In what ways has COVID-19 impacted your business model in Mexico, and what strategies have you used to adapt to the new reality?
We were operating our mine in Guerrero, which had gotten back into production after being placed into care and maintenance throughout last half of 2019. We re-started production in January 2020 operating through February and March. Unfortunately, as a result of COVID-19, we suspended operations for two months under the government-mandated health precautions. We are a small company, and this situation has affected us dramatically because when cash is not flowing, it is difficult to meet one's obligations. Additional difficulties arose as a result of restricted travel to and from our mining projects, which has hampered our funding efforts by restricting site visits. A number of different groups that wanted to visit our sites, especially the Tahuehueto project, had to wait because of the pandemic.
Can you tell us about the objectives of the recent funding alliance with Accendo Bank?
It is important to note that the deal has not been finalized yet. There is a period of due diligence that we will go through in order to close it. This alliance will provide the bulk of the funding we need to finish the construction on our Tahuehueto goldmine. In that regard, this alliance is extremely important for our company. We initially received funding in shape of a loan—an off-take facility with Trafigura. Other than that, we were funding the project with cash flows out of Campo Morado; however, in mid-2019 we had to place the Campo Morado Mine into care and maintenance for six months. As a result, we had insufficient capital to actually complete the construction. The alliance with Accendo has come at the right time. We may still require a small amount of capital but we are confident we can raise that publicly or through a streaming deal.
A number of mining companies in Mexico are facing cash flow problems. What is your main strategy to regain financial stability?
We have resumed operations since the government of Mexico declared mining an essential activity. We were actually one of the first companies to qualify under the new rules to restart. We submitted our report of how we are taking care of COVID-19 onsite, protecting the community and our workers. We are back in production, and that is helping our cash flow. The agreement with Accendo Bank will provide us with the necessary funding to move forward with the construction of Tahuehueto. It is our flagship project and a company-building asset that will produce cash flows once to is in production.
What are your main priorities when it comes to Campo Morado?
Campo Morado is a really interesting project. It is also challenging because it is in the state of Guerrero, which is widely known as a tough state to operate in. Campo Morado is located in a well mineralized volcanogenic sulfide district. When we purchased it, it had seven or eight known ore bodies, and that currently makes up the bulk of our resources. The site has over 17 million ton of resources, and according to our calculations, mining 2,000 tons a day would give it a 17-year life. It is challenging metallurgically, and we are recovering about 15% of the gold and 30-40% of the silver. There is a possibility that if we can take this through the second phase testing, we will have a solution to increase precious metal recoveries. If we are successful in that, we May turn Campo Morado from a zinc mine into a silver mine. Another way to increase revenues is by increasing the production and mill throughput. If we are able to find additional capital to complete this expansion will should be able to reach a production rate of 3,000 tons per day where economics of scale should increase profits. This is one of our top priorities.