More Than Silver: Zinc, Lead, and PC Silver's Concentrate Marketability

0:08 Okay, as folks start filtering into the room, I'm very excited to have you with me today for what I'm sure will be a great event. I'm very pleased to be joined by Howard Akamura, a base metals marketing consultant for Honey Badger Silver to discuss something really exciting, the Zinc Lead and PC Silvers concentrate marketability. Howard, how are you today? I'm doing great, thank you. Awesome. So here's how today is going to work just for the folks in the room. Howard's going to walk us through a presentation. Then I have some questions for him, probably based on that presentation. But this is an interactive event. I know there's quite a few of you in the room. There is a chat button at the bottom of your screen. Feel free to ask questions at any point during today's event. I'll be eager to get to as many as we can. There's also a meeting request button at the bottom of your screen. Please press that if you'd like to get in touch with the Honeybadger Silver team. We'll pass on those requests, including your

0:57 email and phone number that you give in registration as soon as the event ends. So it'll be available to press during the entire event. Last piece of housekeeping is this event is being recorded and will be available for replay likely end of day today, Eastern time. So it'll pop right in your inbox. But it'll be on this same URL, but also Six's YouTube channel. But without further ado, Howard, I'll pass the mic to you just to run through the presentation. Okay, excellent. Okay, thank you, Romeo. And thanks for everyone from 6 and all the viewers who have joined the call today. And I'd also like to thank our customers and partners who've been supporting the project for many years. I've got a couple of slides at the beginning, which I'm going to skip over because we're hoping Chad's going to join us later at the end and talk about them.

1:43 I'll give a bio on myself. So you guys have an idea who I am. I'm a chemical engineer by education. I worked for TEC and its predecessor companies for 27 years. I spent my initial years working at the trail lead zinc smelter operations as an operations engineer, but I spent most of my years working for tech as a marketing director, selling and buying zinc, lead and copper concentrates. Now I work as a consultant primarily on the marketing and sales of base metals concentrates and the associated products. I love the industry, I love the people in the industry, and I'm passionate about the PC Silver Mine project. And I've been with the project since 2021.

2:28 For those who aren't highly knowledgeable about the mining process, we'll give a quick introduction here. So the PC Silver mine in this case is an underground mine as opposed to an open pit mine. So the ore is mined underground, it's brought to surface and from there it enters what we call the mill or concentrator. And the mill has 2 primary parts of it. The front end is what we call crushing and grinding, where the ore is reduced in size, actually quite a fine, small size. Once this fine sizing is reached, it can proceed to the flotation part of the mill. Here the mineral bearing ore is separated from the non-mineral bearing or waste material as we say, and what we end up with is a concentrated product.

3:15 Now the mineral, and in this case today, we're talking about lead and zinc, in the mine exists as a sulfide. When we concentrate it, it still exists as a sulfide, but it's at a much higher value. So it's typically greater than 50% of the metal content in these instances. So when we have these concentrates, they're dried and then they're stored. When we have significant amounts collected, we transport it to our smelters and customers. And this is done through a combination of truck rail and ocean ships. The smelter customers, what they do is they refine the metal. So we have the metal in a sulfide form and they refine it to a metallic form, generally greater than 99.99% in purity.

4:04 So what we're talking about today are the products that the PC Silver mine would produce once in production, and these are a silver-rich lead concentrate and a zinc concentrate.

4:19 So let's start with talking about silver. Silver is an interesting metal. It has a function both as an industrial metal for uses like solar panels, And it also has value as a store or a store of value. The fundamentals of silver is strong and has been strengthening. Mine supply has been flat to decreasing over time. Meanwhile, demand has been strong, both from the industrial uses like solar panels, but as well as its use or demand as a safe haven alongside gold. So where does the world's silver come from? Most of it is mined and a large portion of it is mined in association with lead concentrates. Therefore most of the world's silver is produced from lead concentrates which are then processed by a lead smelter.

5:10 Most of the silver in the PC silver mine would go to the lead concentrate product where it's highly paid for and this is good for Honey Badger.

5:22 Okay, we'll talk more about lead, which is carrier for the silver. First, with lead metal use, most of the lead in the world is used for lead acid batteries, and this is mainly used in automobiles, both ICE and EVs. Lead is also a highly recycled material. So virgin lead, which we call new lead, which is mined out of the ground, comprises a relatively small portion of the overall world refined lead consumption. So the lead concentrate market demand has been strong and strengthening over time. What you're looking at in this chart is a history of treatment charges. So what are treatment charges? So in simple terms, the treatment charge is what the mine pays the smelter to process the concentrate from a concentrate into a refined metal.

6:16 In this case, treatment charges, lower is better for the miner and higher is better for the smelter. And what you're seeing are benchmark treatment charges in blue and benchmark treatment charges are set annually. And this is for the annual sales of large volumes of concentrates sold from large mines to major smelters. In orange or red, we have the spot treatment charge. And this is for prompt shipments. And this is more indicative of the near-term market. As you see, both of these treatment charges have been declining and both are negative. So in theory, what a negative treatment charge means is the smelter is paying the miner more than the metal value and the concentrate to process the concentrate, but it's a little bit more complicated than that.

7:05 But the overall trend down, the low TCs, and especially the negative TCs, are just indicative of how strong the demand for lead concentrates is, and this is great for honey badger. So why is the market so tight? On the supply side, there's been a lot of a lack of lead mine development. And this is because mining companies don't go out and look for lead and develop new lead mines. They look for other products like copper and silver, and the lead comes associated as a byproduct. Therefore there has not been the push to bring more lead into the market. Meanwhile on the demand side there's been large expansion of lead smelting capacity, especially in China. And this has been supported by strong lead metal demand in China because of the automobile growth.

7:55 China, just to reinforce, is by far the largest market for lead concentrates. So we'll talk a little bit about lead smelters. The first point I want to make is that lead smelters make most of their money off of processing byproducts such as silver, copper and zinc, and in today's market, sulfur. That is to say, a lead smelter doesn't seek necessarily to make more lead. So when we look at lead concentrate qualities, because of this reason, the byproducts are the most important characteristic of the quality. For now, a clean high-grade lead in lead concentrate product without any byproducts is not particularly sought after, but in an extremely tight market like today it is easily sold.

8:50 So the PC Silver Lead Concentrate contains significant amounts of silver, copper, and zinc. So this is good for processing by a smelter. It's a great product for China, but there's also interest in this concentrate outside of China. So in short, PC Silver Lead Concentrate is a good product in a great market. Now we'll talk about zinc. So to start with, we'll talk a little bit about the applications for zinc. In the zinc business, we talk about first use and end use. So first use is the industrial process where the zinc is consumed. In zinc case, this is galvanizing for protection of steel from corrosion.

9:36 Approximately 60% of the world's zinc is consumed in galvanizing. For end use, which is the economic sector, you could say, where the zinc is ultimately used. There is no dominant use here, but you see zinc throughout industry. It's highly used in automobiles for galvanizing the sheet used in the formation of the body parts. You see it in offshore wind generation towers. You see it in high voltage transmission towers. So zinc, you could say, is the ubiquitous metal that is critical in our economy. Okay, now zinc concentrates.

10:23 Similarly, we're looking at a TC history chart for zinc concentrates. The fundamentals are strong. We are seeing the lowest benchmark and spot treatment charges in history, and for the first time spot treatment charges are negative. So why is the zinc concentrate market so tight? There's a couple reasons. First of all, there's several large historic zinc mines which has supplied the world smelters for many years that are aging. For example, the Red Dog Mine in Alaska is nearing the end of its mine life and its production is decreasing. Although tech has been studying, staying in the mine life for many years. Antimina, which is a large copper mine in Peru, produces zinc as a byproduct.

11:12 And through its mining cycle, it goes through phases of high and low zinc.

11:18 In the high zinc phases, Antimena has ranked in the top 3 largest zinc mines in the world. Remember, its primary function is producing copper. But those high zinc phases are now over, so Antimena is no longer producing the zinc it used to. Another example is the Lady Loretta Pit at the Mount Isa Mining Complex in Australia. It has recently closed as it found the end of its mine life. So these are a few examples of some large historic mines which have been supplying the market. And there hasn't been the comparable new mines coming into production to replace these mines. And why is this?

11:58 Many companies or many mining companies have been focused on other metals, such as copper or gold, and this is in response to investor interest and demand. And this is particularly true in finding new zinc mines in good jurisdictions. A couple of examples of mines that are recently starting up or coming into production are Ozonoyu in Russia and Medihabad in Iran. And both of these have obvious jurisdictional challenges.

12:26 Another example is Haoshiyun. It's a massive zinc mine, high in altitude in Western China. Haoshouyun is ramping up, but it will eventually become an integrated mine smelting complex producing refined zinc. So what we see is a lack of new mines to supply the traditional zinc smelting markets of North America and Europe.

12:49 On the smelter side, there's been some very interesting developments, especially in North America and regarding germanium, a critical mineral. Korea Zinc, the largest custom zinc smelting company, recently purchased the Clarksville, Tennessee smelting and mining complex from Trafigura. In its place, they're going to build a $7 billion integrated lead zinc copper refinery that also will produce germanium. TAC, recently announced at its trail smelter in British Columbia, will expand its germanium production and this is in conjunction with a $400 million loan from the Canadian government. So we should do a quick germanium 101 because I'm sure everyone's not fully aware what germanium is used for.

13:41 So germanium is a rare metal. It has optical properties, which make it particularly useful in military applications.

13:49 Historically, China has been the largest producer and exporter, especially to the West and the United States. In 2023, China banned the exports of germanium in a trade dispute or war with the US. So the US is very interested in securing Germanian supplies for its war efforts.

14:10 So the supply and demand fundamentals for zinc concentrates are the best they've been in history, and this is great for honey badger. Now we'll talk about the PC Silver Zinc Concentrate in particular, and the quality, the most important aspect, is the specification. So the PC Silver zinc concentrate is particularly low in iron and silica. So why is this good? So with the iron in particular,

14:39 I'm gonna use a rough example here just to give you an order of magnitude number. A typical 300,000 ton per year zinc smelter for refined zinc will consume 600,000 tons of zinc concentrates. And in doing so, it will produce 200,000 tons of iron residues, which is a waste which must be treated at the cost.

15:03 The iron comes to the smelter via the zinc concentrate. So lower iron in the zinc concentrate means lower residue production that has to be treated. So lower iron is great. So therefore PC Silver Zinc Concentrate has great benefits to a zinc smelter.

15:25 So we'll talk a little bit about selling the concentrates. We've been talking to our potential customers for some time. They're very interested. We support these discussions. They also support what we've been talking about here today. We've also been discussing financing for the project in conjunction with the offtake for the concentrate products. We'll proceed towards agreements as timing around the project becomes more firm.

15:52 So in closing, I'd like to make 3 points. 1, lead and zinc concentrate markets are the tightest in history. 2, PC Silver's lead and zinc concentrates are very desirable products. And finally, metal prices are great right now, especially silver. So this is great timing for the PC Silver project, Honey Badger, and the shareholders.

16:15 So I'd like to thank 6 and the viewers today, and I believe it's a great time to take some questions. Awesome, appreciate it, Howard. I do actually have some questions for you myself, but there are some great questions in the chat. I know Chad's having connection issues, so If he is able to join us, there are some questions that I can address to him, but I certainly have a bunch for you. One thing that I wanted to know is, in your expert opinion, what do you think are the biggest forces shaping demand and pricing for base metals heading into 2027?

16:46 For base metals in general? I think the whole realization of critical minerals how you know, we went through a phase where the world wasn't really focused on metals, but that's really hitting home. And there's going to be that continued drive throughout the industry. You could say to a sense that mining's having a renaissance right now. Yeah, I would certainly agree with that. That's the energy you get looking at the news every day. 1 pretty specific question. When a smelter is evaluating a concentrate, what are they actually looking for in terms of grade, impurities, consistency,

17:22 and what separates a concentrate that gets a premium from 1 that gets penalized? Okay. Yeah, that's a fairly complex question, and it's different for each concentrate. We're talking about lead and zinc concentrates here today. Let's talk about lead concentrates. I addressed part of that in the presentation.

17:43 Mines and smelters don't seek to produce more lead, but it's the byproducts that are important. A lot of the lead comes along with the mining of silver. A lead concentrate, I think most smelters would first look at the silver content because that's a large source of profitability. Then you look for byproducts. Metals such as copper and zinc are byproducts in lead concentrates.

18:09 Lead concentrates don't have a large number of impurities that are problematic right in the relative portions that they appear. Zinc concentrates it's a little bit more complex situation. In a zinc concentrate you would typically look for you know a reasonable zinc grade but I think the first thing that most people look at is iron and you know I talked about the residue issue so that's very important. Then you look at for look for the elements that are problematic for a smelting process. You know, and Copper is 1,

18:39 Marsnik is another one. So that's generally how it goes. It's in concentrates, there's a give and a take. There's good and there's bad. Sure. I appreciate that. One question, with Silver and other precious metals trading so strongly as they have been certainly for the last year, how much are by-product credits changing the way concentrates get valued and negotiated at the smelter level? Yeah, that's a great question.

19:04 And it certainly is playing into the market today. In the earlier slide, I presented the TC history chart for zinc and zinc TCs are negative for the first time. So I said, like in theory, you're saying that the smelter is paying you for more than the metal value contained in your concentrate. Yeah, that's not quite true, right? The smelter is making profitability in one of the ways is silver. So in a zinc concentrate,

19:30 the first 3 ounces of silver, so that's 90 grams per ton, are not paid for. So that's all to the benefit of the smelter. So if you go back several years ago, that wasn't worth a lot of money, but if you do the calculation today, that value has gone up 3 or fourfold. So elements like that have facilitated these low treatment charges. So it's great for everybody because the miner is getting low treatment charges and the smelter is getting byproduct revenue.

19:56 Great. One question, this is kind of a strategic question, But for a developer that isn't producing it, at what stage do you think they should start thinking seriously about offtake?

20:07 And what are any common mistakes companies make in structuring those agreements? Yeah, another great question. You know, I don't think you can start looking too soon. Sure. Because you could say, you know, say half of the projects in the world, I'm just throwing out numbers here, say half the projects end up producing a concentrate that's relatively marketable. But if you have the project that's got something that's particularly problematic or something that's particularly great, the sooner you find out about that, the better. And that will start to shape and you know, this is one of the challenges

20:41 that starts to shape what you might start asking for in your early drilling work. Right, Instead of having to go back in at a later time and re-assay samples or heaven forbid, re-drill samples. I like that. Sooner the better is probably a good answer. So I appreciate that. I got a double barrel question for you here. Where do you see PC Silver's Zinc and Lead concentrates fitting within today's market? And who are kind of the natural buyers for that kind of material right now? Okay. Yeah. Another great question. You know, obviously both the markets are very supportive, right? So there's not a lot of

21:15 concern. Are you going to have markets for these products? I think logically, as I indicated in the presentation, by far China is the largest

21:24 lead smelting market in the world. So that's probably a logical home for the PC silver lead concentrates. On the other hand, the traditional markets for the zinc concentrate will be North America and Europe. Yeah, great. I got 1 pretty specific question. I know historically there's been some discussion around elevated mercury levels in the BC Silver Mines Zinc concentrate. From your professional perspective, is that something investors

21:49 should be concerned about? And how does the Mercury content impact the marketability and potential treatment options for the Zinc concentrate?

21:57 Yeah, another great question. So, I alluded to before that there's pluses and minuses about a concentrate so and you know that's the evaluation process the smelter is going to go through. So with the residue example the benefit PC-Silver brings is it produces a lot less residue right and that's a product that has to be disposed of for a byproduct or a waste I guess you could say. The same with mercury. Now first of all most zinc mines contain a material amount of mercury,

22:26 therefore virtually all zinc smelters have a process to remove mercury that's well established and has been used for years. This product that they ultimately produce also has to be disposed of at a cost. If you look at the math for PC Silver in particular,

22:44 I'm going to use some order of magnitude numbers here and try to keep it simple. So PC Silver would potentially produce 100,000 tons of zinc concentrates. In doing that, it would produce 20,000 tons less residue than your typical zinc concentrate. But it would produce 200 tons of a mercury byproduct waste that would have to be disposed of. So the trade-off is you're producing 20,000 tons less residue for 200 tons more Mercury byproduct, both which have to be disposed of. So you're 100 times better off in volume with PC Silver Zinc concentrate. Great. I appreciate that. I got one question on logistics because I know projects in remote northern locations.

23:32 How much do logistics and transportation factor into the marketability and the net back a producer actually realizes? Yeah, I think it does. The benefit about logistics is you can usually lock in your ocean freight rates for multiple years, your land freight rates for a year. So that's predictable cost. You try to, you know, minimize and generally what that's going to do is dictate which markets you're going to go to. Yeah, great. Last question that I've got before I get into some of the ones from the chat. And this actually relates to a question that was in the chat. So we'll connect well. The company is starting to explore critical minerals like germanium and its mineralization. Does a byproduct like that add real marketing value or does it introduce kind of complexity at the smelter level? Well today I think that's easy. If you look at what's happening in North America with Germanium, it adds value for sure. I mean, Germanium has always been something in Zinc concentrates.

24:32 It's not a new concept. What is, is the demand. Sure. Yeah, that's a question from the chat actually. Writer Peter Epstein, thanks for joining us. He wants to know if you have any insight into the latest pricing of Germanium outside of China. Even a rough idea. That's one of those tough questions. Any rough idea would be helpful. Yeah. The problem with Germanium is there aren't a lot of players in it and therefore it's very opaque. I think all the entities like that. It really helps you control the industry. What I have heard is that the realized Germanium prices are much higher than what you are able to gleam off of the web. Yeah, fair enough. I think that's the case for a lot of those critical minerals, actually. As soon as you see a price online And the actual price when you talk to a producer is quite different.

25:19 One question, and again, folks in the chat, some of the questions that are clearly for Chad, I'm going to pass on to him once this event is done so that he can tackle those. I'll just go the ones that I'm pretty sure are directed towards Howard. One person wants to know how many smelters might be interested in PC Silvermine concentrates. Is it a small handful? 10, 20? I just want a sense of what numbers you're looking at there. Yeah. Sorry. And which concentrate are we talking about? Did they specify? No, just concentrate from PC Silvermine. Yeah. Well, in concentrates, it's, you know, it's going to be 50 plus. Zinc concentrate, it's largely going to be the North American and European smelters. Here's some rough numbers. Those smelting areas in aggregate produce about 2.5 million tons of refined zinc.

26:13 So PC Silver at 100,000 tons is 50,000 tons of refined zinc. So that's less than 2% of the market of their capacity. Great. I appreciate that. One person in the chat wants to know if the Japanese trading houses Mitsui, Tsumitomo, Mitsubishi, etc. Are they interested in concentrates? Are they part of the buying bull right now? We've had conversations with them. They typically have interest in concentrates and for various reasons. PC Silver zinc concentrates aren't particularly attractive to actually go to Japan. And one of the reasons is the mercury. Yeah, I appreciate that. Nick from the chat asks, do you think that zinc and lead benefit from the electro tech future of the world? So I think he means, you know, data centers, etc.

27:08 Yeah, that's probably getting a little bit out of my area of expertise. But in general, I think anytime you have technology revolutions like this that are infrastructure intensive, it benefits zinc and lead. Great. Magnum roofing right at the beginning of today's event, wanted to know if the PC mine can produce sulfuric acid? In simple terms, well, Okay, in simple terms it could, in practical terms it won't. Okay, great. Nice concise answer, appreciate it. So for folks in the chat, the other questions about production merits, equipment, the road, et cetera, I'm gonna leave those for chat, so I'll be sending those through afterwards. But I do wanna thank everybody for joining us for a really interesting topic I think today. And Howard, thanks for sharing your expertise with us. Really, really appreciate it. And if people do have additional questions for either Howard or Chad, you'll be able to submit them after the event ends. This is also your last opportunity to press that request meeting button at the bottom of the screen. I'll get you connected with the Honey Badger Silver team as soon as this concludes. But Howard, thank you