Escaping the Resource Trap: A Production-First Approach

0:04 Hello everyone and thank you for joining us today for this live event. I'm excited to introduce 2 CEOs who share a unique view about what publicly listed junior mining companies should prioritize. Joining me today is Robert Archer and Rick Torreno, who will make the case for a production first approach. While this might sound like common sense, the reality is that most junior companies take a different path focusing on growing their resource base rather than advancing projects through studies and into production. If you have any questions, please feel free to submit them in the chat, which can be found in the bottom right corner of your screen. As always, the session is being recorded and will be available for viewing shortly after we wrap up. Robert, Rick, thank you for joining us here today. The title of our discussion mentions escaping the resource trap. So I'd like to start there. What exactly is this trap from your perspective?

0:53 And why do so many junior mining companies spend years and significant capital continuously expanding resources without ever reaching production?

1:02 Rick, we'll start with you. All right, I'll give you 2 examples that come to mind that illustrate part of the issue. One is in Northern Quebec, you have one of the largest deposits of iron ore And it runs for hundreds of miles. And because it's above the tree line, you can see the rock is exposed. It hasn't moved for centuries. And while it was drilled in the 30s, because we have a new regime that came in after BREEX called the National Instrument 43-101. Any drilling done before that is viewed as historical drilling and has to be qualified and saying you can't rely upon it. It hasn't been checked by QP because the 43-101 has someone signing off on the quality of the work.

1:53 And this is a structure that's homogeneous. It runs for, as I said, hundreds of miles. So when you do 1 drill hole and you drill a mile away, the chances of it being in between are almost 100%. But from a regulatory point of view, You can't rely on the drill holes, the historic drill holes, and you have to drill the spacing that will take you millions of dollars to drill off the deposit. That makes it prohibitively expensive and takes forever to do. So that's one example that people can, I think, glean the difficulties?

2:36 Another one is a project that I was working on off the coast of Ghana. And they've got 2 rivers, the Praha and the Ancobra, that run into the ocean. And this project was mining in the ocean. What we're looking at is developing the sands, which are gold bearing and also have sand, gravel and sand that could be used for building purposes. Well, we tried to drill that off, but I thought it was a waste of time because you have 1 storm and the sand bank has moved several meters and you then can't use those numbers again. So you could spend a lot of money trying to drill off a resource in the ocean and it's going to move on you so it makes the whole effort futile.

3:27 So that's 2 examples.

3:32 Bob, do you share the same perspective? Any further commentary? Yeah, I think from a general standpoint, for me a big part of it is just that you're constantly relying on the markets to raise money. And junior companies that take that approach are really at the mercy of market cycles, cycles in metal prices, and it just makes it difficult to plan and you just lose a lot of control in terms of how you're actually building the company and you become very market focused just trying to provide the market with what potential investors or shareholders are looking for. And so a lot of companies actually get far too promotional

4:24 in doing that because they have to. We've just come through a very, very long period downturn in metal prices and markets where it was extremely difficult to raise money, especially for the junior explorers. And with that, it was difficult to survive even as a junior company. Whereas if you push forward into production and hopefully cash flow, then it gives you a degree of sustainability through those downturns and allows you to continue growing in a way that is more under your control. Of course, we can't control metal prices or markets, but having your own cash flow will smooth out those cycles.

5:14 I think for me, that's the biggest thing really. Can I just add to that? Given that the average time from discovery to mine now is to production is now about 17 years. If you have to sustain 17 years without generating revenue, that's a tremendous amount of

5:39 dilution and cost. Like the cost of being public now without paying any salaries, without doing any work, is over $100,000. That's audit fees and TSX fees and just sustaining fees. So if you add that, a program, people and so on, you've got quite the expanse. And as Rob mentioned, the access to capital has been challenging in the last number of years. So finding a way around that has been front and center. Definitely. I'm gonna bring it back to you, Bob. You've both chosen a production-first mindset in the sector, where most juniors focus on drilling to expand tonnage, and maybe more importantly, attract bigger partners.

6:27 What experiences in your careers led you to this approach, and how does it differ from the grow resources at all costs model? Well, for me, Kyle, in a way I feel like I've sort of come full circle because we went through this or I went through this in the early 2000s, coming off the post-Breex, dot-com era, where it was virtually impossible to raise money for mining companies. And so in 2003, 2004,

6:58 myself and my Mexican business partner at the time, started Great Panther Silver. And we took this approach where we wanted to take a fast producing mine, bring it back into production and build the company out of cashflow more than just going back to the markets all the time. And so we did that. And the first mine we acquired was the Topia mine in Durango, which coincidentally is only 13 kilometers from where we're working now. But we acquired that in 2004, and then acquired the Guanajuato mine in 2005. We had both of those back in production in 2006. So less than 2 and a half years after starting the company, we had 2 mines in operation and just gradually built the company from there.

7:48 And it was very successful. And so that's really what I've gone back to, with what we're doing now. And then just focusing on that first step of getting into production and then just building from there. What about you, Rick? What experience drew you to this conclusion about production first? About 2 years ago, I wrote a letter to all the regulators and the government people about the demise of the junior sector. I saw about 20 or 30 different elements that were really hurting the industry and it was going to die if it continued.

8:35 And during one of my conversations with the chairman of Franco Nevada, he was suggesting that at that time, the best thing to do was to stay private. So when one of my projects came up and we're looking at it, I thought, well, what do I really want to do? I'd like to have something that cash flows and is profitable, but obviously you pay a premium for that. But I'd like to see something that I can at least see the runway and get to the finish line within a reasonable time. And also that'll cost something that I feel I'm comfortable raising. So that's the project we took on in Toronto. Yeah, definitely. I want to get into a couple company specific questions.

9:24 Bob, Pinnacle's flagship El Patrero project is a past producer with an existing 100 tons per day plant, historic grades, and recent samples exceeding 85 grams per ton gold. How does this setup allow you to pursue near-term production and what timeline are you targeting? So there are a number of factors that all come together with El Patrero. For one thing, the size is manageable for a small company to get going. It's underground, has a small footprint, that makes permitting that much faster and easier.

10:07 And to get it going again, because the plant is there, we'll have to be rebuilt, but nonetheless, we're looking at relatively low capex to do all of this. So, at this point in time, we're anticipating somewhere in the range of 3 to 4 million US to get this back up and running. And So it's not a huge amount. And so, when you look at the risk of something like that, as opposed to time to build up a large resource and then potential effects of hundreds of millions of dollars in some cases, I can certainly understand why you need that time, you need the resource in order to justify spending that much money.

11:01 People aren't going to invest, whether it's equity or banks, loans, whatever it might be, it would be very difficult to raise half 1 billion dollars in CapEx and had something to back it up. But the nice thing about having a relatively small operation is that you don't really need that. The risk profile is much lower. We can fast track it. And

11:25 at this point in time, we're aiming to be starting production before the end of next year. And Rick, for Torino, it is pivoted to the Meadow 46 Tantalum project in Bolivia. As a critical mineral with supply constraints, why prioritize a production path here? And what makes this project suitable for near-term production focus? The near-term production comes from the fact that we're on a belt that has a number of artisanal operations. The belt extends over 120 kilometers. The property was selected by an engineer who worked for 15 years as an assay lab manager. He sampled everything in the area. So he selected the property. That gave me a lot of comfort, plus the fact that he's Bolivian.

12:18 The deposit outcrops at surface, they've done surface trenching and they took a number of bulk samples. It hasn't been drilled, but that's what we're going to do now with the funds we just raised in the financing that's closing in the coming week.

12:35 And the previous party who was interested in this was an 85 year old multimillionaire Swede who was doing this privately, and he had gone out and bought the equipment and the equipment is in storage in the village nearby. So the equipment can be assembled in very short order. We could be in, we could have been in production when we took on the project. But I wanted to get all the permits and titles in place first, but we could assemble the equipment in about 45 days and initiate production. So that makes it very attractive. And you can see the timeline from where we are today to production, everything's in place now. All the permits are there and the metal is gaining new eyes on it with AI. There's an article that came out last night talking about how tantalum can be used and has superior qualities for certain applications in the AI world instead of copper.

13:37 So we're hitting, everything's lining up, the stars are aligning for us. No, definitely. And how do the existing Artisno tantalum operations in the area inform your development plans?

13:51 Well, as I said, our in-country manager worked for a lab for 15 years. He's now semi-retired, working for us full-time. He's our full-time manager for us, but he has been buying and selling tantalum for the artisanal operations in the last couple of years. And one of the things, the advantages that we're going to have is we have an export permit, so we can sell it. We don't have to sell it locally. But so he's been talking to the people. And every meeting that we have, we have an indigenous group there that controls a lot of land. They control 2.8 million hectares. And every meeting that we have, they bring in other samples from properties that they have that they would like us to explore. So there's a lot of opportunity.

14:42 And there's a shift going on in the world right now, even though President Trump said he solved the war in the DRC, that's still going on and 42% of the world's production comes from there. So there's a lack of supply right now and the demand keeps increasing with AI and 5G and electric cars and so on. So I think we hit a good area to focus on. It's a small niche market, half 1 billion dollars, but we could become a significant player in very short order. I'm sorry, I want to stay with you one more for one more question here.

15:22 I know it's cashflow first, but if one of these property owners gives you some samples or shows you some data that would make it impossible to refuse. Would you acquire that before getting it into production at the current Metal 46 project? No, I think we want to continue our path. That's going to be available. One of the things that I believe will take place is the equipment that we have can achieve better recoveries than what the artisanal operations are doing. They're having, they recover the pebbles, we can recover the fines, and the fines have higher grade, and for the same amount of work we'll get better throughput and results.

16:08 So I think we can expand. We have a mission going forward. There are some operations that are available to us. We're getting submissions from Africa and our advisor who is in Africa has some properties that he would like us to look at as well. So it's a function of people. We're still just a small group and then cash and the, but the opportunity is there and it could be done fairly quickly.

16:38 For sure. Bringing it back to you, Bob, everything costs money. You've spoken about fast track and development through underground drilling, plant refurbishment and permitting. How does this fit your cashflow first strategy to minimize dilution? Well, what we've done to date, and we've had this project for less than a year, Kyle, but we've taken about 900 systematic detailed channel samples underground. So we've got a really good sense of where the mineralized zones are within the historic underground workings.

17:13 And that has brought us to a point where we can actually launch an underground delineation program as our first drilling program on the property, which is quite unusual, I think, to start with underground drilling. But through that, we'll actually be able to get a much better sense of the size and shape, widths, grades, you know, of the mineralized zones. And from that we'll be able to start putting together a mine plan because these historic mine workings are already there. So, you know, that's really the direction that we're going right at the moment. We've just completed a $2.5 million financing to get that going. And we'll be starting in the next couple of weeks, I believe, with the preparatory work underground to get the drill stations ready and set everything up. And then we'll be, once those stations are ready and made secure and safe for the workers, then we'll be starting that underground program.

18:16 And so really moving things forward. Once we've done that program, and hopefully by that time, we'll also have started a surface drill program. And with all of that, we'll be moving towards a preliminary mine plan that will also lead into the plant's refurbishment and flow sheet development, all that sort of thing. So it all sort of flows nicely at that point. I want to ask this question of both of you, but I'll ask you first, Bob, because you brought up that during hard times in bear markets, in commodities, it's difficult to raise funds for this exploration and drilling, but we're not in a bear market now. Many would argue it's a strong precious metals bull market as well as critical minerals. Why is now the right time to prioritize getting into production quickly rather than exploration?

19:17 Well, we've got a chart on our presentation that was produced by Tabby Costa, and even though it already looks a little bit out of date because it talks about a $3,500 gold price, but it was only from September. But in that chart, it shows gradually rising production costs on

19:42 the bottom bar chart, but then the sharply rising gold price. And what that does is that it demonstrates the rapidly increasing profit margins that producers are experiencing right now. And I think this may be unprecedented in terms of the profit margins that companies are making right now. That's largely what's driving the share prices behind the producers.

20:14 The senior producers typically lead the way, followed by the mid-tiers and then the juniors, but right at the moment, the juniors are playing catch up. And over the last years or so, the percentage increase by the juniors is now larger than the mid-tiers and the senior producers. So that's really where we wanna get to. And it's really that unprecedented profit margin that we're chasing right now. The faster we can get there, the better. Rick, do you have any further commentary on this? I think it's implied that you're trying to avoid dilution. And if you can get to a position where, in fact, you're paying dividends, that would even be better.

21:02 So getting to cash flow, and that's de-risking the project quite a bit. If expiration, you're still chasing, let's say. For sure. Now This is kind of a gimme as well, Rick, but if your focus is on cash flow driven by confidence that once you're generating revenue, you can fund further exploration resource growth without constant risk of shareholder dilution. That's the game plan, if you will. Yeah. Yeah, as I said, we have a surface deposit, so it's exposed. It's known. We know what's at surface. We don't know what's below. The property hasn't been drilled yet. That's what we're going to do. We want to at least to have a systematic process.

21:51 And also from a regulatory point of view, you can go into production because that's something you either make money or lose money at. But you can't say you have a mine

22:00 because a mine by definition is an economic ore body. And you can't say you have ore unless someone says that the material that you have is economic. So you need those sign-offs. And it makes the regulators more comfortable if you have the work that qualifies that. So we're going to pursue that in the systematic way. We don't have to outline the entire deposit. We have to outline sufficient to justify bringing the equipment up, setting it up and going into production. We also want to know where to put the equipment. So it helps to do sufficient work to delineate where that's best placed. How would you respond to critics who say focusing on near-term production risks leaving value on the table by not fully exploring the potential?

22:53 Oh, there's some merit to that. Ideally, if you know the whole extent of the deposit, you can better define the size of the equipment, the optimal size of the equipment, and you can also better define where to put all of your surface equipment as well. So, you know, where to build the roads, you don't want to build it if it's very high grade underneath the road that you won't be able to access. There's some merit to that. If you had unlimited access to capital, that would be a good way to go. Bob, do you have any further commentary on that focusing on near-term production?

23:38 Yeah. Leaving value on the table? Yeah, I don't think we're leaving anything on the table at all actually, because as soon as we get to production, we're just gonna keep on drilling and expanding the project and expanding the resource and adding to it as we go. One of the key things to understand about these epithermal deposits that we're developing is that these tend to be long-lived mines. They're not this sort of deposit. It's not like a porphyry or something where you can go in and just drill off a massive resource. And a lot of holes are pretty similar in grade and size and width and so on. These epithermal deposits are quite different.

24:25 And because of the variability in grade, they can often be quite difficult to delineate And it requires a lot of drilling. And to try and do all of that upfront can be prohibitively expensive. And so because they're long-lived mines, If you just look at the Topian mine that I mentioned that's only 13 kilometres away, and it was the first one we acquired with Great Panther, we put that back in production in 2006 and it's been going ever since. But it shut down in 1999, and yet it was built in 1954. So it had already been producing for about 44, 45 years before it closed down. So it's been in almost constant production for about 70 years.

25:17 So these are long lived mines. These are not the type of mines where you can just go in and drill off a massive resource and then pull the trigger on a large build. It would take years to do that. I mean, not to say that it can't be done and there are some that are developing that way, but if you look at the history there, as Rick pointed out earlier, these have been known and partially developed by different companies over a period of decades already. In order to fast track something of this nature, you really just need to get it going. If you have enough experience with these types of deposits, you just know that it's just gonna keep delivering.

26:07 And that's essentially what we're planning on doing with this, but it also allows us to look at other acquisitions as well. And that's something that we're quite focused on at the moment also. Right. I'm going to bring it back to you, Rick. Looking ahead 12 to 24 months, what milestones at your respective project would demonstrate that the production-first approach is working? Maybe add on to that as well, the near-term catalyst for your companies. All right, well, we're just in the midst of closing a half 1 million dollar financing. That should take us quite far along the way. We would like to do a couple of hundred thousand dollars of near surface drilling and get a positive, make positive decision on production, then assemble the equipment and get into production.

26:58 So that I think, if you go by the Lassonde curve, getting to production is a good thing. I think the project is then de-risked. We're already started looking at opportunities to bring in satellite operations. There's a number of mines that would like us to develop. And as I mentioned, the indigenous group has brought us other properties. Our property is fairly large. There's a number of other targets that we're going to pursue. It's 3,450 hectares. So we've got a lot of work to do just on our own property. And as I said, the belt extends for over 120 kilometers. There's no other public companies operating.

27:44 The main focus in Bolivia is tin and silver. Our background, like my background in tantalum goes back quite a quite a ways. I worked with Peter Howe, who is credited with the discovery of the Tanco deposit in Burnick Lake, and that became the Tanco Mine. It's the only producer that I'm aware of in North America. And then I worked with Avalon on its big walker with Don Bubar. And so I've been following the uses of the product and it keeps expanding and expanding. It's getting more and more interesting. They're finding new applications. So I'm quite excited about where we can go. And certainly we can go upstream as well.

28:31 We can take the tantalum and develop the other products. Tantalum pentoxide commands quite a premium. And now, as I said, there's a new application in AI and the properties of this metal are quite unique. So I think we're going to have some fun. Great. And Bob, near-term catalyst and looking ahead 12 to 24 months, the milestones that prove the production first approach is working? Yeah, I think we're going to have several this year, Kyle. As I mentioned, you know, we'll be starting fairly soon here with the preparatory work underground to get things ready for an underground drill program. And that program will start up, hopefully in 4 to 6 weeks.

29:16 And then to be followed by surface drilling for further expansion of a resource. And through all of that, we're working on different aspects of the permitting for the project and for production, through water permits, environmental, extending the power line, things like that. So those will all be sort of milestones in their own right. And then once we get to a certain point, hopefully we can pull the trigger on production financing, because I have been in discussions with metal traders and our goal is to enter into some kind of an off-take agreement that will provide us with production financing without going back to the market.

30:07 So again, avoiding that dilution trap. And through all of that, I've stated from the very beginning that Alpertura is really just a means to an end. It's a first step for us. And we're looking at additional acquisitions because we want to continue to build the company. And in this business, you have to be opportunistic, but to a large degree, you create your own opportunities as well. So, we'll be looking to make another acquisition, hopefully this year. Perfect. Gentlemen, thank you so much for taking the time out of your day. It was a great discussion. If any one of you that came in a little late today, the replay will be available within the next couple of hours here.

30:53 So look out for that on our YouTube channel and on our website, six.com. But thank you guys for the great conversation.