Americas Gold & Silver Corp annual report, Q4 FY2023

Americas Gold & Silver Corporation — FY2023 Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 20-F, not a standalone Q4 filing; the source text does not provide a complete Q4-only income statement or cash-flow presentation. Financial statements are prepared under IFRS in U.S. dollars.

Business Context

Americas Gold & Silver operates the 100%-owned Cosalá Operations in Mexico and the 60%-owned Galena Complex in Idaho, with the remaining 40% of Galena held by Eric Sprott. Relief Canyon in Nevada remains on care and maintenance.
Cosalá produces silver, zinc and lead concentrates. Galena primarily produces silver-lead concentrate and continues its Recapitalization Plan. Relief Canyon has not produced since mining was suspended in August 2021 because of metallurgical and recovery challenges.
The Company had 247,747,280 common shares outstanding at December 31, 2023, according to the filing cover page. Its common shares trade on the TSX and NYSE American under USA and USAS, respectively.

Financial and Operating Metrics

U.S. dollars, unless stated otherwise	2023	2022	Change
Revenue	$89.6 million	$85.0 million	+5%
Cost of sales	$75.1 million	$72.1 million	+$3.0 million
Net loss	$38.2 million	$45.2 million	Loss reduced by $7.0 million
Comprehensive loss	$39.0 million	$38.6 million	Higher loss by $0.4 million
Net loss per share	$0.16	$0.23	Improved
Net cash used in operating activities	$1.0 million	$1.2 million	Improved by $0.2 million
Capital expenditures	$19.9 million	$19.6 million	+$0.3 million
Cash and cash equivalents	$2.1 million	$2.0 million	+$0.1 million
Working capital	$(38.2) million	$(16.7) million	Deficit increased
Adjusted working capital	$(8.6) million	$(4.4) million	Deficit increased

Attributable production included 2.04 million ounces of silver, 34.1 million pounds of zinc, 20.5 million pounds of lead and 4.59 million silver-equivalent ounces.
Silver production increased 56%, but silver-equivalent production decreased 13%, principally because lower zinc prices and higher silver prices reduced the silver-equivalent conversion calculation by approximately 0.9 million ounces.
Average realized prices were $23.44 per ounce for silver, $1.18 per pound for zinc and $0.96 per pound for lead. Compared with 2022, silver increased 8%, zinc decreased 24% and lead decreased 1%.
Consolidated cost of sales per silver-equivalent ounce increased to $12.87 from $9.89. Cash costs increased to $13.21 per silver ounce from $0.77, and all-in sustaining costs increased to $20.44 from $9.64. These are non-GAAP measures and are not standardized under IFRS.
Revenue mix shifted toward silver. Silver revenue increased by approximately $25.3 million, while lower base-metal production and zinc pricing reduced gross revenue by approximately $25.6 million before treatment and selling costs.

Balance Sheet, Debt and Liquidity

Total assets were $180.5 million, total liabilities were $108.3 million and total equity was $72.2 million at December 31, 2023.
Current liabilities of $61.2 million exceeded current assets of $23.0 million. The reported deficit was affected by the classification of the convertible debenture as current after a quarterly extension was signed late. Management expected the classification to be reversed to long-term debt in Q1 2024.
Contractual obligations totaled approximately $120.5 million, including $66.5 million due within one year. Major obligations included trade payables, convertible debt, promissory notes, metals delivery liabilities, royalties, pension contributions and decommissioning provisions.
The metals contract liability to Sandstorm was $36.8 million at year-end, including $12.5 million classified as current. The Company drew the full $11.0 million available under the 2023 Sandstorm advance arrangement, with repayment through future gold deliveries.
The convertible debenture had a carrying value of $15.4 million at year-end, with stated principal of approximately C$35.8 million after amendments and partial retractions. The stated interest rate was 11%, and the effective maturity date was subsequently extended to April 28, 2025.
Management and the auditor disclosed substantial doubt regarding the Company’s ability to continue as a going concern. The Company stated that it did not have sufficient liquidity at year-end to fund the next twelve months and would require additional financing.

Material Changes Versus 2022

Revenue increased modestly, while operating costs rose. Cost of sales increased due mainly to higher employee costs, operating costs and the U.S. dollar/Mexican peso exchange rate.
Net loss improved primarily because of higher revenue, a $4.0 million improvement in foreign exchange results, a lower Relief Canyon impairment charge and a higher income-tax recovery. These benefits were partly offset by higher interest and financing expense, a larger loss on the Sandstorm metals contract liability and the absence of the $4.3 million government-loan-forgiveness gain recognized in 2022.
Relief Canyon incurred an additional $6.0 million impairment charge in 2023. The Company stated that technical studies had not identified an economical near-term path to resuming production.
The Galena replacement hoist was installed and commissioned in 2023, but inspection identified approximately 120 feet of damaged shaft requiring repair. Repair work was expected to begin in Q3 2024 and be completed in Q4 2024.
Production was affected by a 17-day Cosalá tailings-facility maintenance shutdown, 14 days of mill outages caused by heavy rain and tailings work, a five-day Galena electrical shutdown and temporary mobile-equipment availability issues. The Company reported its strongest consolidated production quarter in Q4 2023.
Mining commenced at the Zone 120 deposit in late 2023. Approximately 25,000 tonnes were extracted, with approximately 18,000 tonnes periodically blended into mill feed. Commercial EC120 production was planned for Q4 2024, subject to development and metallurgical work.
The Company issued approximately 2.2 million common shares in July 2023 and issued approximately 8.3 million shares during the year through convertible-debenture retractions, increasing dilution risk.

Guidance, Outlook and Management Commentary

Management planned to accelerate development at Zone 120 and El Cajón to support commercial EC120 production in Q4 2024. Metallurgical characterization and processing-plan work was expected to be completed by Q3 2024.
At Galena, management expected shaft repairs to be completed during Q4 2024 and continued exploration and development to increase production, resources and operating efficiency. The filing does not provide a clear consolidated 2024 production or cost guidance figure.
Management expected to achieve net cash flow over the following twelve months, but this depended on production, commodity prices, inflation, working-capital needs, the Galena shaft repair and access to additional financing.
Subsequent to year-end, the Company drew a $3.25 million Sandstorm advance in March 2024 and completed a C$7.8 million equity offering consisting of 26 million units at C$0.30 per unit, with warrants exercisable at C$0.40 for three years.

Key Risks, Contingencies and Unusual Items

Liquidity and going concern: The Company has recurring losses, negative operating cash flow, a significant working-capital deficit and near-term financing requirements. Additional equity or debt financing could dilute shareholders or may not be available on acceptable terms.
Relief Canyon: Metallurgical issues involving carbonaceous material caused lower-than-expected gold recovery. The mine remains suspended, and further impairments or significant restart costs are possible.
Operational execution: Galena shaft damage, equipment availability, maintenance shutdowns, weather, ground conditions, flooding and mill performance could affect production and cash flow.
Commodity and currency exposure: Results depend heavily on silver, zinc and lead prices, while Mexican peso and Canadian dollar movements affect costs, liabilities and reported earnings.
Political, labor and community risk: Cosalá previously experienced an illegal blockade. Future labor disputes, community opposition, security issues, regulatory changes or political instability in Mexico could interrupt operations.
Environmental and reclamation obligations: The discounted decommissioning provision was $12.2 million, with undiscounted estimated obligations of approximately $20.5 million. The Company stated it was not insured against environmental risks.
Concentration and offtake risk: Two customers represented 51% of Cosalá revenue and 48% of Galena revenue in 2023. Concentrate sales are subject to provisional pricing, treatment charges and a limited number of counterparties.
Regulatory disclosure: The Company has not prepared mineral reserve and resource estimates under SEC Regulation S-K Subpart 1300 and noted potential compliance costs or regulatory uncertainty.
Contingency: A Mexican tax reassessment relating to 2007 remained subject to appeal. The Company had accrued approximately $1.0 million for the probable value-added-tax obligation.
Safety: A fatal accident occurred at Galena in April 2023. MSHA completed its investigation and issued two citations related to a fall of ground.

Investor Verification Checklist

Verify the Company’s current liquidity, financing availability and maturity schedule following the 2024 equity offering, Sandstorm advance and convertible-debenture extension.
Track operating cash flow, free cash flow and adjusted working capital rather than relying only on revenue or non-GAAP cost metrics.
Confirm the schedule, cost and financing for the Galena shaft repair and whether the repair restores planned hoisting capacity.
Assess whether EC120 can reach commercial production in Q4 2024, including permitting, development progress, capital requirements and metallurgical recoveries.
Review Relief Canyon technical studies, carrying value and the potential for additional impairment or restart expenditures.
Reconcile production and revenue by operation, particularly the decline in zinc revenue and the increase in silver production.
Evaluate dilution from outstanding convertible debt, options, warrants, deferred share units and additional financing needs.
Review metal-price, foreign-exchange, customer concentration, Mexican political and labor, environmental, pension and reclamation exposures.