Tax Benefits of New Argentine Law to Apply to Future Mine
Research Report

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Disclosures for Beacon Securities, AbraSilver Resource Corp., July 5, 2024

Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? ☐ Yes ☒ No Does the analyst who prepared this research report have a position, either long or short, in any of the issuer’s securities? ☐ Yes ☒ No Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for any services provided to the securities issuer during the preceding 12 months? ☐ Yes ☒ No Has Beacon Securities performed investment banking services in the past 12 months and received compensation for investment banking services for this issuer in the past 12 months? ☐ Yes ☒ No Was the analyst who prepared this research report compensated from revenues generated solely by the Beacon Securities Investment Banking Department? ☐ Yes ☒ No Does any director, officer, or employee of Beacon Securities serve as a director, officer, or in any advisory capacity to the issuer? ☐ Yes ☒ No Are there any material conflicts of interest with Beacon Securities or the analyst who prepared the report and the issuer? ☐ Yes ☒ No Is Beacon Securities a market maker in the equity of the issuer? ☐ Yes ☒ No Has the analyst visited the issuer’s material operation(s)? ☐ Yes ☒ No Did the issuer pay for or reimburse the analyst for the travel expenses? ☐ Yes ☒ No All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of the Canadian Investment Regulatory Organization (CIRO). All facts and statistical data have been obtained or ascertained from sources, which we believe to be reliable, but are not warranted as accurate or complete All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities Limited takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment decisions based on the content of this report. This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell securities discussed herein. Based on their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries.

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AbraSilver Resource Corp. (ABRA:TSX.V; ABBRF:OTCQX) would benefit financially from a new bill the Argentine government passed in late June, reported Beacon Securities Analyst Michael Curran in a July 5 research note. Beacon incorporated the projected impact of the tax changes into its model on the Canadian explorer, and it led to a boosted target price.

"Clearly both measures would reduce the overall tax burden on the Diablillos project and lead to improved cash flow for the operation over the mine life," Curran wrote.

101% Return Potential

Beacon's new target price on AbraSilver is CA$5.15 per share, up from CA$4.75, noted Curran. The new target "represents significant upside to current share price levels," or more specifically an implied 101% from where the mining company was trading at the time of the report, which was about CA$2.56 per share.

AbraSilver remains a Buy.

Expected Tax Benefits

The recently passed Argentine law includes a new Incentive Regime for Large Investments (RIGI), applicable to future investments in the country of more than US$200 million (US$200M).

AbraSilver's Diablillos mine, outlined in a robust prefeasibility study (PFS) completed in March 2024, would qualify for these tax benefits, purported Curran. Diablillos, a silver-gold deposit in Argentina's Salta province, is the company's flagship asset.

Under the new law, AbraSilver would pay income tax at a rate of 25% rather than 35%, about US$452.7M instead of US$503M, according to the company's estimates. 

Starting in year three of operation and beyond, AbraSilver no longer would pay export duties on the precious metals produced at Diablillos. This would save the company about US$140M in export duties on gold and about US$105M in export duties on silver.

Summary of Study Results

Curran reviewed the PFS results. The PFS is based on a Proven & Probable resource of 42,300,000 tons of 154 grams per ton silver equivalent (Ag eq). It includes the impact of adding the nearby JAC deposit as a higher-grade starter pit prior to mining the main Oculto zone.

The study outlines a mine producing 14,500,000 ounces (14.5 Moz) of silver and 44,000 ounces (44 Koz) of gold, or 17.9 Moz Ag eq, annually for the first five years at an all-in sustaining cost (AISC) of US$9.97 per ounce of Ag eq. Capex is an estimated US$373M.

Over the life of mine, estimated at 13 years, production is projected to be 7.7 Moz of silver and 71 Koz of gold, or 13.3 Moz Ag eq, at an AISC of US$12.40 per ounce of Ag eq.

Economics include a net present value discounted at 5% of US$494M or CA$672M, an internal rate of return of 26% and a payback of 2.4 years.

The Catalysts Ahead

Curran provided a rough outline of upcoming events that could boost AbraSilver's share price. Completion of the 20,000 meter drill program commenced in May is expected in Q1/25, with drill results to follow.

Later this year, AbraSilver expects to submit an environmental impact assessment (EIA) of Diablillos. Further out, Beacon forecasts start of construction in H2/25 and initial precious metals production, two years later, in H2/27.