Cerrado Gold Inc. (CERT.V) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Cerrado Gold Management discussion regarding the purported opinion of the EIA for Lagoa Salgada Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carl Calandra, Vice President, General Counsel and Corporate Secretary. Please go ahead.

Thank you, operator. Good morning, and welcome to the Cerrado Gold management conference call regarding the purported opinion related to the Lagoa Salgada Environmental Impact Assessment. I will note that this call contains forward-looking information within the meaning of applicable Canadian securities legislation. Forward-looking information is based on the company's current expectations, estimates and beliefs as of the date they are made being today. The information provided in this presentation does not report to be all-inclusive or to contain all the information that a prospective investor may desire to have in evaluating whether or not to make an investment in the company. As such, the information presented today is qualified entirely by reference to the company's publicly disclosed information available under our profile on SEDAR+ and on our website. On the call with us today are Joao Barros, President of Cerrado Europe; Cliff Hale-Sanders, the company's President; Jason Brooks, our CFO; Ed Guimaraes, our Executive Vice President; Mike McAllister, Vice President of Investor Relations; and myself, I'm Carl Calandra, Vice President, General Counsel and Corporate Secretary of the company. I would now like to turn the call over to Mark Brennan, Chairman and CEO of Cerrado Gold. Please go ahead, Mark.

Good morning. I'd like to begin by mentioning that 2025 and the beginning of 2026 has been an excellent period for Cerrado with all of our operations performing exceptionally well. The latest developments out of Portugal have been very surprising and extremely disappointing. It is important to note at the outset that we at Cerrado believe in Portugal, the people of Portugal and that the rule of laws and justice prevail in Portugal and that a fair and equitable resolution to the current impasse will be found. Lagoa Salgada was initially optioned in 2018 and in the first few years, saw tremendous success with exploration drilling, increasing our resources from approximately 8 million tonnes to 27 million tonnes. In 2022, on the back of this success, we are asked to meet the Secretary of State for Energy for Portugal, Madam Ana Fontoura. Secretary Fontoura came to our offices in Toronto and encouraged us to continue our investment in Portugal and push the Lagoa Salgada project ahead expeditiously. She stated that she would help us attain the status of a project of national interest referred to as a PIN project, which would expedite the bureaucratic process. In April of 2022, PIN status was granted by AICEP, the Portuguese State Agency for investment in Portugal. Lagoa Salgada became the first greenfield mining project to receive PIN status in Portugal. We continued our development work at Lagoa Salgada over the course of the next 3 years, with strong support coming from the local community in Grandola, the community in which Lagoa Salgada is hosted, its long-serving mayor until September 2025 and with the strong support from all levels of the federal government with whom we interacted. We are now at the point where Lagoa Salgada is ready to serve the people of Portugal in their quest for mineral independence and provide strong economic growth to the region. In our estimation, Lagoa Salgada will add 23% to the local economy, while adhering to first rule principles in mining and social development. Cerrado is fully aware of the social impacts mining projects can bring, but we also understand how these can be mitigated. The Cerrado team has been developing mines for over 25 years and every single mine, a new development or a pre-existing mine has been widely appreciated by the communities even after the many years the mines have begun. Most of you will have seen the press release issued on Thursday, January 22, and Friday, January 23. Firstly, I'd like to provide a summary of the time line of the environmental impact assessment submission and assessment process to put recent events into context. An initial environmental impact assessment application for Lagoa Salgada was submitted to the Portuguese Environmental Agency, known as APA, APA on December 21, 2023. The submission included comprehensive environmental baseline studies, hydrological and hydrogeological modeling, human archeological fun and floor characterization and impact evaluation, along with the mitigation controls and benefits that will be present over the life of mine of the project from construction to final closure. The submission was formally accepted and progressed through the standard technical review and steps of public consultations. In June, July 2025, APA informed Cerrado that it had certain issues related to our environmental impact assessment submission that it wanted Cerrado to address. Utilizing mechanisms provided for under Portuguese mining law, we proceeded under Article 16-2, which allowed the company to revise and resubmit elements of the EIA submission to APA, the Portuguese regulator, to address the concerns without restarting the entire permitting process. The specific items requested by the authorities were limited to: one, the elimination of cyanide from the process flow sheet; two, reinforced protection and isolation of upper aquifers; and three, transition to filtered dry stack tailings, significantly reducing the environmental footprint. There were no other areas of concern that were identified in the EIA by APA, and the remaining components were considered acceptable as submitted. A very significant importance was that the notification contained a unanimous favorable opinion for the project by all 4 of the entities comprising the Technical Evaluation Committee, including the entity responsible for water resources, this unanimity was the first time a mining project in Portugal has received unanimity. APA's notice provided a defined time frame, 180 calendar days to submit revised materials and a synthesis report addressing required components. The company filed the reformulated project on October -- excuse me, on November 8, 2025, fully addressing the requested changes, including the elimination of cyanide, enhanced protection of the uppermost aquifer and the adoption of dry stack tailings. These were submitted in their entirety. Under the Portuguese EIA legal framework, APA is required to issue an environmental impact declaration referred to as a DIA within a saturated deadline of 50 business days following submission of a reformulated project. The deadline for the DIA lapsed on January 22, 2026, without a final decision being lawfully issued. Under Portuguese law, the omission of a final decision in the legal time line results in the project receiving tacit approval. Consequently, and in accordance with the Article 19-2 of the EIA regime, the company views the project deemed approved for environmental purposes, enabling the company to proceed to the final execution project and environmental compliance report called RECAPE phase or detailed engineering phase as outlined in our press release dated January 22, 2026. Subsequent to the expiry of the deadline, APA has issued a purported unfavorable opinion of the Lagoa Salgada EIA, which Cerrado submitted in accordance with applicable laws and the regulatory framework. Importantly, within that option, 13 of the 14 Technical Evaluation Committee members maintained their favorable position with the only rejection related to water resources, specifically related to a deeper aquifer that had not been identified, referenced or reviewed in any prior review. The purported opinion appears to be based primarily on concerns regarding potential impacts to the water of the deep aquifer system rather than chemical contamination risks. This issue was not identified in the prior May 25 DIA proposal. In the opinion of the company and its legal counsel in Portugal, new technical issues cannot be lawfully introduced at this stage since they were not part of the scope defined under Article 16. Accordingly, the company believes that the substantive reasons put forward as objections are not valid reasons to issue an unfavorable opinion. Nonetheless, I'd like to note that Cerrado put forward effective technical solutions that could be included in the next phase or the RECAPE detailed engineering phase to mitigate any concerns, which is normally where any new legitimate concerns can be introduced. What was particularly surprising is that in a review process that is legally limited to assessing specific modifications introduced by the company, the competent authority for Water Resources appears to have reversed their previously favorable decision. This is the only entity on the 14-member Evaluation Committee to do so. Our understanding is that under applicable laws, a competent authority is not entitled to introduce new technical objections related -- unrelated to the Article 16 modifications. Any such matters would orderly be addressed through conditions attached to a favorable EIA or during the detailed engineering phase. I note again that the company has already put forward detailed effective solutions that could be included in the RECAPE phase to address any such concerns. It is also critical to note that the applicable law requires that a project proponent, in this case, Cerrado, be granted a minimum of 10 business days for a prior hearing with extensions generally permitted where the complexity of the matter warrants. In the case of Lagoa Salgada, the company was not afforded even a minimum statutory period. This fact further supports the company's view that the purported opinion of APA is invalid from a legal perspective and should be invalidated. The company is now in the process of pursuing this strategy. It should be noted that this decision has also surprised our partners at the EDM, the Portuguese state-owned mining company and AICEP, the Portuguese Trade and Investment Agency, who provided us with the PIN status. Like ourselves, EDM and AICEP are also seeking clarification regarding what has occurred. The next steps. Firstly, I might say we were shocked and surprised to learn of the response to the Lagoa Saga project received from APA. We are trying to gain full understanding of how a project with apparent support at all levels of government, the local community in general, unanimous favorable opinion from all 14 departments of the evaluating technical committee at APA, a first in Portuguese mining history, could receive the outcome that it has. Cerrado, along with our representatives and advisers in Portugal, are engaging with the relevant authorities to understand and clarify APA's purported opinion given the expiry of the statutory deadline to object. We are also addressing the supposed technical basis for the opinion, which is beyond the scope of the mechanisms provided for under the law and which could be -- could and should be properly addressed during the next RECAPE phase of the process. We continue to engage with local authorities, including APA, to seek potential resolution that may be agreeable to the company, relevant authorities, stakeholders, including the stakeholders, including the Portuguese government and its agencies and the citizens of Portugal. I will remind you that the Cerrado anticipates Lagoa Salgada will provide a boost of 23% to the local community. We believe that the Lagoa Salgada EIA represents one of the most comprehensive and technically robust environmental assessments ever completed for a mining project in Portugal and that the subsequent modifications further strengthen its environmental profile and characteristics. From a technical perspective, we believe that the project exceeds the most rigorous Portuguese and global environmental standards. We continue to be surprised that the purported opinion was issued after the DIA approval received tacit approval as clearly outlined in the law. Furthermore, we find it alarming that APA has unlawfully introduced new grounds for issuing an unfavorable opinion. We intend to pursue these issues with every tool at our disposal to find a solution and path forward. The Lagoa Salgada project is a high-grade polymetallic VMS deposit containing zinc, copper, lead, tin, silver and gold and is recognized by the Portuguese government as a project of national interest and is aligned with the objectives of the European Union Critical Raw Materials Act, given its potential contribution to secure European supply of critical and strategic metals. We remain committed to developing the Lagoa Salgada project in a socially and environmentally robust manner. We will continue to seek constructive dialogue with Portuguese authorities and hope to reach an outcome that can be mutually beneficial to all stakeholders. However, should those discussions not result in a solution, we reserve the right to seek a court competent jurisdiction to uphold the rule of law and enforce the RJAIA, which we believe would result in deemed approval of the project. While timing to resolve this permitting issue is unclear, it is important to emphasize that Cerrado is not a single asset story. On today's call, we have focused on recent events related to our Lagoa Salgada project, but I would like to remind investors that this bump in the road, which is not uncommon in the mining business, will not impact the strong growth we see in other assets within Cerrado's portfolio, namely Minera Don Nicolas Gold Mine and the Mont Sorcier [indiscernible]Iron project. At Minera Don Nicolas, we remain focused on producing between 50,000 to 60,000 ounces of gold from our mine in -- MDN mine in Argentina in 2026, which will generate substantial cash flow. We are rapidly expanding our exploration program in MDN with approximately 50,000 meters planned in 2026, targeting resource expansion. We see potential to double the life of mine at MDN in the near term. We are now unhedged and fully exposed to the current gold price, which has reached an all-time high of over $5,000 per ounce. Cerrado trades at a significant discount to our peers in the gold sector, such as [ Serabi ] Gold, Jaguar Mining and HelioStar, whose markets capitalizations range between $500 million and $800 million. This is in spite of the fact that Cerrado produces more gold and have similar life of mine profiles. We expect this gap to narrow in the short term. In addition, work on our high-purity 67% grade Mont Sorcier iron project, where 2022 PEA outlined an NPV of USD 1.6 billion continues to progress with a full feasibility study expected to be delivered in Q2 2026. Very little value is attributed to this asset at this time. As we -- near construction, we believe this will change. Just providing a 0.1x multiple to the PEA number would add an additional $200 million to shareholder value. In summary, the events in Portugal are troubling for Cerrado, but we continue to view our shares are materially undervalued relative to similar sized gold producers, while providing investors optionality related to the Mont Sorcier project in Quebec and Lagoa Salgada in Portugal over the medium and longer term. Accordingly, we have applied to the TSX Venture Exchange to recommence a normal course issuer bid and anticipate that it will be approved within a week or so. As noted above, we see material positive near-term developments that should positively impact shareholder value at Cerrado. This concludes the formal part of the conference call. I would like to thank you for your time today and your ongoing interest in Cerrado Gold. We will look to do a follow-up call in the next week or so when we have greater information and greater understanding of the events in Portugal. Operator, I'll hand over to you.

[Operator Instructions] Our first question comes from [indiscernible]a private investor.

Yes. Mark, I'd like to know how many drills are actually turning at MDN.

We have 4 drills turning at MDN currently.

Our next question comes from Tom Ellis with Arctic Storm.

Yes. Just going through the regulations and everything. The only form that I couldn't find online was -- and I'm probably going to but a pronunciation here, but feature the process AIA, and that would be the form that proves your dates and times to your 50 business days. And it said that you would have a record of it. I just wanted to verify that you guys did. It was apparently taken down off the website for the public.

We have a record of that and hard copy of that. And I'm a little surprised that's been removed from the record, the official record.

Yes, it was available. Everything else was there, but that had been taken down. Okay. And do you -- you don't have any kind of timelines or ideas of how long you'd be willing to wait or work with them before you would actually file suit? Or go through the court...

We are working as quickly as we can. We -- the news is very new to us, and we're trying to gain as much of an understanding reaching out to the different ministers in Portugal to understand what may be at play here.

Okay. And just one last question. The problem with the aquifer, the bottom one you've already come up with and presented a solution to the new problem.

I'll just mention and the 2 issues that were mentioned with respect to the aquifers, one was with respect to stability. So -- and the other -- the other one with respect to water levels. These are things that can be monitored. These are things that every project pretty much in the world using modern standards looks after. So we do not see this as in any way a technical challenge, not only for our mine, but for many, many mines in Portugal and in globally.

[Operator Instructions] Our next question...

If I may, operator, I just want to add one comment here. Our submissions with respect to water and water quality and water resources, we have used a fellow called Rafael Rubio of Spain. He is the Head of the International Mine Water Association, and he's deemed to be one of the most qualified global specialists with respect to mine water. And from that regard, we feel that we have approached this with a tremendous degree of seriousness and again, using the utmost authority in the world to provide their submission on the water works on our behalf. Thank you.

Our next question comes from Louis [indiscernible], a private investor.

Just 2 quick ones, if I may. The first one is, I believe EDM have got 15% of Lagoa Salgada. In which case, are they -- you mentioned that they were surprised. Are they a good help to enable a quick conclusion for this? And my second question is the feasibility study. I know it was pushed back a little bit from last year, I think, from Q3 into Q4, Q4 into '26. What are we looking like with that at the moment?

Thank you, Louis. First of all, I'll comment on the EDM. The EDM, as you correctly point out, they have a 15% interest in this project. The EDM is the Portuguese mining development company. They actually submitted -- they submitted an opposition to this decision. They are as equally surprised as we are. And they too are helping us in a very positive manner to try to find a resolution satisfactory to all stakeholders. So we've been very pleased by their response and help and with their continual engagement in trying to find a resolution. As it relates to the feasibility study, we anticipate that the -- we have, to a certain extent, been waiting for the publication of our EIA prior to submitting to issuing the feasibility study. My guess is we'll probably continue to do so. However, we -- in terms of the work itself, we anticipate that it will be completed by late January, early February are the dates that I've been provided.

Our next question comes from Federico [indiscernible], a private investor.

I would like to know what would be the effect too case of the Portuguese project going forward. And I would also like to know if you will focus your resources on developing one subsidiary.

Thank you, Federico. So the question is basically the impact of not having Lagoa Salgada move forward. I guess, in a reasonable time frame. I guess, first of all, it means that we won't be spending the $10 million that we had anticipated for the year in Portugal. We will obviously reduce our operations as much as possible while continuing the discussions with the government. In terms of the corporate entity itself, we continue developing Minera Don Nicolas in Argentina. As I tried to highlight on the call, Minera Don Nicolas, in our view, is substantially undervalued compared to its peers. We're targeting a project of 50,000 to 60,000 ounces a year at $5,100 gold is spinning out a lot of cash. As I mentioned, if we look at Serabi or Jaguar or if we look at HelioStar, those companies don't have -- they actually -- their production profile is less than ours. We produce that 50,000 to 60,000. They're producing 30,000 to 40,000 ounces. Yet they have market caps between $500 million and $800 million. And I believe to a certain extent that maybe one of the issues is because we have basically a mine life of 3 years on the project. And I think that if you look at Serabi or HelioStar or Jaguar, they don't have extensive reserves, but they do continue to produce year after year at that 30,000 to 40,000 ounces. I'm very hopeful that we'll be able to provide a solution to the market in the coming months that will remove that issue that people question about our mine life. I'll mention again, Minera Don Nicolas is a very young mine. We've only been there for 5 years, of which the conditions of the first 3 under COVID were extremely debilitating. So if you look at this on a comparative basis to our neighbors, Anglo's Cerro Vanguardia project, if you look at now Pan American's Cerro Moro project, these guys have been there for 20, 25 years, have pulled out 7 million to 8 million ounces of gold or have resources of such. The fact of the matter is that we would -- I don't think it's -- I'm not going to come on the phone and tell you that we have the same thing. But I will say to you, we see lots and lots of growth and lots of life for this very young project. Whether that comes to fruition, that's up to the gods to determine. But from our vantage point, from our view, we think Minera Don Nicolas is going to have a long mine life. Other members -- other people in the community believe that as well. So in the mining community believe that as well. So the impact, in my view, as it directly relates to MDN, I think we deserve another $100 million to $200 million market cap based on our peer group comparisons. If I look at Mont Sorcier in Quebec, we have a project that produced in 2021 a PA of $1.6 billion of NPV. I don't know what this feasibility is going to throw out. I'm hopeful that it's not going to be too, too far away from where that one was. I understand and admit that, yes, inflation is biting into the cost of the project. However, what I would say is if we were today to come up with a feasibility in that range of $1.5 billion, could we ascribe a 0.1x multiple to a project that could be in construction in a couple of years? I think a 0.1x multiple would be quite conservative. And if you do the very simple math, that's USD 150 million that I think we could be provided by the market that I don't think is out of the realms of being conservative. So I want to highlight, Lagoa Salgada is very important to us. Please do not underestimate that. But we are a multiple multi-company, multi-asset company that's quite deliberate because we understand that these things can occur. And the fact of the matter is we hope to get Lagoa Salgada up and going as quickly as possible, generating that 23% additional growth to the local community. The local community deserve that. It's a community that's an aging population. The youth they're leaving because they can't find high-paying or qualifying jobs. We bring qualifying jobs to the community. they deserve that. The Portuguese people deserve this project. I'm not saying that in my own self-interest, but the fact is I've been involved, the management team of Cerrado has been involved building mines in new areas and restarting mines in jurisdictions where mining has not existed. And the fact is that even today, people are very pleased with our experience and their experience of having the mine in their community. So the fact is we believe that this is actually a bit of -- it's a bit of an own goal by Portugal, but it is what it is. We hope to resolve the issue quickly. But Cerrado is strong. We're financially strong. We have a very strong balance sheet. We've got 2 very, very strong operations outside of Lagoa Salgada, and we will continue.

Our next question comes from Ron Stewart with Red Cloud Securities.

Listen, first, I'd like to just congratulate you on the progress that you've been making on all of your sites. The company has been busy and has been achieving some good things. So congrats to that. With respect to the issue at hand in Portugal, are you focused on the legal issue of the timing? Or are you looking at the mitigation effort on this lower aquifer? Because by virtue of opening up the dialogue on the lower aquifer, aren't you legitimizing the situation of them bringing it up at this time?

We -- well, basically, we want to tackle these issues twofold. One is in a legal manner, which is the process by which every decision should be made when it comes to regulation and permitting. So we address that. But we also want to be good corporate citizens, and we want to show that what we're trying to do is this is not a technical issue. This is really -- again, we have the most -- the highest esteemed, most qualified individual recognized in the world with mining -- with mine water as a mine water specialist. And so we have a solution. We provided a solution. The solution can be further formulated through RECAPE in the next phase. And I think that we're transparent. We're upfront. We'll provide you with anything we can to help the cause. I think what's really important to note is that we're here to support Portugal, to support the communities. And this is probably one of the least obtrusive projects that I've ever been involved in from the perspective that we're in a square area, and that square area is surrounded by conifers. And the conifers basically will mean that nobody external to the boundaries of the property will have a significant impact in their lives. The fact is, unless you're on a peak or using a drone, you won't see the property. The only way people will know that the mine is there is that they'll see 4 trucks an hour coming out of the gate and the gate will have its name of Lagoa Salgada saying it's a mine. This is a very, very clean project, and I think the people deserve it. So we want to just highlight the fact, Ron, that we have the technical answers for the -- for any issues. We're not just trying to build a mine here because we want to build the mine from the perspective of we're going to ramroad it through anybody, quite the reverse. We're here to support the population and the people of Portugal.

Well, I appreciate the goal, Mark. Don't get me wrong. I appreciate the goal. It just seems that the process that you've been faced with contravenes their own laws. So on the precedent of stepping outside of their own legal system, that's a flaw to begin with. And they provided no time line as to how long it's going to take to resolve the matter.

We are just now engaging -- we sent out letters this morning to the ministries, APA, obviously, and to the ministries, significant ministries within Portugal. So from that perspective, we will wait to hear. And as I mentioned, we will have another call in a week or 2 when we have more information, more understanding of how this looks to go. I'll just stress that this was something that occurred very surprisingly, and it really was not anticipated by us. And so we're still trying to pick up the pieces as to what is going on.

I appreciate that best of luck. Keep up the good work on all the other things that you're doing. You've been doing a good job.

I'm showing no further questions at this time. I would now like to turn it back to Mark Brennan, CEO, for closing remarks.

Thank you, ladies and gentlemen. Again, greatly appreciate the attention and the engagement that you're making with respect to Cerrado. We continue to work tirelessly to resolve this issue. As Ron mentioned, we continue to really push ahead our other operations. I think for now, from a shareholder perspective, I would certainly look at potentially suspending the value equation to Cerrado that one had with Lagoa. But I think if you look at MDN alone, let alone the addition of Mont Sorcier, the value proposition for Cerrado is extremely strong. And not only that, but we're robust in terms of our cash position, our cash generation. And then also, we've got strong funding partners who are by our side even in these unusual times. Thank you very much all. Thank you very much, operator. That concludes the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.