Site Visit Affirms Outperform Rating on Silver Co.
Research Report

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Disclosures for National Bank of Canada, AbraSilver Resource Corp., April 14, 2025

RISKS: Inflation and FX risk. Argentina's inflation is elevated though it tends to be offset by FX depreciation of the peso. ABRA maintains the net effect of the two given investment in USD. Resource conversion. The latest resource for the Diablillos Project is 221 million AgEq oz at 128 g/t AgEq, though it is entirely in the M&I and Inferred categories, lacking reserves. ABRA expects to complete infill drilling to convert, and there is risk of losses of ounces and lower grades as the resources are upgraded to reserves. There is no history of historical resource to reserve conversion rates. Development risk. Like all developers, ABRA is subject to construction risk, expected to commence by ~2024. Primary risks are related to constructing on budget and on schedule and ensuring the project is in line with design parameters in the contemplated study. Permitting risk. Full permits are expected by ~2023 as ABRA commenced the Environmental Impact Statement (EIS) in 2021 and an Environmental Impact Report (EIR) to follow, with an estimated 12-month timeline. Recent mining projects in Argentina’s Salta province have had streamlined permitting processes and received their EIR in less than 12 months. ADDITIONAL COMPANY RELATED DISCLOSURES AbraSilver Resource Corp. 2, 3, 4, 5, 7, 10, 359 Aya Gold & Silver Inc. First Majestic Silver Corp. MAG Silver Corp. Pan American Silver Corp. 2, 3, 5, 7 LEGEND FOR COMPANY RELATED DISCLOSURES: 2 National Bank Financial Inc. has acted as an underwriter with respect to this issuer within the past 12 months. 3 National Bank Financial Inc. has provided investment banking services for this issuer within the past 12 months. 4 National Bank Financial Inc. or an affiliate has managed or co-managed a public offering of securities with respect to this issuer within the past 12 months. 5 National Bank Financial Inc. or an affiliate has received compensation for investment banking services from this issuer within the past 12 months. 6 National Bank Financial Inc. or an affiliate has a non-investment banking services related relationship during the past 12 months. 7 The issuer is a client, or was a client, of National Bank Financial Inc. or an affiliate within the past 12 months. 8 National Bank Financial Inc. or its affiliates expects to receive or intends to seek compensation for investment banking services from this issuer in the next 3 months. 9 As of the end of the month immediately preceding the date of publication of this research report (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month), National Bank Financial Inc. or an affiliate beneficially own 1% or more of any class of common equity securities of this issuer. 10 National Bank Financial Inc. makes a market in the securities of this issuer, at the time of this report publication. 11 A partner, director, officer or research analyst involved in the preparation of this report has, during the preceding 12 months provided services to this issuer for remuneration other than normal course investment advisory or trade execution services. 12 A research analyst, associate or any other person (or a member of their household) directly involved in preparing this report has a financial interest in the securities of this issuer. 13 A partner, director, officer, employee or agent of National Bank Financial Inc., is an officer, director, employee of, or serves in any advisory capacity to the issuer.

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AbraSilver Resource Corp. (ABRA:TSX; ABBRF:OTCQX) held a site tour that showed its project Diablillos is "ready to tango in Argentina," reported Don DeMarco, National Bank of Canada analyst, in an April 14 research note.

"What stood out, in our view, were the positive changes in Argentina under [President Javier] Milei, notably the Régimen de Incentivo para Grandes Inversiones (Large Investments Incentive Regime) program, or RIGI," wrote DeMarco.

88% Return Potential

Following the site visit, the National Bank of Canada maintained its CA$5.75 per share target price on AbraSilver, trading at the time of the report at about CA$3.06 per share, noted DeMarco. The target implies an 88% return for investors.

"Our Outperform thesis remains unchanged, supported by high return on investment exploration prospects, a large Measured and Indicated resource base, high-grade resource accretion at JAC and other targets on a large tenement, and heightened mergers and acquisitions appeal as one of the few silver development stories plus catalysts," DeMarco wrote.

About the Visit

The Canadian explorer recently hosted five analysts and two stakeholders for a tour of its flagship Diablillos project located in Argentina's Salta province, or the "Nevada of Argentina," as DeMarco calls it, he wrote. Salta ranked No. 3 among Latin American mining jurisdictions in 2023.

To reach Diablillos, about 160 kilometers southwest of the city of Salta, the visitors took a chartered plane, the ride taking about 25 minutes. After the visit, they returned to Salta by car, a roughly seven-hour drive.

The analyst reported that the tour showcased the improving infrastructure at the site, preliminary development plan and active exploration program.

DeMarco shared his takeaways from the updates or new information that AbraSilver provided on Diablillos during the site visit.

Specifics Pertaining to RIGI

About RIGI, the company shared that the application requires a feasibility study with a financial forecast and sources. Actual financing does not have to be in place. An environmental impact assessment (EIA) is not required to file. AbraSilver intends to file its application for RIGI in May 2025. The July 2026 application deadline may be extended for a year by presidential decree and even further out via a congressional process. The estimated average time for a decision on a RIGI application is three to six months.

Under RIGI, AbraSilver will not have to pay export duties up to first metal pour, within about three years of approval. The current freight on board duties are 8% for gold and 4.5% on silver and lithium. RIGI allows a gradual process toward free exports of proceeds/dividends abroad by year four.

Possible Optimizations in Review

AbraSilver indicated some of what to expect in the upcoming definitive feasibility study (DFS), slated for completion in H1/26, reported DeMarco. Overall capex will remain the same as outlined in the December 2024 prefeasibility study (PFS) given that cost savings due to optimizations will offset inflation. About 60% of total costs will be local. U.S.-imposed tariffs should have little impact on the company's costs, but they could affect lead times.

AbraSilver is working toward securing a power purchase agreement with Central Puerto at a cost of CA$0.06–0.10 per kilowatt hour, which would result in a savings of about CA$20 million (CA$20M) per year versus using diesel power generation. A power line over 100 megawatts (100 MW) could supply Diablillos' requisite 20 MW and other larger lithium projects nearby, and the line qualifies for RIGI. The capex needed to build a substation offsets the solar power plant proposed in the PFS.

The company is assessing contractor mining potential for waste movement, as this could reduce fleet size and upfront capex. Another optimization potentially is relocating the waste rock area closer to the tailings area, which would reduce haulage costs.

In a study separate from the DFS, AbraSilver will consider the possibility of heap leaching about 45,000,000 tons of material categorized as waste. Whereas this would reduce the stripping ratio, it would require an additional crushing facility. The company should have an update on this by the end of Q3/25, it noted.

Upside Potential at Sombra

The Sombra target provides greenfield opportunity at Diablillos as its mineralization is near surface and may continue to Oculto East in a structure parallel to the main breccia, reported DeMarco. Anything south and west of JAC, including Sombra, is low strip and "low-hanging fruit" whereas the area between Oculto East and Oculto Northeast requires higher-grade material to be economically viable.

Cerro Viejo and Cerro Blanco, which host an area of major alterations, hit high-sulfidation veins (not porphyry intrusions) believed to be the root zone of an epithermal system that extends into porphyry at depth. To explore the epithermal components, the company plans "more Terrospec and magnetics," wrote DeMarco, to take place possibly next month. The Stockwork zone will be a priority as it could be the source of outcrops and could make mining there economic.

Jurisdictional Highlights

AbraSilver provided a macro look at Argentina now under Milei's leadership. Business and market confidence have improved significantly, and inflation has dropped and stabilized at about 3%. "Fiscal equilibrium was achieved in 2024," noted DeMarco, and is expected to continue throughout this year due to reforms, a better tax collection system and new amnesty rules.

In October, congressional mid-term elections will be held, during which 127 representatives and 24 senators will be elected. Currently, Milei's party holds 39 representative and six senatorial seats, none of which is up for re-election this fall, thus the party can only expand its influence.

"Milei's leading candidates are expected to uphold a pro-investment stance and strengthen his influence in the National Congress, if successful in the mid-term elections," DeMarco noted.

Also to come, the cooperation agreement between the Salta and Catamarca provinces regarding a lithium mine near Diablillos that also spans both jurisdictions, is expected to be turned into a law in May 2025 by Congress.

Overall, DeMarco wrote, the key points made at the site visit supporting the National Bank of Canada's thesis on AbraSilver are jurisdictional improvements affording project derisking and legal certainty and the potential for resource expansion, through JAC, Sombra and Cerro Viejo/Cerro Blanco.

Catalyst-Rich Near Term

AbraSilver reiterated its many upcoming catalysts, DeMarco reported, as it further advances Diablillos. The phase five drill program continues with two rigs; a third will be added next week. In mid-year 2025, a mineral resource estimate update is expected. Project optimization studies will be completed in H2/25, and EIA approvals are anticipated in Q4/25. The DFS of Diablillos, to include phase four drill results, is due out in H1/26.

Share Structure

DeMarco reported that AbraSilver has 125.4 million shares outstanding. Its market cap is CA$384M. Its 52-week range is CA$1.78–3.64 per share.