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Mexican Mining Industry Has Great Potential for New Discoveries

Douglas Covey - Defiance Silver
Vice President, Corporate Development


José Escobedo By José Escobedo | Senior Editorial Manager - Wed, 04/28/2021 - 10:13

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Q: What are the main factors behind Defiance Silver continuing investment in Mexico?

A: Mexico has a tremendous amount of potential to make additional discoveries in jurisdictions that have prolific mining histories. In addition, several jurisdictions in Mexico are very mining friendly; they have a deep cultural understanding of the role that natural resource development plays in the underlying economies of cities and states. We think that there is discovery potential at both of our project areas and in Mexico. In the past 15 years, people who have worked with us have had great results with their investments in Mexico. Both of our projects in Mexico have very successful lifelines of exploration and development, especially in Zacatecas, a mining region that has been a source of tremendous development success, a large part of it is due to the skilled local people who truly understand mining and the nuances in these systems.

Q: How has the COVID-19 pandemic become an opportunity for Defiance to re-evaluate its projects and where are the company’s main investment targets?

A: COVID was very much that black swan event in the world that has had an adverse outcome for many communities. Mexico has had a very difficult situation with the virus. We were fully operating with technical and exploration work in March, and then the pandemic hit full speed. We sat down and discussed what the situation was and made the decision early on to pull our crews off our projects before the federal decree from the Mexican federal government was announced. Nevertheless, this time presented an opportunity for Defiance to really dig into the data and assemble all of our targets and 3D models with both in-country teams with executive level staff. This desktop time gave us an opportunity to put together a larger 12-month plan to restart operations once it was safe and with appropriate health and safety protocols in place.  This was very fruitful for us because we were able to establish really good targets and plan the drill program. We were then able to start reaching out to drill contractors and start putting together our drilling permits and amendments to cover where we wanted to have certain drill pads and access roads built. We were able to make the best out of a difficult situation.

Q: The company’s modeling has shown significant resource potential at depth in San Acacio, where it started drilling in December 2020. What have been the major discoveries?

A: Our 3D modeling done in January showed us that this mineral system is long-lived, with many fluids coming through carrying precious and base metals that have been deposited over a long period of time. There were multiple pulses and we saw that there was a great deal of high-grade mineralization in what was a large mineral system. We also noticed this system had never been tested at that depth, and there were hundreds of meters in the heart of the camp that had never been tested, or if they had it was not done correctly. Which is why there was no background structural model or structural geology. Nevertheless, it is a complex system, and the initial test left many really key questions to answer and that is what we have been following up with. What we discovered was a very long system, multiple pulses of mineralization, and mineralized structures in a number of different domains.

Q: What does the company expect to find with the potential expansion of its 5,000m drilling program to 10,000m at San Acacio?

A: We have completed over 5,000 meters already, thanks to a great partnership with Major Drilling, which has been an excellent company to work with. We will do more drilling, get the data integrated, analyze it, and follow up with the remaining meterage. We have always operated with the same mandate: in a linear fashion, we address the targets, test the targets, and follow up. We want to wait until we get some additional results back before deciding where to drill next. We have a pipeline of targets that will never be tested with a 10,000m program. Again, that's a great situation to be in. Once we move forward, we do have a pipeline of targets that include part of the acquisition we did with Pan American Silver when we saw an option to acquire their Zacatecas district landholdings.

Q: What factors make Tepal a valuable and attractive project for Defiance Silver?

A: It is a well-known asset that has been around for 50-plus years. It has a very different discovery profile or pipeline than your traditional silver-gold-silver camp in Mexico. The project has had a great deal of work done, about 60,000m of drilling and a lot of advanced technical studies. It has great economics and a large measured and indicated resource: 1.8 million ounces of gold and then 813 million pounds of copper. The Tepal operation is one of these success stories. The previous operators of the project did a good job of unlocking the metallurgical value, drilling and getting indicated ounces onto the book. A really important component to any mining operation is that you are not just mining the whole thing out but instead, you are meant to have a steady stream of replacement ounces, or increasing the total ounces that you are going to put through the mine operation and your mine planning. That is what we have been focusing on at Tepal.

Q: What are the main advantages that led to the recent agreement with Pan American Silver to acquire Lucita property in Zacatecas?

A: Pan American Silver is a very well-known, large, global silver mining company, one of the largest silver mining companies in the world, in fact. They have been working in Mexico for a long time. This property has been in their portfolio since the 1980s. Parts of the Lucita property have never been drilled yet. Including a 4km-long and up to 12m-wide structure called Palenque with grades up to 700 grams per ton of silver. We are hoping to drill there before the end of the year.

Q: Why should investors pay attention to Defiance Silver this year?

A: We are drilling right now. We are going to continue to drill throughout the year. In addition, we have really strong management, insider and institutional shareholdings. We are philosophically aligned with what our shareholders are looking for: an explorer with a strong technical team. As a management and technical team, we have worked with all types of projects, ranging from small resource to large resource operations in Mexico, Canada and other countries. We are financially capable to conduct our planned programs; our 2021 program is fully financed. We are definitely in a good spot commodity cycle. It looks good for the global commodity space. As an investor, the best thing you can do is build your project and your assets to show that you have strong underlying economics. We like to try and demonstrate that those economics are feasible, with low metal-price environments, and in case metal prices do fall out, the projects still remain interesting and viable in those markets.

Defiance Silver is a silver explorer and developer focused on the Zacatecas project located in the Zacatecas Silver District. The Zacatecas silver district has produced over 700 million ounces of silver. Defiance also owns the advanced-stage Tepal gold-copper project in Michoacán.

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