UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

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

For the fiscal year ended December 31, 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.)

925 W Georgia Street, Suite 910

Vancouver, British Columbia, Canada V6C 3L2

(Address of principal executive offices) (Zip Code)

(604) 424-0984

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

As of June 30, 2022, the aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $115,071,927 based on the closing price of the registrant’s common stock on the New York Stock Exchange.

As of June 26, 2023, the number of shares of Registrant’s common stock outstanding was 69,162,223.

DOCUMENTS INCORPORATED BY REFERENCE

None

EXPLANATORY NOTE

References throughout this Amendment No. 1 to the Annual Report on Form 10-K to “we,” “us,” “Gatos Silver,” “Company” or “our Company” are to Gatos Silver Inc., unless the context otherwise indicates.

This Amendment No. 1 (“Amendment No. 1”) amends the Annual Report on Form 10-K of Gatos Silver, Inc. for the fiscal year ended December 31, 2021 (“Affected Period”), as filed with the Securities and Exchange Commission (“SEC”) on March 20, 2023 (the “Original Filing”).

This Amendment No. 1 contains the restated financial statements for us and the Los Gatos Joint Venture (“LGJV”) for the Affected Period to correct (i) the timing and recognition of net deferred tax assets and current income taxes at the 70% - owned LGJV during the fourth quarter of 2021, (ii) the accounting for the priority distribution due to our LGJV partner to exclude the priority distribution payment from the net income of the LGJV in calculating the equity income in affiliate and the impairment amount of investment in affiliate during the fourth quarter of 2021, (iii) the calculation of the fair value and the impairment amount of investment in affiliate during the fourth quarter of 2021 and (iv) other immaterial changes during the fourth quarter of 2021.

This Amendment No. 1 contains the following sections:

● Item 1A. Risk Factors

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

● Item 8. Financial Statements and Supplementary Data

● Item 9A. Controls and Procedures; and

● Exhibits 23, 31, 32, 101 and 104 of Item 15. Exhibits and Financial Statement Schedules.

Except as described above, this Amendment No. 1 does not amend, update or change any other items or disclosures contained in the Original Filing, and accordingly, this Amendment No. 1 does not reflect or purport to reflect any information or events occurring after the date of the Original Filing or modify or update those disclosures affected by subsequent events. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and the Company’s other filings with the SEC. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Original Filing.

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TABLE OF CONTENTS

		Page
	Part I
Item 1A.	Risk Factors	8
	Part II
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 8.	Financial Statements and Supplementary Data	43
Item 9A.	Controls and Procedures	88
	Part IV
Item 15.	Exhibits and Financial Statement Schedules	91

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Notice Regarding Mineral Disclosure

Mineral Reserves and Resources

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and applicable Canadian securities laws, and as a result, we have separately reported our mineral reserves and mineral resources according to the standards applicable to those requirements. U.S. reporting requirements are governed by subpart 1300 of Regulation S-K (“S-K 1300”), as issued by the U.S. Securities and Exchange Commission (“SEC”). Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), as adopted from the definitions provided by the Canadian Institute of Mining, Metallurgy and Petroleum. Both sets of reporting standards have similar goals in terms of conveying an appropriate level of consistency and confidence in the disclosures being reported, but the standards embody slightly different approaches and definitions. All disclosure of mineral resources and mineral reserves in this report is reported in accordance with S-K 1300. See Item 1A. Risk Factors; Risks Related to Our Operations Mineral reserve and mineral resource calculations at the CLG and at other deposits in the LGD are only estimates and actual production results and future estimates may vary significantly from the current estimates.”

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

Technical Report Summaries and Qualified Persons

The technical information concerning our mineral projects in this Form 10-K/A have been reviewed and approved by Tony Scott P. Geo, Senior Vice President of Corporate Development and Technical Services. Mr. Scott is a “qualified person” under S-K 1300 and has reviewed the contents of this Form 10-K/A. For a description of the key assumptions, parameters and methods used to estimate mineral reserves and mineral resources included in this Form 10-K/A, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal, title, taxation, sociopolitical, marketing or other relevant factors, please review the Los Gatos Technical Report which is included as an exhibit to this Report.

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Glossary of Technical Terms

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

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

“AISC” means all-in sustaining cost.

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

“By-Product” is a secondary metal or mineral product recovered in the milling process. For the CLG operation, silver is the primary metal product by value and zinc, lead and gold are by-products.

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

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

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

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

“g/t” means grams per tonne.

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

“indicated mineral resources” or “indicated resources” is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of adequate geological evidence and sampling. The level of geological certainty associated with an indicated mineral resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Because an indicated mineral resource has a lower level of confidence than the level of confidence of a measured mineral resource, an indicated mineral resource may only be converted to a probable mineral reserve.

“inferred mineral resources” or “inferred resources” is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. The level of geological uncertainty associated with an inferred mineral resource is too high to apply relevant technical and economic factors likely to influence the prospects of economic extraction in a manner useful for evaluation of economic viability. Because an inferred mineral resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability, an inferred mineral resource may not be considered when assessing the economic viability of a mining project, and may not be converted to a mineral reserve.

“LOM” means life of mine.

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

“masl” is meters above sea level.

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“mineral reserves” or “reserves” the estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted. Mineral reserves quantified herein are on a 100% basis unless otherwise stated.

“mineral resources” or “resources” a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled.

“measured mineral resources” is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. The level of geological certainty associated with a measured mineral resource is sufficient to allow a qualified person to apply modifying factors, as defined in this section, in sufficient detail to support detailed mine planning and final evaluation of the economic viability of the deposit. Because a measured mineral resource has a higher level of confidence than the level of confidence of either an indicated mineral resource or an inferred mineral resource, a measured mineral resource may be converted to a proven mineral reserve or to a probable mineral reserve.

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

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

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

“oz” means a troy ounce.

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

“probable mineral reserve” means the economically mineable part of an indicated and, in some cases, a measured mineral resource.

“proven mineral reserve” means the economically mineable part of a measured mineral resource and can only result from conversion of a measured mineral resource.

“S-K 1300” means 17.C.F.R § 229.1300 through § 229.1305.

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

“tonne,” means a metric tonne, equivalent to 1,000 kg or 2,204.6 pounds. “tonne” is referenced under the “Grade” definition.

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

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Cautionary Information about Forward-Looking Statements

This Report contains statements that constitute “forward looking information” and “forward-looking statements” within the meaning of U.S. and Canadian securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by words such as “may,” “might,” “could,” “would,” “achieve,” “budget,” “scheduled,” “forecasts,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements may include, but are not limited to, the following:

● estimates of future mineral production and sales;

● estimates of future production costs, other expenses and taxes for specific operations and on a consolidated basis;

● estimates of future cash flows and the sensitivity of cash flows to gold, copper, silver, lead, zinc and other metal prices;

● estimates of future capital expenditures, construction, production or closure activities and other cash needs, for specific operations and on a consolidated basis, and expectations as to the funding or timing thereof;

● estimates as to the projected development of certain ore deposits, including the timing of such development, the costs of such development and other capital costs, financing plans for these deposits and expected production commencement dates;

● estimates of mineral reserves and mineral resources statements regarding future exploration results and mineral reserve and mineral resource replacement and the sensitivity of mineral reserves to metal price changes;

● statements regarding the availability of, and terms and costs related to, future borrowing or financing and expectations regarding future debt repayments;

● statements regarding future dividends and returns to shareholders;

● estimates regarding future exploration expenditures, programs and discoveries;

● statements regarding fluctuations in financial and currency markets;

● estimates regarding potential cost savings, productivity, operating performance and ownership and cost structures;

● expectations regarding statements regarding future transactions, including, without limitation, statements related to future acquisitions and projected benefits, synergies and costs associated with acquisitions and related matters;

● expectations of future equity and enterprise value;

● expectations regarding the start-up time, design, mine life, production and costs applicable to sales and exploration potential of our projects;

● statements regarding future hedge and derivative positions or modifications thereto;

● statements regarding local, community, political, economic or governmental conditions and environments;

● statements and expectations regarding the impacts of COVID-19 and variants thereof and other health and safety conditions;

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● statements regarding the impacts of changes in the legal and regulatory environment in which we operate, including, without limitation, relating to regional, national, domestic and foreign laws;

● statements regarding climate strategy and expectations regarding greenhouse gas emission targets and related operating costs and capital expenditures;

● statements regarding expected changes in the tax regimes in which we operate, including, without limitation, estimates of future tax rates and estimates of the impacts to income tax expense, valuation of deferred tax assets and liabilities, and other financial impacts;

● estimates of income taxes and expectations relating to tax contingencies or tax audits;

● estimates of future costs, accruals for reclamation costs and other liabilities for certain environmental matters, including without limitation, in connection with water treatment and tailings management;

● statements relating to potential impairments, revisions or write-offs, including without limitation, the result of fluctuation in metal prices, unexpected production or capital costs, or unrealized mineral reserve potential;

● estimates of pension and other post-retirement costs;

● statements regarding estimates of timing of adoption of recent accounting pronouncements and expectations regarding future impacts to the financial statements resulting from accounting pronouncements;

● estimates of future cost reductions, synergies, savings and efficiencies in connection with full potential programs and initiatives; and

● expectations regarding future exploration and the development, growth and potential of operations, projects and investments, including in respect of the Cerro Los Gatos Mine (“CLG”) and the Los Gatos District (“LGD”).

Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements.

All forward-looking statements speak only as of the date on which they are made. These statements are not a guarantee of future performance and involve certain risks, uncertainties and assumptions concerning future events that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. Important factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the risks set forth under “Risk Factors Summary” below, which are discussed in further detail in “Item 1A—Risk Factors.” Such factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements included in this Report and those described from time to time in our filings with the U.S. Securities and Exchange Commission (“SEC”). These risks and uncertainties, as well as other risks of which we are not aware or which we currently do not believe to be material, may cause our actual future results to be materially different than those expressed in our forward-looking statements. Undue reliance should not be placed on these forward-looking statements. We do not undertake any obligation to make any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events, except as required by law. Certain forward-looking statements are based on assumptions, qualifications and procedures which are set out only in the Los Gatos Technical Report. For a complete description of assumptions, qualifications and procedures associated with such information, reference should be made to the full text of the Los Gatos Technical Report.

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Risk Factors Summary

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

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

● we may not sustain profitability;

● mineral reserve and mineral resource calculations at the CLG and other deposits in the CLG are only estimates and actual production results or future estimates may vary significantly from the current estimates;

● our and the Los Gatos Joint Venture’s (the “LGJV”) mineral exploration efforts are highly speculative in nature and may be unsuccessful;

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

● our operations involve significant risks and hazards inherent to the mining industry;

● the ability to mine and process ore at the CLG or other future operations may be adversely impacted in certain circumstances, some of which may be unexpected and not in our control;

● land reclamation and mine closure may be burdensome and costly and such costs may exceed our estimates;

● we may be materially and adversely affected by challenges relating to stability of underground openings;

● the title to some of the mineral properties may be uncertain or defective and we may be unable to obtain necessary surface and other rights to explore and exploit some mineral properties;

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

● our success depends on developing and maintaining relationships with local communities and stakeholders;

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

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

● the Mexican federal government recently promulgated significant amendments to laws affecting the mining industry; while it is difficult to ascertain if and when the amendments will be fully implemented, and there is some lack of clarity in their drafting including their intended retroactive effect, the amendments could have a material adverse effect on the mining industry, and the LGJV’s and our Mexican businesses, particularly in respect of any new concessions, new mining permits, and new operations;

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

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

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

● we are currently, and may in the future be, subject to claims and legal proceedings, including class action lawsuits, that could materially and adversely impact our financial position, financial performance and results of operations; and

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

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

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PART I

Item 1A.  Risk Factors

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

Risks Related to Our Financial Condition

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

The LGD (other than the CLG) does not have identified proven and probable mineral reserves. Mineral exploration and development involve a high degree of risk that even a combination of careful evaluation, experience and knowledge cannot eliminate, and few properties that are explored are ultimately developed into producing mines. There is no assurance that our mineral exploration programs at the LGD will establish the presence of any additional proven or probable mineral reserves. The failure to establish additional proven or probable mineral reserves would severely restrict our ability to implement our strategies for long-term growth which include extending the current CLG life of mine.

We may not sustain profitability.

We have a history of negative operating cash flows and cumulative net losses. For the years ended December 31, 2021 and 2020, we reported a net loss of $65.9 million (restated) and $40.4 million, respectively, and negative operating cash flow of $21.5 million and $18.4 million, respectively.

We may not sustain profitability. To remain profitable, we must succeed in generating significant revenues at the LGJV, which will require us to be successful in a range of challenging activities and is subject to numerous risks, including the risk factors set forth in this “Risk Factors” section. In addition, we may encounter unforeseen expenses, difficulties, complications, delays, inflation and other unknown factors that may adversely affect our revenues, expenses and profitability. Our failure to achieve or sustain profitability would depress our market value, could impair our ability to execute our business plan, raise capital or continue our operations and could cause our shareholders to lose all or part of their investment.

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

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

We do not currently intend to enter into hedging arrangements with respect to metal prices or currencies, which could expose us to losses. We are also subject to risks relating to exchange rate fluctuations.

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

We report our financial statements in U.S. dollars. A portion of our costs and expenses are incurred in Mexican pesos and, to a lesser extent, Canadian dollars. As a result, any significant and sustained appreciation of these currencies against the U.S. dollar may materially increase our costs and expenses. Even if we seek and are able to enter into hedging contracts, there is no assurance that such

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hedging program will be effective, and any hedging program would also prevent us from benefitting fully from applicable input cost or rate decreases. In addition, we may in the future experience losses if a counterparty fails to perform under a hedge arrangement.

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

We have a Credit Facility providing for a revolving line of credit in the principal amount of $50 million that has an accordion feature, which allows for an increase in the total line of credit up to $75 million, subject to certain conditions. As of December 31, 2021, we had $13 million of outstanding indebtedness under the Credit Facility. As of the date of the Original Filing, the balance outstanding under the Credit Facility was $9 million following a $4 million principal repayment in December 2022. The Credit Facility contains affirmative and negative covenants. If we are unable to comply with the requirements of the Credit Facility, the facility may be terminated or the credit available thereunder may be materially reduced, and we may not be able to obtain additional or alternate funding on satisfactory terms, if at all. In 2022, for example, we were required to revise our Credit Facility following our announcement on January 25, 2022, that there were reserve calculation errors and indications of an overestimation in the existing resource model for the CLG. See Note 12 — Debt in our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” for additional information regarding our Credit Facility. Our borrowings under the Credit Facility accrues interest based on SOFR; therefore, any increases in interest rates could adversely affect our financial conditions and ability to service our indebtedness.

While the LGJV currently has no significant debt service obligations, the LGJV may in the future incur debt obligations and the above factors would apply to such debt. For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Dowa Debt Agreements.”

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

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

Changes in tax laws or policy could have a negative impact on the Company’s effective tax rate The Company operates in countries which have different statutory rates. Consequently, changes in the mix and source of earnings between countries could have a material impact on the Company’s overall effective tax rate.

The LGJV is subject to Mexican income and other taxes, and distributions from the LGJV are subject to Mexican withholding taxes. Any change in such taxes could materially adversely affect our effective tax rate and the quantum of cash available to be distributed to us.

Risks Related to Our Operations

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

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

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

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

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

● declines in the market price of silver, lead or zinc;

● increased production or capital costs;

● decreased throughput;

● reduction in grade;

● increase in the dilution of ore;

● inflation rates, future foreign exchange rates and applicable tax rates;

● changes in environmental, permitting and regulatory requirements; and

● reduced metal recovery.

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

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

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

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

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

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The ability to mine and process materials at the CLG or other future operations may be adversely impacted in certain circumstances, some of which may be unexpected and not in our control.

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

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

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

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

The actual capital and operating costs at the CLG will depend upon changes in the availability and prices of labor, equipment and infrastructure, variances in ore recovery and mining rates from those assumed in the mining plan, operational risks, changes in governmental regulation, including taxation, environmental, permitting and other regulations and other factors, many of which are beyond our control. Due to any of these or other factors, the capital and operating costs at the CLG may be significantly higher than those set forth in the Los Gatos Technical Report. As a result of higher capital and operating costs, production and economic returns may differ significantly from those set forth in the Los Gatos Technical Report and there are no assurances that any future development activities will result in profitable mining operations.

Land reclamation and mine closure may be burdensome and costly and such costs may exceed our estimates.

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

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

The Los Gatos Technical Report indicates that the CLG is a profitable silver-zinc-lead project with an estimated 5-year mine life currently, at modeled metals prices. If the development of one of our other mineral properties is found to be economically feasible, the development of such projects will require obtaining permits and financing, and the construction and operation of mines, processing

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plants and related infrastructure. As a result, we will be subject to certain risks associated with establishing new mining operations, including:

● the timing and cost, which can be considerable, of the construction of mining and processing facilities and related infrastructure;

● the availability and cost of skilled labor, mining equipment and principal supplies needed for operations, including explosives, fuels, chemical reagents, water, power, equipment parts and lubricants;

● the availability and cost of appropriate smelting and refining arrangements;

● the need to obtain necessary environmental and other governmental approvals and permits and the timing of the receipt of those approvals and permits;

● the availability of funds to finance construction and development activities;

● industrial accidents;

● mine failures, shaft failures or equipment failures;

● natural phenomena such as inclement weather conditions, floods, droughts, rock slides and seismic activity;

● unusual or unexpected geological and metallurgical conditions, including excess water in underground mining;

● exchange rate and commodity price fluctuations;

● high rates of inflation;

● health pandemics;

● potential opposition from nongovernmental organizations, environmental groups or local groups, which may delay or prevent development activities; and

● restrictions or regulations imposed by governmental or regulatory authorities, including with respect to environmental matters.

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

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

Our operations involve the operation of large machines, heavy mobile equipment and drilling equipment. Hazards such as adverse environmental conditions, industrial accidents, labor disputes, unusual or unexpected geological conditions, ground control problems, cave-ins, changes in the regulatory environment, metallurgical and other processing problems, mechanical equipment failure, facility performance problems, fire and natural phenomena such as inclement weather conditions, floods and earthquakes are inherent risks in our operations. Certain of these hazards may be more severe or frequent as a result of climate change. Hazards inherent to the mining industry have in the past caused and may in the future cause injuries or death to employees, contractors or other persons at our mineral properties, severe damage to and destruction of our property, plant and equipment, and contamination of, or

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damage to, the environment, and can result in the suspension of our exploration activities and future development and production activities. While we aim to maintain best safety practices as part of our culture, safety measures implemented by us may not be successful in preventing or mitigating future accidents.

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

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

Our underground mines get deeper and our waste and tailings deposits increase in size as we continue with and expand our mining activities, presenting certain geotechnical challenges, including the possibility of failure of underground openings. If we are required to reinforce such openings or take additional actions to prevent such a failure, we could incur additional expenses, and our operations and stated mineral reserves could be negatively affected. We have taken the actions we determined to be proper in order to maintain the stability of underground openings, but additional action may be required in the future. Unexpected failures or additional requirements to prevent such failures may adversely affect our costs and expose us to health and safety and other liabilities in the event of an accident, and in turn materially and adversely affect the results of our operations and financial condition, as well as potentially have the effect of diminishing our stated mineral reserves.

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

Under the laws of Mexico, mineral resources belong to the state, and government concessions are required to explore for or exploit mineral reserves. Mineral rights derive from concessions granted, on a discretionary basis, by the Ministry of Economy, pursuant to the Mexican mining law and the regulations thereunder. While we and the LGJV hold title to the mineral properties in Mexico described in this Report, including the CLG, through these government concessions, there is no assurance that title to the concessions comprising the CLG or our or the LGJV’s other properties will not be challenged or impaired. One of our concessions, comprising over 19,000 hectares, the Los Gatos concession, is held by us subject to the terms of an agreement with the original holder of that concession. The CLG and our or the LGJV’s other properties may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by such undetected defects. A title defect on any of our mineral properties (or any portion thereof) could adversely affect our ability to mine the property and/or process the minerals that we mine.

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

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

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

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

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

Risks Related to Our Business and Industry

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

Our business and financial performance will be significantly affected by fluctuations in the prices of silver, zinc and lead. The prices of silver, zinc and lead are volatile, can fluctuate substantially and are affected by numerous factors that are beyond our control. For the year ended December 31, 2021, the London Bullion Market Association (“LBMA”) silver price ranged from a low of $21.53 per ounce on September 30, 2021 to a high of $29.59 per ounce on February 1, 2021; the London Metals Exchange (“LME”) Official Settlement zinc price ranged from a low of $2,539 per tonne ($1.15 per pound) on February 2, 2021 to a high of $3,815 per tonne ($1.73 per pound) on October 18, 2021; the LME Official Settlement lead price ranged from a low of $1,896 per tonne ($0.86 per pound) on March 18, 2021 to a high of $2,504 per tonne ($1.14 per pound) on August 18, 2021. For the year ended December 31, 2022, the LBMA silver price ranged from a low of $17.77 per ounce on September 1, 2022 to a high of $26.18 per ounce on March 9, 2022; the LME Official Settlement zinc price ranged from a low of $2,682 per tonne ($1.22 per pound) on November 3, 2022 to a high of $4,530 per tonne ($2.05 per pound) on April 19, 2022; the LME Official Settlement lead price ranged from a low of $1,754 per tonne ($0.80 per pound) on September 27, 2022 to a high of $2,513 per tonne ($1.14 per pound) on March 7, 2022. Prices are affected by numerous factors beyond our control, including:

● prevailing interest rates and returns on other asset classes;

● expectations regarding inflation, monetary policy and currency values;

● speculation;

● governmental and exchange decisions regarding the disposal of precious metals stockpiles, including the decision by the CME Group, the owner and operator of the futures exchange, to raise silver’s initial margin requirements on futures contracts;

● political and economic conditions;

● available supplies of silver, zinc and lead from mine production, inventories and recycled metal;

● sales by holders and producers of silver, zinc and lead; and

● demand for products containing silver, zinc and lead.

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

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

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

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

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

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

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

We are subject to class action lawsuits.

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

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

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

For example, the COVID-19 pandemic temporarily affected our financial condition in 2020, in part due to the loss of revenue resulting from the 45-day temporary suspension of all nonessential activities at the LGJV’s CLG site, reduced production rates and the additional expenses associated with the development and implementation of COVID-19 protocols.

Any prolonged disruption of our or the LGJV’s operations and closures of facilities resulting from health pandemic, epidemics communicable diseases or public health crises would delay our current exploration and production timelines and negatively impact our business, financial condition and results of operations and may heighten the other risk factors discussed in this “Risk Factors” section.

The mining industry is very competitive.

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

Our insurance may not provide adequate coverage.

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

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

Our business is sensitive to nature and climate conditions.

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

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surface operations and exploration at our mines and may require us to make additional expenditures to mitigate the impact of such events.

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

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

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

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

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

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

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

We rely on various information technology systems. These systems remain vulnerable to disruption, damage or failure from a variety of sources, including, but not limited to, errors by employees or contractors, computer viruses, cyberattacks, including phishing, ransomware, and similar malware, misappropriation of data by outside parties, and various other threats. Techniques used to obtain unauthorized access to or sabotage our systems are under continuous and rapid evolution, and we may be unable to detect efforts to disrupt our data and systems in advance. Breaches and unauthorized access carry the potential to cause losses of assets or production, operational delays, equipment failure that could cause other risks to be realized, inaccurate recordkeeping, or disclosure of confidential information, any of which could result in financial losses and regulatory or legal exposure, and could have a material adverse effect on our cash flows, financial condition or results of operations. Although to date we have not experienced any material losses relating to cyberattacks or other information security breaches, there can be no assurance that we will not incur such losses in the future. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As such threats continue to evolve, we may be required to expend additional resources to modify or enhance any protective measures or to investigate and remediate any security vulnerabilities.

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

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

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

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

We are required, pursuant to Section 404 of the Sarbanes Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting for fiscal year 2021. This assessment includes disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. Additionally, we are required to disclose changes made in our internal controls and procedures on a quarterly basis.

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

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

● We did not demonstrate the appropriate tone at the top including failing to design or maintain an effective control environment commensurate with the financial reporting requirements of a public company in the United States and Canada. In particular, we did not design control activities to adequately address identified risks or operate at a sufficient level of precision that would identify material misstatements to our financial statements and did not design and maintain sufficient formal documentation of accounting policies and procedures to support the operation of key control procedures.

● We failed to design and maintain effective controls relating to our risk assessment process as it pertained to the assessment of key assumptions, inputs and outputs contained in our July 2020 technical report.

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

● We failed to design and maintain effective controls over accounting for current and deferred income taxes. This material weakness resulted in a material misstatement of our previously issued financial statements for the year ended December 31, 2021 which resulted in an overstatement of the current income tax expense. Specifically, the financial statements of the LGJV at December 31, 2021 did not accurately reflect the current and deferred tax assets and liabilities at December 31, 2021. Consequently, the impairment of investment in affiliates and the investment in affiliates and the equity income in affiliates were also not accurately presented in the Company’s financial statements at December 31, 2021.

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● We did not have adequate technical accounting expertise to ensure that complex accounting matters such as the impact of the priority distribution payment due to our joint venture partner and the impairment charge was recognized in accordance with GAAP. These material weaknesses resulted in a material misstatement of our previously issued financial statements for the year ended December 31, 2021. The financial statements did not accurately reflect the investment in affiliates and the equity income in affiliates. Additionally, this caused the impairment of investment in affiliates to be misstated.

This Amendment No. 1 contains restated financial statements for the fiscal year ended December 31, 2021.

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

● engaged a third-party expert to assist management in documenting key processes related to our internal control environment, designing and implementing an effective risk assessment and monitoring program to identify risks of material misstatements and ensuring that the internal controls have been appropriately designed to address and effectively monitor identified risk;

● hired a new executive leadership team, including a new CEO, CFO and senior executive responsible for technical services, each of which has appropriate experience and has demonstrated a commitment to improving the Company’s control environment;

● hired additional personnel with accounting and technical expertise, including hiring new accounting staff in connection with the relocation of the Company’s headquarters to Vancouver;

● enhanced the procedures and functioning of our disclosure committee relating to the appropriate reporting of information and review and approval of the Company’s public disclosures;

● engaged a new independent third-party subject matter specialist to perform a technical review of the 2022 mineral resource and mineral reserve estimates;

● enhanced our procedures, including implementing appropriate controls, relating to management verification of the key assumptions, inputs and outputs for our Technical Reports;

● engaged a new independent third-party tax specialist to perform a review of the tax provision calculation at the LGJV and the recognition of deferred tax assets and liabilities; and

● implemented process to identify complex technical accounting matters that would require technical accounting analysis by a technical accounting expert in a timely manner.

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

Our remediation efforts may not enable us to avoid a material weakness in the future. We may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. If we continue to be unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls to the extent required, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.

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Risks Related to Government Regulations

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

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

● limitations on land use;

● mine permitting and licensing requirements;

● reclamation and restoration of properties after mining is completed;

● management of materials generated by mining operations; and

● storage, treatment and disposal of wastes and hazardous materials.

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

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

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

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The Mexican federal government recently promulgated significant amendments to laws affecting the mining industry; while it is difficult to ascertain if and when the amendments will be fully implemented, and there is some lack of clarity in their drafting including their intended retroactive effect, the amendments could have a material adverse effect on the mining industry, and the LGJV’s and our Mexican businesses, particularly in respect of any new concessions, new mining permits, and new operations.

On May 8, 2023, legislative amendments were promulgated by the Mexican federal government (the “Amendments”). If fully implemented, the Amendments would include the following attributes: new concessions would only be granted through public bidding and letters of credit would be required; new mining concessions would be granted in respect of specified minerals; the potential to expropriate private land would be discontinued; the term and extension period of new mining concessions would be reduced to 30 and 25 years, respectively; the approval of transferees of mining concessions would be required; minimum payments of 5% of profits to local communities would be imposed; social impact studies and community consultation would be required; restoration, closure and post closure programs would be required; water availability would be a condition for granting new mining concessions; the concept of presumptive approval (afirmativa ficta) for approval matters properly and timely submitted to regulatory agencies would be removed; parastatal entities could be created and would enjoy preferential rights to exploration; environmental obligations and prohibitions would be increased; and water concessions could be significantly modified by governmental authorities in certain circumstances. The foregoing is a non-exhaustive summary of the Amendments.

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

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

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

● the possible unilateral cancellation or forced renegotiation of contracts and licenses;

● unfavorable changes in laws and regulations;

● royalty and tax increases;

● claims by governmental entities or indigenous communities;

● expropriation or nationalization of property;

● political instability;

● fluctuations in currency exchange rates;

● social and labor unrest, organized crime, hostage taking, terrorism and violent crime;

● uncertainty regarding the availability of reasonable electric power costs;

● uncertainty regarding the enforceability of contractual rights and judgments; and

● other risks arising out of foreign governmental sovereignty over areas in which our mineral properties are located.

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Local economic conditions also can increase costs and adversely affect the security of our operations and the availability of skilled workers and supplies. Higher incidences of criminal activity and violence in the area of some of our properties could adversely affect the LGJV’s ability to operate in an optimal fashion or at all, and may impose greater risks of theft and higher costs, which would adversely affect results of operations and cash flows.

Acts of civil disobedience are common in Mexico. In recent years, many mining companies have been targets of actions to restrict their legally entitled access to mining concessions or property. Such acts of civil disobedience often occur with no warning and can result in significant direct and indirect costs. We cannot provide assurance that there will be no disruptions to site access in the future, which could adversely affect our business.

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

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

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

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

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

Mining companies, including ours, need many environmental, construction and mining permits, each of which can be time consuming and costly to obtain, maintain and renew. In connection with our current and future operations, we must obtain and maintain a number of permits that impose strict conditions, requirements and obligations, including those relating to various environmental and health and safety matters. To obtain, maintain and renew certain permits, we have been and may in the future be required to conduct environmental studies, and make associated presentations to governmental authorities, pertaining to the potential impact of our current and future operations upon the environment and to take steps to avoid or mitigate those impacts. Permit terms and conditions can impose restrictions on how we conduct our operations and limit our flexibility in developing our mineral

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properties. Many of our permits are subject to renewal from time to time, and applications for renewal may be denied or the renewed permits may contain more restrictive conditions than our existing permits, including those governing impacts on the environment. We may be required to obtain new permits to expand our operations, and the grant of such permits may be subject to an expansive governmental review of our operations. We may not be successful in obtaining such permits, which could prevent us from commencing, continuing or expanding operations or otherwise adversely affect our business. Renewal of existing permits or obtaining new permits may be more difficult if we are not able to comply with our existing permits. Applications for permits, permit area expansions and permit renewals can also be subject to challenge by interested parties, which can delay or prevent receipt of needed permits. The permitting process can vary by jurisdiction in terms of its complexity and likely outcomes. The applicable laws and regulations, and the related judicial interpretations and enforcement policies, change frequently, which can make it difficult for us to obtain and renew permits and to comply with applicable requirements. Accordingly, permits required for our operations may not be issued, maintained or renewed in a timely fashion or at all, may be issued or renewed upon conditions that restrict our ability to conduct our operations economically, or may be subsequently revoked. Any such failure to obtain, maintain or renew permits, or other permitting delays or conditions, including in connection with any environmental impact analyses, could have a material adverse effect on our business, results of operations and financial condition.

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

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

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

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

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

We may be responsible for anticorruption and antibribery law violations.

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

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

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

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

Risks Related to Ownership of Our Common Stock

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

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

● failure to identify mineral reserves at our properties;

● failure to achieve or continue production at our mineral properties;

● actual or anticipated changes in the price of silver and base metal byproducts;

● fluctuations in our quarterly and annual financial results or the quarterly and annual financial results of companies perceived to be similar to us;

● changes in market valuations of similar companies;

● success or failure of competitor mining companies;

● changes in our capital structure, such as future issuances of securities or the incurrence of debt;

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● sales of large blocks of our common stock;

● announcements by us or our competitors of significant developments, contracts, acquisitions or strategic alliances;

● changes in regulatory requirements and the political climate in the United States, Mexico, Canada or all;

● litigation and/or investigations involving our Company, our general industry or both;

● additions or departures of key personnel;

● investors’ general perception of us, including any perception of misuse of sensitive information;

● changes in general economic, industry and market conditions;

● accidents at mining properties, whether owned by us or otherwise;

● natural disasters, terrorist attacks and acts of war; and

● our ability to control our costs.

If the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock.

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

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

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

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

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

Certain stockholders have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have also registered all shares of common stock that we may issue under our equity compensation plans, which can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates. Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that holder of a large number of shares intends to sell shares, could cause the market

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price of our common stock to drop significantly and make it more difficult for us to raise additional funds through future offerings of our common stock or other securities.

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

We have never declared or paid any cash dividend on our capital stock. We do not intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain all future earnings, if any, to finance our business. The payment of any future dividends, if any, will be determined by our Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, business conditions, growth opportunities, corporate law requirements and other factors. In addition, our Credit Facility contains, and any of our future contractual arrangements may contain, restrictions on our ability to pay cash dividends on our capital stock.

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

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

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

● delaying, deferring or preventing a change of control, even at a per share price that is in excess of the then current price of our common stock;

● impeding a merger, consolidation, takeover or other business combination involving us, even at a per share price that is in excess of the then current price of our common stock; or

● discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even at a per share price that is in excess of the then-current price of our common stock.

We are an “emerging growth company” and a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to us will make our common stock less attractive to investors.

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

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

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may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock prices may be more volatile.

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

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

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

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

● any derivative action or proceeding brought on our behalf;

● any action asserting a breach of fiduciary duty;

● any action asserting a claim against us arising under the Delaware General Corporation Law; and

● any action asserting a claim against us that is governed by the internal affairs doctrine.

The foregoing provision does not apply to claims under the Securities Act, the Exchange Act or any claim for which the U.S. federal courts have exclusive jurisdiction. Our Amended and Restated Certificate of Incorporation further provides that the federal district courts of the United States will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.

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

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

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General Risk Factors

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

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

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

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

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PART II

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

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

Restatement of previously issued Consolidated Financial Statements for the correction of an understatement of Investment in affiliate and an understatement of deferred taxes assets in the combined financial statements of the LGJV

Investment in affiliates – Income Taxes

During the preparation of the 2022 annual financial statements the Company identified that the investment in affiliates and equity income in affiliates were not correct in prior periods. The Company identified that its investment in affiliate, the LGJV, did not recognize certain current and deferred tax assets and deferred tax liabilities in accordance with ASC 740, Income Taxes. As a result, the Company identified that there were errors in the calculation of the deferred tax assets related to property plant and equipment, mine development and historical net operating losses. In certain cases, the tax basis was not calculated in accordance with the Mexican tax regulations. The LGJV understated the value of the deferred tax assets at December 31, 2021, and, as a result, the investment in affiliates was understated before accounting for the impairment. In accordance with ASC 250, Accounting Changes and Error Corrections (“ASC 250”), these items are treated as errors and are material to the 2021 consolidated financial statements and the three quarters ended March 31, 2022, June 30, 2022, and September 30, 2022, and, therefore, require that these consolidated financial statements be restated.

The impact of the error on the financial statements of the LGJV was (i) an increase in deferred tax assets of $8.2 million, and (ii) a decrease in the current income tax liability of $6.3 million as of December 31, 2021, (iii) a decrease in foreign exchange loss of $1.4 million, (iv) and an increase in income tax recovery of $13.1 million.

The impact of the LGJV tax errors on the Company’s financial statements for the year ended December 31, 2021, was an increase in the investment in affiliates and equity income in affiliates of $10.1 million.

Investment in affiliates – Priority distribution payment

The Company also identified that the accounting for the priority distribution payment to our partner in the LGJV was not recorded in accordance with ASC 970 –323-35, Equity Method and Joint Ventures. The priority distribution payment was required to be excluded from the initial equity income in affiliates and equity income should have been recognized after the priority distribution payment was accounted for. This is considered an error in accordance with ASC 250 and is material to the consolidated financial statements for 2021 and the three quarters ended March 31, 2022, June 30, 2022, and September 30, 2022, and, therefore, require that the consolidated financial statements be restated.

The impacts of the error described on the Company’s financial statements for the year ended December 31, 2021, was a decrease in the investment in affiliates and equity income in affiliates of $2.6 million.

Investment in affiliates – impairment

During the process of correcting the deferred tax assets and liabilities discussed above the Company identified that the fair value financial model used to calculate the impairment of the investment in affiliate overstated the amount of VAT receivable that was available to offset against future income taxes payable in Mexico. In addition, the net operating losses and future tax depreciation amounts were incorrectly calculated and the Company incorrectly included the value of future management fees receivable in the fair value calculation. These errors resulted in a decrease of $21.9 million in the fair value of the cash flows used to determine the amount of the impairment of the investment in affiliate. As a result of the changes to the timing and recognition of deferred tax assets and liabilities, the priority distribution payment accounting explained above, and the resulting impact of the basis amortization of the investment in affiliates, the book value of the investment in affiliates increased by $6.9 million. The net result was an increase in the impairment of the investment in affiliates of $28.8 million.

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The aggregate impact of the above-noted changes, along with the increase of $0.6 million in the basis amortization of the investment in affiliates resulting from the above-noted changes on basis amortization of the investment in affiliates and other previously uncorrected immaterial misstatement to general and administrative and paid in capital ($0.6 million respectively) was (i) an increase in equity income in affiliates of $6.9 million, (ii) an increase in impairment of investment in affiliates by $28.8 million, (iii) an increase in net loss of $22.4 million, and (vi) a decrease in shareholders’ equity of $21.9 million for the year ended December 31, 2021. These adjustments related to non-cash items, accordingly there were not changes to cash flows from operations, cash flows from investing activities or cash flows from financing activities or to the cash balance for the year ended December 31, 2021.

These are considered errors in accordance with ASC 250 and are material to the consolidated financial statements for 2021 and require that the consolidated financial statements be restated. The restatement adjustments in 2021 only impacted the fourth quarter of 2021 with no impact to the first, second and third quarters of 2021 filed financial statements.

Due to these accounting errors, the Company’s management has concluded that material weaknesses in its internal controls over financial reporting existed at December 31, 2021, and through the current date. See Item 9A Controls and Procedures below for a further description on the material weaknesses.

Overview

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

2021 Key Highlights (LGJV at 100% Basis)

● LGJV revenues totaled $249.2 million for 2021, a 105% increase over 2020 as a result of higher throughput, higher average realized metal prices, higher silver grades and metal recovery;

● Achieved strong metal recoveries at CLG with silver recovery averaging 88.3%, zinc recovery averaging 62.9% and lead recovery averaging 87.6%;

● Achieved processing throughput of 909,586 tonnes, averaging 2,492 tpd and exceeding the 2,500 tpd design capacity at the CLG for the last three quarters of 2021;

● Silver ounces produced increased by 81% to 7.6 million ounces; however, cost sales only increased 50% as a result of the increase in production during 2021. By-product cash operating cost per ounce of payable silver was $4.98 in 2021 compared to $14.48 in 2020. CLG co-product AISC per ounce of payable silver equivalent reduced 25% to $19.05 and by-product AISC per ounce of payable silver reduced 47% to $15.72. The changes were primarily due to increased metal production as a result of higher-grade ore mined and higher mill throughput. See “Non GAAP Financial Measures” below;

● Repurchased an additional 18.5% interest in the LGJV, increasing the Company’s LGJV interest to 70%;

● Extinguished the $60 million LGJV WCF of which Gatos Silver’s pro-rata portion was $42 million;

● Retired the LGJV’s Term Loan of which Gatos Silver’s 70% portion and related costs was $155.9 million;

● Raised net proceeds of $118.9 million in a follow-on public offering and secured a $50 million Credit Facility;

● Managed COVID-19 prevention effectively at CLG;

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● Implemented physical and mental health initiatives in the community and continued community infrastructure support to secure our current strong foundation for solid operating performance and community engagement;

● Advanced definition drilling at CLG with six drills in operation as of December 31, 2021; and

● Recorded an other-than-temporary impairment totaling $80.3 million (restated) of its investment in affiliates.

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 LGD and our other exploration properties. Exploration expenses primarily consist of drilling costs, lease concession payments, assay costs and geological and support costs at our exploration properties.

General and Administrative Expenses

Our general and administrative expenses consist of salaries and benefits, stock compensation, professional and consultant fees, insurance and other general administration costs. Our general and administrative expenses are expected to increase significantly as we operate as a public company. We expect higher costs related to salaries, benefits, stock compensation, legal fees, compliance and corporate governance, accounting and audit expenses, stock exchange listing fees, transfer agent and other stockholder-related fees, directors’ and officers’ and other insurance costs, and other administrative costs. We were party to a Management Services Agreement with Silver Opportunity Partners Corporation (“SOP”) which was renamed to Sunshine Silver Mining & Refining Corporation (“SSMRC”), pursuant to which we provided certain executive and managerial advisory services to SSMRC. SSMRC reimbursed us for costs of providing such services. This agreement was terminated effective December 31, 2021.

Equity Income (Loss) in Affiliates

Our equity income (loss) in affiliates relates to our proportional share of net income (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.

Impairment of Investment in Affiliates

A loss in value of an investment that is other than a temporary decline shall be recognized. On November 10, 2022, the Company issued an updated technical report for the LGJV, the Los Gatos Technical Report. The Los Gatos Technical Report indicated a significant decrease in the mineral reserves and mineral resources from the previously issued technical report in 2020. The Company considered this reduction in the mineral reserve and mineral resources as an indicator of a possible other-than-temporary decline in value and as a result compared the carrying value of the LGJV on December 31, 2021, to the fair value of the LGJV. The fair value of the LGJV was estimated based on the net present value of the expected cash flows attributable to the Company from the LGJV. The discount rate used was 5.00%.

LGJV Arrangement Fee

Our LGJV arrangement fee consisted of arrangement fees related to the WCF and the Term Loan with Dowa prior to their extinguishment on March 11, 2021, and July 26, 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 did not incur LGJV arrangement fees beyond July 26, 2021, on the WCF or Term Loan.

Income Taxes

As we have incurred substantial losses from our exploration and pre-development activities, we may receive future 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 or the end of the LOM. Historically, we have not recognized these potential benefits in our financial

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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. As at December 31, 2021, a deferred tax asset of $17.4 million (restated) was recognized at the LGJV.

Royalties

Exploration activities are conducted on the mining concessions in Mexico. Mineral and concession lease payments are required to be paid to various entities to secure the appropriate claims or surface rights. Certain of these agreements also have royalty payments that were triggered when we began producing and selling lead and zinc concentrates.

Results of Operations

Results of operations Gatos Silver

The following table presents certain information relating to our operating results for the years ended December 31, 2021 and 2020. In accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), these financial results represent the restated consolidated results of operations of our Company and its subsidiaries (in thousands).

	Years Ended December 31,
	2021		2020
	(restated)
Expenses
Exploration	$	1,657	$	785
General and administrative		21,447		7,765
Amortization		89		30
Total expenses		23,193		8,580
Other income (expense)
Equity income (loss) in affiliates		42,804		(17,585)
Impairment of investment in affiliates		(80,348)		—
Arrangement fees		(195)		(4,843)
Interest expense		(185)		(4,047)
Other (expense) income		(4,738)		28
Total other expense		(42,662)		(26,447)
Net loss from continuing operations	$	(65,855)	$	(35,027)
Net loss from discontinued operations		—		(5,414)
Net loss	$	(65,855)	$	(40,441)

Gatos Silver

Year Ended December 31, 2021, Compared to Year Ended December 31, 2020

Exploration

Exploration costs incurred during 2021 increased approximately $0.9 million from 2020 mainly due to additional exploration drilling and sampling costs incurred.

General and administrative expenses

During 2021, we incurred general and administration expense of $21.4 million (restated) compared to $7.8 million in 2020. The $13.6 million increase is due to higher corporate expenditures related to public company governance and reporting requirements and increased stock-based compensation expense incurred during the year ended December 31, 2021. The Company also incurs expenses related to providing management and administration services to the LGJV, for which it receives a management fee, included in Other Income ($5.0 million for the year ended December 31, 2021).

Equity income (loss) in affiliates

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The improvement in equity income (loss), for the year ended December 31, 2021, resulted primarily from the increase in our ownership in the LGJV from 51.5% to 70.0% on March 11, 2021, resulting in a larger component of the net income of the investment in affiliates being recognized by the Company. In addition, during 2021 the LGJV recorded net income of $78.6 million (restated) compared to a net loss of $27.7 million in 2020, as a result the equity income in affiliates recorded during 2021 increased. The increase in net income at the LGJV was primarily due to the increase in concentrate sold and higher realized metals prices for the year ended December 31, 2021, compared to the year ended December 31, 2020. Concentrate production increased in 2021 due to mining and processing activities operating near design throughput for the year ended December 31, 2021, compared to the ramp-up to design throughput during the year ended December 31, 2020. Production during 2020 was impacted by the COVID-19 pandemic whereas the LGJV incurred certain fixed costs during the April through May 2020 temporary suspension and the related ramp-up periods, which contributed to the LGJV operating loss for the year ended December 31, 2020.

Impairment of investment in affiliate

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

The fair value of the LGJV was estimated based on the net present value of the expected cash flows attributable to the Company from the LGJV. The discount rate used was 5.00%. The fair value of the investment in the LGJV was estimated to be $333.5 million (restated) and the carrying value at December 31, 2021 was $413.8 million. Since the carrying value exceeded the fair value a non-cash impairment charge of $80.3 million was recorded during the fourth quarter of 2021. There was no impairment recorded for the year ended December 31, 2020.

Other (expense) income

Other loss of $4.7 million in 2021 primarily consists of the $10.0 million fee paid to Dowa, offset by a $5.0 million management fee received from the LGJV.

Net loss

For the year ended December 31, 2021, we recorded a net loss from continuing operations of $65.9 million (restated) compared to a net loss from continuing operations of $35.0 million for the year ended December 31, 2020. In addition to the items listed above the net loss for 2021 was also impacted by a $10.0 million fee paid to Dowa, the $4.6 million decrease in LGJV arrangement fees due to lower outstanding balances on the WCF and Term Loan extinguished in 2021, and the $4.0 million non-recurring interest expense in 2020 associated with the convertible note that was converted to capital stock as part of the IPO.

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Results of operations LGJV

The following table presents operational information and select restated financial information of the LGJV for years ended December 31, 2021 and 2020. The financial information is extracted from the Combined Statements of Income (Loss) for the years ended December 31, 2021 and 2020. The financial and operational information of the LGJV and CLG is shown on a 100% basis. As of December 31, 2021, our ownership of the LGJV was 70.0%.

		Year Ended
Financial		December 31,
Amounts in thousands		2021			2020
Revenue	$	249,194		$	121,470
Cost of sales		97,710			65,005
Royalties		4,781			2,148
Exploration		5,383			841
General and administrative		13,345			9,718
Depreciation, depletion and amortization		52,402			44,904
Other		—			3,416
Total other expense		(12,086)			(23,154)
Income tax recovery (restated)		15,097			—
Net income (loss) (restated)	$	78,584		$	(27,716)
Operating Results
Tonnes milled (dmt)		909,586			667,422
Tonnes milled per day (dmt)		2,492			1,829
Average Grades
Silver grade (g/t)		295			229
Gold grade (g/t)		0.32			0.42
Lead grade (%)		2.27			2.27
Zinc grade (%)		3.94			3.64
Contained Metal
Silver ounces (millions)		7.6			4.2
Zinc pounds - in zinc conc. (millions)		49.6			34.2
Lead pounds - in lead conc. (millions)		39.8			27.4
Gold ounces - in lead conc. (thousands)		5.2			4.9
Recoveries 1
Silver - in both lead and zinc concentrates		88.3	%		84.1	%
Zinc - in zinc concentrate		62.9	%		63.0	%
Lead - in lead concentrate		87.6	%		82.3	%
Gold - in lead concentrate		56.3	%		55.4	%
Average realized price per silver ounce	$	24.38		$	19.97
Average realized price per gold ounce	$	1,761		$	1,709
Average realized price per lead pound	$	1.01		$	0.83
Average realized price per zinc pound	$	1.38		$	1.03
Co-product AISC per ounce of payable silver equivalent2	$	19.05		$	25.34
By-product AISC per ounce of payable silver2	$	15.72		$	29.82

(1) Recoveries are reported for payable metals in the identified concentrate. Recoveries reported previously were based on total metal in both concentrates.

(2) See “Non-GAAP Financial Measures” below.

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LGJV

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenue

Revenue increased by 105% in 2021 compared to 2020, as a result of the continued ramp-up in production during 2021 and an increase in realized metal prices. Lead and zinc concentrate production increased 45% and 45% respectively, and realized silver, zinc and lead prices increased 22%, 34% and 22%, respectively. Silver and zinc ore grades increased 29% and 8%, respectively.

Cost of sales

Cost of sales increased by 50% primarily as a result of the increase in production and higher input costs due to cost inflation. Production during 2020 was impacted by the COVID-19 pandemic whereas the LGJV incurred certain fixed costs during the April through May 2020 temporary suspension and the related ramp-up periods. Co- product AISC per ounce of payable silver equivalent and by-product AISC per ounce of decreased by 25% and 47% respectively, to $19.05 and 15.72, respectively, for the year ended 2021.

Royalties

Royalty expense increased by $2.6 million in 2021 due to the increase in metal prices and increase in metal production during the year ended December 31, 2021.

Exploration

Exploration expense of $5.4 million in 2021 related to work performed to expand resources throughout the LGD.

General and Administrative

General and administrative expense for 2021 were 37% higher than in 2020, During 2020 the LGJV reduced the headcount of general and administrative personnel to limit the spread of COVID-19 resulting in lower general and administrative expenditures. During 2021 headcount was increased to normal levels. In addition, general and administrative costs were higher in 2021 due to higher insurance costs, and increased COVID-19 preventative costs.

Depreciation, depletion and amortization

Depreciation, depletion, and amortization expense increased by approximately 17% year over year primarily as a result of an increase in tonnes mined and also due to the decrease in the mineral reserve and the shorter mine life based on the Los Gatos Technical Report. The lower mineral reserve tonnes and shorter LOM reduced the basis for the depreciation and as a result increased the depreciation, depletion, and amortization expense incurred in 2021.

Other expense

Other expense decreased primarily due to a 48% decrease in interest expense due to lower interest rates, lower borrowings and lower arrangement fees incurred during 2021 compared to 2020 as a result of the retirement of the WCF and the Term Loan.

Income tax recovery

In 2021, the LGJV recognized an income tax recovery due to the release of the full valuation allowance on its deferred tax assets.

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Net Income (loss)

For the year ended December 31, 2021, the LGJV had net income of $78.6 million (restated) compared to a net loss of $27.7 million for the year ended December 31, 2020. The change in net income (loss) was primarily due to the significant increase in revenue driven by the strong improvement in production during 2021, partially offset by an increase in cost of sales, royalties, depreciation depletion and amortization, royalty expense, and general and administrative expense. In addition, interest expense decreased 56% due to lower interest rates, lower borrowings and lower arrangement fees resulting from the retirement of the WCF and Term Loan and the LGJV recognized an income tax benefit due to the release of the full valuation allowance and an increase in income tax benefit in the current year.

Cash Flows

Gatos Silver

The following table presents our cash flows for the years ended December 31, 2021 and 2020.

	Years Ended December 31,
	2021		2020
Net cash provided by (used by)
Operating activities	$	(21,485)	$	(18,388)
Investing activities		(261,439)		(12,129)
Financing activities		139,394		172,464
Total change in cash	$	(143,530)	$	141,947

Cash used by operating activities was $21.5 million and $18.4 million for the years ended December 31, 2021 and 2020, respectively. The $3.1 million increase in cash usage was primarily due to a $10.0 million fee paid to Dowa and higher general and administrative costs, partially offset by favorable working capital changes from operations and discontinued operations spun off in October 2020.

Cash used by investing activities was $261.4 million and $12.1 million for the years ended December 31, 2021 and 2020, respectively. The $249.3 million increase was primarily due to the $144.8 million capital contribution to the LGJV used to extinguish our 70% share of the Term Loan repayment in July 2021, the $71.6 million acquisition of the 18.5% interest in the LGJV from Dowa in March 2021 and the $42 million pro-rata capital contribution to the LGJV for the extinguishment of the WCF in March 2021.

Cash provided by financing activities was $139.4 million and $172.5 million for the years ended December 31, 2021 and 2020, respectively. For the year ended December 31, 2021, cash provided by financing activities primarily reflected the $121.0 million in net proceeds from the issuance of common stock in a follow-on public offering and the $13.0 million in borrowings under the Credit Facility. For the year ended December 31, 2020, cash provided by financing activities primarily reflected the $160.4 million in net proceeds from the issuance of common stock in the IPO and the $15.0 million in proceeds from related party borrowings.

LGJV

The following table presents summarized information relating to the LGJV’s cash flows for years ended December 31, 2021 and 2020.

	Years Ended December 31,
	2021		2020
Net cash provided by (used by)
Operating activities	$	119,787	$	47,872
Investing activities		(79,045)		(64,436)
Financing activities		(22,138)		16,938
Total change in cash	$	18,604	$	374

Cash provided by operating activities was $119.8 million and $47.9 million for the years ended December 31, 2021 and 2020, respectively. The $71.9 million increase in cash provided by operating activities was primarily due to the increase in revenue

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due to higher metals prices, higher processed ore tonnes and higher ore grades for the year ended December 31, 2021, compared to the prior year period, partially offset by increased receivables from customers.

Cash used by investing activities was $79.0 million and $64.4 million for the years ended December 31, 2021 and 2020, respectively. The $14.6 million increase in cash used was primarily due to higher expenditures for property, plant and equipment and mine development.

Cash used by financing activities was $22.1 million for the year ended December 31, 2021 and cash provided by financing activities was $16.9 million for the year ended December 31, 2020. The $39.1 million change in financing cash flows was primarily due to the $144.8 million retirement of the Term Loan in July 2021, the $60 million extinguishment of the WCF in March 2021, and the $15.9 million Term Loan payment in June 2021, partially offset by the $207.2 million of capital contributions in 2021 and the proceeds from the $18.9 million related party loans to the LGJV during the year ended December 31, 2020.

Liquidity and Capital Resources

As of December 31, 2021, and December 31, 2020, we had cash and cash equivalents of $6.6 million and $150.1 million, respectively. The decrease in cash and cash equivalents was primarily due to our $71.6 million repurchase of the 18.5% interest in the LGJV from Dowa, the $42.0 million capital contribution to the LGJV used to extinguish our 70% share of the WCF, the $144.8 million capital contribution to the LGJV used to extinguish our 70% share of the Term Loan repayment, and a $10.0 million fee paid to Dowa; partially offset by net proceeds of $118.9 million from the July 2021 follow-on public offering and $13.0 million borrowing under the Credit Facility. As a result of the 18.5% repurchase, our ownership in the LGJV increased to 70% and Dowa’s ownership reduced to 30% on March 11, 2021.

Sources and Uses of Capital Resources

On March 11, 2021, using proceeds from our initial public offering on October 30, 2020, we repurchased an approximate 18.5% interest in the LGJV, increasing our ownership to 70.0%, for a total consideration of $71.6 million, including a premium and all costs incurred by Dowa in connection with its ownership of such equity interest, including, but not limited to, legal and accounting fees, capital contributions and taxes. Additionally, we contributed $42.0 million, our 70% share to extinguish the $60.0 million WCF.

On July 19, 2021, we completed a public offering of 8,930,000 shares of common stock at a price of $14.00 per share, resulting in net proceeds of $118.9 million, after deducting underwriting discounts and commissions. On August 18, 2021, the Company issued an additional 286,962 shares of common stock at a price of $14.00 per share, through the exercise of the over-allotment option, with net proceeds from the additional issuance of $3.8 million, after deducting underwriting discounts and commissions. Additionally, the Company incurred $1.7 million in other costs related to the offering.

On July 12, 2021, the Company entered into the Credit Facility that provides for a $50 million revolving line of credit and has an accordion feature, which allows for an increase in the total line of credit up to $100.0 million (reduced to $75 million per the December 19, 2022 amendment), subject to certain conditions. As of December 31, 2021, $13.0 million was outstanding under the Credit Facility. The current balance outstanding on the Credit Facility is $9.0 million following a $4.0 million principal repayment in December 2022. For additional information, see “—Liquidity and Capital Resources—Indebtedness and Lines of Credit” below.

On July 26, 2021, the LGJV repaid all amounts owed to Dowa under the Term Loan. To fund its 70% portion of the Term Loan repayment, the Company loaned $144.8 million to the LGJV. This loan was converted into a capital contribution to the LGJV on July 26, 2021.

On May 31, 2023, our cash and cash equivalents are $10.5 million and we have $41 million available to be drawn under the Credit Facility; and the LGJV has cash and cash equivalents of $78.9 million. We believe we have sufficient cash and access to borrowings and other resources to carry out our business plans for at least the next 12 months. We may decide to increase our current financial resources with external financings if our long-term business needs require us to do so however there can be no assurance that the financing will be available to us on acceptable terms, or at all. We manage liquidity risk through our credit facility and the management of our capital structure.

We may be required to provide funds to the LGJV to support operations at the CLG which, depending upon the circumstances, may be in the form of equity, various forms of debt, joint venture funding or some combination thereof. There can be no assurance that additional funds will be available to us on acceptable terms, or at all. If we raise additional funds by issuing equity or

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convertible debt securities, substantial dilution to existing stockholders may result. Additionally, if we raise additional funds by incurring new debt obligations, the terms of the debt may require significant cash payment obligations, as well as covenants and specific financial ratios that may restrict our ability to operate our business.

Indebtedness and Lines of Credit

We guaranteed 70.0% of the Term Loan and the WCF (prior to the repayment on July 26, 2021, and March 11, 2021, respectively, as discussed further below). We guarantee the payment of all obligations, including accrued interest, under the LGJV equipment loan agreements. As of December 31, 2021, the LGJV had $6.0 million outstanding under the LGJV equipment loan agreements, net of unamortized debt discount of $14 thousand, with varying maturity dates through August 2023. We had certain arrangement fee obligations related to the CLG as detailed in the “LGJV Arrangement Fee” above.

On July 12, 2021, the Company entered into the Credit Facility that provides for a $50.0 million revolving line of credit with an accordion feature, which allowed at the time, for an increase in the total line of credit up to $100.0 million, subject to certain conditions. The Credit Facility maturity date was on July 31, 2024. The Credit Facility contains affirmative and negative covenants that are customary for credit agreements of this nature. The affirmative covenants consist of a leverage ratio, a liquidity covenant and an interest coverage ratio. The negative covenants include, among other things, limitations on asset sales, mergers, acquisitions, indebtedness, liens, dividends and distributions, investments and transactions with affiliates. Obligations under the Credit Facility may be accelerated upon the occurrence of certain customary events of default. Loans under the Credit Facility bear interest at a rate equal to either the LIBOR rate plus a margin ranging from 3.00% to 4.00% or the U.S. Base Rate plus a margin ranging from 2.00% to 3.00%, as selected by the Company, in each case, with such margin determined in accordance with a pricing grid based upon the Company’s consolidated net leverage ratio as of the end of the applicable period.

On July 19, 2021, we borrowed $13.0 million under the Credit Facility at a rate of LIBOR plus 3%. As of December 31, 2021, $13.0 million remained outstanding under the Credit Facility. On December 19, 2022, we made a $4.0 million repayment. The current balance outstanding on the Credit Facility is $9.0 million, as of March 20, 2023.

On March 7, 2022, we amended the Credit Facility with the lender, BMO, to address potential loan covenant deficiencies. The amendment included the following revisions:

● the credit limit was reduced to $30.0 million, until we deliver a new LOM CLG financial model with updated mineral reserves;

● upon assessment of the new CLG financial model, BMO, in its sole discretion, may increase the credit limit up to the original $50.0 million;

● requirement to provide updated financial projections for the CLG by September 30, 2022. The financial projections were provided by the required date, and it was used as the basis for the amendment entered into on December 19, 2022 discussed below; and

● waivers of certain defaults, events of default, representations and warranties and covenants arising out of the facts that led to the potential reduction in metal content of the previously stated mineral reserve figures.

On December 19, 2022, we entered an amended and restated Credit Facility with BMO extending the maturity date and re-establishing a credit limit of $50.0 million, with an accordion feature providing up to an additional $25.0 million. Key terms of the amended Credit Facility include:

● $50.0 million revolving line of credit with an accordion feature, which allows for an increase in the total line of credit up to $75.0 million, subject to certain conditions;

● The maturity date was extended from July 31, 2024 to December 31, 2025;

● A change in the benchmark interest rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”); and

● Loans under the Revolver bear interest at a rate equal to either a term SOFR rate plus a margin ranging from 3.00% to 4.00% or a U.S. base rate plus a margin ranging from 2.00% to 3.00%, at our option.

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The Credit Facility contains affirmative and negative covenants that are customary for agreements of this nature. The affirmative covenants require the Company to comply, at all times, with, among other things, a Leverage Ratio not greater than 3.00 to 1.00, with EBITDA calculated upon a trailing four fiscal quarter period, a liquidity covenant not less than $20.0 million and an interest coverage ratio not less than 4.00 to 1.00 calculated based on a trailing four fiscal quarter period. The negative covenants include, among other things, limitations on certain specified asset sales, mergers, acquisitions, indebtedness, liens, dividends and distributions, investments and transactions with affiliates.

Dowa Debt Agreements

Dowa Term Loan

On July 11, 2017, we entered into the Term Loan with the LGJV and Dowa, whereby the LGJV could borrow up to $210.0 million 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.

On July 26, 2021, the LGJV repaid all amounts owed to Dowa under the Term Loan. To fund its 70% portion of the Term Loan repayment, the Company loaned $144.8 million to the LGJV. This loan was converted into a capital contribution to the LGJV on July 26, 2021. Dowa’s 30% portion of the Term Loan was also converted into a capital contribution on July 26, 2021. The LGJV paid $0.4 million of outstanding accrued interest and a $1.6 million closing 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 $60.0 million for the benefit of the LGJV, with a maturity date of June 28, 2021. The interest under the WCF was LIBOR plus 3% per annum and was payable by the LGJV. We guaranteed 70% 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 $42.0 million and $18.0 million, respectively, in capital to the LGJV; the funds were used to extinguish the WCF.

Contractual Obligations

We and the LGJV entered into commitments with federal and state agencies to lease surface and mineral rights in Mexico related to our exploration activities. These leases are renewable annually.

Critical Accounting Policies

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

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Equity Method Investment

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

Mineral Properties and Carrying Value of Long-Lived Assets (LGJV)

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

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

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

Income and Mining Taxes

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

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Our properties involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state and Mexico tax audits. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues, if any, in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If an estimate of tax liabilities proves to be greater than the ultimate assessment, a tax benefit would result. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Common Stock Valuation

Prior to October 2020 we estimated the fair value of our common stock based on resource multiples, discounted cash flows, comparable property values, comparable public company equity values, changes in comparable public company equity values, and a discount for a lack of marketability. Prior to the IPO, based on this market data, the corresponding fair value of our common stock was used in valuing the options and DSUs granted in 2019 and 2020. At and subsequent to the IPO, the fair value of our common stock was based on the market price of our common stock on the grant date.

Recently Issued and Adopted Accounting Pronouncements

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

Jumpstart Our Business Startups Act of 2012

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

Non-GAAP Financial Measures

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

Cash Costs and All-In Sustaining Costs

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

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 the LGJV’s expenses to the non-GAAP measures of (i) cash costs, (ii) cash costs, net of by-product credits, (iii) co-product all-in sustaining costs and (iv) by-product all-in sustaining costs for our operations.

The calculations for determining co-product and by-product cash cost and co-product and by-product AISC per ounce for year ended December 31, 2021, were updated to include period end accruals for sales (both volume and value for payable metals). In addition, the calculation for determining silver equivalent ounces used for co-product cash cost per ounce and co-product AISC per ounce was updated to include final settlements in the calculation of the realized metal prices.

	Years Ended December 31,
(in thousands, except unit costs)	2021		2020
Cost of sales	$	97,710	$	65,005
Royalties		4,781		2,148
Exploration		5,383		841
General and administrative		13,345		9,718
Depreciation, depletion and amortization		52,402		44,904
Other		—		3,416
Total expenses	$	173,621	$	126,032
Depreciation, depletion and amortization		(52,402)		(44,904)
Exploration1		(5,383)		(841)
Treatment and refining costs2		21,601		23,305
Cash costs (A)	$	137,437	$	103,592
Sustaining capital		72,979		51,093
All-in sustaining costs (B)	$	210,416	$	154,685
By-product credits3		(103,571)		(55,370)
All-in sustaining costs, net of by-product credits (C)	$	106,845	$	99,315
Cash costs, net of by-product credits (D)	$	33,866	$	48,222
Payable ounces of silver equivalent4 (E)		11,045		6,104
Co-product cash cost per ounce of payable silver equivalent (A/E)	$	12.44	$	16.97
Co-product all-in sustaining cost per ounce of payable silver equivalent (B/E)	$	19.05	$	25.34
Payable ounces of silver (F)		6,797		3,331
By-product cash cost per ounce of payable silver (D/F)	$	4.98	$	14.48
By-product all-in sustaining cost per ounce of payable silver (C/F)	$	15.72	$	29.82

¹ Exploration costs are not related to current mining operations.

² Represent reductions on customer invoices and included in Revenue 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 year ended December 31, 2021 of $24.38/oz silver, $1.38/lb zinc, $1.01/lb lead and $1,761/oz gold and the average realized prices during the year ended December 31, 2020 of $19.97/oz silver, $1.03/lb zinc, $0.83/lb lead and $1,709/oz gold. The average realized prices are determined based on revenue inclusive of final settlements.

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Item 8.  Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Gatos Silver, Inc. Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm - EY (PCAOB ID 1263)	44
Report of Independent Registered Public Accounting Firm - (KPMG LLP, Denver, CO, Auditor Firm ID: 185)	45
Consolidated Balance Sheets as of December 31, 2021 (restated) and 2020	46
Consolidated Statements of Operations for the years ended December 31, 2021 (restated) and 2020	47
Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2021 (restated) and 2020	48
Consolidated Statements of Cash Flows for the years ended December 31, 2021 (restated) and 2020	49
Notes to the Restated Consolidated Financial Statements	50
Los Gatos Joint Venture Combined Financial Statements
Independent Auditor’s Report - EY	70
Combined Balance Sheets as of December 31, 2021 (restated) and 2020	72
Combined Statements of Income (loss) for the years ended December 31, 2021 (restated) and 2020	73
Combined Statements of Owner’s Capital for the years ended December 31, 2021 (restated) and 2020	74
Combined Statements of Cash Flows for the years ended December 31, 2021 (restated) and 2020	75
Notes to the Restated Combined Financial Statements	76

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Report of Independent Registered Public Accounting Firm

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

Opinion on the Consolidated Financial Statements

We have audited the consolidated balance sheet of Gatos Silver, Inc. (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, changes in shareholders’ equity (deficit), and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021 in accordance with U.S. generally accepted accounting principles.

Restatement of 2021 consolidated financial statements

As discussed in Note 3 to the consolidated financial statements, the 2021 consolidated financial statements have been restated to correct certain misstatements.

Basis for Opinion

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

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

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

/s/ Ernst and Young LLP

Chartered Professional Accountants

Licensed Public Accountants

We have served as the Company’s auditor since 2022.

Toronto, Canada

June 26, 2023

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Report of Independent Registered Public Accounting Firm

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

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Gatos Silver, Inc. and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for the year ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ KPMG LLP

We served as the Company’s auditor from 2011 to 2022.

Denver, Colorado
March 29, 2021

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GATOS SILVER, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,

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

	Notes	2021		2020
		(restated)
ASSETS
Current Assets
Cash and cash equivalents		$	6,616	$	150,146
Related party receivables			1,592		1,727
Other current assets	4		3,558		3,879
Total current assets			11,766		155,752
Non-Current Assets
Investment in affiliates	16		333,447		109,597
Other non-current assets			35		61
Total Assets		$	345,248	$	265,410
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other accrued liabilities	6	$	1,406	$	4,024
Non-Current Liabilities
Credit Facility, net of debt issuance costs	12		12,620		—
Shareholders’ Equity
Common Stock, $0.001 par value; 700,000,000 shares authorized; 69,162,223 and 59,183,076 shares outstanding as of December 31, 2021 and December 31, 2020, respectively			117		108
Paid‑in capital			544,383		409,728
Accumulated deficit			(213,278)		(147,423)
Treasury stock, at cost, nil and 144,589 shares as of December 31, 2021 and December 31, 2020, respectively			—		(1,027)
Total shareholders’ equity			331,222		261,386
Total Liabilities and Shareholders’ Equity		$	345,248	$	265,410

See accompanying notes to the consolidated financial statements.

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GATOS SILVER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,

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

	Notes	2021		2020
		(restated)
Expenses
Exploration		$	1,657	$	785
General and administrative			21,447		7,765
Amortization			89		30
Total expenses			23,193		8,580
Other income (expense)
Equity income (loss) in affiliates	3, 16		42,804		(17,585)
Impairment of investment in affiliates	3, 16		(80,348)		—
Arrangement fees			(195)		(4,843)
Interest expense			(185)		(4,047)
Other (expense) income	8, 11		(4,738)		28
Total other expense			(42,662)		(26,447)
Net loss from continuing operations		$	(65,855)	$	(35,027)
Net loss from discontinued operations	14		—		(5,414)
Net loss		$	(65,855)	$	(40,441)
Net loss per share:
Basic and diluted(1)
Continuing operations		$	(1.03)	$	(0.80)
Discontinued operations		$	—	$	(0.13)
		$	(1.03)	$	(0.93)
Weighted average shares outstanding:
Basic and diluted(1)			63,994,693		43,655,601

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

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GATOS SILVER, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

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

	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	—	—		—		—		4,563		—		4,563
Issuance of common stock, net	24,644,500	—		25		—		155,612		—		155,637
Convertible note conversion	2,712,003	—		3		—		18,981		—		18,984
Deferred salary conversion	47,061	—		—		—		329		—		329
DSU compensation	—	—		—		—		61		—		61
Distribution from Reorganization	(8,543,918)	—		—		—		(145,780)		118,601		(27,179)
Other	—	—		—		—		41		—		41
Net loss	—	—		—		—		—		(40,441)		(40,441)
Balance at December 31, 2020	59,183,076	144,589	$	108	$	(1,027)	$	409,728	$	(147,423)	$	261,386
Stock-based compensation(2)	—	—		—		—		7,694		—		7,694
Issuance of common stock, net	9,830,426	(144,589)		9		1,027		126,071		—		127,107
DSU compensation	—	—		—		—		1,163		—		1,163
DSUs converted to common stock	148,721	—		—		—		—		—		—
Other	—	—		—		—		(273)		—		(273)
Net loss(2)	—	—		—		—		—		(65,855)		(65,855)
Balance at December 31, 2021(2)	69,162,223	—	$	117	$	—	$	544,383	$	(213,278)		331,222

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

(2) Information for the year ended December 31, 2021, has been restated.

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GATOS SILVER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

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

	Notes	2021		2020
		(restated)
OPERATING ACTIVITIES
Net loss		$	(65,855)	$	(40,441)
Plus net loss from discontinued operations			—		5,414
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization			89		30
Stock-based compensation expense	9		7,738		4,368
Equity (income) loss in affiliates	16		(42,804)		17,585
Interest expense on convertible notes beneficial conversion terms	7		—		3,984
Impairment of investment in affiliates	16		80,348		—
Other			(260)		329
Changes in operating assets and liabilities:
Receivables from related‑parties