Corporate Update from Americas Gold & Silver

Trevor Hall [00:00:02] Welcome to Mining Stock Daily. This is Trevor Hall. Today reporting from the Denver Gold Gorum in Denver Colorado and sitting with me now is Darren Blasutti. He is the president and CEO of Americas Gold and Silver. I will preface this conversation by saying I am a shareholder of the company but this is the first time Darren and I have actually had a chance to sit down and record an interview for Mining Stock Daily. Really looking forward to it. If you are unfamiliar with the story. America's gold and silver is traded on the NYSE with the symbol USAS and also on the TSX with the symbol USA. Darren, good to join you here on mining stock daily. How has the last couple of weeks transitioning from Beaver Creek precious metals into Denver Gold treated you so hard.

Darren Blasutti [00:00:44] Well it's thanks Trevor. Very nice to be on the on the podcast. It's been a bit of a crazy couple of weeks 60 meetings last last week another 30 or so today or this week and you know obviously as the volume in the company has grown to one or one and a half million shares or so a day you know the number of meetings from last year this year is probably up about 50 percent so we're pretty happy about that.

Trevor Hall [00:01:07] I remember a year ago. I think it was almost a year ago this week is when Pershing gold decided they couldn't show up to Beaver Creek and so everybody was wondering what the heck was going on. Turns out Americas Silver is decided to to purchase the Relief Canyon project from Pershing Gold. So we got a number of things to talk about but please give us an update of where Relief Canyon is in construction. And it sounds like you are on track for first gold port in Q4 of this year.

Darren Blasutti [00:01:34] Yeah. So obviously we closed the deal in April. We announced the financing package the mine I expect we'll pour gold kind of the second week of December. I think at the very very outside date the first week of January so we're really triangulating down to a timeframe but we're pretty confident by the second week in December. You know it's it's it's one of the great great minds in the world and that you know it was it was built before it had a lot of infrastructure in place as probably $70 million dollars of value in the ground already. We only bought the company for $38 million. So very happy to have had it. And so we also bought it at $1180 and gold's gone up materially. So it's gonna be a great project for us. We think we're to be in commercial production by the end of the first quarter 2020 which is important no port in time because it's one thing to be poor in gold that's nice it's a nice opening day to have a conversation around it but you really want to be making money.

Trevor Hall [00:02:29] Early Christmas gift.

Darren Blasutti [00:02:30] Early Christmas gift so. So the mind basically is the long lead time item is the crusher that crusher has. We had a mine site tour last Monday. The crusher has started to arrive on site and we expect that to be up by mid-October which means that we'll be putting or on the leach pad by early November and that gives us the gold pour. So everything's on time and on budget. We've had a few cost escalations but we found a way to do a bunch of stuff cheaper. So ultimately I think that the $28 to 30 million dollar number is going to be paying on and we're going to be on time and and it's very exciting for us because it grows our precious metal revenue by 500% next year.

Trevor Hall [00:03:09] So how long's that ore need to be on the leach pad for it to think into the processing for the first pour?

Darren Blasutti [00:03:15] Right. So you've got eighty two and a half percent recovery or so totally on the order and that takes just under four months but you get a good 30 or 35 percent in the first month. And so ultimately again I think we'll be up and running very quickly on commercial production because this leaches very quickly and one of the key dates about getting it up in October is you want to get that first or the leach pad before it gets too cold. Because that effect. But once you get it on and you keep putting cyanide on top of it you don't ever have an issue with it but you don't want to be doing in December. That's why it was very important for us to fast track. Get this thing moving quickly so again. So you know we'll be you basically by three and a half months you're at 80 of the eighty two and a half percent recovery. So very quickly each time. We have very little issues with permeability or clay or any of that stuff. So it's a pretty simple process. So we're very excited that the mine has been has has leached ore before. So there's lots of known information about it. So again and as far as the mines that my team has built over their career at Barrick and Americas gold and silver This is probably the simplest mine we've built. So we're excited about it.

Trevor Hall [00:04:21] I just kind of curious. What led to your decision before Relief Canyon you were primarily a silver producer and some base metals lead and zinc. What made you want to transition and diversify more of your precious metals production to gold on top of the Silver. 

Darren Blasutti [00:04:38] So a couple of things. We were a silver producer in 2012 and basically silver only with a little bit of copper. And the challenge became when Silver went from thirty five dollars to thirteen dollars. Two points. How do you stay alive? And how do you keep your best silver in the ground because we thought thirteen dollars was a low price? So ultimately we bucked the trend. In the sense of most of the silver producers in the world were high grading their silver reserves to show decent costs and to stay alive. What we did is instead of doing that we converted our high grade silver copper into high grade high grade silver with low grade copper into high grade. Led zinc with lower grade silver that allowed us to maintain silver production but not nearly as much as we could bring on. But more importantly it allowed us to keep our best silver in the ground because we are believers in higher silver prices. So the challenge becomes when Silver stays down as long as it has and you're producing more base metals than silver people stop thinking you're a silver company. So we look at and say if you look at. You know really good companies like Endeavor and and First Majestic they're mining silver at a loss and they're shooting up the reserves. We on the other hand are in. We have increased our reserve grade by 22 percent over the last six years because we're producing our lowest grade silver so that means when Silver comes back which we think is going to happen we're gonna be able to produce a lot more silver than those guys as a growth. We could probably triple our silver production. Problem we had is in the interim we traded very poorly because Silver hadn't moved and it's a lot different. Gold companies at 12 and dollar gold can make money. Silver companies have $13.50 or 14 hours can't make money. So ultimately we were trying to figure out a way to increase our precious metal exposure without having to put our best silver on the silver into production now. And so Pershing accomplished that by giving us a project that had a 95% IRR at $1250 gold so it's way higher than that now. So NPV is well over $250 billion dollars on our project we paid $38 million bucks for it. Rerated us back to a precious metal producer for a base metal producer and almost as importantly allows us to keep that silver in the ground so people think Oh. Silver has gone to eighteen dollars aren't we excited. We think it's going to go to thirty dollars and we can go from one point five million ounces to four and a half billion ounces silver that's what we get real leverage for our shareholders.

Trevor Hall [00:06:58] Do you need 30 dollars silver to go after that high grade?

Darren Blasutti [00:07:01] No but I I we believe the price is going to be there at some point so we could make money at twenty dollars. Good really good money. But again if you think 20 dollars is all the silver price is going to be. Like I make money on lead and zinc today and I don't have to use up my silver I don't think led zinc prices in three years are going to be as high as they are now. So I'm going to make money on that stuff while I can and I'm going to wait for silver to get to a price I like. So the company itself is going to go up in Silver production next year year over year despite the fact that we did a 60 40 joint venture with Eric and we're going to lose some silver from Galena. It's actually you know that production will go our silver production. Overall the balance sheet will go up year over year but it's not where it's not going yet to where the potential is to go.

Trevor Hall [00:07:47] You  mentioned the strategic investment with Eric Sprott. I do want to get to that. That was one question when I ask you but before we do that can you give the listeners an idea both with your Galena project in Idaho and the Cosella project in Mexico. How much high grade silver in those two areas are we still sitting on?

Darren Blasutti [00:08:07] Yeah. So we got it we got about 10 and a half years of reserves in Mexico. Three years as the zinc lead, seven years as the high grade silver. OK. So and that's the tip of the iceberg. We've had no money to drill out more reserves so there's steadily more reserves but at some point you say I got 10 years on the balance sheet. I don't have you know prices are low I'm not going spend a lot more money on exploration. I think in Mexico we'll be mining there law like for the next 30 years. So the question is can you find more high grade silver you're gonna find more high grade based metals and that's the question as we go to exploration we're going to try and solve for. But we got seven years there. At Galena there's 80 million ounces and in and of that 80 million ounces the majority of that is silver copper reserves. And we haven't mind any of that silver copper since 2013. So that stuff is 13 ounces silver. The problem is it's a narrower mine in veins. And so it's a little bit more costly to extract. So when you had silver and copper drop. That stuff became more expensive. So in 2012 we did two two point three million ounces out of Galena all at a silver copper stopes. Right now we're going to do 1 million ounces this year out of just silver led stopes and with the Sprott joint venture in the money he's putting in we're gonna go to 2.2 To 2.5 million just of silver lead and you have all of that silver copper to come back on in higher prices. So at both Mexico and Galena this the silver led production and the silver zinc led production. Or silver copper production even in Mexico can come back on at almost any price. The silver copper at Galena needs probably 25 dollar prices. So we understand where it is where our trigger points our objective is we always want to make ten dollars an ounce. So you think about what it costs to discover mine to permit it to drill it to build it. To make a dollar an ounce. To take it out of your balance sheet is asinine. It's just the wrong process right.

Trevor Hall [00:10:07] Well you're all in sustaining cost in your Silvers just a little over ten dollars company wise right.

Darren Blasutti [00:10:11] Yes but but but what I'm saying is we if we brought on all the silver copper maybe our number goes to sixteen dollars or fifteen dollars an ounce and then we make two bucks. So you focus on the stuff that makes the most money you get your spread and then you kind of you wait for the prices to go and you alter. So we're very lucky to have. High grade silver low grade copper and high grade led zinc. You know like different different products because that allows us to defend when silver prices are lower not have an issue with the company. So our prices are higher bring on that high grade reserve. Right. So we're we're very comfortable with where we are. The challenge we had at Galena was where silver prices were was hard for our board to make a business decision. They can't make a business decision on 22 dollar silver. They're making a business decision on 15 dollars. And so therefore when you look at the are between what Eric did with us and what we did with Eric is that he doesn't care. He thinks Silver is going 100 and he may well be right but I can't make a business decision based on a hundred dollars over in the future. So his capital makes the IRR and my project go from single digits to almost triple digits because it's all his money going in and then I get more profitable silver out and I get to discover more profitable silver. So we're very excited about it works for both parties.

Trevor Hall [00:11:28] You know that news is really interesting because I think it was maybe the only time I've ever seen a joint venture with a company and an individual you know not just two companies right. It was very unique but give us kind of a rundown of what this money is going to do I believe is $20 million dollars but it's meant to basically modernize the Galena complex right?

Darren Blasutti [00:11:45] Yeah. So so three things. There's 80 million ounces of silver currently discovered at Galena. OK. But of that 80 million ounces there's about 12 million in reserves. And then there's some measured and indicated and then there's inferred. And the only reason we have a lot of indicate owns 58 million ounces of inferred and indicated not because that's not drilled properly it's because we don't have any infrastructure there. So the hard part is at 15. If using fifteen or sixteen dollar silver to spend all of that capital to get down to those reserves you don't get a great return on that money. So you know we expect a 15 percent return for our shareholders. So when we bought Pershing. It was a 33 percent return at $1290 gold it's now gone to 50 percent. At Galena would have been 4 or 5 percent. So it's hard to justify using shareholder money to get those kind of returns. So Eric's money comes in and it modernizes one of the shafts because we're going to dump more than double production and we need that capacity. It's going to buy new mining equipment we haven't bought a single new might piece of mine equipped since 2012. So at one piece of one of our loaders we've built rebuilt 37 times. So we've done all of the MacGyvering duct taping we can do. And so Eric's money seven and a half billion of that 20 is infrastructure like infrastructure and my and mining equipment. Another seven and a half billion dollars is development. So developing to the known reserves that are already in the ground that we know will be profitable once we get there. And then the third kind of $6 million or so is exploration drilling. And that exploration drilling will take we believe we'll take that 80 million ounces and add somewhere between 80 and another hundred million ounces. So take the mine from 80 million to potential 160 to 180. So we've given up 40 percent of the asset. But it's it's losing money and unprofitable. We're going to end up with 60 percent of more ounces than we started with producing more production than we started with using Mr. Sprott's capital to fund that for us which is a decision our Board would never make.

Trevor Hall [00:13:47] Darren I don't want to take more time than we've allotted but I do have one last question. I mean. For pure margin cases. Americas Gold and Silver appears to have one of the best margin calls in the entire industry as far as a mid tier late stage developer and with operations in production. What are some of the challenges you're going to be faced with within the next year? That you are maybe kind of waiting to see if you have to play those cards?

Darren Blasutti [00:14:16] Okay. So what we've been successful at to create margin is defined low capital intensity projects. Like San Rafael in Mexico which was 16 million to build like Relief which is 30 million dollars to build so low cash low capital density upfront and then get lots of cash flow. The challenge we have is mine life length. And so what we're looking we're gonna get we're going to make a tremendous amount of free cash flow from. Up the Relief Canyon Mine in the next three years like close to a hundred and some million dollar maybe under 20 million of free cash flow at these prices. We need to find what we call the unicorn the asset that's 10 to 15 year mine life produces more than one hundred thousand ounces can be built for. So what we want to do is we want to build a company on long life assets. And so the hardest thing for us to find is those so believe Kenya's got a six and a half six year reserve. Plus another year or two of resource. Mexico we've got ten years we've got to drill it out. Glenn we've got a lot of resources but it's short so we're trying to find another asset in the Americas with great jurisdiction that can be the next stool of growth for us. That's the house challenge.

Trevor Hall [00:15:21] How's the shopping been while you been here in Colorado for the last two weeks?

Darren Blasutti [00:15:25] Well I'm happy to say that when I used to come to Denver we were so small that while all I did was do shopping. Now I haven't had much time because there's a lot of investors interested in the story. So that's good. But listen we're we're not looking for the obvious let's merge with a company our size and get on another ETF to create value. We're actually looking for value intrinsic assets. There's a number of them out there and what I'm most excited about is I don't have to go to Honduras or Guatemala or Brazil or whatever there's discounted assets in North America that we are. We'd be very excited to pick up and the key is to do it at a good price for our shareholders. Because what I don't want to do is buy companies and and transfer all the value for my shareholders to the new shareholders. So the question how do you get deals done that are creative to both sides that create good returns for our shareholders. That's the that's the hardest part right.

Trevor Hall [00:16:15] Would you consider looking at other assets in Nevada. One of my concerns is Nevada especially during a bull market the premium is getting so high as far as shareholder value in return goes it's almost plain you know it's almost too much money that has to go into projects and like why not look at other jurisdictions whether it be Idaho or Utah?

Darren Blasutti [00:16:34] So listen we got to in Idaho where all over Idaho we actually like parts of California. You know we may be a mining permit Grassy Mountain may be permitted in Oregon which you know 10 years ago we never would thought right. So. So I think the United States a great jurisdiction. There's places like Quebec. And you know parts of Canada that are very good. Mexico is a great place to do mining but there's other challenges there of course right. You got to get area specific and understand where you are. So we've got focus on I think our focus right now is Mexico Nevada Idaho and Quebec. So very good jurisdictions with good growth. And you know what. Trading at point three times NAV. You know what we could call that's a discount but I'd rather buy something at point three times anybody in Nevada than by seven point one eight times in Brazil any day.

Trevor Hall [00:17:21] One last question just about the ticker symbol of the share price a year ago well almost December last year you were trading at about a buck thirty in the U.S. and now you're today like pushing three dollars it's actually been higher than that over the last couple of weeks before this consolidation in the silver and gold prices. But we were also in a bull market now. Last year at this time we were in a bear market. You as a CEO how difficult was to make those hard decisions not to go after that high grade but to really just put your foot down. We know things are going to turn around and our game plan our business strategy is solid and found with good strategy here?

Darren Blasutti [00:18:01] Well I think the key thing was shareholders. So we had listened. Eric Sprott We know we knew that if we got it if the strategy was right and if we needed some money we could always go to those guys. We weren't beholden to the you know institutional capital markets group. I mean you know Eric's been a supporter of the company since day one. Eric Pierce has been a great supporter of the last year and a half. So ultimately we had the confidence because they believed in what we were doing. And so that helped a lot. So that decisions weren't easy but we knew they were the right ones. And I think as as manager at a company and have been at Barrick for a long time sometimes you made the wrong decisions to enable your share price to go higher in the short term. And I think our ultimate decision is we think we're gonna be a $10 stock but that's going to take two years and we're happy to. And so when we see a move from a dollar to three but it really went to four now we're at three. Just keep doing your job you know keep doing the blocking and tackling keep doing the right things keep going out marketing the stock and we'll get there right.

Trevor Hall [00:19:01] Well as a shareholder I hope it's a $10 stock. Thank you. Thank you so much Darren it's a pleasure to finally get a chat with you. Enjoy the rest of your time here in Denver I know it's kind of coming to an end here pretty soon but best of luck and you know is there any way a shareholders can reach out to you get to ask any further follow up question yes.

Trevor Hall [00:19:45] That's Daren Blasutti. He's the CEO of a now America's golden silver traded on the Toronto Stock Exchange with the symbol USA and also on the NYSE American with U S A S.