Attached files

file filename
EX-23.2 - EX-23.2 - Gatos Silver, Inc.a2242504zex-23_2.htm
EX-23.1 - EX-23.1 - Gatos Silver, Inc.a2242504zex-23_1.htm
EX-1.1 - EX-1.1 - Gatos Silver, Inc.a2242504zex-1_1.htm

Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on October 13, 2020.

Registration No. 333-249224


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 3 to

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



GATOS SILVER, INC.†
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  1040
(Primary Standard Industrial
Classification Code Number)
  27-2654848
(I.R.S. Employer
Identification Number)

8400 E. Crescent Parkway, Suite 600
Greenwood Village, CO 80111
(303) 784-5350

(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)



Stephen Orr
Chief Executive Officer and Director
Sunshine Silver Mining & Refining Corporation
8400 E. Crescent Parkway, Suite 600
Greenwood Village, CO 80111
(303) 784-5350

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)



Copies to:

Richard D. Truesdell, Jr.
Derek Dostal
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000

 

Michael J. Zeidel
Ryan J. Dzierniejko
Skadden, Arps, Slate, Meagher & Flom LLP
One Manhattan West
New York, NY 10001
(212) 735-3000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

           If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company ý

Emerging growth company ý

           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 7(a)(2)(B) of the Securities Act. ý



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
To Be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee(3)

 

Common Stock, par value $0.001 per share

  $100,000,000   $10,910

 

(1)
Includes offering price of shares of common stock which the underwriters have the right to purchase pursuant to their over-allotment option.

(2)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(3)
Previously paid.

           The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


Immediately prior to the completion of the offering to which this Registration Statement relates, we intend to undertake a reorganization and to change our name from Sunshine Silver Mining & Refining Corporation to Gatos Silver, Inc.


Table of Contents

The information contained in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 13, 2020

PRELIMINARY PROSPECTUS

            SHARES

GRAPHIC

GATOS SILVER, INC.

COMMON STOCK



        We are selling            shares of common stock to the underwriters in a firm commitment offering.

        Prior to this offering, there has been no public market for our common stock. We currently estimate that the initial public offering price will be between $            and $            per share. We have applied to list our common stock on the New York Stock Exchange ("NYSE") and the Toronto Stock Exchange ("TSX") under the symbol "GATO."

        The underwriters have an option to purchase a maximum of                        additional shares of common stock from us to cover over-allotments. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

        We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") and will therefore be subject to reduced reporting requirements.



        Investing in our common stock involves risks. See "Risk Factors" beginning on page 28 of this prospectus.



       
 
 
  Per Share
  Total
 

Public offering price

  $               $            
 

Underwriting discounts and commissions(1)

  $               $            
 

Proceeds, before expenses, to us

  $               $            

 

(1)
See "Underwriting and Plan of Distribution" for a description of compensation to be paid to the underwriters.

        Delivery of the shares of common stock will be made on or about                    , 2020 through the book-entry facilities of The Depositary Trust Company.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

BMO Capital Markets   Goldman Sachs & Co. LLC   RBC Capital Markets

The date of this prospectus is                                    , 2020.


Table of Contents


TABLE OF CONTENTS



 
  Page  

PROSPECTUS SUMMARY

    1  

THE OFFERING

    23  

SUMMARY CONSOLIDATED FINANCIAL DATA

    26  

RISK FACTORS

    28  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    53  

USE OF PROCEEDS

    55  

DIVIDEND POLICY

    57  

CAPITALIZATION

    58  

DILUTION

    59  

SELECTED CONSOLIDATED FINANCIAL DATA

    61  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    63  

SILVER INDUSTRY OVERVIEW

    78  

BUSINESS

    85  

MANAGEMENT

    125  

EXECUTIVE AND DIRECTOR COMPENSATION

    133  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    144  

PRINCIPAL SHAREHOLDERS

    148  

DESCRIPTION OF CAPITAL STOCK

    151  

U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

    155  

CANADIAN FEDERAL INCOME TAX CONSEQUENCES FOR CANADIAN HOLDERS

    158  

SHARES ELIGIBLE FOR FUTURE SALE

    162  

UNDERWRITING AND PLAN OF DISTRIBUTION

    164  

LEGAL PROCEEDINGS

    173  

LEGAL MATTERS

    173  

EXPERTS

    173  

WHERE YOU CAN FIND MORE INFORMATION

    174  

GLOSSARY OF TECHNICAL TERMS

    175  

INDEX TO FINANCIAL STATEMENTS

    F-1  



        We and the underwriters have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance and make no representation as to the reliability of, any other information that others may give you. We are offering to sell and are seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.


ABOUT THIS PROSPECTUS

        Immediately prior to the closing of this offering, we intend to effect a reorganization (the "Reorganization") in which (i) Silver Opportunity Partners LLC ("SOP") will become a wholly owned subsidiary of a newly created Delaware corporation named Silver Opportunity Partners Corporation ("SOP Corporation"), (ii) each            shares of our common stock outstanding immediately prior to the Reorganization will be exchanged for (A)             shares of our common stock (subject to rounding

i


Table of Contents

to eliminate fractional shares) and (B)             shares of common stock of SOP Corporation (subject to rounding to eliminate fractional shares) and (iii) we will change our name from Sunshine Silver Mining & Refining Corporation to Gatos Silver, Inc. SOP currently holds our interest in the Sunshine Complex, which is located in the Coeur d'Alene Mining District in Idaho and is comprised of the Sunshine Mine and the Sunshine Big Creek Refinery. Through the Reorganization, we expect to distribute all of our equity interest in SOP to our shareholders immediately prior to the completion of this offering. See "Prospectus Summary—Corporate Information and Reorganization." As used in this prospectus, SOP refers to (i) SOP prior to the Reorganization and (ii) SOP Corporation from and after the Reorganization. Unless otherwise indicated, all information in this prospectus assumes the completion of the Reorganization.

        Where information relates to our company before the Reorganization and where the context otherwise requires, the "Company," "SSMRC," "we," "us" and "our" refer to Sunshine Silver Mining & Refining Corporation and its consolidated subsidiaries, and, unless the context otherwise requires, to its affiliate entities, Minera Plata Real S. de R.L. de C.V. ("MPR"), Operaciones San Jose de Plata S. de R.L. de C.V. ("OSJ") and Servicios San Jose de Plata S. de R.L. de C.V. ("SSJ"). We also refer to these entities collectively as the "Los Gatos Joint Venture" or "LGJV" where applicable. Where information relates to our company following the Reorganization and where the context otherwise requires, "Gatos," the "Company," "we," "us" and "our" refer to Gatos Silver, Inc. and its consolidated subsidiaries, and, unless the context otherwise requires, to its affiliate entities that are part of the Los Gatos Joint Venture. We own approximately 51.5% of the LGJV. Despite owning the majority interest in the LGJV, we do not exercise control over the LGJV due to certain provisions contained in the Unanimous Omnibus Partner Agreement (as defined herein) that currently require unanimous partner approval of all major operating decisions (such as certain approvals, the creation of security interests on property, any initial public offering of the joint venture, and litigation settlements). We intend to exercise our right to repurchase an 18.5% interest in the LGJV from Dowa, increasing our ownership to approximately 70.0%. Following this increase in our ownership interest in the LGJV, we will continue to not exercise control over the LGJV due to the provisions contained in the Unanimous Omnibus Partner Agreement that currently require unanimous partner approval of all major operating decisions. See "Business—The Los Gatos District—Unanimous Omnibus Partner Agreement."


MARKET AND INDUSTRY DATA AND FORECASTS

        This prospectus includes market and industry data and forecasts that we have developed from independent research reports, publicly available information, various industry publications, other published industry sources or our internal data and estimates. Independent research reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that the publications and reports are reliable, neither we nor the underwriters have independently verified the data. Our internal data, estimates and forecasts are based on information obtained from trade and business organizations and other contacts in the markets in which we operate and our management's understanding of industry conditions. Although we believe that such information is reliable, we have not had such information verified by any independent sources.


NOTICE REGARDING MINERAL DISCLOSURE

        In October 2018, the Securities and Exchange Commission (the "SEC") adopted amendments to its current disclosure rules to modernize the mineral property disclosure requirements for mining registrants. The amendments include the adoption of a new subpart 1300 of Regulation S-K, which will govern disclosure for mining registrants (the "SEC Mining Modernization Rules"). The SEC Mining

ii


Table of Contents

Modernization Rules replace the historical property disclosure requirements for mining registrants that were included in the SEC's Industry Guide 7 and better align disclosure with international industry and regulatory practices, including the Canadian National Instrument 43-101—Standards of Disclosure for Mineral Projects ("NI 43-101"). Although compliance with the SEC Mining Modernization Rules is not required until January 1, 2021, we have chosen to voluntarily comply with the SEC Mining Modernization Rules in this prospectus.

        The technical report summary for our material properties, the Los Gatos District and the Cerro Los Gatos Mine, has been prepared in accordance with the SEC Mining Modernization Rules and NI 43-101 and is included as Exhibit 96.1 to the registration statement of which this prospectus forms a part.

        "Inferred mineral resources" are subject to uncertainty as to their existence and as to their economic and legal feasibility. 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 we have elected to voluntarily comply with the SEC Mining Modernization Rules, the mineral property disclosure included in this prospectus may not be comparable to similar information provided by other issuers that have not elected to early adopt such rules. For the meanings of certain technical terms used in this prospectus, see "Glossary of Technical Terms."

iii


Table of Contents



PROSPECTUS SUMMARY

        This summary highlights the more detailed information and financial data and statements contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus.

        As used herein, references to the "Los Gatos Technical Report" are to the "NI 43-101 Technical Report: Los Gatos Project, Chihuahua, Mexico," prepared by Tetra Tech Inc. ("Tetra Tech"), dated July 1, 2020, which was prepared in accordance with the requirements of the SEC Mining Modernization Rules and NI 43-101. The Los Gatos Technical Report is filed as Exhibit 96.1 to the registration statement of which this prospectus forms a part. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019 and have not been updated since that time. The mineral reserve estimates and the economic analysis contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and have not been updated since that time and exclude 655,746 tonnes of material that has been mined through June 30, 2020. See "Business—The Los Gatos District."

    As used herein, references to "$" or "dollars" are to United States dollars.

        All mineral reserves and mineral resources contained herein for the Cerro Los Gatos Mine, the Esther deposit and the Amapola deposit are presented on both a 100% basis as well as on a 51.5% basis to reflect our current ownership interest in the LGJV.

Our Company

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

    The Cerro Los Gatos Mine, located within the Los Gatos District, Chihuahua, Mexico, consists of a 2,500 tpd polymetallic mine and processing facility that commenced production on September 1, 2019. For the year ended December 31, 2019, at the Cerro Los Gatos Mine, 357,342 tonnes were mined and 269,853 tonnes were processed at average grades of 229 g/t silver, 0.52 g/t gold, 1.97% lead and 3.03% zinc, with metallurgical recovery of 82.1% silver, 63.5% gold, 83.4% lead and 72.3% zinc, and 7,188 tonnes of lead concentrate were produced at average grades of 5,774 g/t silver, 10.9 g/t gold, 56.3% lead and 12.6% zinc, with metallurgical recovery of 67.3% silver, 55.2% gold, 76.0% lead and 11.1% zinc, and 9,320 tonnes of zinc concentrate were produced at average grades of 978 g/t silver, 1.26 g/t gold, 4.2% lead and 53.7% zinc, with metallurgical recovery of 14.8% silver, 8.3% gold, 7.4% lead and 61.2% zinc. For the six-months ended June 30, 2020, at the Cerro Los Gatos Mine, 288,882 tonnes were mined and 298,331 tonnes were processed at average grades of 195 g/t silver, 0.44 g/t gold, 2.22% lead and 3.41% zinc, with metallurgical recovery of 82.2% silver, 61.8% gold, 85.1% lead and 72.4% zinc, and 8,732 tonnes of lead concentrate were produced at average grades of 4,668 g/t silver, 8.1 g/t gold, 60.8% lead and 9.3% zinc, with metallurgical recovery of 70.1% silver, 54.6% gold, 80.0% lead and 8.0% zinc, and 11,915 tonnes of zinc concentrate were produced at average grades of 591 g/t silver, 0.79 g/t gold, 2.8% lead and 55.0% zinc, with metallurgical recovery of 12.1% silver, 7.3% gold, 5.1% lead and 64.4% zinc. The Los Gatos Technical Report, which has an effective date of July 1, 2020, estimates that the deposit contains 9.6 million diluted tonnes of proven and probable mineral reserves (or 5.0 million diluted tonnes of proven and probable mineral reserves on a 51.5% basis), with 6.4 million diluted tonnes of proven mineral reserves (or 3.3 million diluted tonnes of proven mineral reserves on a 51.5%

1


Table of Contents

      basis) and 3.3 million diluted tonnes of probable mineral reserves (or 1.7 million diluted tonnes of probable mineral reserves on a 51.5% basis). Average proven and probable mineral reserve grades are 306 g/t silver, 0.35 g/t gold, 2.76% lead and 5.65% zinc.

    The Los Gatos District, located in Chihuahua, Mexico, is located approximately 120 kilometers south of Chihuahua City and is comprised of a 103,087-hectare land position, constituting a new mining district. The Los Gatos District consists of 14 mineralized zones, which include three identified silver-lead-zinc deposits that contain mineral resources—the Cerro Los Gatos Mine, the Esther deposit and the Amapola deposit—as well as 11 additional high-priority targets defined by high-grade drill intersections and over 150 kilometers of outcropping quartz and calcite veins. The area is characterized by predominant silver-lead-zinc epithermal mineralization. On September 1, 2019, the LGJV commenced production at the Cerro Los Gatos Mine. A core component of the LGJV's business plan is to explore the highly prospective, underexplored Los Gatos District with the objective of identifying additional mineral deposits that can be mined and processed, possibly utilizing the Cerro Los Gatos Mine plant infrastructure.

GRAPHIC

        Prior to our initial acquisition of exploration concession rights in April 2006, very limited historical prospecting and exploration activities had been conducted in the Los Gatos District. We were able to acquire concessions covering approximately 103,087 hectares and, through our exploration, discovered a virgin silver region containing high-grade epithermal vein-style mineralization throughout the Los Gatos District concession package.

        In 2008, we negotiated surface access rights with local ranch owners and obtained the necessary environmental permits for drilling and road construction. Through 2015, we purchased all the surface lands required for the Cerro Los Gatos Mine development. Environmental baseline data collection began in May 2010 and was completed in 2016 and approved in 2017 to prepare for the development of future environmental studies required for the Cerro Los Gatos Mine. In 2014, we partnered with Dowa Metals and Mining Co., Ltd. ("Dowa"), which manufactures and distributes metals products and owns Japan's largest zinc refinery, to finance and develop the Cerro Los Gatos Mine and to pursue exploration in the Los Gatos District. We and Dowa formed a Mexico-incorporated co-owned operating company, MPR, which owns certain surface and mineral rights associated with the Los Gatos District. In connection with the formation of the LGJV, we entered into the Unanimous Omnibus Partner Agreement with Dowa, MPR, OSJ, SSJ and Los Gatos Luxembourg S.a.r.l. on January 1, 2015 (as amended on April 10, 2017, June 30, 2017, March 10, 2018, May 20, 2019, April 29, 2020, May 25, 2020 and June 16, 2020, the "Unanimous Omnibus Partner Agreement"), which governs our and Dowa's respective rights over the LGJV. We own approximately 51.5% of the LGJV, with Dowa owning the remainder. Despite owning the majority interest in the LGJV, we do not exercise control over the LGJV due to certain provisions contained in the Unanimous Omnibus Partner Agreement that currently require unanimous partner approval of all major operating decisions (such as certain

2


Table of Contents

approvals, the creation of security interests on property, any initial public offering of the joint venture, and litigation settlements). We intend to exercise our right to repurchase an 18.5% interest in the LGJV from Dowa, increasing our ownership to approximately 70.0%. Following this increase in our ownership interest in the LGJV, we will continue to not exercise control over the LGJV due to the provisions contained in the Unanimous Omnibus Partner Agreement that currently require unanimous partner approval of all major operating decisions. See "Business—The Los Gatos District—Unanimous Omnibus Partner Agreement."

        We believe that we have strong support from the local community, with over 130 employees from the local community working across multiple areas involving the continued underground development, construction of the surface facilities and operation of the Cerro Los Gatos Mine. Over 99% of the approximate 540 employees at the Cerro Los Gatos Mine hail from Mexico, highlighting our commitment to the local workforce.

        Our primary areas of focus have been constructing and commissioning the Cerro Los Gatos Mine and defining and expanding the mineral resources associated with the Cerro Los Gatos Mine, the Esther deposit and the Amapola deposit. As of July 1, 2020, 739 exploration drill holes have been completed in the Los Gatos District, totaling 259,060 meters. The Los Gatos Technical Report estimates that the Cerro Los Gatos Mine contains 10.4 million tonnes of measured and indicated resources (or 5.4 million tonnes of measured and indicated resources on a 51.5% basis) inclusive of mineral reserves, at average grades of 269 g/t silver, 2.7% lead, 5.5% zinc, 0.34 g/t gold and 0.11% copper, or 3.5 million tonnes of measured and indicated resources (or 1.8 million tonnes of measured and indicated resources on a 51.5% basis) exclusive of mineral reserves, at average grades of 154 g/t silver, 2.2% lead, 4.3% zinc and 0.29 g/t gold, and 3.7 million tonnes of inferred resources (or 1.9 million tonnes of inferred resources on a 51.5% basis), at average grades of 107 g/t silver, 2.8% lead, 4.0% zinc and 0.28 g/t gold. The mineral resource estimates for the Cerro Los Gatos Mine have an effective date of September 6, 2019 and have not been updated since that time. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery.

        The Los Gatos Technical Report estimates that the Esther deposit contains 0.46 million tonnes of indicated resources (or 0.24 million tonnes of indicated resources on a 51.5% basis) at average grades of 133 g/t silver, 0.04 g/t gold, 0.02% copper, 0.70% lead and 2.10% zinc, and 2.29 million tonnes of inferred resources (or 1.18 million tonnes of inferred resources on a 51.5% basis) at average grades of 98 g/t silver, 0.12 g/t gold, 0.05% copper, 1.60% lead and 3.00% zinc; and the Amapola deposit contains 0.25 million tonnes of indicated resources (or 0.13 million tonnes of indicated resources on a 51.5% basis) at average grades of 135 g/t silver, 0.10 g/t gold, 0.02% copper, 0.10% lead and 0.30% zinc, and 3.44 million tonnes of inferred resources (or 1.77 million tonnes of inferred resources on a 51.5% basis) at average grades of 140 g/t silver, 0.10 g/t gold, 0.03% copper, 0.20% lead and 0.30% zinc. The mineral resource estimates for the Esther and Amapola deposits have an effective date of December 21, 2012 and have not been updated since that time. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery.

        Since the acquisition of the Los Gatos District concession package, we, Dowa and the LGJV have invested approximately $500 million in the development of the Cerro Los Gatos Mine. The Cerro Los Gatos Mine is currently in production. The first lead concentrate was shipped on September 3, 2019, and the first zinc concentrate was shipped on September 4, 2019. We anticipate increasing production to the designed 2,500 tpd rate by the end of the first quarter of 2021.

        Our objectives at the Cerro Los Gatos Mine are to, among other things:

    optimize the recently commissioned plant facilities and increase production to the designed 2,500 tpd rate;

3


Table of Contents

    produce and sell concentrate material containing zinc, lead, silver and gold metals to smelting facilities in Japan, Mexico and other locations;

    initiate a feasibility study, prepared in accordance with the SEC Mining Modernization Rules and NI 43-101, on expanding the production rate from 2,500 to 3,000 tpd; and

    perform additional in-fill and step-out drilling to further define mineral resources at the Cerro Los Gatos Mine.

        Our objectives at the Los Gatos District are to, among other things:

    perform additional in-fill and expansion drilling to further define and expand mineralization at the Esther and Amapola deposits;

    conduct social, environmental and technical work on the property with the objective of completing a scoping study on the Esther and Amapola deposits;

    expand the exploration drilling program on the Esther deposit, the Amapola deposit and the other 11 mineralized zones within the Los Gatos District; and

    continue to expand the LGJV's interest in prospective mineral and surface rights.

        See "Business—Our Company—Our Principal Projects."

Silver Industry Overview

Overview

        Silver deposits occur naturally in their solid metallic state and are commonly associated with deposits of gold, copper, lead and zinc as a secondary metal. Silver is a precious metal and is widely used in the manufacturing of jewelry and silverware and as an investment. Silver is distinct from other precious metals in that it is both used in industrial applications and as an investment asset.

        Silver has a number of distinctive physical and chemical properties that make it an essential component in numerous industrial applications, including its strength, malleability, conductivity and ductility, its sensitivity to and high reflectance of light and its ability to endure extreme temperature ranges. These properties restrict its substitution in most applications. Silver is one of the world's best conductors of electricity and is used in electronic components of common items such as solar panel photovoltaic cells, computers, televisions and cell phones.

        Silver has also been used as a medium of exchange since earliest recorded history. While it is no longer widely used as circulating currency, silver is still widely sought by investors for its store of value attributes. In particular, silver is viewed as an attractive hedge against a decrease in the value of currency and inflation during times of economic uncertainty.

Demand

        The three principal drivers of silver demand are industrial applications, consumer use and investment. According to The Silver Institute's World Silver Survey 2020, demand for industrial applications is mainly driven by electrical and electronics uses, which accounted for 58.3% of industrial demand and 30.0% of total demand in 2019. Jewelry accounted for 20.3% of total demand and net physical investment represented 18.8% of total demand.

        Silver demand grew 0.4% in 2019 to a three-year high of 991.8 million ounces, from 988.3 million ounces the previous year, driven by a 12.3% surge in demand for net physical investment. This was offset by declines in silverware and other industrials. Silver remains difficult to substitute in many areas, and outside of a dip in 2009, demand for industrial applications has remained broadly flat since 2007.

4


Table of Contents

There was healthy photovoltaic demand in 2019, with support from structural changes in demand, such as vehicle electrification.


World Physical Silver Demand in 2019 (%)

GRAPHIC


Source: The Silver Institute, World Silver Survey 2020

Supply

        Silver supply is primarily driven by mined silver production, which, according to The Silver Institute's World Silver Survey 2020, accounted for 81.7% of supply in 2019. Recycling largely accounted for the remainder of silver supply. Global silver supply increased 0.6% year-over-year in 2019 to 1,023 million ounces compared to 1,016.8 million ounces in 2018.

        Mine silver output in 2019 declined for the fourth consecutive year, falling 1.3% to 836.5 million ounces from 847.8 million ounces in 2018. These recent production declines follow 13 consecutive years of growth. The decrease in silver supply was largely driven by lower grades at primary silver mines, lower silver production from copper mines and losses from production disruptions. In Peru, Compañía de Minas Buenaventura's Uchucchacua Mine saw silver production decrease from a 27% decline in grades and experienced a 21-day strike; Hochschild Mining's Arcata Mine was placed into care and maintenance early in the year; and declining silver grades were a factor at large primary copper mines. In Mexico, Fresnillo plc achieved lower grades at several of its mines; First Majestic Silver Corp.'s San Martin Mine and Endeavour Silver's El Cubo Mine were placed on care and maintenance; and blockades resulted in Newmont Corporation's Peñasquito Mino being suspended for 90 days.

Pricing and Outlook

        A combination of a slightly higher demand and a slightly higher supply in 2019 compared to 2018 resulted in a surplus of 31.3 million ounces, or 3.1% of silver demand, according to The Silver Institute's World Silver Survey 2020. Net investment in exchange traded products of 81.7 million ounces helped to propel the net silver balance to a 50 million ounce deficit, or approximately 5% of demand.

        In 2019, the average London Bullion Market Association ("LBMA") silver price increased 3.4% year-over-year to $16.21/oz. In 2019, the price of silver reached a high of $19.31/oz, a low of $14.38/oz

5


Table of Contents

and ended the year at $18.05/oz. The largest contributor to silver price movements is believed to be the ongoing trade dispute between the U.S. and China, which has had the impact of strengthening the U.S. dollar and weighing on the price of silver and other precious metals. The U.S. Federal Reserve took a dovish stance through 2019, as it lowered the federal funds rate three times.

        The price of silver rallied strongly to multi-year highs in September 2020. As of September 30, 2020, the LBMA silver price has increased 31% compared to the year-end 2019 price. The recent silver price appreciation is believed to have been driven by accommodative monetary policy, aggressive stimulus measures and accelerating investment demand in the midst of the COVID-19 pandemic, as well as disrupted production and a recovery in industrial consumption. These factors have enhanced silver's appeal to investors seeking a hedge against inflation, a decrease in the value of the U.S. dollar and general economic and geopolitical uncertainty. Trading volumes at futures and options exchanges have increased significantly, and exchange-traded products ("ETPs") inflows have been strong. As of September 30, 2020, silver has a long-term research analyst average consensus price outlook of $20.00/oz.

        See "Silver Industry Overview."

Key Investment Highlights

High Quality and Long Life Assets

        Once fully operational, the Cerro Los Gatos Mine is expected to generate average life-of-mine ("LOM") unlevered, after-tax free cash flow of approximately $76 million per year on a 100% basis (or approximately $39 million per year on a 51.5% basis). Projected attributable net revenue and unlevered free cash flow, as set forth in the Los Gatos Technical Report, are presented below:


Projected Net Revenue (in millions)

GRAPHIC


Projected Unlevered Free Cash Flow (in millions)

GRAPHIC


Net revenue is defined as net smelter return (revenue per tonne mined less the sum of concentrate refining, treatment and transportation costs per tonne mined), less royalties. Unlevered cash flow is defined as unlevered operating cash flow less capital expenditures and changes in working capital. See also Section 22 of the Los Gatos Technical Report. The Los Gatos Technical Report has an effective date of July 1, 2020. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019. The mineral reserve estimates and the economic analysis contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of material that has been mined through June 30, 2020. For a discussion of the mineral resource estimates and mineral reserve estimates contained in the Los Gatos Technical Report, see "Business—The Los Gatos District—Mineral Resource Estimates—Cerro Los Gatos Mine, Esther and Amapola Deposits" and "Business—The Los Gatos District—Mineral Reserve Estimates—Cerro Los Gatos Mine." For a

6


Table of Contents

discussion of the assumed capital and operating costs in the Los Gatos Technical Report, see "Business—The Los Gatos District—Capital and Operating Costs." This information does not constitute guidance and you should not rely on it as an estimate or forecast of future performance. The Cerro Los Gatos net revenue and unlevered free cash flow are shown on a 51.5% ownership basis to reflect our current ownership interest in the LGJV. The 18.5% option represents our right to repurchase an 18.5% interest in the LGJV from Dowa. See "Business—Business Strategy." 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. Inferred mineral resources are subject to uncertainty as to their existence and as to their economic legal feasibility.

Cerro Los Gatos Mine Successfully Commissioned with Significant Near-Term Production Growth

        The Cerro Los Gatos Mine is currently in production, with final construction completed in the second quarter of 2019. Commissioning was successful, having achieved a number of key milestones, including:

    fully commissioned the run-of-mine stockpile;

    fully commissioned the ore conveyance system;

    fully commissioned the grinding circuit and flotation circuit;

    fully commissioned the concentrate and tailings thickeners;

    completed the storage and concentrate loadout area;

    fully commissioned the tailings storage facility;

    transitioned to the Mexican national power grid;

    shipped the first lead and zinc concentrates;

    successfully commissioned the first of three vertical column flotation cells to further reduce fluorine in the concentrates;

    successfully recommissioned the mine after a 45-day temporary suspension of activities due to the COVID-19 pandemic; and

    nationally recognized as a socially responsible company in Mexico.


Aerial View of the Cerro Los Gatos Mine

GRAPHIC

7


Table of Contents

Concentrate production is currently achieving quality specifications and expected grades. The Cerro Los Gatos Mine is expected to produce, on average, 12.2 million payable silver equivalent ounces annually through the existing mine life (or 6.3 million payable silver equivalent ounces annually on a 51.5% basis), with an attractive, low-cost all-in sustaining cost ("AISC") profile. In addition to the goal of achieving the plant's 2,500 tpd design capacity, we intend to use a portion of the proceeds from this offering to complete a feasibility study, prepared in accordance with the SEC Mining Modernization Rules and NI 43-101, to expand the Cerro Los Gatos Mine production rate to 3,000 tpd. If feasible, we expect the LGJV to complete the expansion within the next three to four years.

        The below graphs show our estimated payable silver equivalent production levels at the Cerro Los Gatos Mine in the coming years:


2020—2031 Cerro Los Gatos Mine Payable AgEq Production Estimate (Moz) and AISC ($/oz AgEq) on a 100% Basis

GRAPHIC


2020—2031 Cerro Los Gatos Mine Payable AgEq Production Estimate (Moz) and AISC ($/oz AgEq) on a 51.5% Basis

GRAPHIC


Payable silver equivalent calculated using feasibility study LOM average prices of $18.99/oz silver, $1,472/oz gold, $0.87/lb lead and $1.09/lb zinc. AISC calculated as sum of total operating costs, treatment and refining charges, penalties, transportation and freight, royalties and capital costs for each year. See Section 22 of the Los Gatos Technical Report. The Los Gatos Technical Report has an effective date of July 1, 2020. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019. The mineral reserve estimates and the economic analysis contained in the Los Gatos

8


Table of Contents

Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of material that has been mined through June 30, 2020. For a discussion of the mineral resource estimates and mineral reserve estimates contained in the Los Gatos Technical Report, see "Business—The Los Gatos District—Mineral Resource Estimates—Cerro Los Gatos Mine, Esther and Amapola Deposits" and "Business—The Los Gatos District—Mineral Reserve Estimates—Cerro Los Gatos Mine." For a discussion of the assumed capital and operating costs in the Los Gatos Technical Report, see "Business—The Los Gatos District—Capital and Operating Costs." Based on production to date, we believe that the Cerro Los Gatos Mine has the potential to produce up to 7.2 million ounces of silver equivalent on a 100% basis (3.7 million ounces of silver equivalent on a 51.5% basis) in fiscal year 2020.

        Estimated mineral reserves at the Cerro Los Gatos Mine are summarized below:


Cerro Los Gatos Mineral Reserve Estimates as of the Effective Date of the Los Gatos Technical Report

Zone
  Category   Tonnes
(millions;
100% basis)
  Tonnes
(millions;
51.5% basis)
  Ag (g/t)   Au (g/t)   Pb (%)   Zn (%)  

Northwest Zone

  Proven     2.6     1.3     359     0.43     3.09     5.88  

  Probable     0.5     0.3     333     0.34     2.86     5.88  

Central Zone

  Proven     3.8     1.9     314     0.31     2.55     5.32  

  Probable     1.8     0.9     299     0.44     2.32     5.82  

Southeast Zone

  Proven     0.0     0.0     148     0.16     3.69     7.23  

  Probable     0.6     0.3     148     0.16     3.69     7.23  

Southeast Zone Block 2

  Probable     0.4     0.2     118     0.17     3.11     4.16  

Total (Proven)

        6.4     3.3     332     0.36     2.77     5.55  

Total (Probable)

        3.3     1.7     254     0.34     2.74     5.86  

Total (Proven & Probable)

        9.6     5.0     306     0.35     2.76     5.65  

Reserves based on a $75 Net Smelter Return ("NSR") cut-off value. NSR is defined as revenue per tonne mined less the sum of concentrate refining, treatment and transportation costs per tonne mined. The mineral reserve estimates for the Cerro Los Gatos Mine reflect diluted grades with adjustment for metallurgical recovery. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of material that has been mined through June 30, 2020. Mineral reserve estimates and mineral resource estimates contained in the Los Gatos Technical Report have different effective dates and are based on different dilution and recovery factors and cut-off grades. For a discussion of the mineral reserve estimates contained in the Los Gatos Technical Report, see "Business—The Los Gatos District—Mineral Reserve Estimates—Cerro Los Gatos Mine."

        Estimated mineral resources at the Cerro Los Gatos Mine are summarized below:


Cerro Los Gatos Mine Mineral Resource Estimates Inclusive of Mineral Reserves as of the Effective Date of the Los Gatos Technical Report

Category
  Tonnes
(millions;
100% basis)
  Tonnes
(millions;
51.5% basis)
  Ag (g/t)   Au (g/t)   Pb (%)   Zn (%)   Cu (%)  

Measured

    5.8     3.0     324     0.39     2.9     5.8     0.11  

Indicated

    4.6     2.4     202     0.28     2.5     5.2     0.11  

Measured & Indicated

    10.4     5.4     269     0.34     2.7     5.5     0.11  

Inferred

    3.7     1.9     107     0.28     2.8     4.0     0.14  

Based on a cut-off grade of 150 grams silver equivalent/tonne at assumed metal prices of $18.00/toz silver, $0.92/lb lead and $1.01/lb zinc; gold was not considered in silver equivalent calculation. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery. Mineral reserve estimates and mineral resource estimates contained in the Los Gatos Technical Report have different effective dates and are based on different dilution and recovery factors and cut-off grades. For a discussion of the mineral resource estimates contained in the Los Gatos Technical Report, see "Business—The Los Gatos District—Mineral Resource Estimates—Cerro Los Gatos Mine, Esther and Amapola Deposits."

9


Table of Contents


Cerro Los Gatos Mine Mineral Resource Estimates Exclusive of Mineral Reserves as of the Effective Date of the Los Gatos Technical Report

Category
  Tonnes
(million;
100% basis)
  Tonnes
(million;
51.5% basis)
  AgEq (g/t)   Ag (g/t)   Au (g/t)   Pb (%)   Zn (%)  

Measured

    1.3     0.7     442     181     0.39     2.4     4.5  

Indicated

    2.2     1.1     368     139     0.23     2.1     4.2  

Measured & Indicated

    3.5     1.8     395     154     0.29     2.2     4.3  

Inferred

    3.7     1.9     361     107     0.28     2.8     4.0  

Resources based on a cut-off grade of 150 grams silver equivalent/tonne at assumed metal prices of $18.00/toz silver, $0.92/lb lead and $1.01/lb zinc; gold was not considered in silver equivalent calculation. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery. Reserves based on a $75 NSR cut -off value. NSR is defined as revenue per tonne mined less the sum of concentrate refining, treatment and transportation costs per tonne mined. The mineral reserve estimates for the Cerro Los Gatos Mine reflect diluted grades with adjustment for metallurgical recovery. The mineral reserve estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2020 and exclude 655,746 tonnes of material that has been mined through June 30, 2020. Mineral reserve estimates and mineral resource estimates contained in the Los Gatos Technical Report have different effective dates and are based on different dilution and recovery factors and cut-off grades. For a discussion of the mineral resource estimates contained in the Los Gatos Technical Report, see "Business—The Los Gatos District—Mineral Resource Estimates—Cerro Los Gatos Mine, Esther and Amapola Deposits."

        The economic analysis contained in the Los Gatos Technical Report is presented on an unlevered, post-tax, present value basis and has an effective date of July 1, 2020. The results of the economic analysis are summarized below:


Economic Analysis Results

Mine Life

  years     11  

Ore Tonnage

  kt     9,618  
 
   
  Life-of-Mine Payable Production   Avg. Annual Payable Production
 
  Average Grade
 
   
  (51.5% basis)    
  (51.5% basis)
 
  Processed   (100% basis)   (100% basis)

Production Statistics

                   

Silver

  305 g/t   72.0 Moz   37.1 Moz   6.5 Moz   3.4 Moz

Zinc

  5.7%   679 Mlb   350 Mlb   62 Mlb   32 Mlb

Lead

  2.8%   442 Mlb   228 Mlb   40 Mlb   21 Mlb

Gold

  0.35 g/t   45.5 Koz   23.4 Koz   4.1 Koz   2.1 Koz

Silver Equivalent

  642 g/t   134.7 Moz   69.4 Moz   12.2 Moz   6.3 Moz

Life-of-Mine Cost Metrics

                   

Total Sustaining Capital Costs

  $ millions   $267            

Operating Costs

  $/t-milled   $83.58            

TC / RC, Penalties and Freight Costs

  $/mt   $51.90            

Royalties

  $/mt   $1.50            

Life-of-Mine By-Product Costs

                   

AISC

  $/oz Ag   $5.47            

Life-of-Mine Co-Product Costs

                   

AISC

  $/oz AgEq   $11.77            

Project Economics

                   

NPV (post-tax; 5.0%)

  $ millions   $653            

Silver equivalent and by-product credits calculated using LOM average prices of $18.99/oz silver, $1,472/oz gold, $0.87/lb lead and $1.09/lb zinc. The economic analysis contained in the Los Gatos Technical Report has an effective date of July 1, 2020 and

10


Table of Contents

excludes 655,746 tonnes of material that has been mined through June 30, 2020. For a discussion of the mineral resource estimates and mineral reserve estimates contained in the Los Gatos Technical Report, see "Business—The Los Gatos District—Mineral Resource Estimates—Cerro Los Gatos Mine, Esther and Amapola Deposits" and "Business—The Los Gatos District—Mineral Reserve Estimates—Cerro Los Gatos Mine." For a discussion of the assumed capital and operating costs in the Los Gatos Technical Report, see "Business—The Los Gatos District—Capital and Operating Costs."


Cerro Los Gatos Mine Unlevered Free Cash Flow Profile on a 100% Basis (in millions)

GRAPHIC


Cerro Los Gatos Mine Unlevered Free Cash Flow Profile on a 51.5% Basis (in millions)

GRAPHIC


See Section 22 of the Los Gatos Technical Report. The economic analysis contained in the Los Gatos Technical Report has an effective date of July 1, 2020 and excludes 655,746 tonnes of material that has been mined through June 30, 2020. For a discussion of the mineral resource estimates and mineral reserve estimates contained in the Los Gatos Technical Report, see "Business—The Los Gatos District—Mineral Resource Estimates—Cerro Los Gatos Mine, Esther and Amapola Deposits" and "Business—The Los Gatos District—Mineral Reserve Estimates—Cerro Los Gatos Mine." For a discussion of the assumed capital and operating costs in the Los Gatos Technical Report, see "Business—The Los Gatos District—Capital and Operating Costs."

Additional Resource Growth Potential from Exploration of the Los Gatos District

        In addition to the significant existing resources at the Cerro Los Gatos Mine, the Los Gatos District also contains the Esther and Amapola deposits and 11 other mineralized zones. With control of the concessions, the ability to develop the entire 103,087-hectare land position and more than 85% of the land position yet to be explored, we expect that we will stand to benefit from mineralization beyond those already identified in the 14 mineralized zones, which include the Cerro Los Gatos Mine, the

11


Table of Contents

Esther deposit and the Amapola deposit. The mineral resource estimates for the Esther and Amapola deposits are set forth below:


Esther and Amapola Deposit Mineral Resource Estimates as of the Effective Date of the Los Gatos Technical Report

 
  Category   Tonnes
(millions;
100% basis)
  Tonnes
(millions;
51.5% basis)
  Ag (g/t)   Au (g/t)   Pb (%)   Zn (%)   Cu (%)  

Esther Deposit

  Indicated     0.46     0.24     133     0.04     0.70     2.10     0.02  

  Inferred     2.29     1.18     98     0.12     1.60     3.00     0.05  

Amapola Deposit

  Indicated     0.25     0.13     135     0.10     0.10     0.30     0.02  

  Inferred     3.44     1.77     140     0.10     0.20     0.30     0.03  

Based on a cut-off grade of 100 grams silver equivalent/tonne using metal prices of $22.30/toz silver, $0.97/lb lead, and $0.91/lb zinc. The mineral resource estimates for the Esther and Amapola deposits have an effective date of December 21, 2012. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery. Mineral reserve estimates and mineral resource estimates contained in the Los Gatos Technical Report have different effective dates and are based on different dilution and recovery factors and cut-off grades. For a discussion of the mineral resource estimates contained in the Los Gatos Technical Report, see "Business—The Los Gatos District—Mineral Resource Estimates—Cerro Los Gatos Mine, Esther and Amapola Deposits."

Assets Located in Geopolitically Safe and Established Mining Regions

        The Los Gatos District is located in one of the world's premier silver mining regions: the Mexican Silver Belt, which was the world's largest silver producing region in 2019. Based on a survey published in 2019 by the Fraser Institute, an independent research organization, Mexico is highly ranked among silver mining jurisdictions worldwide in terms of the attractiveness of investment. Mexico also has a long history of successful mineral development and operations, which we believe makes it a desirable jurisdiction in which to conduct mining operations due to stable political, tax and regulatory policies.

        Mexico is the largest producer of silver in the world, in addition to being a top-10 producer of gold, lead and zinc, among other major commodities. According to the 2019 Fraser Institute survey, Mexico ranks ahead of many countries in terms of investment attractiveness for mining, but behind certain areas in the U.S., Canada and Australia. In the mining sector, foreign ownership of Mexican companies is not subject to significant restrictions. The Mexican government is focused on improving infrastructure, primarily in the power grid and road networks.

Mine Site Exploration Potential Provides Opportunity for Significant Resource Conversion Beyond Existing Mine Plan

        We believe that our properties have significant exploration upside with numerous opportunities to define additional mineral resources through continued exploration.

Los Gatos District

        The Los Gatos District is located in the Mexican Silver Belt, near several other silver assets owned by large public companies. The Mexican Silver Belt has experienced significant exploration success, and the Los Gatos District represents an underexplored property where there has been little historical workings or previous exploration.

12


Table of Contents

 

        The Los Gatos District contains numerous significant high-grade targets throughout. Previous work done has resulted in a 190% increase in measured and indicated silver equivalent resources from March 2014 to September 2019, with additional exploration planned using proceeds from this offering.


Cerro Los Gatos Mine Measured & Indicated Ore Tonnage (Mt) and Silver Grade (g/t) (100% Basis)

GRAPHIC


Mineral resource estimates presented include mineral reserves. Based on a cut-off grade of 150 grams silver equivalent/tonne at assumed metal prices of $18.00/toz silver, $0.92/lb lead and $1.01/lb zinc; gold was not considered in silver equivalent calculation. The mineral resource estimates contained in the Los Gatos Technical Report have an effective date of September 6, 2019. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery. Mineral reserve estimates and mineral resource estimates contained in the Los Gatos Technical Report have different effective dates and are based on different dilution and recovery factors and cut-off grades. For a discussion of the mineral resource estimates contained in the Los Gatos Technical Report, including mineral resource estimates exclusive of mineral reserves, see "Business—The Los Gatos District—Mineral Resource Estimates—Cerro Los Gatos Mine, Esther and Amapola Deposits."

        The LGJV owns the surface rights to 5,479 hectares covering the Cerro Los Gatos Mine and the Esther and Amapola deposits and the Gavilana (Paula) and San Luis zones, and has been granted mineral concessions for all 103,087 hectares, with 17 contiguous concessions in the Los Gatos District. We have identified 14 mineralized zones within the concessions. Of the 14 mineralized zones, the LGJV has established mineral resource estimates only at the Cerro Los Gatos Mine, the Esther deposit and the Amapola deposit and has conducted drilling on only 15 kilometers out of a strike length of over 150 kilometers of quartz veining along the Los Gatos District.

13


Table of Contents


Location of the Cerro Los Gatos District

GRAPHIC


Mineralized Zones Grade Intercepts

Mineralized Zones
  Length (m)   Ag (g/t)   Pb (%)   Zn (%)  

Boca de Leon

    2.2     90.6     5.0     0.8  

Cieneguita

    1.3     62.4     5.4     0.9  

El Lince

    4.0     62.2     0.0     0.1  

El Rodeo

    0.8     61.5     3.4     4.0  

La Paula

    4.0     180.0     0.1     0.1  

Los Torunos

    1.8     34.2     2.6     0.9  

Mezcalera

    2.0     59.4     0.1     0.1  

San Agustin

    1.3     148.0     1.2     2.3  

San Luis

    2.0     271.0     0.3     0.1  

The table above does not include Ocelote and Wall-E/Ava zones, as they do not have sufficient drilling.

        The current resources are significant, but we believe that additional resource potential remains in the immediate area. Drill testing of other high-priority targets within the Los Gatos District has been relatively limited given our focus on delineation of reserves at, and construction of, the Cerro Los Gatos Mine. As a result, the highly prospective Los Gatos District remains underexplored. Drilling at the Esther deposit to date has demonstrated good grade continuity along the system and characteristics similar to that identified during preliminary work at the Cerro Los Gatos Mine. Following potentially positive results from infill drilling at the Esther and Amapola deposits, we expect to update the

14


Table of Contents

resources and perform a scoping study to determine if these two deposit areas could generate economic production, representing further upside potential for the broader Los Gatos District.

        We expect to perform additional definition drilling to expand the Southeast and Northwest zones of the Cerro Los Gatos Mine and to perform additional drilling to expand the Esther and Amapola deposits, which remain open to extensions at depth. In addition to the Cerro Los Gatos Mine, the Esther deposit and the Amapola deposit, we have identified 11 other mineralized zones defined by high-grade drill intersections in the Los Gatos District.

Other Exploration Opportunities

        In addition to the Los Gatos District, we have 100% control of the Santa Valeria property, located in Chihuahua, Mexico, which is comprised of 1,543 hectares and could provide further opportunities for resource growth.

Exposure to Rapidly Improving Silver Fundamentals

        The value of silver is driven by two main factors: first, silver has a number of distinctive physical and chemical properties that make it an essential and difficult-to-substitute component in several industrial applications; and second, in times of economic uncertainty, silver is viewed as an attractive hedge against inflation and a decrease in the value of the U.S. dollar.

        Industrial demand for silver continues to increase, driven by electrical and electronics applications as well as emerging applications such as solar energy, medical applications and water purification, which we believe enhance the strong supply and demand fundamentals of silver. Moreover, investment demand for silver exposure has strengthened, driven in part by accommodative monetary policy, aggressive stimulus measures and an uncertain economic environment in connection with the COVID-19 pandemic. In 2019, the silver market posted a net deficit (including the impact of exchange-traded products) representing approximately 5% of demand.

        Despite this strong investment and industrial demand, the universe of primary silver companies is small, which has created a scarcity of investor options for silver exposure. We believe we represent a highly attractive opportunity for investors to gain exposure to a primary silver company with a world-class asset.

Experienced Management Team and Board of Directors

        We have an experienced and growing management team with a track record of successfully identifying and developing mineral discoveries.

        Stephen Orr, Chief Executive Officer and Director, who joined the Company in 2011, has more than 40 years of experience in the mining industry, including international commercial experience at both executive and operational levels. Previously, Mr. Orr served as president, director and chief executive officer at Ventana Gold Corp., a Vancouver-based mineral exploration and development company, as director and chief executive officer at OceanaGold Corporation ("OceanaGold"), where under his leadership OceanaGold built and commissioned two new mines in New Zealand, as vice president of North American operations and then managing director of Australia and Africa operations at Barrick Gold Corporation and as president and chief executive officer at Homestake Canada Inc. Mr. Orr has notified the Board of Directors that he intends to retire as Chief Executive Officer within one to two years following the completion of this offering. Accordingly, the Board of Directors has initiated efforts to recruit an experienced executive as President, who will work closely with Mr. Orr and be considered to succeed Mr. Orr as Chief Executive Officer. We intend for Mr. Orr to continue to serve on our Board of Directors after his retirement as Chief Executive Officer.

15


Table of Contents

        Roger Johnson, Chief Financial Officer, who joined the Company in 2011, has more than 40 years of experience in financial management in the mining industry. Previously, Mr. Johnson served as vice president and chief accounting officer at Newmont Mining Corporation (now Newmont Corp.), as senior vice president, finance and administration at Pasminco Zinc, Inc., and as vice president, controller at Kennecott Utah Copper LLC and practiced public accounting with Coopers & Lybrand (now PricewaterhouseCoopers LLP).

        Philip Pyle, Vice President of Exploration and Chief Geologist, who joined the Company in 2011, has more than 40 years of experience in the mining industry. Previously, Mr. Pyle served as vice president—exploration at Los Gatos Ltd., as exploration manager at Linear Gold Corp. (now Fortune Bay Corp.), as exploration manager at MIM Exploration Pty Ltd., as exploration manager at BHP Minerals International Exploration Inc. and as a geologist at AMAX Exploration Inc.

        John Kinyon, Vice President of Operations, who joined the Company in 2012, has more than 40 years of U.S. and international operations and construction experience, including experience in various mining positions in the U.S., Canada, Tanzania, Australia, and New Zealand. Previously, Mr. Kinyon served as vice president and general manager at Coeur Mining Inc.'s Kensington Mine in Juneau, Alaska, as vice president of operations at OceanaGold, as general manager at Yukon Zinc Corporation ("Yukon Zinc") and as general manager at Eskay Creek at Barrick Gold Corporation.

        Luis Felipe Huerta, Project Director of the Cerro Los Gatos Mine, who joined the Company in 2015, has more than 20 years of project management experience in the mining industry. Previously, Mr. Huerta served as project manager at Continental Gold Inc., as project manager at Fortuna Silver Mines Inc., and as project superintendent at Compañía Minera Milpo.

        Adam Dubas, Chief Administrative Officer, who joined the Company in 2011, has more than 20 years of experience in financial management. Previously, Mr. Dubas served as our Corporate Controller, as a senior manager at KPMG LLP, where he focused on the energy industry, and as an international financial analyst at Sprint Corporation.

        Our Board of Directors is comprised of senior mining and financial executives who have broad domestic and international experience in mineral exploration, development and mining. Our Board of Directors has been established with individuals who have career backgrounds at notable mining companies. We believe that the specialized skills and knowledge of the management team and of the Board of Directors will significantly enhance our ability to explore and develop the Los Gatos District and to pursue other regional growth opportunities.

        Thomas S. Kaplan, Chairman of the Board of Directors, is chairman and chief executive officer of The Electrum Group LLC, a privately-held global natural resources investment management company. Dr. Kaplan has over 25 years of experience in the resources sector. Dr. Kaplan served as chairman of Leor Exploration & Production LLC, a natural gas exploration and development company, which he founded in 2003 and sold in 2007 to EnCana Corporation. Dr. Kaplan intends to resign from the Board of Directors contingent upon and effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part.

        Janice Stairs, Lead Director, was general counsel and corporate secretary at Namibia Critical Metals Inc., general counsel at Endeavour Mining Corporation, and vice president and general counsel at Etruscan Resources Inc. Ms. Stairs has more than 30 years of experience in the resources sector, including service on the board of directors of Gabriel Resources Ltd., Trilogy Metals Inc., and Marathon Gold Corporation. Ms. Stairs will become the Chair of the Board of Directors immediately prior to the effectiveness of the registration statement of which this prospectus forms a part.

        Jeb Burns, Director, is the chief investment officer of the Municipal Employees' Retirement System of Michigan and serves on the investment committee of Western Michigan University Foundation, the board of directors of Pacific Pension & Investment Institute, the board of directors of

16


Table of Contents

the Michigan History Foundation, the board of trustees of Mackinac Associates, and the board of directors of Venture Michigan Fund. Mr. Burns has nearly 20 years of investment and asset management experience. Mr. Burns intends to resign from the Board of Directors contingent upon and effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part.

        Ali Erfan, Director, is vice chairman of The Electrum Group LLC, a privately-held global natural resources investment management company. Mr. Erfan is a founding board member of Leor Energy. Mr. Erfan has more than 20 years of experience in senior roles in the venture capital and private equity industry.

        Igor Gonzales, Director, is the chief operating officer at Appian Capital Advisory, a leading investment advisor in the metals and mining industry. Mr. Gonzales has more than 30 years of experience in the mining industry.

        Karl Hanneman, Director, is chief executive officer of International Tower Hill Mines, Ltd., where he leads a team advancing a 10-million-ounce gold resource in Alaska through project optimization. Mr. Hanneman has more than 35 years of mining industry management and technical experience as an executive, manager, mining engineer, mine operator and entrepreneur.

        Charles Hansard, Director Nominee, has over 25 years of experience in corporate governance at the board of directors level, including as chairman of African Platinum Plc.

        Igor Levental, Director, is president of The Electrum Group LLC, a privately-held global natural resources investment management company. Mr. Levental has held senior executive positions with major mining companies, including Homestake Mining Company and International Corona Corp. Mr. Levental has more than 30 years of experience across a broad cross-section of the international mining industry.

        David Peat, Director, was vice president and chief financial officer at Frontera Copper Corporation, vice president and global controller at Newmont Mining Corporation and vice president of finance and chief financial officer at Homestake Mining Company. Mr. Peat has more than 30 years of experience in financial leadership in support of mining corporations.

Shareholder Support

        We were founded by The Electrum Group LLC and certain of its affiliates. We refer to The Electrum Group LLC and its affiliates in this prospectus, individually and collectively, as "Electrum." Electrum is an investment advisor whose team has historically focused on making strategic investments in precious metals resources and hydrocarbons. We believe that access to the specialized skills and knowledge within Electrum will significantly enhance our ability to execute our business strategy.

        The Municipal Employees' Retirement System of Michigan ("MERS") is an independent, professional retirement services company that was created to administer the retirement plans for Michigan's local units of government on a not-for-profit basis.

        Following the completion of this offering, Electrum and MERS will beneficially own approximately        % and        % of our outstanding common stock, respectively, after giving effect to (i) the Reorganization, (ii) the issuance of an aggregate of                shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of                shares of common stock in connection with this offering, and (iv) the issuance and sale of                shares of common stock in this offering, assuming the over-allotment option is not exercised by the underwriters, and Electrum will continue to have a presence on the Board of Directors.

17


Table of Contents

        See "Business—Key Investment Highlights—Shareholder Support."

Business Strategy

        Our business strategy is focused on creating value for stakeholders through the ownership and advancement of two principal projects—the Cerro Los Gatos Mine and the Los Gatos District—and through the pursuit of similarly attractive silver-focused projects. The LGJV commenced production at the Cerro Los Gatos Mine in the third quarter of 2019. We intend to achieve these objectives through the following value-enhancing near-term and long-term initiatives:

    Retire a portion of the Los Gatos Working Capital Facility:  The Los Gatos Working Capital Facility provided by Dowa to the LGJV carries an annual interest rate of LIBOR plus 3%. In addition, we are required to pay an arrangement fee on the borrowing, calculated as 15.0% per annum of 70.0% of the average daily principal amount outstanding during the relevant fiscal quarter. Retiring a portion of the Los Gatos Working Capital Facility will reduce our borrowing costs.

    Repurchase an 18.5% interest in the Los Gatos Joint Venture to increase our ownership to 70.0%: We intend to exercise our right to repurchase an 18.5% interest in the LGJV from Dowa, increasing our ownership to approximately 70.0%. The option expires in June 2021 and represents an attractive investment opportunity that we believe is immediately value-accretive. With increased ownership, we will further benefit from the ramp-up in production at the Cerro Los Gatos Mine, supported by the attractive cash flow generation profile and fully funded nature of the project. In addition to increasing our economic interest in the Cerro Los Gatos Mine, we expect that this repurchase will also provide us with greater exposure to potential upside from additional exploration within the Los Gatos District, in particular the Esther and Amapola deposits. Following this increase in our ownership interest in the LGJV, we will continue to not exercise control over the LGJV due to certain provisions contained in the Unanimous Omnibus Partner Agreement that currently require unanimous partner approval of all major operating decisions (such as certain approvals, the creation of security interests on property, any initial public offering of the joint venture, and litigation settlements). See "Business—The Los Gatos District—Unanimous Omnibus Partner Agreement" for more information.

    Fund near-term LGJV debt service needs:  We intend to fund our pro rata share of near-term debt service costs related to the Dowa Term Loan (as defined herein).

    Complete a feasibility study expanding the Cerro Los Gatos Mine production rate to 3,000 tpd: Our desktop study estimated that a production rate expansion from 2,500 to 3,000 tpd could significantly improve the economics of the Cerro Los Gatos Mine. Given the appealing potential return, we intend to conduct a feasibility study, prepared in accordance with the SEC Mining Modernization Rules and NI 43-101, for the possible Cerro Los Gatos Mine production rate increase.

    Further exploration of the Los Gatos District:  We intend to fund our pro rata share of an exploration program to further define resources in the partially defined Esther deposit to confirm the multiple deposit potential of the Los Gatos District.

        See "Business—Business Strategy."

Recent Developments

Impact of the COVID-19 Pandemic

        In late March 2020, the Mexican government declared a national health emergency due to increasing infection rates from the COVID-19 pandemic. Pursuant to the health emergency declaration,

18


Table of Contents

the Mexican government ordered a temporary suspension of all "non-essential" operations nationwide in Mexico, including mining operations, in order to help combat the spread of COVID-19. In response to the order, the LGJV effected a 45-day temporary suspension of all non-essential activities at the Cerro Los Gatos Mine site, which reduced the number of employees and contractors at the site and the Chihuahua corporate office. During the temporary suspension, the LGJV implemented health protocols, allowed most administrative and technical services employees to work remotely, reduced mining and milling, completed project enhancements and finalized a mine plan upon reactivation of mining activities after the temporary suspension.

        In late May 2020, the Mexican government designated mining an essential service and allowed mines to resume production, subject to deploying COVID-19 prevention protocols. Our existing COVID-19 protocols exceeded those mandated by the Mexican government and, accordingly, the LGJV reactivated mine development and mining in late May 2020 and hired additional employees. Ore processing resumed in early June 2020. In order to maintain social distancing and best practice protocols, public areas, such as the residential camps' cafeterias, limited the number of personnel. Food service periods were extended with employees assigned specific times for meals. Face masks are required in offices and other public areas. Daily working shift times are staggered to limit the number of employees in changing areas and pre-shift work meetings. Two sterilization tunnels have been installed at the main entry gate and at the entrance to the cafeteria. All individuals entering the Cerro Los Gatos Mine site are subject to a rapid test to screen for COVID-19 and, if an individual tests positive on the rapid test and on a secondary molecular test, the individual will be subject to quarantine protocols and removed from the mine site. In the event of an outbreak of COVID-19 on site, we could determine that a full suspension of our operations is necessary for the safety and protection of the workers.

        The COVID-19 pandemic has temporarily affected our financial condition, in part due to the loss of revenue resulting from the 45-day temporary suspension of all non-essential activities at the LGJV's Cerro Los Gatos Mine site and the expenses associated with the development and implementation of COVID-19 protocols. In addition, as the LGJV reactivated mine development and mining, it implemented a scalable optimized plan with a lower employee complement and with reduced average monthly production rate at 1,750 tpd until September 2020, targeting higher ore grades. This may result in higher per tonne mining, processing and sustaining capital costs than previously anticipated. We intend to ramp up to the 2,500 tpd design capacity beginning in September 2020 with the goal of reaching the 2,500 tpd design capacity in January 2021.

        If the Mexican government were to reinstate the suspension order caused by the COVID-19 pandemic, or if all mining activities at the Cerro Los Gatos Mine site were suspended for an undefined period of time, there could be additional costs incurred, production and development delays, cost overruns and operational restart costs. In addition, given that our management travels regularly between Mexico City and the Cerro Los Gatos Mine site, any restrictions on travel within Mexico may adversely affect our management's ability to oversee ongoing mining activities at the Cerro Los Gatos Mine and our ability to achieve our business objectives and milestones. See "Risk Factors—Risks Related to Our Business and Industry—Our business could be adversely affected by the effects of health epidemics, including the recent COVID-19 pandemic, in regions where we conduct our business operations."

Third Quarter 2020 Operational Update

        For the three-months ended September 30, 2020, at the Cerro Los Gatos Mine, 164,510 tonnes were mined and 172,229 tonnes were processed at average grades of 269 g/t silver, 0.43 g/t gold, 2.51% lead and 4.00% zinc, with metallurgical recovery of 85.1% silver, 61.9% gold, 87.3% lead and 73.9% zinc, and 6,097 tonnes of lead concentrate were produced at average grades of 5,726 g/t silver, 6.82 g/t gold, 59.7% lead and 9.7% zinc, with metallurgical recovery of 75.3% silver, 56.3% gold, 84.4% lead

19


Table of Contents

and 8.6% zinc, and 7,980 tonnes of zinc concentrate were produced at average grades of 572 g/t silver, 0.52 g/t gold, 1.6% lead and 56.5% zinc, with metallurgical recovery of 9.8% silver, 5.6% gold, 3.0% lead and 65.4% zinc. Considering the ramp-up of mining operations during the period, operating costs for the three months ended September 30, 2020 were in line with management's expectations and trending toward LOM feasibility operating costs.

Risk Factors

        Before you invest in our common stock, you should carefully consider all the information in this prospectus, including matters set forth under the "Risk Factors" section. These risks represent challenges to the successful implementation of our strategy and future profitability of our business. These risks include:

    we have a history of negative operating cash flows and net losses and we may never achieve or sustain profitability;

    we are dependent on two principal projects for our future operations, the Cerro Los Gatos Mine and the Los Gatos District; the Los Gatos District (other than the Cerro Los Gatos Mine) does not currently have proven or probable mineral reserves;

    mineral reserve and mineral resource calculations at the Cerro Los Gatos Mine and the Los Gatos District are only estimates;

    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 title to some of the mineral properties may be uncertain or defective, thus risking our investment in such properties;

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

    we may be subject to claims and legal proceedings that could materially and adversely impact our financial position, financial performance and results of operations;

    we have debt and may incur further debt in the future, which could adversely affect our financial health, limit our ability to obtain financing in the future and pursue certain business opportunities and reduce the value of your investment;

    our directors may have conflicts of interest as a result of their relationships with other mining companies;

    our business could be adversely affected by the effects of health epidemics, including the recent COVID-19 pandemic, in regions where we conduct our business operations;

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

    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;

    Electrum, MERS and their respective affiliates will continue to have a substantial degree of control over us after this offering, which could delay or prevent a change of corporate control or result in the entrenchment of our management and/or Board of Directors;

20


Table of Contents

    our relationship with SOP may strain our senior management resources and could potentially result in conflicts of interest; and

    we are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

Implications of Becoming an Emerging Growth Company

        As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include:

    we are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act");

    we are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (the "PCAOB") regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

    we are not required to submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay," "say-on-frequency" and "say-on-golden parachutes"; and

    we are not required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer's compensation to median employee compensation.

        We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iii) the date on which we are deemed to be a "large accelerated filer," which will occur as of the end of any fiscal year in which we (x) have an aggregate market value of our common stock held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (y) have been required to file annual and quarterly reports under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), for a period of at least 12 months and (z) have filed at least one annual report pursuant to the Exchange Act. 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 this prospectus and our periodic reports and proxy statements.

        We have elected to take advantage of some of the reduced disclosure obligations listed above in this prospectus and may elect to take advantage of other reduced reporting requirements in future filings. In particular, we have elected to adopt the reduced disclosure with respect to our executive compensation disclosure. As a result of this election, the information that we provide to shareholders may be different from that you might get from other public companies.

        The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to "opt out" of this provision and, as a result, we will comply with new or revised

21


Table of Contents

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.

        See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Jumpstart Our Business Startups Act of 2012."

Corporate Information and Reorganization

        We were formed on February 2, 2011, when our predecessor Precious Metals Opportunities LLC, which was formed in December 2009, converted to a Delaware corporation. On March 1, 2011, Los Gatos Ltd. merged with and into us to form Sunshine Silver Mines Corporation. In 2014, we changed our name to Sunshine Silver Mining & Refining Corporation.

        Immediately prior to the closing of this offering, we intend to effect the Reorganization in which (i) SOP will become a wholly owned subsidiary of a newly created Delaware corporation named Silver Opportunity Partners Corporation, (ii) each            shares of our common stock outstanding immediately prior to the Reorganization will be exchanged for (A)             shares of our common stock (subject to rounding to eliminate fractional shares) and (B)              shares of common stock of SOP Corporation (subject to rounding to eliminate fractional shares) and (iii) we will change our name from Sunshine Silver Mining & Refining Corporation to Gatos Silver, Inc. SOP currently holds our interest in the Sunshine Complex, which is located in the Coeur d'Alene Mining District in Idaho and is comprised of the Sunshine Mine and the Sunshine Big Creek Refinery. Through the Reorganization, we expect to distribute all of our equity interest in SOP to our shareholders immediately prior to the completion of this offering.

        A chart of our project ownership structure after the Reorganization is set out below.

GRAPHIC


In this graphic, green rectangles represent legal entities and grey circles depict the mining operations owned by such legal entities.

(1)
Silver Opportunity Partners LLC holds less than 0.01% interest in Minera Luz de Sol, S. de R.L. de C.V. due to requirements of Mexican law.

        Our principal executive office is located at 8400 E. Crescent Parkway, Suite 600, Greenwood Village, CO 80111. Our telephone number is (303) 784-5350.

22


Table of Contents

 


THE OFFERING

Common stock offered in firm commitment offering

              shares.

Common stock to be outstanding after this offering

 

            shares (or            shares if the underwriters exercise their over-allotment option in full).

Option to purchase additional shares of common stock

 

            shares.

Use of proceeds

 

We estimate that the net proceeds to us from this offering will be approximately $             million, or $             million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $             per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds of this offering to retire a portion of the Los Gatos Working Capital Facility provided by Dowa, exercise our option to repurchase an 18.5% interest in the LGJV to increase our ownership to 70.0%, fund near-term debt service needs, fund a feasibility study for a 3,000 tpd production rate expansion at the Cerro Los Gatos Mine, for Los Gatos District exploration and for working capital and general corporate purposes.

 

If the net proceeds from this offering exceed $             million, we intend to use a portion of the net proceeds to repay our outstanding convertible notes, in which case, such convertible notes will not convert to shares of common stock in connection with this offering.

 

See "Use of Proceeds."

Voting rights

 

Holders of our common stock are entitled to one vote per share. See "Description of Capital Stock."

Dividend policy

 

We have never declared or paid any cash dividends on our capital stock. We do not intend to pay any dividends in the foreseeable future and currently intend to retain all future earnings to finance our business. See "Dividend Policy."

Risk factors

 

See "Risk Factors" for a discussion of factors you should carefully consider before deciding whether to invest in our common stock.

23


Table of Contents

Directed share program

 

At our request, the underwriters have reserved up to            % of the shares of common stock offered by this prospectus, for sale, at the initial public offering price, to our employees and directors and to friends, professional contacts and family members of our employees and directors. If purchased by these persons, these shares will not be subject to a lock-up restriction, except in the case of shares purchased by any director or officer, which will be subject to a 180-day lock-up restriction described under "Underwriting." The number of shares available for sale to the general public will be reduced by the number of reserved shares sold to these individuals. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. See "Underwriting."

Common stock listing

 

We have applied to list our common stock on the NYSE and the TSX under the symbol "GATO."

        The number of shares of our common stock that will be outstanding after this offering is based on the number of shares of common stock outstanding as of June 30, 2020 after giving effect to (i) the Reorganization, (ii) the issuance of an aggregate of                shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of                shares of common stock in connection with this offering, and (iv) the issuance and sale of                shares of common stock in this offering. Unless otherwise indicated, all information in this prospectus, including the number of shares that will be outstanding after this offering and other share-related information, excludes:

                shares of common stock issuable upon the exercise of director and employee options outstanding as of June 30, 2020, at a weighted average exercise price of $                per share;

                shares of common stock issuable upon the exercise of LGJV personnel options outstanding as of June 30, 2020, at a weighted average exercise price of $                per share;

                shares of common stock issuable upon the exercise of options to be granted upon the pricing of this offering, as described under "Executive and Director Compensation—Stock Option Grants," at an exercise price per share equal to the public offering price in this offering;

                 shares of common stock issuable upon the exercise of options granted after June 30, 2020, at a weighted average exercise price of $            per share;

                 shares of common stock issuable upon the conversion of deferred share units ("DSUs") granted to certain employees and to directors; and

                additional shares of common stock reserved for future issuance under our Amended and Restated Long Term Incentive Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under the Amended and Restated Long Term Incentive Plan.

        See "Executive and Director Compensation—Stock Option Grants" and "Executive and Director Compensation—Director Compensation." See also "Description of Capital Stock."

        Unless otherwise indicated, all information in this prospectus assumes:

    the Reorganization;

24


Table of Contents

    the filing and effectiveness of our Amended and Restated Certificate of Incorporation, which will occur immediately prior to the completion of this offering;

    an initial public offering price of $        per share of common stock, which is the midpoint of the range set forth on the cover page of this prospectus;

    no exercise of outstanding options and no conversion of DSUs described above;

    the issuance of an aggregate of        shares of common stock to our executive officers in connection with this offering, as described under "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," based on an initial public offering price of $              per share of common stock, which is the midpoint of the range set forth on the cover page of this prospectus;

    the conversion of our outstanding convertible notes into an aggregate of        shares of common stock in connection with this offering, as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes," based on an initial public offering price of $        per share of common stock, which is the midpoint of the range set forth on the cover page of this prospectus;

    no exercise of the option to purchase additional shares of common stock by the underwriters; and

    no purchase of common stock in this offering by directors, officers or existing shareholders.

25


Table of Contents



SUMMARY CONSOLIDATED FINANCIAL DATA

        We prepared the summary consolidated financial data using our consolidated financial statements for each of the periods presented. The summary consolidated financial data for each fiscal year in the three-year period ended December 31, 2019 was derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The summary consolidated financial data as of and for the six months ended June 30, 2020 and for the six months ended June 30, 2019 was derived from our unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus. In the opinion of management, such unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. Results as of and for the six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the entire year, and historical results are not necessarily indicative of results that may be expected for any future period. You should read this financial data in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2019   2018   2017   2020   2019  
 
   
   
   
  (unaudited)
 
 
  (in thousands, except for share and per share amounts)
 

Statement of Loss Data:

                               

Expenses:

                               

Exploration

  $ 1,248   $ 1,709   $ 1,179   $ 598   $ 527  

Pre-development

    2,318     2,527     2,408     1,048     1,140  

General and administrative

    4,845     4,396     6,494     3,257     2,689  

Amortization

    2,370     2,307     2,483     1,203     1,238  

Total expenses

    10,781     10,939     12,564     6,106     5,594  

Dilution loss on affiliates

    11,231                 11,231  

Equity loss in affiliates(1)

    12,865     464     160     21,516     311  

Net other expense

    2,941     264     87     2,343     886  

Loss before income taxes

    37,818     11,667     12,811     29,965     18,022  

Income tax benefit

        (3 )            

Net Loss

  $ 37,818   $ 11,664   $ 12,811   $ 29,965   $ 18,022  

Net loss per share

  $ 0.49   $ 0.16   $ 0.19   $ 0.37   $ 0.24  

Weighted average shares outstanding to compute net loss per share

    77,934,044     73,941,655     67,507,179     81,011,188     75,050,171  

Pro forma net loss per share(2)

  $                 $          

Weighted average shares outstanding to compute pro forma net loss per share(2)

                               

(1)
Represents the 70.0% loss pickup under the equity method of accounting (i) from January 1, 2019 to May 29, 2019 for the year ended December 31, 2019, (ii) from January 1, 2019 to May 29, 2019 for the six months ended June 30, 2019 and (iii) for the years ended December 31, 2018 and 2017. Represents the 51.5% loss pickup under the equity method of accounting for (i) the six months ended June 30, 2020, (ii) from May 30, 2019 to December 31, 2019 for the year ended December 31, 2019 and (iii) from May 30, 2019 to June 30, 2019 for the six months ended June 30, 2019.

26


Table of Contents

(2)
The pro forma information gives effect to the following: (i) the Reorganization, (ii) the issuance of an aggregate of            shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of            shares of common stock in connection with this offering, (iv) the issuance and sale of            shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (v) the acquisition or retirement of a portion of the Los Gatos Working Capital Facility and the funding of near-term debt service needs with a portion of the net proceeds of this offering as described in "Use of Proceeds," as if each such event occurred on the first day of the period presented. The pro forma information is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) pro forma net loss per share by $            , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. A 1,000,000 share increase (decrease) in the number of shares of common stock offered by us would increase (decrease) pro forma net loss per share by $            , assuming the assumed initial public offering price remains the same.
 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2019   2018   2017   2020   2019  
 
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Cash Flow Data:

                               

Net cash used by operating activities

  $ (12,295 ) $ (6,654 ) $ (8,204 ) $ (9,537 ) $ (4,273 )

Net cash used by investing activities

    (21,905 )   (745 )   (28,555 )   (7,573 )   (19,576 )

Net cash provided by (used by) financing activities

    39,828     (222 )   42,678     9,979     25,466  

 

 
  June 30, 2020  
 
  Actual   Pro Forma(1)  
 
  (in thousands)
 

Balance Sheet Data:

             

Cash and cash equivalents

  $ 1,954   $    

Total assets

    136,147        

Total liabilities

    14,543        

Total shareholders' equity

    121,604        

(1)
The pro forma information gives effect to the following: (i) the Reorganization, (ii) the issuance of an aggregate of                                    shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of            shares of common stock in connection with this offering, (iv) the issuance and sale of            shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (v) the acquisition or retirement of a portion of the Los Gatos Working Capital Facility and the funding of near-term debt service needs with a portion of the net proceeds of this offering as described in "Use of Proceeds." The pro forma information is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) pro forma cash and cash equivalents, total assets and total shareholders' equity by $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. A 1,000,000 share increase (decrease) in the number of shares of common stock offered by us would increase (decrease) pro forma cash and cash equivalents, total assets and total shareholders' equity by $             million, assuming the assumed initial public offering price remains the same.

27


Table of Contents


RISK FACTORS

        You should carefully consider the following risk factors that may affect our business, future operating results and financial condition, as well as the other information set forth in this prospectus, before making a decision to invest in our common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely be materially and adversely affected. In such case, the trading price of our common stock would likely decline, and you may lose all or part of your investment. The risks below are not the only ones we face. Additional risks not currently known to us or that we currently deem immaterial may also adversely affect us.

Risks Related to Our Business and Industry

We have a history of negative operating cash flows and net losses and we may never achieve or sustain profitability.

        We have a history of negative operating cash flows and net losses. We expect to continue to incur negative operating cash flows and net losses until such time as one or more of our mineral properties generates sufficient revenues to fund our continuing operations. For the years ended December 31, 2019 and 2018, our net loss was $37.8 million and $11.7 million, respectively, and for the six months ended June 30, 2020 and 2019, our net loss was $30.0 million and $18.0 million, respectively. For the six months ended June 30, 2019, on a pro forma basis after giving effect to (i) the Reorganization, and (ii) the acquisition or retirement of a portion of the Los Gatos Working Capital Facility and the funding of near-term debt service needs with a portion of the net proceeds of this offering as described in "Use of Proceeds," as if each such event occurred on the first day of the relevant period, our net loss would have been $             million. Given our history of negative operating cash flows and net losses, and potential future negative operating cash flows and net losses, we may use the net proceeds from this offering to fund our continuing operations. See "Use of Proceeds."

        We may never achieve or sustain profitability. The Cerro Los Gatos Mine commenced production on September 1, 2019. To become and remain profitable, we must succeed in generating significant revenues at the Cerro Los Gatos Mine, 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 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.

There is substantial doubt about our ability to continue as a going concern.

        Our recurring negative operating cash flows and net losses raise substantial doubt about our ability to continue as a going concern. Our ability to continue operating as a going concern is contingent upon our ability to secure sufficient financing, retire certain existing obligations and/or reduce spending to maintain operations. Based on our planned use of the net proceeds of this offering and our currently available resources, including existing cash and cash equivalents, we estimate that such funds will enable us to fund our projected operating expenses and capital expenditures for at least twelve months from the date of this prospectus. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because of circumstances beyond our control. The financial statements contained elsewhere in this prospectus do not include any adjustments that might result from our inability to continue as a going concern.

28


Table of Contents

We are dependent on two principal projects for our future operations, the Cerro Los Gatos Mine and the Los Gatos District. The Los Gatos District (other than the Cerro Los Gatos Mine) does not currently have proven or probable mineral reserves.

        The Los Gatos District (other than the Cerro Los Gatos Mine) does not have identified proven and probable mineral reserves. Mineral exploration and development involves 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 Los Gatos District 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.

Mineral reserve and mineral resource calculations at the Cerro Los Gatos Mine and the Los Gatos District are only estimates.

        Calculations of mineral reserves at the Cerro Los Gatos Mine and of the mineral resources at the Los Gatos District 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.

        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, cut-off grades and operating costs that may prove to be inaccurate. 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. You should not assume 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.

29


Table of Contents

Our 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 construct mining and processing facilities and obtain the rights to the land and resources required to develop the mining activities.

        Development projects have no 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.

Our processing ability may be adversely impacted by certain circumstances.

        A number of factors could affect our ability to process the quantities of metals that we recover and our ability to efficiently 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.

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 operating costs at the Cerro Los Gatos Mine 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 operating costs at the Cerro Los Gatos Mine 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.

30


Table of Contents

Land reclamation and mine closure may be burdensome and costly.

        Land reclamation and mine closure requirements are generally imposed on mineral 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 Cerro Los Gatos Mine is a profitable silver-zinc-lead project with an estimated 11-year mine life, at modeled metals' prices. If the development of one of our other mineral projects 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 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;

    exchange rate and commodity price fluctuations;

    high rates of inflation;

    health pandemics, including the COVID-19 pandemic;

31


Table of Contents

    potential opposition from non-governmental 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 the projects 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 start-up. 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 or other contaminants that, when present in high concentrations, can result in penalties or outright rejection of the metals concentrates by the smelters or offtakers. For example, due to the high fluorine content at the Cerro Los Gatos Mine, it was necessary to reduce the fluorine content of the concentrate produced at the Cerro Los Gatos Mine by providing additional cleaning stages. 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. Hazards inherent to the mining industry can 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 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 its 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

32


Table of Contents

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 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.

Deliveries under a sales agreement with Ocean Partners and other customer concentrate sales agreements may be suspended or cancelled by our customers in certain cases.

        Under a sales agreement with Ocean Partners USA Inc. ("Ocean Partners") and other customer 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.

The title to some of the mineral properties may be uncertain or defective, 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 prospectus, including the Cerro Los Gatos Mine, through these government concessions, there is no assurance that title to the concessions comprising the Cerro Los Gatos Mine or our or the LGJV's other properties will not be challenged or impaired. The Los Gatos concession is held by us subject to the terms of an agreement with the original holder of that concession. The Cerro Los Gatos Mine 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, 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

33


Table of Contents

payments and otherwise 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 Los Gatos District dated as of November 5, 2019, such opinion is not a guarantee of title and such title may be challenged.

We do not currently intend to enter into hedging arrangements with respect to silver and other minerals and our hedging activities, or our decision not to hedge, with respect to our expenses could expose us to losses. We are also subject to risks relating to fluctuations in the exchange rate of the Mexican peso to the U.S. dollar.

        We do not currently intend to enter into hedging arrangements with respect to silver and other minerals. As such, we will not be protected from a decline in the price of silver and other minerals. 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. As a result, any significant and sustained appreciation of the Mexican peso against the U.S. dollar may materially increase our costs and expenses. Additionally, we are, and will be, exposed to the potentially adverse effects of fluctuations in input costs, such as diesel fuel, and if we borrow funds at floating interest rates. We may seek to enter into hedging arrangements to hedge some of our input costs, such as diesel fuel, and our currency exposure with respect to the portion of our costs and expenses incurred in Mexican pesos. In the future we may also seek to enter into interest rate hedge agreements in connection with future indebtedness we may incur that bears interest at a floating rate. We currently, however, have not entered into any such hedging arrangements, or made a decision to do so, and cannot assure you that we will be able to do so on acceptable terms, or at all. Even if we seek and are able to enter into hedging contracts, there is no assurance that such 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.

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

34


Table of Contents

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. 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 have the potential to disrupt our exploration at our mines and may require us to make additional expenditures to mitigate the impact of such events.

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, we cannot assure you 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.

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 key-person 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.

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

        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. Since January 1, 2019 to September 30, 2020, the LBMA silver price ranged from a low of $12.01 per ounce on March 19, 2020 to a high of $28.89 per ounce on September 1, 2020; the LME Official Settlement zinc price ranged from a low of $1,816

35


Table of Contents

per tonne ($0.82 per pound) on March 24, 2020 to a high of $2,933 per tonne ($1.33 per pound) on April 1, 2019; the LME Official Settlement lead price ranged from a low of $1,586 per tonne ($0.72 per pound) on March 24, 2020 to a high of $2,265 per tonne ($1.03 per pound) on October 29, 2019. 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.

        Additionally, the COVID-19 pandemic and efforts to contain it, including restrictions on travel and other advisories issued may have a significant effect on silver, zinc and lead prices as well as demand. Because we expect to derive the substantial majority of our revenues from sales of silver, zinc and lead, our 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.

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

        Our future revenues 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. Demand for silver is mostly driven by its general perception as a store of value as well as its uses in industrial processes and products, such as batteries, bearings, brazing and soldering, catalysts, electronics and photographic material, and its use by direct consumers, such as for jewelry, silverware and coins. See "Silver Industry Overview." 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 application. Any substitution of these materials may decrease the demand for the silver, zinc and lead we produce. A fall in demand, resulting from economic slow-downs 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.

36


Table of Contents

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 development 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, we and Dowa must jointly approve of 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.

We may be subject to claims and legal proceedings that could materially and adversely impact our financial position, financial performance and results of operations.

        We may be subject to claims or legal proceedings covering a wide range of matters that arise in the ordinary course of business activities. These matters may result in litigation or unfavorable

37


Table of Contents

resolution which could materially and adversely impact our financial performance, financial position and results of operations. See "Business—Legal Proceedings."

We are subject to the risk of labor disputes, which could adversely affect our business.

        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.

We have debt and may incur further debt in the future, which could adversely affect our financial health, limit our ability to obtain financing in the future and pursue certain business opportunities and reduce the value of your investment.

        The LGJV has debt service obligations pursuant to the agreements governing its outstanding debt. As of June 30, 2020, the LGJV had $222.8 million of debt outstanding under a term loan agreement with Dowa, dated July 11, 2017, as amended from time to time (the "Dowa Term Loan") and $60.0 million of debt outstanding under a working capital facility agreement with Dowa, dated May 30, 2019 (the "Los Gatos Working Capital Facility" and, together with the Dowa Term Loan, the "Dowa Debt Agreements"). In connection with entering into the Los Gatos Working Capital Facility, on April 16, 2019, we made a capital contribution to the LGJV of $18.2 million, which was used to repay a portion of another loan that the LGJV had with Dowa (the "MPR Loan") and Dowa agreed to convert the remaining balance under the MPR Loan in exchange for an approximate 18.5% of the equity interest of the LGJV, reducing our ownership in the LGJV to approximately 51.5%. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Dowa Debt Agreements."

        The Dowa Debt Agreements contain certain covenants and restrictions relating to the LGJV's use of the borrowings under such facilities, including: requiring the LGJV to use a substantial portion of funds from operations to make required payments of principal and interest, to retain certain levels of funds in reserve accounts and to accelerate repayment of the Dowa Term Loan for 70% of excess cash flows, as defined in the Dowa Debt Agreements. These covenants and restrictions will reduce funds available for operations and capital expenditures, future business opportunities, future dividends to us and other purposes; make the LGJV more vulnerable to economic and industry downturns and reduce flexibility in responding to changing business and economic conditions; limit flexibility in planning for, or reacting to, changes in the business and the industry in which we operate; place us at a competitive disadvantage compared to our competitors that have less debt; limit our ability to borrow more money for operations and sustaining capital or to finance acquisitions in the future; or require us to make future capital contributions to the LGJV, if needed, in order to make required payments of interest and principal. If we, as a 70.0% guarantor of the Dowa Term Loan and the Los Gatos Working Capital Facility, or the LGJV are unable to meet debt service obligations in the future, our financial position, financial performance and results of operations may be materially and adversely affected.

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

38


Table of Contents

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.

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.

Our business could be adversely affected by the effects of health epidemics, including the recent COVID-19 pandemic, in regions where we conduct our business operations.

        Our business could be adversely affected by health epidemics. For example, the outbreak of COVID-19 in the United States, Mexico and elsewhere has created significant business disruption and may adversely affect our business and operations. The outbreak has resulted in governments implementing numerous measures to contain COVID-19, such as travel bans and restrictions, particularly quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns. These containment measures are subject to change and the respective government authorities may tighten the restrictions at any time.

        In late March 2020, the Mexican government declared a national health emergency due to increasing infection rates from the COVID-19 pandemic. Pursuant to the health emergency declaration, the Mexican government ordered a temporary suspension of all "non-essential" operations nationwide in Mexico, including mining operations, in order to help combat the spread of COVID-19. In response to the order, the LGJV effected a 45-day temporary suspension of all non-essential activities at the Cerro Los Gatos Mine site, which reduced the number of employees and contractors at the site and the Chihuahua corporate office. During the temporary suspension, the LGJV implemented health protocols, allowed most administrative and technical services employees to work remotely, reduced mining and milling, completed project enhancements and finalized a mine plan upon reactivation of mining activities after the temporary suspension.

        In late May 2020, the Mexican government designated mining an essential service and allowed mines to resume production, subject to deploying COVID-19 prevention protocols. Our existing COVID-19 protocols exceeded those mandated by the Mexican government and, accordingly, the LGJV reactivated mine development and mining in late May 2020 and hired additional employees. Ore processing resumed in early June 2020. In order to maintain social distancing and best practice protocols, public areas, such as the residential camps' cafeterias, limited the number of personnel. Food service periods were extended with employees assigned specific times for meals. Face masks are required in offices and other public areas. Daily working shift times are staggered to limit the number of employees in changing areas and pre-shift work meetings. Two sterilization tunnels have been installed at the main entry gate and at the entrance to the cafeteria. All individuals entering the Cerro Los Gatos Mine site are subject to a rapid test to screen for COVID-19 and, if an individual tests positive on the rapid test and on a secondary molecular test, the individual will be subject to quarantine protocols and removed from the mine site. In the event of an outbreak of COVID-19 on site, we could determine that a full suspension of our operations is necessary for the safety and protection of the workers.

        The COVID-19 pandemic has temporarily affected our financial condition, in part due to the loss of revenue resulting from the 45-day temporary suspension of all non-essential activities at the LGJV's Cerro Los Gatos Mine site and the expenses associated with the development and implementation of

39


Table of Contents

COVID-19 protocols. In addition, as the LGJV reactivated mine development and mining, it implemented a scalable optimized plan with a lower employee complement and with reduced average monthly production rate at 1,750 tpd until September 2020, targeting higher ore grades. This may result in higher per tonne mining, processing and sustaining capital costs than previously anticipated. We intend to ramp up to the 2,500 tpd design capacity beginning in September 2020 with the goal of reaching the 2,500 tpd design capacity in January 2021.

        If the Mexican government were to reinstate the suspension order caused by the COVID-19 pandemic, or if all mining activities at the Cerro Los Gatos Mine site were suspended for an undefined period of time, there could be additional costs incurred, production and development delays, cost overruns and operational restart costs. In addition, given that our management travels regularly between Mexico City and the Cerro Los Gatos Mine site, any restrictions on travel within Mexico may adversely affect our management's ability to oversee ongoing mining activities at the Cerro Los Gatos Mine and our ability to achieve our business objectives and milestones.

        We may take further actions as may be required by government authorities or as we determine are in the best interests of our employees and business partners. There is no guarantee that we will not experience significant disruptions to or additional closures of some or all of our operations in the future. Such modifications to our business practices may negatively impact productivity, divert resources away from or otherwise disrupt our or the LGJV's business operations and delay and disrupt exploration and production timelines. Any long term closures or suspensions may also result in the loss of personnel or the workforce in general as employees seek employment elsewhere.

        While the full impact of this pandemic is unknown at this time, we are closely monitoring the rapid developments of the outbreak and continually assessing the potential impact on our business. Any prolonged disruption of our or the LGJV's operations and closures of facilities would delay our current exploration and production timelines and negatively impact our business, financial condition and results of operations. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. However, the COVID-19 pandemic could have a material adverse effect on our business, financial condition and results of operations and heighten many of our known risks described in this "Risk Factors" section.

Risks Related to Government Regulations and International Operations

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, 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.

40


Table of Contents

        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. We cannot assure you that we have been or will be at all times in compliance with all applicable laws and regulations. Failure 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. See "Business—Environmental, Health and Safety Matters."

        Any new legislation or administrative regulations or new judicial interpretations or administrative enforcement of existing laws and regulations that would further regulate and tax the mining industry may also require us to change operations significantly or incur increased costs. Such changes could have a material adverse effect on our financial performance, financial position and results of operations.

        The Mexican properties are subject to regulation by the Political Constitution of the Mexican United 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 the 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 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 re-commence our operations. Any of these actions could have a material adverse effect on our financial performance, financial position and results of operations.

        In late March 2020, in response to the COVID-19 pandemic, the Mexican government ordered a temporary suspension of all "non-essential" operations nationwide in Mexico, including mining operations. In late May 2020, the Mexican government designated mining an essential service and allowed mines to resume production, subject to deploying COVID-19 prevention protocols. However, there is no certainty that the Mexican regulators will not require further limitations on, or even a full shut down of, the operations at the Cerro Los Gatos Mine in connection with COVID-19. The potential costs of complying with these COVID-19 requirements is unknown and could have a material adverse effect on us.

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 Los Gatos District, which the LGJV controls, and the Santa Valeria property, which we control. 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 re-negotiation of contracts and licenses;

    unfavorable changes in laws and regulations;

41


Table of Contents

    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 enforceability of contractual rights and judgments; and

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

        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.

        The right to export silver-bearing concentrate 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. Furthermore, the United States has recently instituted or proposed other changes in trade policies that include the negotiation or termination of trade agreements, including free trade agreements, economic sanctions on individuals, corporations or countries, and 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.

42


Table of Contents

        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 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 Cerro Los Gatos Mine, the Los Gatos District 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 Los Gatos District 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

43


Table of Contents

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 off-site 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.

        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 anti-corruption and anti-bribery law violations.

        Our operations are governed by, and involve interactions with, various levels of government in foreign countries. We are required to comply with anti-corruption and anti-bribery laws, including the Corruption of Foreign Public Officials Act (Canada) and the U.S. Foreign Corrupt Practices Act (the "FCPA") 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 FCPA 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 FCPA 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

44


Table of Contents

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 This Offering and Our Common Stock

There is no existing market for our common stock and we do not know if one will develop. Even if a market does develop, the stock price in the market may not exceed the offering price.

        Prior to this offering, there has not been a public market for our common stock, and there can be no assurance that the NYSE or the TSX will approve our listing application. We cannot predict the extent to which investor interest in our Company will lead to the development of an active trading market on the NYSE, the TSX or otherwise, or how liquid that market may become. An active trading market for our common stock may not develop and even if it does develop, may not continue upon the completion of this offering and the market price of our common stock may decline below the initial public offering price. The initial public offering price for the common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price you pay in this offering.

The market price of our common stock may be volatile, which could result in substantial losses for you.

        The initial public offering price for our common stock will be determined through negotiations between us and the representatives of the underwriters. This initial public offering price may vary from the market price of our common stock after this offering. 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 production at our mineral properties;

    actual or anticipated changes in the price of silver and base metal by-products;

45


Table of Contents

    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;

    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 or both;

    litigation 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 our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.

        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 that we will adopt prior to the closing of this offering will 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

46


Table of Contents

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.

You will suffer immediate and substantial dilution as a result of this offering.

        The initial public offering price per share of our common stock is substantially higher than our net tangible book value per share immediately after this offering. As a result, if you purchase shares in this offering, you will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities, and any additional financing in the future may cause further dilution to our existing shareholders and there can be no assurance that any future additional financing will be on terms that are favorable to us or our shareholders. At an offering price of $            per share, which is the midpoint of the range set forth on the front cover of this prospectus, you will incur immediate and substantial dilution of your investment in the amount of $            per share. See "Dilution."

Future sales of our common stock after the lock-up period has expired, or the perception that such sales may occur, could depress our common stock price.

        After this offering, we will have                        shares of common stock outstanding (or                        shares of common stock outstanding if the underwriters' over-allotment option is exercised in full). This includes the shares of common stock we are selling in this offering, which may generally be resold in the public market immediately after this offering. We expect that the remaining shares of common stock, representing        % of our total outstanding shares of common stock following this offering, will become available for resale in the public market as set forth under the heading "Shares Eligible for Future Sale." All of our directors and executive officers, and the holders of substantially all of our common stock, have signed lock-up agreements for a period of 180 days following the date of this prospectus, subject to extension in the case of an earnings release or material news or a material event relating to us. BMO Capital Markets Corp., Goldman Sachs & Co. LLC and RBC Capital Markets, LLC may, in their sole discretion and without notice, release all or any portion of the common stock subject to lock-up agreements. There are no agreements, understandings or intentions, tacit or explicit, to release any of the common stock subject to lock-up agreements prior to the expiration of the lock-up period. As restrictions on resale end, the market price of our common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them, and we will enter into a registration rights agreement with substantially all our shareholders in connection with this offering. See "Certain Relationships and Related Party Transactions—Registration Rights Agreement." These factors could also make it more difficult for us to raise additional funds through future offerings of our common stock or other securities.

        In addition, immediately following this offering, we intend to file a registration statement registering under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), the shares of common stock reserved for issuance in respect of incentive awards to our directors and certain of our employees. This would result in approximately                         shares of common stock underlying such awards becoming available for resale in the public markets, subject to any applicable lock-up agreements.

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your 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, corporate law requirements and other factors. See "Dividend Policy."

47


Table of Contents

Electrum, MERS and their respective affiliates will continue to have a substantial degree of control over us after this offering, which could delay or prevent a change of corporate control or result in the entrenchment of our management and/or Board of Directors.

        After this offering, Electrum will beneficially own, in the aggregate, approximately        % of our outstanding common stock (approximately        % if the underwriters' over-allotment option is exercised in full). In addition, following this offering and assuming no exercise by the underwriters of their over-allotment option, MERS will beneficially own, in the aggregate, approximately        % of our outstanding common stock (approximately        % if the underwriters' over-allotment option is exercised in full). In connection with this offering, we intend to enter into a shareholders agreement with Electrum and MERS pursuant to which Electrum and MERS will have certain director nomination rights. The shareholders agreement will also provide that Electrum approval must be obtained prior to us engaging in certain actions. See "Certain Relationships and Related Party Transactions—Shareholders Agreement." As a result, Electrum will have significant influence over our management and affairs and, so long as 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.

        Our concentration of ownership and 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.

Our relationship with SOP may strain our senior management resources and could potentially result in conflicts of interest.

        Immediately prior to the closing of this offering, we intend to effect the Reorganization. See "Prospectus Summary—Corporate Information and Reorganization." In addition, we intend to enter into a Management Services Agreement with SOP, pursuant to which we will provide certain executive and managerial advisory services to SOP. See "Certain Relationships and Related Party Transactions—Reorganization and Management Services Agreement." SOP will reimburse us for costs representing the proportion of our advisory services allocated to it under the Management Services Agreement. However, providing such advisory services to SOP may strain our resources and divert management's attention from our principal projects and other business concerns, which would adversely affect our business and operating results. We anticipate that at least some of our directors will also be directors of SOP, which could create, or appear to create, conflicts of interest with respect to matters involving both us and SOP.

The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain executive management and qualified board members, which could make it difficult to manage our business, particularly after we are no longer an "emerging growth company."

        Following the completion of this offering, we will be required to comply with various regulatory and reporting requirements, including those required by the Securities and Exchange Commission (the "SEC"). Complying with these reporting and other regulatory requirements will be time-consuming and

48


Table of Contents

will result in increased costs to us and could have a negative effect on our business, financial condition and results of operations.

        As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, applicable Canadian securities laws and regulations, the listing requirements of the NYSE and the TSX and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an "emerging growth company." The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if required, improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting to meet this standard, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join us and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management's attention from other business concerns, which could adversely affect our business and operating results.

        As an "emerging growth company" as defined in the JOBS Act, we intend to take advantage of certain temporary exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of 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. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

        We will remain an "emerging growth company" until the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iii) the date on which we are deemed to be a "large accelerated filer," which will occur as of the end of any fiscal year in which we (x) have an aggregate market value of our common stock held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (y) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least 12 months and (z) have filed at least one annual report pursuant to the Exchange Act.

        We also expect that being a public company and complying with these rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our audit committee and compensation and nominating committee, and qualified executive officers.

        As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not

49


Table of Contents

result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal controls over financial reporting. We may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

        We may be 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 the first fiscal year beginning after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal controls over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal controls over financial reporting.

        We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal controls over financial reporting, we will be unable to assert that our internal controls are effective.

        If we are 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, 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.

        We will be required to disclose changes made in our internal controls and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC and the date we are no longer an "emerging growth company" as defined in the JOBS Act, if we take advantage of the exemptions contained in the JOBS Act. At such time, 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 will remain an "emerging growth company" for up to five years. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff.

We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies 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, 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

50


Table of Contents

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 this prospectus and 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 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 will contain a provision renouncing our interest and expectancy in certain corporate opportunities.

        Our Amended and Restated Certificate of Incorporation and shareholders agreement will 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. The terms of our Amended and Restated Certificate of Incorporation are more fully described in "Description of Capital Stock" and the terms of our shareholders agreement are more fully described in "Certain Relationships and Related Party Transactions—Shareholders Agreement."

Our Amended and Restated Certificate of Incorporation will provide 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 will provide 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

51


Table of Contents

Certificate of Incorporation will further provide 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 will also provide 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 to be 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.

We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

        We currently intend to use the net proceeds from this offering in the manner described in "Use of Proceeds." However, our Board of Directors and management will retain broad discretion in the application, and timing of the application, of the net proceeds from this offering and could spend the net proceeds in ways that do not improve our results of operations or enhance the value of our common stock. As such, we may use net proceeds of this offering in ways that an investor may not consider desirable, if our Board of Directors and management believe such use would be in our best interest. As a result, investors will be relying on the judgment of our Board of Directors and management for the application of the net proceeds from this offering. There can be no assurance regarding the results and the effectiveness of our use of the net proceeds from this offering. Our failure to apply these funds effectively could result in financial losses that could harm our business, cause the market price of our stock to decline, and delay the development of our operations. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our common stock and our trading volume could decline.

        The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our Company. If no or too few securities or industry analysts commence coverage of our Company, the trading price for our common stock would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our common stock would likely decline. In addition, if our operating results fail to meet the forecast of analysts, the price of our common stock would likely decline. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause the price of our common stock and trading volume to decline.

52


Table of Contents


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains "forward-looking statements." Those statements include, but are not limited to, statements with respect to production from the Cerro Los Gatos Mine and further exploration of the Los Gatos District, including the repurchase of an 18.5% interest in the LGJV, a feasibility study to be completed at the Cerro Los Gatos Mine for a 3,000 tpd production rate expansion, estimated calculations of mineral reserves and resources at our properties, results of the economic analysis contained in the Los Gatos Technical Report, our business strategy, general administrative expenses, the completion of the Reorganization, the entry into the Management Service Agreement, payment of royalty payments, production and sale of concentrates, future strategic infrastructure development at the Cerro Los Gatos Mine, expected cost savings, projected attributable net revenue and unlevered free cash flow, estimates of tax liabilities, our prospects, plans and objectives, industry trends, our requirements for additional capital, expectations generally regarding the completion of the offering, the utilization of the net proceeds of the offering, treatment under applicable government regimes for permitting or attaining approvals, unanticipated reclamation expenses, government regulation, environmental risks, reclamation and rehabilitation expenses, title disputes or claims, synergies of potential future acquisitions, expected actions of third parties, limitations of insurance coverage, and our anticipated uses of the net proceeds from this offering. These statements may be under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Silver Industry Overview," "Business" and in other sections of this prospectus. In some cases, you can identify these statements by forward-looking 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 projections of our future financial performance, our anticipated growth strategies and anticipated trends in our industry.

        All forward-looking statements speak only as of the date on which they are made. These statements are not guarantees 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. We believe that the factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include the following:

    our limited operating history on which to base an evaluation of our business and prospects;

    our dependence on two principal projects for our future operations;

    mineral reserve and mineral resource calculations at the Cerro Los Gatos Mine and the Los Gatos District are only estimates;

    actual capital costs, operating costs, production and economic returns may differ significantly from those we have anticipated;

    the title to some of the mineral properties may be uncertain or defective;

    changes in the prices of silver, zinc or lead;

    claims and legal proceedings against us;

    we have debt and may incur further debt in the future;

    significant risk and hazards associated with mining operations;

    our failure to identify attractive acquisition candidates or joint ventures with strategic partners or inability to successfully integrate acquired mineral properties or successfully manage joint ventures;

53


Table of Contents

    extensive regulation by the Mexican government as well as local governments;

    the requirements that we obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process;

    our Mexican operations are subject to additional political, economic and other uncertainties not generally associated with domestic operations;

    exchange rate of the Mexican peso and the U.S. dollar;

    the impact of the COVID-19 pandemic, including impacts to the availability of our workforce, government orders that may require temporary suspension of operations, and the global economy;

    our relationship with SOP;

    our relationship with Electrum, MERS and their respective affiliates having substantial control over us; and

    our exposure to material costs, liabilities and obligations as a result of environmental laws and regulations (including changes thereto) and permits.

        These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements included in this prospectus. 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. We caution you not to place undue reliance 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 prospectus 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.

54


Table of Contents


USE OF PROCEEDS

        We will receive net proceeds from this offering of approximately $             million, or approximately $             million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A            share increase (decrease) in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by $             million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        We intend to allocate the net proceeds as follows:

 
  In millions  

Retire a portion of the Los Gatos Working Capital Facility(1)

  $           

Repurchase an 18.5% interest in the Los Gatos Joint Venture to increase our ownership to 70.0%

       

Fund near-term debt service needs (our 70.0% contribution)(2)

       

Feasibility Study for a 3,000 tpd production rate expansion at the Cerro Los Gatos Mine (our 70.0% contribution)

       

Los Gatos District exploration (our 70.0% contribution)

       

Working capital and general corporate purposes(3)

       

Total net proceeds

  $           

(1)
As of June 30, 2020, $60.0 million was outstanding under the Los Gatos Working Capital Facility. The Los Gatos Working Capital Facility bears interest at LIBOR plus 3% and matures on June 28, 2021. We guarantee 70% of this facility and are required to pay an arrangement fee on the borrowing, calculated as 15.0% per annum of 70.0% of the average daily principal amount outstanding during the relevant fiscal quarter. For more information on the Los Gatos Working Capital Facility, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Dowa Debt Agreements."

(2)
Near-term debt service needs refer to the amount of the net proceeds from this offering that we intend to reserve for interest and principal payments under the Dowa Term Loan in case the LGJV's operating cash flow are insufficient to meet those debt service needs in full on the applicable payment dates. The Dowa Term Loan, under which $222.8 million was outstanding as of June 30, 2020, bears interest at LIBOR plus 2.35% and matures two business days prior to December 31, 2027. For more information on the Dowa Term Loan, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Dowa Debt Agreements."

(3)
General corporate purposes could include, without limitation, general and administrative expenses, working capital funding, arrangement fees, additional exploration expense and other capital investment at our existing properties or through acquisitions.

        If the net proceeds from this offering exceed $             million, we intend to use $            of the net proceeds to repay our outstanding convertible notes, in which case, such convertible notes will not convert to shares of common stock in connection with this offering. The convertible notes bear interest at 5% per annum and matures on April 19, 2023, unless repaid earlier or converted into our common stock. For more information on the convertible notes, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes."

55


Table of Contents

        We currently intend to use the net proceeds from this offering in the manner described above. However, our Board of Directors and management will retain broad discretion in the application, and timing of the application, of the net proceeds from this offering and could spend the net proceeds in ways that do not improve our results of operations or enhance the value of our common stock. As a result, investors will be relying on the judgment of our Board of Directors and management for the application of the net proceeds from this offering. There can be no assurance regarding the results and the effectiveness of our use of the net proceeds from this offering. See "Risk Factors—Risks Related to This Offering and Our Common Stock—We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively." In addition, we have a history of negative operating cash flows and net losses and may continue to have negative operating cash flows and net losses in the future. As a result, we may use the net proceeds from this offering to fund our continuing operations. See "Risk Factors—Risks Related to Our Business and Industry—We have a history of negative operating cash flows and net losses and we may never achieve or sustain profitability." Pending the use of the proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation instruments, including short-term, interest-bearing, investment-grade securities or short-term deposits. We cannot predict whether the proceeds invested will yield a favorable return.

56


Table of Contents


DIVIDEND POLICY

        We have never declared or paid any cash dividends on our capital stock. We do not intend to pay any dividends in the foreseeable future and currently intend to retain all future earnings to finance our business. Any determination to pay dividends to holders of our common stock in the future will be at the discretion of our Board of Directors and will depend upon such factors as our earnings levels, capital requirements, requirements under the DGCL and other factors as our Board of Directors deems relevant.

        Under the terms of the Los Gatos Working Capital Facility, we have established an escrow account and entered into an escrow agreement with Dowa in which the LGJV is required to deposit all dividends or distributions, other than management fees and partner expense reimbursements, until an aggregate amount equal to $20 million has been deposited into such account for the benefit of Dowa as a priority dividend. Following the payment of $20 million to Dowa, dividends from LGJV will be paid in accordance with the ownership percentage of the LGJV.

57


Table of Contents


CAPITALIZATION

        The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2020:

    on an actual basis; and

    on a pro forma basis to give effect to the following: (i) the Reorganization, (ii) the issuance of an aggregate of                 shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of                shares of common stock in connection with this offering, (iv) the issuance and sale of                shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (v) the acquisition or retirement of a portion of the Los Gatos Working Capital Facility and the funding of near-term debt service needs with a portion of the net proceeds of this offering as described in "Use of Proceeds."

        This table should be read in conjunction with the "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and our consolidated financial statements and related notes included elsewhere in this prospectus. Unless otherwise stated, all dollar amounts expressed below are in thousands, except for per share amounts.

 
  June 30, 2020  
 
  Actual   Pro
Forma(1)(2)
 
 
  (in thousands)
 

Cash and cash equivalents

  $ 1,954   $           

Shareholders' equity

             

Common stock, $0.001 par value; 100,000,000 shares authorized; 80,646,832 shares outstanding, actual; 700,000,000 shares authorized;            shares outstanding, pro forma

    80               

Paid-in capital

    378,099               

Accumulated deficit

    (255,548 )             

Treasury stock, at cost, 289,177 shares, actual;            shares, pro forma

    (1,027 )             

Total shareholders' equity

    121,604               

Total capitalization

  $ 121,604   $           

(1)
Assumes the conversion of our outstanding convertible notes into an aggregate of            shares of common stock in connection with this offering. If the net proceeds from this offering exceed $             million, we intend to repay our outstanding convertible notes instead, in which case, such convertible notes will not convert to shares of common stock. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes."

(2)
The pro forma information is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) pro forma cash and cash equivalents, total shareholders' equity and total capitalization by $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. A 1,000,000 share increase (decrease) in the number of shares of common stock offered by us would increase (decrease) pro forma cash and cash equivalents, total shareholders' equity and total capitalization by $             million, assuming the assumed initial public offering price remains the same.

58


Table of Contents


DILUTION

        Our consolidated net tangible book value as of June 30, 2020 was $121.6 million or $1.51 per share of common stock. Consolidated net tangible book value per share represents consolidated tangible assets, less consolidated liabilities, divided by the aggregate number of shares of common stock outstanding.

        After giving effect to (i) the Reorganization, (ii) the issuance of an aggregate of                shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of                shares of common stock in connection with this offering, (iv) the issuance and sale of                shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (v) the acquisition or retirement of a portion of the Los Gatos Working Capital Facility and the funding of near-term debt service needs with a portion of the net proceeds of this offering as described in "Use of Proceeds," our pro forma consolidated net tangible book value as of June 30, 2020 was $             million or $            per share of common stock. Pro forma consolidated net tangible book value per share represents pro forma consolidated tangible assets, less pro forma consolidated liabilities, divided by the aggregate number of shares of common stock outstanding after giving effect to the pro forma adjustments described in this paragraph.

        Dilution per share represents the difference between the price per share to be paid by new investors for the shares of common stock sold in this offering and the pro forma consolidated net tangible book value per share immediately after this offering. The following table illustrates this per share dilution:

Assumed initial public offering price

               $           

Consolidated net tangible book value per share as of June 30, 2020

  $ 1.51               

Increase in consolidated net tangible book value per share attributable to pro forma adjustments

                           

Pro forma consolidated net tangible book value per share as of June 30, 2020

                           

Dilution per share to new investors

               $           

        The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) pro forma consolidated net tangible book value per share by $            per share and dilution per share to new investors purchasing shares in this offering by $            per share, in each case assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A 1,000,000 share increase (decrease) in the number of shares of common stock offered by us would increase (decrease) pro forma consolidated net tangible book value per share by $            per share and dilution per share to new investors purchasing shares in this offering by $            per share, in each case assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        If the underwriters' over-allotment option is exercised in full, our pro forma consolidated net tangible book value per share would be $            , and the dilution per share to new investors purchasing shares in this offering would be $            .

        The following table sets forth, as of June 30, 2020, after giving effect to (i) the Reorganization, (ii) the issuance of an aggregate of                                    shares of common stock to our executive

59


Table of Contents

officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of                shares of common stock in connection with this offering, and (iv) the issuance and sale of                 shares of common stock in this offering, the number of shares of common stock purchased from us, the total consideration paid, or to be paid, to us and the average price per share paid, or to be paid, by existing shareholders and by new investors purchasing shares in this offering, at the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus:

 
  Shares Purchased   Total Consideration    
 
 
  Number
(in thousands)
  Percent   Amount
(in thousands)
  Percent   Average
Price
Per Share
 

Existing shareholders

                          % $                       % $           

New investors

                                 $           

Total

                 100 % $              100 %      

        If the underwriters' over-allotment option is exercised in full, the number of shares of common stock held by existing shareholders would decrease to        % of the total number of shares of common stock outstanding after this offering, and the number of shares of common stock held by new investors would increase to        % of the total number of shares of common stock outstanding after this offering.

        To the extent that any outstanding options are exercised, new options are issued under our share-based compensation plans and are exercised, outstanding DSUs are converted to common stock, new DSUs are issued and are converted to common stock or we issue additional common stock in the future, there will be further dilution to new investors purchasing shares in this offering.

60


Table of Contents


SELECTED CONSOLIDATED FINANCIAL DATA

        We prepared the selected consolidated financial data using our consolidated financial statements for each of the periods presented. The selected consolidated financial data for each fiscal year in the three-year period ended December 31, 2019 and the balance sheet data as of December 31, 2019 and 2018 was derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The selected consolidated financial data as of and for the six months ended June 30, 2020 and for the six months ended June 30, 2019 was derived from our unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus. In the opinion of management, such unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. Results as of and for the six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the entire year, and historical results are not necessarily indicative of results that may be expected for any future period. You should read this financial data in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2019   2018   2017   2020   2019  
 
   
   
   
  (unaudited)
 
 
  (in thousands, except for share and per share amounts)
 

Statement of Loss Data:

                               

Expenses:

                               

Exploration

  $ 1,248   $ 1,709   $ 1,179   $ 598   $ 527  

Pre-development

    2,318     2,527     2,408     1,048     1,140  

General and administrative

    4,845     4,396     6,494     3,257     2,689  

Amortization

    2,370     2,307     2,483     1,203     1,238  

Total expenses

    10,781     10,939     12,564     6,106     5,594  

Dilution loss on affiliates

    11,231                 11,231  

Equity loss in affiliates(1)

    12,865     464     160     21,516     311  

Net other expense

    2,941     264     87     2,343     886  

Loss before income taxes

    37,818     11,667     12,811     29,965     18,022  

Income tax benefit

        (3 )            

Net Loss

  $ 37,818   $ 11,664   $ 12,811   $ 29,965   $ 18,022  

Net loss per share

  $ 0.49   $ 0.16   $ 0.19   $ 0.37   $ 0.24  

Weighted average shares outstanding to compute net loss per share

    77,934,044     73,941,655     67,507,179     81,011,188     75,050,171  

Pro forma net loss per share(2)

  $                 $          

Weighted average shares outstanding to compute pro forma net loss per share(2)

                               

(1)
Represents the 70.0% loss pickup under the equity method of accounting (i) from January 1, 2019 to May 29, 2019 for the year ended December 31, 2019, (ii) from January 1, 2019 to May 29, 2019 for the six months ended June 30, 2019 and (iii) for the years ended December 31, 2018 and 2017. Represents the 51.5% loss pickup under the equity method of accounting for (i) the six months ended June 30, 2020, (ii) from May 30, 2019 to December 31, 2019 for the year ended December 31, 2019 and (iii) from May 30, 2019 to June 30, 2019 for the six months ended June 30, 2019.

61


Table of Contents

(2)
The pro forma information gives effect to the following: (i) the Reorganization, (ii) the issuance of an aggregate of                shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of                shares of common stock in connection with this offering, (iv) the issuance and sale of                shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (v) the acquisition or retirement of a portion of the Los Gatos Working Capital Facility and the funding of near-term debt service needs with a portion of the net proceeds of this offering as described in "Use of Proceeds," as if each such event occurred on the first day of the period presented. The pro forma information is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) pro forma net loss per share by $            , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. A 1,000,000 share increase (decrease) in the number of shares of common stock offered by us would increase (decrease) pro forma net loss per share by $            , assuming the assumed initial public offering price remains the same.
 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2019   2018   2017   2020   2019  
 
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Cash Flow Data:

                               

Net cash used by operating activities

  $ (12,295 ) $ (6,654 ) $ (8,204 ) $ (9,537 ) $ (4,273 )

Net cash used by investing activities

    (21,905 )   (745 )   (28,555 )   (7,573 )   (19,576 )

Net cash provided by (used by) financing activities

    39,828     (222 )   42,678     9,979     25,466  

 

 
  December 31,
2019
  December 31,
2018
  June 30,
2020
 
 
  (in thousands)
 

Balance Sheet Data:

                   

Cash and cash equivalents

  $ 9,085   $ 3,457   $ 1,954  

Total assets

    154,295     146,561     136,147  

Total liabilities

    4,904     3,509     14,543  

Total shareholders' equity

    149,391     143,052     121,604  

62


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        Our historical financial data discussed below reflects our historical financial condition and results of operations, which do not give effect to the Reorganization. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. These forward-looking statements involve risks and uncertainties. You should review "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements.

Overview

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

    The Cerro Los Gatos Mine, located within the Los Gatos District, Chihuahua, Mexico, consists of a 2,500 tpd polymetallic mine and processing facility that commenced production on September 1, 2019. For the year ended December 31, 2019, at the Cerro Los Gatos Mine, 357,342 tonnes were mined and 269,853 tonnes were processed at average grades of 229 g/t silver, 0.52 g/t gold, 1.97% lead and 3.03% zinc, with metallurgical recovery of 82.1% silver, 63.5% gold, 83.4% lead and 72.3% zinc, and 7,188 tonnes of lead concentrate were produced at average grades of 5,774 g/t silver, 10.9 g/t gold, 56.3% lead and 12.6% zinc, with metallurgical recovery of 67.3% silver, 55.2% gold, 76.0% lead and 11.1% zinc, and 9,320 tonnes of zinc concentrate were produced at average grades of 978 g/t silver, 1.26 g/t gold, 4.2% lead and 53.7% zinc, with metallurgical recovery of 14.8% silver, 8.3% gold, 7.4% lead and 61.2% zinc. For the six-months ended June 30, 2020, at the Cerro Los Gatos Mine, 288,882 tonnes were mined and 298,331 tonnes were processed at average grades of 195 g/t silver, 0.44 g/t gold, 2.22% lead and 3.41% zinc, with metallurgical recovery of 82.2% silver, 61.8% gold, 85.1% lead and 72.4% zinc, and 8,732 tonnes of lead concentrate were produced at average grades of 4,668 g/t silver, 8.1 g/t gold, 60.8% lead and 9.3% zinc, with metallurgical recovery of 70.1% silver, 54.6% gold, 80.0% lead and 8.0% zinc, and 11,915 tonnes of zinc concentrate were produced at average grades of 591 g/t silver, 0.79 g/t gold, 2.8% lead and 55.0% zinc, with metallurgical recovery of 12.1% silver, 7.3% gold, 5.1% lead and 64.4% zinc. The Los Gatos Technical Report, which has an effective date of July 1, 2020, estimates that the deposit contains 9.6 million diluted tonnes of proven and probable mineral reserves (or 5.0 million diluted tonnes of proven and probable mineral reserves on a 51.5% basis), with 6.4 million diluted tonnes of proven mineral reserves (or 3.3 million diluted tonnes of proven mineral reserves on a 51.5% basis) and 3.3 million diluted tonnes of probable mineral reserves (or 1.7 million diluted tonnes of probable mineral reserves on a 51.5% basis). Average proven and probable mineral reserve grades are 306 g/t silver, 0.35 g/t gold, 2.76% lead and 5.65% zinc.

    The Los Gatos District, located in Chihuahua, Mexico, is located approximately 120 kilometers south of Chihuahua City and is comprised of a 103,087-hectare land position, constituting a new mining district. The Los Gatos District consists of 14 mineralized zones, which include three identified silver-lead-zinc deposits that contain mineral resources—the Cerro Los Gatos Mine, the Esther deposit and the Amapola deposit—as well as 11 additional high-priority targets defined by high-grade drill intersections and over 150 kilometers of outcropping quartz and calcite veins. The area is characterized by predominant silver-lead-zinc epithermal mineralization. On September 1, 2019, the LGJV commenced production at the Cerro Los Gatos Mine. A core component of the LGJV's business plan is to explore the highly prospective, underexplored Los Gatos District with the objective of identifying additional mineral deposits that can be mined and processed, possibly utilizing the Cerro Los Gatos Mine plant infrastructure.

63


Table of Contents

Operating Expenses

Exploration Expenses

        We conduct exploration activities under mining concessions in Mexico. Historically, we also conducted exploration activities on patented and unpatented mining claims in the United States, which will be conducted in the future by SOP following the Reorganization. We expect exploration expenses to increase significantly as we continue to expand our exploration activities at the Los Gatos District and our other exploration properties. Our exploration expenses primarily consist of drilling costs, lease concession payments, assay costs and other geological and support costs at our exploration properties.

Pre-development Expenses

        Our pre-development expenses primarily relate to mining infrastructure improvements and scoping studies and care and maintenance activities at the Sunshine Complex. Our mining infrastructure improvement expenses include shaft repair, decline excavation and other underground development costs. Our care and maintenance expenses include facility and surface repair, utility costs and mine-dewatering costs. Pre-development activities at the Sunshine Complex will be conducted in the future by SOP following the Reorganization.

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 prepare to operate as a public company. We expect higher costs related to salaries, benefits, stock compensation, legal fees, compliance and corporate governance, accounting and audit expenses, stock exchange listing fees, transfer agent and other shareholder-related fees, directors' and officers' and other insurance costs, and other administrative costs. Immediately prior to the completion of this offering, we intend to enter into a Management Services Agreement with SOP, pursuant to which we will provide certain executive and managerial advisory services to SOP. SOP will reimburse us for costs of providing such services. See "Certain Relationships and Related Party Transactions—Reorganization and Management Services Agreement."

Equity Loss in Affiliates

        Our equity loss in affiliates relates to our proportional share of net income or loss incurred from the LGJV.

LGJV Arrangement Fee

        Our LGJV arrangement fee consists of arrangement fees related to the Dowa Term Loan and the Los Gatos Working Capital Facility. The arrangement fees are based on a fixed 2% and 15% interest rates for the Dowa Term Loan and the Los Gatos Working Capital Facility, respectively, and 70% of the outstanding principal of the respective facility. These arrangement fees are solely our responsibility.

Income Taxes

        As we have incurred substantial losses from our exploration and pre-development activities, we may receive further benefits in the form of deferred tax assets that can reduce our future income tax liabilities, if it is more likely than not that the benefit will be realized before expiration. Historically, we have not recognized these potential benefits in our financial statements and have fully reserved for such net deferred tax assets, as we believe it is more likely than not that the full benefit of these net deferred tax assets will not be realized before expiration. In connection with the Reorganization, we expect to use approximately $7,100 thousand of deferred tax assets to offset federal income tax liability.

64


Table of Contents

Royalties

        Exploration activities are conducted on the Los Gatos District mining concessions in Mexico. Historically, exploration activities were conducted on patented and unpatented mining claims in the United States, which will be conducted in the future by SOP following the Reorganization. Mineral and concession lease payments are required to be paid to various entities to secure the appropriate claims or surface rights. Certain of these agreements also have royalty payments that were triggered when we began producing and selling metal-bearing concentrate. See "Business—The Los Gatos District—Location of the Los Gatos District and Access" and Note 4 to our December 31, 2019 audited consolidated financial statements.

Results of Operations

        The following table presents certain information relating to our operating results for the six months ended June 30, 2020 and 2019 and the years ended December 31, 2019, 2018 and 2017. In accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), these financial statements represent the consolidated financial position and results of operations of our Company and its subsidiaries (in thousands except for shares and per share data).

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2019   2018   2017   2020   2019  
 
   
   
   
  (unaudited)
 

Expenses:

                               

Exploration

  $ 1,248   $ 1,709   $ 1,179   $ 598   $ 527  

Pre-development

    2,318     2,527     2,408     1,048     1,140  

General and administrative

    4,845     4,396     6,494     3,257     2,689  

Amortization

    2,370     2,307     2,483     1,203     1,238  

Total expenses

    10,781     10,939     12,564     6,106     5,594  

Other (income) expense:

                               

Dilution loss on affiliates

    11,231                 11,231  

Equity loss in affiliates

    12,865     464     160     21,516     311  

LGJV arrangement fee

    2,988     283         2,285     895  

Other (income) expense

    (47 )   (19 )   87     58     (9 )

Net other expense

    27,037     728     247     23,859     12,428  

Loss before income taxes

    37,818     11,667     12,811     29,965     18,022  

Income tax benefit

        (3 )            

Net loss

    37,818     11,664     12,811     29,965     18,022  

Other comprehensive (income) loss:

                               

Unrealized (gain) loss on securities, net of tax

    (32 )   (5 )   25         5  

Comprehensive loss

  $ 37,786   $ 11,659   $ 12,836   $ 29,965   $ 18,027  

Net loss per share: Basic and diluted

  $ 0.49   $ 0.16   $ 0.19   $ 0.37   $ 0.24  

Weighted average shares outstanding:

                               

Basic and diluted

    77,934,044     73,941,655     67,507,179     81,011,188     75,050,171  

65


Table of Contents

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

        For the six months ended June 30, 2020, we experienced a net loss of $29,965 thousand compared to a net loss of $18,022 thousand for the six months ended June 30, 2019. The $11,943 thousand increase in net loss was primarily attributable to the following:

    General and administrative expense increased to $3,257 thousand for the six months ended June 30, 2020, compared to $2,689 thousand for the six months ended June 30, 2019, primarily due to increased compensation costs, consulting expenses and stock-based compensation expense.

    Other expense increased to $23,859 thousand for the six months ended June 30, 2020, compared to $12,428 thousand for the six months ended June 30, 2019, primarily due to the $21,205 thousand increase in equity loss in affiliates, which principally consisted of our pro rata share of the LGJV's net loss of $38,365 thousand for the six months ended June 30, 2020, and the $1,390 thousand increase in LGJV arrangement fees payable exclusively by us, partially offset by the $11,231 thousand decrease in dilution loss on affiliates. The LGJV's operating loss for the six months ended June 30, 2020 resulted primarily from the continued mining and processing activities ramp-up to design throughput in early 2020, the government-mandated temporary suspension of operations for most of April and May 2020 due to the COVID-19 pandemic, unfavorable metals pricing during March and April 2020, and the resumption and ramp-up of mining operations in June 2020 once the temporary suspension was lifted. During this six-month period, the Cerro Los Gatos Mine operated at its designed throughput capacity for approximately one month while many costs remained fixed during the temporary suspension and the ramp-up periods, contributing to the net loss for the period.

        On a pro forma basis after giving effect to (i) the Reorganization, (ii) the issuance of an aggregate of            shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of            shares of common stock in connection with this offering, (iv) the issuance and sale of             shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (v) the acquisition or retirement of a portion of the Los Gatos Working Capital Facility and the funding of near-term debt service needs with a portion of the net proceeds of this offering as described in "Use of Proceeds," as if each such event occurred on the first day of the period presented, for the six months ended June 30, 2020, exploration expenses would have been $382 thousand; general and administrative expenses would have been $2,380 thousand and other expense would have been $                         thousand. Our net loss would have been $                         thousand, and our net loss per share would have been $            .

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

        For the year ended December 31, 2019, we experienced a net loss of $37,818 thousand compared to a net loss of $11,664 thousand for the year ended December 31, 2018. The $26,154 thousand increase in net loss was primarily attributable to the following:

    Exploration expense decreased to $1,248 thousand for the year ended December 31, 2019, compared to $1,709 thousand for the year ended December 31, 2018, due to reduced efforts on concessions outside of the LGJV district resulting in lower labor costs and Mexico concessions holding costs.

    General and administrative expense increased to $4,845 thousand for the year ended December 31, 2019, compared to $4,396 thousand for the year ended December 31, 2018,

66


Table of Contents

      primarily due to increased arrangement fees, partially offset by an increase in management fees charged to the LGJV for management services provided.

    Other expense increased to $27,037 thousand for the year ended December 31, 2019, compared to $728 thousand for the year ended December 31, 2018, primarily due to the following events that occurred during 2019: the $11,231 thousand dilution loss from LGJV ownership reduction from 70% to 51.5%, the $12,401 thousand increase in equity loss in affiliates related to the LGJV and the $2,705 thousand increase in LGJV loan arrangement fees payable exclusively by us.

        On a pro forma basis after giving effect to (i) the Reorganization, (ii) the issuance of an aggregate of            shares of common stock to our executive officers in connection with this offering, as described in "Certain Relationships and Related Party Transactions—Grants to Certain Executive Officers in Connection with This Offering," (iii) the conversion of our outstanding convertible notes into an aggregate of            shares of common stock in connection with this offering, (iv) the issuance and sale of             shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (v) the acquisition or retirement of a portion of the Los Gatos Working Capital Facility and the funding of near-term debt service needs with a portion of the net proceeds of this offering as described in "Use of Proceeds," as if each such event occurred on the first day of the period presented, for the year ended December 31, 2019, exploration expenses would have been $923 thousand; general and administrative expenses would have been $2,865 thousand and other expense would have been $                         thousand. Our net loss would have been $                         thousand and our net loss per share would have been $            .

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

        For the year ended December 31, 2018, we experienced a net loss of $11,664 thousand compared to a net loss of $12,811 thousand for the year ended December 31, 2017. The $1,147 thousand decrease in net loss was primarily attributable to the following:

    Exploration expense increased to $1,709 thousand for the year ended December 31, 2018, compared to $1,179 thousand for the year ended December 31, 2017, due to increases in mining claim activities and exploration personnel.

    General and administrative expense decreased to $4,396 thousand for the year ended December 31, 2018, compared to $6,494 thousand for the year ended December 31, 2017, primarily due to higher management fees charged to the LGJV.

    Other expense increased to $728 thousand for the year ended December 31, 2018, compared to $247 thousand for the year ended December 31, 2017, primarily due to an increase in the equity losses from affiliates related to LGJV operations and arrangement fees paid in connection with LGJV financing transactions in 2018.

Liquidity and Capital Resources

        As of June 30, 2020, and December 31, 2019, we had cash and cash equivalents of $1,954 thousand and $9,085 thousand, respectively, and working capital of $2,405 thousand and $14,990 thousand, respectively. The decrease in cash and cash equivalents and working capital was primarily due to increased investment in the LGJV, increased related-party receivables and other operation needs, partially offset by an increase in related-party convertible notes.

        For the six months ended June 30, 2020, we borrowed $10,000 thousand by issuing related-party convertible notes and the notes remain outstanding as of June 30, 2020. We did not have any related-party debt as of December 31, 2019. As of June 30, 2020, we could borrow an additional

67


Table of Contents

$5,000 thousand by issuing convertible notes under the Convertible Note Purchase Agreement (as defined herein).

        We did not have any related-party debt as of December 31, 2019. We have no outstanding lines of credit or other bank financing arrangements. We guarantee 70.0% of the Dowa Term Loan and the Los Gatos Working Capital Facility as of June 30, 2020. We have certain arrangement fee obligations related to the Cerro Los Gatos Mine as detailed in the "LGJV Arrangement Fee" above. In 2019, we received $40,465 thousand in equity proceeds from our shareholders. In May 2019, we contributed $18,200 thousand to an LGJV entity to provide funding for a partial repayment of principal and interest related to the MPR Loan. In late May 2019, the MPR Loan was fully extinguished with a cash payment of $18,200 thousand and the conversion of the remaining $50,737 thousand of principal and interest to Dowa equity. The conversion of the remaining principal and interest increased Dowa's ownership in the LGJV entities to 48.5%. As of June 30, 2020, the approximate ownership of the LGJV entities is 51.5% in favor of the Company and 48.5% in favor of Dowa. Due to the LGJV ownership dilution, we recognized a dilution loss on affiliates of $11,231 thousand in May 2019. We have an option to repurchase the approximate 18.5% equity interest in the LGJV from Dowa by June 30, 2021, and only after the Los Gatos Working Capital Facility is repaid, for a total consideration of approximately $51,100 thousand 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.

        We believe that, upon the completion of this offering, we will have sufficient cash and resources to carry out our business plans for at least the next 12 months. We are focused on our forward-looking liquidity needs. We are evaluating our ongoing fixed cost structure as well as decisions related to project retention, advancement and development. We will likely be required to raise capital or take other measures to fund future exploration and development. Significant development activities, if warranted, will require that we arrange for financing in advance of planned expenditures. In addition, we expect to continue to increase our current financial resources with external financings as long as our long-term business needs require us to do so. We manage liquidity risk through the management of our capital structure.

        We may be required to provide funds to the LGJV to support operations at the Cerro Los Gatos Mine 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.

Dowa Debt Agreements

        On January 1, 2015, we entered into a joint venture with Dowa to develop the LGJV. Dowa initially acquired a 30% interest in the LGJV and the right to purchase future zinc-concentrate production at market rates.

    Dowa Term Loan

        On July 11, 2017, we entered into a loan agreement (the "Dowa Term Loan") with Dowa whereby the LGJV could borrow up to $210,000 thousand to finance the development of the Los Gatos project. The principal amount of the Dowa Term Loan accrues interest daily at a rate of LIBOR plus 2.35%, and the interest was added to the amount borrowed until production commenced at the Los Gatos project. The LGJV is 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. The maturity date for the Dowa Term Loan is two business days prior to December 31, 2027. The LGJV can prepay the loan from time to time, subject to a minimum amount. We guarantee 70.0% of the Dowa Term Loan. The Dowa Term Loan contains

68


Table of Contents

affirmative and negative covenants reasonably customary for similar facilities, with which the LGJV is in compliance in all material respects as of the date of this prospectus.

    Los Gatos Working Capital Facility

        On April 16, 2019, we entered into a memorandum of understanding with the LGJV and Dowa, whereby we made a capital contribution to the LGJV in the amount of $18,200 thousand in consideration for partial repayment of a previously existing loan with Dowa of $65,678 thousand entered into with Dowa as of January 23, 2018 (the "MPR Loan"). Under the terms of the memorandum, Dowa agreed to convert the remaining balance of $42,937 thousand outstanding under the MPR Loan in exchange for approximately 18.5% of the equity interests in the LGJV. This diluted our ownership in the LGJV to approximately 51.5%, with Dowa owning the remaining approximate 48.5%. Furthermore, the LGJV will be required to contribute dividend payments to an escrow account until an aggregate amount equal to $20,000 thousand has been deposited into the account, which is payable to Dowa as a priority dividend, as described in a priority distribution agreement dated May 30, 2019 among us, MPR, OSJ and Dowa. See "Business—The Los Gatos District—Priority Distribution Agreement." Following payment of $20,000 thousand to Dowa, dividends will be paid in accordance with the ownership of the LGJV. Under this memorandum of understanding and the terms of an option agreement dated May 30, 2019 among us, MPR, OSJ and Dowa, Dowa granted us an option to repurchase the approximate 18.5% equity interest in the LGJV from Dowa by June 30, 2021, and only after the Los Gatos Working Capital Facility is repaid, for a total consideration of approximately $51,100 thousand 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. See "Business—The Los Gatos District—Option Agreement." If we do not exercise our option by June 30, 2021, the option will expire and cease to have any further effect, after which Dowa may sell all or a portion of the interest to a third party. As part of the memorandum of understanding, we entered into a working capital facility agreement dated May 30, 2019, with the LGJV and Dowa (the "Los Gatos Working Capital Facility"), under which Dowa agreed to provide a maximum of $60,000 thousand for the benefit of the LGJV. The interest under the Los Gatos Working Capital Facility is LIBOR plus 3%. We also guarantee 70% of this facility and are required to pay an arrangement fee on the borrowing, calculated as 15.0% per annum of 70.0% of the average daily principal amount outstanding during the relevant fiscal quarter. The Los Gatos Working Capital Facility contains affirmative and negative covenants reasonably customary for similar facilities, with which the LGJV is in compliance in all material respects as of the date of this prospectus. All principal amounts outstanding under the Los Gatos Working Capital Facility will be due on or before June 28, 2021. The full principal amount of the Los Gatos Working Capital Facility has been drawn down by the LGJV.

Convertible Notes

        On April 20, 2020, we entered into a Convertible Note Purchase Agreement with Electrum Silver US LLC (as amended, the "Convertible Note Purchase Agreement"). Pursuant to the Convertible Note Purchase Agreement, we may issue and sell to Electrum Silver US LLC or Electrum Silver US II LLC from time to time, convertible notes on the same terms under the Convertible Note Purchase Agreement until the earlier of (i) such time as the aggregate principal amount of principal indebtedness evidenced by all convertible notes issued and sold under the Convertible Note Purchase Agreement equals $15,000 thousand and (ii) April 20, 2021. Upon the consummation of a sale of equity securities in a bona fide equity financing, including this offering, that results in gross proceeds to us of at least $10,000 thousand from investors not affiliated with Electrum, the convertible notes, including any accrued but unpaid interest, may, at our option, (i) convert into shares of such equity securities at a price per share equal to the lesser of (A) 80% of the price per share of such equity securities and (B) $7.50 per share of such equity securities, subject to adjustment for any stock split (including as part of the Reorganization), stock dividend, reverse stock split, recapitalization or similar

69


Table of Contents

transactions, or (ii) be repaid in full. The outstanding principal amount of the convertible notes and any accrued but unpaid interest is due and payable on April 19, 2023. However, any conversion of the convertible notes into equity securities as described above shall be deemed a repayment of the convertible notes so converted. The convertible notes bear interest at a rate of 5.00% per annum, compounding annually. As of the date of this prospectus, we have issued $             thousand aggregate principal amount of convertible notes and there is $             thousand in accrued but unpaid interest.

Cash Flows

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

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2019   2018   2017   2020   2019  
 
   
   
   
  (unaudited)
 
 
  (in thousands)
   
   
 

Net cash provided by (used by)

                               

Operating activities

  $ (12,295 ) $ (6,654 ) $ (8,204 ) $ (9,537 ) $ (4,273 )

Investing activities

    (21,905 )   (745 )   (28,555 )   (7,573 )   (19,576 )

Financing activities

    39,828     (222 )   42,678     9,979     25,466  

Total change in cash

  $ 5,628   $ (7,621 ) $ 5,919   $ (7,131 ) $ 1,617  

        Cash used by operating activities was $9,537 thousand and $4,273 thousand for the six months ended June 30, 2020 and 2019, respectively. The $5,264 thousand increase was primarily due to an increase in related party receivables from the LGJV and net loss, after non-cash adjustments for equity loss in affiliates and stock-based compensation expense. Cash used by operating activities was $12,295 thousand, $6,654 thousand and $8,204 thousand for the years ended December 31, 2019, 2018 and 2017, respectively. The $5,641 thousand increase between December 31, 2019 and December 31, 2018 was primarily due to an increase in related party receivables from the LGJV. The $1,550 thousand decrease between December 31, 2018 and December 31, 2017 was primarily due to a decrease in net loss.

        Cash used by investing activities was $7,573 thousand and $19,576 thousand for the six months ended June 30, 2020 and 2019, respectively. The $12,003 thousand decrease was primarily due to the $18,200 investment in the LGJV in 2019, offset by the $7,573 thousand investment in the LGJV in 2020. Cash used by investing activities was $21,905 thousand, $745 thousand and $28,555 thousand for the years ended December 31, 2019, 2018 and 2017, respectively. The $21,160 thousand increase between December 31, 2019 and December 31, 2018 was primarily due to the $21,371 thousand investment in the LGJV. The $27,810 thousand decrease between December 31, 2018 and December 31, 2017 primarily reflects the $28,225 thousand investment in the LGJV in 2017.

        Cash provided by financing activities was $9,979 thousand and $25,466 thousand for the six months ended June 30, 2020 and 2019, respectively. The $15,487 thousand decrease was primarily due to the $25,466 thousand sales of common stock in 2019, partially offset by the $10,000 thousand increase in convertible notes in 2020. Cash provided (used) by financing activities was $39,828 thousand, $(222) thousand and $42,678 thousand for the years ended December 31, 2019, 2018 and 2017, respectively. Cash provided by financing activities primarily relates to sales of common stock and convertible notes. Cash used in financing activities primarily relates to treasury stock purchases.

70


Table of Contents

Results of LGJV Operations

        The following table presents certain information relating to LGJV's financial condition and operating results for the years ended December 31, 2019 and 2018 and for the three-year period ended December 31, 2019. In accordance with U.S. GAAP, these financial statements represent the combined financial position and results of the LGJV. As of December 31, 2018 and 2017, our ownership of the LGJV was 70.0%. In connection with the extinguishment of the MPR Loan on May 30, 2019, our current ownership of the LGJV is approximately 51.5%.


LOS GATOS JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)

 
  As of December 31,  
 
  2019   2018  

ASSETS

             

Current Assets

             

Cash and cash equivalents

  $ 1,302   $ 11,231  

Receivables

    5,655      

Inventories

    11,374     1,886  

VAT receivable

    50,184     30,853  

Restricted cash

        2,219  

Other current assets

    1,672     6,747  

Total current assets

    70,187     52,936  

Non-Current Assets

             

Mine development, net

    182,602     99,994  

Deferred financing costs

        76  

Property, plant and equipment, net

    216,131     150,763  

Total non-current assets

    398,733     250,833  

Total Assets

  $ 468,920   $ 303,769  

LIABILITIES AND OWNERS' CAPITAL

             

Current Liabilities

             

Accounts payable and other accrued liabilities

  $ 43,287   $ 16,697  

Dowa MPR Loan

        65,670  

Related party payable

    6,875     1,377  

Accrued interest

    885     2,692  

Equipment loans

    6,948     5,227  

Total current liabilities

    57,995     91,663  

Non-Current Liabilities

             

Dowa Term Loan

    217,796     132,066  

Working Capital Facility

    60,000      

Equipment loans

    12,916     13,494  

Reclamation obligations

    11,314     10,524  

Total non-current liabilities

    302,026     156,084  

Owners' Capital

             

Capital contributions

    237,905     168,967  

Paid-in capital

    7,400     1,358  

Accumulated deficit

    (136,406 )   (114,303 )

Total owners' capital

    108,899     56,022  

Total Liabilities and Owners' Capital

  $ 468,920   $ 303,769  

71


Table of Contents


LOS GATOS JOINT VENTURE COMBINED
STATEMENTS OF LOSS
(in thousands)

 
  Year Ended December 31,  
 
  2019   2018   2017  

Sales

  $ 36,508   $   $  

Operating expenses

                   

Cost of sales

    30,339          

Royalties

    184          

Exploration

    208          

General and administrative

    2,587     83     116  

Accretion expense

    789     9     17  

Depreciation, depletion and amortization

    15,460          

Total operating expenses

    49,567     92     133  

Other expense

                   

Interest expense, net of capitalization

    5,107          

Arrangement fee

    3,524          

Other expense (income)

    239     (53 )   (11 )

Foreign exchange loss

    174     623     112  

Net other expense

    9,044     570     101  

Net loss

  $ 22,103   $ 662   $ 234  

        At December 31, 2019 and 2018, the LGJV had current assets of $70,187 thousand and $52,936 thousand, respectively. The increase in total current assets was primarily due to an increase in value added tax and trade receivables, partially offset by decreases in cash and other current assets. At December 31, 2019 and 2018, the LGJV had noncurrent assets of $398,733 thousand and $250,833 thousand, respectively. The increase in noncurrent assets was primarily due to increased mine development assets and property, plant and equipment to develop new mining areas and complete site infrastructure, partially offset by accumulated depletion and depreciation that began in 2019.

        At December 31, 2019 and 2018, the LGJV had current liabilities of $57,995 thousand and $91,663 thousand, respectively. The decrease in current liabilities was primarily due to the extinguishment of the Dowa MPR Loan, partially offset by an increase in accounts payable and accrued liabilities. At December 31, 2019 and 2018, the LGJV had noncurrent liabilities of $302,026 thousand and $156,084 thousand, respectively. The increase in non-current liabilities was primarily due to an increase in borrowings under the Dowa Term Loan and the Working Capital Facility.

        For the year ended December 31, 2019, the LGJV had a $22,103 thousand net loss compared to a $662 thousand net loss for the year ended December 31, 2018. The increase in net loss was primarily due to the start and ramp up of production in 2019, as well as beginning to depreciate the assets placed in service and to expense interest and arrangement fees costs upon achieving production. Interest and arrangement fee costs were capitalized during the construction period. For the year ended December 31, 2018, the LGJV had a $662 thousand net loss compared to a $234 thousand net loss for the year ended December 31, 2017. The increase in net loss was primarily due to foreign exchange losses as the Mexican peso declined in value relative to the U.S. dollar reporting currency.

72


Table of Contents

Contractual Obligations

        As of December 31, 2019, we had the following contractual obligations:

 
  Payments due by period (in thousands)  
 
  Total   Less than
1 year
  1 - 3
years
  4 - 5
years
  More than
5 years
 

Reclamation and remediation obligations(1)

  $ 1,836   $   $   $ 1,836   $  

Mineral leases, concessions and agreements obligations(2)(3)

    470     322     50     34     64  

Total contractual obligations

  $ 2,306   $ 322   $ 50   $ 1,870   $ 64  

(1)
These obligations pertain to the Sunshine Complex and will be assumed by SOP as part of the Reorganization.

(2)
Does not contain product and sale royalty payments.

(3)
The lease from Metropolitan Mines Corporation Ltd. relating to certain mining claims at the Sunshine Mine requires monthly payments of $1 thousand until ore is produced from the Metropolitan property. This obligation has not been included in the table above as the time for commencing production is unknown. This obligation will be assumed by SOP as part of the Reorganization.

        In addition, we entered into commitments with federal and state agencies to lease surface and mineral rights. These leases are renewable annually.

Stock-Based Compensation

        We recognize all employee and director stock-based compensation as a cost in our consolidated financial statements. Equity-classified awards are measured at the grant date fair value of the award. We estimate the grant date fair value using the Black-Scholes option-pricing model using estimated amounts for volatility of our stock, the expected life of the awards, the fair value of the underlying shares, the risk-free interest rate and the expected dividend yield. The related expense is included as a component of either exploration, pre-development or general and administrative expenses over the requisite service period of the award.

        Our stock-based compensation includes DSUs granted to certain employees and directors, and stock options granted to employees, directors and various individuals and entities.

        In 2018, we granted 10,000 stock options at a strike price of $4.50 per share. In 2019, we granted 1,203,000 stock options at a strike price of $6.00 per share. During the six months ended June 30, 2020, we granted 1,596,667 stock options at a strike price of $6.00 per share.

        The total stock-based compensation expense incurred for the years ended December 31, 2019, 2018 and 2017 was $3,219 thousand, $2,392 thousand and $1,981 thousand, respectively. The total stock-based compensation expense incurred for the six months ended June 30, 2020 was $2,118 thousand.

        The following table sets forth stock option grant information from January 1, 2017 through June 30, 2020:

Grant Date
  Options
Granted
  Exercise
Price
 

2017(1)(2)(3)

    2,181,250   $ 4.50  

2018(4)

    10,000   $ 4.50  

2019(5)

    1,203,000   $ 6.00  

2020(6)(7)(8)

    1,596,667   $ 6.00  

(1)
We granted 1,035,500 options on August 31, 2017 with an exercise price of $4.50.

73


Table of Contents

(2)
We granted 25,000 options on November 13, 2017 with an exercise price of $4.50.

(3)
We granted 1,120,750 options on December 16, 2017 with an exercise price of $4.50.

(4)
We granted 10,000 options on January 2, 2018 with an exercise price of $4.50.

(5)
We granted 1,203,000 options on May 3, 2019 with an exercise price of $6.00.

(6)
We granted 1,227,334 options on January 20, 2020 with an exercise price of $6.00.

(7)
We granted 328,000 options on January 30, 2020 with an exercise price of $6.00.

(8)
We granted 41,333 options on March 1, 2020 with an exercise price of $6.00.

Significant Factors, Assumptions and Methodologies used in Determining Fair Value of Share Based Payments

        Stock-based compensation expense for DSU awards is based on the estimated fair value of our common stock on the grant date.

        Stock-based compensation expense for options is based on the estimated fair value for each award on the grant date. We calculate the grant date fair value based on an option pricing model using estimated amounts for risk-free interest rate, dividend yield, estimated historical volatility of our common stock, the expected life of the awards and the estimated fair value of the underlying common stock. In addition to the assumptions used to calculate the fair value of the options, we are required to estimate the expected forfeiture rate of the option awards, and only recognize stock-based compensation expense for those option awards expected to vest. We recognize stock-based compensation expense as a component of either exploration, pre-development or general and administrative expense on a straight-line basis over the requisite service period of the award.

        The following assumptions were used to compute the fair value of the options granted:

 
  Grant Date
 
  Aug. 2017   Nov. 2017   Dec. 2017   Jan. 2018   May 2019   Jan. 2020   Mar. 2020

Risk-free interest rate

  1.83%   2.18%   2.18%   2.18%   2.38%   1.63%   1.63%

Dividend yield

             

Estimated volatility

  66.40%   65.90%   65.80%   65.80%   66.80%   62.20%   62.20%

Expected option life

  6 years   6 years   6 years   6 years   6 years   6 years   6 years

        The following assumptions were used to compute the fair value of the options, that are required to be revalued each reporting period, as of the dates indicated:

 
  December 31,   June 30,
 
  2019   2018   2017   2020

Risk-free interest rate

  1.76%   2.55%   2.26%   0.39%

Dividend yield

       

Estimated volatility

  63.60%   65.90%   65.50%   66.60%

Expected option life

  6 years   6 years   6 years   6 years

        The risk-free interest rate assumption was based on the U.S. treasury constant maturity yield at the date of the grant over the expected life of the option. No dividends are expected to be paid. We calculated the estimated volatility based on the historical volatility of a group of peer companies' common stock over the expected option life. The peer information was used because we were not publicly traded at the time of the grant, and therefore did not have the market trading history required to calculate a meaningful volatility factor. The computation of expected option life was determined based on a reasonable expectation of the option life prior to the option being exercised or forfeited. Based upon our expectation of forfeiture for these grants, we estimated a forfeiture rate of zero for our executive and director option grants, and a forfeiture rate of 10% for our employee option grants.

74


Table of Contents

        As of June 30, 2020, there was approximately $7,751 thousand of unrecognized stock-based compensation expense related to option awards that we expect to recognize over a weighted average vesting period of 2.1 years.

Common Stock Valuation

        We estimated the fair value of our common stock in 2017, 2018, 2019 and 2020 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. Based on this market data, the corresponding fair value of per share common stock was used in valuing the options and DSUs granted in 2017, 2018, 2019 and 2020.

Off Balance Sheet Arrangements

        Other than the advanced royalty payments included in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations" above, we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our shareholders.

Critical Accounting Policies

        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.

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 its consolidated financial statements. Equity method investments are reviewed periodically for other-than-temporary decline in value. 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 incur certain costs on behalf of the LGJV, primarily related to a project development loan arrangement fee. 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

        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 or other

75


Table of Contents

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.

Reclamation Obligations

        Reclamation obligations are recognized when incurred and are initially measured at fair value and subsequently adjusted for accretion expense and changes in the amount or timing of the estimated cash flows. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset's remaining useful life. Reclamation obligations are based on when the spending for an existing environmental disturbance will occur. We review, on at least an annual basis, the reclamation obligation at the Sunshine Mine in accordance with guidance for accounting for asset retirement obligations.

        Accounting for reclamation obligations requires management to make estimates unique to the Sunshine Mine relating to the future costs we will incur to complete the reclamation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation work required. Any such increases in future costs could materially impact the amounts charged to earnings for reclamation.

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 above to "Management's Discussion and Analysis of Financial Condition and Results of Operations—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

76


Table of Contents

which we operate could limit our ability to obtain the future tax benefits represented by our deferred tax assets recorded at the reporting date.

        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.

Jumpstart Our Business Startups Act of 2012

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

Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

        We engage in the production of concentrates containing silver, lead, zinc and gold at the Cerro Los Gatos Mine and commenced production on September 1, 2019. Accordingly, we expect the principal source of future revenue at the LGJV to be the sale of concentrates containing silver, and to a lesser extent, lead and zinc. A significant and sustained decrease in the price of these metals from current levels could have a material and negative impact on our business, financial condition and results of operations.

Foreign Currency Risk

        Although most of our expenditures are in U.S. dollars, certain purchases of labor, operating supplies and capital assets are denominated in other currencies, primarily the Mexican peso. As a result, currency exchange fluctuations may impact the costs of our operations.

Concentration of Risk

        We have placed nearly all of our cash investments with a single, high-quality financial institution. All cash equivalents are invested in high-quality, short-term money market instruments, including government securities, bankers' acceptances, bank notes, certificates of deposit, commercial paper and repurchase agreements of domestic and foreign issuers. At no time have we had funds invested in asset-backed commercial paper. We have not experienced any losses on our cash investments.

77


Table of Contents


SILVER INDUSTRY OVERVIEW

The Silver Market

Overview

        Silver is one of the eight precious, or noble, metals; the others are gold and the six platinum-group metals. Silver occurs naturally in its solid metallic state and is commonly associated with deposits of gold, copper, lead and zinc as a secondary metal. Silver is distinct from other precious metals in that it is both used in industrial applications and as an investment asset.

        Silver has a number of distinctive physical and chemical properties that make it an essential component in numerous industrial applications, including its strength, malleability, conductivity and ductility, its sensitivity to and high reflectance of light and its ability to endure extreme temperature ranges. These properties restrict its substitution in most applications. Silver is one of the world's best conductors of electricity and is used in electronic components of common items such as solar panel photovoltaic cells, computers, televisions and cell phones.

        Silver has also been used as a medium of exchange since earliest recorded history. From the time of the Roman Empire until the 19th century, most nations were on a silver standard with silver coins forming the main circulating currency. While it is no longer widely used as circulating currency, silver is still widely sought by investors for its store of value attributes. In particular, silver is viewed as an attractive hedge against a decrease in the value of currency and inflation during times of economic uncertainty.

Silver Demand

        The three principal drivers of silver demand are industrial applications, consumer use and investment. According to The Silver Institute's World Silver Survey 2020, demand for industrial applications is mainly driven by electrical and electronics uses, which accounted for 58.3% of industrial demand and 30.0% of total demand in 2019. Jewelry accounted for 20.3% of total demand and net physical investment represented 18.8% of total demand.

        Silver demand grew 0.4% in 2019 to a three-year high of 991.8 million ounces, from 988.3 million ounces the previous year, driven by a 12.3% surge in demand for net physical investment. This was offset by declines in silverware and other industrials. Silver remains difficult to substitute in many areas, and outside of a dip in 2009, demand for industrial applications has remained broadly flat since 2007. There was healthy photovoltaic demand in 2019, with support from structural changes in demand, such as vehicle electrification.

78


Table of Contents


World Physical Silver Demand in 2019 (%)

GRAPHIC


Source: The Silver Institute, World Silver Survey 2020

    Industrial Applications

        Traditional industrial applications of silver include batteries, bearings, brazing and catalysts. Silver, which is the best conductor of electricity among all metals, is used in virtually all electronics. In addition to traditional industrial uses, increases in emerging applications for silver, such as in the electric powertrain and other applications that are increasingly featured in hybrid internal combustion engine cars and electric vehicles, as well as LCD and RFID technologies, are expected to continue to augment industrial demand. Emerging applications include the advent of flexible electronics in which silver batteries play a prominent role, utilizing silver's reflectivity as a component in solar cells to produce "green" electricity and utilizing silver's antimicrobial properties in medical applications and in the prevention of algae build-up in water purification systems.

        Global industrial demand, which represented 51.5% of total silver demand in 2019, totaled 511.5 million ounces, flat from 2018. A 6.7% increase in silver demand from the photovoltaic sector was offset by an annual decrease in the electronics and electrical sector. Combined, China, the United States and Japan accounted for 347.1 million ounces, representing 67.9% of total 2019 industrial demand.

        The electrical and electronics sector has consistently ranked as the largest source of industrial silver demand. Silver's electrical and thermal conductive properties make it ideal for multiple high-performance electronics and high voltage circuits, connectors and other electrical components, which are all integral parts of electronics. Such uses include switches, contacts, fuses, superconductors and printed circuit boards, which are contained in computers, mobile phones and other smart technologies. According to The Silver Institute's World Silver Survey 2020, silver demand from the electrical and electronics sector reached 297.6 million ounces in 2019. At 84.7 million ounces, Japan accounted for 28.5% of 2019 electrical and electronics demand, with China (23.3%) and the United States (21.0%) also accounting for significant demand.

        Historically, photographic uses represented a large source of silver demand, accounting for 74% of total silver demand in 1999. However, photographic use has since declined significantly, driven by the

79


Table of Contents

transition from silver halide to digital technology, especially in the area of consumer film. In 2019, photographic uses accounted for just 3.4% of total silver demand, according to The Silver Institute's World Silver Survey 2020.

        While photographic uses have declined, new technologies have emerged. For example, accelerated growth in the solar panel market has contributed to silver industrial demand in recent years. Silver is used both as a conductor in solar cells and as a reflector in mirrors used to concentrate solar energy. Demand for silver from photovoltaics accounted for 19.3% of industrial demand and 10.0% of total physical silver demand in 2019, according to The Silver Institute's World Silver Survey 2020.

    Consumer Use

        Silver's luster, resistance to tarnishing and malleability are properties well suited for the fabrication of jewelry and silverware. For these uses, silver is often alloyed to a small proportion of other metals, such as copper, to harden it. Sterling silver, for example, is 92.5% silver and 7.5% copper and has been the standard in many countries for silver jewelry since the 14th century.

        According to The Silver Institute's World Silver Survey 2020, in 2019, the jewelry sector accounted for 20.3% of total demand for silver, while silverware accounted for 6.0% of total demand. In 2019, demand for jewelry (201.3 million ounces) and silverware (59.8 million ounces) declined 0.9% and 8.6% year-on-year, respectively. Jewelry demand is driven primarily from South Asia and East, which accounted for 134.4 million ounces, or 66.8% of global demand in 2019. Since 2014, India has been the world's largest silver jewelry consumer; in 2019, demand from India fell 4.8% to 69.0 million ounces as an economic slowdown, erratic monsoons and the deepening liquidity crunch all negatively impacted demand. Other large global markets include Thailand and China (representing 14.2% and 11.3%, respectively, of 2019 global demand). India is also the world's largest consumer of silverware, accounting for 41.2 million ounces, or 68.9%, of 2019 global silverware demand in 2019.

    Investment

        Silver has been a store of monetary value for over 4,000 years, and it continues to play an important part in investor portfolio diversification. Historically, the price of silver has shown at times a high correlation to the price of gold as a result of investment demand, and has been at times viewed as an attractive hedge against a decrease in the value of currency and inflation, attracting investors during times of uncertainty.

        Identifiable physical investment demand increased by 12.3% to 186.1 million ounces in 2019, the largest one-year increase since 2015. The Silver Institute attributes this rise to improved safe haven demand for precious metals from uncertainties stemming from the US-China trade dispute and a manufacturing slowdown in several industrialized countries.

        Investment demand for silver has represented a significant portion of total annual silver supply over the last decade. Over the last ten years, investment in coins and metals amounted to 1.1 billion ounces, which was one-tenth of total silver supply over that period. Silver investment demand flourished in the aftermath of the financial crisis and during the height of economic uncertainty in the Eurozone. Between 2013 and 2015, silver physical investment accounted for more than 22% of annual supply, with a peak of 28% recorded in 2015, according to GFMS, formerly known as Gold Fields Mineral Services ("GFMS"). In addition, silver ETP holding rose 13% to 729 million ounces, the largest year-over-year increase since 2010.

Silver Supply

        Silver supply is primarily driven by mined silver production, which, according to The Silver Institute's World Silver Survey 2020, accounted for 81.7% of supply in 2019. Recycling largely accounted

80


Table of Contents

for the remainder of silver supply. Global silver supply increased 0.6% year-over-year in 2019 to 1,023 million ounces compared to 1,016.8 million ounces in 2018.

        Mine silver output in 2019 declined for the fourth consecutive year, falling 1.3% to 836.5 million ounces from 847.8 million ounces in 2018. These recent production declines follow 13 consecutive years of growth. The decrease in silver supply was largely driven by lower grades at primary silver mines, lower silver production from copper mines and losses from production disruptions. In Peru, Compañía de Minas Buenaventura's Uchucchacua Mine saw silver production decrease from a 27% decline in grades and experienced a 21-day strike; Hochschild Mining's Arcata Mine was placed into care and maintenance early in the year; and declining silver grades were a factor at large primary copper mines. In Mexico, Fresnillo plc achieved lower grades at several of its mines; First Majestic Silver Corp.'s San Martin Mine and Endeavour Silver's El Cubo Mine were placed on care and maintenance; and blockades resulted in Newmont Corporation's Peñasquito Mino being suspended for 90 days.

        Mexico was the world's largest silver mining country in 2019 (190.3 million ounces, down 2.2% from 2018), followed by Peru (135.4 million ounces, down 7.6% from 2018) and China (110.7 million ounces, up 0.06% from 2018). The chart below illustrates global mined silver production from 2011 through 2019.


Global Mined Silver (Moz)

GRAPHIC


Source: The Silver Institute, World Silver Survey 2020

        In 2019, just 28.7% of silver produced globally (240.0 million ounces) was derived from primary silver mines, down 3.8% from 249.4 million ounces produced from primary silver mines in 2018. The remaining 71.3% of silver mined in 2019 was a by-product of lead/zinc, copper, gold and other operations. By-product silver production, which represents over two-thirds of global silver production, is typically inelastic with respect to the silver price.

        Global recycled silver supply also expanded slightly in 2019 by 1.3% to 169.9 million ounces. Industrial recycling is the largest source of recycled silver and rose for the fifth consecutive year. An increase in recycled supply was recorded across all regions, other than the Commonwealth of Independent States. Recycled supply from North America was the highest in 2019, representing 33.8% of the global total.

81


Table of Contents


Silver Supply from Recycling (Moz)

GRAPHIC


Source: The Silver Institute, World Silver Survey 2020

        Historically, another source of supply has been government sales, which amounted to 44 million ounces in 2010, according to GFMS data. However, government sales of silver stocks were minimal in the early part of this decade, and GFMS estimates that no significant sales have occurred since 2013.

        A combination of a slightly higher demand and a slightly higher supply in 2019 compared to 2018 resulted in a surplus of 31.3 million ounces, or 3.1% of silver demand, according to The Silver Institute's World Silver Survey 2020. Net investment in exchange traded products of 81.7 million ounces helped to propel the net silver balance to a 50 million ounce deficit, or approximately 5% of demand.

82


Table of Contents


2011-2019 Global Silver Supply and Demand (Moz)

 
  2011   2012   2013   2014   2015   2016   2017   2018   2019  

Supply

                                                       

Mine Production

    760.1     792.7     840.3     877.5     892.9     892.3     863.4     847.8     836.5  

Recycling

    232.9     216.0     192.7     174.9     166.5     164.4     167.7     167.7     169.9  

Net Hedging Suplpy

    11.9             10.7     2.2                 15.7  <