Gold and Silver Co. Receives Buy Rating After Site Visit
Research Report

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Disclosures for Beacon Securities, Sierra Madre Gold and Silver Ltd., December 9, 2024

Has the analyst visited the issuer's material operation(s)? ☒ 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.

Dissemination Beacon Securities distributes its research products simultaneously, via email, to its authorized client base. All research is then available on www.beaconsecurities.ca via login and password. Analyst Certification The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately reflect such research analyst’s personal views about the company and securities that are the subject of the report; or any other companies mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst’s compensation is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Beacon Securities analyst Bereket A. Berhe, in a research report published on December 9, 2024, maintained his Speculative Buy rating on Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) with a target price of CA$0.85 following a site visit to the company's La Guitarra Mine in Mexico.

Berhe highlighted accelerated production plans, stating, "The company expects to declare commercial production at 500tpd. By 2026 SM expects to achieve 650tpd milling rate (well ahead of our expectation in 2027) and by the end of 2027 SM plans to be at 1,000tpd (5yrs ahead of our model)."

The analyst noted strong operational progress, commenting, "During our visit, the mill was fully functional and run well on 24hrs basis, while mining is taking place on 20hrs basis (on two shifts)." He added that "current recoveries are averaging 80% for silver and 85% for Au. This is a much better recovery rate than we are currently modeling (~75% for both Ag and Au)."

Regarding expansion potential, Berhe stated, "The company believes a staggered expansion to an eventual 1,000tpd or 1,200tpd operation is possible, with relatively small capital requirement." He noted that "SM has sufficient access to grid power, tailing facilities, and room in the current mill for additional equipment, as well as access to manpower."

Beacon Securities' valuation methodology is based on NAV. Berhe explained, "Our valuation of SM is based on only 58% of La Guitarra resources, utilizing the existing mill capacity and with phased expansion to 1,000tpd, producing ~1.77MMoz of eqAg per year at an AISC of US$19/oz. It results in a project post-tax NPV5% of ~US$208MM."

The analyst noted that "SM is trading at 0.34x our NAV5%, below junior gold and silver producers average of 0.90x. On enterprise value per in situ ounces, it is trading at ~US$0.87/oz relative to developers at ~US$2.0/oz."

The share price at the time of the report of CA$0.48 represents a potential return of approximately 177% to the analyst's CA$0.85 target price.