SecProbe.io

CORRESP
1
filename1.htm

    +1
                           212 450 4000

    davispolk.com

    Davis
                           Polk & Wardwell llp

    450
Lexington Avenue

New York, NY 10017

    June 21, 2024

    Re:
    Gatos Silver, Inc.

Form 10-K for the Fiscal Year Ended December 31, 2023

February 21, 2024

File No. 001-39649

U.S. Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549

 Attention: John Coleman

Joanna Lam

Craig Arakawa

Ladies and Gentlemen:

On behalf of our client, Gatos Silver, Inc. (the
“Company”), this letter sets forth the Company’s responses to the comments provided by the staff (the “Staff”)
of the U.S. Securities and Exchange Commission (the “Commission”) relating to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”) contained in the Staff’s letter,
dated June 6, 2024 (the “Comment Letter”). For the convenience of the Staff, each comment from the Comment Letter is
restated in italics prior to the response to such comment.

Form 10-K for the Fiscal Year Ended December 31, 2023 Item 2. Properties,
page 29

 1. Please disclose your mineral resources and mineral reserves based on your attributable interest in
the property, and corresponding to your fiscal year end, as required by Item 1304(d) of Regulation S-K. Please ensure each mineral resource
or reserve table includes the point of reference, cutoff grade(s), and metallurgical recovery factor.

Response:
The Company acknowledges the Staff’s comment. Set forth in Appendix A attached hereto are the Company’s mineral reserve and
mineral resource estimates on a 100% basis and on a 70% basis (reflecting the Company’s 70% attributable interest) as at December
31, 2023. The mineral reserve and mineral resource estimates shown on an attributable basis are calculated by multiplying the tonnage
and contained metal shown on 100% basis by 70%.

As discussed
in the Annual Report, the effective date of the Technical Report Summary filed as an exhibit to the Annual Report (“TRS”)
is July 1, 2023. The Annual Report discloses on page 34 that the amount of Cerro Los Gatos (“CLG”) material processed
by the mill from July 1, 2023 to December 31, 2023 was 545,630 tonnes. As further disclosed in the Annual Report, this amount reflects
CLG material extracted from reported mineral reserves and, to a lesser extent, mineral resources, as well as material extracted from mineralized
material not included in the Company’s mineral resource estimates. During the period from July 1, 2023 to December 31, 2023, there
was no update to the Company’s mineral reserve or mineral resource estimates other than the extraction by mining at CLG, as disclosed
in the Annual Report. There has been no update to the mineral resource estimates at Esther since July 1, 2022, and no mining has occurred
at this deposit. Thus, there is no change to mineral resource estimates at Esther between July 1, 2022 to December 31, 2023.

    Division of Corporation Finance

U.S. Securities and Exchange Commission

Extraction from
mining at CLG from July 1, 2023 to December 31, 2023 resulted in depletion of 431,782 tonnes of mineral reserves and 8,799 tonnes of mineral
resources. The balance of 105,049 tonnes was mineralized material from outside of the reported estimates. As set-out in the footnotes
to the reported estimates and further explained in the TRS, since CLG is a polymetallic mine, the Company uses Net Smelter Revenue (“NSR”)
as the basis for grade cut-offs. The metal pricing assumptions for the NSR cut-offs are stated in the footnotes to the mineral reserve
and mineral resource estimates. The TRS sets out in detail the various inputs to NSR calculations in addition to metal pricing, such as
concentrate grades, concentrate qualities, transportation costs, treatment and refining charges, and refining payabilities, as well as
metallurgical recoveries. NSR cut-offs are informed by mining costs, processing costs, general and administrative costs, and vary based
on mining method. The range of NSR cut-offs for mineral reserves, and metallurgical recoveries and points of reference for both mineral
reserves and mineral resources have been added to the footnotes in Appendix A.

The Company
respectfully advises the Staff that each reference to mineral reserves and mineral resources estimates in the Annual Report discloses
(i) the basis for the reporting (100%) and discloses consistently that the Company has a 70% interest in the Los Gatos Joint Venture (“LGJV”)
that owns the Los Gatos District, the CLG Mine and Esther, and (ii) the basis for the NSR cut-offs are disclosed in the Annual Report
and the TRS. However, the Company acknowledges the requirements of Item 1304(d) of Regulation S-K and confirms that it will present mineral
resources and mineral reserves estimates based on its attributable interest in the property in tabular format and corresponding to the
Company’s fiscal year end in its future filings with the Commission, and
will ensure that each mineral resource or reserve table includes the point of reference, metallurgical recovery factors, and NSR cut-offs,
consistent with the approach shown in the footnotes to Appendix A.

 2. We note that your resource and reserve reconciliation does not compare resources and reserves corresponding
to your fiscal year end, rather the resource and reserve reconciliation in your annual filing corresponds to July 1, 2023 and July 1,
2022. Please provide a reconciliation comparing your resources and reserves as of the previous two fiscal year ends, as required by Item
1304(e) of Regulation S-K. Please address each instruction under this Item in the reconciliation. For example the reconciliation should
include the net difference between resources and reserves as a percentage, an explanation of the causes of any discrepancy in mineral
resources, and an explanation of the causes of any discrepancy in mineral reserves.

Response:
The Company acknowledges the Staff’s comment. Set forth in Appendix B attached hereto are the Company’s mineral reserves and
mineral resources estimates based on the Company’s attributable interest in the property, as of December 31, 2023 compared to mineral
reserves and mineral resources estimates as of December 31, 2022.

The Company respectfully
advises the Staff that the Annual Report compares mineral reserves and mineral resources as of July 1, 2023 and as of July 1, 2022, the
effective dates of Technical Report Summaries filed by the Company, disclosing that the changes at CLG stem from mineral reserve and mineral
resource additions from additional drilling, offset by mining depletion. The Annual Report also discloses depletion at CLG to the end
of each fiscal year subsequent to the TRS effective dates for both 2022 and 2023.

For example,
on page 36 of the Annual Report, the Company discloses the following:

“The
additions to the 2023 CLG mineral reserves and mineral resources per the Los Gatos Technical Report were primarily related to a large
amount of additional drilling completed during 2022 and up to March 31, 2023. The 2023 mineral resource estimate for CLG used a total
of 1,466 diamond drill holes totaling 282,905 metres. Compared to the 2022 mineral resource estimate, this represents a 28% increase from
the database used for the 2022 update with an additional 32,057 metres of surface resource drilling from 51 holes and 29,462 metres of
underground definition drilling from 284 holes. The increases in the estimated mineral reserve related to this additional drilling were
partially offset by depletion by mining operations. The CLG plant processed 1,071,400 tonnes during 2023.”

    June 21, 2024 2

  Division of Corporation Finance
 U.S. Securities and Exchange Commission

The explanation for the changes in mineral reserves and mineral resources
as of July 1, 2023 from as of July 1, 2022 are generally applicable for the changes in mineral reserves and mineral resources as of December
31, 2023 compared to December 31, 2022 (as shown in Appendix B), as each reflects mining depletion to year end. In addition, the reductions
in CLG measured and indicated resources are a result of the conversion of mineral resources to mineral reserves. This conversion resulted
from the additional drilling described above and also reflects the update to the mine design based on this new drilling.

The Company acknowledges
the requirements of Item 1304(e) of Regulation S-K and confirms that it will provide a reconciliation comparing resources and reserves
as of the previous two fiscal year ends, and address each instruction under this Item in the reconciliation in its future filings with
the Commission.

Financial Statements Note 14 Investment in Affiliates, page 70

 3. We note you recognized equity income in affiliates of $33.6 million related to your investment in LGJV
in 2023, representing your ownership share of the LGJV's results. We also note that LGJV reported net income of $53.4 million in 2023.
Please show us how you determined your share of net income from this joint venture using the equity method of accounting and how your
determination complies with ASC 323-10-35.

Response:
The Company acknowledges the Staff’s comment. The Company respectfully advises the Staff that equity income from affiliates consists
of 70% of LGJV net income, basis difference amortization and income reduction related to the priority distribution agreement. Set forth
below is the Company’s determination of the Company’s calculation of equity income in affiliates:

The $33.6 million of equity income in affiliates
disclosed in Note 14 to the financial statements included in the Annual Report is comprised of (in ‘000s):

    Note

    LGJV net income

     $53,443

    GSI ownership share of LGJV net income
      1
      70%
      37,411

    Basis difference amortization
      2

      (206 )

    Income reduction related to the priority distribution agreement
      3

      (3,584 )

    Equity income in affiliates

    $ 33,621

In the above (in ‘000s),

 1. The Company’s ownership share of LGJV net income of $37,411 represents 70% of the LGJV’s $53,443
net income, in accordance with ASC 323-10-35-4.

 2. Basis difference amortization recognizes the difference between the investment in affiliates amount (investor
cost) and the amount of the underlying equity in net assets of the LGJV (investee), as required by ASC 323-10-35-5(b) and ASC 323-10-35-13.
Also see “Equity method investment” under Summary of Significant Accounting
Policies in the Company’s Annual Report.

 3. On March 17, 2022, the Company entered into a definitive agreement with Dowa to build and operate a leaching
plant to reduce fluorine levels in zinc concentrates produced at CLG. As part of the agreement, the initial payment of the $20,000 due
to Dowa under the partners’ priority distribution agreement was reduced to $10,300. The reduced priority dividend amount reflects
a portion of both the construction ($4,200) and future estimated operating costs of the fluorine leaching plant ($5,500). Should the fluorine
leaching plant not operate according to certain parameters during the first five years, portions of the $5,500 reduction could be reinstated.
At December 31, 2023, the amount payable under the priority distribution agreement was $5,119, of which the Company’s 70% share
was $3,584. As this reflects the reduction in amount of equity income attributable to the Company, this falls under ASC 323-10-35-4. Accounting
for the amount payable under the priority distribution agreement follows the hypothetical liquidation at book value method.

    June 21, 2024 3

  Division of Corporation Finance
 U.S. Securities and Exchange Commission

The Company therefore believes that its determination
of equity income in affiliates complies with ASC 323-10-35.

* * *

Please do not hesitate to contact me at (212) 450-4715
or stephen.byeff@davispolk.com if you have any questions regarding the foregoing or if we can provide any additional information.

Very truly yours,

/s/ Stephen A. Byeff

    June 21, 2024 4

  Division of Corporation Finance
 U.S. Securities and Exchange Commission

Appendix A

2023 CLG Mineral Reserves Statement as of Dec 31, 2023, 100%
Basis

    Reserve Classification

    Mt

    Ag

    (g/t)

    Zn

    (%)

    Pb

    (%)

    Au

    (g/t)

    Cu

    (%)

    Ag

    (Moz)

    Zn

    (Mlbs)

    Pb

    (Mlbs)

    Au

    (koz)

    Cu

    (Mlbs)

    Proven
    3.06
    320
    4.45
    2.21
    0.31
    0.09
    31.5
    300.5
     149.4
    30.9
    6.2

    Probable
    4.59
    141
    4.27
    2.22
    0.20
    0.19
    20.8
    431.4
     225.0
    29.1
    19.4

    Proven and Probable Reserve
    7.65
    213
    4.34
    2.22
    0.24
    0.15
    52.3
    731.9
     374.4
    59.9
    25.6

2023 CLG Mineral Reserves Statement as of Dec 31, 2023, 70%
Basis

    Reserve Classification

    Mt

    Ag

    (g/t)

    Zn

    (%)

    Pb

    (%)

    Au

    (g/t)

    Cu

    (%)

    Ag

    (Moz)

    Zn

    (Mlbs)

    Pb

    (Mlbs)

    Au

    (koz)

    Cu

    (Mlbs)

    Proven
    2.15
    320
    4.45
    2.21
    0.31
    0.09
    22.0
    210.3
     104.6
    21.6
    4.3

    Probable
    3.21
    141
    4.27
    2.22
    0.20
    0.19
    14.6
    302.0
     157.5
    20.3
    13.6

    Proven and Probable Reserve
    5.36
    213
    4.34
    2.22
    0.24
    0.15
    36.6
    512.3
     262.1
    41.9
    17.9

_______________________

 1. Mineral Reserves are reported on a 100% and 70% attributable basis and exclude all Mineral Reserve material mined prior to December
31, 2023.

 2. Specific gravity has been assumed on a dry basis.

 3. Tonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.

 4. Values are inclusive of mining recovery and dilution. Values are determined as of delivery to the mill
(point of reference) and therefore not inclusive of milling recoveries.

 5. Mineral Reserves are reported within stope shapes using a variable NSR cut-off ranging from US$64.61/t
to US$105.62/t depending on the mining method with an Ag price of US$22/oz, Zn price of US$1.20/lb, Pb price of US$0.90/lb, Au price of
US$1,700/oz and Cu price of $3.50/lb. The metallurgical recoveries that are used as inputs to the NSR are 88.4% Ag, 62.3% Zn, 88.3% Pb,
54.3% Au and 58.9% Cu.

 6. Mineral Reserves are reported on a fully diluted basis defined by mining method, stope geometry and ground conditions.

 7. Contained Metal (CM) is calculated as follows:

 • Zn, Pb and Cu, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6

 • Ag and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)

 8. The SEC definitions for Mineral Reserves in S-K 1300 were used for Mineral Reserve
classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral
Resources and Mineral Reserves (CIM (2014) definitions).

 9 Under SEC Regulation S-K 1300, a Mineral Reserve is defined
as an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person,
can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated
mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.

    June 21, 2024 5

  Division of Corporation Finance
 U.S. Securities and Exchange Commission

 9. The Mineral Reserve estimates were prepared under the supervision
of Mr. Anthony (Tony) Scott, P.Geo. an employee of a wholly-owned subsidiary of Gatos Silver, Inc. who is the Qualified Person for these
Mineral Reserve estimates.

Summary Mineral Resources (Exclusive of Mineral Reserves)
as