Sierra Metals (TSX: SMT) – Good Fundamentals, Main Shareholder Restricting Stock (Transcript)

Interview with Igor Gonzales, President and CEO of Sierra Metals (TSX:SMT).

The fundamentals of Sierra Metals are good and the company is effective, safe and robust. However their share price has been negatively affected by a significant shareholder, Arias Resources Capital, needing to off-load up to 30% of the shares. Arias controls 52% of the shares so liquidity was an issue previously. The market knows this and despite successful operations on the ground, the price is being held back. We try to find out how the company is resolving this issue. Let us know what you think about their response to this in the comments below.

Sierra Metals is a South America brownfield and greenfield focussed Silver, Copper, Lead and Zinc miner. $290M, NPV c. $500M. They have paid back a $34M of debt and $15M revolving credit back by restructuring their debt, currently at $59M. Revenues are $52M with $13M of operating cashflow, to fund their capital requirements and operating costs. 2019 is a year of heavily capital costs as they will be investing $83M.

Sierra Metals is one for new investors. Existing long-term shareholders should also feel that the share price will eventually be resolved with Arias. Short-term holders and traders may be be less satisfied, but they always are. We view this as an opportunity to get in cheap.

There is a new 43-101 due by end of the year and another in Q2/20. Lots of infill drilling. Brownfield and greenfield exploration is the foundation for their strategy going forward. A good track record of delivering improvements in operations and they are generating cash. Operating in two countries with good mining codes and taxes with a good infrastructure and in the right mining jurisdiction. There is a lot to like on the mining side.

Interview Highlights:

  • Overview of the Company
  • Projects in Peru & Mexico
  • Company Financials: Arias Resource Capital, a 52% Shareholder – How Quickly Do They Intend to Sell and Are There Any Regrets?
  • Why Invest in Sierra Metals? What’s in it For Investors?
  • Strategy & Risk Mitigation

Click here to watch the interview.

Matthew Gordon: We spoke back in May when you told us your story. We want to catch up and see how things are going. So, why don’t you kick off for people who’ve not heard this before with a one-minute summary and then we’ll get into some questions.

Igor Gonzales: Sierra Metals is a poly-metallic producer that operates in two jurisdictions, Mexico and Peru. We have two operations in Mexico, the Bolivar mine, which is a copper and gold Silver play, and the Cusi mine, which is a Silver play. It’s our smallest mine. And then in Peru, we have the Yauricocha mine, which produces all fine metals. We are now in a process of expanding our company.

Matthew Gordon: Tell us what’s going on in Peru?

Igor Gonzales: In Peru, given the fact that we have an older mine that has been operating for 70 years, we need to keep on top of the infrastructure upgrades. And therefore, we have five ongoing projects now in Yauricocha. The main project is the shaft upgrade, the Yauricocha shaft. This is a brand-new shaft that we’re building from scratch and we’re in the third year of construction and we have 1.5 years to go. However, we’re going to be implementing portions of the project as they become available. Then, we just completed the Yauricocha tunnel, which connects all the entire mine facilities with the processing facility, that’s now up and running and operating. Then we have all the ventilation upgrades that we’re doing, and that work is continuing as we speak. We also have the tailings dam, phase five upgrade. We obtained the permits and now we’re in full construction mode, which should finish the main dam for phase five sometime in September of this year. And then we also have a new mess hall and camp refurbishing project which is ongoing and will finish in the second quarter of next year.

Matthew Gordon: What’s happening in Mexico?

Igor Gonzales: We completed two expansion projects. One in the Bolivar mine, which initially was conceptualized to go from 3,000tpd to 3,600tpd. We then added some additional capital spend and now we have completed all the construction of that expansion and we are in the final phases of the ramp up, both the mine and the plant. And I’m happy to report that as of Q2 we have on average 3,700tpd per day, which is above the initial target and we continue to ramp up those 4,000t in Q3. We would like to take that ramp up to 4,250tpd in in the Q4 of this year. So that ramp up is going well. We achieved the intended initial capacity and then we continue to ramp as we go. Then on our next mine, the Cusi mine in Chihuahua. We increased its capacity from 600tpd to 1,200tpd. 100% increase in capacity. We have completed most of the construction. We still have a few things that we’re finishing up. But we’ve had struggled with the ramp up both at the mine and at the plant. However, we will continue to increase the throughput. We’re now approaching 1,000tpd so we’re getting closer to the 1,200tpd and we’re trying to get to 1,200tpd by the end of Q3 of this year so those are our two expansion programs.

Matthew Gordon: Let’s talk about your finances? When we talked previously you were talking about investing $83MIL into the company. You’ve got a market cap of $290M, NPV $500M. Those are good numbers, but you’ve got some debt as well, and you’re self-funding on the capital expansion program. So, can you run through some numbers for us, please?

Igor Gonzales: I will talk about the debt. We had a loan from a Banco Acredito Peru this year at the end of Q1 for $100M and that allowed us to pay a remaining $30M-$34M in the purchase that we did in Yauricocha, which was another loan that we had outstanding. And we also pay a revolving credit of $50M and we will have $30M of funds for additional expansions or we would like to give it. We have reconfigured our debt profile. Right now, our net debt is about $59M. Now, going to our performance for the Q2. We had revenue of about $52M and about $13M in operating cash flow, that allows us to still fund our capital requirements and all our operating costs. This is a year of heavy capital investment for us. We initially budgeted for $83M. We had a strike Yauricocha that forced us to defer some of the capital into 2020. However, we remain with the same projects. Also, we completed the capital spend in Bolívar and we are completing the capital spending in Cusi. So, it’s going to be a very fruitful year for us once we are done with all the capital investment.

Matthew Gordon: I feel that you know what you’re doing, your team knows what they’re doing. It’s a very well-run, safe and to use a word that you’ve used in your presentation, it’s a very ‘robust’ operation. But I’m not excited by it, and I want to know what am I missing. Because you’re producing cash flow. You’ve got revenue. You’re in production. All the right parts are there. What am I not seeing?

Igor Gonzales: I think we’re not also happy with the current share price, which think we’re undervalued.

Matthew Gordon: Why?

Igor Gonzales: We think that we don’t have enough float in the market, in our share. We have a main shareholder which holds 53%, Arias Resource Fund; he holds in two funds. He’s trying to resolve Fund 1, which he’s committed to do and I think that’s part of the equation here. And so, when this Fund 1 issue gets resolved. I think that the float is going to normal levels and then that’s going to help our share price.

Matthew Gordon: How much does Fund 1 own?

Igor Gonzales: Fund 1 owns roughly 30% and Fund 2 about 23%.

Matthew Gordon: So that’s a lot of shares to come into the marketplace, which is great for potential liquidity, but it’s also a problem for the Fund. How quickly does he need to sell these into the market?

Igor Gonzales: I don’t have that information because we don’t we don’t manage the Fund and Arias Resource Capital has that all that information.

Matthew Gordon: So, they are not are not obliged to tell you how they’re going to manage that into the marketplace?

Igor Gonzales: I know they’re doing some movements to try to resolve that. And they have invited third parties to review our operations and see if they can commit to packages. But that’s as far as I can I can tell.

Matthew Gordon: Because that’s going to be holding the stock back, because people know that’s coming.

Igor Gonzales: They’ve been inviting the parties to look at our operations. We’ve entertained their visits and so forth, so I think it’s a moving process.

Matthew Gordon: It’s a moving process, which is affecting your ability to create shareholder value today. All you can focus on is delivering on the mining side, the production, the announcements.

Igor Gonzales: Exactly. That for us is extremely important not to lose focus of what we are here to do, which is our long-term strategy. We need to continue to add value to our units and to create value for our shareholders, independent of who holds our shares. I think that focus needs to remain and we are doing that, we’re delivering on the expansions. We will do another expansion in Peru. We’re now doing all the permitting work. And so, we continue to drive our strategy forward to grow the company.

Matthew Gorodon: It must be like trying to do your job with one hand tied behind your back, because you’ve got a significant shareholder restricting your ability to create value for shareholders in the marketplace. So, you are having to focus on mining, which is which is good is what you’re good at. And I fully trust that you get at it from what I see. Do you regret doing that deal with Arias?

Igor Gonzales: No. Arias had the ownership of the shares for quite some time now. I entered the company after all the shares were in place, so I have to focus is on trying to grow the company myself and not be side tracked by the activities of the shareholders.

Matthew Gordon: It’s a kind of salutary lesson in terms of how share structures are set up and ownership structures are set up, because it can restrict a company’s ability to perform as it should. I would argue that on your fundamental numbers, your shares shouldn’t have done what they’ve done in the last year. They should be heading the opposite direction. So, what’s your message to shareholders on this topic?

Igor Gonzales: I think our main message to shareholders is we’re staying the course. We’re creating value. We’re showing the numbers, we’re reducing our costs, we’re increasing our production throughput and recoveries. And so, we have all the main elements that create value in a company and they are in place. So, we will continue to do that and remain focused on that aspect of this.

Matthew Gordon: What I’m about to say, I don’t think is of any comfort to your existing shareholders, but for new shareholders coming in, this is a very interesting proposition. And I don’t expect you to comment on that, you’ll get yourself into trouble.

Igor Gonzales: Once the metal prices recover, the potential for our shares to improve are quite significant.

Matthew Gordon: So, it’s a question of time? When Arias sorts out Fund 1 or one of their two funds, and gets these block sales away, then your arm will no longer be tied behind your back. You feel that the market should recognise what you have been doing, is that what you’re saying?

Igor Gonzales: Ibelieve so. I believe that once we have the right float then the market will start recognizing the value for Sierra as they should.

Matthew Gordon: Do you mind if we just talk about strategy? What’s your thinking in terms of building this business? I know you could say you’re mitigating jurisdictional risk because you’re in two countries. You’re underground mining. That’s what you know, that’s what you’re good at. And you’re obviously in production, which is all good. But what is it that you’ve set out to build? And what will this company look like in 12-24 months’ time?

Igor Gonzales: A fundamental element of our strategy is exploration, brownfield exploration for one. And then the second phase is greenfield exploration. We have been putting important Resources in both areas. We’ve been growing the Resource of all our three mines steadily over the last three years and we continue to do so. As a matter of fact, we will have two new 43-101’s for Bolivar and Yauricocha by year end in 2019. And another 43-101 in the second quarter of 2024 at the Cusi Mine. We continue to do brownfield infill drilling also, in all three mines, but in Bolivar and Yauricocha, besides the brownfield, we’re also doing some greenfield exploration close by the operation. In Yauricocha, we have high value targets for this year. We’re already drilling with two platforms and in Bolivar we’re also doing some near mine exploration, but these are brand new targets and we continue to expand our Resource. So, I think that’s one of the key elements for our growth is to find additional Resources, then turn those Resources into a reportable Resource, via 43-101’s and then conduct the expansions that we require accordingly. So, exploration for us is the fundamental foundation of our strategy.

Matthew Gordon: So those are things that you’re going to do. Build up the Resource and reportable Resource, but to what end? What’s the strategy? Not what’s the deliverables? You are going to drill holes to build a company of a Resource of what size and for what purpose? Are you going to mine it yourself?  Are you going to sell it? What’s the game here? What do investors need to know?

Igor Gonzales: Well, it will be hard for me to tell right now what we are going to find via the exploration. However, we’re open in doing joint ventures or bringing new partners if our exploration results deliver significant results. So, I think we keep ourselves so open. We keep analysing other properties, other projects that come by and we were open to growing the company also via that avenue which is associated with other enterprises.

Matthew Gordon: But you can’t say to what end? If someone said “What is Sierra Metals? What are they trying to be?” What what’s your answer?

Igor Gonzales: We would like to be a second quartile producer in terms of volume of production. And right now we’re in the third quartile and our target would be to be in the top of the second quartile and the top of the second quartile of production with all the other Silver producers.

Matthew Gordon: I think the fundamentals of your company are good, but I’m struggling to understand why I should be investing in your business. You talk about track record, robust performances, strong capitalization, low net leverage, robust liquidity. What do all these things mean? Why should I invest in your company and not the 50 other South American businesses doing the same thing?

Igor Gonzales: I think what we’ve got is a business that is generating cash. We’re operating in two countries that are very supportive to mining. We have all the Resources available to do our jobs in terms of contractors, people, services and legislation and tax stability. We also would like to point out that the potential of our properties is very significant given their location within the countries where we operate. In the case of the Yauricocha mine, it’s located in a major fault system where North and South you have very large deposits and so the likelihood of finding significant additional Resources is important. Likewise, in Mexico, in the Bolivar mine, we’re in a location where it’s a mining jurisdiction with a huge potential for growth. So that’s another part that is very appealing to our story. We’re not just in one mine and trying to develop one mine, and that’s it. I think we can grow these mines into something much bigger. We don’t have the results yet, but they all the geological information that we have to date indicates that we are in a very fertile zone. Our track record, if you analyse Sierra at 5 years ago and Sierra today, we increased our throughput and our production, our cash flow generation tremendously. 5 years ago, we were probably in Yauricocha around 2,000tpd. In Mexico, at 800tpd and today we’re at 4,000tpd. So, we’ve improved our capacity to generate cash via production in a significant way. So that’s our track record of creating value for our investors via the improvement. In the meantime, we also have generated the cash flow. We’ve been trying to manage our debt. We have a solid financial position. We have $40M cash as we speak. We have a $59M in debt. And as soon as we finish our expansion projects, our ability to generate cash is going to be even greater than what it is today. But the most important element of our business is the people. We have been able to attract talented and experienced people into our team. And we operate with three mines and the mines have their individual staff. But we also have a senior team at the corporate office that provides technical support to our operations in projects, in managing, in planning, and very soon in maintenance and asset management. So, with that oversight and support to our operations, we bring the experience at the head office that can be utilised in the different operations without interfering with their work, but reviewing their plans, improving our plans. I think that part of the business has been reinforced in such a way that we brought in very talented individuals in to our company.

Matthew Gordon: I buy a lot of that. These are good mining jurisdictions. We’ll see what the drilling reveals. Having $40M in the bank is fantastic. Having free cash flow is fantastic. But you’re still paralysed in a way, in that shareholders make money when your shares increase. Don’t you think that you need to get involved in a conversation with Arias Resources Capital. Rather than them just sending people through to diligence your mine. Shouldn’t you understand what is the process by which you are going to release this pressure on us, because it is pressure on your share price. At what point do you get involved and say we need to be part of the solution?

Igor Gonzales: We review this situation with the board on a regular basis, and we have a share buyback program, for one. We had an ATM in place or another. Arias Resource Capital is moving is trying to deliver on Fund 1 and they are trying to resolve that issue. And we’re all aware of that. In the meantime, we have to stay focused on what we’re doing. But we don’t have control of what Arias Resource Fund does with the shares.

Matthew Gordon: I appreciate you don’t run their fund, but I’m saying that they should, as a matter of courtesy and expediency, work with you to agree and resolve the way forward if they are to exit quickly.

Igor Gonzales: And we’re are co-operating, they’re bringing parties for review, etc. and we are cooperating with that. We have an active data room where they can go and see our company and they can analyse the potentiality of our business.

Matthew Gordon: I think that you’ve got a great company. I think you’ve got a great team. I really like the way you talk about your business. But I think there’s this pressure with Arias Resources Capital which needs to go away. But when it does, I would like to think that your shares will be given the chance to breathe again and maybe start moving in the right direction. Igor, thank you very much for your time today and your explanation. You’ve been very honest, as always. So, thank you.

Igor Gonzales: Thank you, Matthew.

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Golden Arrow Resources (TSX-V: GRG) – Leveraging the Price of Silver in Argentina and Chile (Transcript)

We interviewed David Terry, Director of Golden Arrow Resources (TSX-V: GRG), the Gold, Copper, Silver, Lead Producer and Explorer in Argentina and Chile with 4 assets.

David’s top reasons to invest:

  • Experts in exploration in Argentina.
  • This team has found 4 significant deposits over the last twenty five years.
  • Ability to finance the company.
  • Portfolio of 4 projects in Argentina and Chile
  • Have structured partner JV’s.

Click here to watch the interview.

Matthew Gordon: Hello David. How are you?

David Terry: I’m fine. Good morning.

Matthew Gordon: Fantastic, thanks for taking the time to talk to us. I know it’s early there. So David I thought we’d kind of kick off by introducing Golden Arrow to our audience over here in Europe. Perhaps you can start by telling us a little bit about yourself and your relevant experience.

David Terry: Well I’m one of the directors of the company and I’ve been with Golden Arrow since it was formed in 2004. Golden Arrow is an Exploration company has been mainly focused in Argentina over most of its life, although it’s just recently branched out into Chile and acquired two advanced stage projects in Chile. But  we’ve been fairly focused on Argentina for most of the company’s life. I’m a geologist by background, and so I’ve been involved in a lot of the property, review, acquisition, Exploration program, management and that sort of thing.

Matthew Gordon: Great. What were you doing before that? Where it have you worked?

David Terry: I started off my career working for several large mining companies. My first work actually as a student and then went on after university was with the old Consolidated Goldfields, which was a large company back in the day. Worldwide scope and I worked for the North American subsidiary of that. And I will work several other large companies including Kamenco, Hemlow Gold and finally Westmin Resources, more of a medium sized company acquired Boliden, the Swedish mining company, in the late nineties and worked for them for a while too before sort of starting to focus on on smaller companies.

Matthew Gordon: Right. You’ve been around the world, been around the block. And how has in which aspects of that is most relevant to what you’re doing at Golden Arrow Resources.

David Terry: Well it’s all a cumulative thing with when you’re when you’re a geologist focus on exploration. The more projects you work on and the more different areas, the more types of geology and mineralization you see. It all adds to your experience and helps making there hopefully the right decisions, when you’re working on a project.

Matthew Gordon: But you’re an explorer not necessarily a developer or producer?

David Terry: That’s correct. I focus on… I find the metals.

Matthew Gordon: Find the metals, good. Now tell us a little bit more about the team that you’re working with. Obviously you’ve got quite extensive team there. I mean who are the most active and relevant members of the team in terms of where you’re right now?

David Terry: Well Jo Grasso, the CEO and founder of the company, has been an entrepreneur, who’s been focused in Argentina for the whole time he’s been in the mining sector, more than 25 years now. And so he’s the is the founder and leader of the company and certainly one of the largest shareholders. We’ve got Brian McEwen, who’s the Vice President of exploration. Again very experienced mining professional running the exploration and he did a lot of the work on six years which is now part of the operations of bringing that along through all the different exploration and development stages Niko Cacos He’s a vice president with the company he’s been there since the beginning. After a lot of the administration and and business deals and that sort of thing. In the company, we’ve got Alf Hills on the board, who’s very experienced mining engineer. It’s been a big help since we’ve sort of transition from being solely an exploration company to having this production profile. And John Gammon and other very experienced geologist on the board. Lou Salley, a very well known legal Mining lawyer based out of Vancouver here. We’ve got a very well rounded and experienced team, and especially we’ve got an excellent staff in South America, based in Argentina.

Matthew Gordon: Yeah I guess that’s critical. Working in South America. South market generally it’s not easy unless you’ve got a local team with local expense. I mean before you can get into the projects themselves, can tell us a little bit about the Grosso Group as a whole. It’s a relatively new enterprise is it or has been around for a while?

David Terry:  Grosso Group has been around since the early 1990s and so it’s since it’s a management group that has several public companies within its portfolio. And and Golden Arrow is one of them and other one is Bluesky Uranium right now that’s quite active. Bluesky has discovered a Uranium Vanadium deposit also in Argentina.

Matthew Gordon: But tell me about the Grosso Group. They they have other companies in the group say what is their focus? I mean are they are they large enough to be able to focus on four different projects at the same time or is this project their number one focus?

David Terry: They Golden Arrow right now it’s been the flagship company, if you want to put it that way. But the idea with with the Group sort of set up is to share overhead costs between companies. Obviously there is some similarity between the boards and management of some of these these companies, but there’s also differences as well. And so it’s really a much more efficient way to run public exploration company.

Matthew Gordon: Yeah. But I guess with my investor hat on you also need to or you want to see focus. You want to know that the time, money and effort is being spent on the project that you’ve invested on.  It’s just interesting to understand the approach there.

David Terry: Yeah I mean for Gold Arrow. For instance, Brian McEwen, the VP of Exploration, on Golden Arrow is focused entirely on Golden Arrow. Joe Grasso is the CEO of Golden Arrow. He’s not the CEO of any other companies, and he sits on the board of several of the other companies in the Group.

Matthew Gordon: Okay so you’re saying the team on Golden Arrow is focused on the project, but the holding group as it were has a number of teams which work on individual basis.

David Terry: That’s right, yeah.

Matthew Gordon: And again so just on the whole Argentinean, Chile, South American component of this. It has been a difficult place to work. It can be a difficult place to work. So what are the components that you look out for? Your job is risk mitigation so who manages that process in country?

David Terry: Well we’ve got several people that work on that in country and we like… in Argentina for example, we work with the government of the day and obviously some may be easier to work with than others. Argentina itself is regulated into the mining industry provincially like Canada is. So you’re you’re often dealing with provincial governments and then also federal oversight and relationships that have to be built there as well. But that’s an ongoing process and I think we’ve worked very hard at establishing good relationships with all levels of stakeholders and governments in the areas that we work in and we put a lot of effort into that. And I think we’ve been quite successful in terms of working in Argentina. If you’re in the good mining jurisdiction, like good province for mining, then it’s actually a great place to work.

Matthew Gordon: That begs the question are you going to get province?

David Terry: Yeah well Jujuy is the province where put operations is in and I think our record there speaks for itself. We discovered the Chinchillas Silver Lead Zinc deposit in 2012, and started drilling it off and put out 2 Resource estimates, 2 PEA’s on the backs of those Resource estimates and then entered into a JV and then maybe I’m getting ahead of myself here, with us.

Matthew Gordon: Well. Let’s go into that because there’s two components your business.

David Terry: You know we made a decision to construct the mine Chinchillas in March of 2017 and and by the end of 2017, early 2018, we had a permit to construct a large open pit mine. And there’s not many places in the world where you could get a permit in that sort of time. We didn’t have to permit a new tailings facility or processing plant. We’re just building the mine site.

Matthew Gordon: By any standard that’s impressive. But tell us about that relationship with SSR. You’ve got a 25% stake. What does that mean? 25% of what? The equity but what else does that give you?

David Terry: It’s a participating interest, 25%, participating interest in Puna Zinc which is a holding company which owns 100% of the Chinchillas Silver Lead Zinc deposit that came for Gold Arrow that we discovered. And the Pirquitas mine/ mill complex in remaining mineral resources that Pirquitas. So it really combines the assets, formerly held by the two individual companies, into one entity and we own it 25% interest in it and SSR owns 25%.

Matthew Gordon: So what what stage is that?

David Terry: They are the operator. They’re the operator obviously they own 75%. They announced that the project had reached commercial production in December the 1st of 2018. And so we’re in really the first quarter, and approaching the end of the first quarter of commercial production on Chinchillas.

Matthew Gordon: Right. And what what could that mean for your organisation? Obviously commercial production means cash flowing, but in terms of… I don’t know what is the debt situation there? When is there going to be free cash flow? When do you actually get to see the upside?

David Terry: Well all of these are all very questions, and obviously, I can’t answer all of them right now. The situation… we owe… we’ve built up some debt with SSR that helped us fulfil our portion of the capital expenditures. Some of that came from cash that we had on hand and some of that came from earnings out of processing stockpile material, that the operation is doing ever since we formed a joint venture. So the commercial production was started in December. We’re into the first quarter right now of production. We’re trucking upwards of 3,600, 3,700, 3,800 tons per day between Chinchillas and Pirquitas. The forecast for 2019 is 6Moz-7Moz of Silver, in addition to Silver & Lead production, And the forecast cash cost of that production is $8-$10 per oz of Silver. And so in terms of answering your question, is when will we see the cash flow, well we’re going to see what we get what the books look at the end of the first quarter here and then go from there.

Matthew Gordon: I guess the plan like like all things like this he want to build out the Resource and make this a sizeable operation.

David Terry: It is a sizeable operation. I mean producing more than 8Moz  ounces of Silver equivalent on an annual basis, is a significant size Silver mine. It is one of the top producers.

Matthew Gordon: You always want more don’t you?

David Terry: And the Reserve is quite a significant Reserve, of more than 80Moz ounces of Silver equivalent. In addition to the Reserve, there is significant mineral resources which are not currently in the mineral Reserve. Some of those could potentially be added to the Reserve in the future, depending on metal prices or potentially further drilling and that sort of thing. And there’s other options for for expanding things in the future as well. In terms, of there’s already existing mineral Resources, higher grade mineral resources at for Pirquitas.  Underground Resources that the joint ventures evaluating, potentially bringing on stream at some point to supplement or from Pirquitas. We’re ramping, we’ve ramped up to 4,000 tonne of day sort of benchmark from trucking ore from Chinchillas / Pirquitas which is a distance of 45km by road. There’s excess capacity already in the mill. So that can be brought up to 5,000 tonnes a day.

Matthew Gordon: What does all this mean? David what does it what does all this mean for your investors? What’s the plan for it? Are you looking to run it for cash or are you looking to sell it? I mean how do you assure shareholders benefit?

David Terry: Well I mean obviously, if We decide to transact at some point in the future then you know that they’ll benefit from that in terms of having a company with a large amount of capital, whatever that is. But going forward in terms of our participating interest, the mine plan obviously calls for more production of 8Moz ounces of Silver on an annual basis, and depending on what the Silver price is, that could be a significant revenue generator. And if the Silver price performs well and and everything comes in on budget and on plan as it has so far with with Puna s operations then there’ll be some cash flow coming.

Matthew Gordon: And and do SSR have an option to take you out at some point, if certain hurdles are reached? What’s the relationship?

David Terry: Right now it’s just a participating interest. I mean obviously…

Matthew Gordon: There’s nothing built in?

David Terry: There’s no prearranged route for them to do that.

Matthew Gordon: What I’m hearing is you’re going to assess this as you go along and…

David Terry: We’re really just getting going on it.

Matthew Gordon: Right. Needed to deal with that because I needed to understand how that fits in with what I think you’re more excited about I guess is the exploration potential. You wanna tell us a little bit about that.

David Terry: Golden arrow has obviously been an exploration company up until recently, through most of its life exclusively, and we’ve assembled quite a large portfolio of five potential projects in Argentina, over the timeframe we’ve been in existence. And some of those are located next to large projects in some of the prime mineral belts in Argentina. But once we made that transition, with Puna operations and formed the joint venture and they became the operator, we started looking a bit further afield for opportunities to take advantage, I guess of the situation in the mining industry in general right now. With companies having a challenge raising money and access to capital and so forth. And so we acquired two options on two advanced stage projects in Chile that are in the same area North of Copiapó. Both have what would be all historic mineral Resources on them right now and we think that there’s good avenues on both of those to add significant value.

Matthew Gordon: Okay. So I mean I mean tell us a bit about those properties what what are you expecting them to be? Obviously you’ve got a team exploration team there and that’s their expertise. What do you what are you buying into? And what are you hoping to create with them?

David Terry: Well I’ll start off with Indiana. It’s a Gold Copper vein system, north of Copiapó. It’s got a whole array of Gold Copper veins with two primary orientations. It’s between two strands of the Atacama fault and had some work on in the past, some artisanal type mining. And a fair bit of exploration, fairly recent done by the group that we acquired the property from. And they’ve completed drilling, surface sampling, mapping, trenching and so forth. And had a Resource estimate completed on the property it was done 43-101 standards but historical resource. But it totals 600,000 ounces of Gold equivalent. With a little bit more value in that equipment equivalency calculation coming from Gold and Copper but more or less similar values. And that’s just really on one small part of the of the vein system. So we think that there’s potential for expansion of that, and we have to do a bit of work to confirm it. And bring it up to what we would consider to put out a Resource estimate. The property is also permitted for production. It has two ramps, which access the key parts of the vein system underground. And so it has the potential for some relatively near-term production and that this area has a lot of mining infrastructure in Copiapo., And there’s processing plants, and that sort of thing within easy driving distance. So we’re we’re really at the point right now where we’re putting together the information on it, into a 3D model. Of planning out how we would approach the exploration on it, and also evaluating potential for relatively near-term production.

Matthew Gordon: So I mean you’ve got to be really confident in that. You know, I’m looking at the terms here. $100,000 on payment on signing, $15M over the next four years and prior to the payment of the last $7M and MSA he’s got the option of retaining 25% of the project on a pro-rata basis. You’ve got to be fairly confident walking into a project like this to commit to $15M before knowing really what you’ve got. So is that the case? What’s lengthy this this confidence?

David Terry: Well we’ve done quite a bit of due diligence on it. Obviously we’ve got a great technical team down there working on it.  And house here and and you’re right it’s not a expensive property, and so this is a property that will have to be moved forward and in a rapid manner, in order to to justify…

Matthew Gordon: Where’s the where’s the money coming from?

David Terry: Where’s the money coming from? Well we’ve just raise some money.

Matthew Gordon: How much have as you’ve just raised?

David Terry: We’ve just raised the $4.7M.

Matthew Gordon: So just understanding it. So $15M over the next 48 months. How does that break down? Is that a quarterly or on your payment? How long basically does your $4.7M last.

David Terry: We’re just working on our budgets right now. So you know all the different pockets where there has to go. But yeah I mean we will… We’re working on the alternatives to fund this going forward. And they are annual payments.

Matthew Gordon: And their annual payments. Okay. So spread equitably presumably?

David Terry:  Well they’re back backloaded.

Matthew Gordon: OK. That’s Indiana. So that’s your best target. And then you’ve got Alantida as well?

David Terry: Yeah. Which is 35km 40km to the East of Indiana. It’s a bit of a different type of project. It’s larger in surface area. It contains a very large, relatively low-grade Copper Gold porphyry deposit that was discovered by InMet and drilled by InMet and further worked on by First Quantum. After the takeover of InMet. But the historical Resource, and again this is historical, not a 43-101 compliant Resource but it was completed by those large companies. Total 427Mt of 0.43% Copper Equivalent.

Matthew Gordon: So that’s a very different project?

David Terry: A different project but we acquired this basically because on the periphery of this large deposit which is which is fairly deep where it is there’s some near surface Gold copper scarring mineralization. And the eastern body of Scotland mineralization has got some drilling in it but the western one was actually not part of this property when in that first quantum where we’re working on it and we basically what we really sort of added to the picture here is we’ve consolidated land owned by three different parties and turn it in Kinross was one of those. And so we’ve consolidated this larger land position that incorporates the Gold upper rich garden area to the west which is exposed it surface has quite a large lateral extent and has had no really modern exploration that we’re aware of. There’s some historical workings in that sort of thing on it and And so that’s our initial focus on this property is this area that we can basically surface and and the graves that we’ve gotten from our due diligence sampling in that area shows that there’s quite widespread upper escarpment right.

Matthew Gordon: Okay. So you’ve got a bit of work to do there and it’s relatively early stage so it can. But just looking at the terms that you’re committing to another $6M over the next four years says twenty one billion bucks in both of those projects is the recent raise going to pay for the development of this asset as well. In terms of moving it to the next stage.

David Terry: Well initially it’ll start to help us with that but again and we’ve got to you know obviously bring in other capital to really advance this forward as we want to.

Matthew Gordon: Right. And what’s the timing on this with this taking a slight backseat or is this in terms that you’re waiting you’re…

David Terry: No we’re working you know sort of right now in our planning stages really on both there they’re very very close and we actually operate them out of the same camp.

Matthew Gordon: Okay. Yeah it’s quite close.

David Terry: Yeah. we’ve got the same team that can deploy to either one.

Matthew Gordon: In terms of your business plan per say for for driving this forward. You guys are still working on your budget. That’s what I’m hearing and you will work out how you apportion your time, well time is money, and money across the projects to advance things. Yeah.

David Terry: Yeah.

Matthew Gordon: That’s the idea. Okay great. You’ve also got another project Antofalla in Argentina. Is that is that something that’s on the ‘To Do list’ or is that just an option?

David Terry: It’s an option and again we, I guess that’s the only other option that we have right now. The other projects that we have are all owned 100%. And that’s the thing with Argentina, is the actual cost for keeping properties current, in terms of the fees or however you want to call it, is relatively low comparable to other jurisdictions.

Matthew Gordon: But there is an expectation from them that you will get on and start drilling, and start spending money, developing these things out?

David Terry: Basically the way it works there, is when you acquire these initial packages of land, you have to either have to downsize them over time, and continually work on them.

Matthew Gordon: Okay well maybe maybe that’s something which you can, that project Antofallo. You can tell us a little bit about you know as things progress.

David Terry: Well we acquired Antofalla, because it had geological similarities to Chinchillas. You know, it’s a dome complex of these young intrusive volcanic complexes coming up through through older sedimentary rocks. And and we just we saw a strong similarity there and so we’ve done a little bit of initial drilling. And we’re just deciding if we’re gonna continue on with that or or go some other route with that project.

Matthew Gordon: Yeah. So just just to help the our investors understand the process. Because exploration it’s high-risk, high-return but you’ve got to lift up a lot of rocks to find what you want? So what has attracted you to this area what are you looking to achieve? You’ve optioned, sorry you’ve more than optioned,  you’ve got 3 projects, 4 include producing Silver at Puna. What are you hoping to achieve? And what’s the process you’re engaged with to do that?

David Terry: Well our our goal is to find new deposits and make discoveries which are gonna be attractive to people who want to develop mines. And like larger mining companies. And you know we’ve done that with our deal with SSR. And with the projects that we’ve entered into agreements on, and obviously their options, and if we get a bit further down the road on number one of these, or any one of these, and they don’t meet up to our expectations, then we will we’ll move on. I mean that’s something that I feel quite strongly about, is you know you can’t get married to a project. You have to continually assess it on its merits. And so you know what I look for on a project is something that’s got significant size and it’s something that could be developed in the lower quartile of costs, for or for that category of deposits. Because if you’ve got something that’s relatively low-cost compared to other comparable projects or mines and then you’re gonna be able to weather through the ups and downs of the commodity cycle.

Matthew Gordon: And what is the indication? I mean you’ve said there’s a lot of other mines in the area. I mean what sort of quartile performance, cost curve performance, are they operating in the lowest somewhere in the middle.

David Terry: I think it’s all over the place. And when I said other mines, I mean you’re talking about an area Copiapo in Chile, there’s a lot of those that are advanced exploration projects.

Matthew Gordon: Understood but obviously, underground mining a a bit more expensive open pit. So it’s you know the economics are important to understand and as you say don’t get wedded to a project if it’s not going to work out. So I got it. But the other thing that you guys have to do is find the money to be able to do all of this, presumably to take it to a stage where you, either can go and raise more money, or you do an SSR type deal, where you bring in a partner right. So is that all part of your thinking?

David Terry: Yeah I mean obviously where we’re continually working on  financing the company, as most people in this business are, but you’ve always got to be open to all the alternatives, like whether it’s forming a joint venture or doing a corporate transaction, or a project transaction. Obviously all those things are always on the table for the right terms and the right situation.

Matthew Gordon: I guess again, I just I keep coming back to what investors need to understand about exploration mining. It’s can expensive and unrewarding, but it can also be extremely rewarding if you get it right. And I guess that’s what people are looking for.

David Terry: Part of the philosophy behind going and firing these option deals, and they are option deals that start off with the lower payments and escalate over time. So as I said before they’ve gotta live up to our expectations as we go forward and that’s you know all those deals are usually structured that way, so you have time to get your feet wet and do the work that you want to do to test out your theories, and see if you have the projects hold up. But you know both of those projects have have a lot of mineralization on them, and widespread mineralization, and both of them have the potential for further discoveries, right on those properties. And as you know the best places to find new deposits and larger deposits is on properties that have had work demonstrate that there’s already significant mineralization.

Matthew Gordon: Right. Okay. So some easy questions for you now. 2019. What are the targets that you’ve set yourself? And how are you going to achieve those?

David Terry: Well I mean certainly we hope to see Puna performing as planned, and continuing on with sort of at least 4,000 tonnes a day being trucked between Chinchillas and Picitas mill. And produce a 6-6Moz of Silver. And so we’re hoping that that gets achieved obviously. That’s going to be very important to us. And and then moving forward on these other projects and starting to execute the plan and carry out the the work that’s needed to assess them. And we’re continually working at that and looking at all of our portfolio and the opportunities that are within it, and how to how to best manage that for the benefit of shareholders. The company is controls a lot of the shares, and so we’re certainly aligned with the interests of shareholders.

Matthew Gordon: How many shares to the management and board own?

David Terry: Well between insiders, friends and extended group, it’s close to 50%. I’m not sure exactly what the number is but it’s very large.

Matthew Gordon: Okay maybe a tough one for you. What do you think the five reasons that investors should be looking at Golden Arrow Resources?

David Terry: Five reasons. OK.

Matthew Gordon: Any order you like.

David Terry: Well I think you know experts in exploration in Argentina. And got a great team of people that have mentioned this at the beginning but the Grasso Group of Companies has found 4 significant deposits over the last twenty five years. And there’s not many other group groups that can have that sort of a track record. There is a lot of experience there. We certainly have a good ability to finance the company, and we’ve always been able to do that. How many am I up to now?

Matthew Gordon: Three.

David Terry: We’ve got a great portfolio of projects that we’ve put together. You know we’re always looking for partners to help us come in and help help advance them. And you know we feel that we’re undervalued in the market right now. So I thin…

Matthew Gordon: You and everyone else I’m afraid.

David Terry: And we’ve leveraged the price of Silver as well.

Matthew Gordon: True, it looks like a good year for Silver and Gold. Well and copper. David thanks very much for your time. I appreciate you giving us that insight into the company. It’s the first time we’ve actually spoken with Golden Arrow. So I appreciate that and we will look forward to getting an update with you in a few months time.

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