10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

or

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

For the transition period from _______________ to _______________

Commission File Number: 001-39649

GATOS SILVER, INC.

(Exact name of registrant as specified in its charter)

Delaware	27-2654848
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8400 E. Crescent Parkway, Suite 600

Greenwood Village, CO 80111

(Address of principal executive offices) (Zip Code)

(303) 784-5350

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	GATO	New York Stock Exchange Toronto Stock Exchange

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 ☐

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 ☐

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
		Emerging growth company	☑

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. ☑

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

The Company has 700,000,000 shares of common stock, par value $0.001, authorized of which 68,704,201 were issued and outstanding as of August 2, 2021.

TABLE OF CONTENTS

		Page
	Part I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Shareholders’ Equity (Deficit)	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	29
	Part II - OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31

2

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

GATOS SILVER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except for share and per share amounts)

	June 30,		December 31,
	2021		2020
ASSETS
Current Assets
Cash and cash equivalents	$	29,607	$	150,146
Deferred financing costs		285		—
Related party receivables		5,102		1,727
Other current assets		2,190		3,879
Total current assets		37,184		155,752
Non‑Current Assets
Investment in affiliates		247,326		109,597
Other non-current assets		48		61
Total Assets	$	284,558	$	265,410
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other accrued liabilities	$	3,781	$	4,024
Shareholders' Equity
Common Stock, $0.001 par value; 700,000,000 shares authorized; 59,774,201 and 59,183,076 shares outstanding as of June 30, 2021 and December 31, 2020		108		108
Paid‑in capital		417,248		409,728
Accumulated deficit		(135,552)		(147,423)
Treasury stock, at cost, 144,589 shares as of June 30, 2021 and December 31, 2020		(1,027)		(1,027)
Total shareholders' equity		280,777		261,386
Total Liabilities and Shareholders' Equity	$	284,558	$	265,410

See accompanying notes to the condensed consolidated financial statements.

3

GATOS SILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except for share and per share amounts)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Expenses
Exploration	$	694	$	211	$	918	$	382
General and administrative		4,411		1,543		8,014		2,380
Amortization		7		9		14		17
Total expenses		5,112		1,763		8,946		2,779
Other income (expense)
Equity income (loss) in affiliates		18,291		(8,071)		20,992		(21,516)
Other income (loss)		312		(765)		(175)		(2,345)
Net other income (expense)		18,603		(8,836)		20,817		(23,861)
Net income (loss) from continuing operations	$	13,491	$	(10,599)	$	11,871	$	(26,640)
Net loss from discontinued operations		—		(1,545)		—		(3,325)
Net income (loss)	$	13,491	$	(12,144)	$	11,871	$	(29,965)
Net income (loss) per share:
Basic(1)
Continuing operations	$	0.23	$	(0.26)	$	0.20	$	(0.66)
Discontinued operations	$	—	$	(0.04)	$	—	$	(0.08)
	$	0.23	$	(0.30)	$	0.20	$	(0.74)
Diluted(1)
Continuing operations	$	0.22	$	(0.26)	$	0.20	$	(0.66)
Discontinued operations	$	—	$	(0.04)	$	—	$	(0.08)
	$	0.22	$	(0.30)	$	0.20	$	(0.74)
Weighted average shares outstanding:
Basic(1)		59,747,048		40,506,144		59,611,062		40,505,611
Diluted(1)		60,623,496		40,506,144		60,420,811		40,505,611

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

See accompanying notes to the condensed consolidated financial statements.

4

GATOS SILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except for 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	—	—		—		—		1,078		—		1,078
Issuance of common stock	182,453	—		—		—		1,559		—		1,559
DSUs converted to common stock	43,523	—		—		—		—		—		—
Other	—	—		—		—		(262)		—		(262)
Net loss	—	—		—		—		—		(1,620)		(1,620)
Balance at March 31, 2021	59,409,052	144,589	$	108	$	(1,027)	$	412,103	$	(149,043)	$	262,141
Stock‑based compensation	—	—		—		—		2,490		—		2,490
Issuance of common stock	331,497	—		—		—		2,662		—		2,662
DSUs converted to common stock	33,652	—		—		—		—		—		—
Other	—	—		—		—		(7)		—		(7)
Net income	—	—		—		—		—		13,491		13,491
Balance at June 30, 2021	59,774,201	144,589		108		(1,027)		417,248		(135,552)		280,777

	Number(1)		Amount
	Common	Treasury	Common		Treasury		Paid-in		Accumulated
	Stock	Stock	Stock		Stock		Capital		Deficit			Total
Balance at December 31, 2019	40,323,430	144,589	$	80	$	(1,027)	$	375,921	$	(225,583)		149,391
Stock-based compensation	—	—		—		—		1,031		—		1,031
DSU compensation	—	—		—		—		61		—		61
Net loss	—	—		—		—		—		(17,821)		(17,821)
Balance at March 31, 2020	40,323,430	144,589	$	80	$	(1,027)	$	377,013	$	(243,404)	$	132,662
Stock-based compensation	—	—		—		—		1,086		—		1,086
Net loss	—	—		—		—		—		(12,144)		(12,144)
Balance at June 30, 2020	40,323,430	144,589		80		(1,027)		378,099		(255,548)		121,604

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

See accompanying notes to the condensed consolidated financial statements.

5

GATOS SILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Six Months Ended
	June 30,
	2021		2020
OPERATING ACTIVITIES
Net income (loss)	$	11,871	$	(29,965)
Plus net loss from discontinued operations		—		3,325
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Amortization		14		17
Stock‑based compensation expense		3,426		2,001
Equity (income) loss in affiliates		(20,992)		21,516
Changes in operating assets and liabilities:
Receivables from related‑parties		(3,375)		(3,333)
Accounts payable and other accrued liabilities		(528)		(766)
Other current assets		1,689		(70)
Operating cash flows from discontinued operations		—		(2,262)
Net cash used by operating activities		(7,895)		(9,537)
INVESTING ACTIVITIES
Investment in affiliates		(116,595)		(7,573)
Net cash used by investing activities		(116,595)		(7,573)
FINANCING ACTIVITIES
Related‑party convertible debt		—		10,000
Financing costs		(269)		(588)
Issuance of common stock		4,221		—
Other		(1)		260
Financing cash flows from discontinued operations		—		307
Net cash provided by financing activities		3,951		9,979
Net decrease in cash and cash equivalents		(120,539)		(7,131)
Cash and cash equivalents, beginning of period		150,146		9,085
Cash and cash equivalents, end of period		29,607		1,954
Less cash of discontinued operations		—		380
Cash of continuing operations, end of period	$	29,607	$	1,574
Supplemental disclosure of noncash transactions:
Deferred financing costs included in accrued liabilities	$	284	$	149
Director compensation	$	—	$	61

See accompanying notes to the condensed consolidated financial statements.

6

GATOS SILVER, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, 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, development and exploration company that discovered a new silver 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 operating entities consist 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 with MPR.

The LGJV completed an advanced definition 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 acquiring a 30% interest in the LGJV and the right to purchase future zinc-concentrate production at market rates. In May 2019, Dowa increased its ownership interest by 18.5% to 48.5% through the conversion of the Dowa MPR Loan (as defined in Note 9 — Commitments, Contingencies and Guarantees) to equity. On March 11, 2021, the Company repurchased the 18.5% interest from Dowa. See Note 9 — Commitments, Contingencies and Guarantees for further discussion. As of June 30, 2021, the LGJV ownership is 70.0% Gatos Silver and 30.0% Dowa.

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.

The Company continues to perform additional definition drilling to further define and expand mineralization of the Cerro Los Gatos deposit, and is performing definition and exploratory drilling at the nearby Esther deposit. On December 5, 2020, the LGJV began the current infill and extension drilling program at the Cerro Los Gatos deposit. On May 7, 2021, the LGJV restarted drilling at the Esther zone.

The Company’s other Mexico exploration efforts are conducted through its wholly-owned subsidiary, Minera Luz del Sol S. de R.L. de C.V. (“MLS”). In March 2021, MLS commenced a 5,400-meter exploration program on the Santa Valeria project, located approximately 15 kilometers from the Cerro Los Gatos deposit.

Discontinued Operations

In October 2020, the Company completed the distribution of its wholly-owned subsidiary, Silver Opportunity Partners LLC (“SOP”), and SOP has been presented as discontinued operations in the Company’s condensed consolidated financial statements. See Note 10 – Discontinued Operations for additional detail.

2.           Summary of Significant Accounting Policies

Basis of Consolidation and Presentation

The financial statements represent the condensed consolidated financial position and results of operations of Gatos Silver, Inc. and its subsidiary, MLS. Unless the context otherwise requires, references to Gatos Silver or the Company mean Gatos Silver, Inc. and its consolidated subsidiary. 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 interim condensed consolidated financial statements.

7

The interim condensed consolidated financial statements are unaudited, but include all adjustments, consisting of normal recurring entries, which are necessary for a fair presentation for the dates and periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”).

Summary of Significant Accounting Policies

The consolidated financial statements for the year ended December 31, 2020, disclose those accounting policies considered significant in determining results of operations and financial position. There have been no material changes to, or in the application of, the accounting policies previously identified and described in the 2020 10-K.

Recent Accounting Pronouncements

On January 1, 2021, the Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) and ASU No. 2019-12, Income Taxes (Topic 740). These provisions did not have a material impact on the financial statements. There have been no additional accounting pronouncements issued or adopted during the six months ended June 30, 2021, which are expected to have a material impact on the financial statements.

3.           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.

Santa Valeria Concession

The Company is required to make a production royalty payment of 1% of the net smelter returns on production. The Company may terminate the agreement upon prior notice.

4.           Accounts Payable and Other Accrued Liabilities

	June 30,		December 31,
	2021		2020
Accounts payable	$	369	$	560
Accrued expenses		2,059		1,240
Accrued compensation		1,093		1,964
Other		260		260
Total accounts payable and other current liabilities	$	3,781	$	4,024

8

5.           Related-Party Transactions

LGJV

The Company has a services agreement with the LGJV to provide certain consulting and administrative services. The Company earned $2,500 and $2,100 under this agreement for the six months ended June 30, 2021 and 2020, respectively. The Company did not receive any cash from the LGJV under this agreement for the six months ended June 30, 2021 and 2020. The Company had receivables under this agreement of $3,700 and $6,850 as of June 30, 2021 and 2020, respectively. The Company also incurs certain LGJV costs and provides short term advances that are reimbursed by the LGJV.

SSMRC

The Company has a Management Services Agreement with Sunshine Silver Mining & Refining Corporation (“SSMRC”) (formerly Silver Opportunity Partners Corporation), pursuant to which the Company provides certain limited executive and managerial advisory services to SSMRC until terminated by either party. SSMRC reimburses the Company for costs of such services. The Company earned $16 and nil from SSMRC under this agreement for the six months ended June 30, 2021 and 2020, respectively.

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

The computation of diluted earnings per common share excludes the effect of the assumed exercise of 1,391,236 stock options for the three and six months ended June 30, 2021, 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. For the three and six months ended June 30, 2020, all stock options outstanding have been excluded from the dilutive earnings per share calculation as their effect would be anti-dilutive.

A reconciliation of basic and diluted earnings per common share for the three and six months ended June 30, 2021 and 2020, are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)
Continuing operations	$	13,491	$	(10,599)	$	11,871	$	(26,640)
Discontinued operations		—		(1,545)		—		(3,325)
	$	13,491	$	(12,144)	$	11,871	$	(29,965)
Weighted average shares:
Basic		59,747,048		40,506,144		59,611,062		40,505,611
Effect of dilutive stock options		876,448		—		809,749		—
Diluted		60,623,496		40,506,144		60,420,811		40,505,611
Net income (loss) per share:
Basic:
Continuing operations	$	0.23	$	(0.26)	$	0.20	$	(0.66)
Discontinued operations		—		(0.04)		—		(0.08)
	$	0.23	$	(0.30)	$	0.20	$	(0.74)
Diluted:
Continuing operations	$	0.22	$	(0.26)	$	0.20	$	(0.66)
Discontinued operations		—		(0.04)		—		(0.08)
	$	0.22	$	(0.30)	$	0.20	$	(0.74)

9

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.

Stock Option Transactions

The Company’s stock options have a contractual term of 10 years and entitle the holder to purchase shares 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 options granted to non-employee 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 2020 have a requisite service period of one and a half years and vest in monthly installments. The options granted to non-employee directors in June 2020 have a requisite service period of one year and vest in semi-annual installments.

The Company granted 489,719 and 798,333 stock options during the six months ended June 30, 2021 and 2020, respectively. The weighted-average grant-date fair value per share was $9.53 and $6.76 for the six months ended June 30, 2021 and 2020, respectively. The Company received $4,221 from stock options exercised during the six months ended June 30, 2021.

Total unrecognized stock-based compensation expense as of June 30, 2021, was $10,483 which is expected to be recognized over a weighted average period of 2.0 years.

Stock option activity for the six months ended June 30, 2021, is summarized in the following tables:

		Weighted‑
		Average
Director and Employee Options	Shares	Exercise Price
Outstanding at December 31, 2020	5,411,930	$	12.52
Granted	489,719	$	16.72
Exercised	513,950	$	8.21
Forfeited	15,000	$	7.00
Outstanding at June 30, 2021	5,372,699	$	13.33
Vested at June 30, 2021	3,070,896	$	15.63

		Weighted‑
		Average
LGJV Personnel Options	Shares	Exercise Price
Outstanding at December 31, 2020	43,676	$	7.23
Outstanding and vested at June 30, 2021	43,676	$	7.23

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 the director’s cessation of continuous service. The fair value of the DSUs are equal to the fair value of the Company’s common stock on the grant date.

At June 30, 2021, there were 214,855 DSUs outstanding. The Company granted 109,316 and 5,103 DSUs during the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021, 77,175 DSUs were converted to common stock.

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8.         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 June 30, 2021, and December 31, 2020, the Company’s 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

The Company discloses and recognizes its non-financial assets and liabilities at fair value on a non-recurring basis. The estimated fair value for these non-financial 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 assets without observable inputs and no market activity.

The Company recorded its initial investment in affiliates at fair value. The estimated fair value for this non-financial asset is classified as 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.

9.         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 financial statements when it is at least reasonably possible that a material loss could be incurred.

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.

11

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 accrued daily at LIBOR plus 2.35% per annum, with the interest added to the amount borrowed until commencement of production. During 2018, the LGJV paid Dowa a $4,200 closing fee. Commencing June 30, 2021, repayment of the Term Loan in 14 consecutive semi-annual equal payments of the aggregate principal and capitalized interest began. The Company was 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 is 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 required additional principal payments equal to 70% of excess cash flows (as defined). As of June 30, 2021, the LGJV had $206,870 outstanding under the Term Loan.

On July 26, 2021, the Term Loan was repaid in full through capital contributions made to the LGJV by the Company and Dowa in pro-rata amounts equal to their ownership in the LGJV of 70% and 30%, respectively. In conjunction with the repayment, the Company paid to Dowa a closing fee of $10,000 and the LGJV paid to Dowa a $1,585 fee.

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% per annum 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 Company’s 70% portion of 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.

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. 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, the Company repurchased the 18.5% interest from Dowa, for a total consideration of $71,550, including Dowa holding costs of this incremental interest, increasing the Company’s ownership in the LGJV to 70.0%. These transactions resulted in a $47,400 higher basis than the underlying net assets of the LGJV Entities. This basis difference is being amortized over the LGJV Entities proven and probable reserves.

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 accrued daily at LIBOR plus 3.0% per annum and all outstanding principal and interest was to mature on June 28, 2021. The Company was 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. On March 11, 2021, the full $60,000 amount outstanding under the WCF was extinguished of which the Company’s pro-rata capital contribution to the LGJV was $42,000.

As of June 30, 2021, the Company had guaranteed 70% of the outstanding principal and accrued interest of the Term Loan in the event of default by the LGJV. The Company guarantees the payment of all obligations, including accrued interest, under the LGJV equipment loan agreements. As of June 30, 2021, the LGJV had $9,617 outstanding under the LGJV equipment loan agreements, net of unamortized debt discount of $23, with varying maturity dates through August 2023.

10.          Discontinued Operations

In October 2020, the Company completed the distribution of its reportable U.S. segment, which was comprised of SOP. 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 initial public offering. 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 SSMRC.

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The results of operations for SOP have been reflected as discontinued operations in the condensed consolidated statement of operations for the three and six months ended June 30, 2020, and consist of the following:

	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
Operating Expenses of Discontinued Operations
Exploration	$	105	$	216
Pre-development		532		1,048
General and administrative		316		877
Amortization		593		1,186
Total expenses		1,546		3,327
Other Income of Discontinued Operations
Other income		(1)		(2)
Net loss of discontinued operations	$	1,545	$	3,325

The cash flow activity from discontinued operations for the six months ended June 30, 2020, have been reflected as discontinued operations in the condensed consolidated statement of cash flows for the six months ended June 30, 2020, and consist of the following:

	June 30,
	2020
Discontinued Operating Activities
Net loss	$	(3,325)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization		1,186
Stock compensation expense		117
Accretion expense		55
Changes in operating assets and liabilities:
Accounts payable and other accrued liabilities		(304)
Other current assets		9
Net cash used by operating activities of discontinued operations		(2,262)
Financing Activities of Discontinued Operations
PPP Loan proceeds		307
Net cash provided by financing activities of discontinued operations		307

11.          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 development and exploration on the Company’s Mexican mineral properties and includes the Company’s investment in the LGJV. Financial information relating to the Company’s segments is as follows:

	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
	Mexico		Corporate		Total		Mexico		Corporate		Total
Exploration	$	694	$	—	$	694	$	211	$	—	$	211
General and administrative		178		4,233		4,411		190		1,353		1,543
Amortization		—		7		7		—		9		9
Equity income (loss) in affiliates		18,291		—		18,291		(8,071)		—		(8,071)
Net other income (loss)		(5)		317		312		(13)		(752)		(765)
Total assets		59,679		224,879		284,558		34,346		71,646		105,991

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	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
	Mexico		Corporate		Total		Mexico		Corporate		Total
Exploration	$	918	$	—	$	918	$	382	$	—	$	382
General and administrative		332		7,682		8,014		252		2,128		2,380
Amortization		—		14		14		—		17		17
Equity income (loss) in affiliates		20,992		—		20,992		(21,516)		—		(21,516)
Net other income (loss)		(19)		(156)		(175)		(24)		(2,321)		(2,345)
Total assets	$	59,679	$	224,879	$	284,558	$	34,346	$	71,646	$	105,991

12.         Investment in Affiliate

During the six months ended June 30, 2021 and 2020, the Company recognized $20,992 of income and a $21,516 loss, respectively, on its investment in the LGJV Entities, representing its ownership share of the LGJV Entities’ results. The equity income or loss in affiliate includes amortization of the carrying value of the investment in excess of the underlying net assets of the LGJV Entities. This basis difference is being amortized over the LGJV Entities’ proven and probable reserves.

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The LGJV Entities combined balance sheets as of June 30, 2021, and December 31, 2020, and the combined statements of income (loss) for the six months ended June 30, 2021 and 2020, are as follows:

LOS GATOS JOINT VENTURE

COMBINED BALANCE SHEETS (UNAUDITED)

(in thousands)

	June 30,		December 31,
	2021		2020
ASSETS
Current Assets
Cash and cash equivalents	$	2,242	$	1,676
Receivables		23,872		3,988
Inventories		10,288		10,315
VAT receivable		46,088		50,732
Other current assets		5,502		2,891
Total current assets		87,992		69,602
Non‑Current Assets
Mine development, net		213,895		202,874
Property, plant and equipment, net		192,206		196,942
Total non‑current assets		406,101		399,816
Total Assets	$	494,093	$	469,418
LIABILITIES AND OWNERS' CAPITAL
Current Liabilities
Accounts payable and accrued liabilities	$	31,995	$	35,767
Related party payable		5,118		1,703
Accrued interest		159		101
Unearned revenue		6,034		3,276
Equipment loans		6,898		7,084
Dowa Term Loan		31,826		31,826
Working Capital Facility		—		60,000
Total current liabilities		82,030		139,757
Non‑Current Liabilities
Dowa Term Loan		172,269		187,767
Equipment loans		2,696		6,120
Reclamation obligations		12,619		12,162
Total non‑current liabilities		187,584		206,049
Owners' Capital
Capital contributions		333,768		271,368
Paid‑in capital		18,636		16,366
Accumulated deficit		(127,925)		(164,122)
Total owners' capital		224,479		123,612
Total Liabilities and Owners' Capital	$	494,093	$	469,418

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LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(in thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Sales	$	75,005	$	18,247	$	121,335	$	37,160
Expenses
Cost of sales		24,096		9,996		43,901		28,272
Royalties		1,415		(272)		2,299		29
Exploration		1,261		144		1,910		408
General and administrative		2,833		1,905		6,079		4,650
Depreciation, depletion and amortization		12,705		9,543		23,654		21,260
Other		—		3,416		—		3,416
		42,310		24,732		77,843		58,035
Other (income) expense
Interest expense		2,356		3,390		4,473		6,943
Arrangement fee		2,090		4,709		2,090		4,709
Accretion expense		228		212		456		424
Other (income) expense		11		—		(19)		(108)
Foreign exchange (gain) loss		(1,335)		(339)		295		5,522
		3,350		7,972		7,295		17,490
Net Income (Loss)	$	29,345	$	(14,457)	$	36,197	$	(38,365)

13.         Subsequent Events

On July 12, 2021, the Company entered into a Revolving Credit Facility (the “Credit Agreement”) with Bank of Montreal. The Credit Agreement provides for a revolving line of credit in a principal amount of $50,000 and has an accordion feature which allows for an increase in the total line of credit up to $100,000, subject to certain conditions. The Credit Agreement matures on July 31, 2024. The Credit Agreement 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 Agreement may be accelerated upon the occurrence of certain customary events of default. Loans under the Credit Agreement will 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 a pricing grid based upon the Company’s consolidated net leverage ratio as of the end of the applicable period.

On July 19, 2021, the Company borrowed $13,000 under the Credit Agreement at a rate of LIBOR plus 3%.

On July 19, 2021, the Company completed a follow-on public offering of 8,930,000 shares of common stock at a price of $14.00 per share, resulting in net proceeds of $118,894, after deducting underwriting discounts and commissions and expenses payable by us.

The proceeds from the public offering, together with the funds borrowed under the Credit Agreement and cash on hand, were used to retire our 70% portion of the Dowa Term Loan at the LGJV effective July 26, 2021.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report on Form 10-Q (the “Report”) and the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020 and the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”), filed with the Securities and Exchange Commission (“SEC”) on March 29, 2021.

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. 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, those relating to projections of our future financial performance, our anticipated growth strategies and anticipated trends in our industry, production from the Cerro Los Gatos Mine (“CLG”), our expectations relating to further exploration of the Los Gatos District and the Santa Valeria property, 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.

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 following:

● we have a history of negative operating cash flows and net losses and we may not sustain profitability;

● we are dependent on two principal projects for our future operations;

● the Los Gatos Joint Venture (“LGJV”) has historically had significant 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;

● we have outstanding indebtedness and may incur further debt in the future, and the degree to which we are leveraged may have a material adverse effect on our business financial condition or results of operations and cash flows;

● 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;

● 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;

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● 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.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and information included in this Report and those described from time to time in our filings with the SEC, including, but not limited to, our 2020 10-K. 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 technical report entitled “Los Gatos Project, Chihuahua, Mexico,” dated July 1, 2020, which was prepared in accordance with the requirements of subpart 1300 of Regulation S-K and Canadian National Instrument 43-101 — Standards of Disclosure for Mineral Projects (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, which was filed as Exhibit 96.1 to our Registration Statement on Form S-1 (File No. 333-249224), filed with the SEC on October 1, 2020.

Overview

We are a U.S.-based precious metals production, development and exploration company with the objective of becoming a premier silver producer. We are currently focused on the production and continued development of the CLG and the further exploration and development of the Los Gatos District through the LGJV with Dowa:

● The CLG, located within the Los Gatos District, Chihuahua, Mexico, consists of a 2,500 tpd polymetallic mine and processing facility that commenced production on September 1, 2019. The Los Gatos Technical Report, which has an effective date of July 1, 2020, estimates that the deposit contains approximately 9.6 million diluted tonnes of proven and probable mineral reserves (or approximately 6.7 million diluted tonnes of proven and probable mineral reserves on a 70.0% basis, representing the Company’s current ownership interest in the LGJV), with approximately 6.4 million diluted tonnes of proven mineral reserves (or approximately 4.5 million diluted tonnes of proven mineral reserves on a 70.0% basis) and approximately 3.3 million diluted tonnes of probable mineral reserves (or approximately 2.3 million diluted tonnes of probable mineral reserves on a 70.0% basis). The Los Gatos Technical Report states 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 Los Gatos District, located in Chihuahua, Mexico, is located approximately 120 kilometers south of Chihuahua City and is comprised of a 103,087 hectares land position, constituting a new mining district. The Los Gatos District consists of 14 mineralized zones, which include three identified silver, lead and 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 and zinc epithermal mineralization. On September 1, 2019, the LGJV commenced production 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.

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Operational Update

In the first and second quarters of 2021, the LGJV achieved the following production from CLG:

CLG Production (100% Basis)	Q2 2021		Q1 2021
Tonnes mined (wmt - unreconciled)	240,047		209,832
Tonnes milled (dmt - reconciled)	230,656		203,479
Tonnes milled per day (dmt)	2,535		2,261
Average Grades
Silver grade (g/t)	322		261
Gold grade (g/t)	0.35		0.32
Lead grade (%)	2.51		2.00
Zinc grade (%)	4.41		3.24
Contained Metal
Silver ounces (millions)	2.1		1.5
Gold ounces - in lead concentrate (thousands)	1.5		1.1
Lead pounds - in lead concentrate (millions)	11.2		7.6
Zinc pounds - in zinc concentrate (millions)	14.5		8.7
Recoveries (combined lead and zinc concentrate)
Silver	89	%	85	%
Gold	63	%	60	%
Lead	90	%	87	%
Zinc	75	%	71	%

Operating costs for the three months ended June 30, 2021, were in line with management’s expectations and trending toward life-of-mine feasibility operating costs.

COVID-19 Pandemic

In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic temporarily affected our operations 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 and the expenses associated with the development and implementation of COVID-19 protocols. We believe we have taken appropriate steps to minimize the risk to our employees and to maintain normal business operations. 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 which may cause additional closures of some or all of our operations in the future.

While the full impact of this pandemic is unknown, we are closely monitoring the developments of the outbreak and continually assessing the potential impact on our business. Any prolonged disruption of our operations and closure of facilities could result in 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 and its variants, 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. See “Part I, Item 1A. Risk Factors” in the 2020 10-K for additional risks we face due to the COVID-19 pandemic.

Exploration Update

The Company is active in three different exploration drilling programs that are collectively estimated to require 51,400 meters of exploration and definition drilling at an expected cost of $6.1 million. The programs are further detailed below.

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Cerro Los Gatos Infill and Extension Drilling Program

On December 5, 2020, the LGJV commenced a 90-hole, 27,000-meter fill and extension drilling program at the CLG within the LGJV with the goal of converting the CLG’s established 3.7 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. Once completed, the Company intends to incorporate the additional measured and indicated resources into a new mine plan that will increase the proven and probable reserves and further support a possible expansion of the CLG’s production rate from 2,500 tpd to 3,000 tpd. The LGJV expects this program to cost about $2.8 million with completion anticipated by the third quarter of 2021. As of June 30, 2021, 48 holes have been drilled.

Los Gatos District Resource Expansion

On May 12, 2021, the LGJV commenced a second exploration program to expand resources throughout the Los Gatos District. The initial target is a 59-hole, 19,000-meter campaign with 50-meter spacing at the Esther deposit, to expand its initial 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 the CLG and contains similar styles of mineralization and geochemistry. The LGJV expects this program to cost about $2.7 million with completion anticipated by December 2021. As of June 30, 2021, six holes have been drilled.

Santa Valeria Project

In March 2021, the Company commenced an 18-hole, 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 CLG, and the Company believes it may contain similar mineral content. The Company expects this program to cost about $600,000 with completion anticipated by August 2021. As of June 30, 2021, 13 holes have been drilled.

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

Equity Income (Loss) in Affiliates

Our equity income (loss) in affiliates relates to our proportional share of net income or loss incurred from the LGJV and the amortization of the basis difference between our investment in the LGJV and the net assets of the LGJV.

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LGJV Arrangement Fee

Our LGJV arrangement fee consisted of arrangement fees related to the Term Loan and the Working Capital Facility (“WCF”) with Dowa prior to their extinguishment on July 26, 2021, and March 11, 2021, respectively. The arrangement fees were based on a fixed 1% and 15% rate for the Term Loan and the WCF, respectively, and 70% of the outstanding principal of the respective facility. These arrangement fees were solely our responsibility. We do not expect to incur LGJV arrangement fees beyond July 26, 2021, with respect to the WCF or Term Loan.

Income Taxes

As we have incurred substantial losses from our exploration and pre-development activities, we may receive further benefits in the form of deferred tax assets that can reduce our future income tax liabilities, if 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 net deferred tax assets, as we believe it is more likely than not that the full benefit of these net deferred tax assets will not be realized before expiration.

Royalties

Exploration activities are conducted on the Los Gatos District mining concessions and on the Company’s 100% owned Santa Valeria 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 we began producing and selling metal-bearing concentrate.

Results of Operations

The following table presents certain information relating to our operating results for the three and six months ended June 30, 2021 and 2020. In accordance with generally accepted accounting principles in the United States (‘‘GAAP’’), these financial results represent the consolidated results of operations of our Company and its subsidiary (in thousands).

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2021		2020		2021		2020
Expenses
Exploration	$	694	$	211	$	918	$	382
General and administrative		4,411		1,543		8,014		2,380
Amortization		7		9		14		17
Total expenses		5,112		1,763		8,946		2,779
Other income (expense)
Equity income (loss) in affiliates		18,291		(8,071)		20,992		(21,516)
Other income (loss)		312		(765)		(175)		(2,345)
Net other income (expense)		18,603		(8,836)		20,817		(23,861)
Net income (loss) from continuing operations	$	13,491	$	(10,599)	$	11,871	$	(26,640)
Net loss from discontinued operations		—		(1,545)		—		(3,325)
Net income (loss)	$	13,491	$	(12,144)	$	11,871	$	(29,965)

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

For the three months ended June 30, 2021, we achieved net income from continuing operations of $13,491 thousand compared to a net loss of $10,599 thousand for the three months ended June 30, 2020. The $24,090 thousand increase in net income from continuing operations was primarily attributable to the $26,362 thousand change in equity income (loss) in affiliates from the LGJV operations, partially offset by the $2,868 thousand increase in general and administrative expense due to higher legal and consulting costs and directors and officer’s insurance premiums related to public company governance and reporting requirements, and increased stock-based compensation expense.

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The improvement in our equity income (loss) in the LGJV’s operating income, which is recognized using the equity method of accounting in our financial statements, for the three months ended June 30, 2021, resulted primarily from: the increase in our ownership in the LGJV from 51.5% to 70.0% on March 11, 2021; mining and processing activities operating at design throughput for the three months ended June 30, 2021, compared to the ramp-up to design throughput during the three months ended June 30, 2020; and significantly higher metals prices for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

For the six months ended June 30, 2021, we achieved net income from continuing operations of $11,871 thousand compared to a net loss of $26,640 thousand for the six months ended June 30, 2020. The $38,511 thousand increase in net income from continuing operations was primarily attributable to the $43,898 thousand change in equity income (loss) in affiliates from the LGJV operations, partially offset by the $5,634 thousand increase in general and administrative expense due to higher legal and consulting costs and directors and officer’s insurance premiums related to public company governance and reporting requirements, and increased stock-based compensation expense.

The improvement in our equity income (loss) in the LGJV’s operating income, which is recognized using the equity method of accounting in our financial statements, for the six months ended June 30, 2021, resulted primarily from: the increase in our ownership in the LGJV from 51.5% to 70.0% on March 11, 2021; mining and processing activities operating near design throughput for the six months ended June 30, 2021, compared to the ramp-up to design throughput during the six months ended June 30, 2020; and significantly higher metals prices for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

Liquidity and Capital Resources

As of June 30, 2021, and December 31, 2020, we had cash and cash equivalents of $29,607 thousand and $150,146 thousand, respectively, and working capital of $33,403 thousand and $151,728 thousand, respectively. The decrease in cash and cash equivalents and working capital were primarily due to our $71,550 thousand repurchase of the 18.5% interest in the LGJV from Dowa and a $42,000 thousand capital contribution to the LGJV to extinguish our 70% share of the WCF. As a result, our ownership in the LGJV increased to 70.0% and Dowa’s ownership was reduced to 30% on March 11, 2021.

On July 19, 2021, we completed a follow-on public offering of 8,930,000 shares of common stock at a price of $14.00 per share, resulting in net proceeds of $118,894 thousand, after deducting underwriting discounts and commissions and expenses payable by us.

We did not have any related party debt as of June 30, 2021, or December 31, 2020. We have no outstanding lines of credit or other bank financing arrangements as of June 30, 2021. We guaranteed 70.0% of the Term Loan (prior to the repayment of the Term Loan on July 26, 2021, as discussed further below) and all of the LGJV equipment loans as of June 30, 2021. We had certain arrangement fees obligations related to the CLG as detailed in the “LGJV Arrangement Fee” above.

We believe we have sufficient cash, access to borrowings and 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 may be required to raise additional capital or take other measures to fund future exploration and development. Significant development activities, if warranted, may require that we arrange for financing in advance of planned expenditures. In addition, we expect to continue to increase our current financial resources with external financings as long as our long-term business needs require us to do so. There can be no assurance that external 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 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.

22

Dowa Debt Agreements

Dowa Term Loan

On July 11, 2017, we entered into the Term Loan with Dowa whereby the LGJV could borrow up to $210,000 thousand to finance the development of the Los Gatos project, with a maturity date of December 29, 2027. Interest accrued 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. The LGJV was 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 guaranteed 70.0% of the Term Loan and were 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 Loan contained affirmative and negative covenants reasonably customary for similar facilities, with which the LGJV is in compliance in all material respects as of June 30, 2021.

On July 26, 2021, the LGJV repaid all amounts owed to Dowa under the Term Loan. The Company advanced a loan to the LGJV in an aggregate amount equal to 70% of the Term Loan balance, which was converted into a capital contribution to the LGJV on July 26, 2021. In conjunction with the Term Loan repayment, the Company also paid Dowa a closing fee of $10,000 thousand, for total consideration of $154,800 thousand. Dowa’s 30% portion of the Term Loan was converted into a capital contribution on July 26, 2021. The LGJV paid $386 thousand of outstanding accrued interest and a $1,585 thousand fee related to the Term Loan repayment.

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. Interest payable under the WCF was LIBOR plus 3% per annum and was payable by the LGJV. We guaranteed 70% of this facility and were required to pay an arrangement fee on the borrowing, calculated as 15.0% per annum on 70.0% of the average daily principal amount outstanding during the relevant fiscal quarter. The full principal amount of the WCF was drawn down by the LGJV as of September 2019. On March 11, 2021, we and Dowa contributed $42,000 thousand and $18,000 thousand, respectively, in capital to the LGJV extinguishing the WCF.

Revolving Credit Facility

On July 12, 2021, the Company entered into a Revolving Credit Facility (the “Credit Agreement”) with Bank of Montreal, Chicago Branch. The Credit Agreement provides for a revolving line of credit in a principal amount of $50,000 and has an accordion feature, which allows for an increase in the total line of credit up to $100,000, subject to certain conditions. The Credit Agreement matures on July 31, 2024. The Credit Agreement 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 Agreement may be accelerated upon the occurrence of certain customary events of default. Loans under the Credit Agreement will 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 a pricing grid based upon the Company’s consolidated net leverage ratio as of the end of the applicable period.

On July 19, 2021, the Company borrowed $13,000 under the Credit Agreement at a rate of LIBOR plus 3%.

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Cash Flows

The following table presents our sources and uses of cash for the periods indicated:

	Six Months Ended
	June 30,
	2021		2020
	(in thousands)
Net cash provided by (used by)
Operating activities	$	(7,895)	$	(9,537)
Investing activities		(116,595)		(7,573)
Financing activities		3,951		9,979
Total change in cash	$	(120,539)	$	(7,131)

Cash used by operating activities was $7,895 thousand and $9,537 thousand for the six months ended June 30, 2021 and 2020, respectively. The $1,642 thousand decrease in cash usage was primarily due to the loss from discontinued operations, which were reflected in the six months ended June 30, 2020, and lower arrangement fees associated with the extinguishment of the WCF, partially offset by higher general and administrative costs during the six months ended June 30, 2021.

Cash used by investing activities was $116,595 thousand and $7,573 thousand for the six months ended June 30, 2021 and 2020, respectively. The $109,022 thousand increase was primarily due to the $71,550 thousand acquisition of the 18.5% interest in the LGJV from Dowa and the $42,000 thousand pro-rata capital contribution to the LGJV for the extinguishment of the WCF in March 2021.

Cash provided by financing activities was $3,951 thousand and $9,979 thousand for the six months ended June 30, 2021 and 2020, respectively. The $6,028 thousand decrease was primarily related to the $10,000 thousand in proceeds from related party convertible debt for the six months ended June 30, 2020, partially offset by $4,221 thousand in proceeds from the issuance of common stock related to the exercise of stock options during the six months ended June 30, 2021.

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Results of LGJV Operations

The following table presents information relating to the LGJV’s financial condition as of June 30, 2021, and December 31, 2020, and the operating results for the six months ended June 30, 2021 and 2020 in accordance with GAAP. Pursuant to the purchase of the 18.5% interest from Dowa on March 11, 2021, our current ownership of the LGJV is 70.0%.

LOS GATOS JOINT VENTURE

COMBINED BALANCE SHEETS (UNAUDITED)

(in thousands)

	June 30,		December 31,
	2021		2020
ASSETS
Current Assets
Cash and cash equivalents	$	2,242	$	1,676
Receivables		23,872		3,988
Inventories		10,288		10,315
VAT receivable		46,088		50,732
Other current assets		5,502		2,891
Total current assets		87,992		69,602
Non-Current Assets
Mine development, net		213,895		202,874
Property, plant and equipment, net		192,206		196,942
Total non-current assets		406,101		399,816
Total Assets	$	494,093	$	469,418
LIABILITIES AND OWNERS' CAPITAL
Current Liabilities
Accounts payable and accrued liabilities	$	31,995	$	35,767
Related party payable		5,118		1,703
Accrued interest		159		101
Unearned revenue		6,034		3,276
Equipment loans		6,898		7,084
Dowa Term Loan		31,826		31,826
Working Capital Facility		—		60,000
Total current liabilities		82,030		139,757
Non-Current Liabilities
Dowa Term Loan		172,269		187,767
Equipment loans		2,696		6,120
Reclamation obligations		12,619		12,162
Total non-current liabilities		187,584		206,049
Owners' Capital
Capital contributions		333,768		271,368
Paid-in capital		18,636		16,366
Accumulated deficit		(127,925)		(164,122)
Total owners' capital		224,479		123,612
Total Liabilities and Owners' Capital	$	494,093	$	469,418

At June 30, 2021, and December 31, 2020, the LGJV had current assets of $87,992 thousand and $69,602 thousand, respectively. The increase in total current assets was primarily due to an increase in trade receivables generated from operations on the higher sales volumes generated in 2021, partially offset by a decrease in value added tax (“VAT”) receivables primarily from the ability to retain VAT collected from the higher concentrate sales. At June 30, 2021, and December 31, 2020, the LGJV had noncurrent assets of $406,101 thousand and $399,816 thousand, respectively. The increase in noncurrent assets was due to sustaining capital expenditures, primarily for mine development at the CLG, partially offset by depletion and depreciation for the six months ended June 30, 2021.

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At June 30, 2021, and December 31, 2020, the LGJV had current liabilities of $82,029 thousand and $139,757 thousand, respectively. The decrease in current liabilities was primarily due to the extinguishment of the $60,000 thousand WCF on March 11, 2021. At June 30, 2021, and December 31, 2020, the LGJV had noncurrent liabilities of $187,584 thousand and $206,049 thousand, respectively. The decrease in non-current liabilities was primarily due to the first principal payment on the Dowa Term Loan and scheduled principal payments on equipment loans.

LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(in thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Sales	$	75,005	$	18,247	$	121,335	$	37,160
Expenses
Cost of sales		24,096		9,996		43,901		28,272
Royalties		1,415		(272)		2,299		29
Exploration		1,261		144		1,910		408
General and administrative		2,833		1,905		6,079		4,650
Depreciation, depletion and amortization		12,705		9,543		23,654		21,260
Other		—		3,416		—		3,416
		42,310		24,732		77,843		58,035
Other (income) expense
Interest expense		2,356		3,390		4,473		6,943
Arrangement fee		2,090		4,709		2,090		4,709
Accretion expense		228		212		456		424
Other (income) expense		11		—		(19)		(108)
Foreign exchange (gain) loss		(1,335)		(339)		295		5,522
		3,350		7,972		7,295		17,490
Net Income (Loss)	$	29,345	$	(14,457)	$	36,197	$	(38,365)

For the three months ended June 30, 2021, the LGJV had net income of $29,345 thousand compared to a net loss of $14,457 thousand for the three months ended June 30, 2020. The change in net income (loss) was primarily due to increased revenue as a result of operating at designed throughput for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, which incurred a two-month Mexican government ordered temporary suspension of all “non-essential” operations nationwide in Mexico. Additionally, the three months ended June 30, 2021, incurred lower interest expense due to lower interest rates, lower borrowings and lower arrangement fees due to the retirement of the WCF, and by higher 2020 costs incurred directly related to the two-month Mexican government ordered temporary suspension.

For the six months ended June 30, 2021, the LGJV had net income of $36,197 thousand compared to a net loss of $38,365 thousand for the six months ended June 30, 2020. The change in net income (loss) was primarily due to increased revenue as a result of 60%, 39% and 17% increase in realized silver, zinc and lead prices, respectively, 75% and 61% higher production rates of lead and zinc concentrates, respectively, and 53% and 14% higher silver and zinc grades, respectively, as well as lower interest expense due to lower interest rates, lower borrowings and lower arrangement fees due to the retirement of the WCF, partially offset by 23% lower lead grades and 2020 costs incurred directly related to the two-month Mexican government ordered temporary suspension.

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The following table presents summarized information relating to the LGJV’s cash flows for the six months ended June 30, 2021 and 2020.

LOS GATOS JOINT VENTURE

COMBINED STATEMENT OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2021		2020
Net cash provided by (used by)
Operating activities	$	56,225	$	9,115
Investing activities		(38,613)		(20,177)
Financing activities		(17,046)		15,450
Total change in cash	$	566	$	4,388

Cash provided by operating activities was $56,225 thousand and $9,115 thousand for the six months ended June 30, 2021 and 2020, respectively. The $47,110 thousand increase in cash provided by operating activities was primarily due to the increase in revenue for the six months ended June 30, 2021, due to higher metals prices, higher ore tonnes processed and higher ore grades, compared to the prior year period, partially offset by increased receivables from customers.

Cash used by investing activities was $38,613 thousand and $20,177 thousand for the six months ended June 30, 2021 and 2020, respectively. The $18,436 thousand increase in cash used was primarily due to higher sustaining capital expenditures for property, plant and equipment and mine development.

Cash (used by) provided by financing activities was $(17,046) thousand and $15,450 thousand for the six months ended June 30, 2021 and 2020, respectively. The $32,496 thousand change in financing cash flows was primarily due to the $15,913 thousand Term Loan payment in June 2021 and the related party loan to the LGJV during the six months ended June 30, 2020.

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 compared to other producers and provides investors visibility by better defining the total costs associated with production.

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.

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Reconciliation of expenses (GAAP) to non-GAAP measures

The table below presents a reconciliation between the most comparable GAAP measure of 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.

	Three Months Ended		Six Months Ended
(in thousands, except unit costs)	June 30, 2021		June 30, 2021
Expenses	$	42,312	$	77,843
Depreciation, depletion and amortization		(12,707)		(23,654)
Exploration1		(1,261)		(1,910)
Treatment and refining costs2		6,142		12,776
Cash costs	$	34,486	$	65,055
Sustaining capital		18,431		30,647
All-in sustaining costs	$	52,917	$	95,702
By-product credits3		(29,068)		(45,047)
All-in sustaining costs, net of by-product credits	$	23,849	$	50,655
Cash costs, net of by-product credits	$	5,418	$	20,008
Payable ounces of silver equivalent4		2,998		4,947
Co-product cash cost per ounce of payable silver equivalent	$	11.50	$	13.15
Co-product all-in sustaining cost per ounce of payable silver equivalent	$	17.65	$	19.35
Payable ounces of silver		1,888		3,173
By-product cash cost per ounce of payable silver	$	2.87	$	6.31
By-product all-in sustaining cost per ounce of payable silver	$	12.63	$	15.96

1 Exploration costs are not related to current operations.

2 Represent reductions on customer invoices and included in Sales of the LGJV combined statement of income (loss).

3 By-product credits reflect realized metal prices of zinc, lead and gold for the applicable period.

4 Silver equivalents utilize the average realized prices during the six months ended June 30, 2021, of $25.40/oz silver, $1.22/lb zinc, $0.96/lb lead and $1,819.22/oz gold and the average realized prices during the three months ended June 30, 2021, of $26.18/oz silver, $1.33/lb zinc, $1.00/lb lead and $1,829.84/oz gold.

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

Please refer to Note 2 – Summary of Significant Accounting Policies in our consolidated financial statements included in this Report and the 2020 10-K for discussion of our critical accounting policies and estimates.

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 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.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Commodity Price Risk

We engage in the production of silver and concentrates containing silver, lead, zinc and gold at the CLG and commenced production on September 1, 2019. 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.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure 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, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting that occurred during the second quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, 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.

29

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. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

We are, from time to time, involved in legal proceedings of a nature considered normal to our business. We believe that 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 9 – Commitments, Contingencies and Guarantees in our consolidated financial statements included in this Report for additional information regarding our assessment of contingencies related to legal matters.

Item 1A. Risk Factors

Factors that could cause our actual results to differ materially from those in this Report include, but are not limited to, any of the risks described in the 2020 10-K. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not currently known to us or that we currently deem immaterial may also adversely affect us. As of the date of this Report, there have been no material changes to the risk factors disclosed in the 2020 10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

During the quarter ended June 30, 2021, the Company did not issue any shares of its common stock or other equity securities that were not registered under the Securities Act of 1933, as amended.

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) under the Securities Act.

As of June 30, 2021, the Company has used approximately $124,572 thousand of the net proceeds from the IPO, including (i) $71,550 thousand for the repurchase of the 18.5% interest in the LGJV from Dowa; (ii) $42,000 thousand for the capital contribution to the LGJV to extinguish the Company’s 70% share of the WCF; and (iii) $9,342 thousand for working capital and general corporate purposes.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

During the quarter ended June 30, 2021, there were no purchases made by or on behalf of the Company or any affiliated purchaser of the Company’s common stock.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.

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Item 6.  Exhibits

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	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)
10.1*	Employment Agreement dated as of June 1, 2021, between Minera Luz del Sol S. de R.L. de C.V. and Dale Andres
10.2	Confirmation Agreement, dated July 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., Gatos Silver, Inc. and Dowa Metals & Mining Co., Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed July 12, 2021)
10.3	Revolving Credit Facility, dated July 12, 2021, between Gatos Silver, Inc. and Bank of Montreal, Chicago Branch (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed July 12, 2021)
31.1*	Section 302 Certification of Chief Executive Officer
31.2*	Section 302 Certification of Chief Financial Officer
32.1**	Section 1350 Certification
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith

** Furnished herewith

31

SIGNATURES

Pursuant to the requirements 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.
	(Registrant)
August 9, 2021
	By:	/s/ Stephen Orr
		Stephen Orr
		Chief Executive Officer
August 9, 2021
	By:	/s/ Roger Johnson
		Roger Johnson
		Chief Financial Officer

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of June 1st, 2021, is between MINERA LUZ DEL SOL S DE R.L., a Mexican corporation (the “Company”) wholly owned by Gatos Silver Inc. (the “Parent Company”), (together the “Companies”) and DALE ANDRES (the "Executive" and together with the Company, the "Parties").

WITNESSETH:

WHEREAS:

The Parties wish to enter into the arrangements set forth herein with respect to the terms and conditions of the Executive's employment with the Company.

NOW, THEREFORE, in consideration of the promises and covenants contained herein, the Parties agree as follows:

AGREEMENT

1.Employment and Term. The Company agrees to, and does hereby, employ the Executive, and the Executive agrees to, and does hereby accept, such employment, upon the terms and subject to the conditions set forth in this Agreement. The Executive's employment will begin on June 1^st, 2021 (the "Start Date") subject to the processing of any necessary work permits and visas. If for any reason or delay in the processing of the work permits and visas the Employment may not commence on the Start Date, the Executive shall still be entitled to all of the rights and subject to all obligations hereunder as from the Start Date, including but not limited to the performance of his duties and payment of his compensation; once the necessary work permits and visas are issued, Executive’s tenure with the Company shall be deemed to have commenced on the Start Date. The employment hereunder is at will, which means that the Executive or the Company may terminate the Executive's employment at any time for any reason, or for no reason, with or without cause (the "Term"). If the Company terminates this Agreement and the Executive's employment, the Company shall provide the Executive with notice and reason for the termination within ten (10) calendar days of the effective date of such termination.

2. Position and Duties.

(a)During the Term, the Company shall employ the Executive as Chief Executive Officer (General Manager/Gerente General in accordance with applicable law provisions) of Minera Luz Del Sol and President of its Parent Company, Gatos Silver, Inc. The Executive shall perform the duties and have the responsibilities customarily associated these positions, which shall include, without limitation, the following:

· Develop high quality business strategies and plans ensuring their alignment with short-term and long-term growth and revenue objectives of the Companies;

· Lead and motivate the staff and all employees of the Companies, to advance employee engagement and develop a high performing managerial team;

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· Oversee all operations and business activities of the Companies to ensure they produce the desired results and are consistent with the overall strategy and mission of the Companies;

· Make high-quality investing decisions to advance the business and increase profits of the Companies;

· Enforce adherence to legal guidelines and in-house policies to maintain the Companies’ legality and business ethics;

· Review financial and non-financial reports to devise solutions or improvements;

· Build trust relations with key partners and stakeholders and act as a point of contact for shareholders

· Analyze problematic situations and occurrences and provide guidance, strategy and solutions to advance Companies’ overall interests and growth

· Maintain a deep knowledge of the markets and industry of the Companies

· Travel domestically or internationally as necessary to fulfill Executive’s duties

(b) The Executive shall devote his best efforts and his full business time and attention to the business and affairs of the Company and the Parent Company.

(c) The Executive acknowledges and agrees that (i) the Executive owes the Company and the Parent Company a duty of loyalty as a fiduciary of the Company and the Parent Company, and (ii) the obligations described in this Agreement are in addition to, and not in lieu of, the obligations the Executive owes the Company and the Parent Company under the common or applicable law.

3. Base Salary, Bonus, Equity/Options, and Benefits.

a)Base Salary. During the Term, the Executive's base salary shall be US$575,000.00 per annum and includes all statutory bonuses and premiums, including but not limited to the “13^th month bonus” (“Aguinaldo”) and vacation premium ("Annual Salary"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices. The Annual Salary will be subject to review on an annual basis and may be adjusted in accordance with the procedures set forth by the Company's or Parent Company’s Compensation Committee.

b)Annual Bonus. During the Term, provided that the Executive is employed by the Company or the Parent Company on December 31^st of the applicable year, the Executive will be eligible to participate in a bonus plan pursuant to which he will be entitled to receive an annual target bonus in the amount of One Hundred percent (100%) of his Annual Salary for the applicable year, pro-rated for any partial year (the "Target Bonus"), upon achievement by the Executive and the Company (or the Parent Company as the case may be) of certain targets as determined solely in the discretion of the Company's or Parent Company’s Board of Directors (the "Annual Bonus"). The Annual Bonus actually paid, if any, will depend on the actual performance of the Company (or the Parent Company as the case may be) and the Executive as determined by the Compensation and Nominating Committee of the Board. In all events the Annual Bonus, if earned, will be paid no later than March 15th following the applicable year for which it is earned.

c)Options. The Executive will be granted a one-time option to purchase 200,000 shares of the Common Stock of the Parent Company upon commencement of employment with the Company (“Sign on Option”). The exercise price per share of the Sign on Option

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will be the volume weighted average price (“VWAP”) of the Common Stock of the Parent Company on the Toronto Stock Exchange for the five trading days prior to the date of grant as determined by the Parent Company’s Compensation and Nominating Committee (“Five Day VWAP”) . The Sign on Option will be subject to the terms and conditions applicable to options granted under the Parent Company’s Stock Option Plan (the “Plan”). The Executive’s Sign on Option will vest in three equal tranches, the first of which shall vest immediately upon commencement of employment with the Company. The other tranches will vest on each anniversary of employment with the Company or the Parent Company, subject to the Executive’s continued employment with the Company or Parent Company on each vesting date. The Sign on Option will be exercisable for (10) ten years from the date of grant provided you continue to be employed by the Company or the Parent Company. In the event the Executive is terminated by the Company without cause, the Sign on Options vested at the date of termination will be exercisable for a period of one year from the date of termination.

d)In addition, upon commencement of employment with the Company, the Executive will be granted an option to purchase 150,000 shares of the Common Stock of the Parent Company (“Option”). Options are issued annually as part of the long-term incentive plan and the exercise price per share of the Option will be the Five Day VWAP. The Option will be subject to the terms and conditions applicable to options granted under the Plan. Executive’s Option will vest in three equal tranches the first of which shall vest on the first anniversary of Executive’s employment with the Company and annually thereafter, subject to Executive’s continued employment with the Company or the Parent Company on each vesting date. The Option will be exercisable for (10) ten years from the date of grant, provided the Executive continues to be employed by the Company or the Parent Company. In the event Executive’s employment with the Company or Parent Company ceases, the Options will be subject to customary exercise restrictions as set out in this Agreement.

e)Employee Benefits. During the Term, the Executive shall be entitled to participate in the Company's various employee benefit plans that are, from time to time, made generally available to the Company's employees, as such plans are established and pursuant to the terms and conditions of such plans. These plans include group health, vision and dental plan; short-term and long-term disability plan; life insurance plans and a retirement allowance equivalent to up to the annual maximum allowed under a US 401 (k) plan in lieu of such a 401(k) plan.

f)Vacation. The Executive shall be entitled to four (4) weeks paid vacation time per calendar year, pro-rated for any partial year of employment, in accordance with the Company's vacation time policy. Executive’s Annual Salary includes the statutory vacation premium.

g)Expense Reimbursement. The Executive shall receive reimbursement for direct and reasonable out-of-pocket expenses, incurred by him in connection with the performance of his duties hereunder, according to the policies of the Company. All requests for reimbursement of business-related expenses shall be subject to the Company's travel policy and requirements with respect to reporting and documentation of expenses.

4. Compensation Upon Termination, Resignation, Disability or Death.

a) Termination without Cause. If the Executive's employment is terminated by the

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Company without Cause, the Company shall pay the Executive any Annual Salary and Annual Bonus from the preceding calendar year to the extent accrued but unpaid as of the effective date of the Executive's termination; accrued but unused vacation in accordance with Company policy; and all business expenses that were incurred and not reimbursed but eligible for reimbursement (collectively, the "Accrued Obligations"). In addition, subject to Section 19, the Company will pay the Executive an amount equal to twenty four (24) months of the Executive's Annual Salary at the rate in effect on the date of termination, plus annual bonus for twenty four (24) months based upon the average of the prior two years of bonus payment payable in a lump sum within sixty (60) calendar days of the date of termination. This payment includes and is not in addition to all statutory payments under Mexican law such as the 3 month constitutional indemnity, tenure premium of 20 days per year of services, etc. and has been computed taking into consideration the Annual Bonus and the Options, if applicable. Provided the Executive timely elects continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), the Company shall also pay, on the Executive's behalf, the portion of monthly premiums for the Executive's group health insurance, including coverage for the Executive's dependents, that the Company paid immediately prior to the date of termination, during the twelve (12) month period following the date of termination, subject to the Executive's continued eligibility for COBRA coverage. The Company will pay for such COBRA coverage for eligible dependents only for those dependents who were enrolled immediately prior to the date of termination. The Executive will continue to be required to pay that portion of the premium for the Executive's health coverage, including coverage for the Executive's eligible dependents, that the Executive was required to pay as an active employee immediately prior to the date of termination. Notwithstanding the foregoing, in the event that under applicable guidance the reimbursement of COBRA premiums causes the Company's group health plan to violate any applicable nondiscrimination rule, the parties agree to negotiate in good faith a mutually agreeable alternative arrangement. Upon termination under this Section 4(a), (i) the Sign on Options vested at the date of termination will be exercisable for a period of one year from the date of termination ; (ii) the Options, to the extent unvested, shall immediately vest, (iii) all vested Stock Options shall remain exercisable until the earlier of (x) the date one hundred eighty (180) calendar days following termination of employment or (y) the expiration of the original option term.

b) Resignation for Good Reason. If the Executive resigns for Good Reason, the Company shall pay the Executive the same sums and in the same manner, and his rights to the Sign On Options and Options shall be the same, as to which the Executive would be entitled if he had been terminated by the Company without Cause, as set forth in subsection (a) above. The Executive shall provide 30 days' prior written notice to the Company of his decision to resign for Good Reason.

c) Termination for Cause. If the Executive's employment is terminated by the Company for Cause, the Company shall pay the Executive the Accrued Obligations. Upon termination under this Section, any outstanding Stock Options shall cease to be exercisable and will be forfeited.

d) Resignation without Good Reason. If the Executive resigns without Good Reason, the Company shall pay the Executive the Accrued Obligations. The Executive

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shall provide 60 days' prior written notice to the Company of his decision to resign without Good Reason. The Sign On Options and the Options, to the extent exercisable at the Executive's termination of employment, shall remain exercisable until the earlier of (i) the date thirty (30) calendar days following termination of employment under this Section or (ii) the expiration of the original option term.

e) Disability. Subject to any state or federal law or regulation governing employees with disabilities, the Company may terminate the Executive's employment upon the Disability of the Executive. In the event the Executive is terminated under this Section, the Company shall pay the Executive the Accrued Obligations and the Executive will be entitled to a prorated amount of the current calendar year Annual Bonus, with such prorated portion determined by multiplying the Annual Bonus that would otherwise have been earned by a fraction, the numerator of which is the number of days that elapsed between the January 1 of the current year and the date of the Executive's termination of employment, and the denominator of which is 365, with payment of such prorated Annual Bonus to be made at the same time as annual bonuses are made to other executives of the Company in the ordinary course (but in no event later than March 15th of the calendar year following the calendar year in which the termination occurs. In addition, in such event, the Company shall cause Executive to fully vest in all Sign On Options and Options referred to in Section 3(c) and (d) of this Agreement, and the Sign On Options and the Options shall remain exercisable until the earlier of (i) the date one (1) year following termination of employment under this Section or (ii) the expiration of the original option term.

f) Death. If the Executive's employment is terminated due to the Executive's death, the Company shall pay the Executive's estate the Accrued Obligations and the Pro Rata Bonus. In addition, in such event, the Company, shall cause Executive's estate to fully vest in all Sign On Options and the Options referred to in Section 3(c) and (d) of this Agreement, and the Stock Options shall remain exercisable until the earlier of (i) the date one (1) year following termination of employment under this Section or (ii) the expiration of the original option term.

g) For purposes of this Agreement:

i."Cause" means the Executive's (a) conviction of, guilty plea to or confession of guilt of, or plea of nolo contendere to a felony, or an act involving moral turpitude which could have a material adverse effect on the Company or Parent Company; (b) willful dishonesty, fraud or conduct that constitutes a felony or an act involving moral turpitude or a breach of fiduciary duty or any material misrepresentation in connection with the Executive's employment; (c) action that exposes the Company or Parent Company to a material risk of legal liability or public disgrace or disrepute including, without limitation, violation of any law, rule or regulation that could expose the Company or the Parent Company to a material legal or monetary fine or penalty; (d) neglect of his duties or substantial failure to perform duties as reasonably directed by the Chief Executive Officer and/or Board of Directors of the Parent Company; (e) gross negligence or willful misconduct with respect to Companies affairs or the Executive's obligations hereunder; (f) any other material breach of this or any other agreement with the Company or Parent Company or any material Company or Parent Company policy, which breach is not cured within at least fifteen (15) calendar days after receipt by the Executive of written notice from the Company or Parent Company of such breach, but only if such breach is able to be cured during such fifteen (15) calendar day period; or (g) any of the termination causes in accordance

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with applicable law.

ii."Good Reason" means: (a) a material change (other than a change for promotion) in the Executive’s positions, duties, responsibilities, titles or offices with the Company or Parent Company (b) a material diminution in the Executive's Annual Salary; (c) a material change in the geographic location of the Executive's principal business office; in order for a change to be material hereunder, the Executive's principal business office must be moved to a location more than fifty (50) miles from the Company's office as of the Start Date, except for required travel on Company business or for a future move to the current location of the Parent Company’s office in Denver; or (d) any other action or inaction by the Company or Parent Company that constitutes a material breach of this Agreement or any material misrepresentation in connection with the Executive's employment. The foregoing shall constitute Good Reason only if (i) the Executive provides written notice to the Company or Parent Company as the case may be of any event(s) alleged to constitute Good Reason within ninety (90) calendar days of the initial occurrence of the event, with such notice providing a detailed description of the circumstances constituting Good Reason (a "Good Reason Notice"), (ii) any such reduction, change, or breach is not remedied or cured within fifteen (15) calendar days after the Company's receipt of a written Good Reason Notice from the Executive (the "Cure Period") and (iii) the Executive actually terminates employment within thirty (30) calendar days following the expiration of the Cure Period.

iii."Disability" shall mean that the Executive is disabled within the meaning of the Company's group long-term disability insurance policy. If no long term disability insurance is in place, then Disability shall mean that the Executive, due to illness, accident, or other physical or mental incapacity, has been substantially unable to perform his duties under this Agreement for a period of at least six (6) consecutive months during the Term as established by the written opinion of a licensed independent physician selected by the Company.

h) Deemed Resignation. Unless otherwise agreed to in writing by the Company and the Executive prior to the termination of the Executive's employment, any termination of the Executive's employment shall constitute an automatic resignation of the Executive as an officer of the Company and each affiliate of the Company, and an automatic resignation of the Executive from the board of directors or similar governing body of the Company or any affiliate of the Company and from the board of directors or similar governing body of any corporation, limited liability company or other entity in which the Company or any affiliate holds an equity interest and with respect to which board or similar governing body the Executive serves as the Company's or such affiliate's designee or other representative.

i) Clawback. The Executive agrees and acknowledges that any and all compensation the Executive receives pursuant to this Agreement shall be subject to clawback by the Company in the event of a financial restatement or in such other circumstances as may be required by applicable law or as may be provided in any clawback policy that is adopted by the Company or the Parent Company and is generally applicable to senior executives of the Company or Parent Company.

5. Confidentiality, Non-Solicitation and Non-Compete Undertaking.

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a) For purposes of this Agreement, "Confidential Information" means (i) communications, data, formulae and related concepts, business plans (both current and under development), profit and loss statements, spreadsheets, contact or distribution lists, non-public personnel lists, promotion and marketing programs, trade secrets, or any other confidential or proprietary business information relating to development programs, costs, revenues, marketing, trading, investments, sales activities, promotions, credit and financial data, financing methods, research, plans or the business and affairs of the Company; (ii) any other information which is to be treated as confidential or non-public because of any duty of confidentiality owed by the Company to a third party; and (iii) any other information which the Company shall, in the ordinary course, use and not release externally, except subject to restrictions on use and disclosure. Notwithstanding the foregoing, Confidential Information does not include information that (A) is or becomes generally publicly available other than as a result, directly or indirectly, of the Executive's disclosure or (B) is or becomes available to the Executive on a non­confidential basis from a source other than through the Company or its representatives, provided that such source is not bound by a confidentiality agreement with the Company or otherwise prohibited from transmitting the information to the Executive by a contractual or legal obligation.

b) The Executive acknowledges the trade secret status of the Confidential Information and that the Confidential Information constitutes a protectable business interest of the Company. The Executive agrees (i) not to use or allow or help another to use or access (whether for compensation or not) any Confidential Information for himself or others (other than the Company); and (ii) not to take any Company material or reproductions (including but not limited to writings, correspondence, notes, drafts, records, invoices, technical and business policies, computer programs or disks) thereof even if created, written or drafted by the Executive from the Company's offices at any time during or after the Executive's employment by the Company, except as required in the execution of the Executive's duties to the Company and then conditioned upon the prompt return of all originals and reproductions thereof (in whatever form).

c) During the Term and for a period of one (1) year thereafter, the Executive shall not, directly or indirectly, on behalf of himself or any other person or entity, without the prior written consent of the Company solicit or induce any employee of or consultant or service provider to the Company (each, a "Service Provider") to leave the employ of or cease performing services for the Company, or engage in any plan or coordinate with any Service Provider to leave the employ of or cease performing services for the Company, or hire, participate with or attempt to participate with in any venture for any purpose any Service Provider or any Service Provider who has left the employment of or ceased to perform services for the Company within one year of the termination of such Service Provider's services for the Company.

d) For a period of twelve (12) months from separation from the Company or Parent Company as the case may be, 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 (i.e. a shareholder holding more than 5% of outstanding equity in the company),

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volunteer, intern or in any other business entity engaged in the Ag, Zn and Pb mining, extraction, refinement, processing, commercialization or otherwise concentrate production of such metals, collectively the “GSI’s Business”) without the prior written consent of the Board of Directors of the Company or the Parent Company. The Non-Compete Undertaking shall apply throughout, and shall only be limited by, the territory where the Executive perform services for the company as provided in this Agreement. For the avoidance of doubt, the term “provides services for” shall not be limited to ‘works at’ or any other limitation delineating where the Executive performs the actual services, but instead shall relate to the entire territory where the Company or Parent Company benefits and is reasonable to expect to benefit from the Executive’s services. Given the Executive’s role as CEO of Minera Luz Del Sol and President of Gatos Silver, the territory for purposes of this agreement shall be Mexico.

If Executive’s employment is terminated pursuant to provisions of Section 7 (Change in Control event) and if Executive is paid Change in Control related compensation and receives other benefits as provided in that Section, the Executive agrees for the Non-Competition Undertaking to be extended from twelve (12) to twenty-four (24) months.

e) The Executive acknowledges that any breach of his obligations under this Section 5 cannot be adequately compensated by damages in an action at law and may cause the Company or Parent Company great and irreparable injury and damage. Accordingly, in the event that the Executive breaches or threatens to breach any provisions of this Section 5, then in addition to any other rights which the Company or Parent Company may have, the Company or Parent Company shall be entitled, without the necessity of (i) proving irreparable harm, (ii) establishing that monetary damages are inadequate or (iii) posting any bond or other security with respect thereto, to the remedies of injunction, specific performance and other equitable relief to redress any breach, and no proof of special damages shall be necessary for the enforcement of or for any action for breach of the Executive's obligations. In the event that a proceeding is brought in equity to enforce the provisions of this Section 5, the Executive shall not urge as a defense that there is an adequate remedy at law nor shall the Company be prevented from seeking any other remedies which may be available. Nothing contained in this Section 5(v) shall be construed as a waiver by the Company of any other rights, including, without limitation, rights to damages or profits.

f) The Executive agrees that the period during which the covenants contained in this Section 5 shall be effective shall be computed by excluding from such computation any time during which the Executive is in violation of any provision of this Section 5.

g) The Company and the Executive agree that it was their intent to enter into a valid and enforceable agreement. The Executive and the Company thereby acknowledge the reasonableness of the restrictions set forth in this Section 5, including the reasonableness of the duration as to time and the scope of activity restrained. The Executive agrees that if any covenant contained in Section 5 of this Agreement is found by a court of competent jurisdiction to contain limitations as to time or scope of activity that are not reasonable and impose a greater restraint than is necessary to protect the goodwill or other

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business interests of the Company or Parent Company, then the court shall reform the covenant to the extent necessary to cause the limitations contained in the covenant as to time and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill and other business interests of the Company or Parent Company and to enforce the covenants as reformed.

h) If the Executive's employment with the Company or Parent Company is terminated for any reason, the Executive agrees to advise the Company or Parent Company if applicable of the name of the Executive's new employer during the Non-Competition period. The Executive further agrees that the Company or Parent Company may notify any person or entity employing the Executive or evidencing an intention of employing the Executive of the existence and provisions of this Agreement during that period.

6. The Executive's Representations. The Executive represents to the Company that:

a) the execution, delivery and performance of this Agreement by the Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which he is bound;

b) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of the Executive, enforceable against him in accordance with its terms;

c) Except for agreements with third parties, restricting the use of such party’s confidential information, as of the Start Date, the Executive will not be a party to any agreement with any person, restricting the Executive from providing future employment, consulting or other services to the Company or Parent Company;

d) no prior or pending litigation, arbitration, investigation or other proceeding of any kind will prevent or hinder the Executive from performing his duties under this Agreement; and

e) the Executive has consulted with independent legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein.

7. Change in Control.

a) Definitions.

i. For purposes of this Section 7, “Parent Company” means Gatos Silver Inc. a Delaware corporation that owns all or substantially all of the stock or controlling interest of the Company;

ii. "Change in Control" means (I) any merger or consolidation of the Company or the Parent Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such

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consolidation, merger or reorganization, own less than a controlling interest in the surviving entity immediately after such consolidation, merger or reorganization; (II) any transaction or series of related transactions in which control of the Company or the Parent Company is acquired by a person or group of persons acting together which would constitute a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended or any successor provisions thereto; or (III) a sale or other disposition of all or substantially all of the assets of the Company or the Parent Company; provided that in no event will a Change in Control include any of the following transactions: (A) any consolidation, merger or similar transaction effected exclusively to change the domicile of the Company or the Parent Company; (B) any transaction or series of transactions in which voting securities of the Company or the Parent Company are issued principally for bona fide financing purposes or any successor or indebtedness or equity securities of the Company or the Parent Company are cancelled or converted or a combination thereof, including, without limitation, an initial public offering or other offering of the Company's or Parent Company’s capital stock or; (C) any acquisition of such voting power by an individual or entity that, directly or indirectly, controls, is controlled by, or is under common control with, the Company or Parent Company;

iii. "Control" (including its correlative meanings, the terms "controlling," "controlled by" and "under common control with") means, with respect to any person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the beneficial ownership of voting securities, by contract or otherwise.

(b)Change in Control Severance Benefits. If there is a Change in Control, and within one (1) year of such Change in Control, the Executive's employment is terminated under the circumstances described in Sections 4(a) through 4(f) above, the Executive shall be entitled to the following: (I) if such termination is a termination by the Company without Cause pursuant to Section 4(a) or the Executive resigns for Good Reason pursuant to Section 4(b), the Company shall pay the Executive the Accrued Obligations and the Pro Rata Bonus and, in addition, subject to the provisions of Section 19, (A) an amount equal to twenty-four (24) months of the Executive's Annual Salary at the rate in effect on the date of termination, plus Annual Bonus for twenty four (24) months based upon the average of the prior two years of bonus payment payable in a lump sum within sixty (60) calendar days of the date of termination. This payment includes and is not in addition to all statutory payments under Mexican law such as the 3 month constitutional indemnity, tenure premium of 20 days per year of services, etc. and has been computed taking into consideration the Annual Bonus, the Sign On Option and the Options, if applicable. Upon termination under this Section 7(b), (i) the Sign on Options vested at the date of termination will be exercisable for a period of one year from the date of termination; (ii) the Options, to the extent unvested, shall immediately vest, (iii) all vested Stock Options shall remain exercisable until the earlier of (x) the date one hundred eighty (180) calendar days following termination of employment or (y) the expiration of the original option term.and (B) provided the Executive timely elects continuation coverage under COBRA, the Company shall also pay, on the Executive's behalf, the portion of monthly premiums for the Executive's group health insurance, including coverage for the Executive's dependents, that the Company paid immediately prior to the date of termination

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or resignation, during the eighteen (18) month period following the date of termination or resignation, subject to the Executive's continued eligibility for COBRA coverage. The Company will pay for such COBRA coverage for eligible dependents only for those dependents who were enrolled immediately prior to the date of termination or resignation. The Executive will continue to be required to pay that portion of the premium for the Executive's health coverage, including coverage for the Executive's eligible dependents, that the Executive was required to pay as an active employee immediately prior to the date of termination or resignation. Notwithstanding the foregoing, in the event that under applicable guidance the reimbursement of COBRA premiums causes the Company's group health plan to violate any applicable nondiscrimination rule, the parties agree to negotiate in good faith a mutually agreeable alternative arrangement; and (II) if such termination is a termination or resignation under the circumstances described in Sections 4(c), 4(d), 4(e) or 4(f), the Executive shall be entitled to the compensation and benefits for which the Executive is eligible under such sections.

(c)Termination Preceding Change in Control. Notwithstanding the provisions of the above subsection 7(b), if the Executive's employment with the Company or the Parent Company is terminated by the Company or the Parent Company if applicable without Cause within three (3) months preceding the occurrence of a Change in Control and such termination without Cause occurred in anticipation of a Change in Control at the request of the acquirer, the Executive shall be entitled to the payments and benefits described in the above subsection 7(b)(A).

8. Taxes. The Company shall be entitled to withhold from any payment or benefit provided under this Agreement an amount sufficient to satisfy all federal, state and local income and employment tax withholding requirements as required by applicable law.

9. Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, sent by reputable overnight courier service or mailed by first class mail, return receipt requested, to the recipient at the address below indicated:

Notices to the Executive:

Dale Andres

4050 W 39^th Avenue

Vancouver, British Columbia V6N 3B2

Canada

Notices to Company:

Minera Luz del Sol, S de R.L.

c/o Gatos Silver Inc

8400 E. Crescent Pkwy

Ste 600

Greenwood Village, CO 80111.

Attention: General Counsel

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered, sent or mailed.

10. Severability. Whenever possible, each provision of this Agreement shall be interpreted

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in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any action in any other jurisdiction, but this Agreement shall be reformed construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

11. Complete Agreement. This Agreement contains the entire agreement of the Parties hereto with respect to the terms and conditions of the Executive's employment with the Company and activities following termination. This Agreement supersedes any and all prior agreements and understandings, whether written or oral, between the Parties with respect to the terms and conditions of the Executive's employment with the Company and activities following termination. This Agreement may not be changed or modified except by an instrument in writing, signed by the Executive and a duly authorized officer of the Company.

12. Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

13. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by the Executive, the Company and their respective heirs, personal representatives, executors and administrators, successors and assigns, except that the Executive may not assign his rights or delegate his duties or obligations hereunder without the prior written consent of the Company.

14. Choice of Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the Federal Laws of Colorado, without giving effect to any choice of law or conflict of law rules or provisions that would cause the application of the laws of any jurisdiction other than the Federal laws of Delaware.

15. Dispute Resolution and Arbitration. Subject to Section 5(e), the Parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation. If the matter has not been resolved within thirty (30) calendar days of a Party's request for negotiation, either Party may initiate proceedings or arbitration only as provided herein. Subject to Section 5(e), if any dispute arising out of or relating to this Agreement or the breach, termination or validity thereof has not been resolved by negotiation, such dispute before it can be brought before the Colorado Courts, shall be settled by binding arbitration in accordance with the then current rules of JAMS (Judicial Arbitration and Mediation Services) by a single independent and impartial arbitrator who is located in Denver, Colorado. The arbitrator selected must have an expertise in the matter(s) in dispute. Each party shall bear his/its own fees and costs; the fees, costs and all administrative expenses of arbitration shall be borne equally by the Company and the Executive. The Parties understand and agree that the arbitration is subject to the rules of JAMS; that the arbitrator's decision and award shall be final and binding as to all claims that were, or could have been, raised in arbitration; and that judgment upon the award rendered by the arbitrator may be entered in any court

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having competent jurisdiction. Any award rendered hereunder may include an award of attorneys' fees and costs but shall not include punitive damages. The statute of limitations of the state of Colorado applicable to the commencement of a lawsuit shall apply to the commencement of an arbitration. The Parties agree that once the arbitration award has been rendered, the Parties shall enter a settlement agreement substantially in the same terms as the arbitration award to be ratified by the corresponding ColoradoCourts.

Should any of the parties fails to submit to the arbitration referred to in this Section 15 and submits its dispute directly before the Mexican Labor Courts, the other Party may, at its option submit the dispute to arbitration as set forth in this Section and the arbiter should take into account the ruling issued by the Mexican Labor Court and any payments made under such Mexican Labor Court ruling before rendering its final arbitration award.

16. Amendment and Waiver. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and the Executive, and no course of conduct or course of dealing or failure or delay by any party hereto in enforcing or exercising any of the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement or be deemed to be an implied waiver of any provision of this Agreement.

17. Survival. In the event of the Executive's termination of, or resignation from, employment, Sections 4, 5, 8, 9, 10, 13, 14, 15 and 16 shall survive and continue in full force to the extent necessary to enforce their terms.

18. Reserved

19. Release. Any and all amounts payable and benefits or additional rights provided pursuant to Sections 3, 4 and 7, other than (i) compensation accrued but unpaid as of the effective date of the Executive's termination; (ii) accrued but unused vacation in accordance with Company policy; and (iii) all business expenses that were incurred but not reimbursed, shall only be payable if the Executive executes and delivers to the Company, within 60 days after termination of employment, in the Company's standard form, a general release of all claims of the Executive up to the date of such release.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

(Signature Page follows)

Page 13 of 14

MINERA LUZ DEL SOL, S DE R. L.	GATOS SILVER INC (“Parent Company”)
/s/ Emir Toledo	/s/ Dale Andres’
By:	By:
Name: Emir Toledo	Name: Dale Andres’
Title: Financial Manager	Title: President

Page 14 of 14

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Stephen Orr, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Gatos Silver, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2021	By:	/s/ Stephen Orr
		Stephen Orr
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Roger Johnson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Gatos Silver, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2021	By:	/s/ Roger Johnson
		Roger Johnson
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Gatos Silver, Inc. (the “Company”) for the quarterly period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Stephen Orr, as Chief Executive Officer of the Company, and Roger Johnson, as Chief Financial Officer of the Company, each hereby certifies, pursuant to and solely for the purpose of 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge and belief, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of

1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results

of operations of the Company.

/s/ Stephen Orr

Stephen Orr

Chief Executive Officer

August 9, 2021

/s/ Roger Johnson

Roger Johnson

Chief Financial Officer

August 9, 2021

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2021	Aug. 02, 2021
Document and Entity Information
Entity Registrant Name	GATOS SILVER, INC.
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2021
Entity File Number	001-39649
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	27-2654848
Entity Address, Address Line One	8400 E. Crescent Parkway, Suite 600
Entity Address, City or Town	Greenwood Village
Entity Address State Or Province	CO
Entity Address, Postal Zip Code	80111
City Area Code	303
Local Phone Number	784-5350
Title of 12(b) Security	Common Stock, par value $0.001 per share
Trading Symbol	GATO
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		68,704,201
Entity Central Index Key	0001517006
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current Assets
Cash and cash equivalents	$ 29,607	$ 150,146
Deferred financing costs	285
Related party receivables	5,102	1,727
Other current assets	2,190	3,879
Total current assets	37,184	155,752
Non-Current Assets
Investment in affiliates	247,326	109,597
Other non-current assets	48	61
Total Assets	284,558	265,410
Current Liabilities
Accounts payable and other accrued liabilities	3,781	4,024
Shareholders' Equity
Common Stock, $0.001 par value; 700,000,000 shares authorized; 59,774,201 and 59,183,076 shares outstanding as of June 30, 2021 and December 31, 2020	108	108
Paid-in capital	417,248	409,728
Accumulated deficit	(135,552)	(147,423)
Treasury stock, at cost, 144,589 shares as of June 30, 2021 and December 31, 2020	(1,027)	(1,027)
Total shareholders' equity	280,777	261,386
Total Liabilities and Shareholders' Equity	$ 284,558	$ 265,410

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2021	Dec. 31, 2020
CONDENSED CONSOLIDATED BALANCE SHEETS
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	700,000,000	700,000,000
Common stock, shares outstanding	59,774,201	59,183,076
Treasury stock, shares	144,589	144,589

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Expenses
Exploration		$ 694	$ 211	$ 918	$ 382
General and administrative		4,411	1,543	8,014	2,380
Amortization		7	9	14	17
Total expenses		5,112	1,763	8,946	2,779
Other (income) expense
Equity income (loss) in affiliates		18,291	(8,071)	20,992	(21,516)
Other income (loss)		312	(765)	(175)	(2,345)
Net other income (expense)		18,603	(8,836)	20,817	(23,861)
Net income (loss) from continuing operations		13,491	(10,599)	11,871	(26,640)
Net loss from discontinued operations			(1,545)		(3,325)
Net income (loss)		$ 13,491	$ (12,144)	$ 11,871	$ (29,965)
Basic
Continuing operations	[1]	$ 0.23	$ (0.26)	$ 0.20	$ (0.66)
Discontinued operations	[1]		(0.04)		(0.08)
Total	[1]	0.23	(0.30)	0.20	(0.74)
Diluted
Continuing operations	[1]	0.22	(0.26)	0.20	(0.66)
Discontinued operations	[1]		(0.04)		(0.08)
Total	[1]	$ 0.22	$ (0.30)	$ 0.20	$ (0.74)
Weighted average shares outstanding:
Basic (in shares)	[1]	59,747,048	40,506,144	59,611,062	40,505,611
Diluted (in shares)	[1]	60,623,496	40,506,144	60,420,811	40,505,611

[1] Prior period results have been adjusted to reflect the two-for-one reverse split in October 2020.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical)	1 Months Ended
	Oct. 31, 2020
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Reverse stock split ratio	0.5

XML

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands		Common Stock	Treasury Stock	Paid-in Capital	Accumulated Deficit	Total
Balance at Dec. 31, 2019		$ 80	$ (1,027)	$ 375,921	$ (225,583)	$ 149,391
Balance (in shares) at Dec. 31, 2019	[1]	40,323,430	144,589
Stock-based compensation				1,031		1,031
DSU compensation				61		61
Net income (loss)					(17,821)	(17,821)
Balance at Mar. 31, 2020		$ 80	$ (1,027)	377,013	(243,404)	132,662
Balance (in shares) at Mar. 31, 2020	[1]	40,323,430	144,589
Balance at Dec. 31, 2019		$ 80	$ (1,027)	375,921	(225,583)	149,391
Balance (in shares) at Dec. 31, 2019	[1]	40,323,430	144,589
Net income (loss)						(29,965)
Balance at Jun. 30, 2020		$ 80	$ (1,027)	378,099	(255,548)	121,604
Balance (in shares) at Jun. 30, 2020	[1]	40,323,430	144,589
Balance at Mar. 31, 2020		$ 80	$ (1,027)	377,013	(243,404)	132,662
Balance (in shares) at Mar. 31, 2020	[1]	40,323,430	144,589
Stock-based compensation				1,086		1,086
Net income (loss)					(12,144)	(12,144)
Balance at Jun. 30, 2020		$ 80	$ (1,027)	378,099	(255,548)	121,604
Balance (in shares) at Jun. 30, 2020	[1]	40,323,430	144,589
Balance at Dec. 31, 2020		$ 108	$ (1,027)	409,728	(147,423)	261,386
Balance (in shares) at Dec. 31, 2020		59,183,076	144,589
Issuance of common stock				1,559		1,559
Number of shares issued		182,453
Stock-based compensation				1,078		1,078
DSUs converted to common stock (in shares)		43,523
Other				(262)		(262)
Net income (loss)					(1,620)	(1,620)
Balance at Mar. 31, 2021		$ 108	$ (1,027)	412,103	(149,043)	262,141
Balance (in shares) at Mar. 31, 2021		59,409,052	144,589
Balance at Dec. 31, 2020		$ 108	$ (1,027)	409,728	(147,423)	261,386
Balance (in shares) at Dec. 31, 2020		59,183,076	144,589
Net income (loss)						11,871
Balance at Jun. 30, 2021		$ 108	$ (1,027)	417,248	(135,552)	280,777
Balance (in shares) at Jun. 30, 2021		59,774,201	144,589
Balance at Mar. 31, 2021		$ 108	$ (1,027)	412,103	(149,043)	262,141
Balance (in shares) at Mar. 31, 2021		59,409,052	144,589
Issuance of common stock				2,662		2,662
Number of shares issued		331,497
Stock-based compensation				2,490		2,490
DSUs converted to common stock (in shares)		33,652
Other				(7)		(7)
Net income (loss)					13,491	13,491
Balance at Jun. 30, 2021		$ 108	$ (1,027)	$ 417,248	$ (135,552)	$ 280,777
Balance (in shares) at Jun. 30, 2021		59,774,201	144,589

[1] Prior period results have been adjusted to reflect the two-for-one reverse split in October 2020.

XML

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical)	1 Months Ended
	Oct. 31, 2020
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Reverse stock split ratio	0.5

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)
OPERATING ACTIVITIES
Net income (loss)		$ 11,871	$ (29,965)
Plus Net loss from discontinued operations	$ 1,545		3,325
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Amortization	9	14	17
Stock-based compensation expense		3,426	2,001
Equity (income) loss in affiliates		(20,992)	21,516
Changes in operating assets and liabilities:
Receivables from relatedparties		(3,375)	(3,333)
Accounts payable and other accrued liabilities		(528)	(766)
Other current assets		(1,689)	(70)
Operating cash flows from discontinued operations			(2,262)
Net cash used by operating activities		(7,895)	(9,537)
INVESTING ACTIVITIES
Investment in affiliates		(116,595)	(7,573)
Net cash used by investing activities		(116,595)	(7,573)
FINANCING ACTIVITIES
Relatedparty convertible notes			10,000
Financing costs		(269)	(588)
Issuance of common stock		4,221
Other		(1)	260
Financing cash flows from discontinued operations			307
Net cash provided by financing activities		3,951	9,979
Net decrease in cash and cash equivalents		(120,539)	(7,131)
Cash and cash equivalents, beginning of period		150,146	9,085
Cash and cash equivalents, end of period	1,954	29,607	1,954
Less cash of discontinued operations	380		380
Cash of continuing operations, end of period	$ 1,574	29,607	1,574
Supplemental disclosure of noncash transactions:
Deferred financing costs included in accrued liabilities		$ 284	149
Director compensation			$ 61

XML

Description of Business

6 Months Ended

Jun. 30, 2021

Description of Business

Description of Business

1.           Description of Business

Organization and Nature of Business

Gatos Silver, Inc. (“Gatos Silver” or “the Company”) is a silver dominant production, development and exploration company that discovered a new silver 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 operating entities consist 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 with MPR.

The LGJV completed an advanced definition 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 acquiring a 30% interest in the LGJV and the right to purchase future zinc-concentrate production at market rates. In May 2019, Dowa increased its ownership interest by 18.5% to 48.5% through the conversion of the Dowa MPR Loan (as defined in Note 9 — Commitments, Contingencies and Guarantees) to equity. On March 11, 2021, the Company repurchased the 18.5% interest from Dowa. See Note 9 — Commitments, Contingencies and Guarantees for further discussion. As of June 30, 2021, the LGJV ownership is 70.0% Gatos Silver and 30.0% Dowa.

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.

The Company continues to perform additional definition drilling to further define and expand mineralization of the Cerro Los Gatos deposit, and is performing definition and exploratory drilling at the nearby Esther deposit. On December 5, 2020, the LGJV began the current infill and extension drilling program at the Cerro Los Gatos deposit. On May 7, 2021, the LGJV restarted drilling at the Esther zone.

The Company’s other Mexico exploration efforts are conducted through its wholly-owned subsidiary, Minera Luz del Sol S. de R.L. de C.V. (“MLS”). In March 2021, MLS commenced a 5,400-meter exploration program on the Santa Valeria project, located approximately 15 kilometers from the Cerro Los Gatos deposit.

Discontinued Operations

In October 2020, the Company completed the distribution of its wholly-owned subsidiary, Silver Opportunity Partners LLC (“SOP”), and SOP has been presented as discontinued operations in the Company’s condensed consolidated financial statements. See Note 10 – Discontinued Operations for additional detail.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.           Summary of Significant Accounting Policies

Basis of Consolidation and Presentation

The financial statements represent the condensed consolidated financial position and results of operations of Gatos Silver, Inc. and its subsidiary, MLS. Unless the context otherwise requires, references to Gatos Silver or the Company mean Gatos Silver, Inc. and its consolidated subsidiary. 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 interim condensed consolidated financial statements.

The interim condensed consolidated financial statements are unaudited, but include all adjustments, consisting of normal recurring entries, which are necessary for a fair presentation for the dates and periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”).

Summary of Significant Accounting Policies

The consolidated financial statements for the year ended December 31, 2020, disclose those accounting policies considered significant in determining results of operations and financial position. There have been no material changes to, or in the application of, the accounting policies previously identified and described in the 2020 10-K.

Recent Accounting Pronouncements

On January 1, 2021, the Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) and ASU No. 2019-12, Income Taxes (Topic 740). These provisions did not have a material impact on the financial statements. There have been no additional accounting pronouncements issued or adopted during the six months ended June 30, 2021, which are expected to have a material impact on the financial statements.

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Property, Plant and Equipment, net

6 Months Ended

Jun. 30, 2021

Property, Plant and Equipment, net

Property, Plant and Equipment, net

3.           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.

Santa Valeria Concession

The Company is required to make a production royalty payment of 1% of the net smelter returns on production. The Company may terminate the agreement upon prior notice.

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Accounts Payable and Other Accrued Liabilities

6 Months Ended

Jun. 30, 2021

Accounts Payable and Other Accrued Liabilities

Accounts Payable and Other Accrued Liabilities

4.           Accounts Payable and Other Accrued Liabilities

	June 30,		December 31,
	2021		2020
Accounts payable	$	369	$	560
Accrued expenses		2,059		1,240
Accrued compensation		1,093		1,964
Other		260		260
Total accounts payable and other current liabilities	$	3,781	$	4,024

XML

Related-Party Transactions

6 Months Ended

Jun. 30, 2021

Related-Party Transactions

Related-Party Transactions

5.           Related-Party Transactions

LGJV

The Company has a services agreement with the LGJV to provide certain consulting and administrative services. The Company earned $2,500 and $2,100 under this agreement for the six months ended June 30, 2021 and 2020, respectively. The Company did not receive any cash from the LGJV under this agreement for the six months ended June 30, 2021 and 2020. The Company had receivables under this agreement of $3,700 and $6,850 as of June 30, 2021 and 2020, respectively. The Company also incurs certain LGJV costs and provides short term advances that are reimbursed by the LGJV.

SSMRC

The Company has a Management Services Agreement with Sunshine Silver Mining & Refining Corporation (“SSMRC”) (formerly Silver Opportunity Partners Corporation), pursuant to which the Company provides certain limited executive and managerial advisory services to SSMRC until terminated by either party. SSMRC reimburses the Company for costs of such services. The Company earned $16 and nil from SSMRC under this agreement for the six months ended June 30, 2021 and 2020, respectively.

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Net Income (Loss) per Share

6 Months Ended

Jun. 30, 2021

Net Income (Loss) per Share

Net Income (Loss) per Share

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

The computation of diluted earnings per common share excludes the effect of the assumed exercise of 1,391,236 stock options for the three and six months ended June 30, 2021, 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. For the three and six months ended June 30, 2020, all stock options outstanding have been excluded from the dilutive earnings per share calculation as their effect would be anti-dilutive.

A reconciliation of basic and diluted earnings per common share for the three and six months ended June 30, 2021 and 2020, are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)
Continuing operations	$	13,491	$	(10,599)	$	11,871	$	(26,640)
Discontinued operations		—		(1,545)		—		(3,325)
	$	13,491	$	(12,144)	$	11,871	$	(29,965)
Weighted average shares:
Basic		59,747,048		40,506,144		59,611,062		40,505,611
Effect of dilutive stock options		876,448		—		809,749		—
Diluted		60,623,496		40,506,144		60,420,811		40,505,611
Net income (loss) per share:
Basic:
Continuing operations	$	0.23	$	(0.26)	$	0.20	$	(0.66)
Discontinued operations		—		(0.04)		—		(0.08)
	$	0.23	$	(0.30)	$	0.20	$	(0.74)
Diluted:
Continuing operations	$	0.22	$	(0.26)	$	0.20	$	(0.66)
Discontinued operations		—		(0.04)		—		(0.08)
	$	0.22	$	(0.30)	$	0.20	$	(0.74)

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Stockholders' Equity

6 Months Ended

Jun. 30, 2021

Stockholders' Equity

Stockholders' Equity

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.

Stock Option Transactions

The Company’s stock options have a contractual term of 10 years and entitle the holder to purchase shares 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 options granted to non-employee 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 2020 have a requisite service period of one and a half years and vest in monthly installments. The options granted to non-employee directors in June 2020 have a requisite service period of one year and vest in semi-annual installments.

The Company granted 489,719 and 798,333 stock options during the six months ended June 30, 2021 and 2020, respectively. The weighted-average grant-date fair value per share was $9.53 and $6.76 for the six months ended June 30, 2021 and 2020, respectively. The Company received $4,221 from stock options exercised during the six months ended June 30, 2021.

Total unrecognized stock-based compensation expense as of June 30, 2021, was $10,483 which is expected to be recognized over a weighted average period of 2.0 years.

Stock option activity for the six months ended June 30, 2021, is summarized in the following tables:

		Weighted‑
		Average
Director and Employee Options	Shares	Exercise Price
Outstanding at December 31, 2020	5,411,930	$	12.52
Granted	489,719	$	16.72
Exercised	513,950	$	8.21
Forfeited	15,000	$	7.00
Outstanding at June 30, 2021	5,372,699	$	13.33
Vested at June 30, 2021	3,070,896	$	15.63

		Weighted‑
		Average
LGJV Personnel Options	Shares	Exercise Price
Outstanding at December 31, 2020	43,676	$	7.23
Outstanding and vested at June 30, 2021	43,676	$	7.23

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 the director’s cessation of continuous service. The fair value of the DSUs are equal to the fair value of the Company’s common stock on the grant date.

At June 30, 2021, there were 214,855 DSUs outstanding. The Company granted 109,316 and 5,103 DSUs during the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021, 77,175 DSUs were converted to common stock.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Fair Value Measurements

Fair Value Measurements

8.         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 June 30, 2021, and December 31, 2020, the Company’s 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

The Company discloses and recognizes its non-financial assets and liabilities at fair value on a non-recurring basis. The estimated fair value for these non-financial 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 assets without observable inputs and no market activity.

The Company recorded its initial investment in affiliates at fair value. The estimated fair value for this non-financial asset is classified as 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.

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Commitments, Contingencies and Guarantees

6 Months Ended

Jun. 30, 2021

Commitments, Contingencies and Guarantees

Commitments, Contingencies and Guarantees

9.         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 financial statements when it is at least reasonably possible that a material loss could be incurred.

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.

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 accrued daily at LIBOR plus 2.35% per annum, with the interest added to the amount borrowed until commencement of production. During 2018, the LGJV paid Dowa a $4,200 closing fee. Commencing June 30, 2021, repayment of the Term Loan in 14 consecutive semi-annual equal payments of the aggregate principal and capitalized interest began. The Company was 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 is 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 required additional principal payments equal to 70% of excess cash flows (as defined). As of June 30, 2021, the LGJV had $206,870 outstanding under the Term Loan.

On July 26, 2021, the Term Loan was repaid in full through capital contributions made to the LGJV by the Company and Dowa in pro-rata amounts equal to their ownership in the LGJV of 70% and 30%, respectively. In conjunction with the repayment, the Company paid to Dowa a closing fee of $10,000 and the LGJV paid to Dowa a $1,585 fee.

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% per annum 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 Company’s 70% portion of 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.

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. 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, the Company repurchased the 18.5% interest from Dowa, for a total consideration of $71,550, including Dowa holding costs of this incremental interest, increasing the Company’s ownership in the LGJV to 70.0%. These transactions resulted in a $47,400 higher basis than the underlying net assets of the LGJV Entities. This basis difference is being amortized over the LGJV Entities proven and probable reserves.

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 accrued daily at LIBOR plus 3.0% per annum and all outstanding principal and interest was to mature on June 28, 2021. The Company was 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. On March 11, 2021, the full $60,000 amount outstanding under the WCF was extinguished of which the Company’s pro-rata capital contribution to the LGJV was $42,000.

As of June 30, 2021, the Company had guaranteed 70% of the outstanding principal and accrued interest of the Term Loan in the event of default by the LGJV. The Company guarantees the payment of all obligations, including accrued interest, under the LGJV equipment loan agreements. As of June 30, 2021, the LGJV had $9,617 outstanding under the LGJV equipment loan agreements, net of unamortized debt discount of $23, with varying maturity dates through August 2023.

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Discontinued Operations

6 Months Ended

Jun. 30, 2021

Discontinued Operations

Discontinued Operations

10.          Discontinued Operations

In October 2020, the Company completed the distribution of its reportable U.S. segment, which was comprised of SOP. 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 initial public offering. 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 SSMRC.

The results of operations for SOP have been reflected as discontinued operations in the condensed consolidated statement of operations for the three and six months ended June 30, 2020, and consist of the following:

	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
Operating Expenses of Discontinued Operations
Exploration	$	105	$	216
Pre-development		532		1,048
General and administrative		316		877
Amortization		593		1,186
Total expenses		1,546		3,327
Other Income of Discontinued Operations
Other income		(1)		(2)
Net loss of discontinued operations	$	1,545	$	3,325

The cash flow activity from discontinued operations for the six months ended June 30, 2020, have been reflected as discontinued operations in the condensed consolidated statement of cash flows for the six months ended June 30, 2020, and consist of the following:

	June 30,
	2020
Discontinued Operating Activities
Net loss	$	(3,325)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization		1,186
Stock compensation expense		117
Accretion expense		55
Changes in operating assets and liabilities:
Accounts payable and other accrued liabilities		(304)
Other current assets		9
Net cash used by operating activities of discontinued operations		(2,262)
Financing Activities of Discontinued Operations
PPP Loan proceeds		307
Net cash provided by financing activities of discontinued operations		307

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Segment Information

6 Months Ended

Jun. 30, 2021

Segment Information

Segment Information

11.          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 development and exploration on the Company’s Mexican mineral properties and includes the Company’s investment in the LGJV. Financial information relating to the Company’s segments is as follows:

	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
	Mexico		Corporate		Total		Mexico		Corporate		Total
Exploration	$	694	$	—	$	694	$	211	$	—	$	211
General and administrative		178		4,233		4,411		190		1,353		1,543
Amortization		—		7		7		—		9		9
Equity income (loss) in affiliates		18,291		—		18,291		(8,071)		—		(8,071)
Net other income (loss)		(5)		317		312		(13)		(752)		(765)
Total assets		59,679		224,879		284,558		34,346		71,646		105,991

	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
	Mexico		Corporate		Total		Mexico		Corporate		Total
Exploration	$	918	$	—	$	918	$	382	$	—	$	382
General and administrative		332		7,682		8,014		252		2,128		2,380
Amortization		—		14		14		—		17		17
Equity income (loss) in affiliates		20,992		—		20,992		(21,516)		—		(21,516)
Net other income (loss)		(19)		(156)		(175)		(24)		(2,321)		(2,345)
Total assets	$	59,679	$	224,879	$	284,558	$	34,346	$	71,646	$	105,991

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Investment in Affiliate

6 Months Ended

Jun. 30, 2021

Investment in Affiliate

Investment in Affiliate

12.         Investment in Affiliate

During the six months ended June 30, 2021 and 2020, the Company recognized $20,992 of income and a $21,516 loss, respectively, on its investment in the LGJV Entities, representing its ownership share of the LGJV Entities’ results. The equity income or loss in affiliate includes amortization of the carrying value of the investment in excess of the underlying net assets of the LGJV Entities. This basis difference is being amortized over the LGJV Entities’ proven and probable reserves.

The LGJV Entities combined balance sheets as of June 30, 2021, and December 31, 2020, and the combined statements of income (loss) for the six months ended June 30, 2021 and 2020, are as follows:

LOS GATOS JOINT VENTURE

COMBINED BALANCE SHEETS (UNAUDITED)

(in thousands)

	June 30,		December 31,
	2021		2020
ASSETS
Current Assets
Cash and cash equivalents	$	2,242	$	1,676
Receivables		23,872		3,988
Inventories		10,288		10,315
VAT receivable		46,088		50,732
Other current assets		5,502		2,891
Total current assets		87,992		69,602
Non‑Current Assets
Mine development, net		213,895		202,874
Property, plant and equipment, net		192,206		196,942
Total non‑current assets		406,101		399,816
Total Assets	$	494,093	$	469,418
LIABILITIES AND OWNERS' CAPITAL
Current Liabilities
Accounts payable and accrued liabilities	$	31,995	$	35,767
Related party payable		5,118		1,703
Accrued interest		159		101
Unearned revenue		6,034		3,276
Equipment loans		6,898		7,084
Dowa Term Loan		31,826		31,826
Working Capital Facility		—		60,000
Total current liabilities		82,030		139,757
Non‑Current Liabilities
Dowa Term Loan		172,269		187,767
Equipment loans		2,696		6,120
Reclamation obligations		12,619		12,162
Total non‑current liabilities		187,584		206,049
Owners' Capital
Capital contributions		333,768		271,368
Paid‑in capital		18,636		16,366
Accumulated deficit		(127,925)		(164,122)
Total owners' capital		224,479		123,612
Total Liabilities and Owners' Capital	$	494,093	$	469,418

LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(in thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Sales	$	75,005	$	18,247	$	121,335	$	37,160
Expenses
Cost of sales		24,096		9,996		43,901		28,272
Royalties		1,415		(272)		2,299		29
Exploration		1,261		144		1,910		408
General and administrative		2,833		1,905		6,079		4,650
Depreciation, depletion and amortization		12,705		9,543		23,654		21,260
Other		—		3,416		—		3,416
		42,310		24,732		77,843		58,035
Other (income) expense
Interest expense		2,356		3,390		4,473		6,943
Arrangement fee		2,090		4,709		2,090		4,709
Accretion expense		228		212		456		424
Other (income) expense		11		—		(19)		(108)
Foreign exchange (gain) loss		(1,335)		(339)		295		5,522
		3,350		7,972		7,295		17,490
Net Income (Loss)	$	29,345	$	(14,457)	$	36,197	$	(38,365)

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Subsequent Events

6 Months Ended

Jun. 30, 2021

Subsequent Events

Subsequent Events

13.         Subsequent Events

On July 12, 2021, the Company entered into a Revolving Credit Facility (the “Credit Agreement”) with Bank of Montreal. The Credit Agreement provides for a revolving line of credit in a principal amount of $50,000 and has an accordion feature which allows for an increase in the total line of credit up to $100,000, subject to certain conditions. The Credit Agreement matures on July 31, 2024. The Credit Agreement 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 Agreement may be accelerated upon the occurrence of certain customary events of default. Loans under the Credit Agreement will 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 a pricing grid based upon the Company’s consolidated net leverage ratio as of the end of the applicable period.

On July 19, 2021, the Company borrowed $13,000 under the Credit Agreement at a rate of LIBOR plus 3%.

On July 19, 2021, the Company completed a follow-on public offering of 8,930,000 shares of common stock at a price of $14.00 per share, resulting in net proceeds of $118,894, after deducting underwriting discounts and commissions and expenses payable by us.

The proceeds from the public offering, together with the funds borrowed under the Credit Agreement and cash on hand, were used to retire our 70% portion of the Dowa Term Loan at the LGJV effective July 26, 2021.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

Summary of Significant Accounting Policies

Basis of Consolidation and Presentation and Summary of Significant Accounting Policies

Basis of Consolidation and Presentation

The financial statements represent the condensed consolidated financial position and results of operations of Gatos Silver, Inc. and its subsidiary, MLS. Unless the context otherwise requires, references to Gatos Silver or the Company mean Gatos Silver, Inc. and its consolidated subsidiary. 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 interim condensed consolidated financial statements.

The interim condensed consolidated financial statements are unaudited, but include all adjustments, consisting of normal recurring entries, which are necessary for a fair presentation for the dates and periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”).

Summary of Significant Accounting Policies

The consolidated financial statements for the year ended December 31, 2020, disclose those accounting policies considered significant in determining results of operations and financial position. There have been no material changes to, or in the application of, the accounting policies previously identified and described in the 2020 10-K.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

On January 1, 2021, the Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) and ASU No. 2019-12, Income Taxes (Topic 740). These provisions did not have a material impact on the financial statements. There have been no additional accounting pronouncements issued or adopted during the six months ended June 30, 2021, which are expected to have a material impact on the financial statements.

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Accounts Payable and Other Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2021

Accounts Payable and Other Accrued Liabilities

Schedule of components of accounts payable and other accrued liabilities

	June 30,		December 31,
	2021		2020
Accounts payable	$	369	$	560
Accrued expenses		2,059		1,240
Accrued compensation		1,093		1,964
Other		260		260
Total accounts payable and other current liabilities	$	3,781	$	4,024

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Net Income (Loss) per Share (Tables)

6 Months Ended

Jun. 30, 2021

Net Income (Loss) per Share

Summary of reconciliation of basic and diluted earnings per common share

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)
Continuing operations	$	13,491	$	(10,599)	$	11,871	$	(26,640)
Discontinued operations		—		(1,545)		—		(3,325)
	$	13,491	$	(12,144)	$	11,871	$	(29,965)
Weighted average shares:
Basic		59,747,048		40,506,144		59,611,062		40,505,611
Effect of dilutive stock options		876,448		—		809,749		—
Diluted		60,623,496		40,506,144		60,420,811		40,505,611
Net income (loss) per share:
Basic:
Continuing operations	$	0.23	$	(0.26)	$	0.20	$	(0.66)
Discontinued operations		—		(0.04)		—		(0.08)
	$	0.23	$	(0.30)	$	0.20	$	(0.74)
Diluted:
Continuing operations	$	0.22	$	(0.26)	$	0.20	$	(0.66)
Discontinued operations		—		(0.04)		—		(0.08)
	$	0.22	$	(0.30)	$	0.20	$	(0.74)

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2021

Stockholders' Equity

Schedule of stock option activity

		Weighted‑
		Average
Director and Employee Options	Shares	Exercise Price
Outstanding at December 31, 2020	5,411,930	$	12.52
Granted	489,719	$	16.72
Exercised	513,950	$	8.21
Forfeited	15,000	$	7.00
Outstanding at June 30, 2021	5,372,699	$	13.33
Vested at June 30, 2021	3,070,896	$	15.63

		Weighted‑
		Average
LGJV Personnel Options	Shares	Exercise Price
Outstanding at December 31, 2020	43,676	$	7.23
Outstanding and vested at June 30, 2021	43,676	$	7.23

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Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2021

Discontinued Operations

Schedule of assets and liabilities, consolidated statement of operations and comprehensive loss and cash flow activity of discontinued operations

	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
Operating Expenses of Discontinued Operations
Exploration	$	105	$	216
Pre-development		532		1,048
General and administrative		316		877
Amortization		593		1,186
Total expenses		1,546		3,327
Other Income of Discontinued Operations
Other income		(1)		(2)
Net loss of discontinued operations	$	1,545	$	3,325

	June 30,
	2020
Discontinued Operating Activities
Net loss	$	(3,325)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization		1,186
Stock compensation expense		117
Accretion expense		55
Changes in operating assets and liabilities:
Accounts payable and other accrued liabilities		(304)
Other current assets		9
Net cash used by operating activities of discontinued operations		(2,262)
Financing Activities of Discontinued Operations
PPP Loan proceeds		307
Net cash provided by financing activities of discontinued operations		307

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2021

Segment Information

Schedule of segment information

	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
	Mexico		Corporate		Total		Mexico		Corporate		Total
Exploration	$	694	$	—	$	694	$	211	$	—	$	211
General and administrative		178		4,233		4,411		190		1,353		1,543
Amortization		—		7		7		—		9		9
Equity income (loss) in affiliates		18,291		—		18,291		(8,071)		—		(8,071)
Net other income (loss)		(5)		317		312		(13)		(752)		(765)
Total assets		59,679		224,879		284,558		34,346		71,646		105,991

	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
	Mexico		Corporate		Total		Mexico		Corporate		Total
Exploration	$	918	$	—	$	918	$	382	$	—	$	382
General and administrative		332		7,682		8,014		252		2,128		2,380
Amortization		—		14		14		—		17		17
Equity income (loss) in affiliates		20,992		—		20,992		(21,516)		—		(21,516)
Net other income (loss)		(19)		(156)		(175)		(24)		(2,321)		(2,345)
Total assets	$	59,679	$	224,879	$	284,558	$	34,346	$	71,646	$	105,991

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Investment in Affiliate (Tables) - Los Gatos Joint Venture ("LGJV")

6 Months Ended

Jun. 30, 2021

Investment in Affiliate

Schedule of combined balance sheets

LOS GATOS JOINT VENTURE

COMBINED BALANCE SHEETS (UNAUDITED)

(in thousands)

	June 30,		December 31,
	2021		2020
ASSETS
Current Assets
Cash and cash equivalents	$	2,242	$	1,676
Receivables		23,872		3,988
Inventories		10,288		10,315
VAT receivable		46,088		50,732
Other current assets		5,502		2,891
Total current assets		87,992		69,602
Non‑Current Assets
Mine development, net		213,895		202,874
Property, plant and equipment, net		192,206		196,942
Total non‑current assets		406,101		399,816
Total Assets	$	494,093	$	469,418
LIABILITIES AND OWNERS' CAPITAL
Current Liabilities
Accounts payable and accrued liabilities	$	31,995	$	35,767
Related party payable		5,118		1,703
Accrued interest		159		101
Unearned revenue		6,034		3,276
Equipment loans		6,898		7,084
Dowa Term Loan		31,826		31,826
Working Capital Facility		—		60,000
Total current liabilities		82,030		139,757
Non‑Current Liabilities
Dowa Term Loan		172,269		187,767
Equipment loans		2,696		6,120
Reclamation obligations		12,619		12,162
Total non‑current liabilities		187,584		206,049
Owners' Capital
Capital contributions		333,768		271,368
Paid‑in capital		18,636		16,366
Accumulated deficit		(127,925)		(164,122)
Total owners' capital		224,479		123,612
Total Liabilities and Owners' Capital	$	494,093	$	469,418

Schedule of combined results of loss

LOS GATOS JOINT VENTURE

COMBINED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(in thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Sales	$	75,005	$	18,247	$	121,335	$	37,160
Expenses
Cost of sales		24,096		9,996		43,901		28,272
Royalties		1,415		(272)		2,299		29
Exploration		1,261		144		1,910		408
General and administrative		2,833		1,905		6,079		4,650
Depreciation, depletion and amortization		12,705		9,543		23,654		21,260
Other		—		3,416		—		3,416
		42,310		24,732		77,843		58,035
Other (income) expense
Interest expense		2,356		3,390		4,473		6,943
Arrangement fee		2,090		4,709		2,090		4,709
Accretion expense		228		212		456		424
Other (income) expense		11		—		(19)		(108)
Foreign exchange (gain) loss		(1,335)		(339)		295		5,522
		3,350		7,972		7,295		17,490
Net Income (Loss)	$	29,345	$	(14,457)	$	36,197	$	(38,365)

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Description of Business (Details) $ in Thousands			1 Months Ended
	Mar. 11, 2021	Sep. 01, 2019 product	Mar. 31, 2021 m	May 31, 2019	Jun. 30, 2021	Apr. 01, 2016 USD ($)
Minera Luz del Sol S. de R.L. de C.V.
Description of Business and Basis of Preparation of Financial Statements
Area of exploration program commenced (in meters) | m			5,400
Los Gatos Joint Venture ("LGJV")
Description of Business and Basis of Preparation of Financial Statements
Ownership interest (as a percent)					70.00%
Number of concentrate products | product		2
Dowa Metals and Mining Co., Ltd. ("Dowa")
Description of Business and Basis of Preparation of Financial Statements
Ownership interest (as a percent)					30.00%
Dowa Metals and Mining Co., Ltd. ("Dowa") | Los Gatos Joint Venture ("LGJV")
Description of Business and Basis of Preparation of Financial Statements
Funding requirement made | $						$ 50,000
Increase in ownership interest through the conversion of loan to equity				18.50%
Ownership interest repurchased	18.50%
Ownership interest (as a percent)				48.50%		30.00%

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Property, Plant and Equipment, net (Details)	6 Months Ended
	Jun. 30, 2021
Property, Plant and Equipment, net
Royalty payments on net smelter returns (in percent)	1.00%

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Accounts Payable and Other Accrued Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Accounts Payable and Other Accrued Liabilities
Accounts payable	$ 369	$ 560
Accrued expenses	2,059	1,240
Accrued compensation	1,093	1,964
Other	260	260
Total accounts payable and other accrued liabilities	$ 3,781	$ 4,024

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Related-Party Transactions (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Related-Party Transactions
Receivables from related party	$ 5,102		$ 1,727
Los Gatos Joint Venture ("LGJV")
Related-Party Transactions
Payments received from related party	2,500	$ 2,100
Receivables from related party	3,700	6,850
Silver Opportunity Partners Corporation
Related-Party Transactions
Revenue from Related Parties	$ 16	$ 0

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Net Income (Loss) per Share (Details)	6 Months Ended
	Jun. 30, 2021 shares
Stock options
Net Income (Loss) per Share
Share excludes from computation of earnings per common share whose inclusion will resulting in an anti-dilutive effect	1,391,236

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Net Income (Loss) per Share - Reconciliation of Basic And Diluted Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended				6 Months Ended
		Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2021	Jun. 30, 2020
Net Income (Loss)
Continuing operations		$ 13,491		$ (10,599)		$ 11,871	$ (26,640)
Discontinued operations				(1,545)			(3,325)
Net income (loss)		$ 13,491	$ (1,620)	$ (12,144)	$ (17,821)	$ 11,871	$ (29,965)
Weighted average shares outstanding:
Basic	[1]	59,747,048		40,506,144		59,611,062	40,505,611
Effect of dilutive stock options		876,448				809,749
Diluted	[1]	60,623,496		40,506,144		60,420,811	40,505,611
Continuing operations, basic	[1]	$ 0.23		$ (0.26)		$ 0.20	$ (0.66)
Discontinued operations, basic	[1]			(0.04)			(0.08)
Total	[1]	0.23		(0.30)		0.20	(0.74)
Continuing operations, diluted	[1]	0.22		(0.26)		0.20	(0.66)
Discontinued operations, diluted	[1]			(0.04)			(0.08)
Total	[1]	$ 0.22		$ (0.30)		$ 0.20	$ (0.74)

[1] Prior period results have been adjusted to reflect the two-for-one reverse split in October 2020.

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Stockholders' Equity - Common Stock and Preferred Stock (Details) - $ / shares	Jun. 30, 2021	Dec. 31, 2020
Stockholders' Equity
Common stock, shares authorized	700,000,000	700,000,000
Common stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, par value	$ 0.001	$ 0.001

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Stockholders' Equity - Stock Option Transactions (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Stockholders' Equity
Stock options granted (in shares)	489,719	798,333
Value received from exercise of stock options	$ 4,221
Stock options
Stockholders' Equity
Contractual term of options	10 years
Weighted average grant date fair value of options per share	$ 9.53	$ 6.76
Total unrecognized stock based compensation expense	$ 10,483
Total unrecognized stock based compensation expense, recognition period	2 years
Stock options | Non-employee directors
Stockholders' Equity
Requisite service period for options	1 year
Stock options | Employees and LGJV personnel
Stockholders' Equity
Requisite service period for options	4 years

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Stockholders' Equity - Stock option activity (Details) - $ / shares	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Shares
Granted	489,719	798,333
Stock options | LGJV
Shares
Outstanding at December 31, 2020	43,676
Outstanding at June 30, 2021	43,676
Weighted-Average Exercise Price
Outstanding at December 31, 2020	$ 7.23
Outstanding at June 30, 2021	$ 7.23
Stock options | Director and Employee
Shares
Outstanding at December 31, 2020	5,411,930
Granted	489,719
Exercised	513,950
Forfeited	15,000
Outstanding at June 30, 2021	5,372,699
Vested at June 30, 2021	3,070,896
Weighted-Average Exercise Price
Outstanding at December 31, 2020	$ 12.52
Granted	16.72
Exercised	8.21
Forfeited	7.00
Outstanding at June 30, 2021	13.33
Vested at June 30, 2021	$ 15.63

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Stockholders' Equity - Deferred Stock Unit Transactions (Details) - DSUs - shares	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Stockholders' Equity
Number of shares underlying that each unit entitles	1
Awards outstanding (in shares)	214,855
Awards granted (in shares)	109,316	5,103
Shares converted to common stock	77,175

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Commitments, Contingencies and Guarantees (Details) $ in Thousands					1 Months Ended
	Jul. 26, 2021 USD ($)	Mar. 11, 2021 USD ($)	May 30, 2019 USD ($)	Jan. 23, 2018 USD ($)	May 31, 2019 USD ($)	Jul. 31, 2017 USD ($) payment D	Jun. 30, 2021 USD ($)	Apr. 01, 2016
Los Gatos Joint Venture ("LGJV")
Commitments, Contingencies and Guarantees
Ownership percentage	70.00%
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa") | Dowa MPR Loan
Commitments, Contingencies and Guarantees
Ownership percentage		70.00%
Los Gatos Joint Venture ("LGJV")
Commitments, Contingencies and Guarantees
Payments for closing fees	$ 10,000
Equity Method Investment, Ownership Percentage To Be Repurchased		18.50%
Funding contributed for a partial repayment of loan					$ 18,200
Ownership interest (as a percent)							70.00%
Consideration paid for ownership interest repurchased		$ 71,550
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa")
Commitments, Contingencies and Guarantees
Increase in ownership interest through the conversion of loan to equity					18.50%
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa") | Term loan
Commitments, Contingencies and Guarantees
Maximum borrowing capacity						$ 210,000
Payments for closing fees						$ 4,200
Number of consecutive semi annual equal payments commencing June 30, 2021 | payment						14
Arrangement fee (as a percent)						70.00%
Arrangement fee payment, number of business days | D						2
Percentage of excess cash flow used to determine amount of additional payments						70.00%
Outstanding balance							$ 206,870
Percentage of loan guaranteed by the company							70.00%
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa") | Term loan | LIBOR
Commitments, Contingencies and Guarantees
Basis spread on variable rate (as a percent)						2.35%
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa") | Dowa MPR Loan
Commitments, Contingencies and Guarantees
Maximum borrowing capacity				$ 65,700
Percentage of the joint venture loan for which the Company is responsible				70.00%
Principal and interest converted					$ 50,737
Repayment of debt					$ 18,200
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa") | Dowa MPR Loan | LIBOR
Commitments, Contingencies and Guarantees
Basis spread on variable rate (as a percent)				1.50%
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa") | Working capital facility agreement
Commitments, Contingencies and Guarantees
Maximum borrowing capacity		60,000	$ 60,000
Arrangement fee (as a percent)			15.00%
Arrangement fee, Percentage of the average daily principal amount outstanding considered (as a percent)			70.00%
Company's pro-rata capital contribution		42,000
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa") | Working capital facility agreement | LIBOR
Commitments, Contingencies and Guarantees
Basis spread on variable rate (as a percent)			3.00%
Los Gatos Joint Venture ("LGJV") | Dowa Metals and Mining Co., Ltd. ("Dowa") | Equipment loan agreements
Commitments, Contingencies and Guarantees
Outstanding balance							$ 9,617
Unamortized debt discount							$ 23
Dowa Metals and Mining Co., Ltd. ("Dowa")
Commitments, Contingencies and Guarantees
Ownership interest (as a percent)							30.00%
Dowa Metals and Mining Co., Ltd. ("Dowa") | Los Gatos Joint Venture ("LGJV")
Commitments, Contingencies and Guarantees
Ownership percentage	30.00%
Dowa Metals and Mining Co., Ltd. ("Dowa") | Los Gatos Joint Venture ("LGJV") | Dowa MPR Loan
Commitments, Contingencies and Guarantees
Proven and probable reserves, basis difference		$ 47,400
Dowa Metals and Mining Co., Ltd. ("Dowa") | Los Gatos Joint Venture ("LGJV")
Commitments, Contingencies and Guarantees
Payments for closing fees	$ 1,585
Ownership interest (as a percent)					48.50%			30.00%
Increase in ownership interest through the conversion of loan to equity					18.50%
Ownership interest that was repurchased		18.50%
Dowa Metals and Mining Co., Ltd. ("Dowa") | Los Gatos Joint Venture ("LGJV") | Term loan
Commitments, Contingencies and Guarantees
Arrangement fee, percentage of outstanding principal balance considered (as a percent)						2.00%

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Discontinued Operations - Results of operations (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended	6 Months Ended
	Oct. 31, 2020	Jun. 30, 2020	Jun. 30, 2020
Other Income of Discontinued Operations
Net loss of discontinued operations		$ 1,545	$ 3,325
Silver Opportunity Partners Corporation
Discontinued Operations
Number of shares of SOP received by Company's stockholders	0.10594
Silver Opportunity Partners Corporation | Spin off
Operating Expenses of Discontinued Operations
Exploration		105	216
Pre-development		532	1,048
General and administrative		316	877
Amortization		593	1,186
Total expenses		1,546	3,327
Other Income of Discontinued Operations
Other income		(1)	(2)
Net loss of discontinued operations		$ 1,545	$ 3,325

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Discontinued Operations - Cash flow activity (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Discontinued Operating Activities
Net loss from discontinued operations	$ (1,545)	$ (3,325)
Changes in operating assets and liabilities:
Net cash used by operating activities of discontinued operations		(2,262)
Financing Activities of Discontinued Operations
Net cash provided by financing activities of discontinued operations		307
Silver Opportunity Partners Corporation | Spin off
Discontinued Operating Activities
Net loss from discontinued operations	(1,545)	(3,325)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization	$ 593	1,186
Stock compensation expense		117
Accretion expense		55
Changes in operating assets and liabilities:
Accounts payable and other accrued liabilities		(304)
Other current assets		9
Net cash used by operating activities of discontinued operations		(2,262)
Financing Activities of Discontinued Operations
PPP Loan proceeds		307
Net cash provided by financing activities of discontinued operations		$ 307

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Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Segment Information
Exploration	$ 694	$ 211	$ 918	$ 382
General and administrative	4,411	1,543	8,014	2,380
Amortization	7	9	14	17
Equity income (loss) in affiliates	18,291	(8,071)	20,992	(21,516)
Net other income (loss)	312	(765)	(175)	(2,345)
Total Assets	284,558	105,991	284,558	105,991	$ 265,410
Mexico
Segment Information
Exploration	694	211	918	382
General and administrative	178	190	332	252
Equity income (loss) in affiliates	18,291	(8,071)	20,992	(21,516)
Net other income (loss)	(5)	(13)	(19)	(24)
Total Assets	59,679	34,346	59,679	34,346
Corporate
Segment Information
General and administrative	4,233	1,353	7,682	2,128
Amortization	7	9	14	17
Net other income (loss)	317	(752)	(156)	(2,321)
Total Assets	$ 224,879	$ 71,646	$ 224,879	$ 71,646

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Investment in Affiliate - Combined Balance Sheets (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021	Dec. 31, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019
Current Assets
Cash and cash equivalents	$ 29,607		$ 150,146
Other current assets	2,190		3,879
Total current assets	37,184		155,752
Non-Current Assets
Total Assets	284,558		265,410	$ 105,991
Owners' Capital
Paid-in capital	417,248		409,728
Accumulated deficit	(135,552)		(147,423)
Total shareholders' equity	280,777	$ 262,141	261,386	$ 121,604	$ 132,662	$ 149,391
Total Liabilities and Shareholders' Equity	284,558		265,410
Los Gatos Joint Venture ("LGJV")
Current Assets
Cash and cash equivalents	2,242		1,676
Receivables	23,872		3,988
Inventories	10,288		10,315
VAT receivable	46,088		50,732
Other current assets	5,502		2,891
Total current assets	87,992		69,602
Non-Current Assets
Mine development, net	213,895		202,874
Property, plant and equipment, net	192,206		196,942
Total noncurrent assets	406,101		399,816
Total Assets	494,093		469,418
Current Liabilities
Accounts payable and accrued liabilities	31,995		35,767
Related party payable	5,118		1,703
Accrued interest	159		101
Unearned revenue	6,034		3,276
Equipment loans	6,898		7,084
Dowa Term Loan	31,826		31,826
Working Capital Facility			60,000
Total current liabilities	82,030		139,757
Non-Current Liabilities
Dowa Term Loan	172,269		187,767
Equipment loans	2,696		6,120
Reclamation obligations	12,619		12,162
Total noncurrent liabilities	187,584		206,049
Owners' Capital
Capital contributions	333,768		271,368
Paid-in capital	18,636		16,366
Accumulated deficit	(127,925)		(164,122)
Total shareholders' equity	224,479		123,612
Total Liabilities and Shareholders' Equity	$ 494,093		$ 469,418

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Investment in Affiliate - Combining Statement of income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2021	Jun. 30, 2020
Expenses
Exploration	$ 694		$ 211		$ 918	$ 382
General and administrative	4,411		1,543		8,014	2,380
Total expenses	5,112		1,763		8,946	2,779
Other (income) expense
Other (income) expense	(312)		765		175	2,345
Net income (loss)	13,491	$ (1,620)	(12,144)	$ (17,821)	11,871	(29,965)
Income (Loss) from Equity Method Investments	18,291		(8,071)		20,992	(21,516)
Los Gatos Joint Venture ("LGJV")
Investment in Affiliate
Sales	75,005		18,247		121,335	37,160
Expenses
Cost of sales	24,096		9,996		43,901	28,272
Royalties	1,415		(272)		2,299	29
Exploration	1,261		144		1,910	408
General and administrative	2,833		1,905		6,079	4,650
Depreciation, depletion and amortization	12,705		9,543		23,654	21,260
Other			3,416			3,416
Total expenses	42,310		24,732		77,843	58,035
Other (income) expense
Interest expense	2,356		3,390		4,473	6,943
Arrangement fee	2,090		4,709		2,090	4,709
Accretion expense	228		212		456	424
Other (income) expense	11				(19)	(108)
Foreign exchange (gain) loss	(1,335)		(339)		295	5,522
Other (income) expense	3,350		7,972		7,295	17,490
Net income (loss)	$ 29,345		$ (14,457)		36,197	(38,365)
Income (Loss) from Equity Method Investments					$ 20,992	$ (21,516)

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Subsequent Events (Details) - USD ($) $ / shares in Units, $ in Thousands				6 Months Ended
	Jul. 26, 2021	Jul. 19, 2021	Jul. 12, 2021	Jun. 30, 2021
Subsequent Events
Proceeds from issuance of shares				$ 4,221
Subsequent events
Subsequent Events
Percentage of loan retired from share issuance proceeds	70.00%
Subsequent events | Revolving Credit Facility
Subsequent Events
Borrowing capacity			$ 50,000
Contingent increase, additional borrowing capacity			$ 100,000
Subsequent events | LIBOR | Revolving Credit Facility
Subsequent Events
Spread on variable rate		3.00%
Amount borrowed		$ 13,000
Subsequent events | LIBOR | Revolving Credit Facility | Minimum
Subsequent Events
Spread on variable rate			3.00%
Subsequent events | LIBOR | Revolving Credit Facility | Maximum
Subsequent Events
Spread on variable rate			4.00%
Subsequent events | Base Rate | Revolving Credit Facility | Minimum
Subsequent Events
Spread on variable rate			2.00%
Subsequent events | Base Rate | Revolving Credit Facility | Maximum
Subsequent Events
Spread on variable rate			3.00%
Subsequent events | Follow-on public offering
Subsequent Events
Number of shares issued		8,930,000
Price per share		$ 14.00
Proceeds from issuance of shares		$ 118,894