Gatos Silver Provides Updates on Cerro Los Gatos Mineral Reserve, Mineral Resource and Life of Mine Plan

Company Also Reports on Exploration and Provides Corporate Update

DENVER–(BUSINESS WIRE)–Gatos Silver, Inc. (NYSE/TSX: GATO) (“Gatos Silver” or the “Company”) today reported an updated Mineral Reserve Estimate (the “2022 Mineral Reserve”), Mineral Resource Estimate (the “2022 Mineral Resource”) and Life of Mine (“LOM”) plan (the “2022 LOM Plan”, and together with the 2022 Mineral Reserve and 2022 Mineral Resource, the “2022 Updates”) for the Cerro Los Gatos Mine (“CLG”) in which Gatos Silver has a 70% interest.

All dollar amounts are expressed in, and references to “$” refer to, United States dollars unless otherwise noted.

Highlights

• CLG 2022 LOM Plan summary using only the 2022 Mineral Reserve (100% basis):
  • CLG’s current reserve mine life continues to 2028;
  • Average annual production of 7.4 million ounces of silver with average annual cash flow of $79 million (after tax) through 2028 at $22 per ounce silver price;
  • Average all-in sustaining costs (“AISC”) of $7.06 per ounce¹ of payable silver, net of by-product credits;
  • Average operating costs of $89.76 per tonne milled; and
  • Pre-tax net present value (“NPV”) at a 5% discount rate of $491 million ($377 million after tax)²;
• Recent exploration success demonstrates extension potential that could, with additional drilling, significantly extend the mine life;
  • The Company is focused on resource extension drilling at depth in the North-West and Central zones, in addition to the undeveloped South-East zone. Drilling highlights from this program include hole GA-SE-467 that intercepted 17.0 meters (estimated 10.4 meters true width) at 291 g/t Ag, 5.55% Zn, 6.14% Pb and 1.01% Cu. See Table 10 for complete intercept details; and
  • Recent drilling at CLG beneath the South-East zone (referred to as South-East Deeps) has discovered both silver-copper and silver-zinc-lead mineralization at depth. Drilling highlights from this program include hole GA-SE-477 that intercepted 7.5 meters (estimated 5.9 meters true width) at 247 g/t Ag, 5.97% Zn and 3.58% Pb and hole GA-SE-475 that intercepted 16.0 meters (estimated 12.0 meters true width) at 135 g/t Ag and 1.34% Cu. See Table 11 for complete intercept details.
• The Company is in the process of transitioning its executive office to Vancouver, BC, from Denver, Colorado, and has an experienced executive management team in place, further strengthened with the appointment of Stephen Bodley, General Counsel and Chief Compliance Officer, effective October 16, 2022.

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¹ Excludes $6 million per year in corporate overhead paid by the Los Gatos Joint Venture, equivalent to $0.94 per ounce of payable silver. See Non-GAAP Financial Performance Measures below.

² NPV as of July 1, 2022 at $22/oz silver, $1.20/lb zinc, $0.90/lb lead, $1,700/oz gold and exchange rate of Mexican Peso MXN 20.00 per US$1.00.

Dale Andres, CEO of Gatos Silver said:

“We have taken the necessary time to rebuild the 2022 Mineral Reserve and 2022 Mineral Resource from the ground up and are pleased to be able to deliver this update to our shareholders. The 2022 LOM Plan displays low average all-in sustaining costs and strong cash flow until 2028 from our current reserve.

“Additionally, while still early days, it appears that there is potential to extend mine life as a result of significant mineralization that we have recently discovered in the South-East Deeps zone, which extends more than 300 meters below the bottom of the 2022 Mineral Reserve. By adding a new component to our geological interpretation of the mineralization, this new zone opens up geological prospects at depth – not only below the existing workings, but across our land position. Now that we have the solid foundation with this updated reserve, we can return our attention towards realizing our district-scale upside with further exploration.

“Demonstrated by our excellent operating performance and now with a solid foundation at CLG with one of the industry’s lowest cost operations throughout the 2022 LOM Plan, we are well-positioned for future growth. I am excited to work with a revitalized and experienced executive leadership team at Gatos Silver, which is bringing a new perspective and depth as we look to grow shareholder value. Moreover, we have added terrific operational and technical talent to the CLG management team to help optimize the operation of the mine. Together with our partner Dowa Metals and Mining (‘Dowa’), our objectives are to extend the mine life beyond 2028 and to further develop the 103,000-hectare Los Gatos district. The integrated analyses that have gone into this outcome have been comprehensive, and the outcome provides a secure path forward to realizing the true value of CLG. We thank you for your patience as we worked to get it right and can report that we are confident in our ability to execute to the 2022 LOM Plan.”

2022 Updates – CLG Summary

On January 25, 2022, Gatos Silver announced that, following reconciliation work at its CLG mine, the Company concluded that there were errors in the technical report entitled “Los Gatos Project, Chihuahua, Mexico” with an effective date of July 1, 2020 (the “2020 Technical Report”), in addition to potential overestimation in the then-existing resource model. On a preliminary basis, the Company estimated a potential reduction of CLG’s mineral reserve ranging from 30% to 50% of the metal content remaining after depletion. Despite the 2020 Technical Report issues, CLG operations have performed well so far in 2022 as a result of underground drilling, geological mapping and sampling, short term mine planning, and good operations execution.

Working with independent engineering consultants to better understand the magnitude of the errors and overestimation, it has been determined that the reduction in contained metal of the 2022 Mineral Reserve compared to the 2020 Technical Report is as follows: 32% silver, 37% zinc, 36% lead and 35% gold, after accounting for depletion. This reduction is within the bottom half of the 30% to 50% range originally estimated.

The 2022 LOM Plan is a reserve plan and reflects current cost estimates for mining only the 2022 Mineral Reserve using a “ground-up” approach including new geological data and interpretation, resource modelling, mine design and cost modelling. Production and cost guidance for 2023 is expected to be issued in the first quarter of 2023 after detailed planning and budgeting is completed, which is expected to include additional expenditures to further explore the district and support potential extension of the 2022 LOM Plan. The Company expects to file an updated technical report summary (TRS) prepared in accordance with subpart 1300 of Regulation S-K (“S-K 1300”) in the United States on the EDGAR section of the Securities and Exchange Commission (“SEC”) website at www.sec.gov, and file an updated technical report prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) in Canada under the Company’s profile on SEDAR at www.sedar.com (collectively, the “2022 Technical Reports”), to support the disclosure regarding the 2022 Updates. The 2022 Technical Reports are expected to be filed in the coming weeks and the Company intends to hold a public webcast review of the 2022 Technical Reports in November.

The Company anticipates completing an impairment assessment based on the 2022 Mineral Reserve in the fourth quarter of 2022 and is working towards completing all outstanding SEC and OSC filings as soon as possible.

2022 Mineral Reserve and 2022 Mineral Resource (CLG – 100% basis)

• Mineral Reserve of 6.07 million tonnes grading 244 g/t silver, 4.48% zinc, 2.14% lead and 0.27 g/t gold containing 47.7 million ounces silver, 599.1 million pounds zinc, 286.7 million pounds lead and 51.8 thousand ounces gold
• Measured and Indicated Mineral Resource (exclusive of reserves) of 1.94 million tonnes grading 96 g/t silver, 3.01% zinc, 1.56% lead and 0.19 g/t gold
• Inferred Mineral Resource (exclusive of reserves) of 2.09 million tonnes grading 113 g/t silver, 4.30% zinc, 2.45% lead and 0.20 g/t gold

2022 LOM Plan Economics (100% basis)

Table 1: Summary of 2022 LOM Plan Economic Results Showing Sensitivity to Various Silver Prices

Silver Price	$/ounce	$18.00	$20.00	$22.00	$24.00
Total LOM Free Cash Flow	$M pre-tax	$414	$491	$567	$644
(undiscounted)	$M post-tax	$310	$368	$437	$507
Net Present Value(1)	$M pre-tax	$356	$424	$491	$558
(5.0% discount rate)	$M post-tax	$264	$316	$377	$438

(1)

NPV is discounted to July 1, 2022.

2022 Mineral Reserve – CLG

The methodology used to prepare the 2022 Updates has been substantially revised from that used to prepare the 2020 Technical Report. The changes that have been implemented, based on experience through mining operations since 2019, include:

• New geological and geochemical data;
• Updated geological interpretation methodology;
• Updated Mineral Resource estimation methodology, including correction of the reserve calculation errors disclosed in our January 25, 2022 press release;
• Updated mining assumptions;
• Updated plant throughput and processing recovery assumptions; and
• Updated operating and capital cost assumptions.

The updated mineral reserve estimates by reserve category are summarized below in Table 2.

Table 2: 2022 Mineral Reserve as at July 1 2022^{(1,2,3,4,5,6,7,8,9,10)}

	Mt	Ag (g/t)	Zn (%)	Pb (%)	Au (g/t)	Ag (Moz)	Zn (Mlbs)	Pb (Mlbs)	Au (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.
(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)		The Mineral Reserve estimates were prepared by Mr. Paul Gauthier, P.Eng. an employee of Golder Associates who is the independent Qualified Person for these Mineral Reserve estimates.

2022 Mineral Resource – CLG and Esther

The 2022 Mineral Resource uses additional geological and geochemical data that has been collected since the 2020 Technical Report up until March 31, 2022 for Cerro Los Gatos and July 31, 2022 for Esther. The 2022 Mineral Resource for CLG incorporates an additional 36,233 meters of surface resource drilling in 100 holes and 51,279 meters of underground definition drilling in 623 holes. Detailed geological mapping from over 20 cut and fill production levels was also available for geological interpretation. The 2022 Mineral Resource for Esther incorporates an additional 22,565 meters of surface resource drilling in 63 holes.

The 2022 Mineral Resource uses a different geological modelling methodology than was used for the 2020 Technical Report. The interpretation of the vein solids that were used to define the estimation domains are now lithology based, rather than grade shells used in the 2020 Technical Report. The interpretation was completed by local CLG exploration staff in collaboration with the underground mine geologists and the Qualified Person from Golder Associates. The lithology-based interpretation utilized all available information including surface drillholes, underground drillholes, underground mapping, mine as-built surveys and mine channel sampling. The geological modelling for the 2022 Mineral Resource shows more veins but thinner veins in the Central zone and different structural segmentation in the South-East zone when compared to the geological interpretation in the 2020 Technical Report. As shown by the recent strong operational performance, the mine is able to successfully extract both long-hole stopes and cut and fill stopes with the vein continuity experienced underground.

The 2022 Mineral Resource uses a different estimation methodology than previously used for the 2020 Technical Report. The current methodology applies high grade restrictions specific to individual vein estimation domains. The estimation was completed using Ordinary Kriging in 3D, rather than flattened-space. The estimation was completed using locally varying anisotropy to account for the variable vein dip. The Mineral Resource categorization methodology was modified to incorporate proximity to underground geological mapping and drilling, both surface and underground. The estimation was calibrated against production channel sampling and plant production.

The CLG 2022 Mineral Resource reported by category is summarized in Table 3 below, and the Esther 2022 Mineral Resource reported by category is summarized in Table 4.

Table 3: 2022 Mineral Resource – CLG (Exclusive of Mineral Reserves) ^{(1,2,3,4,5,6,7,8,9,10,11)}

	Mt	Ag (g/t)	Zn (%)	Pb (%)	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.
(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.
(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 who is the independent Qualified Person for these Mineral Resource estimates.

Stope optimizations have been generated to restrict the reported Mineral Resource to areas that demonstrate reasonable prospects of economic extraction.

Table 4: 2022 Mineral Resource – Esther ^{(1,2,3,4,5,6,7,8,9,10)}

	Mt	Ag (g/t)	Zn (%)	Pb (%)	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

(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. 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 who is the independent Qualified Person for these Mineral Resource estimates.

2022 Mineral Reserve – CLG Changes and Key Assumptions

The reserve numbers reported in the 2020 Technical Report were impacted by two material and compounding errors. First, the block model used in preparation of the reserve estimate was distorted during transfer between software packages resulting in reduced block dimensions and unestimated spaces between blocks. Second, an incorrect software parameter was used in calculating tonnes and grades within designed stope solids that resulted in any unestimated volume (both planned intentional dilution outside the estimated vein and unestimated spaces resulting from the distortion) being applied at the average mineralized grade instead of zero grade for dilution. The effective result of the combination of these errors is that metal grades were significantly overstated in the 2020 Technical Report. There were other minor errors identified during the analysis of the 2020 Mineral Reserve, including overlapping reserve stope solids, incorrect external dilution calculations and the inclusion of a small amount of Inferred grades within stope solids. In addition to correcting the errors identified in the 2020 Technical Report, which was the majority of the reduction, we previously disclosed the need to make additional adjustments in the 2020 Mineral Reserve. There are multiple factors that have contributed to the remaining adjustments in the 2022 Mineral Reserve since the 2020 Technical Report, and these adjustments have been addressed in the new 2022 Mineral Reserve, with all underlying assumptions modified based on actual operating experience since plant operations commenced in August 2019.

The factors that have reduced the metal content in the Mineral Reserve include the South-East zone infill drilling data, updated geological modelling, updated mining dilution and recovery assumptions, increased operating cost assumptions and decreased zinc plant recoveries. The factors that have increased the metal content in the Mineral Reserve include increased plant throughput, increased silver and lead processing recoveries and higher metal price assumptions compared to the 2020 Technical Report.

Table 5: Summary of changes from the 2020 Technical Report to the 2022 Mineral Reserve

		2020 Technical Report LOM (A)	Depletion from July 1, 2020 to June 30, 2022 (B)	2022 Mineral Reserve     (C)	2022 Mineral Reserve + Depletion   (B+C)	% Change       (B+C)/A-1
P&P Reserve	Mt	9.62	1.73	6.07	7.79	(19)%
Ag Grade	g/t	305	305	244	258	(16)%
Zn Grade	%	5.65	4.07	4.48	4.39	(22)%
Pb Grade	%	2.76	2.33	2.14	2.19	(21)%
Au Grade	g/t	0.35	0.34	0.27	0.28	(20)%
Ag Contained	Moz	94.5	16.9	47.7	64.5	(32)%
Zn Contained	Mlbs	1,199	155	599	754	(37)%
Pb Contained	Mlbs	585	89	287	375	(36)%
Au Contained	kOz	109	19	52	71	(35)%

Figure 1 shows the Reduction in contained silver between the 2020 Technical Report and the 2022 Updates.

Key Assumptions Generally

The 2022 Updates are based on a variety of estimates and assumptions relating to, among other things, geological interpretation, statistical inferences, commodity prices, mining methodologies, operating and capital costs, plant throughput and processing recoveries and operating conditions. In particular, material assumptions and risks include those described below and elsewhere in this press release, including metal prices, as well as our ability to reduce operating costs, increase ramp development rates and dewater the mine in a cost-effective manner. There can be no assurance that the assumptions underlying the 2022 Updates will actualize or be correct, and changes to any of these assumptions or our inability to achieve these assumptions may result in actual results to deviate significantly from the 2022 Updates.

Mine Design

Long-hole (“LH”) mining methods were applied where applicable throughout the mine. The operation has successfully been mining steeper sections of the Central zone using LH mining methods and we expect to be able to mine appropriate areas of the South-East zone using the same methodology. The zones that are dipping at less than 55° are still planned to be extracted using cut and fill (“C+F”) methods.

Mineral Reserve stopes are planned to be filled using paste fill, cemented rock fill or uncemented rock fill. The paste fill plant is in the final stages of construction and the plant is anticipated to be commissioned in Q4-2022.

Mine dilution and mine recovery estimates are based on recent actual performance, with consideration for business improvement initiatives. These assumptions are applied based on the mining method, stope width, zone inclination and proximity to hanging-wall faults.

Operating and sustaining capital cost assumptions are based on recent actual costs with specific allowances for business improvement initiatives underway.

Contacts

Investors and Media Contact
Dale Andres

Chief Executive Officer

Tiffany Osburn

Director, Financial Reporting and Corporate Communications

[email protected]
(720) 726-9662

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