Our approach is opportunistic. We like to buy assets that are unloved by the market. While a distress asset purchase will guarantee more work, the low purchase price limits the downside price and offer good upside potential. For example, our recently acquired Black Fox complex was originally purchased by Primero Mining in 2014 for US$300 million along with the assumption of US$140 million in liabilities. Then they invested US$120 million bringing their total investment to US$560 million. We bought it for US$35 million, which was equivalent to paying 6 cents for every dollar they invested. It came with over 1 million ounces in resources, annual production of 40-50,000 ounces of gold however with a short mine life, an operating mill with excess capacity, numerous exploration targets and a US$190 million-dollar tax pool, which means we can shelter US$190 million of future profits.

We expect all our projects to have a minimum of 150 million ounces of silver when it comes to reserves or 3 million ounces of gold for us to consider it suitable for our portfolio. Most of our mines are also in the first quartile in terms of production costs so this is a key aspect to consider in our projects before we think to develop them. We prioritize a stream of quality production ounces in our portfolio. The project also must be able to provide at least 15 percent IRR that can be achieved with higher grades or competitiveness in terms of the investment required to develop it.

I prefer to invest in projects involving people I have already done business with, meaning in the case of a dispute or disagreement this could be easily solved. I am commodity-agnostic, so although the Sprott brand is built around precious metals, the commodity that generates value is where my attention is drawn. I would also like local partners in the truest sense, so if a project were to take place in Mexico I would like to involve Mexican shareholders. We like projects with scale, and in my experience, small mines have all the risk of big mines but they can only make small money. This means the risk-reward ratio in small mines does not make them attractive to the kind of business we want to do. Grade is useful but the most important factor is the difference between return on invested capital and cost of capital.

Rather than acquire other projects, we prefer to grow our own projects, starting with a mill expansion and underground pit. This is our main focus. The Oxide Tailings project was an open-pit mine we opened in the 1970s with poor recovery rates. With new modern technology we have been able to reprocess and produce more metals and this will continue to be one of the expansion plans we prioritize over the next three years. We have grown organically, not through mergers or acquisitions, so we do not have a large management team and we hire mainly locals. We do not have any interest to expand outside North America at the moment. Our goal is to continue as a major producer and employer in Mexico.

In the last year or two, many countries have created significant losses for stockholders. We feel that if we want to attract investors back to our industry, we need to be careful not to subject them to those kinds of risks. Mining is already a risky enough business that we should try to minimize as much as possible the geopolitical uncertainty that exists. We focus on only three proven mining jurisdictions where there is rule of law, contracts are honored, permitting processes are well understood, there are educated and experienced workforces and good infrastructure, and we still see plenty of opportunity in North America.

We look for healthy operating margins; the mine has to be profitable after the stream is in place. We are taking some of the value of the mine, so if our partners are not happy, we are not either. We have to make sure that when we make this investment our partners will be happy on an operating basis and will keep investing in growing the mines. We typically limit exposure to less than 20 percent and on average we have 10 percent of the revenue tied to our stream. It has to have good margins so our partners are healthy and prosperous and we can profit from this prosperity when they reinvest in the asset.

We are a public company and we need to go where the investors want us to and where what we find can be reasonably developed. We are really trying to keep our operations focused on Mexico and we are hopeful about the elections and their ability to bring fresh opportunities and shine a spotlight on the sector’s potential. Right now, there is a lot of potential for Mexico, especially since zinc prices are increasing and Mexico is a zinc country. It is exciting to see such an increase in mining activity. If mining rules in Mexico were adjusted to be more favorable to FDI, investment could flood in. The southern half of Mexico has great mineral potential but there are often complications in permitting.

We continue to look for high-grade, district scale projects like we found in Juanicipio and Cinco de Mayo. We set a high bar, so very few projects fit our requirements. We have actually reduced the number of properties we have in Mexico. We sold the claims we had in Zacatecas district to Defiance Silver so they can consolidate that historic 1-billion-ounce silver district. Zacatecas is probably one of the most underexplored major districts in Mexico, in large part because the land situation has been very fragmented, so we are delighted to help Defiance put together a coherent exploration package there.