Gatos Silver boosts output at key mine ahead of First Majestic merger

Canadian explorer and developer Gatos Silver (TSX: GATO; NYSE: GATO), which is being bought by First Majestic Silver (TSX: AG; NYSE: AG), has extended the life of its flagship Cerro Los Gatos mine in Mexico until the end of 2032.

The updated mine plan adds two years of additional reserves and increases silver equivalent production by 36%. This increase is attributed to higher mill throughput rates, which are anticipated to surpass design capacity by 40% starting in mid-2025.

The new plan also predicts robust annual cash flows and presents a marked improvement in mining efficiency and cost management. All-in sustaining costs are now pegged at $6.29 per oz. of payable silver.

In a release, CEO Dale Andres highlighted the disciplined optimization of assets and successful resource expansion as key drivers for the mine’s growth potential. The updated reserve estimate, now at 10.3 million tonnes at 172 grams silver per tonne, shows a 28% increase in contained ounces from the previous year.

Lower grade

BMO metals & mining analyst Kevin O’Halloran said the updated reserve grade was slightly below the bank’s modelled expectation, averaging 389 grams per tonne of silver equivalent at BMO metals prices.

Operating costs, however beat the bank’s expectations. “This was driven by higher throughput and increased longhole mining, while sustaining capex was above our estimate,” O’Halloran wrote on Thursday.

The company highlighted its ongoing efforts to extend the mine’s life and improve profit margins. Exploration drilling, it said, is expanding the SE Deeps zone, pushing beyond current mineral reserve and resource estimates. 

Gatos Silver is also evaluating cost-effective projects aimed at optimizing metallurgical recovery, potentially increasing mill throughput to 4,000 tonnes per day.

Regarding the company’s acquisition by Silver Majestic, the Vancouver-based miner said the deal is subject to shareholders approval, with a closing expected in early 2025.   

The merger will consolidate three producing silver districts in Mexico, creating a leading intermediate primary silver producer with an annual output of 30 to 32 million ounces of silver-equivalent a year.

Welcome update

Shares in Gatos Silver soared on the news, trading almost 3% higher early morning in New York at $16.60 each. The stock was up 2.6% in Toronto at 11 a.m., exchanging hands at $22.25. This leaves the miner with a market capitalization of $1.5 billion.

Solid silver and gold prices paired with a positive macroeconomic outlook in Latin America have led to an increase in foreign investment in the region. 

Analysts expect Latin America’s economic landscape for the rest of 2024 and early 2025 to be conducive to further merger and acquisition activities. According to Alessio Mazzanti, managing director of Latam Investment Banking, LLC, the surge of deals will be driven by a combination of macroeconomic and political factors that are improving investors’ perceptions towards the region, particularly in major economies like Brazil, Chile, and Mexico.