Item 1.01. Entry into a Material Definitive Agreement.
On December 19, 2024, Gatos Silver, Inc. (“Gatos Silver” or the “Company”), Dowa Metals & Mining Co., Ltd. (“Dowa”), Minera Plata Real, S. de R.L. de C.V. ( “MPR”) and Operaciones San José de Plata, S. de R.L. de C.V. (“OpCo”) entered into an amended and restated joint venture agreement (the “Amended and Restated Joint Venture Agreement”) regarding the Los Gatos Joint Venture (“LGJV”) to explore, develop and operate the Los Gatos concessions including the Cerro Los Gatos Mine (“CLG”) in northern Mexico. The Amended and Restated Joint Venture Agreement amends and restates the Unanimous Omnibus Partner Agreement effective as of January 1, 2015, as amended, among the Company, Dowa, MPR, Servicios San José De Plata, S de R.L. de C.V. (“SSJ”, which merged into MPR, effective July 15, 2021) and OpCo.
In addition, on December 19, 2024, OpCo and Dowa entered into an amended and restated offtake agreement (the “Amended and Restated Offtake Agreement”) regarding Dowa’s purchase of the zinc concentrates produced at CLG. The Amended and Restated Offtake Agreement amends and restates the Zinc Offtake Agreement dated as of June 27, 2019, as amended, among OpCo and Dowa. Also on December 19, 2024 Gatos Silver, MPR and OpCo entered into an amended and restated services agreement (the “Amended and Restated Services Agreement”) regarding Gatos Silver oversight and direction of OpCo and the provision of services by OpCo to MPR. The Amended and Restated Services Agreement amends and restates the Services Agreement dated as of January 23, 2015, as amended, among Gatos Silver, MPR and OpCo. The Amended and Restated Joint Venture Agreement, the Amended and Restated Offtake Agreement and the Amended and Restated Services Agreement are collectively referred to as the “Amended and Restated LGJV Agreements.” The Amended and Restated LGJV Agreements will be effective January 1, 2025.
The Amended and Restated Joint Venture Agreement: (i) establishes certain obligations of Gatos Silver to cause MPR and OpCo to use commercially reasonable efforts to meet certain quality criteria for zinc concentrates and to maintain certain levels of production; (ii) reduces supermajority voting requirements within the LGJV (the effect of which will be to provide Gatos Silver with control over a variety of ordinary-course operational, budgeting and planning decisions); and (iii) provides a new sole-funding right to Gatos Silver for mine or plant modifications or expansions, allowing Gatos Silver to require that the same be undertaken and to dilute Dowa’s interest in the LGJV if Dowa elects not to participate, among other amendments.
The foregoing descriptions of the Amended and Restated Joint Venture Agreement, the Amended and Restated Offtake Agreement and the Amended and Restated Services Agreement are qualified in their entirety by the terms of such agreements, which are filed hereto as Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 respectively, and incorporated herein by reference.
Item 2.01 Completion of Acquisition or Disposition of Assets.
Reference is made to the information set forth in Item 1.01 of this Current Report on Form 8-K, which information is incorporated by reference into this Item 2.01.
As a result of the Amended and Restated LGJV Agreements, Gatos Silver’s investment in the LGJV, which has to date been reported on an unconsolidated basis under the equity method of accounting, will be accounted for on a consolidated basis effective January 1, 2025. In particular, the changes to the supermajority requirements under the Amended and Restated Joint Venture Agreement will provide Gatos Silver with sufficient control over the LGJV to enable financial consolidation. Gatos Silver’s economic interest in the LGJV remains unchanged and Dowa’s interest, which is also unchanged, will be reported as a minority interest. The unaudited pro forma condensed combined balance sheet as of September 30, 2024 and the unaudited proforma condensed combined statement of earnings (loss) for the nine months ended September 30, 2024 and for the fiscal year ended December 31, 2023 have been included as Exhibit 99.4 to this Current Report on Form 8-K.
