and fertile soil in an area of 390.6972 hectares to

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prepare the site and construct the infrastructure required for the mining exploitation of the Los Gatos project which expires November 1, 2020, with the option to extend.
We are committed to safety at the CLG. The CLG is built to higher environmental standards than required by Mexican law, with a fully-lined tailings impoundment facility and enclosure of the conveyors and ore storage dome. We also use state-of-the-art rescue capsules to hoist personnel to surface. Our cumulative injury frequency rate at the CLG has consistently been below the annual U.S. MSHA Lost Time Injury Frequency Rate.
Capital and Operating Costs
All costs and economic results are presented in U.S. dollars. Quantities and values are presented using standard metric units unless otherwise specified. No escalation has been applied to capital or operating costs. Financing costs have not been included in the analysis. Capital and operating cost estimates have an accuracy level of ±15%, and, given that the mine is currently in production, capital and operating cost estimates have a contingency of 0%. See Section 21.3 and Section 21.4 of the Los Gatos Technical Report.
The economic analysis contained in the Los Gatos Technical Report is presented on an unlevered, post-tax, present value basis and has an effective date of July 1, 2020. For a discussion of the mineral resource estimates and mineral reserve estimates contained in the Los Gatos Technical Report, see “— The Los Gatos District — Mineral Resource Estimates — CLG, Esther and Amapola Deposits” and “— The Los Gatos District — Mineral Reserve Estimates — CLG.” Technical economic tables and figures presented in this Report require subsequent calculations to derive subtotals, totals, and weighted averages. Such calculations inherently involve a degree of rounding, which are not considered to be material.
Per the Los Gatos Technical Report, LOM sustaining capital cost requirements are estimated to be $267,000 thousand. Initial capital of $315,600 thousand was required to commence operations and construction was completed on time and on budget. Capital cost estimates used MPR-provided database information for mine and surface infrastructure, process plant and infrastructure, tailings storage facility, waste rock storage facility, water management, environmental, reclamation and owner’s cost.
Description​​Units​​
Sustaining
Capital
​
Direct Costs​​​​​​​​​​​​​
Mine & Surface Infrastructure​​​$000s​​​​​266,398​​
Direct Costs​​​$000s​​​​​266,398​​
Indirect Costs​​​​​​​​​​​​​
Mine & Surface Infrastructure​​​$000s​​​​​932​​
Indirect Costs​​​$000s​​​​​932​​
Total Sustaining Capital​​​$000s​​​​​267,330​​
LOM operating costs are based on current operations and are summarized in the table below. The mine operating cost estimate includes all sill development, stope production, and drift-and-fill production and associated indirect costs. Operating costs include all labor, material, mobile and fixed equipment operating, and power consumption costs.
Description​​
Unit Cost
($/meter)
​​
Unit Cost
($/t-milled)
​
Mine, Surface and G&A​​​​26.47​​​​​83.58​​
LOM Operating​​​​—​​​​​83.58​​
Economic Analysis
The economic analysis contained in the Los Gatos Technical Report is presented on an unlevered, post-tax, present value basis and has an effective date of July 1, 2020. For a discussion of the mineral resource estimates and mineral reserve estimates contained in the Los Gatos Technical Report, see “— The Los Gatos

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District — Mineral Resource Estimates — Cerro Los Gatos Mine, Esther and Amapola Deposits” and “— The Los Gatos District — Mineral Reserve Estimates — Cerro Los Gatos Mine.” For a discussion of the assumed capital and operating costs in the Los Gatos Technical Report, see “— The Los Gatos District — Capital and Operating Costs.”
The results of the economic analysis are summarized below:
Economic Analysis Results
​Mine Life​​years​​​​11​​
​Ore Tonnage​​kt​​​​9,618​​
​​​
Average Grade
Processed
​​​​​​​​Life-of-Mine Payable Production​​
Avg. Annual
PayableProduction
(51.5% basis)
​
​​​(100% basis)​​(51.5% basis)​​(100% basis)​
Production Statistics​​​​​​​​​​​​​​​​​​​
Silver​​305 g/t​​72.0 Moz​​37.1 Moz​​6.5 Moz​​3.4 Moz​
Zinc​​5.7%​​679 Mlb​​350 Mlb​​62 Mlb​​32 Mlb​
Lead​​2.8%​​442 Mlb​​228 Mlb​​40 Mlb​​21 Mlb​
Gold​​0.35 g/t​​45.5 Koz​​23.4 Koz​​4.1 Koz​​2.1 Koz​
Silver Equivalent​​642 g/t​​134.7 Moz​​69.4 Moz​​12.2 Moz​​6.3 Moz​
Life-of-Mine Cost Metrics​​​​​​​​​​​​​​​​​​​
Total Sustaining Capital Costs​​$ millions​​​$267​​​​​​​​​​​
Operating Costs​​$/t-milled​​​$83.58​​​​​​​​​​​
TC / RC, Penalties and Freight
Costs
​​$/mt​​​$51.90​​​​​​​​​​​
Royalties​​$/mt​​​$1.50​​​​​​​​​​​
Life-of-Mine By-Product Costs​​​​​​​​​​​​​​​​​​​
AISC​​$/oz Ag​​​$5.47​​​​​​​​​​​
Life-of-Mine Co-Product Costs​​​​​​​​​​​​​​​​​​​
AISC​​$/oz AgEq​​​$11.77​​​​​​​​​​​
Project Economics​​​​​​​​​​​​​​​​​​​
NPV (post-tax; 5.0%)​​$ millions​​​$653​​​​​​​​​​​
Silver equivalent and by-product credits calculated using LOM average prices of $18.99/oz silver, $1,472/oz gold, $0.87/lb lead and $1.09/lb zinc. The economic analysis contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.
Exploration, Development, and Production
Concentrate production is currently achieving quality specifications and expected grades. The CLG is expected to produce, on average, 12.2 million payable silver equivalent ounces annually through the existing mine life (or 6.3 million payable silver equivalent ounces annually on a 51.5% basis), with an attractive, low-cost AISC profile. In addition to the goal of achieving the plant’s 2,500 tpd design capacity, we intend to complete a feasibility study, prepared in accordance with the SEC Mining Modernization Rules and NI 43‑ 101, to expand the CLG production rate to 3,000 tpd. If feasible, we expect the LGJV to complete the expansion within the next three to four years.
We believe there is widespread mineralization potential beyond the CLG, the Esther and Amapola deposits and the 11 other mineralized zones, as more than 85% of the land position has yet to be drilled.

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Location of the Cerro Los Gatos District
[MISSING IMAGE: tm211482d1-map_gatosdis4clr.jpg]
The current resources are significant, but we believe that additional resource potential remains in the immediate area. Drill testing of other high-priority targets within the Los Gatos District has been relatively limited given our focus on delineation of reserves at, and construction of, the CLG. As a result, the highly prospective Los Gatos District remains underexplored. Drilling at the Esther deposit to date has demonstrated good grade continuity along the system and characteristics similar to that identified during preliminary work at the CLG. Following potentially positive results from infill drilling at the Esther and Amapola deposits, we expect to update the resources and perform a scoping study to determine if these two deposit areas could generate economic production, representing further upside potential for the broader Los Gatos District.
We expect to perform additional definition drilling to expand the Southeast and Northwest zones of the CLG and to perform additional drilling to expand the Esther and Amapola deposits, which remain open to extensions at depth. In addition to the CLG, the Esther deposit and the Amapola deposit, we have identified 11 other mineralized zones defined by high-grade drill intersections in the Los Gatos District. Grade intercepts from such mineralized zones are shown below.

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Mineralized Zones Grade Intercepts
Mineralized Zones​​Length (m)​​Ag (g/t)​​Pb (%)​​Zn (%)​
Boca de Leon​​​​2.2​​​​​90.6​​​​​5.0​​​​​0.8​​
Cieneguita​​​​1.3​​​​​62.4​​​​​5.4​​​​​0.9​​
El Lince​​​​4.0​​​​​62.2​​​​​0.0​​​​​0.1​​
El Rodeo​​​​0.8​​​​​61.5​​​​​3.4​​​​​4.0​​
La Paula​​​​4.0​​​​​180.0​​​​​0.1​​​​​0.1​​
Los Torunos​​​​1.8​​​​​34.2​​​​​2.6​​​​​0.9​​
Mezcalera​​​​2.0​​​​​59.4​​​​​0.1​​​​​0.1​​
San Agustin​​​​1.3​​​​​148.0​​​​​1.2​​​​​2.3​​
San Luis​​​​2.0​​​​​271.0​​​​​0.3​​​​​0.1​​
The table above does not include Ocelote and Wall-E/Ava zones, as they do not have sufficient drilling.
Subject to financing, our objectives at the Los Gatos District are to, among other things:
•
perform additional in-fill and expansion drilling to further define and expand mineralization at the Esther and Amapola deposits;
​
•
study the feasibility of expanding production at the CLG from 2,500 tpd to 3,000 tpd;
​
•
conduct social, environmental and technical work on the property with the objective of completing a scoping study on the Esther and Amapola deposits;
​
•
expand the exploration drilling program on the Esther deposit, the Amapola deposit and the other 11 mineralized zones within the Los Gatos District; and
​
•
continue to expand the LGJV’s interest in prospective mineral and surface rights.
​
Internal Controls
Quality assurance at the CLG and the Los Gatos District involves the use of standard practice procedures for sample collection and includes oversight by experienced geological staff during data collection. Certain quality control measures for sample analysis include in-stream sample submittal of standard reference material, blank material and field duplicate sampling. For data verification, staff members observed drill hole locations and orientations, inspected drill cores and compared to logs and analytical results, observed core intake, visited outcrops and discussed with on-site geologists, including reviewing working maps and cross-sections. Inherent risks in quality control include potential sample contamination, among others.

Item 3.  Legal Proceedings

We are, from time to time, involved in legal proceedings of a nature considered normal to our business. We believe that other than as set out below in this Item none of the litigation in which we are currently involved, or have been involved since the beginning of our most recently completed financial year, individually or in the aggregate, is material to our consolidated financial condition, cash flows or results of operations. See Note 10 — Commitments, ContingenciesHowever, there can be no assurance as to the outcome of any such legal proceedings, and Guaranteesdevelopments with respect to ongoing legal or regulatory proceedings or new litigation, investigations, regulatory proceedings or other matters may in the future adversely impact our consolidated financial condition, cash flows or results of operations.

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 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 included in “Item 8. Financial Statements and Supplementary Data” for additionaland/or omitted certain material information regarding the mineral resources and reserves at the Cerro Los Gatos 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 Court ordered that it would postpone a ruling on defendants’ motion to dismiss until on or after June 16, 2023.

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On June 13, 2023, we 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 have agreed to resolve the U.S. Class Action for a payment by us and our assessmentinsurers of contingencies related$21.0 million to legal matters.

a settlement fund. We are in the process of finalizing the amount of expenses incurred that are covered under the directors’ and officers’ insurance policy which will be deducted from the $10.0 million retention held by the Company. We expect to fund no more than $7.9 million of the settlement, with the balance of the settlement payment to be paid by insurance. We and the other defendants will not admit any liability as part of the settlement. Since the settlement of the U.S. Class Action is subject to conditions, there can be no assurance that the U.S. Class Action will be finally resolved pursuant to the agreement in principle that has been reached.
​

By Notice of Action issued February 9, 2022 and subsequent Statement of Claim dated March 11, 2022 Izabela Przybylska commenced a putative class action against the Company, certain of its former officers and directors, 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 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. The plaintiff filed motion materials for leave to proceed in respect of her statutory claims and for class certification on March 3, 2023, which materials were amended and filed on May 1, 2023. The court has tentatively set dates in late March of 2024 for the hearing of the plaintiff’s motions.

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 us.

​

Item 4.  Mine Safety Disclosures

The provisions related to Item 4 are currently inapplicable to the Company as we have no operating properties in the United States.

​

Information pertaining to mine safety matters or other regulatory matters is reported in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K in Exhibit 95.1 attached to this Form 10-K.

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PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol “GATO”and began trading on October 28, 2020.

.

Holders

On March 23, 2021,June 21, 2023, there were 59,409,05269,162,223 outstanding shares of the Company’s common stock which were held by approximately 4838 stockholders of record. The actual number of holders of the Company’s common stock is greater than the number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers or other nominees. The number of holders of record present here also do not include stockholders whose shares may be held in trust by other entities.

Securities Authorized for Issuance Under Equity Compensation Plans
The Company has an equity compensation plan under which options and shares of the Company’s common stock are authorized for grant or issuance as compensation to eligible employees, consultants, and members of the Board of Directors. The Company’s stockholders have approved these plans. Please refer to Note 8 — Stockholders’ Equity in the Company’s consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” for further information about the material terms of the Company’s equity compensation plans. The following table is a summary of the shares of common stock authorized for issuance under equity compensation plans as of December 31, 2020:
​​​(a)​​(b)​​(c)​
Plan Category​​
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
​​
Weighted-average
exercise price of
outstanding options,
warrants and rights
​​
Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
​
Equity compensation plans not approved
by security holders:
​​​​—​​​​​—​​​​​—​​
Equity compensation plans approved by security holders:​​​​​​​​​​​​​​​​​​​
Equity Incentive Compensation
Plan(1)
​​​​​​​​​​​​​​​​​​​
Deferred stock units(2)
​​​​182,714​​​​​N/A​​​​​​​​
Stock options(3)
​​​​5,455,606​​​​$12.48​​​​​​​​
Total for Equity Incentive Compensation
Plan
​​​​5,638,320​​​​$—​​​​​9,361,680​​
​
(1)
In October 2020, the Board of Directors approved the Amended and Restated Long-Term Incentive Plan to authorize the issuance of stock options, stock appreciation rights, stock awards, deferred stock units, cash awards and performance awards to NEOs, other employees, consultants and non-employee directors.
​
(2)
DSUs do not have exercise prices associated with them, but rather a fair value that equaled the Company’s common stock fair value on grant date. The weighted-average per unit fair value for the outstanding DSUs is $9.43.
​
(3)
The Company’s stock options have a contractual term of 10 years and entitle the holder to purchase one share of the Company’s common stock.
​

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Dividends

The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain earnings for use in its operations and expansion of its business. Payment of any dividends will depend upon the Company’s future earnings, if any, the Company’s financial condition, and other factors as deemed relevant by the Company’s Board of Directors.

Pursuant In addition, our Credit Facility contains, and any of our future contractual arrangements may contain, restrictions on our ability to the priority distribution agreement, the LGJV is required to deposit allpay cash dividends or distributions, other than management feeson our capital stock.

Securities Authorized for Issuance Under Equity Compensation Plans

The Company has an equity compensation plan under which options and partner expense reimbursements, into an escrow account until an aggregate amount equal to $20 million has been deposited into such account for the benefit of Dowa as a priority dividend. Following the payment of $20 million to Dowa, dividends from LGJV will be paid in accordance with the ownership percentageshares of the LGJV.Company’s common stock are authorized for grant or issuance as compensation to eligible employees, consultants, and members of the Board of Directors. The Company’s stockholders have approved these plans. The following table is a summary of the shares of common stock authorized for issuance under equity compensation plans as of December 31, 2022:

​

​

​

​

​

​

​

​

​

    

(a)

    

(b)

    

(c)

​

​

​

​

​

​

​

Number of securities

​

​

​

​

​

​

​

remaining available for

​

​

Number of securities to

​

Weighted-average

​

future issuance under equity

​

​

be issued upon exercise

​

exercise price

​

compensation plans

​

​

of outstanding options,

​

of outstanding options,

​

(excluding securities

Plan Category

​

warrants and rights

​

warrants and rights

​

reflected in column (a))

Equity compensation plans not approved by security holders:

 

—

 

​

—

 

—

Equity compensation plans approved by security holders:

 

  

 

​

  

 

  

Equity Incentive Compensation Plan(1)

 

  

 

​

  

 

  

Deferred stock units(2)

 

146,796

 

​

N/A

 

  

Stock options(3)

 

1,733,923

​

$

12.57

 

  

Performance share units(4)

​

42,893

​

​

N/A

​

​

Total for Equity Incentive Compensation Plan

 

1,923,612

​

$

—

 

12,314,203

(1)In October 2020, the Board of Directors approved the Amended and Restated Long-Term Incentive Plan (“LTIP”) to authorize the issuance of stock options, stock appreciation rights, stock awards, deferred stock units, cash awards and performance awards to NEOs, other employees, consultants and non-employee directors.
(2)DSUs do not have exercise prices associated with them, but rather a fair value that equaled the Company’s common stock fair value on grant date. The weighted-average per unit fair value for the outstanding DSUs is $10.88.
(3)The Company’s stock options have a contractual term of 10 years and entitle the holder to purchase one share of the Company’s common stock.

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Unregistered Sales of Equity Securities

All unregistered sales of equity securities during

During the year ended December 31, 20202022, the Company did not issue any shares of its common stock or other equity securities that were reported in the Company’s Current Report on Form 8-K filed with the SEC on October 30, 2020.

Use of Proceeds
On October 27, 2020, the SEC declared effective the Company’s registration statement on Form S-1 (No. 333-249224), as amended, filed in connection with the Company’s IPO. There has been no material change in the planned use of proceeds from the IPO as described in the Company’s final prospectus, filed with the SEC on October 29, 2020 pursuant to Rule 424(b)not registered under the Securities Act.
Act of 1933, as amended.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

During the quarteryear ended December 31, 2020,2022, there were no purchases made by or on behalf of the Company or any affiliated purchaser of the Company’s common stock.

​

Item 6.  [Reserved]

Not applicable.

​

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” and the other information included elsewhere in this Report.

Overview

We are a U.S.-basedCanadian-headquartered, Delaware-incorporated precious metals production,exploration, development and explorationproduction company with the objective of becoming a premierleading silver producer. Our primary efforts are focused on the operation of the LGJV in Chihuahua, Mexico. The LGJV was formed on January 1, 2015, when we entered into the Unanimous Omnibus Partner Agreement with Dowa to further explore, and potentially develop and operate mining properties within the LGD. The LGJV Entities own certain surface and mineral rights associated with the LGD. The LGJV ownership is currently 70% Gatos Silver and 30% Dowa. On September 1, 2019, the LGJV commenced commercial production at CLG, which produces a silver containing lead concentrate and zinc concentrate. We are currently focused on the production and continued development of the CLG and the further exploration and development of the Los LGD.

2022 Key Highlights

Gatos District:Silver

●Net income increased to $14.5 million or $0.21 per share (basic and diluted) for 2022, up from a net loss of $65.9 million or ($1.03) per share basis (basic and diluted) incurred in 2021;
●The LGJV paid dividends to its partners totaling $55 million during 2022, of which the Company’s share was $29.2 million, net of withholding taxes and after the initial priority distribution payment to Dowa;
●On December 19, 2022, we entered into an amended and restated Credit Facility with BMO extending the maturity date and re-establishing a credit limit of $50 million, with an accordion feature;
●During December 2022, we repaid $4.0 million of the Credit Facility, reducing the outstanding balance to $9.0 million with $41.0 million available for drawdown in the future; and
●We relocated our corporate office to Vancouver, British Columbia, and strengthened the executive management team with the appointments of a new Chief Financial Officer, a General Counsel and a Senior Vice President, Corporate Development and Technical Services, all with extensive experience working for multi-mine companies.

LGJV (100% basis)

●Net income of $72.2 million in 2022, down 8% from $78.6 million in 2021, primarily due to higher income taxes;
●Cash flow from operations of $157.4 million in 2022, up 31%to from $119.8 million in 2021;
•
The CLG, located within the Los Gatos District, Chihuahua, Mexico, consists of a 2,500 tpd polymetallic mine and processing facility that commenced concentrate sales on September 1, 2019.

For the year ended December 31, 2020, the CLG mined 652,739 tonnes and processed 667,422 tonnes at average grades of 229 g/t silver, 0.42 g/t gold, 2.27% lead and 3.64% zinc, with metallurgical recovery of 84.1% silver, 61.9% gold, 86.6% lead and 72.8% zinc. A total of 21,176 tonnes of lead concentrate were produced at average grades of 5,295 g/t silver, 7.3 g/t gold, 58.9% lead and 10.1% zinc, with metallurgical recovery of 72.7% silver, 55.4% gold, 82.3% lead and 8.8% zinc. A total of 27,879 tonnes of zinc concentrate were produced at average grades of 619 g/t silver, 0.66 g/t gold, 2.4% lead and 55.6% zinc, with metallurgical recovery of 11.3% silver, 6.6% gold, 4.3% lead and 63.9% zinc. For the year ended December 31, 2019, the CLG mined 357,342 tonnes and processed 269,853 tonnes at average grades of 229 g/t silver, 0.52 g/t gold, 1.97% lead and 3.03% zinc, with metallurgical
​

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●Revenues totaled $311.7 million for 2022, a 25% increase over 2021, as a result of higher sales volumes driven by record production and partly offset by lower silver prices;
●Cost of sales totaled $107.1 million for 2022, 10% increase over 2021, primarily due to increased production. Co-product cash cost per ounce of payable silver equivalent of $9.41 and by-product cash cost per ounce of payable silver of $2.17, decreased 24% and 56%, respectively, from 2021;
●Achieved record processing throughput of 971,595 tonnes, averaging 2,662 tpd and over 2,800 tpd in the fourth quarter of 2022, exceeding the 2,500 tpd design rate, despite a temporary blasting suspension in the mine for over two weeks starting in late April 2022;
●Recoveries achieved or exceeded design rates for payable metals with silver recovery averaging 89.8%, zinc recovery averaging 64.8% and lead recovery averaging 88.7%;
●Completed a robust re-estimation of the Company’s mineral resource and mineral reserve with published Los Gatos Technical Report; and
●Discovered a large zone of mineralization known as South-East Deeps that extends 415m below the reported reserve.
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recovery of 82.1% silver, 63.5% gold, 83.4% lead and 72.3% zinc. A total of 7,188 tonnes of lead concentrate were produced at average grades of 5,774 g/t silver, 10.9 g/t gold, 56.3% lead and 12.6% zinc, with metallurgical recovery of 67.3% silver, 55.2% gold, 76.0% lead and 11.1% zinc. A total of 9,320 tonnes of zinc concentrate were produced at average grades of 978 g/t silver, 1.26 g/t gold, 4.2% lead and 53.7% zinc, with metallurgical recovery of 14.8% silver, 8.3% gold, 7.4% lead and 61.2% zinc.

The Los Gatos Technical Report estimates that the deposit contains approximately 9.6 million diluted tonnes of proven and probable mineral reserves (or approximately 5.0 million diluted tonnes of proven and probable mineral reserves on a 51.5% basis), with approximately 6.4 million diluted tonnes of proven mineral reserves (or approximately 3.3 million diluted tonnes of proven mineral reserves on a 51.5% basis) and approximately 3.3 million diluted tonnes of probable mineral reserves (or approximately 1.7 million diluted tonnes of probable mineral reserves on a 51.5% basis). Average proven and probable mineral reserve grades are 306 g/t silver, 0.35 g/t gold, 2.76% lead and 5.65% zinc. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of mineral reserves that have been mined through June 30, 2020. Subsequent to July 1, 2020, 363,857 tonnes of material have been mined through December 31, 2020, which we believe would not result in a material change to the information contained in the Los Gatos Technical Report.
•
The Los Gatos District, located in Chihuahua, Mexico, is located approximately 120 kilometers south of Chihuahua City and is comprised of a 103,087-hectare land position, constituting a new mining district. The Los Gatos District consists of 14 mineralized zones, which include three identified silver-lead-zinc deposits that contain mineral resources — the CLG, the Esther deposit and the Amapola deposit — as well as 11 additional high-priority targets defined by high-grade drill intersections and over 150 kilometers of outcropping quartz and calcite veins. The area is characterized by a predominant silver-lead-zinc epithermal mineralization. On September 1, 2020, the LGJV commenced concentrate sales at the CLG. A core component of the LGJV’s business plan is to explore the highly prospective, underexplored Los Gatos District with the objective of identifying additional mineral deposits that can be mined and processed, possibly utilizing the CLG plant infrastructure.
​
2020 Key Highlights
•
Rapid recommissioning of the CLG following Mexico’s mandated COVID-19 project suspension;
​
•
Strong operational and financial results from the CLG following a 45-day temporary suspension. The CLG was recommissioned in late May 2020 with an optimized plan averaging a production rate of 2,324 tpd in December 2020;
​
•
Record production from the CLG — 652,739 ore tonnes were mined in 2020;
​
•
Record silver, gold, zinc and lead metal recoveries at the CLG processing plant by the end of 2020 — silver, gold, zinc and lead recovery exceeded plan at 86.2%, 62.7%, 73.3% and 87.1% respectively, during the fourth quarter;
​
•
Commencement of a 27,000-meter exploration program at CLG; and
​
•
Successful completion of an IPO on the NYSE and TSX of 24,644,500 shares, raising gross proceeds of $172,500 thousand in the fourth quarter of 2020.
​
Recent Developments
Initial Public Offering
On October 27, 2020, our Registration Statement on Form S-1 relating to its initial public offering was declared effective by the SEC. Our common stock began trading on the New York Stock Exchange and the Toronto Stock Exchange on October 28, 2020. On October 30, 2020, we completed our initial public offering of 21,430,000 shares of common stock at a public offering price of $7.00 per share, resulting in net proceeds of $134,800 thousand, after deducting underwriting discounts and commissions and expenses payable by us. On November 10, 2020, we issued and sold an additional 3,214,500 shares of common stock

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at a public offering price of $7.00 per share, pursuant to the exercise in full of the underwriters’ over-allotment option, resulting in net proceeds of $20,900 thousand, after deducting underwriting discounts and commissions and expenses payable by us.
On October 30, 2020, we effected the Reorganization in which (i) our then-subsidiary Silver Opportunity Partners LLC became a wholly owned subsidiary of a newly created Delaware corporation named Silver Opportunity Partners Corporation, (ii) each share of our common stock outstanding immediately prior to the Reorganization was exchanged for (A) 0.394057448219062 shares of our common stock (subject to rounding to eliminate fractional shares) and (B) 0.105942551780938 shares of common stock of SOP Corporation (subject to rounding to eliminate fractional shares) and (iii) we changed our name from Sunshine Silver Mining & Refining Corporation to Gatos Silver, Inc. SOP held our interest in the Sunshine Complex, which is located in the Coeur d’Alene Mining District in Idaho and is comprised of the Sunshine Mine and the Sunshine Big Creek Refinery. Through the Reorganization, we distributed all of our equity interest in SOP to our stockholders immediately prior to the Reorganization. The Reorganization did not have any effect on the stated par value of our common stock. All shares of common stock and options outstanding immediately prior to the Reorganization were appropriately adjusted by dividing the number of shares of common stock into which the options are exercisable or convertible by two and multiplying the exercise or conversion price thereof by two.
Impact of COVID-19 Pandemic
In late March 2020, the Mexican government declared a national health emergency due to increasing infection rates from the COVID-19 pandemic. Pursuant to the health emergency declaration, the Mexican government ordered a temporary suspension of all “non-essential” operations nationwide in Mexico, including mining operations, in order to help combat the spread of COVID-19. In response to the order, the LGJV effected a 45-day temporary suspension of all non-essential activities at the CLG site, which reduced the number of employees and contractors at the site and at the Chihuahua corporate office. During the temporary suspension, the LGJV implemented health protocols, allowed most administrative and technical services employees to work remotely, reduced mining and milling, completed project enhancements and finalized a mine plan upon reactivation of mining activities after the temporary suspension.
In late May 2020, the Mexican government designated mining an essential service and allowed mines to resume production, subject to deploying COVID-19 prevention protocols. Our existing COVID-19 protocols exceeded those mandated by the Mexican government and, accordingly, the LGJV reactivated mine development and mining in late May 2020 and hired additional employees. Ore processing resumed in early June 2020 and daily production progressively increased with COVID-19 prevention protocols fully implemented.
The COVID-19 pandemic temporarily affected our financial condition in 2020, in part due to the loss of revenue resulting from the 45-day temporary suspension of all non-essential activities at the LGJV’s CLG site and the expenses associated with the development and implementation of COVID-19 protocols. In addition, as the LGJV reactivated mine development and mining, it implemented a scalable optimized plan with a lower employee complement and with reduced average monthly production rate at 1,750 tpd until September 2020, targeting higher ore grades. In December 2020, the average monthly production rate was at 2,324 tpd.
We are closely monitoring the developments of the outbreak and continually assessing the potential impact on our business. If the Mexican government were to reinstate the suspension order caused by the COVID-19 pandemic, or if all mining activities at the CLG site were suspended for an undefined period of time, there could be additional costs incurred, production and development delays, cost overruns and operational restart costs that would negatively impact our business, financial condition and results of operations. The degree to which the pandemic impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain, continuously evolving and in many cases cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity and the actions to contain the virus or treat its impact, such as the efficacy of vaccines (particularly with respect to emerging strains of the virus). See “Item 1A. Risk Factors” for additional risks we face due to the COVID-19 pandemic.

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Exploration Drilling Program
In December 2020, the Company and its LGJV partner, Dowa, commenced a 27,000-meter exploration program to convert the CLG’s established 3.2 million tonnes of inferred resources to the measured and indicated category and to discover additional resources along the northwest and southeast extensions of the CLG deposit.
In 2021, the LGJV intends to initiate a second exploration program to expand resources throughout the Los Gatos District. The initial target is an estimated 19,000-meter campaign at the Esther deposit, to expand its initial NI 43-101 compliant indicated resource of 0.46 million tonnes at 133 g/t silver, 2.1% zinc, 0.7% lead and inferred resource of 2.29 million tonnes at 98 g/t silver, 3.0% zinc, and 1.6% lead. Esther is located about four kilometers from Cerro Los Gatos and contains similar styles of mineralization and geochemistry. The Company believes that further drilling may materially expand the size and mineral tenor of this resource.
In March 2021, the Company commenced a 5,400-meter exploration program on its wholly-owned Santa Valeria property. The Santa Valeria target has been developed through regional geologic work by the Company’s exploration team, which defined a large basin structure hosting the mineralization zones within the Los Gatos District. Santa Valeria is geologically comparable to Cerro Los Gatos and may contain similar mineral content.

Components of Results of Operations

Operating Expenses

Exploration Expenses

We conduct exploration activities under mining concessions in Mexico. We expect exploration expenses to increase significantly as we continue to expand our exploration activities at the Los Gatos District and our other exploration properties. Exploration expenses primarily consist of drilling costs, lease concession payments, assay costs and other geological and support costs at our exploration properties.

General and Administrative Expenses

Our general and administrative expenses consist of salaries and benefits, stock compensation, professional and consultant fees, insurance and other general administration costs. Our general and administrative expenses are expected to increase significantly as we operate as a public company. We expect higher costs related to salaries, benefits, stock compensation, legal fees,insurance, compliance and corporate governance, accounting and audit, expenses, stock exchange listing fees transfer agent and other stockholder-related fees, directors’ and officers’ and other insurance costs, and other administrativegeneral administration costs. We are party to a Management Services Agreement with SOP, pursuant to which we provide certain executive and managerial advisory services to SOP. SOP reimburses us for costs of providing such services.

Equity LossIncome in Affiliates

Our equity lossincome in affiliates relates to our proportional share of net loss incurredincome from the LGJV and the amortization of the basis difference between our investment in the LGJV and the net assets of the LGJV.

Impairment of Investment in Affiliates

A loss in value of an investment that is other than a temporary decline shall be recognized. On November 10, 2022, the Company issued an updated technical report for the LGJV, the Los Gatos Technical Report. The Los Gatos Technical Report indicated a significant decrease in the mineral reserves and mineral resources from the previously issued technical report in 2020. The Company considered this reduction in the mineral reserve and mineral resources as an indicator of a possible other-than-temporary decline in value and as a result compared the carrying value of the LGJV on December 31, 2021 to the fair value of the LGJV. The fair value of the LGJV was estimated based on the net present value of the expected cash flows to be generated by the LGJV on 70% basis. The discount rate used was 5.00%. The Company recorded an impairment of the investment in affiliate at December 31, 2021. There were no indicators of an other-than-temporary decline in value at December 31, 2022.

LGJV Arrangement Fee

Our LGJV arrangement fee consistsconsisted of arrangement fees related to the Term LoanWCF and the WCF. The arrangement fees are based on fixed 2% and 15% rates for the Term Loan and the WCF, respectively, and 70% of the outstanding principal of the respective facility. These arrangement fees are solely our responsibility. Onwith Dowa prior to their extinguishment on March 11, 2021, the WCF was extinguished and thus we doJuly 26, 2021, respectively. We did not expect to incur LGJV arrangement fees in future periods with respect to the WCF but will continue to incur LGJV arrangement fees with respect to the Term Loan as long as such loan remains outstanding.beyond July 26, 2021.

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Income Taxes

As we have incurred substantial losses from our exploration and pre-development activities, we may receive furtherfuture benefits in the form of deferred tax assets that can reduce our future income tax liabilities, if


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it is more likely than not that the benefit will be realized before expiration. Historically, we have not recognized these potential benefits in our financial statements and have fully reserved for such netAs at December 31, 2022, a deferred tax assets, as we believe it is more likely than not thatliability of $1.4 million was recognized at the full benefit of these netLGJV in comparison to a deferred tax assets will not be realized before expiration.
asset of $17.4 million in 2021.

Royalties

Exploration activities are conducted on the Los Gatos District mining concessions in Mexico. Mineral and concession lease payments are required to be paid to various entities to secure the appropriate claims or surface rights. Certain of these agreements also have royalty payments that were triggered when wethe LGJV began producing and selling metal-bearing concentrate.

lead and zinc concentrates.

Other Income

The Company incurs costs to assist with the management and administration of the LGJV, these costs are included in general and administrative expense. For these management services, the Company earns a management fee which is included in Other income.

Results of Operations

Results of operations Gatos Silver

The following table presents certain information relating to our operating results and discontinued SOP operations for the years ended December 31, 20202022 and 2019.2021. 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 (in thousands). See Note 12 — Discontinued Operations in our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” for additional information.

​​​Year Ended December 31,​
​​​2020​​2019​
Expenses​​​​​​​​​​​​​
Exploration​​​$785​​​​$923​​
General and administrative​​​​7,765​​​​​2,903​​
Amortization​​​​30​​​​​34​​
Total expenses​​​​8,580​​​​​3,860​​
Other expense (income)​​​​​​​​​​​​​
Dilution loss in affiliates​​​​—​​​​​11,231​​
Equity loss in affiliates​​​​17,585​​​​​12,865​​
Arrangement fees​​​​4,843​​​​​2,988​​
Interest expense​​​​4,047​​​​​—​​
Other income​​​​(28)​​​​​(36)​​
Net other expense​​​​26,447​​​​​27,048​​
Net loss from continuing operations​​​$35,027​​​​$30,908​​
Loss from discontinued operations​​​​5,414​​​​​6,910​​
Net loss​​​$40,441​​​​$37,818​​

​

​

​

​

​

​

​

​

​

​

Years Ended December 31,

​

    

2022

    

2021

Expenses

​

​

  

​

​

  

Exploration

​

$

110

​

$

1,657

General and administrative

​

 

25,468

​

 

21,447

Amortization

​

 

180

​

 

89

Total expenses

​

 

25,758

​

 

23,193

Other income (expense)

​

 

  

​

 

​

Equity income in affiliates

​

 

45,230

​

 

42,804

Impairment of investment in affiliates

​

​

—

​

​

(80,348)

Legal settlement loss

​

​

(7,900)

​

​

​

Arrangement fees

​

 

—

​

 

(195)

Interest expense

​

 

(433)

​

 

(185)

Other income (expense)

​

 

4,955

​

 

(4,738)

Total other income (expense)

​

 

41,852

​

 

(42,662)

Income (loss) before taxes

​

​

16,094

​

​

(65,855)

Income tax expense

​

 

1,565

​

 

—

Net income (loss)

​

$

14,529

​

$

(65,855)

​

Year Ended December 31, 20202022, Compared to Year Ended December 31, 20192021

Exploration

Exploration costs incurred during 2022 decreased by approximately $1.5 million compared to 2021, mainly due to limited exploration drilling and sampling performed on the Company-owned Santa Valeria property as exploration was concentrated on the LGJV property.

General and administrative expenses

During 2022, we incurred general and administration expense of $25.5 million compared to $21.4 million in 2021. The $4.1 million increase is primarily due to several items associated with the new mineral resource and reserve technical reports and change in

Loss

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auditors, including higher consulting, legal and audit fees. The Company also incurs expenses related to providing management and administration services to the LGJV, for which it receives a management fee, included in Other Income ($5.0 million for each of the years ended December 31, 2022 and 2021).

Equity income in affiliates

The improvement in equity income, for 2022 compared to 2021, resulted primarily from Continuingthe improved performance of the LGJV. See “Results of Operations

LGJV.”

Impairment of investment in affiliates

For the year ended December 31, 2020,2022, there were no indicators of an other-than-temporary decline in value of the investment in affiliate; therefore, no impairment charge was recorded.

On November 10, 2022, we experiencedprovided an updated technical report for the LGJV, the Los Gatos Technical Report. The Los Gatos Technical Report indicated a significant decrease in the mineral reserve and mineral resource from the previously issued technical report in 2020. We considered this reduction in the mineral reserve and mineral resources as an indicator of a possible other-than-temporary impairment and as a result compared the carrying value of the LGJV on December 31, 2021, to the fair value of the LGJV.

Legal settlement loss

We 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 have agreed to resolve the U.S. Class Action for a payment by us and our insurers of $21 million to a settlement fund. We are in the process of finalizing legal expenses that will be covered under the directors’ and officers’ insurance policy which will be deducted from the $10 million retention payable by the Company. We expect to fund no more than $7.9 million of the settlement, with the balance of the settlement payment to be paid by insurance. We and the other defendants will not admit any liability as part of the settlement. Since the settlement of the U.S. Class Action is subject to conditions, there can be no assurance that the U.S. Class Action will be finally resolved pursuant to the agreement in principle that has been reached.

Other income (expense)

The $9.7 million change in other income (expense) for the year ended December 31, 2022, compared to the year ended December 31, 2021, was mainly due to a $10.0 million fee paid to Dowa in conjunction with the Term Loan repayment in 2021.

Net income (loss)

For the year ended December 31, 2022, we recorded a net loss from continuing operationsincome of $35,027 thousand$14.5 million compared to a net loss of $30,908 thousand$65.9 million for the year ended December 31, 2019.2021. The $4,119 thousand increasechange in net loss from continuing operationsin 2022 compared to 2021 was primarily attributabledue to the absence of impairment of investment in affiliates, a significant increase in equity income in affiliates, an increase in operating expenses. other income, and offset by a legal settlement loss of $7.9 million arising from legal class action, and a slight increase in general and administrative expense.

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Results of operations LGJV

The following table presents operational information and select financial information of the LGJV for the years ended December 31, 2022 and 2021. The financial information is extracted from the Combined Statements of Income for the years ended December 31, 2022 and 2021. The financial and operational information of the LGJV and CLG is shown on a 100% basis. As of December 31, 2022, our ownership of the LGJV was 70.0%.

​

​

​

​

​

​

​

​

​

​

Year Ended

 

Financial

​

December 31,

 

Amounts in thousands

    

 2022

    

 2021

​

Revenue

 

$

311,724

 

$

249,194

​

Cost of sales

​

​

107,075

​

​

97,710

​

Royalties

​

​

3,069

​

​

4,781

​

Exploration

​

​

9,800

​

​

5,383

​

General and administrative

​

​

14,307

​

​

13,345

​

Depreciation, depletion and amortization

​

​

69,380

​

​

52,402

​

Total other income (expense)

​

​

1,429

​

​

(12,086)

​

Income tax (expense) recovery

​

​

(37,306)

​

​

15,097

​

Net income

​

$

72,216

​

$

78,584

​

Sustaining capital

​

​

76,526

​

​

72,979

​

Operating Results

 

​

​

 

​

​

​

Tonnes milled (dmt)

​

​

971,595

​

​

909,586

​

Tonnes milled per day (dmt)

​

​

2,662

​

​

2,492

​

Average Grades

​

​

​

​

​

​

​

Silver grade (g/t)

​

​

368

​

​

295

​

Gold grade (g/t)

​

​

0.33

​

​

0.32

​

Lead grade (%)

​

​

2.31

​

​

2.27

​

Zinc grade (%)

​

​

4.37

​

​

3.94

​

Contained Metal

​

​

​

​

​

​

​

Silver ounces (millions)

​

​

10.3

​

​

7.6

​

Zinc pounds - in zinc conc. (millions)

​

​

60.7

​

​

49.6

​

Lead pounds - in lead conc. (millions)

​

​

43.9

​

​

39.8

​

Gold ounces - in lead conc. (thousands)

​

​

5.3

​

​

5.2

​

Recoveries 1

​

​

​

​

​

​

​

Silver - in both lead and zinc concentrates

​

​

89.8

%  

​

88.3

%

Zinc - in zinc concentrate

​

​

64.8

%

​

62.9

%

Lead - in lead concentrate

​

​

88.7

%

​

87.6

%

Gold - in lead concentrate

​

​

52.0

%

​

56.3

%

Average realized price per silver ounce

​

$

20.72

​

$

24.38

​

Average realized price per gold ounce

 

$

1,678

 

$

1,761

​

Average realized price per lead pound

 

$

0.90

 

$

1.01

​

Average realized price per zinc pound

 

$

1.58

 

$

1.38

​

Co-product cash cost per ounce of payable silver equivalent

 

$

9.41

 

$

12.44

​

By-product cash cost per ounce of payable silver

 

$

2.17

 

$

4.98

​

Co-product AISC per ounce of payable silver equivalent2

 

$

14.33

 

$

19.05

​

By-product AISC per ounce of payable silver2

​

$

10.24

​

$

15.72

​

(1)Recoveries are reported for payable metals in the identified concentrate. Recoveries reported previously were based on total metal in both concentrates.
(2)See “Non-GAAP Financial Measures” below.
(3)Realized prices include the impact of final settlement adjustments from sales of previous periods.

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LGJV

Year Ended December 31, 2022, Compared to Year Ended December 31, 2021

Revenue

Revenue increased by 25% in 2022 compared to 2021, as a result of higher production and concentrate sales, which was partly offset by lower realized silver prices. Production of silver, zinc, lead and gold were higher primarily due to higher mill throughput and higher ore grades. Lead and zinc concentrate production increased 10% and 22%, respectively, and silver, lead and zinc ore grades increased 25%, 2% and 11%, respectively.

Cost of sales

Cost of sales increased by 10% in 2022 compared to 2021, primarily as a result of increased mining and milling rates, production and the related increase in equipment maintenance costs, cost of materials and supplies and higher power costs. Co-product cash cost per ounce of payable silver equivalent and by-product cash cost per ounce of payable silver decreased by 24% and 56% respectively, to $9.41 and $2.17, respectively, for the year ended 2022.

Royalties

Royalty expense decreased by $1.7 million in 2022 compared to 2021 due to the decrease in the royalty rate upon achieving a payment threshold per the royalty agreement.

Exploration

Exploration expenditure increased by $4.4 million in 2022 as a result of increased surface drilling around CLG, Esther and Greenfields exploration targets. The dominant focus for drilling was at CLG aiming to convert Inferred Resources to Indicated and to expand the Inferred Resource base, particularly in the South-East Deeps area.

General and administrative

General and administrative expenses for 2022 were 7% higher than in 2021, primarily due to inflation.

Depreciation, depletion and amortization

Depreciation, depletion, and amortization expense increased by approximately 32% year over year primarily as a result of an increase in tonnes mined as well as the decrease in the mineral reserve and mine life based on the Los Gatos Technical Report, which reduced the basis for the depreciation.

Other income (expense)

Other income (expense) changed primarily due to $7,765 thousandthe retirement of the WCF and the Term Loan in March and July 2021, respectively.

Income tax (expense) recovery

In 2022, the LGJV had income tax expense of $37.3 million due to increased income and the absence of loss carryforwards. In 2021, the LGJV recognized an income tax benefit due to the release of the full valuation allowance on its deferred tax assets which was partly offset by the current income tax expense recorded in 2021.

Net Income

For the year ended December 31, 2022, the LGJV had net income of $72.2 million compared to net income of $78.6 million for the year ended December 31, 2020,2021. The change in net income was primarily due to income tax expense of $37.3 million in 2022, compared to $2,903 thousandincome tax benefit of $15.1 million in 2021, partly offset by increase in revenue driven by higher production and sales during 2022.

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Sustaining capital

During the year ended December 31, 2022, the sustaining capital expenditures primarily consisted of $27.1 million of mine development, $19.5 million on the construction of the paste-fill plant, $8.2 million on the construction of the raise of the tailings storage facility, $3.5 million for the purchase of mining equipment, $2.9 million on underground power distribution infrastructure and $2.6 million on the construction of a ventilation raise. During the year ended December 31, 2021, major sustaining capital expenditures included $30.6 million of mine development, $11.4 million on processing plant and tailings storage facility, $3.6 million for the construction of a ventilation raise, $3.3 million for the purchase of mining equipment, $5.8 million on underground power distribution infrastructure and $9.4 million on the construction of dewatering wells.

Cash Flows

Gatos Silver

The following table presents our cash flows for the years ended December 31, 2022 and 2021.

​

​

​

​

​

​

​

​

​

Years Ended December 31,

​

​

2022

    

2021

​

    

(in thousands)

Net cash generated from (used by)

 

​

  

 

​

  

Operating activities

​

$

14,554

​

$

(21,485)

Investing activities

​

 

(60)

​

 

(261,439)

Financing activities

​

 

(4,106)

​

 

139,394

Total change in cash

​

$

10,388

​

$

(143,530)

​

Cash flow from operating activities was $14.6 million in the year ended December 31, 2022, compared to cash used by operating activities of $21.5 million for the year ended December 31, 2019,2021. The $36.1 million increase in cash flow was primarily due to higher costs associated with becoming a publicly traded company with higher legal and consulting costs, additional personnel, higher directors fees, increased directors and officers insurance premiums and increased stock-based compensation expense related$30.8 million in dividends received from affiliates.

Cash used by investing activities was $0.1 million in 2022, compared to $261.4 million in 2021. The $261.3 million decrease in cash used by investing activities was primarily due to the offering.

For$186.8 million in capital contributions made to the LGJV and $71.6 million acquisition of an additional 18.5% interest in the LGJV from Dowa in 2021. There were no contributions made to the LGJV in 2022.

Cash used by financing activities was $4.1 million in 2022, compared to cash flow from financing activities of $139.4 million in 2021. Cash used by financing activities in 2022 primarily consisted of a $4.0 million partial repayment of the Credit Facility. Cash provided by financing activities in 2021, primarily reflected the $121.0 million in net proceeds from the issuance of common stock in a follow-on public offering and the $13.0 million in borrowings under the Credit Facility.

LGJV

The following table presents summarized information relating to the LGJV’s cash flows for years ended December 31, 2022 and 2021.

​

​

​

​

​

​

​

​

    

Years Ended December 31,

​

​

2022

    

2021

Net cash provided by (used by)

​

  

​

​

  

​

Operating activities

​

$

157,374

​

$

119,787

Investing activities

​

 

(82,279)

​

 

(79,045)

Financing activities

​

​

(60,439)

​

​

(22,138)

Total change in cash

​

$

14,656

​

$

18,604

​

Cash provided by operating activities was $157.4 million and $119.8 million for the years ended December 31, 2020,2022 and December 31, 2019, other expense decreased to $26,447 thousand from $27,048 thousand,2021, respectively. The decrease$37.6 million increase in other expensecash provided by operating activities was primarily due to


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the $11,231 thousand dilution loss on affiliates in 2019, partially offset by the $4,720 thousand increase in equity loss in affiliates from LGJV operation in 2020, the $1,855 thousand increase in LGJV arrangement feesrevenue as a result of higher concentrate sales due to higher average outstanding balances on the WCF that was extinguished March 11, 2021,processed ore tonnes and $4,047 thousand in non-recurring interest expense associated with the convertible note that was converted to capital stock as part of the IPO.
The LGJV’s increase in operating loss, which is picked up under the equity method of accounting in our financial statements under the item ‘‘Equity loss in affiliates,’’higher ore grades for the year ended December 31, 2020, resulted primarily from the continued mining and processing activities to ramp-up to design throughput, a full year of depreciation on the assets placed in service, and a full year of interest and arrangement fee expenses. In addition, as a result of the COVID-19 pandemic, the LGJV incurred certain fixed costs during the April through May 2020 temporary suspension and the related ramp-up periods, which contributed2022, compared to the operating lossprior year, partly offset by lower silver prices.

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Cash used by investing activities was $82.3 million and $79.0 million for the yearyears ended December 31, 2020.

Loss from Discontinued Operations
Net loss from discontinued operations decreased2022, and 2021, respectively. The $3.3 million increase in cash used was primarily due to $5,414 thousandhigher expenditures for property, plant and equipment.

Cash used by financing activities was $60.4 million and $22.1 million for the yearyears ended December 31, 2020 from $6,910 thousand2022 and 2021, respectively. During 2022 the LGJV distributed $55 million to the joint venture partners and made $5.4 million in equipment loan payments. During 2021, the LGJV paid $144.8 million to retire the Term Loan in July 2021, $60.0 million for the year ended December 31, 2019. Our fiscal 2020 results include the SOP operations through October 30, 2020, the effective dateextinguishment of the Reorganization. AsWCF in March 2021, a result,$15.9 million Term Loan payment in June 2021, and $7.0 million in equipment loan payments, partly offset by the 2020 results reflect only 10 months (83%)$207.2 million of discontinued SOP operations.

capital contributions from the joint venture partners.

Liquidity and Capital Resources

As of December 31, 2020,2022 and December 31, 2019, we2021, the Company had cash and cash equivalents of $150,146 thousand$17.0 million and $8,581 thousand,$6.6 million, respectively. The increase in cash and cash equivalents was primarily due to receipt of $29.2 million in dividends net proceedsof withholding taxes from the IPO and from the issuance of the convertible notes, described below, partiallyLGJV, offset by increased financing costshigher general and higher administrative costs from being a publicly listed company. As of December 31, 2020, and December 31, 2019, we had working capital of $151,728 thousand and $14,990 thousand, respectively. The increase in working capital was primarily due to the higher cash and cash equivalents and an increase in prepaid expenses, partially offset by converting related-party receivables to capital contributionsincurred in the LGJV and a decrease in deferred financing costs.

year.

Sources and Uses of Capital Resources

On April 20, 2020,

As at May 31, 2023, our cash and cash equivalents are $10.5 million and we entered into a convertible note purchase agreement with Electrum Silver US LLC, which was subsequently amended.have $41 million available to be drawn under the Credit Facility. The outstanding principal amountLGJV had cash and cash equivalents of the convertible notes and any accrued but unpaid interest was due and payable on April 19, 2023 unless converted into shares of our common stock in a qualified financing. However, any conversion of the convertible notes into equity securities as described above was deemed a repayment of the convertible notes so converted. The convertible notes bore interest at a rate of 5.00% per annum, compounding annually. From April 20, 2020 to September 21, 2020, we issued $15,000 thousand aggregate principal amount of convertible notes. In connection with the closing of the IPO on October 30, 2020, we converted all of the outstanding principal amount of the convertible notes plus $187 thousand in accrued and unpaid interest into an aggregate of 2,712,003 shares of common stock.

On October 30, 2020, we completed our initial public offering of 21,430,000 shares of common stock at a public offering price of $7.00 per share, resulting in net proceeds of $134,800 thousand, after deducting underwriting discounts and commissions and expenses payable by us. On November 10, 2020, we issued and sold an additional 3,214,500 shares of common stock at a public offering price of $7.00 per share, pursuant to the exercise in full of the underwriters’ over-allotment option, resulting in net proceeds of $20,900 thousand, after deducting underwriting discounts and commissions and expenses payable by us.
On March 11, 2021, we repurchased an approximate 18.5% interest in the LGJV, increasing our ownership to 70.0% for a total consideration of $71,550 thousand, including a 70% penalty and all costs incurred by Dowa in connection with its ownership of such equity interest, including, but not limited to, legal and accounting fees, capital contributions and taxes. Additionally, we extinguished our 70% share of the $60,000 thousand WCF for $42,000 thousand.

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$78.9 million. We believe we have sufficient cash and access to borrowings and other resources to carry out our business plans for at least the next 12 months. We are focused on our forward-looking liquidity needs. We are evaluating our ongoing fixed cost structure as well as decisions related to project retention, advancement and development. We will likely be required to raise capital or take other measures to fund future exploration and development. Significant development activities, if warranted, will require that we arrange for financing in advance of planned expenditures. In addition, we expect to continuemay decide to increase our current financial resources with external financings as long asif our long-term business needs require us to do so.so however there can be no assurance that the financing will be available to us on acceptable terms, or at all. We manage liquidity risk through our credit facility and the management of our capital structure.

We may be required to provide funds to the LGJV to support operations at the CLG which, depending upon the circumstances, may be in the form of equity, various forms of debt, joint venture funding or some combination thereof. There can be no assurance that additional funds will be available to us on acceptable terms, or at all. If we raise additional funds by issuing equity or convertible debt securities, substantial dilution to existing stockholders may result. Additionally, if we raise additional funds by incurring new debt obligations, the terms of the debt may require significant cash payment obligations, as well as covenants and specific financial ratios that may restrict our ability to operate our business.

Indebtedness and Lines of Credit

We had no related party debt as of

On December 31, 2020 or 2019. We had no outstanding lines of credit or other bank financing arrangements as of December 31, 2020 or 2019. We guaranteed 70.0% of the Term Loan and the WCF as of December 31, 2020. We had certain arrangement fee obligations related to the CLG as detailed in the “LGJV Arrangement Fee” above. As of December 31, 2020, the approximate ownership of the LGJV entities was 51.5% in favor of the Company and 48.5% in favor of Dowa.

Dowa Debt Agreements
Dowa Term Loan
On July 11, 2017,19, 2022, we entered into the Term Loanan amended and restated Credit Facility with the LGJV and Dowa, whereby the LGJV could borrowBMO, under which we have a credit limit of $50.0 million, with an accordion feature providing up to $210,000 thousandan additional $25.0 million, subject to financecertain conditions. Borrowings under the development of the Los Gatos project, with a maturity date of December 29, 2027. Interest accrues daily at LIBOR plus 2.35% per annum, and the interest was added to the amount borrowed until production commenced at the Los Gatos project. Credit Facility:

●mature on December 31, 2025, and
●bear interest at a rate equal to either a term SOFR rate plus a margin ranging from 3.00% to 4.00% or a U.S. base rate plus a margin ranging from 2.00% to 3.00%, at our option.

The LGJV is obligated to pay 14 consecutive semi-annual payments totaling the aggregate principal amount and capitalized interest beginning June 30, 2021, with payments made two business days prior to the end of each June and December. We guarantee 70.0% of the Term Loan and are required to pay an arrangement fee on the borrowing, calculated as 2% per annum on 70% of the outstanding principal balance, payable in semi-annual installments. The Term LoanCredit Facility contains affirmative and negative covenants reasonablythat are customary for similar facilities, with which the LGJV is in compliance in all material respects as of December 31, 2020.

Los Gatos Working Capital Facility
On May 30, 2019, we entered into the WCF with the LGJV and Dowa, under which Dowa agreed to provide a maximum of $60,000 thousand for the benefit of the LGJV, with a maturity date of June 28, 2021. The interest under the WCF was LIBOR plus 3% per annum and was payable by the LGJV. We guaranteed 70%agreements of this facilitynature. The affirmative covenants require the Company to comply, at all times, with, among other things, a Leverage Ratio not greater than 3.00 to 1.00, with earnings before interest, tax, depletion depreciation and were requiredamortization calculated upon a trailing four fiscal quarter period, a liquidity covenant not less than $20.0 million and an interest coverage ratio not less than 4.00 to pay an arrangement fee1.00 calculated based on the borrowing, calculated as 15.0% per annum on 70.0% of the average daily principal amount outstanding during the relevanta trailing four fiscal quarter.quarter period. The WCF contained affirmative and negative covenants reasonably customary for similar facilities,include, among other things, limitations on certain specified asset sales, mergers, acquisitions, indebtedness, liens, dividends and distributions, investments and transactions with which the LGJV was in compliance in all material respects as of December 31, 2020. The full principal amount of the WCF was drawn down by the LGJV as of September 2019. On March 11, 2021, the WCF was extinguished.

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Cash Flows
The following table presents our cash flows for the years ended December 31, 2020 and 2019.
​​​Year Ended December 31,​
​​​2020​​2019​
​​​(in thousands)​
Net cash provided by (used by)​​​​​​​​​​​​​
Operating activities from continuing operations​​​$(18,388)​​​​$(12,295)​​
Investing activities from continuing operations​​​​(12,129)​​​​​(21,905)​​
Financing activities from continuing operations​​​​172,464​​​​​39,828​​
Total change in cash​​​$141,947​​​​$5,628​​
Cash used by operating activities was $18,388 thousand and $12,295 thousand for the years ended December 31, 2020 and 2019, respectively. The $6,093 thousand increase was primarily due to the net loss, after non-cash adjustments for equity loss in affiliates, stock-based compensation expense and interest expense on convertible notes issued in shares, partially offset by an increase in prepaid expenses.
Cash used by investing activities was $12,129 thousand and $21,905 thousand for the years ended December 31, 2020 and 2019, respectively. The $9,776 thousand decrease was primarily due to the $18,200 thousand investment in the LGJV in 2019 compared to the $12,298 thousand investment in the LGJV in 2020.
Cash provided by financing activities was $172,464 thousand and $39,828 thousand for the years ended December 31, 2020 and 2019, respectively. The $132,636 thousand increase reflects the $40,465 thousand in proceeds from the issuance of common stock in 2019 in certain private placement offerings compared to the $160,436 thousand in proceeds from the sale of common stock in the IPO and the $15,000 thousand in proceeds from the sale of convertible notes in 2020, partially offset by an increase in deferred financing costs in 2020.
Results of LGJV Operations
The following table presents information relating to the LGJV’s financial condition and operating results for years ended December 31, 2020 and 2019. In accordance with U.S. GAAP, these financial statements represent the combined financial position and results of the LGJV.affiliates. As of December 31, 2020, our ownership2022, we had $9.0 million of the LGJV was approximately 51.5%.

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LOS GATOS JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)
​​​
December 31,
2020
​​
December 31,
2019
​
ASSETS​​​​​​​​​​​​​
Current Assets​​​​​​​​​​​​​
Cash and cash equivalents​​​$1,676​​​​$1,302​​
Receivables​​​​3,988​​​​​5,655​​
Inventories​​​​10,315​​​​​11,374​​
VAT receivable​​​​50,732​​​​​50,184​​
Other current assets​​​​2,891​​​​​1,672​​
Total current assets​​​​69,602​​​​​70,187​​
Non-Current Assets​​​​​​​​​​​​​
Mine development, net​​​​202,874​​​​​182,602​​
Property, plant and equipment, net​​​​196,942​​​​​216,131​​
Total non-current assets​​​​399,816​​​​​398,733​​
Total Assets​​​$469,418​​​​$468,920​​
LIABILITIES AND OWNERS’ CAPITAL​​​​​​​​​​​​​
Current Liabilities​​​​​​​​​​​​​
Accounts payable and accrued liabilities​​​$35,767​​​​$43,287​​
Related party payable​​​​1,703​​​​​6,875​​
Accrued interest​​​​101​​​​​885​​
Unearned revenue​​​​3,276​​​​​—​​
Equipment loans​​​​7,084​​​​​6,948​​
Dowa Term Loan​​​​31,826​​​​​—​​
Working Capital Facility​​​​60,000​​​​​—​​
Total current liabilities​​​​139,757​​​​​57,995​​
Non-Current Liabilities​​​​​​​​​​​​​
Dowa Term Loan​​​​187,767​​​​​217,796​​
Working Capital Facility​​​​—​​​​​60,000​​
Equipment loans​​​​6,120​​​​​12,916​​
Reclamation obligations​​​​12,162​​​​​11,314​​
Total non-current liabilities​​​​206,049​​​​​302,026​​
Owners’ Capital​​​​​​​​​​​​​
Capital contributions​​​​271,368​​​​​237,905​​
Paid-in capital​​​​16,366​​​​​7,400​​
Accumulated deficit​​​​(164,122)​​​​​(136,406)​​
Total owners’ capital​​​​123,612​​​​​108,899​​
Total Liabilities and Owners’ Capital​​​$469,418​​​​$468,920​​

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LOS GATOS JOINT VENTURE
COMBINING STATEMENT OF LOSS
(in thousands)
​​​Twelve Months Ended December 31,​
​​​2020​​2019​
Sales​​​$121,470​​​​$36,508​​
Expenses​​​​​​​​​​​​​
Cost of sales​​​​65,005​​​​​30,339​​
Royalties​​​​2,148​​​​​184​​
Exploration​​​​841​​​​​208​​
General and administrative​​​​9,718​​​​​2,587​​
Depreciation, depletion and amortization​​​​44,904​​​​​15,460​​
Other​​​​3,416​​​​​—​​
​​​​​126,032​​​​​48,778​​
Other (income) expense​​​​​​​​​​​​​
Interest expense​​​​12,484​​​​​5,107​​
Arrangement fee​​​​8,888​​​​​3,524​​
Accretion expense​​​​849​​​​​789​​
Other (income) expense​​​​(109)​​​​​239​​
Foreign exchange loss​​​​1,042​​​​​174​​
​​​​​23,154​​​​​9,833​​
Net Loss​​​$(27,716)​​​​$(22,103)​​
At December 31, 2020 and 2019, the LGJV had current assets of $69,602 thousand and $70,187 thousand, respectively. The decrease in total current assets was primarily due to decreases in trade receivables and inventory, partially offset by an increase in value added tax receivables and other current assets. At December 31, 2020 and 2019, the LGJV had noncurrent assets of $399,816 thousand and $398,733 thousand, respectively. The increase in noncurrent assets was primarily due to additional mine development costs related to further development of the CLG, partially offset by depletion and depreciation.
At December 31, 2020 and 2019, the LGJV had current liabilities of $139,757 thousand and $57,995 thousand, respectively. The increase in current liabilities was primarily due to the amounts due within one yearborrowings outstanding under the Term LoanCredit Facility. On April 13, 2023, the Company extended its waiver agreement with BMO whereby the restated audited financial statements for fiscal year 2021, the audited financial statements for fiscal year 2022 and restated unaudited financial statements for the first three fiscal quarters in fiscal year 2022 are to be provided no later than April 30, 2023. The waiver was subsequently extended for the above mentioned financial statements to be provided no later than July 15, 2023.

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Contractual Obligations

We and the WCF becoming current liabilities, partially offset by decreases in accounts payable, accrued liabilities and related party payables. At December 31, 2020 and 2019, the LGJV had noncurrent liabilities of $206,049 thousand and $302,026 thousand, respectively. The decrease in non-current liabilities was primarily due to the amounts due within one year under the Term Loan and the WCF becoming current liabilities.

For the year ended December 31, 2020, the LGJV had a $27,716 thousand net loss compared to a $22,103 thousand net loss for the year ended December 31, 2019. The LGJV’s increase in operating loss for the year ended December 31, 2020 resulted primarily from the continued mining and processing activities to ramp-up to design throughput, a full year of depreciation on the assets placed in service, and a full year of interest and arrangement fee expenses, partially offset by increased revenue. In addition, as a result of the COVID-19 pandemic, the LGJV incurred certain fixed costs during the April through May 2020 temporary suspension and the related ramp-up periods, that contributed to the operating loss for the year ended December 31,2020.
The following table presents summarized information relating to the LGJV’s cash flows for years ended December 31, 2020 and 2019.

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LOS GATOS JOINT VENTURE
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
​​​Twelve Months Ended December 31,​
​​​2020​​2019​
Net cash provided by (used by)​​​​​​​​​​​​​
Operating activities​​​$47,872​​​​$(16,008)​​
Investing activities​​​​(64,436)​​​​​(123,078)​​
Financing activities​​​​16,938​​​​​129,157​​
Total change in cash​​​$374​​​​$(9,929)​​
Cash provided by (used by) operating activities was $47,872 thousand and $(16,008) thousand for the years ended December 31, 2020 and 2019, respectively. The $63,880 thousand increase in cash provided by operating activities was primarily due to the net loss, after non-cash adjustments for depreciation and depletion expense and arrangement fee expense, and a decrease in inventories, partially offset by an increase in VAT receivables.
Cash used by investing activities was $64,436 thousand and $(123,078) thousand for the years ended December 31, 2020 and 2019, respectively. The $58,642 thousand decrease in cash used was primarily due to completion of the initial project construction in 2019 with reduced expenditures for property, plant and equipment and mine development in 2020.
Cash provided by financing activities was $16,938 thousand and $129,157 thousand for the years ended December 31, 2020 and 2019, respectively. The $112,219 thousand decrease reflects the $135,000 thousand in borrowings under the Term Loan and WCF and $18,200 thousand in cash capital contributions in 2019 compared to the $18,904 thousand in cash proceeds from related party capital advances and $5,000 in cash capital contributions in 2020.
Contractual Obligations
We entered into commitments with federal and state agencies to lease surface and mineral rights in Mexico related to our exploration activities. These leases are renewable annually.
Off-Balance Sheet Arrangements
During the periods presented, we did not, and we currently do not, have any significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our shareholders.

Critical Accounting Policies

Listed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability or expense that is being reported. For a discussion of recent accounting pronouncements, see Note 2 —- Summary of Significant Accounting Policies in the notes to the consolidated financial statements.

Equity Method Investment

We account for our investment in affiliates using the equity method of accounting whereby, after valuing the initial investment, we recognize our proportional share of results of operations of the affiliate in its consolidated financial statements. EquityThe value of equity method investments are reviewed periodically foradjusted if it is determined that there is an other-than-temporary decline in value. The Company reviews equity method investments for an other-than-temporary decline in value when events or circumstances indicate that a decline in the fair value of the investment below its carrying value is other-than-temporary. Our investment in the LGJV is presented as investment in affiliates in the consolidated balance sheet. The difference between the carrying amount of the investment in affiliates and our equity in the LGJV’s net assets is due to value of mineral resources at MPR. We incurhave historically incurred certain costs on behalf of the LGJV, primarily related to a project development loan arrangement fee.fee, and may incur such fees from time to time in the future. Our proportional


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share of such costs are reported as an investment in affiliate and the residual costs, related to Dowa’s proportional ownership, are reported in the statement of loss.
income (loss).

Mineral Properties and Carrying Value of Long-Lived Assets

(LGJV)

Mineral property acquisition costs are recorded at cost and are deferred until the viability of the property is determined. Exploration, mineral property evaluation, option payments, related acquisition costs for mineral properties acquired under option agreements, general overhead, administrative and holding costs to maintain a property on a care and maintenance basis are expensed in the period they are incurred. When proven and probable mineral reserves are determined for a property, subsequent development costs on the property are capitalized. If a project were to be put into production, capitalized development costs would be depleted on the units of production basis determined by the proven and probable mineral reserves for that project.

Existing proven and probable mineral reserves and value beyond proven and probable mineral reserves, including mineralization other than proven and probable mineral reserves and other material that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting units at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of silver and other commodities that will be obtained after taking into account losses during mining, mineral resources processing and treatment and ultimate sale. Estimates of recoverable minerals from such exploration-stage mineral interests are risk-adjusted based on management’s relative confidence in such materials. In estimating future cash flows, assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected silver and other commodity prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on LOM plans. No impairment tests have been required during the periods presented.

Various factors could impact our ability to achieve our forecasted production schedules from proven and probable mineral reserves. Additionally, production, capital and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. The ability to achieve the estimated quantities of recoverable minerals from exploration-stage mineral interests involves further risks in addition to those factors applicable to mineral interests where proven and probable mineral reserves have been identified, due to the lower level of confidence that the identified mineral resources could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.

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Income and Mining Taxes

We recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows and the application of existing tax laws in the United States and Mexico. Refer to “— Critical“-Critical Accounting Policies — MineralPolicies-Mineral Properties and Carrying Value of Long-Lived Assets” above for a discussion of the factors that could cause future cash flows to differ from estimates. To the extent that future cash flows and taxable income differ significantly from estimates, our ability to realize deferred tax assets recorded at the balance sheet date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which we operate could limit our ability to obtain the future tax benefits represented by our deferred tax assets recorded at the reporting date.

Our properties involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal,


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state and Mexico tax audits. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues, if any, in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If an estimate of tax liabilities proves to be greater than the ultimate assessment, a tax benefit would result. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Common Stock Valuation
We estimated the fair value of our common stock in 2019, and prior to October 2020, based on resource multiples, discounted cash flows, comparable property values, comparable public company equity values, changes in comparable public company equity values, and a discount for a lack of marketability. Prior to the IPO, based on this market data, the corresponding fair value of our common stock was used in valuing the options and DSUs granted in 2019 and 2020. At and subsequent to the IPO, the fair value of our common stock was based on the market price of our common stock on the grant date.

Recently Issued and Adopted Accounting Pronouncements

Refer to Note 2 of our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Report.

Jumpstart Our Business Startups Act of 2012

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits us, as an “emerging growth company,” to, among other things, take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. The decision to opt out of the extended transition period under the JOBS Act is irrevocable.

Non-GAAP Financial Measures

We use certain measures that are not defined by GAAP to evaluate various aspects of our business. These non-GAAP financial measures are intended to provide additional information only and do not have any standardized meaning prescribed by GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP.

Cash Costs and All-In Sustaining Costs

Cash costs and all-in sustaining costs (“AISC”) are non-GAAP measures. AISC was calculated based on guidance provided by the World Gold Council (“WGC”). WGC is not a regulatory industry organization and does not have the authority to develop accounting standards for disclosure requirements. Other mining companies may calculate AISC differently as a result of differences in underlying accounting principles and policies applied, as well as definitional differences of sustaining versus expansionary (i.e. non-sustaining) capital expenditures based upon each company’s internal policies. Current GAAP measures used in the mining industry, such as cost of sales, do not capture all of the expenditures incurred to discover, develop and sustain production. Therefore, we believe that cash costs and AISC are non-GAAP measures that provide additional information to management, investors and analysts that aid in the understanding of the economics of the Company’s operations and performance and provides investors visibility by better defining the total costs associated with production.

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Cash costs include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, treatment and refining costs, general and administrative costs, royalties and mining production taxes. AISC includes total production cash costs incurred at the LGJV’s mining operations plus sustaining capital expenditures. The Company believes this measure represents the total sustainable costs of producing silver from current operations and provides additional information of the LGJV’s operational performance and ability to generate cash flows. As the measure seeks to reflect the full cost of silver production from current operations, new project and expansionary capital at current operations are not included. Certain cash expenditures such as new project spending, tax payments, dividends, and financing costs are not included.

Reconciliation of expenses (GAAP) to non-GAAP measures

The table below presents a reconciliation between the most comparable GAAP measure of the LGJV’s expenses to the non-GAAP measures of (i) cash costs, (ii) cash costs, net of by-product credits, (iii) co-product all-in sustaining costs and (iv) by-product all-in sustaining costs for our operations.

The calculations for determining co-product and by-product cash cost and co-product and by-product AISC per ounce were updated to include period end accruals for sales (both volume and value for payable metals). In addition, the calculation for determining silver equivalent ounces used for co-product cash cost per ounce and co-product AISC per ounce was updated to include final settlements in the calculation of the realized metal prices. The prior period comparatives were updated to reflect this change however the cash cost and AISC per ounce calculated on this basis is not materially different from the cash cost and AISC cost per ounce previously reported

​

​

​

​

​

​

​

​

​

Years Ended December 31,

(in thousands, except unit costs)

    

2022

    

2021

Cost of sales

​

$

107,075

​

$

97,710

Royalties

​

​

3,069

​

​

4,781

Exploration

​

​

9,800

​

​

5,383

General and administrative

​

​

14,307

​

​

13,345

Depreciation, depletion and amortization

​

​

69,380

​

​

52,402

Total expenses

​

$

203,631

​

$

173,621

Depreciation, depletion and amortization

​

​

(69,380)

​

​

(52,402)

Exploration1

​

 

(9,800)

​

 

(5,383)

Treatment and refining costs2

​

 

21,871

​

 

21,601

Cash costs (A)

​

$

146,322

​

$

137,437

Sustaining capital

​

​

76,526

​

​

72,979

All-in sustaining costs (B)

​

$

222,848

​

$

210,416

By-product credits3

​

 

(125,782)

​

 

(103,571)

All-in sustaining costs, net of by-product credits (C)

​

$

97,066

​

$

106,845

Cash costs, net of by-product credits (D)

​

$

20,540

​

$

33,866

​

​

​

​

​

​

​

Payable ounces of silver equivalent4 (E)

​

​

15,552

​

​

11,045

Co-product cash cost per ounce of payable silver equivalent (A/E)

​

$

9.41

​

$

12.44

Co-product all-in sustaining cost per ounce of payable silver equivalent (B/E)

​

$

14.33

​

$

19.05

​

​

​

​

​

​

​

Payable ounces of silver (F)

​

​

9,482

​

​

6,797

By-product cash cost per ounce of payable silver (D/F)

​

$

2.17

​

$

4.98

By-product all-in sustaining cost per ounce of payable silver (C/F)

​

$

10.24

​

$

15.72

1Exploration costs are not related to current mining operations.
2Represent reductions on customer invoices and included in Revenue of the LGJV combined statement of income (loss).
3By-product credits reflect realized metal prices of zinc, lead and gold for the applicable period, which includes any final settlement adjustments from prior periods.
4Silver equivalents utilize the average realized prices during the year ended December 31, 2022, of $20.72/oz silver, $1.58/lb zinc, $0.90/lb lead and $1,678/oz gold and the average realized prices during the year ended December 31, 2021, of $24.38/oz silver, $1.38/lb zinc, $1.01/lb lead and $1,761/oz gold. The average realized prices are determined based on revenue inclusive of final settlements.

​

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Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company and are not required to provide disclosure pursuant to this Item.

​

Commodity Price Risk
On September 1, 2019, the LGJV commenced production of silver and concentrates containing silver, lead, zinc, antimony and gold at the CLG. Accordingly, we expect the principal source of future revenue to be the sale of silver, and to a lesser extent, lead and zinc. A significant and sustained decrease in the price of these metals from current levels could have a material and negative impact on our business, financial condition and results of operations.
Foreign Currency Risk
Although most of our expenditures are in U.S. dollars, certain purchases of labor, operating supplies and capital assets are denominated in other currencies, primarily the Mexican peso. As a result, currency exchange fluctuations may impact the costs of our operations.
Concentration of Risk
We have placed nearly all of our cash investments with a single, high-quality financial institution. All cash equivalents are invested in high-quality, short-term money market instruments, including certificates of deposit. At no time have we had funds invested in asset-backed commercial paper. We have not experienced any losses on our cash investments.

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Item 8.  Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

​

Gatos Silver, Inc. Consolidated Financial Statements

​

​​​​​​

​

Report of Independent Registered Public Accounting Firm - EY

(PCAOB ID 1263)

​

​​​68​​

58

​

Consolidated Balance Sheets as of December 31, 20202022 and 20192021

​

​​​69​​

59

​

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020,2022 and 20192021

​

​​​70​​

60

​

Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 20202022 and
2019 2021

​

​​​71​​

61

​

Consolidated Statements of Cash Flows for the years ended December 31, 20202022 and 20192021

​

​​​72​​

62

​

Notes to the Consolidated Financial Statements

​

​​​73​​

63

​

​

​

Los Gatos Joint Venture Combined Financial Statements

​

​

​​​​​

​

Independent Auditor’s Report - EY

Report of Independent Registered Public Accounting Firm

​

​​​​90​​

79

​

Combined Balance Sheets as of December 31, 20202022 and 20192021

​

​​​91​​

81

​

Combined Statements of LossIncome for the years ended December 31, 2020,2022 and 20192021

​

​​​92​​

82

​

Combined Statements of Owner’s Capital for the years ended December 31, 20202022 and 20192021

​

​​​93​​

83

​

Combined Statements of Cash Flows for the years ended December 31, 20202022 and 20192021

​

​​​94​​

84

​

Notes to the Combined Financial Statements

​

​​​95​​

85

​

​

​

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of
Directors of Gatos Silver Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Gatos Silver Inc. and subsidiaries (the Company)“Company”) as of December 31, 20202022 and 2019,2021, the related consolidated statements of operations and comprehensive loss, shareholders’income (loss), shareholders' equity, (deficit), and cash flows for the years then ended, , and the related notes (collectively the consolidatedreferred to as “consolidated financial statements)statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for the years then ended in conformityaccordance with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our auditsaudit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.

/s/ KPMGErnst and Young LLP

Chartered Professional Accountants

Licensed Public Accountants

​

We have served as the Company’sCompany's auditor since 2011.2022.

​

Toronto, Canada

June 26, 2023

​

​

Denver, Colorado
March 29, 2021

58


68

Table of Contents

TABLE OF CONTENTS​

GATOS SILVER, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,

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

​

​

​

​

​

​

​

​

​

​

​

    

Notes

    

2022

    

2021

ASSETS

​

​

 

​

  

 

​

  

Current Assets

​

​

 

​

  

 

​

  

Cash and cash equivalents

​

​

​

$

17,004

​

$

6,616

Related party receivables

​

6

​

 

1,773

​

 

1,592

Other current assets

​

3

​

 

16,871

​

 

3,558

Total current assets

​

​

​

 

35,648

​

 

11,766

Non-Current Assets

​

​

​

 

​

​

 

​

Investment in affiliates

​

14

​

 

347,793

​

 

333,447

Other non-current assets

​

​

​

​

60

​

​

35

Total Assets

​

​

​

$

383,501

​

$

345,248

LIABILITIES AND SHAREHOLDERS’ EQUITY

​

​

​

 

  

​

 

  

Current Liabilities

​

​

​

 

  

​

 

  

Accounts payable, accrued and other liabilities

​

5

​

$

26,358

​

$

1,406

Non-Current Liabilities

​

​

​

 

  

​

 

  

Credit Facility, net of debt issuance costs

​

11

​

 

8,661

​

 

12,620

Shareholders’ Equity

​

​

​

 

  

​

 

  

Common Stock, $0.001 par value; 700,000,000 shares authorized; 69,162,223 and 69,162,223 shares outstanding as of December 31, 2022 and December 31, 2021, respectively

​

​

​

 

117

​

 

117

Paid-in capital

​

​

​

 

547,114

​

 

544,383

Accumulated deficit

​

​

​

 

(198,749)

​

 

(213,278)

Total shareholders’ equity

​

​

​

 

348,482

​

 

331,222

Total Liabilities and Shareholders’ Equity

​

​

​

$

383,501

​

$

345,248

​

​

​

​​​2020​​2019​
ASSETS​​​​​​​​​​​​​
Current Assets​​​​​​​​​​​​​
Cash and cash equivalents​​​$150,146​​​​$8,581​​
Deferred financing costs​​​​—​​​​​1,777​​
Related party receivables
​​​​1,727​​​​​6,422​​
Other current assets​​​​3,879​​​​​552​​
Current assets of discontinued operations​​​​—​​​​​1,123​​
Total current assets​​​​155,752​​​​​18,455​​
Non-Current Assets​​​​​​​​​​​​​
Investment in affiliates​​​​109,597​​​​​105,396​​
Property, plant and equipment, net of accumulated depreciation of $948 and $917, respectively​​​​61​​​​​92​​
Non-current assets of discontinued operations​​​​—​​​​​30,352​​
Total Assets​​​$265,410​​​​$154,295​​
LIABILITIES AND SHAREHOLDERS’ EQUITY​​​​​​​​​​​​​
Current Liabilities​​​​​​​​​​​​​
Accounts payable and other accrued liabilities​​​$4,024​​​​$2,817​​
Current liabilities of discontinued operations​​​​—​​​​​648​​
Total current liabilities​​​$4,024​​​​$3,465​​
Non-Current Liabilities​​​​​​​​​​​​​
Non-current liabilities of discontinued operations​​​​—​​​​​1,439​​
Shareholders’ Equity​​​​​​​​​​​​​
Common Stock, $0.001 par value; 700,000,000 shares authorized;
59,183,076 and 40,323,430 shares outstanding as of December 31, 2020
and December 31, 2019(1)
​​​​108​​​​​80​​
Paid-in capital​​​​409,728​​​​​375,921​​
Accumulated deficit​​​​(147,423)​​​​​(225,583)​​
Treasury stock, at cost, 144,589 shares as of December 31, 2020 and
December 31, 2019(1)
​​​​(1,027)​​​​​(1,027)​​
Total shareholders’ equity​​​​261,386​​​​​149,391​​
Total Liabilities and Shareholders’ Equity​​​$265,410​​​​$154,295​​
​

59

(1)
Prior period results have been adjusted to reflect the two-for-one reverse split in October 2020. See Note 1, Description

Table of BusinessContents

GATOS SILVER, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31,

(In thousands of United States dollars, except for details.share and per share amounts)

​

​

​

​

​

​

​

​

​

​

​

    

Notes

    

2022

    

2021

Expenses

​

​

​

​

  

​

​

  

Exploration

​

​

​

$

110

​

$

1,657

General and administrative

​

​

​

 

25,468

​

 

21,447

Amortization

​

​

​

 

180

​

 

89

Total expenses

​

​

​

 

25,758

​

 

23,193

Other income (expense)

​

​

​

 

  

​

 

  

Equity income in affiliates

​

14

​

 

45,230

​

 

42,804

Impairment of investment in affiliates

​

14

​

​

—

​

​

(80,348)

Legal settlement loss

​

10

​

​

(7,900)

​

​

—

Arrangement fees

​

​

​

 

—

​

 

(195)

Interest expense

​

​

​

 

(433)

​

 

(185)

Other income (expense)

​

6

​

 

4,955

​

 

(4,738)

Total other income (expense)

​

​

​

 

41,852

​

 

(42,662)

Income (loss) before taxes

​

​

​

​

16,094

​

​

(65,855)

Income tax expense

​

​

​

​

1,565

​

​

—

Net income (loss)

​

​

​

$

14,529

​

$

(65,855)

Net income (loss) per share:

​

​

​

 

  

​

 

  

Basic

​

​

​

$

0.21

​

$

(1.03)

Diluted

​

​

​

$

0.21

​

$

(1.03)

Weighted average shares outstanding:

​

​

​

​

​

​

​

​

Basic

​

​

​

​

69,162,223

​

​

63,994,693

Diluted

​

​

​

 

69,309,019

​

 

63,994,693

​

​

​

​

​

60

Table of Contents

GATOS SILVER, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Number

​

Amount

    

​

​

    

​

​

    

​

​

​

Common 

​

Treasury 

​

Common 

​

Treasury 

​

Paid-in

​

Accumulated 

​

​

​

    

Stock

    

Stock

    

Stock

    

Stock

    

Capital

    

Deficit

    

Total

Balance at December 31, 2020

 

59,183,076

 

144,589

​

$

108

​

$

(1,027)

​

$

409,728

​

$

(147,423)

 

$

261,386

Stock-based compensation

 

—

 

—

​

 

—

​

 

—

​

 

7,694

​

 

—

 

​

7,694

Issuance of common stock, net

 

9,830,426

 

(144,589)

​

 

9

​

 

1,027

​

 

126,071

​

 

—

 

​

127,107

DSU compensation

​

—

​

—

​

​

—

​

​

—

​

​

1,163

​

​

—

​

​

1,163

DSUs converted to common stock

​

148,721

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Other

 

—

 

—

​

 

—

​

 

—

​

 

(273)

​

 

—

 

​

(273)

Net loss

 

—

 

—

​

 

—

​

 

—

​

 

—

​

 

(65,855)

 

​

(65,855)

Balance at December 31, 2021

 

69,162,223

 

—

​

$

117

​

$

—

​

$

544,383

​

$

(213,278)

 

$

331,222

Stock-based compensation

​

—

​

—

​

​

—

​

​

—

​

​

2,731

​

​

—

​

​

2,731

Net income

​

—

​

—

​

​

—

​

​

—

​

​

—

​

​

14,529

​

​

14,529

Balance at December 31, 2022

​

69,162,223

​

—

​

$

117

​

$

—

​

$

547,114

​

$

(198,749)

​

​

348,482

​

​

​

61

Table of Contents

GATOS SILVER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

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

​

​

​

​

​

​

​

​

​

​

​

    

Notes

    

2022

    

2021

OPERATING ACTIVITIES

​

​

​

​

  

​

​

  

Net loss

​

​

​

$

14,529

​

$

(65,855)

​

​

​

​

​

​

​

​

​

Adjustments to reconcile net loss to net cash used by operating activities:

​

​

​

 

​

​

 

  

Amortization

​

​

​

 

180

​

 

89

Stock-based compensation expense

​

8

​

 

2,840

​

 

7,738

Equity income in affiliates

​

14

​

​

(45,230)

​

​

(42,804)

Impairment of investment in affiliates

​

14

​

​

—

​

​

80,348

Other

​

​

​

 

199

​

 

(260)

Dividends from affiliates

​

14

​

​

30,775

​

​

—

​

​

​

​

​

​

​

​

​

Changes in operating assets and liabilities:

​

​

​

 

​

​

 

  

Receivables from related‑parties

​

​

​

 

(180)

​

 

134

Accounts payable and other accrued liabilities

​

​

​

 

24,632

​

 

(1,196)

Other current assets

​

​

​

​

(13,191)

​

​

321

Net cash generated from (used by) operating activities

​

​

​

 

14,554

​

 

(21,485)

​

​

​

​

​

​

​

​

​

INVESTING ACTIVITIES

​

​

​

 

  

​

 

  

Purchase of property, plant and equipment

​

​

​

 

(60)

​

 

—

Investment in affiliates

​

14

​

 

—

​

 

(261,439)

Net cash used by investing activities

​

​

​

 

(60)

​

 

(261,439)

​

​

​

​

​

​

​

​

​

FINANCING ACTIVITIES

​

​

​

 

  

​

 

  

Credit Facility (repayment) receipt

​

11

​

​

(4,000)

​

​

13,000

Financing costs

​

​

​

​

(106)

​

​

(7,277)

Issuance of common stock

​

8

​

 

—

​

 

133,085

Issuance of treasury stock

​

​

​

 

—

​

 

1,027

Other

​

​

​

 

—

​

 

(441)

Net cash (used in) generated from financing activities

​

​

​

 

(4,106)

​

 

139,394

Net increase (decrease) in cash and cash equivalents

​

​

​

 

10,388

​

 

(143,530)

Cash and cash equivalents, beginning of period

​

​

​

 

6,616

​

 

150,146

Cash and cash equivalents, end of period

​

​

​

​

17,004

​

​

6,616

​

​

​

​

​

​

​

​

​

Interest paid

​

​

​

$

645

​

$

168

Supplemental disclosure of noncash transactions:

​

​

​

 

  

​

 

  

Director fees in accrued liabilities converted to deferred share units

​

​

​

$

—

​

$

306

Recognition of Right of Use Asset and Lease Liability

​

​

​

$

128

​

$

—

​

See accompanying notes to the consolidated financial statements.

​

​

62

69

TABLE OF CONTENTSTable of Contents​


GATOS SILVER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except for share and per share amounts)

​​​2020​​2019​
Expenses​​​​​​​​​​​​​
Exploration​​​$785​​​​$923​​
General and administrative​​​​7,765​​​​​2,903​​
Amortization​​​​30​​​​​34​​
Total expenses​​​​8,580​​​​​3,860​​
Other expense (income)​​​​​​​​​​​​​
Dilution loss in affiliates​​​​—​​​​​11,231​​
Equity loss in affiliates​​​​17,585​​​​​12,865​​
Arrangement fees​​​​4,843​​​​​2,988​​
Interest expense​​​​4,047​​​​​—​​
Other income​​​​(28)​​​​​(36)​​
Net other expense​​​​26,447​​​​​27,048​​
Net loss from continuing operations​​​$35,027​​​​$30,908​​
Loss from discontinued operations​​​​5,414​​​​​6,910​​
Net loss​​​$40,441​​​​$37,818​​
Other comprehensive (gain) loss​​​​​​​​​​​​​
Unrealized gain on securities, net of tax, from discontinued operations​​​​—​​​​​(32)​​
Comprehensive loss from continuing operations​​​​35,027​​​​​30,908​​
Comprehensive loss from discontinued operations​​​​5,414​​​​​6,878​​
Comprehensive loss​​​$40,441​​​​$37,786​​
Net loss per share:​​​​​​​​​​​​​
From continuing operations, basic and diluted(1)
​​​$0.80​​​​$0.79​​
From discontinued operations, basic and diluted(1)
​​​$0.13​​​​$0.18​​
Basic and diluted(1)
​​​$0.93​​​​$0.97​​
Weighted average shares outstanding:​​​​​​​​​​​​​
Basic and diluted(1)
​​​​43,655,601​​​​​38,967,038​​
​
(1)
Prior period results have been adjusted to reflect the two-for-one reverse split in October 2020. See Note 1, Description of Business for details.
​
See accompanying notes to the consolidated financial statements.
70

TABLE OF CONTENTS​

GATOS SILVER, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(In thousands, except for share and per share amounts)
​​​
Number(1)
​​Amount​​
Paid-in
Capital
​​
Accumulated
Deficit
​​
Other
Comprehensive
Income (Loss)
​​
Total
Shareholders’
Equity
​
​
Common
Stock
​​
Treasury
Stock
​​
Common
Stock
​​
Treasury
Stock
​
Balance at December 31, 2018​​​​36,951,274​​​​​144,589​​​​$74​​​​$(1,027)​​​​$331,802​​​​$(187,765)​​​​$(32)​​​​$143,052​​
Stock-based compensation​​​​—​​​​​—​​​​​—​​​​​—​​​​​3,219​​​​​—​​​​​—​​​​​3,219​​
Issuance of common stock​​​​3,372,156​​​​​—​​​​​6​​​​​—​​​​​40,459​​​​​—​​​​​—​​​​​40,465​​
Unrealized gain on investments, net of tax​​​​—​​​​​—​​​​​—​​​​​—​​​​​—​​​​​—​​​​​32​​​​​32​​
Deferred share unit compensation​​​​—​​​​​—​​​​​—​​​​​—​​​​​491​​​​​—​​​​​—​​​​​491​​
Other​​​​—​​​​​—​​​​​—​​​​​—​​​​​(50)​​​​​—​​​​​—​​​​​(50)​​
Net loss​​​​—​​​​​—​​​​​—​​​​​—​​​​​—​​​​​(37,818)​​​​​—​​​​​(37,818)​​
Balance at December 31, 2019​​​​40,323,430​​​​​144,589​​​​$80​​​​$(1,027)​​​​$375,921​​​​$(225,583)​​​​$—​​​​$149,391​​
Stock-based compensation​​​​—​​​​​—​​​​​—​​​​​—​​​​​4,563​​​​​—​​​​​—​​​​​4,563​​
Issuance of common stock, net​​​​24,644,500​​​​​—​​​​​25​​​​​—​​​​​155,612​​​​​—​​​​​—​​​​​155,637​​
Convertible note conversion​​​​2,712,003​​​​​—​​​​​3​​​​​—​​​​​18,981​​​​​—​​​​​—​​​​​18,984​​
Deferred salary conversion​​​​47,061​​​​​—​​​​​—​​​​​—​​​​​329​​​​​—​​​​​—​​​​​329​​
Deferred share unit compensation​​​​—​​​​​—​​​​​—​​​​​—​​​​​61​​​​​—​​​​​—​​​​​61​​
Distribution from Reorganization​​​​(8,543,918)​​​​​—​​​​​—​​​​​—​​​​​(145,780)​​​​​118,601​​​​​—​​​​​(27,179)​​
Other​​​​—​​​​​—​​​​​—​​​​​—​​​​​41​​​​​—​​​​​—​​​​​41​​
Net loss​​​​—​​​​​—​​​​​—​​​​​—​​​​​—​​​​​(40,441)​​​​​—​​​​​(40,441)​​
Balance at December 31, 2020​​​​59,183,076​​​​​144,589​​​​$108​​​​$(1,027)​​​​$409,728​​​​$(147,423)​​​​$—​​​​$261,386​​
​
(1)
Prior period results have been adjusted to reflect the two-for-one reverse split in October 2020. See Note 1, Description of Business for details.
​
See accompanying notes to the consolidated financial statements.
71
TABLE OF CONTENTS​

GATOS SILVER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except for share and per share amounts)
​​​2020​​2019​
OPERATING ACTIVITIES​​​​​​​​​​​​​
Net loss​​​$(40,441)​​​​$(37,818)​​
Plus net loss from discontinued operations​​​$5,414​​​​$6,910​​
Adjustments to reconcile net loss to net cash used by operating activities:​​​​​​​​​​​​​
Amortization​​​​30​​​​​34​​
Dilution loss in affiliates​​​​—​​​​​11,231​​
Stock compensation expense​​​​4,368​​​​​3,007​​
Equity loss in affiliates​​​​17,585​​​​​12,865​​
Interest expense on convertible notes beneficial conversion terms​​​​3,984​​​​​—​​
Other​​​​329​​​​​—​​
Changes in operating assets and liabilities:​​​​​​​​​​​​​
Receivables from related-party​​​​(4,752)​​​​​(5,078)​​
Accounts payable and other accrued liabilities​​​​2,027​​​​​549​​
Other current assets​​​​(3,479)​​​​​22​​
Operating cash flows from discontinued operations​​​​(3,453)​​​​​(4,017)​​
Net cash used by operating activities​​​​(18,388)​​​​​(12,295)​​
INVESTING ACTIVITIES​​​​​​​​​​​​​
Transfers of restricted cash to cash​​​​151​​​​​—​​
Investment in affiliates​​​​(12,298)​​​​​(21,371)​​
Investing cash flows from discontinued operations​​​​18​​​​​(534)​​
Net cash used by investing activities​​​​(12,129)​​​​​(21,905)​​
FINANCING ACTIVITIES​​​​​​​​​​​​​
Issuance of common stock​​​​160,436​​​​​40,465​​
Related-party convertible notes​​​​15,000​​​​​—​​
Deferred financing costs​​​​(4,039)​​​​​(637)​​
Other​​​​260​​​​​—​​
Financing cash flows from discontinued operations​​​​807​​​​​—​​
Net cash provided by financing activities​​​​172,464​​​​​39,828​​
Net increase in cash and cash equivalents​​​​141,947​​​​​5,628​​
Cash and cash equivalents, beginning of period​​​​9,085​​​​​3,457​​
Cash and cash equivalents, end of period​​​​151,032​​​​​9,085​​
Less cash of discontinued operations​​​​886​​​​​504​​
Cash of continuing operations, end of period​​​$150,146​​​​$8,581​​
Supplemental disclosure of noncash transactions:​​​​​​​​​​​​​
Director Compensation​​​$61​​​​$491​​
Deferred financing costs included in accrued liabilties​​​$—​​​​$1,132​​
Conversion of related party receivable into investment in affiliate​​​$9,448​​​​$—​​
Conversion of convertible notes to equity​​​$15,000​​​​$—​​
Deferred financing costs included in accounts payable and accrued liabilties​​​$1,118​​​​$—​​
Underwriting fees recorded to deferred financing costs​​​$(12,076)​​​​$—​​
Deferred financing costs charged to equity​​​$16,874​​​​$—​​
See accompanying notes to the consolidated financial statements.
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GATOS SILVER, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of United States dollars, except share, per share, option, and stock unit amounts)

​

1.

Description of Business
​

Organization and Nature of Business

Gatos Silver, Inc. (“Gatos Silver” or “the Company”) is a silver dominant production,exploration, development and exploration,production company that discovered a new silver, lead and zinc-rich mineral district in southern Chihuahua State, Mexico.

The Company’s primary efforts are focused on the operation of the Los Gatos Joint Venture (“LGJV”) in Chihuahua, Mexico. On January 1, 2015, the Company entered into the LGJV to develop the Los Gatos District (“LGD”) with Dowa Metals and Mining Co., Ltd. (“Dowa”). The LGJV operatingOperating entities consistconsisted of Minera Plata Real S. de R.L. de C.V (“MPR”), Operaciones San Jose del Plata S. de R.L. de C.V. and Servicios San Jose del Plata S. de R.L. de C.V. (“Servicios”) (collectively, the “LGJV Entities”). Effective July 15, 2021, Servicios was merged into MPR.

Dowa acquired a 30% interest in the LGJV and the right to purchase future zinc-concentrate production at market rates by completing its $50,000 funding requirement on April 1, 2016. The LGJV completed an advanced definitional drilling and decline development program in 2016, a feasibility study in January 2017 and a technical update to the feasibility study in July 2020. Dowa completed its $50,000 funding requirement on April 1, 2016 thereby initially acquiring a 30% interest inOn January 25, 2022, the LGJV andCompany announced that the right to purchase future zinc-concentrate production at market rates.July 2020 technical report should not be relied upon. In May 2019, Dowa increased its ownership interest by 18.5% to 48.5% through the conversion of the Dowa MPR Loan to equity. On March 11, 2021, the Company repurchased the 18.5% interest from Dowa.Dowa for a total consideration of $71,550, including Dowa holding costs of this incremental interest, increasing the Company’s ownership in the LGJV Entities to 70.0%. These transactions resulted in a $47,400 higher basis than the underlying net assets of the LGJV Entities. See Note 10 —- Commitment, Contingencies and Guarantees for further discussion. The LGJV ownership is currently 70% Gatos Silver and 30% Dowa. Despite owning the majority interest in the LGJV, the Company does not exercise control over the LGJV due to certain provisions contained in the Unanimous Omnibus Partner Agreement that currently require unanimous partner approval of all major operating decisions.

On September 1, 2019, the LGJV commenced commercial production of its two concentrate products: a lead concentrate and a zinc concentrate. The LGJV’s lead and zinc concentrates are currently sold to third-party customers.

On March 30, 2020, in response to the coronavirus pandemic, the Mexican government issued a temporary suspension of all non-essential activities. Accordingly, the LGJV temporarily suspended non-essential activities. The LGJV resumed mining operations in late May 2020 as permitted by the Mexican government.
The Company will be performing additional definitional drilling to further define and expand mineralization of the CLG, as well as continuing definitional and exploratory drilling at the nearby Esther deposit. On December 5, 2020, the LGJV began drilling the first program, an infill and extensional drilling program at the Cerro Los Gatos deposit.

The Company’s other regional Mexico exploration efforts outside of the LGJV district are conducted through its wholly-owned subsidiary, Minera Luz del Sol S. de R.L. de C.V. (“MLS”).

Discontinued Operations — Sunshine Complex
The Company has conducted an advanced In 2021, MLS completed a 5,400-meter exploration drilling program and a rehabilitation program to improve certain mining infrastructure at the Sunshine Complex. The Sunshine Complex,on its wholly-owned Santa Valeria project, located in the Coeur d’Alene Mining District in Idaho, is comprised of the Sunshine Mine and the Sunshine Big Creek Refinery. The Sunshine Mine is currently on care and maintenance, with a continued but reduced program of infrastructure improvement. In conjunction with the Company’s initial public offering (“ IPO”), all equity interest in the Company's wholly-owned subsidiary, SOP, who holds an interest in the Sunshine Complex, was distributed to its stockholders, creating Silver Opportunity Partners Corporation, which subsequently was renamed Sunshine Silver Mining & Refining Corporation, and is presented as discontinued operations in the Company’s consolidated financial statements for the years ended December 31, 2020 and 2019. Pursuant to the distribution and discontinued operations presentation, certain costs, assets and liabilities are removed

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approximately 15 kilometers from the consolidated financial statements, including but not limited to, mineral properties, property, plant and equipment and asset retirement obligation. See Note 12 — Discontinued Operations for further discussion.
Initial Public Offering and Reorganization
On October 30, 2020, the Company completed an IPO of 21,430,000 shares of its common stock at a price of $7.00 per share, resulting in gross proceeds from the IPO of $150,010 and its shares trading on the New York Stock Exchange and the Toronto Stock Exchange. On November 10, 2020, the Company issued an additional 3,214,500 shares of common stock at a price of $7.00 per share, through the exercise of the over-allotment option, with gross proceeds from the additional issuance of $22,502. The Company received net proceeds of approximately $155,750 thousand from these issuances of common stock, after deducting underwriting discounts and commissions and expenses payable by us.
Cerro Los Gatos deposit.

In conjunction with the IPO, we effected a reorganization (the “Reorganization”) in which (i) the Company changed its name from Sunshine Silver Mining & Refining Corporation toDecember 2021, Gatos Silver Inc., (ii) Silver Opportunity Partners LLC, which held the Company’s interestCanada Corporation (“GSC”) was formed to house certain corporate employees based in the Sunshine Complex in Idaho, comprised of the Sunshine Mine and the Sunshine Big Creek Refinery, became a wholly owned subsidiary of a newly created Delaware corporation named Silver Opportunity Partners Corporation (“SOP”), (iii) all equity interest in SOP was distributed to its shareholders, and (iv) each share of the Company’s common stock was split at a ratio of two-for-one (the “Reverse Split”). The Reverse Split did not have any effect on the stated par value of the Company’s common stock and the rights and privileges of the holders of shares of Common Stock were unaffected. All common stock and options outstanding immediately prior to the Reverse Split were appropriately adjusted by dividing the number of shares of common stock into which the options are exercisable or convertible by two and multiplying the exercise or conversion price thereof by two.

Canada.

​

2.

Summary of Significant Accounting Policies
​

Basis of Consolidation and Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) and include the accounts of Gatos Silver and its subsidiaries, GSC and MLS. All Company subsidiaries are consolidated. All significant intercompany balances and transactions have been eliminated. All equity interest in the Company’s wholly-owned subsidiary, SOP, was distributed to its stockholders in October 2020. The accounts for SOP have been presented as discontinued operations in the accompanying consolidated financial statements. Prior year amounts have also been modified in these financial statements to properly report amounts under current operations and discontinued operations. See Note 12 — Discontinued Operations for further discussion.

All common stock shares, options and deferred stock units amounts and prices in the consolidated financial statements have been adjusted for the Reverse Split.

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Equity method investment

The Company accounts for its investment in affiliates using the equity method of accounting whereby, after valuing the initial investment, the Company recognizes its proportional share of results of operations of the affiliate in its consolidated financial statements. EquityThe value of equity method investments are reviewed periodically foradjusted if it is determined that there is an other-than-temporary decline in value. The Company’s investment in the LGJV Entities is presented as Investment in affiliates in the consolidated balance sheet. The basis difference between the carrying amount of the investment in affiliates and the Company’s equity in the LGJV Entities’ net assets is due to value of the LGJV mineral resources. This basis difference is amortized on a units of production basis as the mineral resource is produced.

mined.

The Company incursincurred certain costs on behalf of the LGJV, primarily related to a project development loan arrangement fee. The Company’s proportional share of such costs are reported as an investment in affiliate and the residual costs, related to Dowa’s proportional ownership, are reported in the statement of lossincome (loss) as arrangement fees.


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Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include mineral properties; environmental reclamation and closure obligations;are valuation of stock and stock options; valuation allowances for deferred tax assets; and the fair value of financial instruments.

instruments and investment in affiliates. At the LGJV, significant items subject to such estimates and assumptions include mineral properties, life of mine revenue and cost assumptions, mineral resource conversion rates to mineral reserves; environmental reclamation and closure obligations and valuation allowances for deferred tax assets.

Functional currency and translation of foreign currencies

The U.S. dollar is the functional currency of the Company and its subsidiaries. Monetary assets and liabilities denominated in foreign currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting gains or losses reported in foreign exchange (gain) loss in the statement of operations and comprehensive loss.income (loss). Non-monetary assets and liabilities are translated at historical exchange rates. Expenses and income items denominated in foreign currencies are translated into U.S. dollars at historical exchange rates.

Cash and cash equivalents

The Company considers all highly liquid short-term investments with a maturity of three months or less when purchased to be cash equivalents. Restricted cash, included

Other than temporary impairment - investment

A loss in other current assets, consists of cash and investments held as collateral for a letter of credit and other extensions of credit.

Property, plant and equipment
Property, plant and equipment are recorded at cost. Amortization of plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of furniture, fixtures and computers range from three to 10 years.
Impairment of long-lived assets
Long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an assetinvestment that is other than a temporary decline shall be recognized. Evidence of such losses might include, but are not limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. A current fair value of an investment that is less than its carrying amount may not be recoverable.indicate a loss in value of the investment. If circumstances require a long-lived asset or asset group to bean investment is tested for possible impairment,an other than temporary decline in value, the Company will first compares undiscountedestimate the fair value of the investment based on discounted cash flows expectedthen compare it to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value.investment. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There were no impairmentsWe recognized an impairment on our Investment in Affiliate in 2021. See Note 14 – Investment in Affiliates for the years ended December 31, 2020 and 2019.
further discussion.

Stock-based compensation

The Company recognizes all employee stock-based compensation as a cost in the consolidated financial statements. Equity-classified awards are measured at the grant date fair value of the award. Stock-based compensation expense is included as a component of general and administrative expense over the requisite service period of the award.

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The Company estimates grant date fair value of stock options are estimated using the Black-Scholes option-pricing model using the grant datemodel. The fair value of performance share price, estimated amounts for volatility of the Company’s stockunits (“PSUs”), which are subject to vesting based on the historical volatilityCompany’s attainment of a grouppre-established market performance goals, are estimated using a Monte Carlo simulation valuation model. The Company’s estimates may be impacted by certain variables including, but not limited to, stock price volatility, estimates of peer companies’ common stock over the expected option life, the expected life of the awards, the fair value of the underlying shares,forfeitures, the risk-free interest rate, expected dividend yields, and the expected dividend yield.Company’s performance. The Company estimates forfeitures of stock-based awards based on historical data and periodically adjusts the forfeiture rate. The adjustment of the forfeiture rate is recorded as a cumulative adjustment in the period the forfeiture estimate is changed. Stock-based compensation expense is included as a component of either exploration or general and administrative expense over the requisite service period of the award.

Net lossincome (loss) per share

Basic and diluted lossearnings (loss) per share are presented for net income (loss) attributable to common shareholders. Basic net earnings (loss) per share is computed by dividing the net lossincome (loss) available to common stockholders by the weighted-average number of common stock shares outstanding, including deferred stock units


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(“DSUs”), for the respective period presented. ForDiluted net earnings (loss) per share is computed similarly, except that weighted-average common shares is increased to reflect the years ended December 31, 2020 and 2019,potential dilution that would occur if stock options have beenwere exercised, or PSUs were converted into common stock. The effects of the Company’s dilutive securities are excluded from the dilutive earnings per share calculation asof diluted weighted-average common shares outstanding if their effect would be anti-dilutive.
anti-dilutive based on the treasury stock method or due to a net loss.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Recently issued and adopted accounting standards

In February 2016,March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Accounting Standards Board (the “FASB”Reporting (“ASU 2020-04”) followed by ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which will require lesseesin January 2021, to recognize assetsprovide clarifying guidance regarding the scope of Topic 848. ASU 2020-04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. Generally, the guidance is to be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. ASU 2020-04 and liabilitiesASU 2021-01 are effective for all entities through December 31, 2022. The Company has not elected to use the optional guidance and continues to evaluate the options provided by ASU 2020-04 and ASU 2021-01. The Company does not consider the standards to have a material impact on its financial statements.

In September 2022, the FASB issued ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosures of Supplier Finance Program Obligations. The ASU requires entities that use supplier finance programs (that are in the scope of the ASU) in connection with the purchase of goods and services to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. The amendments are effective for all entities for fiscal years beginning after 15 December 2022, including interim periods within those fiscal years, except for the rights and obligations created by most leasesamendment on the balance sheet. These changes becomeroll forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. In the Company’s fiscal year beginning January 1, 2022.period of initial adoption, the amendments should be applied retrospectively to all periods in which a balance sheet is presented, except for the roll forward requirement, which should be applied prospectively. The Company is still assessing the impact of the standard but does not expect there will bethe standard to have a material impact to the Company’son its financial statements.

In

As of December 2019, the FASB31, 2022, there are no additional recently issued ASU No. 2019-12, Income Taxes (Topic 740) to simplify and enhanceor adopted accounting for income taxes. This update is effective in fiscal years, beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, and early adoption is permitted. The Company is still assessing the impact of the standard but does not expect there will bethat could have a material impact to the Company’son our financial statements.

​

3.

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3.Other Current Assets

​

​​​
December 31,
2020
​​
December 31,
2019
​
Value added tax receivable​​​$318​​​​$213​​
Restricted cash​​​​—​​​​​151​​
Prepaid expenses​​​​3,560​​​​​157​​
Deposits and other​​​​1​​​​​31​​
Total other current assets​​​$3,879​​​​$552​​

​

​

​

​

​

​

​

​

    

December 31, 

    

December 31, 

​

​

2022

​

2021

Value added tax receivable

​

$

730

​

$

575

Prepaid expenses

​

​

2,890

​

 

2,976

Insurance proceeds receivable

​

​

13,100

​

​

—

Other assets

​

​

151

​

​

7

Total other current assets

​

$

16,871

​

$

3,558

​

Included in other current assets is a corporate head office lease of $122 with the term until January 30, 2024. The corresponding current and non-current lease liabilities of $112 and $10, respectively, are included in accounts payable, accrued and other liabilities. The insurance proceeds receivable represents the insurance payable by the Company’s insurers to claimants on behalf of the Company related to the settlement of the U.S. class action lawsuit. See footnote 10 – Commitments, Contingencies and Guarantees, for further discussion on the U.S. class action lawsuit and related settlement discussion.

​

​

​

4.

Property, Plant and Equipment, net

​

Mineral Properties

Mining Concessions

In Mexico, mineral concessions from the Mexican government can only be held by Mexican nationals or Mexican-incorporated companies. The concessions are valid for 50 years and are extendable provided the concessions are kept in good standing. For concessions to remain in good standing a semi-annual fee must be paid to the Mexican government and an annual report describing the work accomplished on the property must be filed. These concessions may be cancelled without penalty with prior notice to the Mexican government. MLS is the concession holder of a series of claims titles granted by the Mexican government. The rights to certain concessions are held through exploration agreements with purchase options, as discussed below:


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Santa Valeria Concession

The Company was required to make monthly payments through 2020 to continue exploration activities and obtain ownership of the Santa Valeria concessions, andconcessions. If production commences, the Company is required to make a production royalty payment of 1% of the net smelter returns on production.returns. The Company may terminate the agreement upon prior notice.

The Company made and expensed mineral lease payments of $414$nil and $409$24 for the years ended December 31, 20202022, and 2019,2021, respectively.

​

​

5.

Accounts Payable, Accrued and Other Accrued Liabilities

​

​

​

​

​

​

​

​

​

    

December 31, 

    

December 31, 

​

​

2022

​

2021

Accounts payable

​

$

586

​

$

196

Accrued expenses

​

 

2,761

​

 

623

Accrued compensation

​

 

1,889

​

 

587

Legal settlement payable

​

​

21,000

​

​

—

Other liabilities

​

​

122

​

​

—

Total accounts payable, accrued and other liabilities

​

$

26,358

​

$

1,406

​

The legal settlement payable is the liability recorded for the settlement of the class action lawsuit. See footnote 10 – Commitments, Contingencies and Guarantees, for further discussion on the U.S. class action lawsuit and related settlement discussion.

​

​

66

​​​
December 31,
2020
​​
December 31,
2019
​
Accounts payable​​​$560​​​​$60​​
Accrued expenses​​​​1,240​​​​​1,488​​
Accrued compensation​​​​1,964​​​​​1,269​​
Other​​​​260​​​​​—​​
Total accounts payable and other accrued liabilities​​​$4,024​​​​$2,817​​
​
6.

Table of Contents

6.Related-Party Convertible Notes

​
DuringTransactions

LGJV

Under the second quarter of 2020,Unanimous Omnibus Partner Agreement, the Company entered into a convertible note purchase agreement with Electrum Silver US LLC for the issuance of an aggregate of $15,000 of convertible notes. The convertible notes incur an annual interest of 5%. On October 30, 2020, the outstanding $15,000 in convertible notes and $187 in accrued interest were converted into 2,712,003 shares of common stock of the Company as a result of the IPO in accordance with the conversion terms, and the Company incurred non-cash interest expense of $3,984.

7.
Related-Party Transactions
​
Service Agreement
The Company has a services agreement with the LGJV to provideprovides certain consultingmanagement and administrative services.services to the LGJV. The Company earned $3,900$5,000 and $5,100$5,000 under this agreement for the years ended December 31, 20202022 and 2019,2021, respectively, which has been recorded on the statement of income (loss) under other income (expense). The Company received $5,417 and received $766 and $1,950$5,367 in cash from the LGJV under this agreement for the years ended December 31, 20202022 and 2019,2021, respectively. The Company had receivables under this agreement of $1,200$417 and $4,050$833 as of December 31, 20202022 and 2019,2021, respectively. The Company also incurs certain LGJV costs that are subsequently reimbursed by the LGJV. During the year ended December 31, 2020, $5,850 of receivables under this agreement, as well as other outstanding receivables to be reimbursed by the LGJV, were converted to capital of the LGJV, increasing Investment in Affiliates.
Management Services Agreement
Upon completion of the IPO, the

SSMRC

The Company entered intohad a Management Services Agreement with SOP,Sunshine Silver Mining & Refining Corporation (“SSMRC”) (f.k.a. SOP), pursuant to which the Company providesprovided certain limited executive and managerial advisory services to SOPSSMRC until terminated by either party. SOP reimbursesSSMRC reimbursed the Company for costs of such services. The Company earned $41$16 from SOPSSMRC under this agreement in 2020, all of which was receivable as ofduring the year ended December 31, 2020.

8.
2021, and this agreement was terminated effective December 31, 2021.

​

​

7.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. As of December 31, 2020, 59,183,0762022, 69,162,223 shares of common stock are outstanding, and no shares of preferred stock are outstanding.

Common Stock Transactions

During October 2020 in connection with

On July 19, 2021, the Reorganization, each shareCompany completed a follow-on public offering of 8,930,000 shares of common stock was exchanged for approximately 0.39406 sharesat a price of the Company’s common stock (subject to rounding to


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eliminate fractional shares). In October 2020, the Company completed an IPO$14.00 per share, resulting in net proceeds of 21,430,000 common stock shares,$118,894, after deducting underwriting discounts and in November 2020,commissions. On August 18, 2021, the Company issued an additional 3,214,500286,962 shares of common stock sharesat a price of $14.00 per share, through the underwriters’exercise of the over-allotment option, each at $7.00 per share raising an aggregate of $172,512. Underwriting fees incurred in conjunction with net proceeds from the IPO andadditional issuance of additional common stock are recorded as a reduction to Paid-in Capital. In October 2020,$3,837, after deducting underwriting discounts and commissions. Additionally, the Company also issued 47,061 common stock sharesincurred an additional $1,700 in other costs related to executive officers for deferred salary compensation incurred in 2020 and converted the outstanding convertible notes into 2,712,003 common stock shares, each at $7.00 per share.
During May 2019, the Company issued 2,083,334 common stock shares at $12.00 per share raising $25,000 in a private placement. During June 2019, the Company issued 38,822 common stock shares at $12.00 per share raising $465 in a private placement. During July 2019, the Company issued 1,250,000 common stock shares at $12.00 per share raising $15,000 in a private placement.
offering.

Stock-Based Compensation

Equity Compensation Plan

The Company has a Long-Term Incentive Plan under which options and shares of the Company’s common stock are authorized for grant or issuance as compensation to eligible employees, consultants, and members of the Board of Directors. Awards under the plan include stock options, stock appreciation rights, stock awards, deferred stock units, and performance awards. Stock options, performance awards and deferred stock units have been granted by the Company in different periods. As of December 31, 2020,2022, approximately 9.412.3 million shares of common stock were available for grant under the plan. Stock-basedThe Company recognized stock-based compensation expense for the years ended December 31, 2020 and 2019 was $4,368 and $3,007, respectively.

as follows:

​

​

​

​

​

​

​

​

​

​

Years ended December 31,

​

    

2022

    

2021

Stock Options

​

$

2,621

​

$

7,716

PSUs

​

 

219

​

 

22

​

​

$

2,840

​

$

7,738

​

Stock Option Transactions

The Company’s stock options have a contractual term of 10 years and entitle the holder to purchase one share of the Company’s common stock. The options granted to the Company’s employees and LGJV personnel prior to 2020 have a requisite service period of four years and vest in equal annual installments. Starting in 2020, the options granted to the Company’s employees and LGJV personnel have a requisite service period of three years. The sign on options granted to the Company’s then President in June 2021 vest in three equal tranches, the first of which vested immediately, and the remainder on the first and second anniversaries of employment with the Company, subject to continued employment on such vesting dates. The options granted to non-employee

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directors prior to 2020 have a requisite service period of one year and vest in equal monthly installments. The options granted to non-employee directors in January 2020June 2021 have a requisite service period of one and a half yearsyear and vest in monthlysemi-annual installments. On December 31, 2020,2022, there was $9,377$2,885 of unrecognized stock-based compensation expense which is expected to be recognized over a weighted-average period of 2.21.5 years.

The following table summarizes the respective vesting start dates and number of options granted to employees and directors in 20202022 and 2019:

2021:

​

Recipient

​

​

​

​

​

​

​

Recipient

Options Granted

​

​

Vesting Start Date

​

​

Grant Date

​

Employees

​

​

100,000

508,500

​

​

March 31, 2021

​

December

May 14, 2018

​​May 3, 2019​2021

Directors

​

​

7,253

93,000

​

​

May 14, 2021

​

December

May 14, 2018

​​May 3, 2019​2021

Employees

Directors

​

​

32,466

416,000

​

​

June 1, 2021

​

January 20, 2020​​January 20, 2020​

June 22, 2021

Directors

Employees

​

​

283,333

197,666

​

​

June 1, 2021

​

January 20, 2020​​January 20, 2020​

June 22, 2021

Employees

​

​

66,667

164,000

​

​

June 22, 2021

​

January 20, 2020​​January 30, 2020​

June 22, 2021

Directors

Employees

​

​

589,500

20,667

​

​

December 27, 2021

​

March 1, 2020​​March 1, 2020​

December 27, 2021

Employees

​

​

100,000

12,000

​

​

January 18, 2022

​

July 31, 2020​​July 31, 2020​
Employees​​1,127,500​​October 27, 2020​​October 27, 2020​

January 18, 2022

​

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

​​​Grant Date​
​​​May 2019​​Jan. 2020​​Mar. 2020​​Jul. 2020​​Oct. 2020​
Risk-free interest rate​​​​2.38%​​​​​1.63%​​​​​1.63%​​​​​1.63%​​​​​0.51%​​
Dividend yield​​​​—​​​​​—​​​​​—​​​​​—​​​​​—​​
Estimated volatility​​​​66.80%​​​​​62.20%​​​​​62.20%​​​​​62.20%​​​​​62.50%​​
Expected option life​​6 years​​6 years​​6 years​​6 years​​6 years​

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Post-Reorganization, the

​

​

​

​

​

​

​

​

​

​

​

​

    

May 2021

    

Jun. 2021

    

Dec. 2021

    

Jan. 2022

    

Risk-free interest rate

​

1.06

%  

1.05

%  

1.34

%  

1.74

%  

Dividend yield

​

—

 

—

 

—

 

—

 

Estimated volatility

​

62.59

%  

62.53

%  

60.88

%  

60.75

%  

Expected option life

​

6 years

 

6 years

 

6 years

 

6 years

 

​

The weighted-average grant date fair value per share was $5.65$5.83 and $7.00$7.54 for the years ended December 31, 20202022 and 2019,2021, respectively.

The following assumptions were used to compute the fair value of the LGJV Personnel options using the Black-Scholes option valuation model as of December 31, 20202022 and 2019:

​​​December 31,​
​​​2020​​2019​
Risk-free interest rate​​0.51%​​1.76%​
Dividend yield​​—   ​​—   ​
Estimated volatility​​62.09%​​63.60%​
Expected option life​​6 years​​6 years​
2021:

​

​

​

​

​

​

​

​

    

December 31,

 

​

​

2022

    

2021

 

Risk-free interest rate

​

4.11

%  

1.35

%

Dividend yield

​

—

 

—

​

Estimated volatility

​

58.1

%  

60.86

%

Expected option life

​

6 years

​

6 years

​

​

The Company’s estimated volatility computation was based on the historical volatility of a group of peer companies’ common stock over the expected option life and included both exploration stage and development stage companies. The peer information was used because the CompanyPrior to our IPO in October 2020, our common stock was not publicly traded and therefore did not havetraded. As a result, the expected volatility assumption was based on peer information due to insufficient market trading history required to calculate a meaningful volatility factor. The computation of the expected option life was determined based on a reasonable expectation of the option life prior to being exercised or forfeited. The risk-free interest rate assumption was based on the U.S. Treasury constant maturity yield at the date of the grant over the expected life of the option. No dividends arewere expected to be paid.

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The following tables summarize the stock option activity for the yearsyear ended December 31, 2020:

Employee & Director Options​​Shares​​
Weighted-
Average
Exercise Price
​​
Aggregate
Intrinsic
Value
​​
Weighted-
Average
Remaining
Life (Years)
​
Outstanding at December 31, 2019​​​​3,551,186​​​​$14.39​​​​​​​​​​​5.96​​
Granted​​​​1,937,833​​​​$9.09​​​​​​​​​​​​​​
Exercised​​​​—​​​​$—​​​​​​​​​​​​​​
Forfeited​​​​(77,089)​​​​$12.46​​​​​​​​​​​​​​
Outstanding at December 31, 2020​​​​5,411,930​​​​$12.52​​​​$17,516​​​​​6.62​​
Vested at December 31, 2020​​​​3,251,211​​​​$14.71​​​​$9,292​​​​​4.87​​
LGJV Personnel Options​​Shares​​
Weighted-
Average
Exercise Price
​​
Aggregate
Intrinsic
Value
​​
Weighted-
Average
Remaining
Life (Years)
​
Outstanding at December 31, 2019​​​​54,595​​​​$7.37​​​​​​​​​​​6.11​​
Granted​​​​—​​​​$—​​​​​​​​​​​​​​
Exercised​​​​—​​​​$—​​​​​​​​​​​​​​
Forfeited​​​​(10,919)​​​​$7.92​​​​​​​​​​​​​​
Outstanding at December 31, 2020​​​​43,676​​​​$7.23​​​​$253​​​​​4.91​​
Vested at December 31, 2020​​​​43,676​​​​$7.23​​​​$253​​​​​4.91​​
2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Weighted‑

​

​

​

​

Weighted‑

​

​

​

​

Average

​

Aggregate

​

Average

​

​

​

​

Exercise

​

Intrinsic

​

Remaining

Employee & Director Options

    

Options

    

Price

    

Value

    

Life (Years)

Outstanding at December 31, 2021

    

5,873,968

​

$

13.11

​

​

​

​

​

Granted

 

100,000

​

$

10.28

​

​

​

​

​

Forfeited

 

(4,272,438)

​

$

13.22

​

​

​

​

​

Outstanding at December 31, 2022

 

1,701,530

​

$

12.67

​

$

Nil

​

7.00

Vested at December 31, 2022

 

1,186,753

​

$

12.66

​

$

Nil

​

6.33

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Weighted‑

 

​

​

​

Weighted‑

​

​

​

​

Average

​

Aggregate

​

Average

​

​

​

​

Exercise

 

Intrinsic

​

Remaining

LGJV Personnel Options

    

Options

    

Price

    

Value

    

Life (Years)

Outstanding at December 31, 2021

​

32,393

​

$

7.31

​

​

​

​

​

Exercised

 

—

​

​

—

​

​

​

​

​

Outstanding and vested at December 31, 2022

 

32,393

​

$

7.31

​

$

Nil

​

3.02

​

The total fair value of stock options vested during the year ended December 31, 2022, was $583.

Performance Share Unit Transactions

Performance share units granted are reported as equity awards at fair value using a Monte Carlo simulation valuation model. 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. The PSUs are based on the Company’s total shareholder return (“TSR”) relative to a peer group over a three-year performance period. The number of PSUs awarded can range from 0% to 200% of the initial award granted, depending on the TSR percentile rank of the Company relative to the peer group, and are payable in common stock or cash, at the Company’s discretion, at the end of their performance period. There were no grants in the year ended December 31, 2022.

Compensation expense is recognized ratably from the grant date over the requisite three-year vesting period. On December 31, 2022, unrecognized compensation expense related to the PSUs was $399 which is expected to be recognized over a weighted-average period of 2.0 years.

Deferred Stock Unit Transactions

Deferred stock units (“DSUs”) are awarded to directors at the discretion of the 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 departurethe director’s cessation of continuous service. In addition, senior executives are eligible to elect to defer receipt of any portion of cash compensation or equity compensation awards other than from the Company.exercise of stock options and take payment in the form of DSUs. Non-employee directors are eligible to elect to defer receipt of any portion of annual retainers or meeting awards and take payment in the form of DSUs. The DSU entitles the holder to receive one share of the Company’s common stock at either a date specified in the deferral election or cessation of service, whichever comes first. The fair value of DSUs are equal to the fair value of the Company’s common stock on the grant date.

On January 20, 2020, The Company recognized DSU expense of $239 and $879 for the years ended December 31, 2022 and 2021, respectively. As the Company was in blackout during the year ended December 31, 2022, the DSUs expensed are expected to be granted 5,103 DSUs to Directors as compensation for director fees from October 2019 through December 2019. in 2023.

At December 31, 20202022, 146,796 DSUs remain outstanding with a weighted-average grant date fair value of $10.88 per unit.

​

8.Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed similarly, except that

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weighted-average common shares is increased to reflect the potential dilution that would occur if stock options were exercised or PSUs were converted into common stock. The dilutive effects are calculated using the treasury stock method.

For the year ended December 31, 2022, all stock options outstanding have been excluded from the dilutive earnings per common share calculation as the exercise price of these stock options was greater than the average market value of our common stock for those periods, resulting in an anti-dilutive effect. Additionally, for the year ended December 31, 2022, all PSUs were excluded from the diluted earnings per common share calculation as the shares would be anti-dilutive. The Company experienced a net loss in the year ended December 31, 2021, thus all stock options, PSUs and 2019, there were 182,714DSUs have been excluded as they would be anti-dilutive.

A reconciliation of basic and 177,611 DSUs outstanding, respectively.


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diluted earnings per common share is presented below:

​

​

​

​

​

​

​

​

​

​

Year Ended December 31,

​

    

2022

    

2021

Net income (loss)

​

$

14,529

​

$

(65,855)

​

​

​

​

​

​

​

Weighted average shares:

​

 

  

​

 

  

Basic

​

 

69,162,223

​

 

63,994,693

Effect of dilutive DSUs

​

 

146,796

​

 

—

Diluted

​

 

69,309,019

​

 

63,994,693

​

​

​

​

​

​

​

Net income (loss) per share:

​

 

  

​

 

  

Basic

​

$

0.21

​

$

(1.03)

Diluted

​

$

0.21

​

$

(1.03)

​

​

9.

Fair Value Measurements
​

The Company establishes a framework for measuring the fair value of financial assets and liabilities and nonfinancial assets and liabilities which are measured at fair value on a recurring (annual) basis 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.

Financial

Assets and Liabilities

At December 31, 2020 and 2019, the Company’s other financial instruments consist of cash and cash equivalents, receivables, accounts payable and other current liabilities. The carrying amounts of these financial instruments approximate fair value due to their short maturities.
Non-Financial 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. The estimatedbasis and makes adjustments to fair value, for these non-financial liabilities are classified as Level 3needed (for example, when there is evidence of the fair value hierarchy, as the valuation was determined based on internally developed assumptions that market participants would use in the pricing of such assets without observable inputs and no market activity.

impairment).

The Company recorded its initial investment in affiliates at fair value. The estimated fair value for this non-financial asset is classified aswithin 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. For the year ended December 31, 2021, the Company recorded impairment charges associated with the investment in the LGJV, and reduced the carrying amount of such asset subject to the impairment to their estimated fair value. See Note 14 – Investment in Affiliates for additional information on the impairment.

​

10.

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Table of Contents

10.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 financial statements indicates that it is probable that a liability has been incurred at the date of the 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 combined financial statements when it is at least reasonably possible that a material loss could be incurred.

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.

Legal

On February 22, 2022, a purported Gatos stockholder filed a putative class action lawsuit in the United States District Court for the District of Colorado 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 Company isamended complaint, allegedly brought on behalf of certain purchasers of Gatos common stock and certain traders of call and put options on Gatos common stock from timeDecember 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 Gatos, pursuant to time involvedthe 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 mine. Gatos 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 Court ordered that it will postpone a ruling on defendants’ motion to dismiss until on or after June 16, 2023.

On June 13, 2023, we entered into an agreement in various legal proceedings relatedprinciple to its business. Management does not believesettle 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 have agreed to resolve the U.S. Class Action for a payment by us and our insurers of $21,000 to a settlement fund. We are in the process of finalizing the amount of expenses incurred that adverse decisions in any pending or threatened proceeding or that


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TABLE OF CONTENTS

amounts that mayare covered under the directors’ and officers’ insurance policy which will be requireddeducted from the $10,000 retention held by the Company. We expect to fund no more than $7,900 of the settlement, with the balance of the settlement payment to be paid by reason thereofinsurance. We and the other defendants will have a material adverse effectnot admit any liability as part of the Company’s financial conditionsettlement. Since the settlement of the U.S. Class Action is subject to conditions, there can be no assurance that the U.S. Class Action will be finally resolved pursuant to the agreement in principle that has been reached.

By Notice of Action issued February 9, 2022 and subsequent Statement of Claim dated March 11, 2022 Izabela Przybylska commenced a putative class action against Gatos Silver, Inc. (“Gatos”), certain of its former officers and directors, and others in the Ontario Superior Court of Justice on behalf of a purported class of all persons or resultsentities, wherever they may reside or be domiciled, who acquired securities of operations.

Gatos in both the primary and secondary markets during the period from October 28, 2020 until January 25, 2022. 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 Gatos. The plaintiff filed motion materials for leave to proceed in respect of her statutory claims and for class certification on March 3, 2023, which materials were amended and filed on May 1, 2023. The court has tentatively set dates in late March of 2024 for the hearing of the plaintiff’s motions.

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 us.

Dowa Debt Agreements

In July 2017, the LGJV Entities entered into a loan agreement (the “Term Loan”) with Dowa whereby the LGJV Entities could borrow up to $210,000 for LGD development, with a maturity date of December 29, 2027. Interest on the Term Loan accrues accrued

71

Table of Contents

daily at LIBOR plus 2.35%, with the interest to be added to the amount borrowed until commencement of production. During 2018, the LGJV paid Dowa a $4,200 closing fee. Commencing June 30, 2021, 14 consecutive semi-annual equal payments of the aggregate principal and capitalized interest begin.began. The Company iswas required to pay an arrangement fee on the borrowing, calculated as 2% per annum of 70% of the outstanding principal balance, payable in semi-annual installments, on that date, which iswas two business days prior to June 30 and December 31 each fiscal year until maturity, commencing after the initial drawdown, which occurred in July 2018. The Term Loan also requiresrequired additional principal payments equal to 70% of excess cash flows (as defined). As of December 31, 2020,

On July 26, 2021, the Term Loan was repaid in full through capital contributions made to the LGJV had $222,783 outstanding underby the Term Loan.

Company and Dowa in amounts equal to their pro-rata ownership in the LGJV of 70% and 30%, respectively. In conjunction with the repayment, the Company paid a fee to Dowa of $10,000.

On January 23, 2018, the LGJV entered into a loan agreement (the “Dowa MPR Loan”) with Dowa whereby the LGJV could borrow up to $65,700 to continue LGD development. Interest on this loan accrued daily at LIBOR plus 1.5% and was added to the amount borrowed. The amount borrowed plus accrued interest was due the earlier of June 30, 2019, or upon LGD’s substantial completion. If the Dowa MPR Loan was not repaid in full on or before the due date, Dowa could elect to convert all or a portion of the principal amount into additional LGJV ownership at a favorable conversion rate.

In connection with entering into the WCF (as defined below), the Company contributed $18,200 to the LGJV in May 2019 to provide funding for a partial repayment of principal and interest related to the Dowa MPR Loan. In late May 2019, the Dowa MPR Loan was fully extinguished with a cash payment of $18,200 and the conversion of the remaining $50,737 of principal and interest for an approximate 18.5% of the equity interest of the LGJV.interest. The conversion of the remaining principal and interest increased Dowa’s ownership in the LGJV entities by 18.5% to 48.5%. Due to the LGJV ownership dilution, the Company recognized a dilution loss on affiliates of $11,231 in May 2019. At December 31, 2020, the ownership of the LGJV entities was 51.5% the Company and 48.5% Dowa. On March 11, 2021, the Company repurchased the 18.5% interest from Dowa, for a total consideration of $71,550, including a 70% penalty and any Dowa holding costs of this incremental interest, increasing ourthe Company’s ownership in the LGJV to 70.0%.

On May 30, 2019, the LGJV entered into a working capital facility agreement (the “WCF”) with Dowa whereby the LGJV could borrow up to $60,000 to fund the working capital and sustaining capital requirements of the LGD. Interest on this loan accruesaccrued daily at LIBOR plus 3.0% and all outstanding principal and interest matureswas to mature on June 28, 2021. The Company iswas required to pay an arrangement fee on the borrowing, calculated as 15.0% per annum of 70.0% of the average daily principal amount outstanding under the WCF during such fiscal quarter. As of December 31, 2020,On March 11, 2021, the LGJV had $60,000 outstanding under the WCF. On March 11, 2021, weWCF was extinguished our portion of the WCF of $42,000.

The Company has guaranteed 70% of the outstanding principal and accrued interest of the Term Loan and the WCF in the event of default byusing funds contributed to the LGJV. The Company’s pro-rata capital contribution to the LGJV was $42,000.

The Company has guaranteedguarantees the payment of all obligations, including accrued interest, under the LGJV equipment loan agreements. As of December 31, 2022 and 2021, the LGJV had $480 and $6,011 outstanding under the LGJV equipment loan agreements, respectively, with varying maturity dates through August 2023.

11.Debt

On July 12, 2021, the Company entered into a Credit Facility. The Credit Facility provides for a revolving line of credit in a principal amount of $50,000 and has an accordion feature which at the time allowed for an increase in the total line of credit up to $100,000, subject to certain conditions. Loans under the Credit Facility bear interest at a rate equal to either the LIBOR rate plus a margin ranging from 3.00% to 4.00% or the U.S. Base Rate plus a margin ranging from 2.00% to 3.00%, as selected by the Company, in each case, with such margin determined in accordance with the Company’s consolidated net leverage ratio as of the end of the applicable period. The Credit Facility contains affirmative and negative covenants that are customary for credit agreements of this nature. The affirmative covenants consist of a leverage ratio, a liquidity covenant and an interest coverage ratio. The negative covenants include, among other things, limitations on asset sales, mergers, acquisitions, indebtedness, liens, dividends and distributions, investments and transactions with affiliates. Obligations under the Credit Facility may be accelerated upon the occurrence of certain customary events of default.

On July 19, 2021, the Company borrowed $13,000 under the Credit Facility at a rate of LIBOR plus 3%. Debt issuance costs of $442 were to be amortized through July 31, 2024, prior to the amended and restated Credit Facility (see terms below).

On March 7, 2022, the Company amended the Credit Facility with the lender, Bank of Montreal (“BMO”), to address potential loan covenant deficiencies. The amendment included the following revisions:

●audited financial statements were to be provided prior to November 15, 2022;

72


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Table of Contents

●the credit limit was reduced to $30,000, until the Company delivered a new LOM CLG financial model with updated mineral reserves;
●upon assessment of the new CLG financial model, BMO, in its sole discretion, could increase the credit limit up to the original $50,000;
●requirement to provide updated financial projections for the CLG by September 30, 2022. The financial projections were provided by the required date and were used as the basis for the amendment entered into on December 19, 2022 discussed below; and
●waivers of certain defaults, events of default, representations and warranties and covenants arising out of the facts that led to the potential reduction in metal content of the Company’s previously stated mineral reserve figures.

On December 19, 2022, the Company entered an amended and restated Credit Facility with BMO extending the maturity date and re-establishing a credit limit of $50,000, with an accordion feature providing up to an additional $25,000. Key terms of the amended Credit Facility include:

●audited financial statements for fiscal years 2021 are to be provided no later than April 15, 2023, and audited financial statements for fiscal year 2022 and unaudited financial statements for the first three fiscal quarters in fiscal year 2022 are to be provided no later than April 30, 2023;
●$50,000 revolving line of credit with an accordion feature, which allows for an increase in the total line of credit up to $75,000, subject to certain conditions;
●the maturity date is extended from July 31, 2024 to December 31, 2025;
●a change in the benchmark interest rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”); and
●loans under the Credit Facility bear interest at a rate equal to either a term SOFR rate plus a margin ranging from 3.00% to 4.00% or a U.S. base rate plus a margin ranging from 2.00% to 3.00%, as selected by the Company.

On April 13, 2023, the Company extended its waiver agreement with BMO whereby the restated audited financial statements for fiscal year 2021, the audited financial statements for fiscal year 2022 and restated unaudited financial statements for the first three fiscal quarters in fiscal year 2022 are to be provided no later than April 30, 2023. A waiver was subsequently extended for the financial statements to be provided no later than July 15, 2023.

In December 2022, the Company made a $4,000 principal repayment and as a result the outstanding balance of debt was $9,000 at December 31, 2022.

The Company recognized interest expense of $433 and $147 for amortization of debt issuance cost and paid $645 in interest, for the year ended December 31, 2022. The Company recognized interest expense of $185 and $62 for amortization of debt issuance cost and paid $168 in interest, for the year ended December 31, 2021.

​

TABLE OF CONTENTS

11.

12.Income Taxes

​

The components of lossincome (loss) from continuing operations before income taxes were as follows for the years ended December 31:

​​​2020​​2019​
U.S.​​​$(32,964)​​​​$(28,761)​​
Mexico​​​​(2,063)​​​​​(2,146)​​
Total​​​$(35,027)​​​​$(30,907)​​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

U.S.

​

$

19,111

​

$

(61,976)

Mexico

​

​

(3,017)

​

 

(3,879)

Total

​

$

16,094

​

$

(65,855)

​

The consolidated income tax benefit from continuing operationsexpense consisted of nil$1,565 and nil, for the years ended December 31, 20202022 and 2019,2021, respectively.

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Table of Contents

A reconciliation of the actual income tax benefit and the tax computed by applying the applicable U.S. federal rate of 21% to the loss before income taxes is as follows for the years ended December 31:

​​​2020​​2019​
Tax benefit from continuing operations​​​$7,356​​​​$6,491​​
State tax benefit from continuing operations​​​​1,577​​​​​1,052​​
Nondeductible expenses​​​​(773)​​​​​(2)​​
Change in valuation allowance​​​​(8,707)​​​​​(10,111)​​
Effect of tax rate change​​​​2,991​​​​​666​​
Effect of foreign tax rate differential​​​​49​​​​​125​​
Effect of reorganization on net operating loss​​​​(2,186)​​​​​2,100​​
Other​​​​(307)​​​​​(321)​​
Total income tax benefit​​​$—​​​​$—​​

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​

​

​

​

​

​

​

​

​

    

2022

    

2021

Tax provision (benefit) from operations

​

$

3,380

​

$

(13,830)

State tax benefit from operations

​

​

20

​

 

(136)

Nondeductible Expenses

​

​

—

​

 

—

Change in Valuation Allowance

​

​

(3,410)

​

 

6,000

Mexican withholding tax

​

​

1,565

​

​

—

Effect of Change in Tax Rates

​

​

927

​

 

9,223

US/Foreign Tax Rate Differential

​

​

(323)

​

​

(398)

Other

​

​

(594)

​

 

(859)

Total income tax expense

​

$

1,565

​

$

—

​

The components of the net deferred tax assets (liabilities) are summarized as follows for the year ended:

​​​2020​​2019​
Deferred tax assets​​​​​​​​​​​​​
Accrued compensation​​​$457​​​​$259​​
Deferred share unit awards​​​​218​​​​​172​​
Other accrued liabilities​​​​26​​​​​24​​
Mineral properties​​​​2,487​​​​​2,332​​
Exploration​​​​—​​​​​48​​
Operating loss carryforward​​​​30,729​​​​​29,068​​
Foreign deferred tax assets​​​​14,091​​​​​8,736​​
Stock options​​​​8,182​​​​​6,605​​
Loan fees​​​​1,303​​​​​592​​
Other​​​​27​​​​​26​​
Valuation allowances​​​​(56,320)​​​​​(47,600)​​
Total deferred tax assets​​​​1,200​​​​​262​​
Deferred tax liabilities​​​​​​​​​​​​​
Property, plant and equipment​​​​(276)​​​​​(253)​​
Exploration and development​​​​(16)​​​​​—​​
Prepaid expenses​​​​(908)​​​​​(9)​​
Total deferred tax liabilities​​​​(1,200)​​​​​(262)​​
Net deferred income tax assets (liabilities)​​​$—​​​​$—​​
ended December 31:

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Deferred tax assets

​

​

​

​

​

​

Accrued compensation

​

$

354

​

$

29

Contingent liabilities

​

​

1,661

​

​

—

Deferred share unit awards

​

​

461

​

 

427

LGJV equity investment

​

​

12,656

​

​

7,395

Other accrued liabilities

​

​

21

​

 

22

Mineral properties

​

​

2,009

​

 

2,057

U.S. operating loss carryforward

​

​

10,234

​

​

22,340

Stock Options

​

​

8,917

​

​

8,518

Mexico operating loss carryforward

​

​

4,129

​

 

3,049

Exploration and development

​

​

41

​

​

—

Other

​

​

24

​

​

22

Valuation allowances

​

​

(39,738)

​

 

(43,026)

Total deferred tax assets

​

$

769

​

$

833

​

​

​

​

​

​

​

Deferred tax liabilities

​

​

​

​

 

​

Property, plant and equipment

​

​

(218)

​

​

(229)

Exploration and Development

​

​

—

​

 

(19)

Prepaid expenses

​

​

(551)

​

 

(585)

Total deferred tax liabilities

​

$

(769)

​

$

(833)

Deferred tax assets (liabilities)

​

$

—

​

$

—

​

Based upon the level of taxable income (loss) and projections of future taxable income (loss) over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences, and thus has recorded a valuation allowance from continuing operations against the United States and Mexico net deferred tax asset balances of $56,320.$39,738 and $43,026, respectively, for the years ended December 31, 2022 and 2021. If the Company is profitable for a number of years, and the prospects for the realization of the deferred tax assets become more likely than not, the Company will then reverse all or a portion of the valuation allowance that could result in a reduction of future reported income tax expense.

At December 31, 20202022, the Company had $118,049$48,679 of net operating loss carryforwards from continuing operations in the United States. Of the total net operating loss from continuing operations, $101,279$29,749 expire at various dates through 2037, and $16,769$18,930 may be carried forward indefinitely. There are also $5,572$20,432 of net operating loss carryforwards (net of inflation adjustments) in Mexico which expire at various dates through 2030.2032. No assets have been recognized for net operating loss carryforwards where the Company believes it is more likely than not that the net operating losses will not be realized. The Company will monitor the valuation on an ongoing basis and will make the appropriate adjustments as necessary should circumstances change.

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The Company has adopted the provisions of ASC 740-10, Income Taxes. The Company files income tax returns in the U.S., Mexico, Colorado, Montana and Mexico.Utah. The Company’s foreign assets and operations are owned by entities that have elected to be treated for U.S. tax purposes as corporations and, as a result, the taxable income or loss and other tax attributes of such entities are not included in the Company’s U.S. federal consolidated income tax return. The statute of limitations for tax returns filed in the U.S. and Mexico is three years and five years, respectively, from the date of filing. The Company’s 2022, 2021, 2020 2019, 2018 and 20172019 U.S. tax returns are subject to examinations by U.S. tax authorities until 2026, 2025, 2024 2023, 2022 and 2021,2023, respectively. The Company is no longer subject to examinations by Mexico tax authorities for years prior to 2016.

2018.

As of December 31, 2020,2022, the Company has not recognized any increases or decreases in unrecognized tax benefits, as it is more likely than not that all tax positions will be upheld by the taxing authorities. The Company reports tax penalties in income tax expense. No such penalties were recognized during the periods presented.

Effective January 1, 2017, the Company’s Mexico assets and operations are owned by entities that have elected to be treated for United States tax purposes as corporations and, as a result, the taxable income or

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loss and other tax attributes of such entities are stated separately from the Company’s United States assets and operations and are not included in the Company’s United States federal consolidated income tax return. The Company’s other foreign assets and operations are owned by entities that have elected to be treated for U.S. tax purposes as unincorporated branches of a U.S. holding company and, as a result, the taxable income or loss and other tax attributes of such entities are included in the Company’s U.S. federal consolidated income tax return.
On December 22, 2017, the United States enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Act makes broad changes to the United States tax code for corporations, including, but not limited to, (1) reducing the United States federal corporate tax rate from 35% to 21%; (2) allowing immediate deductibility for 100% of expenditures for qualified property through bonus depreciation; (3) eliminating the alternative minimum tax; and (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
12.
Discontinued Operations
​
On October 30, 2020 in conjunction with the IPO, Gatos Silver, Inc. (named Sunshine Silver Mining & Refining Corporation prior to October 30, 2020) completed the distribution of its reportable U.S. segment, which was comprised of SOP. SOP holds an interest in the Sunshine Complex located in the Coeur d’Alene Mining District in Idaho and is comprised of the Sunshine Mine and the Sunshine Big Creek Refinery. To effect the distribution, the Company distributed, on a pro rata basis, all equity interest of SOP to its stockholders of record immediately prior to completion of the IPO. Shareholders received approximately 0.10594 shares of common stock of SOP for every share of the Company’s common stock held. SOP became a wholly owned subsidiary of a newly created Delaware corporation named Silver Opportunity Partners Corporation, subsequently renamed to Sunshine Silver Mining & Refining Corporation.
The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheet as of December 31, 2019, and consist of the following:
​​​
December 31,
2019
​
Current Assets of Discontinued Operations​​​​​​​
Cash and cash equivalents​​​$504​​
Restricted Cash​​​​315​​
Materials and supplies inventory​​​​103​​
Prepaid expenses​​​​201​​
Total current assets of discontinued operations​​​$1,123​​
Non-Current Assets of Discontinued Operations​​​​​​​
Metals inventory​​​$250​​
Property, plant and equipment, net(1)
​​​​30,102​​
Total non-current assets of discontinued operations​​​$30,352​​
Current Liabilities of Discontinued Operations​​​​​​​
Accounts payable and other accrued liabilities​​​$341​​
Other​​​​307​​
Total current liabilities of discontinued operations​​​$648​​
Non-Current Liabilities of Discontinued Operations​​​​​​​
Reclamation obligations​​​​1,439​​
Total non-current liabilities of discontinued operations​​​$1,439​​
​
(1)
Property, plant and equipment of discontinued operations consisted of the following:
​

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​​​
December 31,
2019
​
Mineral properties​​​$18,203​​
Plant and equipment​​​​13,621​​
Land​​​​1,814​​
Buildings, infrastructure and improvements​​​​16,798​​
Furniture, fixtures and computers​​​​556​​
Property, plant and equipment at cost​​​​50,992​​
Less accumulated amortization​​​​(20,890)​​
Property, plant and equipment, net​​​$30,102​​
Mineral Properties
SOP conducts exploration activities on patented and unpatented mining claims in the United States.
SOP is required to make mineral and concession lease payments to various entities to secure the appropriate claims or surface rights. Certain of these agreements also have royalty payments that are triggered when SOP produces and sells minerals.
The results of discontinued operations are presented separately in the consolidated statements of operations and comprehensive loss. The results of operations for this entity for the period ended October 30, 2020 and year ended December 31, 2019 have been reflected as discontinued operations in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2020 and 2019, and consist of the following:
​​​
December 31,
2020
​​
December 31,
2019
​
Operating Expenses of Discontinued Operations​​​​​​​​​​​​​
Exploration​​​$352​​​​$325​​
Pre-development​​​​1,700​​​​​2,317​​
General and administrative​​​​1,431​​​​​1,943​​
Amortization​​​​1,935​​​​​2,335​​
Total expenses​​​​5,418​​​​​6,920​​
Other Income of Discontinued Operations​​​​​​​​​​​​​
Other income​​​​(4)​​​​​(10)​​
Net Loss of Discontinued Operations​​​$5,414​​​​$6,910​​
Other Comprehensive Gain of Discontinued Operations​​​​​​​​​​​​​
Unrealized gain on securities, net of tax​​​​—​​​​​(32)​​
Comprehensive Loss of Discontinued Operations​​​$5,414​​​​$6,878​​
The Company has separately reported the cash flow activity of the discontinued operations in the consolidated statements of cash flows. The cash flow activity from discontinued operations for the period ended October 30, 2020 and year ended December 31, 2019 have been reflected as discontinued operations in the consolidated statements of cash flows for the years ended December 31, 2020 and 2019, and consist of the following:

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​​​
December 31,
2020
​​
December 31,
2019
​
Discontinued Operating Activities​​​​​​​​​​​​​
Net loss​​​$(5,414)​​​​$(6,910)​​
Adjustments to reconcile net loss to net cash used by operating activities:​​​​​​​​​​​​​
Amortization​​​​1,935​​​​​2,335​​
Stock compensation expense​​​​195​​​​​212​​
Accretion expense​​​​91​​​​​102​​
Other​​​​—​​​​​63​​
Changes in operating assets and liabilities:​​​​​​​​​​​​​
Accounts payable and other accrued liabilities​​​​(256)​​​​​97​​
Materials and supplies inventory​​​​(2)​​​​​67​​
Other current assets​​​​(2)​​​​​17​​
Net cash used by operating activities of discontinued operations​​​​(3,453)​​​​​(4,017)​​
Investing Activities of Discontinued Operations​​​​​​​​​​​​​
Purchase of property, plant and equipment​​​​(22)​​​​​(534)​​
Transfers of restricted cash to cash​​​​40​​​​​—​​
Net cash provided by (used by) investing activities of discontinued operations​​​​18​​​​​(534)​​
Financing Activities of Discontinued Operations​​​​​​​​​​​​​
Related-party convertible notes​​​​500​​​​​—​​
PPP Loan proceeds​​​​307​​​​​—​​
Net cash provided by financing activities of discontinued operations​​​​807​​​​​—​​

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13.

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 interests and includes the Company’s investment in its LGJV. Financial information relating to the Company’s segments is as follows:

​​​Year Ended December 31, 2020​​Year Ended December 31, 2019​
​​​Mexico​​Corporate​​Total​​Mexico​​Corporate​​Total​
Exploration​​​$785​​​​$—​​​​$785​​​​$923​​​​$—​​​​$923​​
General and administrative​​​​549​​​​​7,216​​​​​7,765​​​​​296​​​​​2,607​​​​​2,903​​
Amortization​​​​—​​​​​30​​​​​30​​​​​—​​​​​34​​​​​34​​
Arrangement fees​​​​—​​​​​4,843​​​​​4,843​​​​​—​​​​​2,988​​​​​2,988​​
Interest expense​​​​—​​​​​4,047​​​​​4,047​​​​​—​​​​​—​​​​​—​​
Equity loss in affiliates​​​​17,585​​​​​—​​​​​17,585​​​​​12,865​​​​​—​​​​​12,865​​
Dilution loss on affiliates​​​​—​​​​​—​​​​​—​​​​​11,231​​​​​—​​​​​11,231​​
Net other loss (income)​​​​9​​​​​(37)​​​​​(28)​​​​​31​​​​​(67)​​​​​(36)​​
Capital expenditures​​​​—​​​​​—​​​​​—​​​​​—​​​​​—​​​​​—​​
Total assets​​​​38,326​​​​​227,084​​​​​265,410​​​​​55,372​​​​​67,448​​​​​122,820​​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended December 31, 2022

​

Year Ended December 31, 2021

​

    

Mexico

    

Corporate

    

Total

    

Mexico

    

Corporate

    

Total

Exploration

​

$

83

​

$

27

​

$

110

​

$

1,657

​

$

—

​

$

1,657

General and administrative

​

​

1,124

 

​

24,344

 

​

25,468

 

​

1,424

 

​

20,023

 

​

21,447

Amortization

​

​

5

 

​

175

 

​

180

 

​

—

 

​

89

 

​

89

Legal settlement loss

​

​

—

​

​

7,900

​

​

7,900

​

​

—

​

​

—

​

​

—

Arrangement fees

​

​

—

 

​

—

 

​

—

 

​

—

 

​

195

 

​

195

Interest expense

​

​

—

​

​

433

​

​

433

​

​

—

​

​

185

​

​

185

Equity income in affiliates

​

​

(45,230)

 

​

—

 

​

(45,230)

 

​

(42,804)

 

​

—

 

​

(42,804)

Impairment of investment in affiliates

​

​

—

​

​

—

​

​

—

​

​

—

​

​

80,348

​

​

80,348

Income tax expense

​

​

1,565

​

​

—

​

​

1,565

​

​

—

​

​

—

​

​

—

Net other (income) loss

​

​

22

 

​

(4,977)

 

​

(4,955)

 

​

40

 

​

4,698

 

​

4,738

Total assets

​

​

109,081

 

​

274,420

 

​

383,501

 

​

84,277

 

​

260,971

 

​

345,248

​

​

14.Investment in Affiliates

During the years ended December 31, 20202022 and 2019,2021, the Company recognized a $17,585income of $45,230 and $12,865 loss,$42,804, respectively, on its investment in the LGJV Entities, representing its ownership share of the LGJV Entities’ operational results. The combined balance sheets and combined statementsequity income in affiliate includes amortization of lossthe carrying value of the investment in excess of the underlying net assets of the LGJV EntitiesEntities. This basis difference is being amortized as the LGJV Entities’ proven and probable reserves are processed.

On November 10, 2022, the Company provided an updated technical report, the Los Gatos Technical Report. The Los Gatos Technical Report indicated a significant decrease in the mineral reserve and mineral resource from the previously issued technical report in 2020. The Company considered this reduction in the mineral reserve and mineral resources as an indicator of a possible other-than-temporary impairment and as a result compared the carrying value of the LGJV on December 31, 20202021, to the fair value of the LGJV.

The fair value of the LGJV was estimated based on the net present value of the expected cash flows to be generated by the LGJV on 70% basis. The discount rate used was 5.00%. The fair value of the investment in the LGJV was estimated to be $333,447 and 2019,the carrying value at December 31, 2021, was $413,795. At that time the carrying value exceeded the fair value and as a result, an impairment charge of $80,348 was recorded during the fourth quarter of 2021. The impairment charge reduced the higher basis of the Company’s Investment in LGJV at December 31, 2021, which was being amortized over the LGJV proven and probable reserves. See Note 9 – Fair Value Measurements for additional detail of the yearsassumptions used in the determination of the fair value of the long-lived assets tested for impairment. There were no impairment indicators in the year ended December 31, 2020 and 2019 are as follows:2022.

75


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LOS GATOS JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)
​​​
December 31,
2020
​​
December 31,
2019
​
ASSETS​​​​​​​​​​​​​
Current Assets​​​​​​​​​​​​​
Cash and cash equivalents​​​$1,676​​​​$1,302​​
Receivables​​​​3,988​​​​​5,655​​
Inventories​​​​10,315​​​​​11,374​​
VAT receivable​​​​50,732​​​​​50,184​​
Other current assets​​​​2,891​​​​​1,672​​
Total current assets​​​​69,602​​​​​70,187​​
Non-Current Assets​​​​​​​​​​​​​
Mine development, net​​​​202,874​​​​​182,602​​
Property, plant and equipment, net​​​​196,942​​​​​216,131​​
Total non-current assets​​​​399,816​​​​​398,733​​
Total Assets​​​$469,418​​​​$468,920​​
LIABILITIES AND OWNERS’ CAPITAL​​​​​​​​​​​​​
Current Liabilities​​​​​​​​​​​​​
Accounts payable and accrued liabilities​​​$35,767​​​​$43,287​​
Related party payable​​​​1,703​​​​​6,875​​
Accrued interest​​​​101​​​​​885​​
Unearned revenue​​​​3,276​​​​​—​​
Equipment loans​​​​7,084​​​​​6,948​​
Dowa Term Loan​​​​31,826​​​​​—​​
Working Capital Facility​​​​60,000​​​​​—​​
Total current liabilities​​​​139,757​​​​​57,995​​
Non-Current Liabilities​​​​​​​​​​​​​
Dowa Term Loan​​​​187,767​​​​​217,796​​
Working Capital Facility​​​​—​​​​​60,000​​
Equipment loans​​​​6,120​​​​​12,916​​
Reclamation obligations​​​​12,162​​​​​11,314​​
Total non-current liabilities​​​​206,049​​​​​302,026​​
Owners’ Capital​​​​​​​​​​​​​
Capital contributions​​​​271,368​​​​​237,905​​
Paid-in capital​​​​16,366​​​​​7,400​​
Accumulated deficit​​​​(164,122)​​​​​(136,406)​​
Total owners’ capital​​​​123,612​​​​​108,899​​
Total Liabilities and Owners’ Capital​​​$469,418​​​​$468,920​​

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LOS GATOS JOINT VENTURE
COMBINED STATEMENT OF LOSS
(in thousands)
​​​Twelve Months Ended December 31,​
​​​2020​​2019​
Sales​​​$121,470​​​​$36,508​​
Expenses​​​​​​​​​​​​​
Cost of sales​​​​65,005​​​​​30,339​​
Royalties​​​​2,148​​​​​184​​
Exploration​​​​841​​​​​208​​
General and administrative​​​​9,718​​​​​2,587​​
Depreciation, depletion and amortization​​​​44,904​​​​​15,460​​
Other​​​​3,416​​​​​—​​
​​​​​126,032​​​​​48,778​​
Other (income) expense​​​​​​​​​​​​​
Interest expense​​​​12,484​​​​​5,107​​
Arrangement fee​​​​8,888​​​​​3,524​​
Accretion expense​​​​849​​​​​789​​
Other (income) expense​​​​(109)​​​​​239​​
Foreign exchange loss​​​​1,042​​​​​174​​
​​​​​23,154​​​​​9,833​​
Net Loss​​​$(27,716)​​​​$(22,103)​​

For the year ended December 31, 2020,2021, the Company contributed $17,227$260,039 to the LGJV to repurchase 18.5% of the ownership of the LGJV, to retire the WCF and the Term Loan and in support of continued operationsexploration activities.

On March 17, 2022, we entered into a definitive agreement with Dowa to build and operate a leaching plant to reduce fluorine levels in zinc concentrates produced at CLG at an expected construction cost of $6,050. As part of the agreement, the initial payment of the $20,000 due to Dowa under the partner’s priority distribution agreement was reduced to $10,300. The reduced priority dividend amount reflects a portion of both the construction and future estimated operating costs of the leaching plant and is dependent on the successful construction and operation of the leaching plant. Should the leaching plant construction not be completed, or the leaching plant not operate according to certain parameters during the first five years, portions of the $9,700 reduction could be reinstated.

In April 2022, the LGJV paid its first dividend of $20,000 to its partners. The Company’s share of the first dividend was $14,000, before withholding taxes of $700. A payment of $7,365 was subsequently made to Dowa to cover the full amount of the reduced initial priority distribution due, for a net dividend received of $5,935.

In July 2022 and November 2022, the LGJV paid additional dividends in the formamount of cash$15,000 and receivables converted$20,000, respectively, to capitalits partners. The Company’s share, after withholding taxes of $525 and $700, respectively, was $9,975 and $13,300, respectively, for the July 2022 and November 2022 dividend payments.

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LOS GATOS JOINT VENTURE

COMBINED BALANCE SHEETS

(in thousands)

​

​

​

​

​

​

​

​

​

    

December 31,

    

December 31,

​

​

2022

​

2021

ASSETS

 

​

  

 

​

  

Current Assets

 

​

  

 

​

  

Cash and cash equivalents

​

$

34,936

​

$

20,280

Receivables

​

 

26,655

​

 

11,263

Inventories

​

 

11,542

​

 

11,062

VAT receivable

​

 

21,531

​

 

46,242

Income tax receivable

​

​

27,039

​

​

—

Other current assets

​

 

4,138

​

 

4,515

Total current assets

​

 

125,841

​

 

93,362

Non‑Current Assets

​

 

  

​

 

  

Mine development, net

​

 

232,515

​

 

229,076

Property, plant and equipment, net

​

 

198,600

​

 

190,896

Deferred tax assets

​

​

—

​

​

17,407

Total non‑current assets

​

 

431,115

​

 

437,379

Total Assets

​

$

556,956

​

$

530,741

LIABILITIES AND OWNERS’ CAPITAL

​

 

  

​

 

  

Current Liabilities

​

 

  

​

 

  

Accounts payable and accrued liabilities

​

$

46,740

​

$

33,179

Related party payable

​

 

1,792

​

 

1,609

Accrued interest

​

 

11

​

 

51

Unearned revenue

​

 

—

​

 

1,714

Equipment loans

​

 

480

​

 

5,534

Total current liabilities

​

 

49,023

​

 

42,087

Non‑Current Liabilities

​

 

  

​

 

  

Equipment loans

​

 

—

​

 

478

Lease liability

​

​

268

​

​

—

Asset retirement obligation

​

 

15,809

​

 

14,706

Deferred tax liabilities

​

​

1,354

​

​

—

Total non‑current liabilities

​

 

17,431

​

 

15,184

Owners’ Capital

​

 

​

​

 

​

Capital contributions

​

 

540,638

​

 

540,638

Paid‑in capital

​

 

18,186

​

 

18,370

Accumulated deficit

​

 

(68,322)

​

 

(85,538)

Total owners’ capital

​

 

490,502

​

 

473,470

Total Liabilities and Owners’ Capital

​

$

556,956

​

$

530,741

​

​

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LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF INCOME (LOSS)

(in thousands)

​

​

​

​

​

​

​

​

​

​

For the Years Ended December 31,

​

    

2022

    

2021

Revenue

​

$

311,724

​

$

249,194

Expenses

​

 

​

​

 

​

Cost of sales

​

 

107,075

​

 

97,710

Royalties

​

 

3,069

​

 

4,781

Exploration

​

 

9,800

​

 

5,383

General and administrative

​

 

14,307

​

 

13,345

Depreciation, depletion and amortization

​

 

69,380

​

 

52,402

Total expenses

​

 

203,631

​

 

173,621

Other (income) expense

​

 

  

​

 

  

Interest expense

​

 

582

​

 

5,542

Loss on Term Loan extinguishment

​

​

—

​

​

4,359

Arrangement fee

​

 

—

​

 

2,090

Accretion expense

​

 

1,103

​

 

924

Other income

​

 

(766)

​

 

(222)

Foreign exchange (gain)

​

 

(2,348)

​

 

(607)

Total other (income) expense

​

 

(1,429)

​

 

12,086

Income before taxes

​

​

109,522

​

​

63,487

Income tax (expense) benefit

​

​

(37,306)

​

​

15,097

Net Income

​

​

72,216

​

​

78,584

​

​

15.Subsequent Events

On June 13, 2023, we 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 LGJV,settlement by the District Court, the settling parties have agreed to resolve the U.S. Class Action for a payment by us and our insurers of $21,000 to a settlement fund. We are in the process of finalizing the amount of expenses incurred that are covered under the directors’ and officers’ insurance policy which will be deducted from the $10,000 retention held by the Company. We expect to fund no more than $7,900 of the settlement, with the balance of the settlement payment to be paid by insurance. We and the other defendants will not admit any liability as describedpart of the settlement. Since the settlement of the U.S. Class Action is subject to conditions, there can be no assurance that the U.S. Class Action will be finally resolved pursuant to the agreement in Note 7 — Related-Party Transactions.principle that has been reached.

​

Except as disclosed above there are no events or transactions requiring recognition in these consolidated financial statements through June 26, 2023, the date which the financial statements were issued.

​

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[MISSING IMAGE: lg_newkpmg-4c.jpg]

Report of Independent Auditors’ Report

TheAuditors

To Board of Managers
of Los Gatos Joint Venture:

Venture

Opinion

We have audited the accompanying combined financial statements of Los Gatos Joint Venture and its subsidiaries,, which comprise the combined balance sheets as of December 31, 20202022 and 2019, and2021, the related combined statements of loss,income, owners’ capital, and cash flows for the years then ended, and the related notes (collectively referred to as the “combined financial statements”). In our opinion, the accompanying combined financial statements.

Management’s Responsibilitystatements present fairly, in all material respects, the financial position of Los Gatos Joint Venture as at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Combined Financial Statements

section of our report. We are required to be independent of Los Gatos Joint Venture and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of thesethe combined financial statements in accordance with U.S.accounting principles generally accepted accounting principles; this includesin the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free fromof material misstatement, whether due to fraud or error.

Auditors’ Responsibility
Our responsibility is to express an opinion on these

In preparing the combined financial statements, based on our audits. We conducted our audits in accordance with auditing standards generally acceptedmanagement is required to evaluate whether there are conditions or events, considered in the United Statesaggregate, that raise substantial doubt about Los Gatos Joint Venture’s ability to continue as a going concern for one year after the date that the combined financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of America. Those standards require that we plan and perform the auditCombined Financial Statements

Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement, of the combined financial statements, whether due to fraud or error. In making thoseerror, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk assessments,of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the auditor considersoverride of internal control relevant tocontrol. Misstatements are considered material if there is a substantial likelihood that, individually or in the entity’s preparation and fair presentation ofaggregate, they would influence the judgment made by a reasonable user based on the combined financial statements in order to designstatements.

In performing an audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Los Gatos Joint Venture and its subsidiaries as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.GAAS, we:

●Exercise professional judgment and maintain professional skepticism throughout the audit.
●Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements.
●Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Los Gatos Joint Venture’s internal control. Accordingly, no such opinion is expressed.
/S/KPMG LLP
Denver, Colorado
March 29, 2021

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●Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined financial statements.
●Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Los Gatos Joint Venture’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/ Ernst and Young LLP

​

Chartered Professional Accountants

Licensed Public Accountants

​

Toronto, Canada

June 26, 2023

​

​

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LOS GATOS JOINT VENTURE

COMBINED BALANCE SHEETS

AS OF DECEMBER 31,

(In thousands)

​​​2020​​2019​
ASSETS​​​​​​​​​​​​​
Current Assets​​​​​​​​​​​​​
Cash and cash equivalents​​​$1,676​​​​$1,302​​
Receivables​​​​3,988​​​​​5,655​​
Inventories​​​​10,315​​​​​11,374​​
VAT receivable​​​​50,732​​​​​50,184​​
Other current assets​​​​2,891​​​​​1,672​​
Total current assets​​​​69,602​​​​​70,187​​
Non-Current Assets​​​​​​​​​​​​​
Mine development, net​​​​202,874​​​​​182,602​​
Property, plant and equipment, net​​​​196,942​​​​​216,131​​
Total non-current assets​​​​399,816​​​​​398,733​​
Total Assets​​​$469,418​​​​$468,920​​
LIABILITIES AND OWNERS’ CAPITAL​​​​​​​​​​​​​
Current Liabilities​​​​​​​​​​​​​
Accounts payable and accrued liabilities​​​$35,767​​​​$43,287​​
Related party payable​​​​1,703​​​​​6,875​​
Accrued interest​​​​101​​​​​885​​
Unearned revenue​​​​3,276​​​​​—​​
Equipment loans​​​​7,084​​​​​6,948​​
Dowa Term Loan​​​​31,826​​​​​—​​
Working Capital Facility​​​​60,000​​​​​—​​
Total current liabilities​​​​139,757​​​​​57,995​​
Non-Current Liabilities​​​​​​​​​​​​​
Dowa Term Loan​​​​187,767​​​​​217,796​​
Working Capital Facility​​​​—​​​​​60,000​​
Equipment loans​​​​6,120​​​​​12,916​​
Reclamation obligations​​​​12,162​​​​​11,314​​
Total non-current liabilities​​​​206,049​​​​​302,026​​
Owners’ Capital​​​​​​​​​​​​​
Capital contributions​​​​271,368​​​​​237,905​​
Paid-in capital​​​​16,366​​​​​7,400​​
Accumulated deficit​​​​(164,122)​​​​​(136,406)​​
Total owners’ capital​​​​123,612​​​​​108,899​​
Total Liabilities and Owners’ Capital​​​$469,418​​​​$468,920​​
thousands of United States dollars)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31,

​

December 31,

​

    

Notes

    

2022

    

2021

ASSETS

​

​

​

​

​

​

Current Assets

 

​

​

​

  

 

​

  

Cash and cash equivalents

​

​

​

$

34,936

​

$

20,280

Receivables

​

​

​

 

26,655

​

 

11,263

Inventories

​

4

​

 

11,542

​

 

11,062

VAT receivable

​

​

​

 

21,531

​

 

46,242

Income tax receivable

​

​

​

​

27,039

​

​

—

Other current assets

​

5

​

 

4,138

​

 

4,515

Total current assets

​

​

​

 

125,841

​

 

93,362

Non-Current Assets

​

​

​

 

  

​

 

  

Mine development, net

​

​

​

 

232,515

​

 

229,076

Property, plant and equipment, net

​

6

​

 

198,600

​

 

190,896

Deferred tax assets

​

15

​

​

—

​

​

17,407

Total non-current assets

​

​

​

 

431,115

​

 

437,379

Total Assets

​

​

​

$

556,956

​

$

530,741

LIABILITIES AND OWNERS’ CAPITAL

​

​

​

 

  

​

 

  

Current Liabilities

​

​

​

 

  

​

 

  

Accounts payable and accrued liabilities

​

7

​

$

46,740

​

$

33,179

Related party payable

​

​

​

 

1,792

​

 

1,609

Accrued interest

​

​

​

 

11

​

 

51

Unearned revenue

​

3

​

 

—

​

 

1,714

Equipment loans

​

14

​

 

480

​

 

5,534

Total current liabilities

​

​

​

 

49,023

​

 

42,087

Non-Current Liabilities

​

​

​

 

  

​

 

  

Equipment loans

​

​

​

 

—

​

 

478

Lease liability

​

​

​

​

268

​

​

—

Asset retirement obligation

​

11

​

 

15,809

​

 

14,706

Deferred tax liabilities

​

​

​

​

1,354

​

​

—

Total non-current liabilities

​

​

​

 

17,431

​

 

15,184

Owners’ Capital

​

​

​

 

  

​

 

  

Capital contributions

​

​

​

 

540,638

​

 

540,638

Paid-in capital

​

​

​

 

18,186

​

 

18,370

Accumulated deficit

​

​

​

 

(68,322)

​

 

(85,538)

Total owners’ capital

​

​

​

 

490,502

​

 

473,470

Total Liabilities and Owners’ Capital

​

​

​

$

556,956

​

$

530,741

​

See accompanying notes to the combined financial statements.

​

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LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF LOSS
INCOME

FOR THE YEARS ENDED DECEMBER 31,

(In thousands)

​​​2020​​2019​
Sales​​​$121,470​​​​$36,508​​
Expenses​​​​​​​​​​​​​
Cost of sales​​​​65,005​​​​​30,339​​
Royalties​​​​2,148​​​​​184​​
Exploration​​​​841​​​​​208​​
General and administrative​​​​9,718​​​​​2,587​​
Depreciation, depletion and amortization​​​​44,904​​​​​15,460​​
Other​​​​3,416​​​​​—​​
​​​​​126,032​​​​​48,778​​
Other (income) expense​​​​​​​​​​​​​
Interest expense​​​​12,484​​​​​5,107​​
Arrangement fee​​​​8,888​​​​​3,524​​
Accretion expense​​​​849​​​​​789​​
Other (income) expense​​​​(109)​​​​​239​​
Foreign exchange loss​​​​1,042​​​​​174​​
​​​​​23,154​​​​​9,833​​
Net Loss​​​$(27,716)​​​​$(22,103)​​
thousands of United States dollars)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

For the Years Ended December 31,

​

    

Notes

    

2022

    

2021

Revenue

​

3

​

$

311,724

​

$

249,194

Expenses

​

​

​

 

  

​

 

  

Cost of sales

​

​

​

 

107,075

​

 

97,710

Royalties

​

​

​

 

3,069

​

 

4,781

Exploration

​

​

​

 

9,800

​

 

5,383

General and administrative

​

​

​

 

14,307

​

 

13,345

Depreciation, depletion and amortization

​

​

​

 

69,380

​

 

52,402

Total expenses

​

​

​

 

203,631

​

 

173,621

​

​

​

​

 

​

​

 

​

Other (income) expense

​

​

​

 

  

​

 

  

Interest expense

​

​

​

 

582

​

 

5,542

Loss on Term Loan extinguishment

​

9

​

​

—

​

​

4,359

Arrangement fee

​

​

​

 

—

​

 

2,090

Accretion expense

​

11

​

 

1,103

​

 

924

Other income

​

​

​

 

(766)

​

 

(222)

Foreign exchange (gain)

​

​

​

 

(2,348)

​

 

(607)

Total other (income) loss

​

​

​

​

(1,429)

​

​

12,086

​

​

​

​

 

​

​

 

​

Income before taxes

​

​

​

​

109,522

​

​

63,487

Income tax (expense) recovery

​

​

​

​

(37,306)

​

​

15,097

Net Income

​

​

​

​

72,216

​

​

78,584

​

See accompanying notes to the combined financial statements.

​

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LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF OWNERS’ CAPITAL

(In thousands)

​​​
Capital
Contributions
​​Paid-in Capital​​
Accumulated
Deficit
​​Total​
Balance at December 31, 2018​​​$168,967​​​​$1,358​​​​$(114,303)​​​​$56,022​​
Contributions​​​​68,938​​​​​—​​​​​—​​​​​68,938​​
Other​​​​—​​​​​(116)​​​​​—​​​​​(116)​​
Costs paid by investor​​​​—​​​​​6,158​​​​​—​​​​​6,158​​
Net loss​​​​—​​​​​—​​​​​(22,103)​​​​​(22,103)​​
Balance at December 31, 2019​​​$237,905​​​​$7,400​​​​$(136,406)​​​​$108,899​​
Contributions​​​​33,463​​​​​—​​​​​—​​​​​33,463​​
Costs paid by investor​​​​—​​​​​8,966​​​​​—​​​​​8,966​​
Net loss​​​​—​​​​​—​​​​​(27,716)​​​​​(27,716)​​
Balance at December 31, 2020​​​$271,368​​​​$16,366​​​​$(164,122)​​​​$123,612​​
thousands of United States dollars)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Capital

    

​

​

    

Accumulated

    

​

​

​

​

Contributions

​

Paid-in Capital

​

Deficit

​

Total

Balance at December 31, 2020

​

$

271,368

​

$

16,366

​

$

(164,122)

​

$

123,612

Contributions

​

 

269,270

​

 

—

​

 

—

​

 

269,270

Costs paid by investor

​

 

—

​

 

2,004

​

 

—

​

 

2,004

Net income

​

 

—

​

 

—

​

 

78,584

​

 

78,584

Balance at December 31, 2021

​

$

540,638

​

$

18,370

​

$

(85,538)

​

$

473,470

Dividends

​

​

​

​

​

—

​

​

(55,000)

​

​

(55,000)

Costs paid by investor

​

​

—

​

​

(184)

​

​

—

​

​

(184)

Net income

​

​

—

​

​

—

​

​

72,216

​

​

72,216

Balance at December 31, 2022

​

$

540,638

​

$

18,186

​

$

(68,322)

​

$

490,502

​

See accompanying notes to the combined financial statements.

​

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LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

(In thousands)

​​​2020​​2019​
Cash flows from operating activities:​​​​​​​​​​​​​
Net loss​​​$(27,716)​​​​$(22,103)​​
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:​​​​​​​​​​​​​
Depreciation, depletion and amortization​​​​44,905​​​​​15,460​​
Arrangement fee​​​​8,888​​​​​3,524​​
Accretion​​​​849​​​​​789​​
Unrealized loss on foreign currency rate change​​​​4,696​​​​​272​​
Interest expense​​​​111​​​​​—​​
Other​​​​77​​​​​(116)​​
Changes in operating assets and liabilities:​​​​​​​​​​​​​
VAT receivable​​​​(6,071)​​​​​(19,569)​​
Receivables​​​​1,667​​​​​(5,655)​​
Inventories​​​​5,055​​​​​(7,027)​​
Unearned revenue​​​​3,276​​​​​—​​
Other current assets​​​​(1,781)​​​​​(977)​​
Accounts payable and other accrued liabilities​​​​9,569​​​​​13,368​​
Payables to related parties​​​​4,276​​​​​3,281​​
Accrued interest​​​​71​​​​​2,745​​
Net cash provided by (used by) operating activities​​​​47,872​​​​​(16,008)​​
Cash flows from investing activities:​​​​​​​​​​​​​
Deposits​​​​—​​​​​1,005​​
Other current assets​​​​—​​​​​2,568​​
Mine development​​​​(50,618)​​​​​(74,630)​​
Purchase of property, plant and equipment​​​​(14,249)​​​​​(53,727)​​
Materials and supplies inventory​​​​431​​​​​—​​
Accrued interest​​​​—​​​​​(513)​​
Transfers from restricted cash​​​​—​​​​​2,219​​
Net cash used by investing activities​​​​(64,436)​​​​​(123,078)​​
Cash flows from financing activities:​​​​​​​​​​​​​
Capital contributions​​​​5,000​​​​​18,200​​
Dowa MPR Loan paydown​​​​—​​​​​(17,336)​​
Equipment loan payments​​​​(6,966)​​​​​(6,485)​​
Working Capital Facility advances​​​​—​​​​​60,000​​
Dowa Term Loan borrowings​​​​—​​​​​75,000​​
Related party borrowings​​​​18,904​​​​​—​​
Deferred financing costs​​​​—​​​​​(222)​​
Net cash provided by financing activities​​​​16,938​​​​​129,157​​
Net increase (decrease) in cash and cash equivalents​​​​374​​​​​(9,929)​​
Cash and cash equivalents, beginning of period​​​​1,302​​​​​11,231​​
Cash and cash equivalents, end of period​​​$1,676​​​​$1,302​​
Interest paid​​​$7,406​​​​$3,940​​
Supplemental dislosure of noncash transactions:​​​​​​​​​​​​​
Accrued interest​​​$—​​​​$8,535​​
Equipment loan borrowings​​​$—​​​​$7,679​​
Conversion of related party payables to equity​​​$9,448​​​​$—​​
Conversion of related party borrowings to equity​​​$18,904​​​​$—​​
Conversion of MPR Loan to equity​​​$—​​​​$50,737​​
Conversion of related party accrued interest to debt​​​$854​​​​$10,179​​
Depreciation expense included in mine development​​​$—​​​​$4,589​​
Materials and supplies included in accrued liabilities​​​$4,428​​​​$—​​
Mine development costs included in accrued liabilities​​​$11,229​​​​$10,720​​
Property, plant and equipment included in accrued liabilities​​​$8,917​​​​$10,290​​
Deferred finacning costs included in PPE and mine development​​​$—​​​​$495​​
Equity method investee portion of arrangement fee​​​$—​​​​$2,634​​
thousands of United States dollars)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Twelve Months Ended December 31,

​

    

Notes

    

2022

    

2021

Cash flows from operating activities:

 

​

​

​

  

 

​

  

Net income

​

​

​

$

72,216

​

$

78,584

Adjustments to reconcile net income to net cash provided by operating activities:

​

​

​

 

  

​

 

  

Depreciation, depletion and amortization

​

​

​

 

69,368

​

 

51,969

Accretion

​

​

​

​

1,103

​

​

924

Asset retirement obligation

​

​

​

​

—

​

​

1,620

Arrangement fee

​

​

​

 

—

​

 

2,090

Deferred taxes

​

​

​

​

21,013

​

​

(16,051)

Unrealized (gain) loss on foreign currency rate change

​

​

​

 

(4,434)

​

 

1,519

Term Loan closing fee

​

9

​

​

—

​

​

1,585

Loss on Term Loan extinguishment

​

9

​

 

—

​

 

2,775

Other

​

​

​

 

(174)

​

 

347

​

​

​

​

​

​

​

​

​

Changes in operating assets and liabilities:

​

​

​

 

  

​

 

  

VAT receivable

​

​

​

 

23,986

​

 

2,077

Receivables

​

​

​

 

(15,393)

​

 

(7,275)

Inventories

​

​

​

 

(353)

​

 

(2,055)

Unearned revenue

​

​

​

 

(1,714)

​

 

(1,562)

Other current assets

​

​

​

 

661

​

 

(1,918)

Income tax receivable

​

​

​

​

(27,039)

​

​

—

Accounts payable and other accrued liabilities

​

​

​

 

17,990

​

 

5,318

Payables to related parties

​

​

​

 

183

​

 

(109)

Other

​

​

​

 

(39)

​

 

(51)

Net cash provided by operating activities

​

​

​

 

157,374

​

 

119,787

​

​

​

​

​

​

​

​

​

Cash flows from investing activities:

​

​

​

 

  

​

 

  

Mine development

​

​

​

 

(44,934)

​

 

(58,125)

Purchase of property, plant and equipment

​

​

​

 

(37,018)

​

 

(20,052)

Materials and supplies inventory

​

​

​

 

(327)

​

 

(868)

Net cash used by investing activities

​

​

​

 

(82,279)

​

 

(79,045)

​

​

​

​

​

​

​

​

​

Cash flows from financing activities:

​

​

​

 

  

​

 

  

Capital contributions

​

​

​

 

—

​

 

207,209

Equipment loan payments

​

​

​

 

(5,439)

​

 

(7,040)

Working Capital Facility extinguishment

​

9

​

 

—

​

 

(60,000)

Term Loan closing fee

​

9

​

​

—

​

​

(1,585)

Term Loan payment

​

9

​

 

—

​

 

(15,913)

Term Loan retirement

​

9

​

​

—

​

​

(144,809)

Partner dividends

​

​

​

​

(55,000)

​

​

—

Net cash used by financing activities

​

​

​

 

(60,439)

​

 

(22,138)

​

​

​

​

​

​

​

​

​

Net increase in cash and cash equivalents

​

​

​

 

14,656

​

 

18,604

Cash and cash equivalents, beginning of period

​

​

​

 

20,280

​

 

1,676

Cash and cash equivalents, end of period

​

​

​

$

34,936

​

$

20,280

Interest paid

​

​

​

$

236

​

$

6,189

​

​

​

​

​

​

​

​

​

Supplemental disclosure of noncash transactions:

​

​

​

 

  

​

 

  

Conversion of term loan to equity

​

​

​

$

—

​

$

62,061

Materials and supplies included in accrued liabilities

​

​

​

$

202

​

$

2,177

Mine development costs included in accrued liabilities

​

​

​

$

3,427

​

$

6,191

Property, plant and equipment included in accrued liabilities

​

​

​

$

2,648

​

$

943

Recognition of Right of Use Asset and Lease Liability

​

​

​

$

328

​

$

—

​

See accompanying notes to the combined financial statements.

​

84

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LOS GATOS JOINT VENTURE

NOTES TO THE COMBINED FINANCIAL STATEMENTS

(In thousands except share, per share and option amounts, tonnes or as otherwise noted)

1.
Description of Business and Basis of Preparation
United States dollars)

1.

Description of Business and Basis of Preparation

​

These combined financial statements represent the combined financial position and results of operations of the Los Gatos Joint Venture (“LGJV” or “the Company”). Unless the context otherwise requires, references to LGJV or the Company mean the Los Gatos Joint Venture.

The combined financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”).

On January 1, 2015, the LGJV was established to develop the Cerro Los Gatos Project (LGP)Mine (“CLG”) in northern Mexico. The LGJV consists of Minera Plata Real S. de R.L. de C.V. (“MPR”(‘‘MPR’’), Operaciones San Jose de Plata S. de R.L. de C.V.C.V (“OSJ”). and Servicios San Jose de Plata S. de R.L. de C.V. (collectively the “LGJV Entities”‘‘LGJV Entities’’)., until Servicios was merged into MPR, effective July 15, 2021. Upon completion of their $50,000 funding to the LGJV, Dowa Metals & Mining, Ltd. (“Dowa”) acquired a 30% interest in the LGJV Entities and the right to purchase future zinc-concentrate production at market rates. The remaining 70% interest in the LGJV entities was owned by Gatos Silver, Inc. (“Gatos Silver”) (Sunshine Silver Mining & Refining Corporation prior to October 30, 2020). Gatos Silver contributed $18,200 to OSJ in May 2019 to provide funding for a partial repayment of principal and interest related to the Dowa MPR Loan. In late May 2019, the Dowa MPR Loan was fully extinguished with a cash payment of $18,200 and the conversion of the remaining $50,737 of principal and interest. The conversion of the remaining principal and interest increased Dowa’s ownership in the LGJV entities by 18.5% to 48.5%. On March 11, 2021, Gatos Silver repurchased the 18.5% interest from Dowa. The current ownership of the LGJV Entities is 70% Gatos Silver and 30% Dowa.

On September 1, 2019, the LGPCLG commenced commercial production of its two concentrate products;products: a leadlead-silver concentrate and a zinczinc-silver concentrate. The Company’s lead and zinc concentrates are currently sold to third-party customers.

On January 25, 2022, we announced that during our mineral resource and mineral reserve update process for the LGJV, we concluded that there were errors in the technical report for the Cerro Los Gatos Mine (“CLG”) with an effective date of July 1, 2020, as well as indications that there may be an overestimation in the existing resource model. On November 10, 2022, a new technical report was filed updating the mineral reserve, mineral resource, and life of mine plan of the CLG.

​

2.

Summary of Significant Accounting Policies
​

Risks and uncertainties

As a mining company,business, the Company’sLGJV’s revenue, profitability and future rate of growth are substantially dependent on prevailing prices for silver, zinc, lead and gold. Historically, the commodity markets have been quite volatile, and there can be no assurance that commodity prices will not be subject to wide fluctuations in the future. A substantial or extended decline in commodity prices could have a material adverse effect on the Company’sLGJV’s financial position, results of operations, cash flows, and the quantities of reserves the CompanyLGJV can economically produce. The carrying value of the Company’sLGJV’s property, plant and equipment, mine development, inventories and stockpiles are particularly sensitive to the outlook for commodity prices. A substantial or extended decline in the Company’sLGJV’s price outlook could result in material impairment charges related to these assets. Additionally, changes in other factors such as changes in mine plans, increases in costs, geotechnical failures, and changes in social, environmental or regulatory requirements can adversely affect the Company’sLGJV’s ability to recover its investment in certain assets and result in impairment charges.

Calculations of mineral reserves are only estimates and depend on geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which might prove to be materially inaccurate. There is a degree of uncertainty attributable to the calculation of mineral reserves and mineral resources. Until mineral reserves and mineral resources are actually mined and processed, the quantity of metal and grades must be considered as estimates only and no assurance can be given that the indicated levels of metals will be produced. In making determinations about whether to advance any of our projects to development, we must rely upon estimated calculations for the mineral reserves and mineral resources and grades of mineralization on our properties.

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The Companyestimation of mineral reserves and mineral resources is a subjective process that is partially dependent upon the judgment of the persons preparing the estimates. The process relies on the quantity and quality of available data and is based on knowledge, mining experience, statistical analysis of drilling results and industry practices. Valid estimates made at a given time may significantly change when new information becomes available.

Estimated mineral reserves and mineral resources may have to be recalculated based on changes in metal prices, further exploration or development activity or actual production experience. This could materially and adversely affect estimates of the volume or grade of mineralization, estimated recovery rates or other important factors that influence mineral reserves and mineral resources estimates. The extent to which mineral resources may ultimately be reclassified as mineral reserves is dependent upon the demonstration of their profitable recovery. Any material changes in volume and grades of mineralization will affect the economic viability of placing a property into production and a property’s return on capital. We cannot provide assurance that mineralization can be mined or processed profitably.

Mineral reserve and mineral resource estimates have been determined and valued based on assumed future metal prices, cutoff grades and operating costs that may prove to be inaccurate. Extended declines in the market price for silver, lead and zinc may render portions of our mineralization uneconomic and result in reduced reported volume and grades, which in turn could have a material adverse effect on our financial performance, financial position and results of operations.

The LGJV has considered and assessed the risk resulting from its concentrate sales arrangements with its customers. In the event that the Company’sLGJV’s relationships with its customers are interrupted for any reason, the CompanyLGJV believes that it would be able to locate another customerother customers to purchase its metals concentrates; however, any interruption could temporarily disrupt the Company’sLGJV’s sale of its products and adversely affect operating results.

Our business could be adversely affected by the widespread outbreak of a health epidemic, communicable disease or any other public health crisis. For example, the outbreak of COVID-19 in the United States, Mexico and elsewhere has created significant business disruption and adversely affected our business and operations. In late March 2020,We believe we have taken appropriate steps to minimize the Mexicanrisk to our employees and to maintain normal business operations. We may take further actions as may be required by government declared a national health emergency due to increasing infection rates fromauthorities or as we determine are in the COVID-19 pandemic. Pursuant to the health emergency declaration, the Mexican government ordered abest interests of our employees and business partners which may cause additional temporary suspension of some or all “non-essential” operations nationwide in Mexico, including miningof our operations in order to help combat the spread of COVID-19. In


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late May 2020, the Mexican government designated mining an essential service and allowed mines to resume production, subject to deploying COVID-19 prevention protocols.
future.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. The CompanyLGJV bases its estimates on historical experience and various other assumptions that are believed to be reasonable given the specific circumstances. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include receivables; inventories; mineral properties;mine development; reclamation and closure obligations; valuation allowances for deferred tax assets; depreciation, depletion and accretion and the fair value of financial instruments.

Functional currency and translation of foreign currencies

The U.S. dollar is the LGJV’s functional currency. Monetary assets and liabilities denominated in foreign currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting gains or losses reported in foreign exchange (gain) lossgain (loss) in the computation of net loss.income (loss). Non-monetary assets and liabilities are translated into U.S. dollars at historical exchange rates. Expenses and other income and expense items in foreign currencies are translated into U.S. dollars at average or historical exchange rates.

Cash and cash equivalents

The CompanyLGJV considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Receivables

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Receivables

Trade receivables and other receivable balances are reported at outstanding principal amounts, net of an allowance for doubtful accounts, if deemed necessary. Management evaluates the collectability of receivable account balances to determine the allowance, if any. Management considers the other party’s credit risk and financial condition, as well as current and projected economic and market conditions, in determining the amount of the allowance. If management determines a receivable balance is uncollectible, the uncollectable portion will be recognized as a loss.

Metal and Materials Inventories

materials inventories

The Company’sLGJV’s inventories include ore, concentrate and operating materials and supplies. The classification of ore and concentrate inventories is determined by the production stage of the ore. All inventories are stated at the lower of cost or net realizable value. Cost is determined using the average cost method for all inventories and includes applicable taxes and freight. Ore inventory represents stockpiled ore that is available for processing. Concentrate inventory represents stockpiled lead or zinc concentrate that is available for shipment or in transit to customers. Ore and concentrate inventories include applicable operating and overhead costs.

Mine development

LGP’s

Mine development costs incurred subsequent to initial establishment of CLG’s proven and probable mineral reserves were established in early January 2017. Accordingly, subsequent development costs2017 were capitalized as mine development assets until September 1, 2019 when the LGPCLG achieved commercial production. Subsequent to September 1, 2019, costs incurred to further develop the mine including the building of access ways, ventilation shafts, lateral access, drifts, ramps and other infrastructure are capitalized to mine development assets. Upon the commencement of production, capitalized costs are charged to operations as depletion expense using the units-of-production method in the period the applicable metalmineral reserves are processed over the estimated proven and probable mineral reserve tonstonnes directly benefiting from the capital expenditures. The LGJV incurred $19,117Los Gatos Technical Report dated November 10, 2022, provides an update to the estimated mineral reserves and $7,291 formineral resources since the years ended December 31,technical report issued in 2020, and 2019, respectively,which was applied starting in depletion expense.


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the fourth quarter of 2021.

Upon abandonment or sale of a mineral property, any remaining capitalized mine development costs relating to such property will be removed from the balance sheet and a gain or loss recognized.

Property, plant and equipment

Property, plant and equipment are recorded at cost and depreciation is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of plant and equipment and infrastructure range between three years and the end of the proven and probable reserves mine life. The Los Gatos Technical Report dated November 10, 2022 provides an update to the estimated mineral reserves and mineral resources since the technical report issued in 2020. The estimated useful lives of furniture, fixtures and computers range from three to ten years.

Impairment of long-lived assets

Long-lived assets, such as mine development, property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the CompanyLGJV first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There wereAt December 31, 2022, there was no impairments recognized for 2020 or 2019.

indicator of impairment at the LGJV; therefore, an impairment test was not required.

Value added tax receivable and payable

Value added taxes (“VAT”) are assessed on purchases of materials, services and sales of products. The CompanyLGJV is entitled to recover the taxes they have paid related to purchases of materials and services. The CompanyLGJV collects VAT when certain products are sold to customers. VAT receivables represent refundable value-added taxes paid to the Mexican government on certain transactions in Mexico. The CompanyLGJV records the VAT cash flows as operating activities in the combined statement of cash flows, given the short-term, refundable and operating characteristics of these cash flows.

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Reclamation and remediation costs (asset retirement obligations)

The CompanyLGJV has asset retirement obligations (“ARO”) arising from regulatory requirements to perform certain property and asset reclamation activities at the end of the respective asset life. An ARO is recognized when incurred and is initially measured at fair value and subsequently adjusted for accretion expense and changes in the amount or timing of the estimated cash flows. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and amortized over the asset’s remaining useful life. The ARO is based on timing of expected spending for an existing environmental disturbance. The CompanyLGJV reviews on an annual basis, unless otherwiseits ARO every reporting period or when deemed necessary, its reclamation obligation.

necessary.

Revenue Recognition

recognition

The CompanyLGJV generates revenue by selling silver-bearing lead and zinc concentrates. Concentrate sales are initially recorded based on 100% of the provisional sales prices, net of estimated treatment and refining charges, when it satisfies the performance obligation of transferring control of the concentrate to the customer. Concentrate revenue is initially recorded on a provisional basis based on historical prices and provisional assays. Final settlement is based on the final assays and an applicable price as determined by a futurethe quotational period at the time of sale, typically one to threefour months. Market changes in the prices of metals between the delivery and final settlement dates will result in provisional adjustments to revenues related to previously recorded sales of concentrate.

Income taxes

The Company’sLGJV’s income tax jurisdiction is Mexico. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their


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respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The CompanyLGJV recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The CompanyLGJV recognizes tax penalties in income tax expense.

Recently issued accounting standards

In February 2016, the FASBFinancial Accounting Standards Board issued ASUAccounting Standards Update (“ASU”) 2016-02 which will require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. These changes become effective for the Company’sLGJV’s fiscal year beginning January 1, 2021.2022, and interim periods within the year ended December 31, 2022. The Company is still assessing the impact ofLGJV assessed the standard but does not expect there will beand recognized a material impact to the Combined Balance Sheet, Combined Statement of Income (Loss) or the Combined Statements of Cash Flows asright-in-use asset and a result of the adoption of ASU 2016-02. The Company is in the process of assessing the required disclosures of the new standard and expects to provide additional qualitative and quantitative disclosurescorresponding lease liability related to its leasing arrangements upon adoption.

office lease.

In December 2019, ASU No. 2019-12 was issued to simplify and enhance accounting for income taxes. This update is effective in fiscal years, beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, and early adoption is permitted. The Company is completing its assessmentLGJV concluded that the adoption of the impact and anticipated adoption date of this guidance.

In March 2020, the FASB issued ASU No. 2020-04 which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and the London Interbank Offered Rate (“LIBOR”). The amendments are effective as of March 12, 2020 through December 31, 2022. The Company is evaluating the potential impact this guidance may2019-12 did not have but does not expect there will be a material impact to the Company’son our financial statements.
position and results of operations.

​

3.

Sales
​
Revenue

The Company’sLGJV’s concentrate sales for the year ended December 31, are summarized below:

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Lead Concentrate

​

$

226,494

​

$

196,413

Zinc Concentrate

​

 

95,794

​

 

72,862

Treatment and refining charges and penalties

​

​

(21,871)

​

​

(21,619)

Subtotal

​

​

300,417

​

​

247,656

Provisional revenue adjustments

​

​

11,307

​

​

1,538

Revenue

​

$

311,724

​

$

249,194

​

​​​2020​​2019​
Lead Concentrate​​​$90,883​​​​$28,437​​
Zinc Concentrate​​​​30,587​​​​​8,071​​
​​​​$121,470​​​​$36,508​​
During 2020,

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Provisional revenue adjustments account for commodity price fluctuations in concentrate sales still subject to final settlement.

As silver, zinc and lead can be sold through numerous market traders worldwide, the Company entered into an agreement withLGJV is not economically dependent on a customerlimited number of customers for a $6,000 prepayment on future sales, to be satisfied through the deliverysale of concentrate through March 31, 2021. Interest on the prepayment is incurred at 7% per annum, due monthly. The prepayment balance, presented as unearned revenue on the balance sheet, is $3,276 atits products. As of December 31, 2020.

4.
Inventories
​
2022, our total accounts receivable was concentrated with the following customers: Customer 1 (74%), Customer 2 (11%), and Customer 3 (11%). The Company’sLGJV enters into contracts with institutions management deems credit worthy. The Company does not anticipate non-performance by any of its counterparties.

​

4.Inventories

The LGJV’s inventories as of December 31, are summarized below:

​​​2020​​2019​
Ore stockpiles​​​$1,178​​​​$4,863​​
Concentrate stockpiles​​​​590​​​​​1,096​​
Material & supplies​​​​8,547​​​​​5,415​​
​​​​$10,315​​​​$11,374​​

98

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Ore stockpiles

​

$

843

​

$

777

Concentrate stockpiles

​

 

941

​

 

1,308

Material & supplies

​

 

9,758

​

 

8,977

​

​

$

11,542

​

$

11,062

​

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5.

Other Current Assets
​

The Company’sLGJV’s other current assets as of December 31, are summarized below:

​​​2020​​2019​
Prepaid expenses​​​$2,179​​​​$1,432​​
Deposits and other​​​​712​​​​​240​​
​​​​$2,891​​​​$1,672​​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Prepaid expenses

​

$

4,027

​

$

4,169

Deposits and other

​

 

111

​

 

346

Total other current assets

​

$

4,138

​

$

4,515

​

​

​

6.

Property, Plant and Equipment, net
​

The Company’sLGJV’s property, plant and equipment as of December 31, are summarized below:

​​​2020​​2019​
Mineral properties​​​$853​​​​$853​​
Plant & equipment​​​​69,297​​​​​64,469​​
Land​​​​14,422​​​​​14,422​​
Infrastructure & improvements​​​​152,942​​​​​152,290​​
Furniture, fixtures & computers​​​​509​​​​​508​​
Property, plant & equipment at cost​​​​238,023​​​​​232,542​​
Less accumulated amortization​​​​(41,081)​​​​​(16,411)​​
​​​​$196,942​​​​$216,131​​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Mineral properties

​

$

853

​

$

853

Plant & equipment

​

 

112,456

​

 

72,574

Land

​

 

14,422

​

 

14,422

Infrastructure & improvements

​

 

168,007

​

 

169,756

Furniture, fixtures & computers

​

 

779

​

 

609

Right of use asset

​

​

328

​

​

—

Property, plant & equipment at cost

​

 

296,845

​

 

258,214

Less accumulated amortization

​

 

(98,245)

​

 

(67,318)

Property, plant & equipment, net

​

$

198,600

​

$

190,896

​

Included in property plant and equipment is a Mexico head office lease of $328 with the term until January 30, 2024.

Mineral Properties

The CompanyLGJV conducts exploration activities under mining concessions in Mexico.

The CompanyLGJV is required to make mineral and concession lease payments to various entities to secure its claims or surface rights. One of these agreements also requires royalty payments based on the production and sale of minerals.

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Mining Concessions and Agreement

In Mexico, mineral concessions from the Mexican government can only be held by Mexican nationals or Mexican-incorporated companies. The concessions are valid for 50 years and are extendable provided the concessions are kept in good standing. For concessions to remain in good standing, a semi-annual fee must be paid to the Mexican government and a report must be filed each year which covers the work accomplished on the property during the previous year. These concessions may be cancelled without penalty with prior notice to the Mexican government.

MPR is the concession holder of a series of mineral concessions granted by the Mexican government. The rights to certain concessions are held through exploration agreements with purchase options or a finder’s fee agreement, as discussed below:

La Cuesta International S.A. de C.V. (La Cuesta)

The CompanyLGJV is required to pay a production royalty of a) 2% net smelter return on production from the concession until all payments reach $10,000 and b) 0.5% net smelter return on production from the concession after total payments have reached $10,000 and c) 0.5% net smelter return on production from other property within a one-kilometer boundary of the Los Gatos concession. After total payments reach $15,000, the Los Gatos concession ownership will be transferred to the Company.LGJV. The agreement has no expiration date; however, the CompanyLGJV may terminate the agreement upon a 30-day notice. The agreement was revised in 2019 to allow a portion of production royalty payments to be deferred. Under the terms of the revised agreement, the LGJV was to pay $500 quarterly through 2021, while incurring interest at 4.5% annually on the outstanding balance, with the balance of the production royalty due in the first quarter of 2022. The Companyagreement was revised further in September 2021, which allowed for payment of the production royalty due and elimination of the interest on the unpaid portion of the production royalty. Following the payment of the balance due in September 2021, the LGJV made its first quarterly payment of the production royalty in October 2021. The LGJV paid $600$4,040 and $45$5,312 for this obligation forin the years ended December 31, 20202022 and 2019,2021, respectively, resulting in $1,135$10,487 paid through December 31, 2020.


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2022.

As of December 31, 2020,2022, the Company’sLGJV’s minimum remaining production royalty obligation is summarized in the table below:

​2021​​​$2,000​​
​2022​​​​575​​
​2023​​​​100​​
​2024​​​​100​​
​2025​​​​100​​
​Thereafter​​​​10,990​​
​Total​​​$13,865​​

​

​

​

​

​

2023

    

 

100

2024

​

 

100

2025

​

 

100

2026

​

 

100

Thereafter

​

 

4,113

Total

​

$

4,513

​

​

7.

Accounts Payable and Other Accrued Liabilities
​

The Company’sLGJV’s accounts payable and other accrued liabilities as of December 31, are summarized below:

​​​2020​​2019​
Accounts payable​​​$25,022​​​​$29,669​​
Accrued expenses​​​​9,408​​​​​12,580​​
Accrued payroll & taxes​​​​1,337​​​​​1,038​​
​​​​$35,767​​​​$43,287​​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Accounts payable

​

$

18,042

​

$

18,641

Accrued expenses

​

 

20,628

​

 

11,253

Accrued payroll & taxes

​

 

8,070

​

 

3,285

Total accounts payable and other accrued liabilities

​

$

46,740

​

$

33,179

​

​

8.

Related-Party Transactions
​
Effective January 1, 2015,

Under the LGJV has a management services agreement with Gatos Silver whereby,Unanimous Omnibus Partner Agreement, Gatos Silver provides certain consultingmanagement and administrative services. The LGJV incurred $3,900 and $5,100 forservices to the years ended December 31, 2020 and 2019, respectively, for these services.LGJV. Certain expenses incurred by the owners on behalf of the LGJV are also reimbursed.

The LGJV incurred $5,000 for each of the years ended December 31, 2022 and 2021, for these services, and paid $5,417 and $5,367 to Gatos Silver for the years ended December 31, 2022 and 2021, respectively. The LGJV had payables under this agreement of $417 as of December 31, 2022.

9.

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9.Related Party Debt

​

On July 11, 2017, the CompanyLGJV entered into a loan agreement (“Term Loan”) with Dowa whereby the Company canLGJV could borrow up to $210,000 for LGPCLG development, with a maturity date of December 29, 2027. Interest on this loan accruesaccrued daily at LIBOR plus 2.35%, butwith the interest is added to the amount borrowed for repayment monthly until the LGP commencescommencement of concentrate production. A $4,200 fee was paid to Dowa during 2018 upon the loan closing. Commencing June 30, 2021, 14 consecutive semi-annual equal payments of the aggregate principal plus accrued interest on the payment date begin.began. The Term Loan also requiresrequired accelerated principal payments equal to 70% of excess cash flows (as defined) from the LGP. As of December 31, 2020, the Company had $222,783 outstanding, including $12,783 of interest, under the Term Loan. Prior to production commencing in September 2019, $7,100 interest was capitalized to Mine Development or Property, Plant and Equipment.CLG. Subsequent to the commencement of production, interest was expensed. Interest expense for the years ended December 31, 2021 and 2020 was $3,292 and 2019$8,007, respectively. On July 26, 2021, the Term Loan was repaid in full through capital contributions made to the LGJV by Gatos Silver and Dowa in pro-rata amounts equal to their ownership in the LGJV of 70% and 30%, respectively. In conjunction with the repayment, the LGJV paid a closing fee to Dowa of $1,585. The closing fees paid to Dowa, along with $2,775 of remaining Term Loan deferred financing costs are $8,007 and $3,400, respectively.

presented as Loss on Term Loan extinguishment in the Combined Statements of Income.

On January 23, 2018, the CompanyLGJV entered into a loan agreement (“Dowa MPR Loan”) whereby the CompanyLGJV could borrow up to $65,000 for LGPCLG development. Interest on this loan accruesaccrued daily at LIBOR plus 1.5%. but the interest is and was added to the amount borrowed. All interest was capitalized to Mine Development or Property, Plant and Equipment. The amount borrowed, including accrued and unpaid interest, was due the earlier of June 30, 2019, or upon substantial completion of the LGPCLG development. If the Dowa MPR Loan was not repaid by the maturity date, Dowa could elect to convert all or a portion of Gatos Silver’s portion of the outstanding Dowa MPR Loan, including accrued interest, to additional equity in the LGJV Entities at 170% of Gatos Silver’s portion of the outstanding balance (“Additional Equity”). If Gatos Silver’s ownership in the LGJV Entities was diluted, for two years from the maturity date, Gatos Silver cancould repurchase the Additional Equity for 170% of such value plus all costs and expenses incurred by Dowa to acquire and hold the Additional Equity. In May 2019, Gatos Silver contributed $18,200 to OSJ to provide funding for a partial repayment of principal and interest related to the Dowa MPR Loan. In May 2019, the


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Dowa MPR Loan was fully extinguished with a principal and interest payment of $18,200 and the conversion of the remaining principal and interest of $50,737 to additional Dowa ownership in the LGJV entities. Subsequent to this transaction the ownership of the LGJV entities was 51.5% Gatos Silver and 48.5% Dowa.
On March 11, 2021, pursuant to the definitive agreement between Gatos Silver and Dowa, Gatos Silver repurchased an additional 18.5% interest from Dowa, increasing Gatos Silver’s interest in the LGJV to 70%.

On May 30, 2019, the LGJV entered into a working capital facility agreement (“WCF”) with Dowa whereby the LGJV could borrow up to $60,000 to fund the working capital and sustaining capital requirements of the LGP.CLG. Interest on the WCF accruesaccrued daily at LIBOR plus 3.0%. The maturity date of the WCF iswas June 28, 2021. As of December 31, 2020, theThe LGJV had $60,000 of principal and $5 of accrued interest outstanding under this facility. The Company paid interest of $2,530$369 and $1,419$2,530 under this facility for the years ended December 31, 2021 and 2020, and 2019, respectively.

On March 11, 2021, the full $60,000 amount outstanding under the WCF was extinguished through capital contributions made to the LGJV by Gatos Silver incursand Dowa in pro-rata amounts equal to their ownership in the LGJV of 70% and 30%, respectively.

Gatos Silver incurred certain fees on behalf of the LGJV entities related to the Term Loan and WCF. Prior to production, these fees were capitalized. Subsequent to production, these fees were expensed.

On March 11, 2021, pursuant See Note 10—Commitments, Contingencies and Guarantees in the notes to the definitive agreement betweenconsolidated financial statements of Gatos Silver and Dowa, Gatos Silver repurchased anfor additional 18.5% interest from Dowa, increasing Gatos Silver’s interest to 70% and the WCF was extinguished with partner capital contributions.
Scheduled minimum debt repayments for the years ending December 31 are summarized below:
​2021​​​$98,910​​
​2022​​​​37,474​​
​2023​​​​32,298​​
​2024​​​​31,826​​
​2025​​​​31,826​​
​Thereafter​​​​63,652​​
​​​​​$295,986​​
information.

​

10.

Owners’ Capital
​

During 2020,2021, Gatos Silver and Dowa, contributed $17,227$188,489 and $16,236,$80,781, respectively, as owners’ capital to the LGJV to support limited operationsretire the WCF and Term Loan and for exploration activities. There were no contributions during the temporary, government-mandated COVID-19 suspension. A portion of Gatos Silver contributions resulted from conversion of $9,448 of LGJV payables to capital contributions in the LGJV.

year ended December 31, 2022.

​

11.

Asset Retirement Obligations
​

In 2015, the CompanyLGJV recognized an ARO related to the work performed at the LGP.CLG. The CompanyLGJV estimated the present value of the estimated future cash flows required to revegetate the disturbed areas and perform any required monitoring. The CompanyLGJV used a discount rate and interestinflation rate of 9% and 1%, respectively, to calculate the present value of this obligation, related to the disturbance of land around the mine portal, waste rock dump and road to the explosives storage area.

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In 2018, the CompanyLGJV recognized an ARO related to the additional development work performed at the LGP.CLG. The CompanyLGJV estimated the present value of the estimated future cash flows required to reclaim the disturbed areas and perform any required monitoring. The CompanyLGJV used a discount rate and interestinflation rate of 7.5% and 3%, respectively, to calculate the present value.

The Company recorded accretion expense relatedLos Gatos Technical Report dated November 10, 2022, provides an update to the AROestimated mineral reserves and mineral resources since the technical report issued in 2020, which changed the expected timing of $848 and $789 forour asset retirement obligations. The revised estimate was applied starting in the years ended December 31, 2020 and 2019, respectively. fourth quarter of 2021.

The following table summarizes activity in the Company’sLGJV’s ARO as of December 31:

​​​2020​​2019​
Balance, beginning of period​​​$11,314​​​​$10,525​​
Accretion expense​​​​848​​​​​789​​
ARO additions​​​​—​​​​​—​​
Balance, end of period​​​$12,162​​​​$11,314​​

101

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Balance, beginning of period

​

$

14,706

​

$

12,162

Additions

​

​

—

​

​

1,620

Accretion expense

​

 

1,103

​

 

924

Balance, end of period

​

$

15,809

​

$

14,706

​

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12.

Fair Value Measurements
​

The CompanyLGJV establishes a framework for measuring the fair value of financial assets and liabilities and nonfinancial assets and liabilities which are measured at fair value on a recurring (annual) basis 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.

Financial Assets and Liabilities

At December 31, 20202022, the Company’sLGJV’s financial instruments consist of cash and cash equivalents, receivables, restricted cash, other current assets, accounts payable and other current liabilities. The carrying amounts of these financial instruments approximate fair value due to their short maturities.

The following table detailsmaturities and are classified within Level 1 of the fair value of the Company’shierarchy.

The LGJV’s debt obligations as of December 31, 20202022 and 20192021, consist of equipment loans and are included inclassified within Level 2 of the fair value hierarchy. The Term Loan is carried at amortized cost. The fair value of the WCF approximates carrying value as the liability is secured, has a variable interest rate, and lacks credit concerns. The carrying value of the equipment loans approximate fair value as the liability is secured by the underlying equipment, guaranteed by Gatos Silver, and lacks significant credit concerns. The fair value of the Term Loan was estimated using inputs directly related to the obligations. The following table summarizes the fair value as of December 31:

​​​2020​​2019​
Term Loan(1)
​​​$219,593​​​​$217,796​​
WCF​​​​60,000​​​​​60,000​​
Equipment Loans​​​​13,204​​​​​19,864​​
​​​​$292,797​​​​$297,660​​
​
(1)
Net of unamortized debt discount of $3,190 and $4,133 as of December 31, 20202022 and 2019,2021, was $480 and $6,011, respectively.

​

Non-Financial Assets and Liabilities
The Company discloses and recognizes its non-financial assets and liabilities, such as ARO, at fair value on a non-recurring basis. The estimated fair value for these non-financial assets and liabilities are classified as Level 3 of the fair value hierarchy, as the valuation was determined based on internally developed assumptions that market participants would use in the pricing of such liabilities without observable inputs and no market activity.

13.

Commitments and Contingencies
​

In determining accruals and disclosures with respect to loss contingencies, the CompanyLGJV will charge to income an estimated loss if information available prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the 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


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contingency is made in the combined financial statements when it is at least reasonably possible that a material loss could be incurred.

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The Company’sLGJV’s mining, development 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 CompanyLGJV 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.

From time to time, the CompanyLGJV may be involved in legal proceedings related to its business. Management does not believe that adverse decisions in any pending or threatened proceeding or that amounts that may be required to be paid by reason thereof will have a material adverse effect of the Company’sLGJV’s combined financial condition or results of operations.

​

14.

Equipment Loans
​

During 20202021 and 2019,2020, the LGJV Entities entered into equipment loan agreements, with repayment over four years at interest rates ranging from 5.76% to 8.67%, to finance a portion of mining equipment purchases. As of December 31, 2020,2022, and 2019,2021, the CompanyLGJV had outstanding loans of $13,237$480 and $19,915,$6,025, respectively, net of unamortized debt discount of $33$3 and $51,$14, respectively. For the years ended December 31, 20202022, and 2019, we2021, the LGJV incurred $1,289$480 and $1,647$738 of interest on these loans, respectively. Prior to production in September 2019 all interest was capitalized to Property, Plant and Equipment. Subsequent to production, all interest on equipment was expensed. Gatos Silver has guaranteed the payment of all obligations, including accrued interest, under the equipment loan agreements.

​

15.

Income Taxes
​

The combined lossincome before income taxes in Mexico is $27,716was $109,522 and $22,103$63,487 for the years ended December 31, 20202022 and 2019,2021, respectively. The combined current and deferred income tax expense for the years ended December 31, 20202022 and 2019 was nil.

2021, were expense of $37,306 and benefit of $15,097, respectively. The current and deferred income tax expense (benefit) for the years ended December 31, 2022 and 2021 comprise deferred tax expense of $19,586 and current tax expense of $17,720, and deferred tax benefit of $(16,051) and current tax expense of $954, respectively.

A reconciliation of the actual income tax expense (benefit) and the tax computed by applying the Mexico federal rate (30%) to the loss before income taxes for the year ended December 31, is as follows:

​​​2020​​2019​
Tax benefit from continuing operations​​​$(8,315)​​​​$(6,631)​​
Nondeductible expenses​​​​6,049​​​​​2,244​​
Change in valuation allowance​​​​543​​​​​3,772​​
NOL inflation adjustment​​​​8,876​​​​​41​​
NOL expiration​​​​1,454​​​​​574​​
NOL utilization​​​​(1,785)​​​​​—​​
Other​​​​(6,822)​​​​​—​​
​​​​$—​​​​$—​​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Tax provision from continuing operations

​

$

32,856

​

$

19,046

Nondeductible Expenses

​

 

(2,267)

​

 

3,605

Change in Valuation Allowance

​

 

6,047

​

 

(36,367)

Deferred Mexico Mining Tax

​

​

(93)

​

​

(200)

Current Mexico Mining Tax

​

​

2,190

​

​

954

NOL inflation adjustment

​

 

(1,427)

​

 

(2,135)

Total income and mining tax expense (benefit)

​

$

37,306

​

$

(15,097)

​

The net operating loss (NOL) inflation rate adjustment relates to historical net operating loss carryforwards in Mexico from 20102012 to 2019.2020. These historical carryforwards have been inflation-adjusted based upon an inflation factor published by the central bank of Mexico, as any inflationary adjustment will impact the Company’sLGJV’s basis in the net operating losses during the carryforward period.

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A summary of the components of the net deferred tax assets (liabilities) for the year ended December 31, is as follows:

​​​2020​​2019​
Deferred tax assets​​​​​​​​​​​​​
Accrued expenses​​​$2,468​​​​$112​​
Unearned revenue​​​​990​​​​​—​​
Fixed assets​​​​3,033​​​​​—​​
Reclamation obligations​​​​3,649​​​​​—​​
Exploration and development​​​​9,958​​​​​8,451​​
Operating loss carryforward​​​​26,422​​​​​35,589​​
NOL, inflation adjustment​​​​4,675​​​​​5,838​​
Valuation allowances​​​​(50,110)​​​​​(49,567)​​
​​​​​1,085​​​​​423​​
Deferred tax liabilities​​​​​​​​​​​​​
Prepaid expenses​​​​(1,085)​​​​​(103)​​
Fixed assets​​​​—​​​​​(320)​​
​​​​​(1,085)​​​​​(423)​​
Net deferred income tax assets (liabilities)​​​$—​​​​$—​​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Deferred tax assets

 

​

  

 

​

  

Accrued expenses

​

$

4,777

​

$

3,798

Deferred Revenue

​

 

—

​

 

514

Fixed assets

​

 

10,591

​

 

8,399

Reclamation obligations

​

 

4,744

​

 

4,412

Operating loss carryforward

​

 

8,335

​

 

19,956

Deferred Mexico Mining Tax

​

 

293

​

 

200

Valuation allowances

​

 

(4,744)

​

 

(4,412)

​

​

$

23,996

​

$

32,867

Deferred tax liabilities

​

 

​

​

 

  

Asset Retirement Costs

​

$

(2,686)

​

$

(2,956)

Unbilled Revenue

​

 

(6,869)

​

 

(691)

Exploration and Development

​

​

(14,643)

​

​

(10,562)

Prepaid expenses

​

 

(1,152)

​

 

(1,251)

​

​

$

(25,350)

​

$

(15,460)

Deferred income tax assets (liabilities)

​

$

(1,354)

​

$

17,407

​

As of December 31, 2022, The Company’s deferred tax assets primarily consist of net operating losses, and accrued expenses not currently deductible. Management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. Based upon the level of taxable income (loss) and projections of future taxable income (loss) over the periods which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences,the asset retirement obligation deferred tax asset of $4,744 and thus has recorded a full valuation allowance against this deferred tax asset.

The change in the net deferred tax asset balancein the year of $50,110. If the Company is profitable for$18,760 includes a number of years and prospects for the realization of the deferred tax assets are more likely than not, the Company will then reverse its valuation allowanceexpense of $19,586 and credit income tax expense.

foreign currency translation of $826.

At December 31, 2020,2022 the CompanyLGJV had $103,656$24,185 of net operating loss carryforwards in Mexico (including(net of inflation adjustments) which expire at various dates through 2030.2031.

The owners of the Joint Venture file income tax returns in the U.S and Mexico. Effective January 1, 2017, the Company’s foreign assets and operations are owned by entities that have elected to be treated for U.S. tax purposes as corporations and, as a result, the taxable income or loss and other tax attributes of such entities are not included in the owners of the Company’s U.S. federal consolidated income tax return. The statute of limitations for tax returns filed in Mexico is five years from the date of filing. The tax returns of the Company are no longer subject to examinations by Mexican tax authorities for years prior to 2016.

2017.

As of December 31, 2020,2022, the Company has not recordedrecognized any increases or decreases in unrecognized tax benefits, as it is more likely than not that all tax positions have a high probability of being upheld by the taxing authorities. The Company recognizes penalties and accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized.

recognized during the periods presented.

​

16.

Subsequent Events
​

There are no other events or transactions requiring recognition or disclosure in these combined financial statements through March 29, 2021.June 26, 2023 the date which the financial statements were issued.

​

​

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Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

The information required by Item 9 was previously reported on our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 20, 2023.

​

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintainhave established disclosure controls and procedures, (asas such term is defined in RulesRule 13a-15(e) and 15d-15(e) under the Exchange Act)Act, that are designed to assureensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms,forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officerprincipal executive and Chief Financial Officer,principal financial officers as appropriate, to allow timely decisions regarding required disclosures. disclosure.

Our management, with the participation of our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b).as of December 31, 2022. Based on this evaluation, our Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2020.

2022, due to the material weaknesses in our internal control over financial reporting described below.

Management’s Annual Report on Internal Control Over Financial Reporting

This Report does not include a report of management’s assessment regarding

Management is responsible for establishing and maintaining adequate internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. Additionally, our independent registered public accounting firm will not be required to issue an attestation report on our internal control over financial reporting until we are no longer an emerging growth company (as defined in the JOBS Act) and no longer a smaller reporting company that is a non-accelerated filer.

Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (asas defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)Act.

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2022, due to the identification of the material weaknesses discussed below.

A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with our review of the internal control structure related to the preparation of the financial statements for the fiscal year ended December 31, 2021, we identified the following material weaknesses in our internal controls over financial reporting, which remain unremedied as of December 31, 2022:

●We did not demonstrate the appropriate tone at the top including failing to design or maintain an effective control environment commensurate with the financial reporting requirements of a public company in the United States and Canada. In particular, we did not design control activities to adequately address identified risks or operate at a sufficient level of precision that would identify material misstatements to our financial statements and did not design and maintain sufficient formal documentation of accounting policies and procedures to support the operation of key control procedures.
●We failed to design and maintain effective controls relating to our risk assessment process as it pertained to the assessment of key assumptions, inputs and outputs contained in our July 2020 technical report.

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In connection with our review of the internal control structure related to the preparation of the restated financial statements for the fiscal year ended December 31, 2021, we have identified the following additional material weaknesses in our internal controls over financial reporting:

●We failed to design and maintain effective controls over accounting for current and deferred taxes. This material weakness resulted in a material misstatement of our previously issued financial statements for the year ended December 31, 2021. Specifically, the financial statements of the LGJV at December 31, 2021 did not accurately reflect the current and deferred tax assets and liabilities at December 31, 2021 which resulted in an overstatement of the current income tax expense. Consequently, the impairment of investment in affiliates and the investment in affiliates and the equity income in affiliates were also not accurately presented in the Company’s financial statements at December 31, 2021.
●We did not have adequate technical accounting expertise to ensure that complex accounting matters such as the impact of the priority distribution payment due to our joint venture partner and the impairment charge was recognized in accordance with GAAP. This material weakness resulted in a material misstatement of our previously issued financial statement for the year ended December 31, 2021. The financial statements did not accurately reflect the investment in affiliates and the equity income in affiliates. Additionally, this caused the impairment of the investment in affiliates to be misstated.

After giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with U.S. GAAP, our management has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.

Remediation Efforts

We are in the process of implementing measures designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weaknesses described above. To date, we have:

●engaged a third-party expert to assist management in documenting key processes related to our internal control environment, designing and implementing an effective risk assessment and monitoring program to identify risks of material misstatements and ensuring that the internal controls have been appropriately designed to address and effectively monitor identified risk;
●hired a new executive leadership team, including a new CEO, CFO and senior executive responsible for technical services, each of which has appropriate experience and has demonstrated a commitment to improving the Company’s control environment;
●hired additional personnel with accounting and technical expertise, including hiring new accounting staff in connection with the relocation of the Company’s headquarters to Vancouver;
●enhanced the procedures and functioning of our disclosure committee relating to the appropriate reporting of information and review and approval of the Company’s public disclosures;
●engaged a new independent third-party subject matter specialist to perform a technical review of the 2022 mineral resource and mineral reserve estimates; and
●enhanced our procedures, including implementing appropriate controls, relating to management verification of the inputs and assumptions for our technical reports.

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Management of the Company and the Board of Directors take the control and integrity of the Company’s financial statements seriously and believe that the remediation steps described above are essential to maintaining a strong internal controls environment. We have identified and implemented, and continue to identify and implement, actions to improve the effectiveness of our internal control over financial reporting and to review such actions and progress with the Audit Committee. In addition, we have taken, and continue to take, the actions described above to remediate the identified material weaknesses. As we continue to evaluate and work to improve our internal controls over financial reporting, our senior management may determine to take additional measures to address control deficiencies or determine to modify the remediation efforts described in this section. Management, with the oversight of the Audit Committee of the Board of Directors, has made meaningful progress to enhance our internal control over financial reporting and to address these material weaknesses as further described above.

Changes in Internal Control over Financial Reporting

Except as described above, there were no changes in our internal control over financial reporting that occurred during the quarteryear ended December 31, 20202022, that have materially affected, or that are reasonably likely to materially affect the Company’sour internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect resource constraints, which require management to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management’s override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

​

Item 9B.  Other Information

In connection with Mr. van Niekerk’s appointment as the Company’s Chief Financial Officer, the Company issued an offer letter that was accepted by Mr. van Niekerk (the “Offer Letter”), the material terms of which were described in the Company’s Current Report on Form 8-K filed on June 28, 2022, and incorporated by reference herein. As contemplated thereby, on May [ ], 2023, Mr. van Niekerk entered into a definitive Employment Agreement with Gatos Silver Canada Corp., a wholly-owned subsidiary of the Company, with material terms that are substantially consistent with those of the Offer Letter.

​

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

​

None.

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TABLE OF CONTENTS​​​​​​

PART III

Item 10.

Directors, Executive Officers and Corporate Governance
​
Pursuant

Board of Directors

The board of directors of the Company (the “Board”) consists of eight directors. Information about each of our directors can be found below. Directors serve until their successor is duly elected and qualified, or until their earlier death, resignation or removal. Each director has served continuously since the date of his or her appointment.

Janice Stairs, 63, has served as a member of our Board since October 2019, including as Chair of the Board since October 2020 and as Lead Director of our Board from January 2020 to General Instruction G(3)October 2020. In addition to our Board, Ms. Stairs also serves on the board of Form 10-K,directors of Trilogy Metals Inc. and Marathon Gold Corporation. Ms. Stairs has more than 30 years of experience in the information called for by this itemresources sector. From 2011 until 2019, Ms. Stairs served as general counsel and corporate secretary at Namibia Critical Metals Inc. Previously, Ms. Stairs served as general counsel at Endeavour Mining Corporation, as vice president and general counsel at Etruscan Resources Inc., and as partner at the law firm McInnes Cooper (formerly Patterson Palmer). In addition, Ms. Stairs has served on the board of directors of Gabriel Resources Ltd., Namibia Critical Metals Inc., AuRico Gold Inc. and AuRico Metals Inc. Ms. Stairs holds an LL.B. from Dalhousie University and an M.B.A. from Queen’s University. Ms. Stairs is incorporated by referencea resident of Halifax, Nova Scotia. We believe that Ms. Stairs’ academic training in law and business and her extensive experience in the resources sector make her a valuable addition to our Board.

Dale Andres, 54, has served as our Chief Executive Officer and as a member of our Board since April 2022. In addition to our Board, Mr. Andres serves on the board of directors of Artemis Gold Inc. Mr. Andres joined the Company in June 2021 and previously served as President before being appointed to the information providedCEO position. Mr. Andres has more than 30 years of executive and operations management experience in the resource industry. From June 2016 to March 2021, Mr. Andres served as Senior Vice President, Base Metals at Teck Resources Limited responsible for both the Copper and Zinc business units globally, and previously served at Teck as Senior Vice President, Copper; as Vice President, Copper Strategy and North American Operations; as Vice President, Gold and International Mining; and as General Manager, Underground Mines. Mr. Andres holds a Bachelor’s Degree in Mining Engineering from Queen’s University in Kingston, Ontario, and a Graduate Diploma in Business Administration from Simon Fraser University in Burnaby, British Columbia. We believe that Mr. Andres’ extensive experience in the resources sector make him a valuable addition to our Board.

Ali Erfan, 58, has served as a member of our Board since May 2019. In addition to our Board, Mr. Erfan serves on the board of directors of Electrum Ltd., Augustus Ltd., Gabriel Resources Ltd., Sunshine Silver Mining & Refining Corporation and Minera Adularia International Ltd. Mr. Erfan was a board member of Reebonz Holding Limited until July 2019. Mr. Erfan has more than 20 years of experience in senior roles in the venture capital and private equity industry. Since 2007, Mr. Erfan has served as a director of The Electrum Group, a privately held global natural resources investment management company, and since 2017, Mr. Erfan has served as vice chairman of The Electrum Group. Previously, Mr. Erfan served as a senior partner at 3i Group, Plc. Mr. Erfan founded the Cogito Scholarship Foundation, a U.K. charity. Mr. Erfan holds an M.B.A. from the London Business School and a B.A. and an M.A. in Politics, Philosophy and Economics from Oxford University. Mr. Erfan is a resident of Monaco. We believe that Mr. Erfan’s extensive experience in finance and our industry makes him a valuable addition to our Board.

Igor Gonzales, 68, has served as a member of our Board since June 2020. In addition to our Board, Mr. Gonzales serves on the board of directors of Hudbay Minerals Inc. and Harte Gold Corp. Mr. Gonzales has more than 30 years of experience in the mining industry. Since June 2020, Mr. Gonzales has served as the chief operating officer at Appian Capital Advisory, a leading investment advisor in the metals and mining industry. From June 2017 to May 2020, Mr. Gonzales served as the president and chief executive officer at Sierra Metals Inc. From November 2014 to April 2017, Mr. Gonzales served as the chief operating officer at Compañia de Minas Buenaventura. Previously, Mr. Gonzales served as the executive vice president and chief operating officer at Barrick Gold Corporation and in various roles with Southern Peru Copper Corporation. In addition, Mr. Gonzales has served on the board of directors of Compañia de Minas Buenaventura and Cia Minera El Brocal. Mr. Gonzales holds a B.S. in Chemical Engineering from the University of San Antonio Abad in Cusco, Peru, and an M.S. in Extractive Metallurgy from the New Mexico Institute of Mining and Technology, where he was a Fulbright Scholar. Mr. Gonzales is a resident of Lima, Peru. We believe that Mr. Gonzales’ extensive experience in our industry makes him a valuable addition to our Board.

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Karl Hanneman, 64, has served as a member of our Board since October 2019. In addition to our Board, Mr. Hanneman also serves on the board of directors of International Tower Hill Mines, Ltd., Usibelli Coal Mine, Inc. and Northrim BanCorp, Inc. Mr. Hanneman has more than 35 years of mining industry management and technical experience as an executive, manager, mining engineer, mine operator and entrepreneur. Since February 2017, Mr. Hanneman has served as chief executive officer of International Tower Hill Mines, Ltd., where he leads a team advancing a 10-million-ounce gold resource in Alaska through project optimization. From March 2015 to February 2017, Mr. Hanneman served as chief operating officer of International Tower Hill Mines, Ltd. Previously, Mr. Hanneman served as general manager and project manager of International Tower Hill Mines, Ltd. and as director, corporate affairs, Alaska and as Alaska regional manager at Teck Resources Ltd., including being responsible for overseeing the $350 million Pogo Gold project throughout the period of underground exploration, feasibility study, project design and permitting. Mr. Hanneman holds a B.S. in Mining Engineering, magna cum laude, from the University of Alaska. Mr. Hanneman is a resident of Fairbanks, Alaska. We believe that Mr. Hanneman’s extensive experience in our industry makes him a valuable addition to our Board.

Charles Hansard, 74, has served as a member of our Board since October 2020. In addition to our Board, Mr. Hansard also serves on the board of directors of Baker Steel Resources Trust Limited, Electrum Limited and JJJ Moore Ltd. He previously served on the Board of Moore Global Investors Ltd. from 1996 until 2020. Mr. Hansard has more than 25 years of experience in corporate governance at the board of directors level. Mr. Hansard served as the chairman of African Platinum Plc, which he led through reorganization and feasibility prior to its acquisition by Impala Platinum Ltd. and has served on the board of directors of AIG Asset Management (Europe) Ltd., Apex Silver Mines Limited and Deutsche Global Liquidity PLC. Mr. Hansard holds a B.B.S. from Trinity College Dublin. Mr. Hansard is a resident of London, U.K. We believe that Mr. Hansard’s extensive experience in corporate governance makes him a valuable addition to our Board.

Daniel Muñiz Quintanilla, 50, has served as a member of our Board since April 2021. In addition to our Board, Mr. Muñiz serves on the board of directors of Hudbay Minerals Inc. and Brookfield Infrastructure Partners. Mr. Muñiz is a highly accomplished mining executive whose previous experience includes a 12-year tenure with Grupo Mexico, SAB de CV and its subsidiaries, Americas Mining Corp. and Southern Copper Corp., where he served in a variety of leadership roles, including Managing Director (CEO) and Chief Financial Officer. Mr. Muñiz holds a Master’s Degree in Financial Law from Georgetown University Law Center in Washington D.C., a Master’s Degree in Business Administration from Instituto de Empresa in Madrid, Spain, and a Law Degree from the Universidad Iberoamericana in Mexico City, Mexico. Mr. Muñiz is a resident of Mexico City, Mexico. We believe that Mr. Muñiz’s experience in the mining industry makes him a valuable addition to our Board.

David Peat, 70, has served as a member of our Board since September 2011. In addition to our Board, Mr. Peat also serves on the board of directors of Nickel Creek Platinum Corp. and Elevation Gold Mining Corporation. Mr. Peat has more than 35 years of experience in financial leadership in support of mining corporations. Mr. Peat previously served as vice president and chief financial officer at Frontera Copper Corporation, as vice president and global controller at Newmont Mining Corporation and as vice president of finance and chief financial officer at Homestake Mining Company. In addition, Mr. Peat has served on the board of directors of Gabriel Resources Ltd., Electrum Special Acquisition Corporation, AQM Copper Inc., Fortune Bay Corp. and Brigus Gold Corp. Mr. Peat is a member of the Institute of Chartered Professional Accountants of Ontario. Mr. Peat holds a B.Com., Honors in Business Administration from the University of Windsor and a B.A. in Economics from the University of Western Ontario. Mr. Peat is a resident of Fernandina Beach, Florida. We believe that Mr. Peat’s academic training in business and economics and his extensive experience in corporate finance and accounting make him a valuable addition to our Board.

Executive Officers

The following biographies describe the business experience of each of the Company’s definitive proxy statementexecutive officers, except for Dale Andres, our Chief Executive Officer, whose biography is provided under the heading “Board of Directors.”

André van Niekerk, 46, has served as our Chief Financial Officer since July 2022. Mr. van Niekerk has more than 20 years of international experience in the mining industry. Previously, Mr. van Niekerk served as Chief Financial Officer at Nevada Copper Corp from July 2020 to May 2022; he spent 14 years at Golden Star Resources in various roles including Executive Vice President and Chief Financial Officer from April 2014 to March 2020; and in various advisory and audit roles at a Big Four audit firm prior to 2006. Mr. van Niekerk holds bachelor’s degrees in accounting from both the University of South Africa and University of Pretoria. Mr. van Niekerk is a Certified Public Accountant.

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Anthony Scott, 46, has served as our Senior Vice President, Corporate Development and Technical Services since November 2022. Previously Mr. Scott was our Vice President of Evaluations and Technical Services from January 2022. Mr. Scott has more than 20 years of experience in the resource industry. Prior to joining the Company, from August 2014 to January 2022, Mr. Scott worked for Macquarie Metals and Energy Capital (Canada) Ltd, a subsidiary of Macquarie Group Limited. From July 2016 to January 2022 at Macquarie he held the position of Managing Director within the Mining Finance group. His responsibility in this role was to perform technical due diligence on operating or development mining companies for the purpose of providing debt finance or derivatives to those organizations. Prior to joining Macquarie, Mr. Scott was employed as Director, Long Term Asset Planning and as Manager, Reserve Evaluations at Teck Resources Limited; and as a geologist in multiple positions at Teck Resources Limited, Placer Dome Gold, and Kalgoorlie Consolidated Gold Mines. Mr. Scott holds a Bachelor’s Degree in Mining Geology Engineering from Curtin University, Western Australia School of Mines.

Stephen Bodley, 55, has served as our General Counsel and Chief Compliance Officer since October 2022. Mr. Bodley has more than 30 years of legal and business leadership experience in resources and other industries. Mr. Bodley served as the Chief Legal Officer of Aleafia Health Inc, from September 2021 Annual Meetingto October 2022. From September 2017 to September 2021, Mr. Bodley was the President and CEO of Stockholders (the “2021 Proxy Statement”)Minmurph Inc. and Minmurph Consulting Limited., business and legal consulting firms focused primarily on the resource industry. Previously, Mr. Bodley was the Chief Legal Officer of Ma’aden and Sherritt International, large international mining companies, and held senior legal and business positions at the North American subsidiaries of Centrica plc, a large UK-based energy company, including as the Head of Mergers and Acquisitions. Mr. Bodley started his career at Blakes, a leading Canadian business law firm, and was partner of the firm before he moved to industry. Mr. Bodley holds a Juris Doctor/LLB degree from Osgoode Hall Law School and is licensed to practice law in the Province of Ontario, Canada.

Luis Felipe Huerta, 52, has served as our Vice President Mexico since October 2020 and previously served as our Project Director of the Cerro Los Gatos Mine from 2015 to 2020. Mr. Huerta has more than 25 years of project management experience in the mining industry. From 2012 to 2014, Mr. Huerta served as project manager at Continental Gold Inc. Previously, Mr. Huerta served as project manager at Fortuna Silver Mines Inc. and as project superintendent at Compañía Minera Milpo. Mr. Huerta holds a Bachelor’s in Engineering Science and a Master’s in Project Management from ESAN Graduate School of Business. Mr. Huerta is a resident of Chihuahua, Mexico.

Nicolas Vachon, 52, has served as our Vice President, Finance since May 2022. Mr. Vachon has more than 20 years of financial and corporate development experience in the mining industry. Previously, Mr. Vachon held several senior positions at Teck Resources Limited from 2006 to 2022 in the corporate finance, treasury and corporate development areas including serving as Director and Finance Business Partner for the Technology and Innovation group focused on business transformation. Prior to that, he held financial management and engineering positions with Placer Dome Inc. and Golder Associates. Mr. Vachon holds Bachelor of Applied Science (Geological Engineering) from Laval University and Master of Engineering degree and an MBA from the University of British Columbia.

James Woeller, 35, has served as our Vice President, Corporate Development and Business Improvement since July 2022. Mr. Woeller has more than 10 years of progressive experience in the mining industry. Previously, and from 2011, Mr. Woeller served as Director, Strategy and Business Analysis; as Business Development Manager; and in various strategic, commercial, financial planning and corporate development roles at Teck Resources Limited. Mr. Woeller holds a Bachelor of Applied Science (Mining) from Queen’s University and a Master of Science in Mineral Economics from the Colorado School of Mines. Mr. Woeller holds a Chartered Financial Analyst designation.

Relationships

There are no family relationships between any director or executive officer.

Section 16(a) Reports

Our directors, executive officers, and owners of more than 10% of our common stock must file reports with the SEC under Section 16(a) of the Exchange Act regarding their ownership of and transactions in our common stock and securities related to our common stock. Based solely upon a review of these reports filed electronically with the SEC and certain written representations provided to us by such persons, we believe that all reports required to be filed by our directors, executive officers and holders of more than 10% of our common stock pursuant to Section 16(a) of the Exchange Act during 2022 were filed on a timely basis.

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Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to our directors, executive officers and all employees, including our Chief Executive Officer and Chief Financial Officer. Our Code of Business Conduct and Ethics is available on our website at https://investor.gatossilver.com/governance/governance-documents/default.aspx. We intend to satisfy the requirement under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of our Code of Business Conduct and Ethics by posting such information on our website.

Board Committees

Our Board has the following four committees: Audit Committee; Compensation and Nominating Committee; Executive Committee and Technical, Safety and Sustainability Committee. Our Board has adopted charters for each of these committees. Charters for our Audit Committee, our Compensation and Nominating Committee and our Technical, Safety and Sustainability Committee are available on our website at https://investor.gatossilver.com/governance/governance-documents/default.aspx.

Current committee memberships are as follows:

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Compensation and

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Technical, Safety and

Audit Committee

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Nominating Committee

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Executive Committee

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Sustainability Committee

David Peat*

Karl Hanneman*

Janice Stairs*

Igor Gonzales*

Janice Stairs

Ali Erfan

Dale Andres

Daniel Muñiz Quintanilla

Charles Hansard

Igor Gonzales

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Karl Hanneman  

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Dale Andres

*

Committee Chair

Audit Committee

Our Audit Committee met seven times during 2022. Our Audit Committee is responsible for, among other things: approving the engagement of our independent public auditor and the scope of the audit to be undertaken by such auditor; reviewing with management and the independent auditor the financial information to be included in our Annual Reports on Form 10-K; reviewing with management and the independent auditor the financial information to be included in our Quarterly Reports on Form 10-Q; and reviewing all proposed related party transactions for the purpose of recommending to the disinterested members of the Board that any such transaction should be ratified and approved.

The Board has determined that all members of our Audit Committee are independent directors under SEC and NYSE rules applicable to audit committee members. Additionally, the Board has determined that (i) Mr. Peat qualifies as an “audit committee financial expert” as defined under the rules of the SEC and (ii) each member of our Audit Committee is financially literate as specified in the rules of the NYSE.

Compensation and Nominating Committee

Our Compensation and Nominating Committee met six times during 2022. Our Compensation and Nominating Committee is responsible for, among other things: recommending and advising the independent directors of the Board with respect to the compensation for our Chief Executive Officer; recommending and advising the Board with respect to the compensation of directors and other executive officers; making recommendations to the Board regarding the establishment and terms of our employee equity-based incentive plans and administering such plans; identifying and recommending director nominees for approval by the Board; developing and recommending to the Board corporate governance principles applicable to the Company; and overseeing the annual evaluation of the Board’s performance.

The Board has determined that all members of our Compensation and Nominating Committee are independent directors under SEC and NYSE rules applicable to compensation committee members. Additionally, the Board has determined that each member of our Compensation and Nominating Committee meets the non-employee director requirements of Rule 16b-3 under the Exchange Act.

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Our Compensation and Nominating Committee has primary responsibility for determining our compensation programs for executive officers and directors. In evaluating the level of executive officer and director compensation, our Compensation and Nominating Committee takes into consideration advice from its consultant, which in 2022 was FW Cook, and recommendations from the Chief Executive Officer (other than with respect to the Chief Executive Officer’s compensation). The Compensation and Nominating Committee has reviewed the engagement of FW Cook and has determined that its services to the Committee do not raise a conflict of interest. At the request of the Compensation and Nominating Committee, the Company has retained FW Cook, which reports directly to the Compensation and Nominating Committee without management influence.

Our Compensation and Nominating Committee may delegate any of its responsibilities to a subcommittee comprised of one or more members of the committee.

Executive Committee

Our Executive Committee met informally throughout 2022. Subject to certain limitations, our Executive Committee has the responsibility and authority (i) to take any action referred to the Committee by the Board, and (ii) to take action required to be taken by the Board in emergency situations where there is insufficient time or opportunity to convene the full Board.

Technical, Safety and Sustainability Committee

Our Technical, Safety and Sustainability Committee met nine times during 2022. Our Technical, Safety and Sustainability Committee is responsible for the review of our mineral resources and reserve reporting, technical performance, environmental, health and safety performance, security, and community and sustainability performance.

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Item 11.Executive Compensation

Our named executive officers (“NEOs”), which consist of our current and former chief executive officers, the two other most highly compensated executive officers in 2022 who were serving as executive officers at the end of 2022 and one executive officer for whom disclosure is provided but who was not serving as an executive officer at the end of 2022, are:

·

Dale Andres, Chief Executive Officer (current);

·

Anthony Scott, Senior Vice President Corporate Development and Technical Services;

●Luis Felipe Huerta, Vice President, Mexico;

·

Stephen Orr, former Chief Executive Officer(1) (until April 7, 2022); and

·

Rodrigo Monroy, former General Counsel(2) (until November 30, 2022)

(1)

Mr. Orr was the Company’s Chief Executive Officer through April 7, 2022. We appointed our then President, Dale Andres, as our Chief Executive Officer, effective April 7, 2022.

(2)

Mr. Monroy was the Company’s General Counsel through November 30, 2022. We appointed Stephen Bodley, as our General Counsel and Chief Compliance Officer, effective such date. Mr. Bodley’s employment commenced October 16, 2022.

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Summary Compensation Table

The table below summarizes the total compensation earned by each NEO in fiscal years ended December 31, 2022 and 2021.

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Annual

    

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Stock

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Option

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Incentive Plan

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All Other

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Salary

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Bonus

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Awards

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Awards

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Compensation

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Compensation

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Total

NEO

 

Year

 

($)

 

($)

 

($)(1)(9)

 

($)(2)(9)

 

($)(3)

 

($)(4)

 

($)

Dale Andres(5)

 

2022

 

629,874

 

—

 

—

 

—

 

824,255

 

48,403

 

1,502,532

Chief Executive Officer

 

2021

 

335,417

 

—

 

338,578

 

4,286,450

 

402,500

 

29,841

 

5,392,786

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Anthony Scott (6)

 

2022

 

322,390

 

650,000

 

—

 

582,533

 

258,459

 

35,156

 

1,848,538

SVP Corporate Development and Technical Services

 

2021

 

—

 

—

 

—

 

—

 

—

 

—

 

—

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Luis Felipe Huerta

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2022

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260,000

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—

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—

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—

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192,000

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75,471

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547,109

Vice President, Mexico

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2021

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260,000

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—

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90,439

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185,413

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75,444

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76,435

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660,731

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Stephen Orr(2)(7)

 

2022

 

191,450

 

—

 

—

 

—

 

—

 

—

 

191,450

Former Chief Executive Officer

 

2021

 

619,000

 

—

 

473,953

 

962,382

 

—

 

—

 

2,055,335

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Rodrigo Monroy(8)

 

2022

 

275,000

 

—

 

—

 

—

 

165,000

 

359,649

 

799,649

Former General Counsel

 

2021

 

225,000

 

100,000

 

112,907

 

915,946

 

75,500

 

13,500

 

1,442,853

(1)Represents the grant date fair value of performance share unit awards granted to the NEOs in 2021, assuming target performance at 100% payout based on the 55th percentile relative TSR versus the constituents of the GDXJ and determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The grant date fair value of performance share unit awards assuming maximum performance was (i) for Mr. Orr, $947,905 (which have now been forfeited), (ii) Mr. Andres, $677,156, (iii) Mr. Huerta, $180,878, and (iv) Mr. Monroy $225,814 (comprised of 7,940 units, of which 5,417 units have now been forfeited). For additional information, see “—Performance Share Units” below. Additionally, see Note 8 in our consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, for a discussion of assumptions used for computing the fair value of stock awards.
(2)Represents the grant date fair value of stock options granted to the NEOs in 2021 and 2022, determined in accordance with FASB ASC Topic 718. For additional information, see “—Stock Option Grants” below. Additionally, see Note 7 in our consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, for a discussion of assumptions used for computing the fair value of stock option award grants.
(3)Represents performance-based cash bonuses under our Annual Incentive Plan with respect of service in 2021 and 2022. For additional information, see “—Annual Incentive Plan” below.
(4)For each NEO, represents employer contributions to the NEO’s 401(k) and Registered Retirement Savings Plan (“RRSP”) accounts. In addition, for Mr. Andres, “All Other Compensation” includes $19,691 in health benefits. For Mr. Huerta, “All Other Compensation” consists of housing and education costs. For Mr. Monroy, "All Other Compensation” includes the payments made to him following his termination of employment other than the payment of an annual bonus for 2022 which is included in “Non-Equity Incentive Plan Compensation.” For additional information regarding Mr. Monroy’s termination-related payments, see “–Executive Employment Agreements – Employment Agreement with Mr. Monroy.”
(5)Mr. Andres joined the Company on June 1, 2021.
(6)Mr. Scott joined the Company on January 10, 2022. For an explanation of the bonus payment to Mr. Scott see “Executive Employment Agreements – Employment Agreement with Mr. Scott.”
(7)Mr. Orr retired on April 7, 2022.
(8)Mr. Monroy’s employment with the Company was terminated without cause on November 30, 2022.

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(9)No stock awards or option awards have been granted since the announcement on January 25, 2022, of our conclusion that there were errors in the technical report for the Cerro Los Gatos Mine with an effective date of July 1, 2020, as well as indications that there may be an overestimation in the existing resource model. Pursuant to the Management Cease Trade Orders, and the related Undertaking, granted by the Ontario Securities Commission (the “MCTO”) we were prohibited from issuing to or acquiring securities from an insider or employee, except in accordance with pre-existing legally binding obligations to do so. To ensure appropriate compensation of our executives and our non-executive directors in respect of this period, we anticipate that equity awards will be granted if and when determined appropriate by our Board following the filing of our 2022 Annual Report on Form 10-K and the lifting of the MCTO.

Executive Employment Agreements

Employment Agreement with Mr. Andres

We entered into an employment agreement with Mr. Andres, dated as of June 1, 2021, and he commenced employment as our President and Chief Executive Officer for the Company’s wholly owned Mexican subsidiary, Minera Luz del Sol S. de R.L. de C.V. (“MLS”), effective as of June 1, 2021. Effective April 7, 2022, Mr. Andres was named Chief Executive Officer of the Company. On August 1, 2022, Mr. Andres commenced employment with our wholly owned subsidiary Gatos Silver Canada Corp. (“GSCC”), and effective as of such date, Mr. Andres entered into a new Executive Employment Agreement.

Base Salary. Effective June 1, 2021, Mr. Andres received an annual base salary of $575,000, and effective April 1, 2022, Mr. Andres received an annual base salary of $650,000, which is subject to review on an annual basis and may be adjusted in accordance with the SEC within 120procedures set forth by our Compensation and Nominating Committee.

Annual Bonus. Mr. Andres is eligible to participate in an annual incentive plan pursuant to which his target bonus is 100% of his base salary upon achievement by him and the Company of certain targets determined by our Board based on the recommendation of our Compensation and Nominating Committee. The amount of bonus paid (if any) in any given year is determined by our Board based on the recommendation of our Compensation and Nominating Committee depending on the actual performance of the Company and Mr. Andres as determined by our Board based upon the recommendation of our Compensation and Nominating Committee. See “—Annual Incentive Plan.”

Stock Options. Mr. Andres is eligible to receive equity awards under our compensation programs. See “—Stock Option Grants.”

Registered Retirement Savings Plan. Mr. Andres is eligible to receive a Company match of RRSP contributions of up to 3% of base salary, plus an additional contribution by the Company of 6% of base salary.

Benefits and Perquisites. Mr. Andres is entitled to participate in the various employee benefits plans that are, from time to time, made generally available to our employees.

Confidentiality, Non-Solicitation and Non-Compete. Mr. Andres has agreed to maintain the confidentiality of our information and not to use or allow or help another to use or access such information at any time during or after his employment with us. During the term of his employment and for a period of 12 months after termination, Mr. Andres has also agreed not to solicit any of our employees, consultants or service providers. For a period of 12 months after termination (and for 24 months after termination in certain circumstances), Mr. Andres has also agreed and not to work or share Executive's knowledge, directly or indirectly, in whole or in part, as an employee, officer, owner, manager, advisor, consultant, agent, partner, director, significant shareholder, volunteer, intern for any other business entity engaged in silver mining and extraction in Mexico.

Termination and Change in Control. Payments and benefits to which Mr. Andres will be entitled upon termination of his employment, whether or not in connection with a change in control, are discussed below under “—Potential Payments Upon Termination or Change in Control.”

Employment Agreement with Mr. Scott

We entered into an employment agreement with Mr. Scott, dated November 8, 2021. He commenced his employment as Vice President Evaluations and Technical Services on January 10, 2022. He has been our Senior Vice President Corporate Development and Technical Services since October 16, 2022. Mr. Scott is employed by GSCC.

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Base Salary. Until October 16, 2022 Mr. Scott received a base salary of $325,000. From and after October 16, 2022, Mr. Scott receives an annual base salary of $350,000, which is subject to review on an annual basis and may be adjusted in accordance with the procedures set forth by our Compensation and Nominating Committee.

Annual Bonus. Mr. Scott is eligible to participate in a bonus plan pursuant to which his current target bonus is 70% of his base salary upon achievement by him and the Company of certain targets determined by our Compensation and Nominating Committee. The amount of bonus paid (if any) in any given year is determined by our Board based on the recommendation of our Compensation and Nominating Committee depending on the actual performance of the Company and Mr. Scott as determined by our Board based upon the recommendation of our Compensation and Nominating Committee. See “—Annual Incentive Plan.”

Sign-On Bonus. As an inducement for Mr. Scott to join the Company, Mr. Scott received a one-time sign-on bonus of $650,000 which was paid in three tranches in January, March and September, 2022.

Stock Options. Mr. Scott is eligible to receive equity awards under our compensation programs. See “—Stock Option Grants.”

Registered Retirement Savings Plan. Mr. Scott is eligible to receive a Company match of RRSP contributions of up to 3% of base salary, plus an additional contribution by the Company of 6% of base salary.

Benefits and Perquisites. Mr. Scott is entitled to participate in the various employee benefits plans that are available to our executive officers.

Confidentiality, Non-Solicitation and Non-Compete. Mr. Scott has agreed to maintain the confidentiality of our information and not to use or allow or help another to use or access such information at any time during or after his employment with us. During the term of his employment and for a period of 12 months after termination, Mr. Scott has also agreed not to solicit any of our employees, consultants or service providers. For a period of 12 months after termination, Mr. Scott has also agreed and not to work or share Executive's knowledge, directly or indirectly, in whole or in part, as an employee, officer, owner, manager, advisor, consultant, agent, partner, director, significant shareholder, volunteer, intern for any other business entity engaged in silver mining and extraction in Mexico.

Termination and Change in Control. Payments and benefits to which Mr. Scott will be entitled upon termination of his employment, whether or not in connection with a change in control, are discussed below under “—Potential Payments upon Termination or Change in Control.”

Employment Agreement with Mr. Huerta

An employment agreement was entered into with Mr. Huerta, dated April 22, 2015, whereby Mr. Huerta was employed by the Company’s wholly-owned Mexican subsidiary starting May 15, 2015. His initial position was as Project Director, Los Gatos Project. Mr. Huerta’s employment agreement has been modified by mutual agreement over his tenure. Mr. Huerta is currently employed by the Company’s wholly-owned subsidiary, MLS. His current title is Vice President, Mexico.

Base Salary. Mr. Huerta receives an annual base salary of $260,000, which is subject to review on an annual basis and may be adjusted in accordance with the procedures set forth by our Compensation and Nominating Committee.

Annual Bonus.Mr. Huerta is eligible to participate in a bonus plan pursuant to which his current target bonus is 60% of his base salary upon achievement by him and the Company of certain targets determined by our Compensation and Nominating Committee. The amount of bonus paid (if any) in any given year is determined by our Board of Directors based on the recommendation of our Compensation and Nominating Committee depending on the actual performance of the Company and Mr. Huerta as determined by our Board of Directors based upon the recommendation of our Compensation and Nominating Committee. See “—Annual Incentive Plan.”

Stock Options. Mr. Huerta is eligible to receive equity awards under our compensation programs. See “—Stock Option Grants.”

Benefits and Perquisites. Mr. Huerta is entitled to participate in the various employee benefits plans that are available to our executive officers.

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Confidentiality. Mr. Huerta has agreed to maintain the confidentiality of our information and not to use or allow or help another to use or access such information at any time during or after his employment with us for a period of three years.

Termination and Change in Control. Payments and benefits to which Mr. Huerta will be entitled upon termination of his employment, whether or not in connection with a change in control, are discussed below under “—Potential Payments Upon Termination or Change in Control.”

Employment Agreement with Mr. Orr

We entered into an employment agreement with Mr. Orr, dated as of May 3, 2011. He commenced employment as our Executive Chairman effective as of May 4, 2011, and was our Chief Executive Officer from June 2011 until his retirement as Chief Executive Officer and as a member of our Board effective April 7, 2022.

Base Salary. Effective January 1, 2020, Mr. Orr received an annual base salary of $619,000, which was subject to review on an annual basis and subject to adjustment in accordance with the procedures set forth by our Compensation and Nominating Committee.

Annual Bonus. Mr. Orr was eligible to participate in a bonus plan pursuant to which his target bonus was 100% of his base salary upon achievement by him and the Company of certain targets determined by our Board based on the recommendation of the Compensation and Nominating Committee. The amount of bonus attainment in any given year was determined by our Board based on the recommendation of Compensation and Nominating Committee, and the amount of annual bonus actually paid (if any) depended on the actual performance of the Company and Mr. Orr as determined by our Compensation and Nominating Committee. See “—Annual Incentive Plan.”

Stock Options. Mr. Orr was eligible to receive equity awards under our compensation programs. See “—Stock Option Grants.”

Benefits and Perquisites. Mr. Orr was entitled to participate in the various employee benefits plans that were from time to time, made generally available to our employees.

Confidentiality and Non-Solicitation. Mr. Orr agreed to maintain the confidentiality of our information and not to use or allow or help another to use or access such information at any time during or after his employment with us. Mr. Orr also agreed not to solicit any of our employees, consultants or service providers during his employment and for one year after termination of his employment.

Termination and Change in Control. Mr. Orr retired from his position as Chief Executive Officer and member of our Board, effective April 7, 2022. Mr. Orr did not receive additional payments of benefits in connection with his retirement, as discussed in more detail below under “—Potential Payments Upon Termination or Change in Control.”

Employment Agreement with Mr. Monroy

The Company entered into an agreement with Mr. Monroy dated February 8, 2021. He commenced employment as our General Counsel effective as of April 1, 2021.

Base Salary. Effective April 1, 2021, Mr. Monroy received an annual base salary of $300,000, which was subject to review on an annual basis and subject to adjustment in accordance with the procedures set forth by our Compensation and Nominating Committee.

Annual Bonus. Mr. Monroy was eligible to participate in a bonus plan pursuant to which his target bonus was 60% of his base salary with a maximum of up to 100% of his base salary, upon achievement by him and the Company of certain targets determined by our Board based on the recommendation of the Compensation and Nominating Committee. The amount of bonus attainment in any given year was determined by our Board based on the recommendation of Compensation and Nominating Committee, and the amount of annual bonus actually paid (if any) depended on the actual performance of the Company and Mr. Monroy as determined by our Compensation and Nominating Committee. See “—Annual Incentive Plan.”

Stock Options. Mr. Monroy was eligible to receive equity awards under our compensation programs. See “—Stock Option Grants.”

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Benefits and Perquisites. Mr. Monroy was entitled to participate in the various employee benefits plans that were from time to time, made generally available to our employees.

Confidentiality and Non-Solicitation. Mr. Monroy agreed to maintain the confidentiality of our information and not to use or allow or help another to use or access such information at any time during or after his employment with us. Mr. Monroy also agreed not to solicit any of our employees, consultants or service providers during his employment and for one year after termination of his employment.

Termination and Change in Control. Mr. Monroy's employment was terminated without cause effective November 30, 2022. Mr. Monroy was paid accrued salary and other obligations as of that date, a prorated award of performance share units, a severance payment equal to twelve months of his base salary ($300,000), $43,149 in lieu of continued health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, a prorated bonus for 2022 of $165,000 and the opportunity to receive Company-paid outplacement assistance. Stock options previously granted to Mr. Monroy vested upon his termination and became immediately exercisable, in accordance with their terms.

Stock Option Grants

On May 14, 2021, we granted stock option awards to Mr. Monroy. The number of shares of our common stock underlying these options granted are detailed in the following table. These stock option awards vest ratably over a three-year period, beginning on the first anniversary of the grant. These stock option awards each have an exercise price of $12.03 per share, which is equal to the fair market value of a share of common stock on the grant date.

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NEO

Option Shares

Rodrigo Monroy

100,000

​

On June 22, 2021, we granted Mr. Andres stock option awards following commencement of employment and as a one-time sign on option. The number of shares of our common stock underlying these options granted is detailed in the following table. The sign on options vest in three equal tranches, the first of which vested immediately, and the remainder on the first and second anniversaries of employment with the Company. The other stock option awards vest ratably over a three-year period, beginning on the first anniversary of the grant. These stock option awards each have an exercise price of $18.03 per share, which is equal to the fair market value of a share of common stock on the grant date.

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NEO

Option Shares

Dale Andres

150,000

Dale Andres sign on

200,000

​

On December 27, 2021, we granted stock option awards to key employees, including our NEOs, in recognition of services performed in fiscal year 2021. The number of shares of our common stock underlying these options granted to our NEOs are detailed in the following table. These stock option awards vest ratably over a three-year period, beginning on the first anniversary of the grant. These stock option awards each have an exercise price of $10.47 per share, which is equal to the fair market value of a share of common stock on the grant date.

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NEO

Option Shares

Dale Andres

117,000

Luis Felipe Huerta

​

31,500

Stephen Orr

163,500

Rodrigo Monroy

39,000

​

Upon Mr. Orr’s retirement, all unvested options terminated immediately and all vested options terminated 30 days afterfollowing the date of his separation. Upon Mr. Monroy’s departure from the Company, all unvested options vested immediately and will terminate 180 days following the date of his separation.

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On January 18, 2022, we granted Mr. Scott stock option awards following commencement of employment. The number of shares of our common stock underlying these options granted is detailed in the following table. The options vest ratably over a three-year period, beginning on the first anniversary of the grant. These stock option awards each have an exercise price of $10.28 per share, which is equal to the fair market value of a share of common stock on the grant date.

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NEO

Option Shares

Anthony Scott

100,000

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Performance Share Units

On December 17, 2021, we granted performance share unit awards to key employees, including our NEOs, in recognition of services performed in fiscal year 2021. The number of shares of our common stock underlying these performance share units (“PSU”) granted to our NEOs are detailed in the following table, assuming target performance at 100%. The performance share units are based on the Company’s total shareholder return (“TSR”) relative to a peer group over a three-year performance period beginning on December 13, 2021 and ending on December 13, 2024. The number of performance share units awarded can range from 0% to 200% of the initial award granted, depending on the TSR percentile rank of the Company relative to the peer group, and are payable in common stock or cash, at the Company’s discretion, at the end of their performance period. These performance share units each have a grant date value of $14.22 per share. Upon Mr. Orr’s retirement, his PSUs were automatically forfeited. Upon Mr. Monroy’s departure from the company, 2,523 pro-rata PSUs remain upon his termination and 5,417 PSUs were forfeited.

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​

NEO

Performance Share Units

Dale Andres

23,810

Luis Felipe Huerta

​

6,360

Stephen Orr

33,330

Rodrigo Monroy

7,940

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Long Term Incentive Plan

We have adopted the Amended and Restated Long Term Incentive Plan (“LTIP”), which allows us to grant a range of equity-based awards to our NEOs, other employees, consultants and non-employee directors. The purpose of the LTIP is to recognize the contributions made by our employees, consultants and directors, and to provide these individuals with an additional incentive to use maximum efforts for the future success of the Company. All stock options granted to Messrs. Andres, Scott, Huerta, Orr and Monroy as disclosed above, were granted under the LTIP.

Annual Incentive Plan

We have adopted the Annual Incentive Plan (“AIP”), under which our NEOs and other employees are eligible to receive annual cash bonuses. The purpose of the plan is to incentivize our executives and other employees to attain annual performance objectives, thereby furthering our best interests and those of our shareholders.

With respect to the fiscal year ended December 31, 2020.2021, each of our then service NEOs was eligible for an annual cash bonus under the AIP; however, it was determined by our Compensation and Nominating Committee that Mr. Andres, Mr. Huerta and Mr. Monroy were the only NEOs who would receive a cash bonus. With respect to the fiscal year ended December 31, 2022, our Compensation and Nominating Committee approved milestones related to health and safety at the Cerro Los Gatos (“CLG”) mine, CLG sustainability, CLG operational performance, CLG financial performance, strategic performance for the Los Gatos Joint Venture, and corporate performance of the Company, which were weighted and used to determine the Company’s portion of bonus payouts to the NEOs. The level of achievement of the Company performance milestones, as well as an assessment of individual performance, were used by our Compensation and Nominating Committee to determine the actual recommended bonus payouts as a percentage of the target bonus.  With respect to the fiscal year ended December 31, 2022, Mr. Monroy received a prorated annual bonus pursuant to the terms of his separation agreement, Mr. Orr retired from the Company effective April 7, 2022, and did not receive an annual bonus and our Compensation and Nominating Committee determined to provide cash bonuses to Mr. Andres, Mr. Scott and Mr. Huerta.

Item 11.

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2022 Outstanding Equity Awards at Fiscal Year-End

The table below provides information on the equity awards held by the NEOs as of December 31, 2022. Mr. Orr did not hold any equity awards as of December 31, 2022 as, upon his retirement, all unvested options and performance share units were forfeited and terminated immediately and all vested options terminated 30 days following the date of his separation.

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Option Awards

    

Stock Awards

 

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Equity

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Incentive

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Equity

 

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Plan

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Incentive Plan

 

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Number

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Market

​

Awards:

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Awards:

 

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of

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value of

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Number of

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Market or

 

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shares

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shares

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unearned

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payout value

 

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Number of

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Number of

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or units

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or units

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shares, units 

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of unearned

 

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Securities

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Securities

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of stock

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of stock

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or other

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shares, units 

 

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Underlying

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Underlying

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Option

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Option

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that

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that

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rights that

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or other rights

 

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Unexercised

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Unexercised 

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Exercise

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Expiration

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have not

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have not

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have not

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that have not

 

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Options

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Options

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Price

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Date

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 vested

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vested

​

vested

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vested

 

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(#)

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(#)

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($)

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(#)

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($)

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(#)

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($)

 

Name and Principal Position

    

Exercisable

    

Unexercisable

    

  

    

  

    

  

    

  

    

  

    

  

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Dale Andres

 

133,334

 

66,667

(1)​

​

18.03

 

6/22/2031

 

—

 

—

 

23,810

(4)​

97,383

(5)​

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50,000

 

100,000

(2)​

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18.03

 

6/22/2031

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​

​

 

39,000

 

78,000

(3)​

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10.47

 

12/27/2031

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​

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Anthony Scott

 

—

 

100,000

(6)​

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10.28

 

01/18/32

 

—

 

—

 

—

 

—

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Luis Felipe Huerta

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20,200

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—

(7)​

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9.00

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12/05/2027

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—

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—

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6,360

(4)​

26,012

(5)​

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33,000

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—

(8)​

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12.00

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05/03/2029

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—

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—

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—

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—

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22,000

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11,000

(9)​

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12.00

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01/20/2030

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—

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—

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—

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—

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63,333

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31,667

(10)​

​

7.00

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10/27/2030

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—

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—

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—

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—

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​

​

10,500

​

21,000

(11)​

​

10.47

​

12/27/2031

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—

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—

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—

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—

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​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

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Rodrigo Monroy

 

100,000

(12)​

—

​

​

12.03

 

05/30/2023

 

—

 

—

 

2,523

(4)​

10,319

(5)​

​

​

39,000

(12)​

—

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​

10.47

​

05/30/2023

​

—

​

—

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​

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(1)The options listed here were granted on June 22, 2021, with one third vesting immediately and the remainder vesting ratably on each of the first two anniversaries following June 1, 2021.
(2)The options listed here were granted on June 22, 2021, and vest ratably on each of the first three anniversaries following June 1, 2021.
(3)The options listed here were granted on December 27, 2021, and vest ratably on each of the first three anniversaries following the grant date.
(4)The PSUs listed here were granted on December 17, 2021, and vest following a three-year performance period. PSUs are reported assuming target performance at 100% payout for the 55th percentile relative TSR versus constituents of the GDXJ.
(5)Valuations are based on $4.09 per share, the closing price of our common stock on December 31, 2022.
(6)The options listed here were granted on January 18, 2022, and vest ratably on each of the first three anniversaries following the grant date.
(7)The options listed here were granted on December 6, 2017, and are fully vested.
(8)The options listed here were granted on May 3, 2019, and are fully vested.
(9)The options listed here were granted on January 20, 2020, and vest ratably on each of the first three anniversaries following the grant date.

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(10)The options listed here were granted on January 20, 2020, and vest ratably on each of the first three anniversaries following the grant date.
(11)The options listed here were granted on December 27, 2021, and vest ratably on each of the first three anniversaries following the grant date.
(12)The options listed were granted on May 14 and December 27, 2021, and vested upon Mr. Monroy’s termination on November 30, 2022.

Potential Payments Upon Termination or Change in Control

Below we describe the payments and benefits to which each NEO will be entitled to under his employment agreement if his employment is terminated (i) by us without “cause” by him for “good reason” or “disability” (without a “change in control”), (ii) by us without cause or by him for good reason within one year of a change in control or (iii) due to death or “disability” (in the case of Mr. Huerta) (such terms as defined in the applicable employment agreement).

Mr. Andres

Termination without Cause, for Good Reason or for Disability. If we terminate Mr. Andres’ employment without cause, Mr. Andres voluntarily terminates his employment for good reason or he becomes disabled, he is entitled to: (i) accrued annual salary to the date of termination (ii) 24 months of base salary plus his target annual bonus for 24 months, payable in a lump sum, (iii) if he timely elects continuation coverage the Company would also pay, on his behalf, the portion of monthly premiums for his benefits that the Company paid immediately prior to the date of termination, during the 12 month period following the date of termination, subject to his continued eligibility for coverage provided that he would continue to be required to pay that portion of the premium for the coverage that he was required to pay as an active employee immediately prior to the date of termination and (iv) the 200,000 options granted at the commencement of his employment would, to the extent unvested, vest at the date of termination and be exercisable for a period of one year from the date of termination, and the 150,000 options granted at the date of the commencement of his employment would, to the extent unvested, immediately vest, and such 150,000 options, together with all other vested options would remain exercisable until the earlier of (x) the date 180 calendar days following termination of employment or (y) the expiration of the original option.

Termination without Cause or for Good Reason in Connection with a Change in Control. If there is a change in control and (a) within one year following the change in control Mr. Andres’ employment is terminated without cause or Mr. Andres voluntarily terminates his employment for good reason or (b) within six months preceding the change in control Mr. Andres’ employment is terminated without cause and such termination occurred in anticipation of such change in control, he is entitled to (i) accrued annual salary and target annual bonus to the date of termination (ii) 24 months of base salary plus his target annual bonus for 24 months (iii) if he timely elects continuation coverage the Company would also pay, on his behalf, the portion of monthly premiums for his benefits that the Company paid immediately prior to the date of termination, during the 12 month period following the date of termination, subject to his continued eligibility for coverage provided that he would continue to be required to pay that portion of the premium for the coverage that he was required to pay as an active employee immediately prior to the date of termination and (iv) the 200,000 options granted at the commencement of his employment would, to the extent unvested, vest at the date of termination and be exercisable for a period of one year from the date of termination, and the 150,000 options granted at the date of the commencement of his employment, to the extent unvested, would immediately vest, and such options, together with all other vested options would remain exercisable until the earlier of (x) the date 180 calendar days following termination of employment or (y) the expiration of the original option.

Death. If Mr. Andres’ employment is terminated due to death, his estate shall be entitled to be paid his accrued salary and bonus.

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Mr. Scott

Termination without Cause, for Good Reason or for Disability. If we terminate Mr. Scott’s employment without cause, Mr. Scott voluntarily terminates his employment for good reason or he becomes disabled, he is entitled to: (i) accrued annual salary to the date of termination (ii) 12 months of base salary plus his target annual bonus for 12 months, payable in a lump sum, (iii) if he timely elected continuation coverage the Company would also pay, on his behalf, the portion of monthly premiums for his benefits that the Company paid immediately prior to the date of termination, during the 12 month period following the date of termination, subject to his continued eligibility for coverage provided that he would continue to be required to pay that portion of the premium for the coverage that he was required to pay as an active employee immediately prior to the date of termination.

Termination without Cause or for Good Reason in Connection with a Change in Control. If there is a change in control and (a) within one year following the change in control Mr. Scott’s employment is terminated without cause or Mr. Scott voluntarily terminates his employment for good reason or (b) within six months preceding the change in control we terminate Mr. Scott’s employment without cause and such termination occurred in anticipation of such change in control, he is entitled to (i) accrued annual salary and target annual bonus to the date of termination (ii) 24 months of base salary plus his target annual bonus for 24 months and (iii) if he timely elects continuation coverage the Company would also pay, on his behalf, the portion of monthly premiums for his benefits that the Company paid immediately prior to the date of termination, during the 12 month period following the date of termination, subject to his continued eligibility for coverage provided that he would continue to be required to pay that portion of the premium for the coverage that he was required to pay as an active employee immediately prior to the date of termination

Death. If Mr. Scott’s employment is terminated due to death, his estate shall be entitled to be paid his accrued salary and bonus.

Mr. Huerta

Termination without Cause or for Good Reason. If we terminate Mr. Huerta’s employment without cause (as defined under Mexican employment law), he is entitled to: (i) accrued annual salary and bonus to the date of termination and (ii) twelve months of base salary, payable in a lump sum, (iii) continuation of group, medical, dental and vision insurance benefits, subject to any restrictions or limitations imposed by the Company’s insurers during the twelve (12) month period following the date of termination, and (iv) the reasonable costs of repatriating to Peru.

Termination without Cause or for Good Reason in Connection with a Change in Control. If there is a change of control, Mr. Huerta’s entitlements described in the foregoing paragraph will apply.

Death or Disability. If Mr. Huerta’s employment is terminated due to death or disability, his estate or he, as applicable, will be entitled to such benefits as are provided pursuant to Mexican employment law.

Mr. Orr

Mr. Orr retired from his position of Chief Executive Officer and member of our Board effective April 7, 2022. Mr. Orr did not receive any payments or benefits in connection with his retirement.

Mr. Monroy

Mr. Monroy’s employment was terminated effective November 30, 2022 and he received the consideration described above. See - “Executive Employment Agreements – Employment Agreement with Mr. Monroy.”

Non-Qualified Deferred Compensation Plan for Senior Executives and Outside Directors

Effective January 1, 2019, we adopted the Deferred Compensation Plan for Senior Executives and Outside Directors (the “Deferred Compensation Plan”), under which (i) our senior executives are eligible to elect to defer receipt of any portion of cash compensation or equity compensation awards other than from the exercise of stock options and (ii) our non-employee directors are eligible to elect to defer receipt of any portion of annual retainers or meeting awards.

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Participants in the Deferred Compensation Plan are entitled to receive distribution of his or her deferred compensation account in either (i) a single lump sum distribution of cash or shares of our stock or (ii) annual installments of cash or shares of our stock over a period of not more than five (5) years after the date payment commences. All distributions under the Deferred Compensation Plan shall be made or shall commence, as the case may be, on the earlier of (i) the date designated in a participant’s deferral election form and (ii) the date that is six months and one day after the occurrence of (x) the participant’s termination of active service as a senior executive or non-employee director as applicable or (y) the date of the participant’s death; provided, however, that if a participant is a “specified employee” within the meaning of Internal Revenue Code Section 409A (“409A”), payment of any benefits under the Deferred Compensation Plan shall not commence until six months following a participant’s “separation from service” as such term is defined under Section 409A.

Stock Ownership Policy

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Position

Stock Ownership Guideline

CEO

3x base salary

Other Executive Officers

1x base salary

Non-Employee Directors

3x base annual director cash retainer

​

Our Board believes that, in order to more closely align the interests of our executive officers and non-employee directors with the long-term interests of the Company’s stockholders, all executive officers and non-employee directors should maintain a minimum level of equity interests in the Company’s common stock. Accordingly, we have adopted minimum stock ownership guidelines for our executive officers and non-employee directors as shown in the table below. Executive officers and non-employee directors are subject to a five-year phase in period to meet the applicable ownership requirements, beginning from the later of (i) the date of the IPO; (ii) employment date or director appointment date; or (iii) promotion date. Shares, shares in trust, shares in 401k plans, shares owned directly by family members, DSUs (as defined above), and restricted stock units count toward satisfying the guideline, even if unvested. Stock options do not count toward satisfying the guideline until exercised. The majority of our non-executive directors currently comply with the stock ownership guidelines. Most of our executive officers have served with the Company for less than 2 years, and we have not issued additional equity-based compensation since January 25, 2022. There have also been restrictions in place under the MCTO. As a result, none of our executive officers currently hold the minimum stock ownership contemplated by guidelines. Once all applicable restrictions are lifted, all individuals subject to the guidelines will be expected to meet or to be tracking towards meeting the guideline minimums within the five-year period.

Director Compensation

Each of our non-employee directors is entitled to receive the following compensation pursuant to our current director compensation policy, as applicable:

●an annual retainer of $55,000 for service on the Board;
●$1,500 for each committee meeting attended (whether in person or by telephone), provided that non-employee directors who travel intercontinentally from outside of North America to attend a Board or committee meeting in person are entitled to receive an additional $2,500;
●an annual retainer of $10,000 for service as the chair of our Audit Committee or as the chair of our Compensation and Nominating Committee;
●an annual retainer of $4,000 for service as the chair of any other standing committee of the Board; and
●an annual retainer of $55,000 for service as our non-executive Chairperson of the Board.

All such compensation will be paid in cash quarterly in arrears. Each non-employee director may also elect to receive DSUs in lieu of the cash retainer. DSUs are vested upon grant and settle upon a director’s cessation of continuous service.

Pursuant to General Instruction G(3)our current director compensation policy, it is intended that at each annual meeting of Form 10-K,shareholders, each non-employee director be granted an annual equity grant under the LTIP with a fair market value of $90,000. The grant value is intended to be split evenly between stock options and DSUs. Accordingly, on June 14, 2021, our Compensation and Nominating Committee and our Board approved an annual equity grant for 2021 under the LTIP for the period July 1, 2021 to May 31, 2022, with a fair

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market value of $82,500 (based on an 11-month period), consisting of 50% stock options and 50% DSUs. As noted above, we have not awarded any equity-incentive compensation since January 25, 2022 and, as a result, there were no DSU grants in 2022.

Directors are permitted to defer all or a portion of their compensation under the Deferred Compensation Plan, pursuant to which our directors will be able to defer their annual retainers and receive such deferred retainers in cash or in shares of our common stock. The director compensation policies described above do not apply to our employee directors, including Mr. Andres and Mr. Orr (whose compensation is set forth above under “—Summary Compensation Table”).

The table below sets forth information called for by this item is incorporated by reference to the information providedconcerning compensation of our non-employee directors in the 2021 Proxy Statement.2022 and 2021:

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Fees Earned or

    

Stock

    

Option

    

​

​

​

​

​

Paid in Cash

​

Awards

​

Awards

​

Total

​

​

​

​

($)

​

($)(1)(3)

​

($)(3)

​

($)

Janice Stairs

 

2022

 

61,500

 

—

 

Nil

 

61,500

​

 

2021

 

58,000

 

213,807

 

41,247

 

313,054

​

​

​

​

​

​

​

​

​

​

​

Ali Erfan

 

2022

 

61,000

 

—

 

Nil

 

61,000

​

 

2021

 

62,500

 

158,254

 

41,247

 

262,001

​

​

​

​

​

​

​

​

​

​

​

Igor Gonzales

 

2022

 

Nil

 

—

 

Nil

 

Nil

​

 

2021

 

68,000

 

142,272

 

41,247

 

251,519

​

​

​

​

​

​

​

​

​

​

​

Karl Hanneman

 

2022

 

43,000

 

—

 

Nil

 

43,000

​

 

2021

 

74,000

 

160,390

 

41,247

 

275,637

​

​

​

​

​

​

​

​

​

​

​

Charles Hansard

 

2022

 

65,500

 

—

 

Nil

 

65,500

​

 

2021

 

61,000

 

90,953

 

83,289

 

235,242

​

​

​

​

​

​

​

​

​

​

​

Igor Levental(2)

 

2022

 

13,750

 

—

 

Nil

 

13,750

​

 

2021

 

29,000

 

184,212

 

41,247

 

254,459

​

​

​

​

​

​

​

​

​

​

​

David Peat

 

2022

 

37,750

 

—

 

Nil

 

37,750

​

 

2021

 

76,500

 

162,527

 

41,247

 

280,274

​

​

​

​

​

​

​

​

​

​

​

Daniel Muñiz Quintanilla

 

2022

 

72,000

 

—

 

Nil

 

72,000

​

 

2021

 

47,250

 

52,500

 

52,740

 

152,490

(1)DSU awards for Board members electing to receive DSUs in lieu of the cash retainer for the period October 1, 2021 through December 31, 2022, are expected to be granted in 2023 when determined appropriate by our Board following the filing of our 2022 Annual Report on Form 10-K and the lifting of the MCTO.  The values of the 2022 Stock Awards that are expected to be granted in 2023 are as follows: Ms. Stairs, $61,500; Mr. Erfan, $Nil; Mr. Gonzales, $80,000; Mr. Hanneman, $43,000; Mr. Hansard, $Nil; Mr. Levental, $13,750; Mr. Peat, $37,750; Mr. Muñiz Quintanilla, $Nil.
(2)Mr. Levental passed away in June 2022.
(3)At December 31, 2022, Ms. Stairs holds 27,263 stock options and 19,548 DSUs; Mr. Erfan holds 27,263 stock options and 16,219 DSUs; Mr. Gonzales holds 24,680 stock options and 12,420 DSUs; Mr. Hanneman holds 42,763 stock options and 18,016 DSUs; Mr. Hansard holds 10,138 stock options and 6,497 DSUs; Mr. Levental holds 27,263 stock options and 18,825 DSUs; Mr. Peat holds 112,033 stock options and 52,141 DSUs; Mr. Muñiz Quintanilla holds 5,505 stock options and 3,131 DSUs.

​

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table shows information regarding the beneficial ownership of our common stock as of June 21, 2023 by:

●each person or group who is known by us to own beneficially more than 5% of our common stock;
●each member of our Board and director nominee;
​

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●each of our named executive officers; and
●all members of our Board and our executive officers as a group.

Beneficial ownership of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Shares of common stock of which a person has the right to General Instruction G(3)acquire beneficial ownership at any time within 60 days of Form 10-K,June 21, 2023 are deemed outstanding and beneficially owned by the information calledperson for the purpose of computing the number of shares and percentage beneficially owned by this item is incorporatedsuch person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by reference to the information providedany other person. To our knowledge, except as indicated in the 2021 Proxy Statement.footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

The percentage of common stock beneficially owned in the table is based on 69,162,223 shares of common stock outstanding as of June 21, 2023.

Unless otherwise indicated, the address for each holder listed below is c/o Gatos Silver, Inc., Suite 910 – 925 West Georgia Street, Vancouver, BC V6C 3L2.

​

​

​

​

​

​

​

    

​

    

Percentage of

 

​

​

​

​

Shares of

 

​

​

Shares of

​

Common Stock

 

​

​

Common Stock

​

Beneficially

 

Name

​

Beneficially Owned

​

Owned

 

Greater than 5% stockholders

​

​

​

​

​

Electrum(1):

 

  

 

  

​

Electrum Silver US LLC

 

17,894,672

 

25.9

%

Electrum Silver US II LLC

 

4,109,704

 

5.9

%

Total

 

22,004,376

 

31.8

%

Municipal Employees’ Retirement System of Michigan(2)

 

6,216,192

 

9.0

%

FMR LLC(3)

 

8,922,196

 

12.9

%

Directors and current NEOs

 

  

 

  

​

Janice Stairs(5)(6)(8)

 

56,811

 

*

​

Ali Erfan(4)(5)(6)

 

125,744

 

*

​

Igor Gonzales(5)(6)

 

37,100

 

*

​

Karl Hanneman(5)(6)(9)

 

78,334

 

*

​

Charles Hansard(5)(6)

 

16,635

 

*

​

David Peat(5)(6)(10)

 

161,497

 

*

​

Daniel Muñiz Quintanilla(5)(6)

 

8,636

 

*

​

Dale Andres(5)

 

289,000

 

*

​

Anthony Scott

 

33,333

 

*

​

Luis Felipe Huerta

​

212,700

​

*

​

Former NEOs

 

  

 

  

​

Stephen Orr(7)(11)

 

157,783

 

*

​

Current directors and executive officers as a group (14 persons)

 

1,019,790

 

1.5

%

*

Represents beneficial ownership of less than 1%.

(1)The securities reported are based on a Schedule 13G/A filed on February 11, 2022 by Electrum Silver US LLC (“ESUS”), Electrum Strategic Management LLC (“ESM”), Electrum Global Holdings L.P. (“Global Holdco”), TEG Global GP Ltd. (“TEG Global”), The Electrum Group LLC (“TEG”), Electrum Silver US II LLC (“ESUS II”), Electrum Strategic Opportunities Fund II L.P. (“ESOF II”), Electrum Strategic Opportunities Fund II GP L.P. (“ESOF II GP L.P.”) and ESOF II GP Ltd. (“ESOF II GP”) (for the purposes of this section, collectively, “Electrum”). Mr. Erfan is Vice Chairman of TEG.

ESUS directly owns 17,894,672 shares of our common stock. ESM is the manager of ESUS. ESM is wholly owned by Global Holdco, and TEG Global is the general partner of Global Holdco. TEG acts as an investment advisor to Global Holdco. As a result, ESM, Global Holdco, TEG Global and TEG may be deemed to beneficially own shares of our common stock held by ESUS.

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ESUS II directly owns 4,109,7104 shares of our common stock. ESOF II owns 99% of ESUS II, and ESM is the manager of ESUS II. ESM is wholly owned by Global Holdco, and TEG Global is the general partner of Global Holdco. The general partner of ESOF II is ESOF II GP L.P., and the general partner of ESOF II GP L.P. is ESOF II GP. ESOF II GP is wholly owned by Global Holdco. TEG acts as an investment advisor to ESOF II. As a result, ESOF II, ESM, Global Holdco, TEG Global, ESOF II GP L.P., TEG and ESOF II GP may be deemed to beneficially own shares of our common stock held by ESUS II.

The address of the Electrum entities is 535 Madison Avenue, 12th Floor, New York, New York 10022.

(2)The securities reported are based on a Schedule 13G filed on February 16, 2021, by the Municipal Employees’ Retirement System of Michigan and represents (i) 6,205,259 shares of our common stock held by MERS and (ii) 38,750 shares of our common stock issuable upon exercise of options that are vested or vest within 60 days of June 21, 2023. The address of MERS is 1134 Municipal Way, Lansing, Michigan 48917.
(3)The securities reported are based on a Schedule 13G/A filed on February 9, 2023, by FMR LLC. FMR LLC has sole voting power with respect to 8,922,196 shares and sole investment power with respect to 8,922,196 shares. Abigail P. Johnson, a Director, the Chairman and the Chief Executive Officer of FMR LLC, has sole investment power with respect to 8,922,196 shares. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act (“Fidelity Funds”) advised by Fidelity Management & Research Company LLC (“FMR Co. LLC”), a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds’ Boards of Trustees. FMR Co. LLC carries out the voting of the shares under written guidelines established by the Fidelity Funds’ Boards of Trustees. The address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.
(4)Holdings include 82,262 shares of our common stock held by Ajami Associates Limited, which is owned and controlled by Mr. Erfan. The address of Ajami Associates Limited is c/o Sphere Management (Mauritius) Limited, 6th Floor, Suite 619, Port Louis, Mauritius. Mr. Erfan disclaims beneficial ownership of shares of our common stock held by Electrum. See footnote (1).
(5)Holdings include the following shares which may be acquired upon the exercise of options outstanding under the LTIP and exercisable within 60 days as of June 21, 2023: Janice Stairs — 27,263 shares; Ali Erfan — 27,263 shares; Igor Gonzales — 24,680 shares; Karl Hanneman — 42,763 shares; Charles Hansard — 10,138 shares; David Peat — 104,881 shares; Daniel Muñiz Quintanilla — 5,505 shares; Dale Andres — 289,000 shares; Anthony Scott — 33,333; Luis Felipe Huerta — 212,700 shares; and all current directors and executive officers as a group — 777,526 shares.
(6)Holdings include the following shares which may be acquired upon departure from the Company by settlement of the DSUs outstanding under the LTIP within 60 days of June 21, 2023: Janice Stairs — 19,548 shares; Ali Erfan — 16,219 shares; Igor Gonzales — 12,420 shares; Karl Hanneman — 18,016 shares; Charles Hansard — 6,497 shares; David Peat — 52,141 shares; Daniel Muñiz Quintanilla — 3,131 shares; Rodrigo Monroy —nil; Anthony Scott — nil; Luis Felipe Huerta — nil; and all current directors and executive officers as a group — 127,972 shares.
(7)Holdings include (i) 91,235 shares of our common stock held by Cast Management 401k Trust, in which Mr. Orr is a beneficiary and (ii) 66,548 shares of our common stock held by Mr. Orr’s spouse. The address of Cast Management 401k Trust is 30 N Gould St, Suite R, Sheridan, Wyoming 82801. Mr. Orr disclaims beneficial ownership of the shares held by his spouse.
(8)Holdings include 10,000 shares of our common stock held directly by Ms. Stairs.
(9)Holdings include 7,400 shares of our common stock held directly by Mr. Hanneman and 10,000 shares of our stock held by KNH Trust, which is controlled by Mr. Hanneman.
(10)Holdings include 4,475 shares of our common stock held directly by Mr. Peat.
(11)Mr. Orr departed from the Company effective April 7, 2022.

​

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Item 13.

Certain Relationships and Related Transactions, and Director Independence
​

Certain Relationships and Related Party Transactions

The following are summaries of transactions since January 1, 2022 to which we have been a participant, in which the amount involved in the transaction exceeds or will exceed the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers, beneficial owners of more than five percent of our voting securities or any other “related person” as defined in Item 404(a) of Regulation S-K had or will have a direct or indirect material interest.

Services Agreements

Effective January 1, 2015, in connection with our Los Gatos Joint Venture (“LGJV”), we entered into a services agreement with the LGJV operating entities consisting of Minera Plata Real S. de R.L. de C.V (“MPR”), Operaciones San Jose del Plata S. de R.L. de C.V. (“OSJ”) and Servicios San Jose del Plata S. de R.L. de C.V. (“SSJ”). SSJ was subsequently merged with MPR. Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is incorporated by referenceagreement, OSJ agreed to provide to the information providedLGJV certain consulting and administrative services, including services necessary to explore, develop, construct and operate the LGJV and for business development activities. The agreement included indemnification provisions by MPR, SSJ in favor of OSJ and its indemnitees against all losses, damages, costs, expenses and charges incurred by OSJ arising as a result of any act or omission with respect to the provision of services pursuant to the agreement, except for willful misconduct or gross negligence.

Under the Unanimous Omnibus Partner Agreement, we provide management and administrative services to the LGJV. The Company received $5.4 million and $1.25 million from the LGJV under this agreement for the year ended December 31, 2022 and the three months ended March 31, 2023, respectively. The Company had receivables under this agreement of $0.4 million and $0.4 million as of December 31, 2022 and March 31, 2023, respectively. The Company also incurred certain LGJV costs that are subsequently reimbursed by the LGJV.

Shareholders Agreement

In connection with our IPO, we entered into a shareholders agreement with Electrum and MERS pursuant to which Electrum and MERS have the right to nominate members of our Board. Electrum has the right to nominate: (a) a number of members of our Board that is one fewer than a majority of the Board following all nominations pursuant to such nomination right so long as Electrum beneficially owns in the 2021 Proxy Statement.aggregate at least 35% of the then outstanding shares of our common stock and (b) one member of our Board so long as Electrum beneficially owns in the aggregate (x) less than 35% of the then outstanding shares of our common stock and (y) at least 5% of the then outstanding shares of our common stock. MERS has the right to nominate one member of our Board for as long as it owns at least 5% of the then outstanding shares of our common stock. The nominees of Electrum and MERS will need to be approved by the Board of Directors and elected at the annual meeting of shareholders.

The shareholders agreement also provides that for so long as Electrum owns at least 35% of the then outstanding shares of our common stock, certain actions by us will require the approval of Electrum in addition to any other vote by our Board or shareholders. The actions requiring Electrum approval include:

●change of control transactions,
●the acquisition or sale of any asset or any joint venture investment in excess of $100 million,
●the incurrence of indebtedness in excess of $100 million,
●making any loan, advance or capital contribution in excess of $100 million,
●equity issuances in excess of $100 million, and
●dissolution, liquidation, reorganization or bankruptcy proceedings involving us or our material subsidiaries.

In addition, we have agreed to indemnify Electrum and MERS from any losses arising directly or indirectly out of Electrum’s and MERS’s actual, alleged or deemed control or ability to influence us or the actual or alleged act or omission of Electrum’s and MERS’s director nominees, including any act or omission in connection with this offering. If, for any reason our agreement to

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indemnify Electrum and MERS is unavailable or unenforceable, we will agree to make the maximum contribution to the payment and satisfaction of the indemnified liabilities permissible under applicable law.

Registration Rights Agreement

In connection with our IPO, we entered into a registration rights agreement with Electrum, MERS and substantially all our other existing shareholders prior to the IPO. Pursuant to the registration rights agreement, Electrum and MERS have the right to require us to file a registration statement under the Securities Act with respect to their shares. We will not be obligated to effect more than three demand registrations within a 12-month period. All shareholders under the registration rights agreement will be entitled to piggyback registration rights with respect to any registration initiated by us or another shareholder or shareholders after the consummation of our IPO and will continue to hold this right until they transfer their shares.

Statement of Policy on Related Party Transactions

The Board has adopted a written related party transaction policy designed to minimize potential conflicts of interest arising from any dealings we may have with our affiliates and to provide appropriate procedures for the disclosure, approval and resolution of any real or potential conflicts of interest that may exist from time to time. This policy provides, among other things, that all related persons transactions will be ratified and approved by disinterested members of our Board after receiving a recommendation from our Audit Committee that the transaction is fair, reasonable and within our policy. In making its recommendation, our Audit Committee will consider each related party transaction in light of all relevant factors, including without limitation the benefits of the transaction to us, the terms of the transaction and whether they are arm’s length and in the ordinary course of our business, the direct or indirect nature of the related party’s interest in the transaction, the size and expected term of the transaction, and other facts and circumstances that bear on the materiality of the related party transaction under applicable law and stock exchange standards. For purposes of the policy, a “related persons transactions” generally consists of a transaction, arrangement or relationship involving the Company and the Company’s directors, director nominees or executive officers, any stockholder beneficially owning more than 5% of the Company’s common stock, or immediate family members of any such persons.

Director Independence

Our Board has determined that each of Ms. Stairs and Messrs. Erfan, Gonzales, Hanneman, Hansard, Peat and Muñiz is an independent director within the meaning of the applicable rules of the NYSE.

​

Item 14.

Principal Accountant Fees and Services

Effective September 28, 2022, KPMG resigned as the Company’s independent registered public accounting firm. The Company’s Audit Committee and Board engaged EY to serve as the Company’s independent registered public accounting firm effective November 14, 2022.

The following table shows the fees billed by KPMG and EY for the years ended December 31, 2022 and December 31, 2021:

​

​

​

​

​

​

​

​

    

2022

    

2021

Audit fees1 - KPMG

​

$

—

​

$

1,412,703

Audit fees1 - EY

​

 

955,000

​

 

600,000

Audit-related fees

​

 

—

​

 

—

Tax fees2

​

 

—

​

 

89,385

All other fees

​

 

—

​

 

—

Total

​

$

955,000

​

$

2,102,088

(1)Audit fees relate to professional services rendered in connection with the audit of the Company’s annual financial statements, quarterly review of financial statements, and audit services provided in connection with other statutory and regulatory filings.
(2)Tax fees relate to professional services rendered relating to tax compliance and planning. Such services included corporate income tax return preparation and consultation on foreign tax matters. Such fees were billed by KPMG.
​

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Pre-Approval Policies and Procedures

Our Audit Committee has adopted a policy and procedures for the pre-approval of all audit and non-audit services to General Instruction G(3)be rendered by our independent registered public accounting firm. Under the policy, our Audit Committee generally pre-approves specified services in defined categories up to specified amounts and limits the types of Form 10-K,non-audit services that may be provided by the information called for by this item is incorporated by referenceindependent accountant. Our Audit Committee may delegate authority to the information provided inChair of the Audit Committee or another member of our Audit Committee to pre-approve any proposed engagement of an independent accountant. However, any engagement of an independent accountant pre-approved as such must be reported to our Audit Committee at its next regularly scheduled meeting. All audit and non-audit services performed by our independent registered public accounting firm during the years ended December 31, 2021 Proxy Statement.and 2022, were pre-approved by our Audit Committee.

​

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TABLE OF CONTENTS​​

PART IV

Item 15.  Exhibits and Financial Statement Schedules

(1)Consolidated Financial Statements. For a list of the financial statements included herein, see Index to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
(2)Consolidated Financial Statement Schedules. Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the consolidated financial statements or the notes thereto.
(3)Exhibits. The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
(1)
Consolidated Financial Statements.   For a list of the financial statements included herein, see Index to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
​
(2)
Consolidated Financial Statement Schedules.   Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the consolidated financial statements or the notes thereto.
​
(3)
Exhibits.   The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
​
​
 3.1
​

3.1

​

Amended and Restated Certificate of Incorporation of Gatos Silver, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed October 30, 2020)

​

​

 3.2

​

​

3.2

​

Amended and Restated By-Laws of Gatos Silver, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed October 30, 2020)

​

​

 4.1*

​

​

4.1

​

Description of Securities Registered under Section 12 of the Exchange Act

​
​10.1.1​​Term Loan Agreement dated as of July 11, 2017 among Minera Plata Real S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., and Servicios San Jose de Plata, S. de R.L. de C.V. as Borrowers and Dowa Metals & Mining Co., Ltd. as Lender and Sunshine Silver Mining and Refining Corporation and Los Gatos Luxembourg S.a.r.l. (incorporated by reference to Exhibit 10.1.14.1 to the Company’s Registration StatementAnnual Report on Form S-110-K filed on October 1, 2020)March 29, 2021)​

​

10.1.2

​

​

4.2

​

Amendment No. 1 to Term LoanShareholders Agreement dated as of July 11, 2018October 30, 2020 among Minera Plata Real S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V.,Gatos Silver Inc. and Servicios San Jose de Plata, S. de R.L. de C.V., the Borrowers, Dowa Metals & Mining Co., Ltd., as Lender and Sunshine Silver Mining & Refining Corporation and Los Gatos Luxembourg S.a.r.l.stockholders that are signatories thereto (incorporated by reference to Exhibit 10.1.2 to10.2 of the Company’s Registration StatementCurrent Report on Form S-18-K filed on October 1, 2020)30, 2020

​

​

10.1.3

​

​

4.3

​

Amendment No. 2 to Term LoanRegistration Rights Agreement dated as of NovemberOctober 30, 20182020 among Minera Plata Real S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V.,Gatos Silver Inc. and Servicios San Jose de Plata, S. de R.L. de C.V., the Borrowers, Dowa Metals & Mining Co., Ltd., as Lender and Sunshine Silver Mining & Refining Corporation and Los Gatos Luxembourg S.a.r.l.stockholders that are signatories thereto (incorporated by reference to Exhibit 10.1.3 to10.3 of the Company’s Registration StatementCurrent Report on Form S-18-K filed on October 1,30, 2020)

​

​

10.1.4

​

​

​Amendment No. 3 to Term Loan Agreement, dated as of January 31, 2019 among Minera Plata Real S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., and Servicios San Jose de Plata, S. de R.L. de C.V., the Borrowers, Dowa Metals & Mining Co., Ltd., as Lender and Sunshine Silver Mining & Refining Corporation and Los Gatos Luxembourg S.a.r.l. (incorporated by reference to Exhibit 10.1.4 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)​

​

4.4*

10.2.1

​

​​

MemorandumSpecimen Share Certificate of Understanding as of April 16, 2019 by and among Minera Plata Real S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., and Servicios San Jose de Plata, S. de R.L. de C.V., the Borrowers, Dowa Metals & Mining Co., Ltd. and SunshineGatos Silver, Mining & Refining Corporation (incorporated by reference to Exhibit 10.3.1 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)Inc.

​

​

10.3.1

​

​

10.1.1

​

Unanimous Omnibus Partner Agreement effective as of January 1, 2015 among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Los Gatos Luxembourg S.a.r.l., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.5.1 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)

​

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​10.3.2​​Agreement to Make Capital Contribution dated April 10, 2017, among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Los Gatos Luxembourg S.a.r.l., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.5.2 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)​

​

10.3.3

​

​

10.1.2

​

Amendment No. 8 to Partner Agreement dated June 30, 2017, among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Los Gatos Luxembourg S.a.r.l., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.5.3 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)

​
​10.3.4​​Amendment No. 3 to Partner Agreement dated March 30, 2018 among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Los Gatos Luxembourg S.a.r.l., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.5.4 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)​
​10.3.5​​Amendment No. 4 to Partner Agreement dated March 30, 2019July 12, 2021, among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.5.5 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)​

​

10.3.6

​

​

10.2.1

​

Amendment No. 5 to PartnerAmended and Restated Revolving Credit Agreement, dated April 29, 2020December 20, 2022, among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.5.6 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)

​
​10.3.7​​Amendment No. 6 to Partner Agreement dated May 25, 2020 among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.5.7 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)​
​10.3.8​​Amendment No. 7 to Partner Agreement dated June 16, 2020 among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.5.8 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)​
​10.4.1​​Confirmation Agreement, dated March 9, 2021, among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Servicios San Jose de Plata, S. de R.L. de C.V., Gatos Silver, Inc., certain subsidiaries of Gatos Silver, Inc. from time to time, Bank of Montreal, Chicago Branch, as administrative agent, BMO Capital Markets, as bookrunner and Dowa Metalsmandated lead arranger, and Mining Co., Ltd.Bank of Montreal, Chicago Branch and certain financial institutions from time to time, as lenders (incorporated by reference to Exhibit 10.1 toof the Company’s Current Report on Form 8-K filed on March 12, 2021)December 22, 2022)​

​

10.5.1

​

​

​Priority Distribution Agreement dated May 30, 2019 among Minera Plata Real, S. de R.L. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Sunshine Silver Mining & Refining Corporation and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.7.1 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)​

​

10.3.1

10.6.1

​

​​

Exploration, Exploitation and Unilateral Promise to Sell Agreement dated May 4, 2006 between La Cuesta International, S.A. de C.V. and Minera Plata Real, S.A. de C.V. (incorporated by reference to Exhibit 10.8.1 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)

​

​

10.7.1#

​

​

10.4.1#

​

Agreement dated July 15, 2019, between Ocean Partners USA. Inc. and Operaciones San Jose de Plata, S. de R.L. de C.V. (incorporated by reference to Exhibit 10.9.1 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)

​

​

​

10.4.2*

​

Amendment No.1, dated July 14, 2022, to the Zinc Offtake Agreement between Dowa Metals and Mining, Operaciones, and Ocean Partners USA, Inc. dated July 15, 2019

​

​

​


119

108

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​

10.4.3#

10.7.2#

​

​​

Memorandum ofAssignment, Assumption and Consent Agreement (Amendment No.1) between Dowa Metals and Mining, Operaciones, and Ocean Partners USA, Inc. dated July 1, 2020, between Operaciones San Jose de Plata, S. de R.L. de C.V. and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.9.2 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)14, 2022

​

​

10.8.1#

​

​

10.5.1#

​

Cerro Los Gatos Lead Concentrate Sales Agreement dated April 14, 2019 between Operaciones San Jose de Plata, S. de R.L. de C.V. and Metagri S.A. de C.V. (incorporated by reference to Exhibit 10.10.1 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)

​

​

10.9.1†

​

​

10.6

​

Leaching Plant Confirmation Agreement dated March 17, 2022, among Minera Plata Real, S.A. de C.V., Operaciones San Jose de Plata, S. de R.L. de C.V., Gatos Silver, Inc. and Dowa Metals & Mining Co., Ltd.

​

​

​

10.7.1†

​

Amended and Restated Long Term Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed on October 30, 2020)

​

​

10.9.2†

​

​

10.7.2†

​

Form of Executive Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.12.2 to the Company’s Registration Statement on Form S-1/A filed on October 8, 2020)

​

​

10.9.3†

​

​

10.7.3†

​

Form of Director Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.12.3 to the Company’s Registration Statement on Form S-1/A filed on October 8, 2020)

​

​

10.9.4†

​

​

10.7.4†

​

Form of DiSU Award Agreement (incorporated by reference to Exhibit 10.12.4 to the Company’s Registration Statement on Form S-1/A filed on October 8, 2020)

​

​

10.9.5†

​

​

10.7.5†

​

Form of DSU Award Agreement (incorporated by reference to Exhibit 10.12.5 to the Company’s Registration Statement on Form S-1/A filed on October 8, 2020)

​

​

10.10.1†

​

​

10.7.6†*

​

Form of PSU Award Agreement

​

​

​

10.8.1†

​

Annual Incentive Plan (incorporated by reference to Exhibit 10.13.1 to the Company’s Registration Statement on Form S-1/A filed on October 8, 2020)

​

​

10.11.1†

​

​

10.9.1†

​

Non-Qualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.14.1 to the Company’s Registration Statement on Form S-1/A filed on October 8, 2020)

​

​

10.12.1†

​

​

10.10.1†

​

Employment Agreement dated as of May 3, 2011 between Sunshine Silver Mining & Refining Corporation and Stephen Orr (incorporated by reference to Exhibit 10.15.1 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)

​

​

10.12.2†

​

​

10.10.2†*

​

Employment Agreement datedeffective as of August 1, 2022, between Gatos Silver Canada Corp., Gatos Silver, Inc., as guarantor, and Dale Andres

​

​

​

10.10.3†*

​

Employment Agreement effective as of October 16, 2022, between Gatos Silver Canada Corp., Gatos Silver, Inc., as guarantor, and Tony Scott

​

​

​

10.10.4†*

​

Employment Agreement effective as of July 1, 2022 between Gatos Silver Canada Corp., Gatos Silver, Inc., as guarantor, and Andre van Niekerk

​

​

​

10.10.5†*

​

Employment Agreement effective as of April 1, 20162021, between Gatos Silver, Inc. and Rodrigo Monroy

​

​

​

10.10.6†*

​

Separation Agreement & Full Waiver & Release of all Claims effective as of November 30, 2022, between Gatos Silver, Inc. and Rodrigo Monroy

​

​

​

10.10.7†*

​

Employment Offer dated April 22, 2015 by Sunshine Silver Mining & Refining Corporation, on behalf of its wholly-owned Mexican Subsidiary, and John Kinyon (incorporated by reference to Exhibit 10.15.2 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)Luis Felipe Huerta

​

​

10.12.3†

​

​

​
Employment Agreement dated as of June 1, 2011 between Sunshine Silver Mining & Refining Corporation and Philip Pyle (incorporated by reference to Exhibit 10.15.3 to the Company’s Registration Statement on Form S-1 filed on October 1, 2020)
​

​

10.11.1

10.13.1

​

​​

Management Services Agreement dated October 30, 2020 between Gatos Silver Inc. and Silver Opportunity Partners Corporation (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 30, 2020)

​
​10.14.1​​
Shareholders Agreement dated October 30, 2020 among Gatos Silver Inc. and the stockholders that are signatories thereto (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on October 30, 2020)
​
​10.15.1​​
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.18.1 to the Company’s Registration Statement on Form S-1/A filed on October 8, 2020)
​

​

10.16.1

​

​

120

Table of Contents

10.12.1*

​

Registration RightsWavier No. 4 to the Revolving Credit Agreement, dated October 30, 2020April 12, 2022, among Gatos Silver, Inc., certain subsidiaries of Gatos Silver, Inc. from time to time, Bank of Montreal, Chicago Branch and certain financial institutions from time to time, as lenders, Bank of Montreal, Chicago Branch, as bookrunner and mandated lead arranger, and Bank of Montreal, Chicago Branch, as administrative agent for and on behalf of the stockholders that are signatories theretolenders (incorporated by reference to Exhibit 10.31.1 of the Company’s Current Report on Form 8-K filed October 14, 2022).

​

​

​

10.12.2*

​

Wavier No. 5 to the Revolving Credit Agreement, dated April 12, 2022, among Gatos Silver, Inc., certain subsidiaries of Gatos Silver, Inc. from time to time, Bank of Montreal, Chicago Branch and certain financial institutions from time to time, as lenders, Bank of Montreal, Chicago Branch, as bookrunner and mandated lead arranger, and Bank of Montreal, Chicago Branch, as administrative agent for and on behalf of the lenders (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed May 16, 2023)

​

​

​

10.12.3*

​

Wavier No. 6 to the Revolving Credit Agreement, dated April 12, 2022, among Gatos Silver, Inc., certain subsidiaries of Gatos Silver, Inc. from time to time, Bank of Montreal, Chicago Branch and certain financial institutions from time to time, as lenders, Bank of Montreal, Chicago Branch, as bookrunner and mandated lead arranger, and Bank of Montreal, Chicago Branch, as administrative agent for and on behalf of the lenders (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed June 07, 2023)

​

​

​

21.1*

​

Subsidiaries of the Registrant

​

​

​

23.1*

​

Consent of Ernst & Young LLP

​

​

​

24.1*

​

Power of Attorney (included on signature page)

​

​

​

31.1*

​

Section 302 Certification of Chief Executive Officer

​

​

​

31.2*

​

Section 302 Certification of Chief Financial Officer

​

​

​

32.1**

​

Section 1350 Certification

​

​

​

96.1

​

Cerro Los Gatos S-K 1300 Technical Report Summary, dated November 10, 2022 (incorporated by reference to Exhibit 96.1 of the Company’s Current Report on Form 8-K filed on October 30, 2020)November 14, 2022)

​

​

21.1*

​

​

​
Subsidiaries of the Registrant
​

​

101.INS*

23.1*

​

​​Consent of KPMG LLP — Gatos Silver, Inc.​
​23.2*​​
Consent of KPMG LLP — Los Gatos Joint Venture
​
​24.1*​​Power of Attorney (included on signature page)​
​31.1*​​
Section 302 Certification of Chief Executive Officer
​
​31.2*​​
Section 302 Certification of Chief Financial Officer
​
​32.1**​​
Section 1350 Certification
​

109
TABLE OF CONTENTS​

​95.1*​​
Mine Safety Disclosure
​
​101.INS​​

Inline XBRL Instance Document

​ – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

​

101.SCH

​

​

101.SCH*

​

Inline XBRL Taxonomy Extension Schema Document

​

​

101.CAL

​

​

101.CAL*

​

Inline XBRL Taxonomy Extension Calculation Linkbase Document

​

​

101.DEF

​

​

101.DEF*

​

Inline XBRL Taxonomy Extension Definition Linkbase Document

​

​

101.LAB

​

​

101.LAB*

​

Inline XBRL Taxonomy Extension Label Linkbase Document

​

​

101.PRE

​

​

101.PRE*

​

Inline XBRL Taxonomy Extension Presentation Linkbase Document

​

​

​

104*

​

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

*

Filed herewith

**

Furnished herewith

†

Management contract or compensatory plan or agreement

#

Portions of this exhibit have been omitted because they are both (i) not material and (ii) customarily and actually treated by the Company as private and confidential.

​

121

*
Filed herewith

Table of Contents

​
**
Furnished herewith
​
†
Management contract or compensatory plan or agreement
​
#
Portions of this exhibit have been omitted because they are both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.
​

Item 16.

Form 10-K Summary

None.

​

​
None.

122


110

Table of Contents

TABLE OF CONTENTS​

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

​

​

​​​

GATOS SILVER, INC.

​

​

June 26, 2023

March 29, 2021

By:

​​
By:

/s/ Stephen Orr

Dale Andres

​

Dale Andres

​

Stephen Orr

Chief Executive Officer

​

​

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen OrrDale Andres and Roger JohnsonAndré van Niekerk and each of them, their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2022, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

​

​

Signature

Signature

​

Title

​

Title​​

Date

​

​

​

​

​

​

/s/ Stephen Orr

​
Stephen Orr
Dale Andres

​

​

Chief Executive Officer and Director (principal executive officer)

​

​March 29, 2021​

June 26, 2023

​

Dale Andres

​

​

​

​

​

/s/ Roger Johnson

​
Roger Johnson
André van Niekerk

​

​

Chief Financial Officer (principal financial officer and principal accounting officer)

​

​March 29, 2021​

June 26, 2023

​

André van Niekerk

​

​

​

​

​

/s/ Janice Stairs

​
Janice Stairs

​

​

Chair of the Board of Directors

​

​March 29, 2021​

June 26, 2023

​

Janice Stairs

​

​

​

​

​

/s/ Ali Erfan

​
Ali Erfan

​

​

Director

Director

​

​​March 29, 2021​

June 26, 2023

​

Ali Erfan

​

​

​

​

​

/s/ Igor Gonzales

​
Igor Gonzales

​

​

Director

Director

​

​​March 29, 2021​

June 26, 2023

​

Igor Gonzales

​

​

​

​

​

/s/ Karl Hanneman

​
Karl Hanneman

​

​

Director

Director

​

​​March 29, 2021​

June 26, 2023

​

Karl Hanneman

​

​

​

​

​

/s/ Charles Hansard

​
Charles Hansard

​

​

Director

Director

​

​​March 29, 2021​

June 26, 2023

​

Charles Hansard

/s/ Igor Levental
​
Igor Levental
​​Director​​March 29, 2021​

​

​

​

​

​

/s/ David Peat

​

Director

​

June 26, 2023

David Peat

​​Director

​

​

March 29, 2021

​

​

​

/s/ Daniel Muñiz Quintanilla

​

Director

​

June 26, 2023

Daniel Muñiz Quintanilla

​

​

​


123

111