Americas Gold and Silver Corporation (USA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to a very exciting day for Americas Gold and Silver shareholders. On the webcast today, we're going to talk about our consolidation of our Galena Complex in the Silver Valley at Idaho. And we're going to welcome Paul Andre Huet to become our Chairman and CEO. So I want to thank -- first of all, thank you all for joining us and having interest in the company. Joining me in the boardroom today is Paul Huet, the incoming CEO and Chairman; Oliver Turner, who has been with Paul for a number of years. He used to be an analyst way back at GMP covering the company. So it's been a long time. But 10 years back in the boardroom since he has been year. And Oliver ran Corporate Development and IR for Paul at Karora; and we've got Stefan Axell, who works for our company as our VP of Corporate Development and Communications. The transaction that we announced this morning meets many of the important strategic goals that we had set out for the company this year. It obviously consolidates the Galena Complex during the beginning of what we believe is a very exciting start to a silver bull market. It brings in an absolutely world-class CEO and renowned underground mining operator and his team as we move forward. With the equity raise announcement this morning as well and a debt financing coming this quarter, it is not only significantly going to strengthen the balance sheet, but it's finally going to give us the ability to properly invest in the people and the large silver resource base of our flagship asset in the Silver Valley. And finally, not last with -- definitely not last, but it is just as important, it brings in Eric Sprott, the preeminent precious metal investor in the world as a long-term cornerstone asset. So for those reasons, we're quite excited. Before I welcome Paul to give some initial remarks, I'll just take a minute to [ give little bit background ] as to how we got here today. So how do we get here this morning? Late last year, Eric and his team informed us that he was bringing Paul on as a technical representative, and that was my first opportunity to meet Paul. He dug into all the current and historical information around the asset. We participated in the budgetary process. And finally, given his busy schedule as the Karora CEO, we got him to site last year to meet -- late last year and then early again this year to meet the team at Galena and also our joint venture committee members at Americas. Paul went underground, spent his time with the miners and as -- management as well as the committee members that came up with some great observations, recommendations on both safety and productivity. We were thoroughly impressed. And when the Karora takeout was announced, it made absolute sense for us to try and convince him and his team to start their next chapter here. So we have a bunch of conversations during the summer -- in spring and summer. Paul did an absolutely great -- has a great relationship with Eric and did an amazing job to convince Eric to vend his 40% into the company for, as you saw today, mostly share, some cash and some silver in the future. And I can tell you, other people had come looking at Galena who are very interested in it and could not get Eric to do that. So it was a very important part of the transaction for us. So since midsummer, we've been working to get this deal done to find common ground on how we move the company forward and, just as importantly, how to recapitalize the company. I think we've achieved all of those things with that today. So with that background, I'd like to invite the future CEO to make some comments about why he thought this was a great opportunity for him and his team.

Thanks, Darren. What an honor and a privilege to be here today. Before I start, I just want to thank a couple of people. There's been so many people working hard, tirelessly at getting this deal done. These deals are often complicated. This one made a lot of sense. As Darren said, I was appointed as a technical adviser for Eric Sprott 10 months ago. I had the privilege of working with the Board of Directors here who have done a great job, the management team who've done a great job, and our team here to get this across the finish line. These things are complicated. But because this one made so much sense, we were able to get this thing done in a record timing. So I just really want to say hats off to all the groups that have worked pretty hard to get this thing done. When I think about the opportunity here, look, it's hard not to get excited. First and foremost, most people know I live in Reno, Nevada. This is right next door to me. So this is very, very exciting. The opportunities that present itself here are very, very unique. In 2002, 20 years ago, this mine produced 2 -- or sorry, 5 million ounces of silver. There's never been a metric ever in a mine that someone else has done that we haven't been able to repeat. So when I think about the future and the opportunities that we can do together, building on the momentum that's already been done. And I just want to keep repeating this, that we will continue to build on the momentum that's already been done. Getting this thing from where we are today to that 5 million ounces over the next several years, it's going to be a lot of work. And the truth is, the work really starts here now. Getting the deal announced, putting the financing together, getting the right shareholders in place, getting Eric on side with us was tremendously big, but the work really starts here now with all of us together, working together, getting the production of this asset where it needs to be. And I don't want to undervalue our Cosalá asset. Our Cosalá asset is a very, very unique. Positioned well with the Trafigura money that's just come in, this thing is set here now to become cash flow positive very, very soon. So there's a lot of exciting things in front of us, a lot of work to be done, but I'm very excited to be here. It's hard to contain my excitement because most people know I enjoy working in North America. I've had the privilege and honor of being in Australia for the last 6 years of my career, but this is home. I get to come home to my wife, my family. I work with people I enjoy and do something I enjoy the most. This is coming back to my roots. Most people are aware I was a miner, I was raised miner for the first 10 years of my career. This is a narrow vein operation. So optimizing this, putting some money into the shaft, putting some money into the waste development, reevaluating the mining method, those are all things that are teamed together with the group that are there already, and I really want to make this point together with the team that are there are really looking forward to changing. And we all know our -- the junior mining industry needs capital. We are very fortunate today to bring in this capital and put the money into Galena where it's needed the most. So, look, personally, I'm very excited. I'm happy that Eric asked me to join here 10 months ago. All I got to witness for 10 months was opportunities. I continue to look at things day in, day out, week in, week out as we were delivering at Karora. But there's tremendous upside and opportunity in front of ourselves, and we're looking forward to unlocking that with the existing group. So thanks for having us here. Really excited. Thanks to the Board for getting this across finish line and let's get some work done now.

Okay. With that, we'll turn it over to Oliver.

Yes. Good morning, everyone, and thank you for joining the call and certainly excited to be here alongside Darren, Stefan and Paul and joining the team here. Lots of exciting stuff ahead of us. Lots of excitement to talk about today with this transaction. So on Slide 3 here, the transaction highlights. I'll just go over a few of these briefly, and we'll discuss them in more detail as we get through the call. But first and foremost, obviously, it starts with the consolidation of the Galena Complex and vending Eric's 40% interest back into the mine. So USA shareholders will now own 100% of what is a tremendous historic operation, which we see huge upside potential and really plays to our strength. On top of that, of course, for those of you new to the USA story, obviously lots of you hear another story very, very well, we have 2 mills on sites on top of Galena there, with some excess processing capacity, about 1,250 short tons per day in total capacity, and over the next several years, we aim on ramping up operations in order to fill that capacity which should yield some tremendous results. We're also going to be improving the balance sheet with the financing we'll be discussing here this morning, with $30 million block-deal financing that led by Cormark this morning has gone very, very well. We also have an additional $30 million to $40 million in debt that will be falling alongside that. We have several term sheets in place that we are currently evaluating. So that will bring USD 60 million to USD 70 million into the operations to help turn the operations around, keep ramping up with the momentum that's already been put in place as well as cleaning up the balance sheet and certainly some of the liabilities side of the balance sheet, which should strengthen the overall company and certainly reward equity investors. So we're excited to do that. Of course, a strong leadership team coming in to complement the existing team in place here, led by Paul. Really playing to our strengths, as you mentioned, in the underground mining space. And many of you will remember us from Karora and prior to that at Klondex, 2 great successes for shareholders and for the operations, and we're certainly looking forward to digging our teeth in this asset. On Slide 4 here, you will have -- the silver market is certainly something that's been very interesting over the course of the last year here. We do think the timing is right for enhanced silver exposure in the market that we're entering. And with this asset and this combination assets in this company, you're going to have leverage to silver pricing in excess of 80% of total revenues. When you start to look at the peer group and we'll take a look at a slide later that evaluates this, it is going to be the second best exposure to silver in the investable peer group from a production perspective. So certainly, a great vehicle to play your silver exposure. And as we know, this is a North America-focused silver producer, so should have some additional multiple joy there. Very supportive shareholder base. Obviously, Eric Sprott's going to own 22% of this company right out of the gate. We're thrilled to have them and thrilled to be adding the new investors, institutional investors we're going to be adding to the shareholder register here via the block deal financing. We should -- we have a lot of follow-on support from the prior 2 companies that we are involved with and really excited to welcome the shareholders to the registry and get to know some of the ones that are there already even better. And of course, when we talk about silver, we've seen some of the M&A that's happened in the sector over the last several -- couple of months here. Lots of interesting valuations happening there, both with rerating of producing stocks and some interesting M&A happening as well. So a great time to be evolved in silver, and we'll look at some of the valuations a little bit later on, but it's certainly an attractive value proposition for existing and new investors into the USA vehicle.

Thanks, Oliver. On Slide 5, I'll just go through some of the key transaction terms. And first, we've obviously entered into agreement with Sprott to buy our 40% -- the 40% we didn't own. For that, we're going to pay 170 million shares of USA at yesterday's close -- at the deal price bought at about $50 million and then about $10 million in cash, which will be paid to Eric after the close of the transaction. And then starting on or about January 2026, Eric will start to receive some silver deliveries of about 18,500 ounces a month for a 36-month period. On -- with leadership and governance on closing, obviously, we want to strengthen the management team that was part of the transaction that brings Paul in as the new CEO and Chairman. The board will consist of 50% of existing Americas Gold and Silver directors and some existing directors or some directors from Sprott and from Paul's background at Karora. So we're excited about that. And again, Oliver talked earlier about the concurrent financing. He mentioned USD 30 million, which is the U.S. number, CAD 40 million is the Canadian number, and that will be about 100 million subscription receipts will go out with that for 1 share. There's no warrants in this deal. It's a very strong indication of management that we're able to do that in such a small company without having to do any warrants and obviously at a price which we think is fair in the market. On top of that, as we move forward, obviously doing this deal and being 2 or 3 months out of the market on a bought deal financing, it was important that we had to build of liquidity available. So there was a bridge provided as well. That is not contingent on the deal occurring that will go into the company. Obviously, we're very confident that shareholders will vote positively in this transaction. Interestingly, both Paul's team and us, we're looking at debt financing at the time that we put this thing together. We've got numerous term sheets, and so those are in place. We've got quite a few bit of interest. We've got multiple term sheets, and we'll kind of pick a course, and we'll try and get it closed by the time we close this transaction. The conditions of the deal, simple majority of the people that vote at the shareholder meeting. The directors and officers have entered into support agreements on certain arrangements. We're about 14.3%, as these numbers are updated just as we're moving live here. And it will be subject to the regular -- regulatory approvals, including approval from TSX and New York Stock Exchange. And again, we expect to be closed December -- before the end of December 2024. If you turn to Slide 6 before I turn it back to Paul and Oliver, just to show you where the company's current assets are for new shareholders. We're in the prolific Silver Valley in Northern Idaho. This valley has produced over 1 billion ounces of silver and 1 billion ounces of silver equivalent from zinc, copper and lead. There's basically 4 or 5 key mines with Kellogg to the west as you come in from Spokane, as I normally get in. The Bunker Hill mine is being restarted right now. So that's exciting for the area. There's the Sunshine mine, which is owned by Tom Kaplan, has been. It's a private company for a very long time. And then there's our Galena property, and the property of the -- the complex of the property is the biggest in the valley, the largest land position. And then 7 miles to our east, of course, is Lucky Friday and Hecla, which has been producing for a very long time. Lucky Friday is ramping up to its 6 million or 7 million ounces. And as I said, I'm very confident with Paul here we can do the same. So we've got the biggest position in the most famous district and the biggest producer. The mine has been around since the 1880s. And Paul and Oliver will touch on this that it has never been systematically drilled. So we're excited to have the extra money that we haven't had to be able to put some drills to work as well, not just to get -- make the production larger. Then if you look at the bottom of the page, our coastal operations are about 138 kilometers from Mazatlán in Sinaloa. You fly into Mazatlán and drive up on a highway up into the foothills of the Sierra Madre. The asset has been around since the 1950s when Asarco was there. A very big production processing area for Asarco back in 2007. They reopened the old Asarco mine, built a new mill, which is about 1,800 tonnes a day. It has an ability to be bigger. We think we can get up to about 3,000 tonnes a day. And right now, we're producing from our San Rafael mine, which is mostly a 4% zinc, 2% lead and about 50 grams silver, we're about transitioning now, as Paul said, of Trafigura into a silver copper asset called EC120, and that will increase silver production from about 1 million ounces a year to about 2.5 million to 3 million ounces. So we're excited about that. So with that, I think the first thing though is to get Paul and Oliver's vision on Galena as that's why we're here today.

Thanks, Darren. Look, every asset we know of in the world starts with its resource, and the resource we're starting off here with is massive. It's a massive resource that we get to begin with, and there's tremendous upside in this operation. One of the things that really, really caught my attention very early on is obviously the location. Darren talked about the location in the ZIP code. We're in the greatest silver jurisdiction you're going to find on the planet. And starting off with this resource, we can only grow from here. That is going to be the foundation of where we start this company. When you look at the other infrastructure that we have, we've got a great resource, we've got a good 2P reserve, several years in front of us. You look at the 90 kilometers or 55 miles of tunnels. At today's price, you're talking over $1 billion to put this kind of infrastructure in place. There are a lot of tunnels and existing infrastructure that we will be able to go from and use that will be able to enhance our production. The mine has been running on 1 single shaft for a number of years now. There are 4 shafts there. Our objective is going to be to get a second shaft up and running by the end of 2025. And look, let's be honest, that's pretty close here. We're talking 12, 14 months away from getting a complete second shaft up and running that doubles the skipping capacity right away. That's been one of the bottlenecks here for years. So we've got 2 mills, 90 kilometers of tunnels. We're going to take advantage of 1 of the other 4 shafts immediately. The exploration upside, we don't even need to talk about the exploration upside, but it is very large in this district. We're going to be focused in the next year at infill drilling and increasing the confidence level and a lot of our resource to get it into 2P reserve so that we can -- when we put in our mine plan and we put in the additional waste development to give us the extra headings that we need to feed that second shaft, we know where we're going. So we're quite excited about the steps. We're not going to be complicating this. When you think of what are the things we're going to do, those of you who have followed us at Klondex or at Karora will say, look, this is exactly what they did there. We did it at Midas. We did at Fire Creek. We did it at Beta Hunt. We're going to go from the resource. We're going to continue to drill. We're going to put in some waste development. We're going to evaluate the mining method. We're going to optimize the mining method and start injecting maybe some cut and fill and some long haul into this area, after we put in some waste development, after we put in a batch plant and after we have that second shaft. So a lot of exciting things that we have going in front of us. To go back to that initial statement that I said, if it's been done before, we can do it. 5 million ounces came out of this operation. So it's not something that's impossible. A lot of people might look at this and go, look, I don't know how they're going to do it. Well, it's been done before. And when you look at some of the work we did at Karora Beta Hunt, look, we started there was 25,000 tonnes a month. That mine is doing well over 110,000 to 120,000 tonnes a month. So we're quite excited about getting the infrastructure that we have to work from with the mills and really taking advantage of it. So a lot of exciting things in front of ourselves and bringing it back to that historical production is going to be very important while managing the safety of the operation. Oliver?

Yes. So switching over to Slide 8 here. As Paul mentioned, talking about historical production at Galena in 2002, this asset did do 5 million ounces with a throughput of 650 short tons per day. Something that's interesting to note here is this is one of the highest grade silver mines in the world. The silver copper ore is around 800 grams per tonne silver. So certainly something that we're excited to exploit. We have about 200 grams per tonne on the silver, lead. And when you look at the period over the course of the last, call it, 10 years, where we've seen depressed silver prices, which has been one of the challenges for Americas Gold and Silver is operating through such a top silver price environment and keeping the mine going. One of the strategic decisions that was made was to transition to a predominantly silver, lead ore in order to focus on lead component. That is really what carried this mine through a very tough silver market while many other silver operations were being shuttered and put on to care and maintenance. So credit to the team that was in place and executing on that strategy. And we're excited to say silver production has been ramping up. And as we get into more of those silver copper stopes, I will certainly be enjoying the joy of higher grades coming through. So a lot of flexibility in this operation, certainly high grades and certainly the timing is right for a strong silver price environment. Flipping over to Slide 9 here, talking about some of the key things we're going to do, Paul already touched on several of them. It starts and stops with that second shaft getting Galena up and running. There's only 400 feet remaining of rehab work that needs to get done. So that's going to be the focus during 2025. We hope to get that shaft up and running by the end of the year. That is the plan. It comes with a lot of other logistical adjustments that need to be made with respect to hoist schedules, shift schedules and upgrading some of the motors there. So the capital that we're raising today, the CAD 40 million, a lot of that will be going into these projects that we're going to have at Galena. Looking forward to adding additional people to the team in place and bring some of the benefit of our network here and people that we've worked with previously, and then certainly something that everybody at the operations level will be enjoying will be the addition of new equipment from scoops to trucks to jumbos, to really get this operation up and running to where it needs to be and improving productivities and obviously with a focus on safety the entire time. Last but certainly not least here, Darren mentioned it earlier, we're very excited about the drilling potential at Galena, both from infilling the existing resource and upgrading it. But also with respect to some very interesting targets that haven't been able to be drilled systematically historically, particularly when we're talking about surface targets. Look, there's been only around 10 drill holes at surface in the entire time that this mine has been running. There's surface expressions of mineralization. So certainly, some interesting things to do, both above where we're currently mining laterally alongside the areas we're mining and that suffice to say that there's certainly significant resource additions to come in to clean up for many years. And as Darren mentioned, there's been operations here for well over 100 years. We're in the best silver mining district in North America, one of the best in the world that we'll be mining for a long period of time to come here. So excited to get some of those dollars that haven't been able to put into drilling in this asset.