Pinnacle Silver and Gold - Review of Recent Results

0:04 Hello everyone and thank you for joining us today for this live Pinnacle event. Today we're joined by Robert Archer as he provides further context to this week's news regarding underground channel sampling. As this event is a live event, we do encourage you to submit your questions in the chat box, which can be found in the bottom right corner of your screen. Also, please note that this event is being recorded and will be made available for view in post-event.

0:25 With that all said, Robert, there are some exceptional grades you just announced, 85.1g per tonne Gold and 520g per tonne silver. What's your take on these results and what does it mean for Pinnacle? Yeah, hi Kyle. Yeah, no, these really were exceptional results. I mean, they just came in on Friday and, you know, we had released some high-grade results back in early June from the underground sampling at the central one of the 3 mines, historic mines, that we've been exploring on the Alpachurro property in Durango, Mexico. And so this is an ongoing program. And knowing that there was a high-grade pocket there, we're continuing to do some follow-up.

1:15 And between the different levels of the mine, there is what's called a raise, which is kind of like an inclined tunnel, if you like, or an inclined shaft that connects one level to the one above or below. And that was open, but initially we didn't have access to it because we needed to get some metal ladders made and anchor those to the walls to make it safe for the guys to get in there and sample the rocks. So we had done that. And so these were the results from that work as they got access to what's called a sub-level in between the 2 primary levels. And in doing that, they had access to the insides or the guts of the high-grade part of the mineralizing system.

2:06 And so, you know, they took their samples along the walls and the ceilings of the workings, the mine workings, and, you know, these are the results that they got. They were just staggering numbers. I was blown away when I saw them myself. I just say the highest was 85.1g Gold. That's almost 3oz per tonne. 520g silver as well, which is also pretty significant. But one of the key things about that is, it wasn't just a one-off, it wasn't just 1 sample. That one, it was part of a series of channel samples that together end to end made up 1.7 meters across what we call the face, which is the end of the little crosscut, the end of the little tunnel.

2:59 And the 3 samples making up that composite channel, assay 85.1, 30.5 and 41.1 grams gold. I mean, these are just exceptional numbers. And so the 3 of those together average 50.3 grams gold and 269 grams silver across that 1.7 meters. And because they're on the face, we don't know what's behind it. You know, it's like, you know, if you took a little chip sample off the wall behind you in your house or something, you don't know what's behind that wall. You know, you were gonna have to drill through it or do some mind development or whatever, but it certainly bodes well for the future exploration and development to be able to expand that zone.

3:49 So with these results, it's really given us a much better understanding of the continuity of mineralization, of the grade of the overall mineralization. And this will become extremely important when it comes time to mine planning to determine you know what we're going to mine and when and this sort of thing you know one of the key things that we don't know yet is really the shape of the mineralized zone, the limits of it. And because right now, all we have access to are the existing tunnels, the existing mine workings, and we don't know what lies beyond that. So when only one contact of the vein is exposed

4:38 and what we can see is mineralized, we don't know yet even where the other side of it is. We don't know how wide the vein is or how wide the mineralization is. And so in order to establish that, we're thinking of going towards an underground drilling program. So that's probably going to be the next step in exploring that particular area. But in the meantime, the guys have moved over to the Dos de Mayo system or a vein, sorry, the Dos de Mayo mine on that same vein system.

5:17 And they're doing the same sort of thing over there. So, you know, we'll see what sort of results we get out of that one. And then they can move on to the third one, which is called Ladura. And then there are others to be explored as well. So this is really just the first one. We've been on this project for less than 5 months. And so this is a very, very significant development for us. Yeah, good way to start off. Now you mentioned epithermal systems, pinch and swell. How confident are you that these spot grades represent sustainable mining widths rather than isolated high-grade pockets or pods? Well, I mean, in a sense it's both. You know, in these types of systems, well, in any vein system is structurally controlled. And in these epithermal systems, as in many others, the structures do pinch and swell. So they get wider, they get narrower, and that happens in 3 dimensions. So It happens along strike, it happens up and down dip. So what that does effectively is create these wider zones, these pockets as you call them of mineralization.

6:28 And the grade can be variable obviously with any system, But seeing these types of grades that we're seeing now is certainly very encouraging. It doesn't guarantee that they're all gonna be like that

6:39 of course, but the fact that we are seeing these high grades tells me, as a geologist, working in vein systems for more than 40 years, that there's a lot of intensity to this mineralizing system. There was once a lot of gold and silver in the fluids. And so I feel pretty confident that this isn't just a one-off. So regardless of what size this particular pocket ends up being, and as I mentioned, we don't yet know the dimensions of it, there are bound to be others. And the fact that there's another mine on either side of this one that was exploited by previous artisanal miners, small-scale miners.

7:30 And there are other veins and small workings on the property that nobody really knows how they connect to 1 another. So we're trying to put this all together a little bit like a jigsaw puzzle in some respects. So we're starting to form a really good picture of this central mine initially, and then we can use that to expand and look for other similar pockets and then eventually join them all together. So

7:57 that's a little bit, you know, 1 analogy that I sometimes use for people is if you think of the shape of an egg carton. You know, if you obviously take all the eggs out of it, just look at the carton, it has these bumps and hollows and that's sort of shape. And that's, you know, if you turn that on edge, that's a little bit what these vein systems look like. You know, it comes and goes and pinches and swells and thickens and things and and that sort of thing and so you know when you get that you need to know how far apart the pockets are how large they are you know because in these systems they can often be maybe only 50 meters or maybe even less along strike. So, you know, if you try to drill it off with a 100-meter drill spacing, then there's a very good chance that you could miss them. So it's really important to understand what you're looking at as you plan the next stage of the program.

8:55 Now, this question I prepared might be pretty similar to the one I just asked, but when you move from channel sampling to bulk mining, grade reconciliation is critical. What gives you confidence these channel samples will translate to mineable reserves? Well, the channel sampling is very representative of, you know, of what we would see. And it's really the same sort of thing that a mine geologist would do on a daily basis when you're mining.

9:27 Because that's how they define what's ore and what's waste when you're underground. And the geologist will have a can of spray paint and he'll mark the contact. He'll sample the whole thing. You get the assays within 24 hours, when you're typically working in an operating mine. And then he goes back down and say, okay, you know, this is ore grade, you know, this is not, it's not economic. So, you know, he'll spray a line and so then, you know, the drillers, whether it's, you know, a small drill or a big jumbo drill or whatever it might be, will come along and they'll drill that off and then blast it out and that's what you mine. So that sampling is critical on a daily basis for an operating mine. So what we're doing now is effectively the same thing, but much, much earlier in the program.

10:24 And because we have access to the insides of the mineralized zone like that, we're taking these samples, 1 right next to each other and in different dimensions. And so it's giving us far more information than we would even get from a drill program if we didn't have access to the underground. So ultimately we'll put all that together in a 3 dimensional model and, you know, develop a resource from there. Although, you know, I'm not sure yet if we would do that, you know, to 43-101 standards, although we've done to standards, but maybe not made public. We might keep it internally and

11:09 just move ahead with the project given its size. Just a reminder for audience members that are just trickling in, do feel free to ask any questions you have in the chat. But Bob, you noted difficulty drilling through underground workings from surface. What's your backup plan if underground drilling proves technically challenging or cost prohibitive? Well, if anything, the underground drilling should be easier and faster. You know, if you use a smaller drill for starters, the holes would be shorter in length because you're really just, because you're inside or just at the edges of the vein systems. So really all you wanna do is drill through the vein to the other side, maybe a little bit farther to make sure you're through it and that's it.

12:00 So the holes would be relatively short. Whereas

12:02 when you're drilling from surface, you have to drill down to reach the zone first and then drill through it and out the other side. So your holes are gonna be longer. You have to go through overburden, which can sometimes be challenging. You have to deal with topography, which in this area, in the Sierra Madre can sometimes be a bit of a challenge. You know, you have to build roads and drill pads and all that kind of stuff. And that would, you know, that'll require permitting as well. So, so it's, it would take longer. And, you know, you mentioned drilling through the underground workings, you know, you can appreciate that when the drill is going down, if you're going through solid rock, that's all fine. And you're getting core samples back as you go. But as soon as you hit an underground working, you're basically, the drill bit's going off into space.

12:54 You know, there's a void there and so you're not getting any core and the water that you use for drilling that's being pumped down to the drill bit is just spraying off into the underground workings. And then, you know, because of the rate that the drill rods spin at, they can sometimes whip and torque a little bit. So by the time you get, depending on the size of the opening, by the time you get to the other side, that drill bit can be whipping around and make it difficult to anchor on the other side. So it can be difficult drilling through openings and it's not uncommon to have to abandon a hole because you just can't get through it. So in that case, you've almost wasted the hole. So if anything, it becomes more cost prohibitive trying to drill that sort of environment from surface. Whereas when you're underground, you have much more control and smaller rigs, shorter holes, typically cheaper and faster.

14:03 Thank you. You mentioned relatively low cost rehabilitation for the 100 ton plant. Can you quantify this? What's your current estimate for getting into production?

14:16 Yeah, we're still working on costing that out and doing a little bit of a kind of a sensitivity analysis in terms of sizing of equipment. Do we wanna stick with 100 tons per day? Do we wanna go a little bit more, a little bit less, what size of ball mill are we gonna need, crushers and all that kind of thing. So sizing the equipment will be important and sourcing it too, obviously, getting quotes from different suppliers. And depending on the size of the plant that we settled on, that will determine the power requirements because there's a power line that's about 3 kilometers away as the crow flies. And we'll have to talk to the Federal Electrical Commission about extending that line through to the plant.

15:04 But one of the key things will be, you know, it's one thing to extend the line, but you know, is there sufficient power on that line to, you know, to satisfy our needs. So we may have to upgrade the closest substation in order to do that. So we'll have to work with the electrical commission to determine how that would come about and what it might cost. But overall, in terms of costing, right now we're working with a very high level estimate of maybe somewhere around 2 to 3 million, including the actual installation costs and the power and so on.

15:45 And we think that we can probably get that through some kind of a production financing from one of the metal traders through an off-take agreement, an advance on an off-take or something like that. So if we're able to do that, then it's non-dilutive financing and it would allow us to, it's not a lot of money and the traders have funds available typically for that size of a program. I'm pretty confident that we can do that and that way we don't have to dilute shareholders with an equity financing, you know, to get into production. Regarding extending the line versus the substation, is there a substantial difference between those 2 if extending the line is not viable?

16:32 Well, we would have to extend the line anyways in order to get the power to the plant. So that part of it is pretty much a given. It's just a question of whether or not there is sufficient power in that line now because it goes to the village where you know where our guys are staying that's about 3 kilometers away and but it's you know it's a very small community and so they don't you know require a huge amount of power So I'm not sure at this point what the power is flowing through that line and would be sufficient for the plant if we were just to extend it. So I mean we'll have to extend it anyways but it's a question of whether or not we'll have to upgrade the substation.

17:23 You have 50% earn in upon production, scaling to 100% with a 2% NSR is unique. Could you walk us through the cash flow mathematics and what production rate and metal prices does this structure become attractive versus traditional equity financing? Yeah, so there are a couple of key items or key things that we thought of when we were negotiating this deal. One is that a standard option agreement might be a 3 to 5 year earn in where you're making payments each year and then after a final blowout payment, that's when you get 100%, but you've got nothing up until that point. And whereas, because this isn't just a straight exploration program, and we wanted to fast track this into production, we said to the vendor, look, we're not going to spend millions of dollars to rebuild your plant, you know, and put it into production when you're the one making all the profits. You know, I mean, we have to be getting something back out of that.

18:31 And, you know, so we looked at the numbers. And just based on, you know, his records, which were pretty limited, but nonetheless, The plant was in operation around 1989, 90 and has sat idle for 35 years. But we were told the grade was about 10 grams per tonne gold equivalent and running at 100 tonnes per day, that's equivalent to about 12,000 ounces gold equivalent per year. And so, even using today's prices, whether you're using $3,000 or 3,300, 3,400, whatever, if we can keep our costs at a reasonable level, then we thought, okay, so maybe we're going to make a profit of about $1,000 an ounce.

19:26 These are just sort of back of the envelope type numbers we were using when we were negotiating. That being the case, this little operation is gonna spend off about $12 million a year. And if we initially split it 50-50, then our initial share of that in the first year would be about $6 million, which would effectively recoup everything that we had invested in the project to that point. And then going forward, our share of profits covered not only any future payments to the vendor, but it would also cover a cost to, you know, to continue working on the project, to expand any resource and look for other acquisitions as well.

20:18 Because remember that the whole key here is that we're building a company. This isn't just, we're not just focused on this one small operation. And this isn't the ultimate goal. This is just a step, it's a means to an end. And by getting into production quickly like that, then we can hopefully reduce our reliance on the markets and reduce any future dilution for shareholders and therefore create a lot more shareholder value. So, and it's just, you know, after we start production, it's 1 year later, we can go from 50 to 70%. And then a year after that, we can go to 90. And once we're at 90, the vendor has an Opportunity to convert the last 10% to a 2% NSR, which I think you'll probably do so effectively You know 2 years after starting production will be at a hundred percent subject to that 2% NSR So it's you know, I think it's a nice structure and it allows us to, you know, to grow the project and the company largely out of cash flow with existing metal prices.

21:27 And Bob, maybe it's worth reminding the audience, You touched on the past, but what's a realistic timeline to first pour? At this point, a lot will depend on permitting. That's really the one thing that's not completely in our control. We can do all the cost analysis, all the work, all the drilling, mine development, plant construction, all that sort of stuff is completely under our control. We will do everything we can to provide the authorities with the information they need and developing good relationships with them and so on. But ultimately that's the one thing that we can't control.

22:15 But it is an underground mine, as there's been a lot of talk about open pits and the government doesn't like those and so on. So, you know, we're not dealing with open pit. It is a producer, so it's a disturbed site already. And so we're working with existing roads, existing infrastructure, you know, the plant is there, the foundation, there's an area for a camp, for offices, you know, all that sort of stuff, even for tailings, and then, you know, roads to the mines and so on. So I think it will be much easier and faster to permit than some other type of operation. And so from that standpoint, I'm sort of cautiously thinking 2 to 3 years.

23:03 So perhaps if things go well, the second half of 2027, we could be looking at starting up at that point in time. As we wrap up here, why don't you go ahead and in chronological order, what are catalysts that potential and current shareholders should be looking out for? Well, we're just wrapping up the financing right now that we had announced a few weeks back. And once that's closed, potentially next week, then we'll be continuing, obviously, with the work that we're doing that I was talking about this, you know, mapping and sampling surface and underground and all of that. But we'll also be flying a LIDAR survey.

23:49 And that will be key in terms of being able to identify and follow the structures that control the veining on the property. And LIDAR can often be really useful in terms of identifying old underground workings and that sort of thing as well. So, looking forward to that. And depending on what happens with the underground mining, we're in discussions with the environmental authorities right now and hoping to get an exemption from permitting because once you're underground, there's really no impact on the environment at all. So if we can get approval from them to proceed with an underground program, then we could potentially, depending on when that approval comes, we could potentially be drilling by September, maybe October underground.

24:46 And then, you know, following a similar path, getting permitting for surface drilling and so on. So that would come a little bit later. And then proceeding with permitting for the entire site and then ultimately plant construction and so on. So, you know, and all the while we'll have continuing assays coming out from the underground sampling and surface and so on. So there should be good, you know, a good steady news flow for some months to come. ♪