Q: What are the main characteristics of Defiance Silver’s projects in Mexico?

DC: We have two projects in Mexico: San Acacio and Tepal. We have been working more actively at the San Acacio project for the past six years. The project is located within the Zacatecas Silver District, along the Veta Grande vein structure. This historic mine is located along 1,200m of strike length with an additional 4.4km to the southeast with no historical exploration. The property consists of 24 mineral concessions and Defiance controls a substantial portion of the entire Veta Grande vein system, which has produced over 200 million ounces of silver since its discovery in 1546.

The company has been actively targeting the extension of the Veta Grande vein structure since 2012. Our focus right now is using the well-established exploration within the Fresnillo and Zacatecas camp to look outside the principal structure for both hanging wall and blind structural assets.

Q: What is Defiance Silver’s timeline for its projects in Mexico?

DC:  We would really like to follow up on some of the exploration discoveries we made early in our drilling program because that shows the Veta Grande system extends beyond its current range. We are in a 12 to 18-month timeline right now to test the vertical and lateral extents of the Veta Grande system in areas that previously had silver, gold, and base metals intersections, as well as outlining drill targets within the area’s immediate hanging wall. Once we are finished with that, we can immediately target some exploration and define diamond drilling zones.

The Zacatecas camp is well-established and there is a great deal of operational activity, such as Capstone Mining’s Cozamin mine. We have concessions within the Mala Noche vein system acquired in 2018 through a purchase agreement with MAG Silver, which gives us exposure to the Mala Noche veins as well. In the Veta Grande system, we are applying results from the modeling done by our neighbors and is actually a great situation because we can obtain real-time data that provides us with information on the vein system at certain depths. We also have some of the top geoscientists in Mexico working on our project, mapping and developing some targets based on the original characteristics of the Zacatecas camp.

The main issue we have found and a common issue in Mexico’s camps is the focus on one vein, which is exactly what is happening at the Veta Grande vein. When you go to the camp, you can see the veins clearly because there are large open cuts that have been there for 500 years, but we have been successful in identifying more than one state of mineralization.

With respect to Tepal, the project is much more advanced. Tepal was discovered by North American companies in the 1970s, with significant gold and copper resources. The Tepal project, located in the state of Michoacán, is an advanced-stage exploration project with 4 million gold-equivalent ounces. We are confident that with an increase in the price of gold, the project will become even more attractive. At San Acacio, we are looking for control of the mineralization versus just following little pieces of mineralization. The work to date has been largely focused on the structural control of the gold mineralization.

Q: Is Defiance Silver working with local contractors or is it bringing in contractors from Canada?

DC: Our philosophy and experience have been to use as much local workforce as possible, both on the ground and with our suppliers. When we came in as a technical adviser (OreQuest), our immediate focus was to bring in as many top Mexican geoscientists as possible and our focus is to establish a strong in-country technical team.

Our senior geologist on-site at San Acacio is one of the top Mexican geologists that I have had the opportunity to work with. He has been underground at almost every mine operation in Mexico. The idea is to try to keep as much work in-country as possible. Mexico has a tremendous workforce and infrastructure in place for mine exploration and mine development, which is why we want to hire local talent. Of course, when certain services are not provided in Mexico, we bring them in from other countries.

Q: What is your financing strategy moving forward?

CW: Being an exploration company, financing is always one of the main concerns.  I come to this from the investment side through my involvement with Windermere Capital. We have become more involved in running the company day-to-day and have been involved since 2014. As investors, both in the equity and the debt, we continue to be the largest shareholder and our expectation is to continue being a supportive shareholder in order to move the projects forward. The ongoing strategies moving forward will require us to bring in like-minded shareholders who share similar beliefs in the upside of these projects.

Q: What is your view on mining in Mexico generally with regard to safety and risk?

DC: The reality is that this entire industry is risky; however, to manage that risk we prefer to focus on jurisdictions that give you comfort with the rule of law, rights of owners, businesses, and other stakeholders. Obviously, this is something that every company has to manage properly in any jurisdiction and they all have their own nuances, but we have found the areas in which we are operating to generally be friendly and open. Fortunately, we have not had any concerns regarding safety, but certainly, the perception of safety has been an issue for investors with a number of mining companies working in Mexico. It’s a very sensitive topic and one that is difficult to summarize because of the diversity and size of a country like Mexico. Mining does not compete with some of the underground industries in Mexico, the margins just aren’t the same. The issue has arisen because of the remoteness of many projects and the perception of territorial competition. In our experience, the way to navigate this has been to let everyone know who you are, let them know what you are doing, be clear about your development plans and hire a local workforce who is connected to the local economy. Health, safety, and security are the core tenets of any exploration or mining company, everything else is secondary to that. Our motto is “Home safe, every day,” and it appears as if other companies are catching up to this. Every industry in Mexico is affected by the security situation, this is not unique for the mining industry. We feel very safe and comfortable where we operate in Zacatecas.  The industry takes risks in every jurisdiction.  It’s about how you approach and manage risks. We are careful and our philosophy is to involve as many people as possible so that we can better understand and incorporate all relevant stakeholders and our effect on the local economy.

Q: Why is Defiance a good investment?

CW: The general market environment is attractive given where we are in the cycle. This sector has been in a tough time for most of the last decade.  For those companies that have been able to survive, they will able to take advantage of the projects and assemble the most qualified team to execute them. We believe both of our projects fall into the category of having exploration upside and significant future value.  For investors who are contemplating becoming shareholders, they have the opportunity to enter at very attractive valuations given their discounted prices.

Q: Can you explain more about the management changes you have made in the last few years?

CW: When I joined the company, we wanted to do a complete reassessment of the projects. That included identifying OreQuest and their team to come in and look at the projects objectively to do a top to bottom analysis to tell us what they thought. Their excitement about the projects has been positive. We’re still in the review process but getting closer to the end of analysis and into implementation.

Q: What are your priorities this year?

DC: Our main goal is to have a safe and successful exploration program.  It has been a few years since we had a significant drill program and we feel that with an improving market having exploration success will help recognize the value of these projects.  The Zacatecas Mining Camp is already one of the most important mining camps in the Americas, but its full potential has not been fully realized. San Acacio is approximately 30 years behind the development of where the Fresnillo mine is.  Regarding Tepal, for what we were able to acquire the project for, and to be able to step back and look at a detailed and comprehensive data set, combined with the work on the ground with a competent team and productive relationships with the local community is exciting.  At the end of the day, we are focused on creating value for our shareholders by pushing these projects forward towards the end goal of realizing the most value and potential for them.

Defiance Silver is a silver explorer and developer focused on the San Acacio Deposit 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.