Gatos Silver Inc (TSX: GATO) is a silver dominant production, development and exploration company that discovered a new silver and zinc-rich mineral district in southern Chihuahua State, Mexico. To-date, 14 zones of mineralization have been defined within the district, and all are characterized by silver-zinc-lead epithermal mineralization.

Key Highlights

• On October 30, 2020, the company completed an initial public offering of 21,430,000 shares at a price of CAD 7.00 per share, resulting in gross proceeds from the offering of CAD 150,010 and shares trading on the New York Stock Exchange and the Toronto Stock Exchange.
• Recently, as on December 17, 2020, the company announced that its shares would be added to the Russell 2000 small-capitalization stocks index effective December 21, 2020. Since the announcement, the stock has surged approximately 70% to date.
• At the last closing price, GATO shares were hovering well above the moving averages of 5-day, 10-day, 20-day, 30-day, 50-day, 100-day, and 200-day SMAs. However, leading momentum indicator 14-day RSI and 9-day RSI hovering in the steep overbought zone, which implies that some correction could take place in the next few trading sessions.
• Over the past five trading sessions, GATO shares have bagged approximately 62%, and 5-day average volume traded on the exchange is approximately 122% above its 30-day average volume traded on the index, implies a volume spurt in the stock over the past five trading sessions.

Financial Highlights: Q3FY20

• The company is 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.
• For the three months ended September 30, 2020, GATO experienced a net loss of CAD 1,185 thousand compared to a net loss of CAD 4,837 thousand for the three months ended September 30, 2019.
• As on September 30, 2020, and December 31, 2019, the company had cash and cash equivalents of CAD 3,627 thousand and CAD 9,085 thousand, respectively. The decrease in cash and cash equivalents was primarily due to increased investment in the LGJV, increased deferred financing costs and other operational needs partially offset by an increase in related-party convertible notes.
• Further, with the completion of the October 30, 2020, initial public offering, the explorer believes that it will have sufficient cash and resources to carry out the business plans for at least the next 12 months.

Risk Associated with Investment

The company is in the exploration stage and yet to report revenue. Any delay in the expected timeline would affect the business prospects.

Stock Recommendation: The company is in the production and development phase with no revenue reported till the third quarter of 2020. However, recent fund generation by the company through IPO and inclusion of GATO shares in the Russel 2000 index has pushed its shares higher. Also, management loudly stated that they have adequate liquidity and working capital to fund its operations. However, Given the price rally in the stock over the past five trading sessions and overbought RSI indicators, we believe price consolidation could take place in the next few trading sessions; therefore, we recommend a “Watch” stance on the stock at the closing price of CAD 18.10 on January 05, 2021.

GATO Price Chart (as on January 05, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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