Luca Mining – Q2 Operations and Financials, Ongoing Exploration and Development Work At The Campo Morado and Tahuehueto Mines

0:00Hello and welcome into the K.E. report. Shad and Corey here is your host. And today we're getting an update on Luca Mining. Luca Mining is traded on the TSX-V under the ticker LUCA and on the OTCQX under the ticker LUCMF. Also on the Frankfurt Exchange under the ticker TSGA. And we are joined today with the CEO of Luca Mining, Dan Barnholden. And Dan, it's great to get you back on the show. It's been a little while. Been a couple of months since we've had you on. And when we talked last time, it was really looking at Q1 operations, recapping the year, looking at what the plan was for 2026. Now we're right in the thick of it. And you've put out your Q2 numbers. You've got the operational update out, the financial update. You're doing a lot of exploration work. We're going to dig into all of that. I guess just from a high level, you've got two operating minds, Tahoeito and Campo Morado. Let's maybe start with Tahoeito. It's a success story. You've been continuing to expand resources, bring costs down, it's turning right along. What can you say about the operations at Tahoeito?

1:00Yeah, first thanks for having me on. Always a good opportunity to update you in your listeners. Tahoeito, I would say, is largely a good news story. The exploration we put out, we put out an update this week, continues to deliver grades that are above resource, wids that are as thick, if not thicker, than what we're mining. And so the exploration has been wildly successful there. We actually put a pin in our exploration at the end of June, early July of this year, expect to have a resource update before the end of the year, as well as a new technical report that'll lay out. What I expect to see a very positive update on Tahoeito, the mine life, the resource volume, and we're going to move a very significant portion of the resource into a reserve. And so very happy with developments at Tahoeito. In addition, there were also moving from Cutton Phil

2:02to Longhold, which will be an opportunity for us to drive those costs down to drive our daily throughput up, which obviously impacts the unit cost. So lots of good things happening at Tahoeito. Dan, maybe just remind everybody what the current resource stands at, and then for that conversion, for the expansion. In a way, what you're targeting, what do you think is possible at Tahoeito? Yeah, so right now we've got about 6 million tons. And this is all from a 2022 PEA. And so there's a lot of mining has occurred there over the course of the last four years, five years. In addition, a lot of drilling and a lot of things have changed at Tahoeito. So the original PEA suggested that was about half a million ounces of gold, in about 6 million tons of resource. I would expect better than replaced depletion over the course of the last four years, as well as expand the resource more broadly

3:04into some of these new veins and zones that we are discovering with the drilling that we've been at for the last 18 months. Well, speaking of some of those veins in areas, let's maybe highlight a few of them for people interested in the expiration success. Do you highlight in the recent news from September the 8th that in addition to the Crestone and Perdito veins, you've had a lot of action at this Cattor Sei zone. So maybe talk about any of the areas that you think are of note for investors listening in. Yeah, so Tahoeito is really a traditional typical Mexican epithermal style and deposit. It occurs in veins. It's got some brechiation at some of the blowouts, but really it's a very typical Mexican underground gold silver mine. And so what we are doing is we continue to chase those veins at depth. And as I think we've discussed in the past and anybody that's familiar with the topography of the mine itself, it's a vein that goes through a mountain. And so we're aware of mineralization. Obviously in the areas where we're mining now,

4:05which would be on the Crestone and the Perdito side of the mountain. On the other side of the mountain, we call that the Santiago V. Our working hypothesis and all the work that we continue to do on the exploration front suggests that the vein is actually the same system. It's the same veining that goes right through the mountain. And so what we continue to do is chase these veins to depth and along strike. And my expectation is that there is at least a million ounces to be discovered. So that would be a double from the current mineral inventory that we are currently working off of. So lots of work, lots of potential. I believe that this mine's going to be in operation for at least another 10 years, but in all reality longer than that. Then just a quick update on the mining at Telloetto. You strengthen, you improve performance in Q2 of this year compared to Q2 of last year in terms of increasing the tons mind and milled.

5:08And the throughput at the mill actually exceeded the plant's 1,000 ton per day capacity. It was over 1,100 tons per day. Talk to us about what the mining situation is looking like at Telloetto and what further work you need to do to improve some of the financial results there. Yeah, so you hit the nail in the head. We declared commercial production at Telloetto in Q1 of 2025. Over the course of the last five quarters since that time, we've consistently grown throughput to the point where we're averaging more than 1,100 tons per day. We expect to be able to continue to drive that up. As you said, the original goal for the mine was 1,000 tons per day. We actually think that it's capable of a minimum of 1,200 tons a day. And we've got some marginal improvements that can be done for fairly modest capital investment. I think realistically, we should be able to push that mill to process 1,500 tons a day. That's probably about going to be the capacity

6:11of that mill in mine complex. But really, it's about increasing milling capacity. As I mentioned, we're in the process of moving from Cut and Fill to Long Hole, which should make the mine more productive. It should also reduce costs. And you have to remember that this mine was built really on a shoestring. And the original set of mining contractors that were in there were very undercapitalized to the point where we were actually lending them money to continue mining for us. We've now run in better capitalized mining contractors. They have the capacity to do Long Hole. The underground development has been largely invested in. And so I won't say we're in harvest mode by any stretch, but we've kind of caught up with the capital that was neglected in the years, 2020 to 2024. And so we're starting to make some real progress at Teleweto towards increasing throughput,

7:11increasing production, driving down mining costs, both through more efficiency with our mining contractors, but also more efficient mining methods. As I said, going to Long Hole from Cut and Fill, which is obviously a higher volume lower cost. And just one more question on Teleweto before we switch over to Campo. The questions are keep coming in about clarifications on how the stream works with Empress. I know there's a step down coming at one point. Can you just give us an update on the Silver Stream? Yeah, and obviously that's a massive opportunity for us. And in fact, it's the easiest, lowest hanging fruit for us because it's going to happen just as a consequence of production. So when the original contract was agreed, it was a million and a quarter ounces delivered at 100% of silver. OK, so we're better than halfway through that. We made very material progress. We produce between 30 and 35,000 ounces of the status quo. We expect that to ramp up a little bit

8:12over the course of next several quarters. So if we're producing 30 to 35,000 ounces, we've got 100,000 ounces left to deliver. So you know, simple math that's less than certainly less than two years. I like to think that we can in the next six quarters be completed the million and a quarter, at which point it drops from 100% of silver to 20% of silver. And that at these silver prices is a million and a half to two million dollars incremental free cash a month to our bottom line at that point. All right, Dad, let's move over to Campo Marado. This is originally a zinc mine, but it does produce a concentrate. You do report in zinc equivalent there. But there's also precious metals components. And I believe some lead and copper even from that mine. But overall, this mine from my understanding has always been more of a recovery story. You need to improve the recoveries at Campo Marado.

9:13Take us through what the operations look like there, please. Yeah, so you're absolutely right. It's a polymetallic mine. It's a VMS style deposit. If you cast your mind back 20 years, it was originally built as a zinc mine. OK, it was high grade zinc. The zinc rates were 10 to 12%. At the time that the mine was built, the zinc was on its way from a dollar to $2 a pound. Just as you know, zinc has never come close to retesting $2 a pound. Although in recent weeks and months, zinc is probably the best performing commodity of any that you follow over the course of the last six or nine months. So we've got a resurgence zinc market. We've got obviously copper today hitting all time highs and obviously precious metals have been massive outperformer over the course of the last decade or so. So that sort of all yields a bit of a mismatch between the recovery strategy, which was originally designed around zinc and precious metals that we in the current setup of the mill.

10:18We see 75 to 80% of the gold go to tails. So the big opportunity and I've talked to you about a lot. We're starting to make some real headway on the recovery's question. The big goal for us is to improve our precious metals recoveries through a three part strategy in the near term, which is a more consistent blend. And so in Q2, we built a stockpile of 60,000 tons, which is 30 days of production. That allows for a more consistent blend to the mill. The other pieces water treatment, the water that we use in the process now is quite acidic because there's a lot of pyrate in the orp. And then thirdly, a finer grind. And right now we grind to 15 to 20 microns. All the test work that we have done suggests that a finer grind will allow for this very fine mineralization on the precious metals side to be liberated. Those three collectively that we call the Campo Marado expansion. And we are going to deliver a technical report that outlines this in the second half of this year.

11:23Should yield substantially higher recoveries than what we are in the current status quo. Okay, so looking at the grind size, looking at having that stockpile to be able to blend a little bit better and looking at different potential treatment processes. One of the things we were talking about off mic and maybe you can just put a little color on this is that maybe there's a way to use a Merro Quarro plant. Maybe there's a way to get more gold recoveries by using some different techniques. Is that going to be part of the report that you're putting out to the market? Absolutely. As I said, looking to deliver a technical report that outlines both the mind plan. And you have to remember that and this is a bit embarrassing, but this is the reality of the situation that I walked into. The P.E.A. that we're mining off of today is actually from 2018. So there's lots of opportunity for us to make improvements, but also just to update to the reality of the current situation. Dennis, is there a general timeframe that you have in terms of the turn around,

12:26more so of Campo Morado or the continued ramp up of Taloweta, where the company is kind of the steady state cash flowing vehicle that investors can really latch onto and see kind of that clear pathway ahead? Yeah, certainly. And both of the technical reports that we're working on are due between now and the end of the year. Taloweta, as I outlined, is going to be much more straightforward. It's going to take all of the drilling that we've done. It's going to drop that into a resource estimate. It's going to put a new mind plan around that. Very straightforward, very typical of what mining companies do. Over at Campo Morado, we have now sort of settled on a strategy. We brought in a number of different consultants over the course of the last year or two. Since I've been in the seat to really help us to crack the metallurgical code, we think we've made some progress. I outlined the three core strategies for us in the early to middle innings of this turn around, which will be the primary part of this updated technical report at Campo Morado.

13:28And Taloweta, look, I expect that to settle into a steady state. You're going to see in 2028, you're going to see the stream fall away. And that, I think, should be put us in a position to generate 10 to $15 million quarter in true free cash flow to our bottom. Campo Morado, as I said, it's a bit more complex. We're working through the metallurgical recovery question. We're working through a new mind plan. We're working through getting into the northern zones, the north eastern zones at L.A. and Reforma. That new mind plan is going to be delivered again at the, before the end of the year. And I have a high degree of confidence that 2025 and 2026 were years where we really had to make up with capital investment that wasn't made between 2014 and 2024. Now that we're a little bit more financially stable, we've done a lot of that going back and investing in sustaining capital. And I have a high degree of confidence that going forward,

14:29we will be able to deliver consistent cash flow to investors on the back of the different plans that we have about Tau O'Weto and Campo Morado. Well, Dan, maybe we should also focus a little bit on exploration at Campo Morado. We've talked a lot about Tau O'Weto, but I know you've also been drilling at Campo Morado. Anything that would bring a different area of the mind plan into focus as you were highlighting or anything you want to say about the drill, but at Campo Morado. Yeah, look, Campo Morado, the question has never been mine life. The mine life, we've got 16 plus million tons of resource. We've processed this about 800,000 tons a year. Simple math suggests that the mine life there could be 20 plus years. And I have every reasonable belief that we will continue to operate this mine for at least another two decades. What we're doing now and the big opportunity for us on the exploration front at Campo Morado is there are 38 defined targets at Campo Morado outside of the six known deposits.

15:29And so one of the opportunities that our exploration team is looking at is going out and testing those 38 gravity anomalies. And and gravity surveys work very, very well at Campo Morado because the VMS nature of the deposit is much heavier, much more dense than the host rock. And so we've got 38 known targets and we're going to start to get out and go a little bit further afield with our exploration work. And the opportunity is to find higher grade base metals, higher grade precious metals, and drill those out and potentially displace some of the lower grade particular lower grade base metals material that we are mining at the current time. Sounds like a lot of work on tap at both mines and a lot of work with not just the exploration, but also development work getting caught up on that, but also tweaking the mining processes and the recovery processes at both operations. So there's going to be a lot of news flow on tap through the balance of this year and as we move into next year. For those of you listening in,

16:30if you want to follow along, definitely click on the link below down in the show notes. It takes you right over to the Luca Mining website, straight to their news section. You can sign up for updates that hit your email inbox or just follow along with the news as it drops. And Dan, let's get John a little sooner next time and just dive into some of these different initiatives as you continue to put out news for the marketplace and as always looking forward to our next conversation. Yeah, you bet. We've got a ton going on here, Shad. I love getting in front of you in your audience because it is an exciting time. Lots of catalysts coming up on the near horizon by the end of the year with both of our technical reports to ongoing exploration work. We didn't really talk about that, but we also are very hard at work on a couple of different acquisition opportunities. We think that Mexico is a buyer's market right now because of some of the broader political up issues that have emerged, the security issues. So we're looking hard also at building out the portfolio. We've kind of always had that as a strategy now that the

17:33company is a little bit more stable from a balance sheet perspective. We find ourselves in a position where we make the owner proud of the portfolio.