Pinnacle Silver & Gold - El Potrero Project Update: Drilling, De-Risking, and Development

Hey, everyone. Welcome to the K E report in a company update from pinnacle silver and gold.

I'm chatting with the president and CEO Bob Archer. We're recapping a news release from February 26th

an update from the Elport the Rio project. The headline says the company wants to provide this

update as it advances towards a production decision, but there's a lot going on at this project

and a lot within this news release. We're going to be talking drilling both underground and potentially

surface drilling permitting for that surface drilling met testing another round of that feasibility

study work and a community agreement. So a lot for us to get to Bob, let's start off with drilling.

You and I have been talking about the potential of underground drilling and even some surface

drilling at this project and the underground drilling that was always the first priority around some

of those historic mine workings. Please explain to us this underground drilling. The news

release says that preparation would be starting this week. What does that look like for underground

drilling here? So Cory, the underground workings are 35, 40 years old and they really need to be

modernized and enlarged for the equipment and made more secure, made more emphasis on safety.

So that's really what we mean by the preparatory work in order to make the areas

large enough to get the equipment in there and the drill stations need to be properly established.

They need to be large enough for the equipment and everything needs to be secure from a safety

standpoint. So rock bolt screens, things like that. So that's paramount. We can't have guys working

in there without a secure environment. So that work will get underway immediately as you mentioned

and it'll take several weeks to get far enough ahead to prepare the sites and everything for

the drilling. So we anticipate that the drill should be able to move in and get started around

about the end of March, maybe even early April, depending on how the work progresses. But once

that starts, I mean, we're really looking at what we call delineation drilling. This is not

exploration at this point because we've taken more than 800 samples underground, you know, systematic

channel samples such that we know pretty much where the mineralized zones are in the underground

workings. But having said that, the workings themselves are somewhat limited in their extent.

And so, you know, we don't really know the size and shape and overall grade of the mineralized

zones. And only the drilling can tell us that. So, you know, it's a really important step in terms

of really defining what we're going to be looking at, you know, in order to develop a preliminary

mind plan that will need, you know, in order to move forward with the project. So it's a significant

step in terms of, I guess you could say, de-risking the project, getting a better handle on the

geology, the mineralization, the grade, that sort of thing to know, you know, how to put it all

together into a proper mind plan. So it's a step that, you know, you don't often do right off the

bat with with a new project. But because we have access to the underground workings and because

it's been in production before, you know, it's something that we can do immediately. And we can do

that while we're waiting for the permits for surface drilling, which, you know, we anticipate

getting those perhaps in about 60 to 90 days. So, you know, that's the start of the surface

drilling could potentially dovetail with the end of the underground drilling. And the surface

drilling would then allow us to test some of the areas that we can't get to with the underground

drilling. And perhaps the zones in between the three historic mines where there are no workings,

no drilling. And we really don't know anything about those areas, as well as testing other veins.

You know, the three historic mines are on the one dose to mile vein over 500 meter strike length.

But the surface drilling will also test parallel veins a couple hundred meters away and another one

that's slightly different orientation, but about 500 meters away. And those have given very

strong values in our sampling as well. So there's, you know, there's lots of websites still on the

exploration, but we can move forward with the delineation drilling immediately. Bob, any idea

how much delineation drilling you need to build out some sort of mind plan or gain the confidence

needed to move this into production? Yeah, what we're looking at right now is about 24,

25, 100 meters. And, you know, within that, we're talking over a hundred holes because, you know,

with the underground workings, you're effectively right in the guts of the system. And so, you know,

the holes, when you set up the drill, you know, right inside the mineralized zones like that,

the holes are going to be relatively short. You know, we, we don't know where or how wide that

the mineralized zone is in a lot of cases. There are a few places where it can get up to 8 to 10 meters

where we do know, but the other places where, you know, might only be one or two meters wide.

But for the bulk of it, we actually don't know how wide it is because, you know, the workings are

right inside it. So we're effectively drilling from the inside out. And once you get through that

contact, then, you know, you don't need to drill much further. So most of the holes are going to be

pretty short, 20 to 25 meters. And we're just going to be drilling fans of holes. So, you know,

ideally you drill like maybe a vertical hole, then one at 45 degrees, and then a horizontal hole,

and then one 45 degrees upwards. So, you know, you drill those fans, and then you move over 10,

12 and a half meters and do the same thing again. So, you know, it should go fairly quickly. And

that's really what we'll be doing to get a, you know, a good handle on these zones.

So that pathway to the surface drilling or more of that exploration drilling, you mentioned

that ties in with permitting. Permitting, you said about 90 days that you should get some answer

on that. What would that all look like in terms of surface drilling? How much you would do, and

just how much you would be able to test? Well, we're still refining that. And, you know, well,

we'll make further announcement on that as we get closer to that date. But I'm will probably

prioritize it into different phases. So, we don't have any hard numbers on that just yet. But,

you know, I say say we'll be testing. It'll be in part fill in drilling between the end of ground

works. And as well as testing parallel veins, you know, within a few hundred meters of the main

zone. Okay, Bob, let's then move on to some of the other work that's going on. This

metallurgical testing sounds like a second round of metallurgical testing is underway,

explain the first round and what this second round is then testing.

Well, the first round really only consisted of three samples. And, you know, we submitted those

not knowing what we were going to get. So there was, you know, we couldn't really give much in the

way of specific instructions to the lab other than what, you know, process to use. We couldn't

optimize it at all because we didn't know what to expect. So when we got the results of that first

round, we were really pleased to see that we got an average of 95.1% recovery on gold, which is

very high. And especially without any optimization whatsoever. So we're very, very pleased with that.

And not only that, but I mean, there was, there really wasn't a lot of variability there. You

know, the, the three samples range from, you know, 92 to 96% roughly. So that was, that was one

thing. The silver on the other hand was a little bit more variable. And that range from about 41

to 74% on the three samples. So, you know, we know that we have a little bit of more work to do

on the silver. And the reason for that is that the gold is, a lot of the gold is very fine,

and it's free gold, very small grains. And some of that can be recovered just through a gravity

separation. And some of the other gold is likely tied up in electron, which is a natural alloy

of gold and silver. So for the silver, some of it will be in electron also, but it's likely to be

in, in silver sulfites. So we need to determine what the silver mineralogy is and how best to

attack it from a processing standpoint. And so on this second round of samples with a, we took

seven of them and they've been sent to the SGS lab in Santiago, Chile, where they're conducting

kind of a state-of-the-art round of testing for mineralogical work that will identify the silver

mineralogy. And from that, we can determine the best methods to recover the silver at a higher

recovery rate. So I'm hopeful that once we've done that, if we can get an average silver recovery

that's in their 70s or perhaps even higher, then, you know, I'd be very happy with that. But

the other thing that we're doing, we've taken, you know, five of those seven samples came from

the three mines along that main zone. And we'd run some individual assays on those and the,

and then composited the five samples and then taken a head ass or conducted a head assay of that

composite sample. And that came back at 7.7 grams per tonne gold and 116 grams per tonne silver.

So, you know, we were very pleased with that because, you know, as I say, that's, you know, five samples

taken from the three mines over 500 meters straight length. And the reason for compositing those

is that, you know, when you send this material to the plant, it's all going to be blended together

anyways. And in order to optimize the processing and, because you want it to be consistent,

you don't want your grades and, you know, the makeup of the, of the order to be varying,

you know, on a daily basis or weekly or whatever it might be, you want it to be as consistent as possible.

So that's why, you know, we're doing these tests. And, but seeing that, that high grade of,

you know, 7.7 grams gold and, well, with the silver, that sort of translates into almost 10 grams

per tonne on a gold equivalent basis, which is more or less what we, you know, our first premise,

I guess you could call it, was when we started the project, because we don't have a lot of

historical records. And so we have very limited information to go on. But that's roughly what

what we're considering at the time. So the, so this round of metallurgical tests will

optimize the material to a greater degree than the previous tests. And so then once we get the

results of these, which will be in about six to eight weeks, then we'll be able to take a look at

those results and then decide, you know, if there's further optimization required or desired.

And then at some point, we'll probably take a larger bulk sample and run a test on that.

And all of that information will feed into, you know, plant design and a more detailed flow sheet.

And which in turn will tell us, you know, the size and type of equipment that we need

for the plant, because, you know, and as much as the plant, the historic plant has been sitting

idle for 35 years. So, you know, the foundation and the framework and, you know, the conveyors

and things like that are still in good shape. But any any mechanical equipment or an electrical

work and so on is, you know, that's all going to have to be replaced. So we have to order

all of that equipment. And so we need to know what we're going to be ordering. And, you know,

the metallurgical results will will go a long way to, you know, to helping us determine, you know,

what, what equipment we need. So instead of this met testing filtering into

economic studies, what we usually hear, this sounds like it's filtering very much into what

production would look like. Yeah, that's, you know, the size of this project is such that, you know,

we feel that we can just bootstrap this into production ourselves. You know, we've got a very,

highly experienced team in Mexico, plus one of our directors as a metallurgical engineer and

he's involved in the construction of three other plants in Mexico right now. So, you know, he's

been working closely with me on these metallurgical tests and and scoping out the equipment that we

need for the plant and so on. So, you know, we don't intend to go through, you know, multiple

independent studies, PEAs, PFAS, feasibility, all that kind of stuff. We're just going to do this

ourselves and, you know, we did that previously with great pan through, we brought three mines into

production without, without going that route and, you know, it just, it saves a lot of time and

we just want to get to production as quickly as we can and with metal prices being where they are.

You know, we want to try and take advantage of that as quickly as possible.

Yeah, fair enough. Now, there's a feasibility study that I mentioned, but this feasibility study

a little bit different. It's focused on the extension of a power line to the project site.

Talk us through what's important about this power line, what the feasibility study looks like

when we could see these results. More information here, please.

Yeah, so when we had our initial discussions with what's called the CFE, the Commission on Federal

Electricity, or the Federal Electricity Commission, they, you know, their policy is that the

company has to get an independent contractor to put together a feasibility study specifically for,

you know, the power line extension. So, you know, that contractor has been engaged and they're going

to look at things like, you know, what are the power requirements for the plant, you know, how much

power is currently being delivered through the existing power line? You know, how far will we have to

extend that power line? Where's it going to go? Is it going to go overland over the mountain,

or is it going to follow the road around? And then, you know, it's more likely to be the latter.

And so following the road, we'll need to conduct a kind of a right away or constructor right away

alongside the road for which we'll need an environmental permit, you know, for that as well.

But then we'll need to know how many how many poles are we going to need? You know, what sort of

gauge is the electrical line going to be? How many transformers will we need? So things like

that, you know, that that's what's going to be involved in the feasibility study. And we've

been told that it should take about 45 days to complete that. And that will give us a better sense

of, you know, the cost and the time to put all that together. And then, you know, we submit

that to the electrical commission. And then they in turn will look at that and, you know, sort of

give us, give us the green light at some point. And at the same time, we'll be applying for the

permits for the right away. And, you know, hopefully get those in fairly short order as well. So,

you know, it's just, yeah, it's just part of the process. And, but all of that is underway now.

Okay, one other thing that is also part of the process is community agreements. You announced

that you have signed a community agreement covering all the work that the company is undertaking

to advance the project towards a production decision. What does this mean? Are you just in the

clear on the community sense now to move this into production when you want to?

So, what we found out just recently, actually, we had initially been told that there was a private

property agreement in place that covered the mines and the plant and everything. And it took

some months to actually get that documentation. But when we did, our lawyers in Mexico discovered

due to a technicality that was decades old, that property agreement was not actually valid,

which meant that the community from whom, you know, the previous or the other vendors thought

that they had purchased the surface rights, the community would still actually own the surface

rights. And so, rather than working with the vendor of the private property, we then had to go

back, you know, and discuss that with the community in order to get a proper agreement in place.

And, you know, it wasn't an issue because we have a very good agreement or a very good relationship

rather with the community. But it was just another one of these steps that we had to follow through

in order to make everything legal. And so, we've done that now. But knowing how quickly the project

will change and how we're going to be moving from development into production, this first

agreement is really only good for a year. And it covers, you know, the work that we're doing

right now to move the project forward. But within a year, we hopefully will be making a production

decision. And at that time, we'll have a much better sense of, you know, other components of the

project, you know, things like the actual production rate, you know, where the tailings facilities

going to go, you know, water related issues, things like that. So, so the next agreement that we

get with them will be much more comprehensive. And it'll replace the one that we have right now.

So, you know, we don't really have that information right now. And that's why, you know, we weren't able

to to construct that type of an agreement at the moment. But as I mentioned, the, you know,

the relationship with the local community is very good. And we're providing jobs for the young

folks there and upgrading roads and and that sort of thing. So it's, you know, it's a very

positive relationship. They're very supportive of the operation. And they'd like, they want to see

us move forward back into production. So that's, yeah, it's an important step certainly because you

can't, you can't get any other permits if you don't have access to the surface. You know,

that's something that the the environmental ministry stipulates that, you know, you have to have

that. Otherwise, you're not going to get any other permits. All right. Bob, that was a lot to

cover for this project. I guess wrap us up with an outlook for future news. What should we have

our IO for? Well, as each of these components sort of comes to fruition, like, you know, wrapping

up the feasibility on the on the power line and starting the drilling. And then once we do start

the drilling, there'll be steady assays coming out and then we move from underground drilling to

surface drilling and same sort of thing there. And as we get various permits, you know, we'll be

able to announce those. We've been told verbally that we will be getting our water permit and

they're just formalizing that now. So I'm, you know, waiting to to see that in writing, not quite

sure when that's coming. But, you know, as as each of these things falls into place, each of those

will be newsworthy and will continue to de-risk the project throughout the course of the year. And

then, of course, you know, one of the key things is that, you know, our intention is to fund

the restart through production financing related to an off-take agreement. And so those

discussions are ongoing as well. And, you know, once those get to a point where we can actually

announce something, then, you know, that'll be a very significant milestone because it'll show

that we're actually financed to production without having to go back to the market and

downloading shareholders. All right, Bob. Thank you very much for the update. Again, Bob, our chair

president and CEO of Pinnacle, Silver, and Gold company is traded on the TSX Venture Exchange

under the symbol PINN on the OTC markets under the symbol PSG CF and the Frankfurt Exchange P9J.

For everyone listening, please send me any questions you have for Bob and I'll follow up with

them as we get some more news. Bob, thanks for the update today.

Thanks a lot, Corey.