Aya Gold and Silver CEO on Rising Margins as Zgounder Ramps Up

Key Concepts

• AYA Gold & Silver (TSX: AYA): A Canadian-based silver producer with operations and development projects in Morocco.
• Zgounder Mine: AYA's operating silver mine in Morocco, recently expanded.
• Boumadine Project: AYA's large-scale polymetallic (silver, gold, lead, zinc) development project in Morocco.
• Plant Expansion: Refers to the construction of a new processing plant at Zgounder, significantly increasing capacity.
• Ramp-up: The process of gradually increasing production to full capacity after construction.
• Dilution: The unintended inclusion of waste rock into the ore during mining, reducing the overall grade.
• Margin: The difference between the selling price of a commodity and its cost of production, highlighted as a key metric in current market conditions.
• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's operating performance.
• P/NAV (Price-to-Net Asset Value): A valuation metric comparing a company's market capitalization to its net asset value.
• Lasson Curve: A concept in mining referring to the initial period of lower-than-expected performance during a ramp-up phase.
• Preliminary Economic Assessment (PEA): An initial study to determine the potential economic viability of a mineral project.
• Refractory Ore: Ore that is difficult to process using conventional methods, often requiring specialized techniques like roasting or smelting.
• Pyrite Concentrate: A concentrate rich in iron sulfide (pyrite), which can contain valuable metals and sulfur.
• Off-takers: Companies that agree to purchase a producer's output, often providing financing in return.
• EBRD (European Bank for Reconstruction and Development): An international financial institution that supports projects in emerging economies.
• Atlas Fault: A significant geological structure in Morocco, described as having high exploration potential.
• MX2: A private spin-out company created by AYA to manage non-core exploration assets.

Zgounder Operations: Plant Expansion and Production Ramp-up

AYA Gold & Silver, trading on the TSX under the ticker AYA, is currently the only pure silver play. The company recently completed a significant plant expansion at its Zgounder operation in Morocco. This was not merely an expansion but the construction of a brand new plant alongside the original one. The original plant had a capacity of 700 tons per day (tpd), while the new plant operates at 2,700 tpd. Running both plants together, the total capacity is now approaching 3,700 tpd.

The construction of the new plant was an 18-month build, completed below budget (between $5 million and $10 million under budget). Commissioning began in December, with the ramp-up starting in Q1 of the current year. The plant ramp-up has been "extremely well," with plant availability in the high 90% and plant recovery at 92%. The throughput is consistently at 3,700 tpd, even exceeding nameplate capacity.

While the plant ramp-up was smooth, the mine ramp-up presented more challenges. The mine transitioned from 500-700 tpd to 3,700 tpd, incorporating an open pit component. This involves moving between 40,000 and 50,000 tons of ore per day. The throughput of both the open pit and underground portions is now at target. The primary remaining challenge is dilution in the open pit, though underground dilution is under control. This dilution in the pit is the last of the five Key Performance Indicators (KPIs) being managed for the expansion.

Economic Impact of High Silver Prices

The timing of bringing new silver capacity online has been opportune, with silver prices recently exceeding $50 per ounce. AYA reported record revenue and net income for Q3, directly benefiting from the new plant. The CEO, Benoir Lasala, emphasized that in current mining economics, the focus has shifted from historical metrics like cash cost and grade to margin.

In Q3, AYA produced 1.3 million ounces of silver, which is comparable to their historical annual production of 1.6 million ounces. The average selling price in Q3 was $39.80, with a cost of $20, resulting in a $19 margin per ounce. This profitability is continuing into Q4, with the lowest selling price currently at $51, yielding a $31 margin on a target production of 1.5 million ounces. This translates to an estimated $45 million in EBITDA for Q4, less some expenses.

For the next year, with a target of 6 million ounces of production and an assumed $30 per ounce EBITDA, the company projects $180 million US in EBITDA. Given that the Zgounder plant cost $130 million, the payback period is estimated at just seven months. The company has already accumulated $20 million last quarter and expects to add another $30 million next quarter, providing capital for debt repayment and the development of their second asset, Boumadine.

Growth Potential at Zgounder

There is significant potential for further growth at Zgounder. The plant's open-pit construction (no walls or roof due to Morocco's climate) makes it easy to add crushers or ball mills, potentially increasing capacity by 50% to 100%. The current limiting factor is the mine, which is structured for 4,000 tpd. AYA is actively looking for another ore structure nearby that could feed an expanded plant. This expansion would be a low CAPEX proposition, costing only $5 million to $7 million, to achieve a substantial increase in production profile.

Boumadine Project: A Game-Changer

The Boumadine project is anticipated to be a "game-changer" for AYA, with projections of over 400,000 ounces per year of gold equivalent production. The company's current P/NAV (Price-to-Net Asset Value) valuation is under attack, sitting at 70% of where it should be. This is attributed to the company "coming out of the lasson curve" during the Zgounder ramp-up, particularly due to initial mining dilution issues. However, as the ramp-up concludes, the P/NAV is expected to correct, and the Net Asset Value (NAV) will increase considerably with Boumadine.

While AYA is currently a 6 million ounce silver producer, Boumadine will add 8 million ounces of silver, making AYA a 14-15 million ounce pure silver producer. Crucially, Boumadine also has a significant gold component, adding 300,000 ounces of gold production at an All-in Sustaining Cost (AISC) below $1,000. This is due to its high-grade deposit (5 g gold equivalent or 450 g silver equivalent) which is at surface, horizontal, and will be mined mainly open pit with some underground. The economics of this project are described as "extremely rare" in the industry.

Addressing concerns about operating in Africa, the CEO highlighted that Morocco is distinct from Sub-Saharan or West Africa. Morocco is at the "north tip of Africa," comparable to Spain or Italy in terms of infrastructure. Key advantages include:

• Fantastic infrastructure: Power to site (wind and solar from the grid), 5G internet.
• Excellent logistics: Three flights a night from Montreal to Casablanca, three flights a week from Toronto.
• Favorable mining code: One of the best globally.
• Permitting speed: Weeks or months, not years or decades, with strong government support for job creation.
• Exceptional geology: The Atlas Fault, a 1,600 km long structure, is described as a "Carlin trend lookalike" or "Cadillac break," with 65% unexplored. Boumadine itself is a "low-hanging fruit," and AYA has identified two or three other similar discoveries in the complex.
• Low construction costs: Approximately one-third to one-half of costs elsewhere globally.

AYA is aligned with Morocco's strategy of job creation for the young generation, particularly in mountain regions. The company currently employs close to 2,000 people and expects to add another 2,000 with the second construction. They also contribute through taxes, royalties, and a comprehensive ESG program in health, education, and agriculture.

Preliminary Economic Assessment (PEA) for Boumadine

In early November, AYA released a PEA for Boumadine, outlining a much larger 8,000 tpd mining operation. The PEA projects production of 30 million ounces per year of gold equivalent or 400,000 ounces per year of silver equivalent. The initial CAPEX was estimated at $446 million US.

The PEA exceeded expectations, particularly due to the marketing of the concentrate. Initially, the project was envisioned with a CAPEX of $1.2-2 billion, including a roaster or smelter for refractory ore. However, the company discovered the high value and global shortage of sulfur in pyrite concentrate. By stopping at the first transformation (crushing, milling, flotation) and not immediately planning for a roaster or smelter, they received strong offers for the concentrate. The lead and silver concentrate is easily sold to Europe. For the pyrite concentrate, which contains 27% sulfur, demand is "extremely strong," and payment is "much better than anticipated," with three bidders for all the concentrate.

This strategy allows for 74% recovery of precious metals without the additional $700-800 million CAPEX for a roaster. The refractory nature of the ore, due to its sulfur content, has become an asset, as smelters worldwide are seeking sulfur.

The PEA is a base case, based on the December 2024 resource. It does not include 140,000 meters of drilling from 2025 or further results expected by year-end. AYA plans to update the study in 2026 with a new resource calculation, anticipating that the updated PEA will "look pale compared to what we will be putting into the model." A 360,000-meter drill program has just started and will run over two years to convert inferred resources and expand the known deposit.

Boumadine Permitting and Financing

The permitting for Boumadine is already complete; it has a mining permit, allowing construction to start immediately.

Financing is also well advanced. The EBRD, which provided $100 million for Zgounder, has already committed to 60-65% of Boumadine's CAPEX (approximately $250-260 million of the $450 million total). EBRD is interested because Boumadine will also be a "green mine," powered by wind and solar, with regenerated water. Furthermore, off-takers have indicated willingness to provide up to $200 million in prepayment or structured debt. With AYA's internal cash generation (projected $150-200 million in bank by then), the project is expected to be fully funded without the need for equity financing.

The construction team is the same one that successfully completed Zgounder, including an in-house team, owner's representatives, and local subcontractors, ensuring continuity and efficiency.

Roadmap to Construction Decision for Boumadine

The budget for drilling is $50 million for 2026 and $50 million for 2027, with an additional $10 million over two years for consultants and feasibility study packaging. The total cost to reach a final investment decision (FID) is $110 million. The PEA is robust, with a quick payback, making the project viable even at lower metal prices ($2,000 gold, $20 silver).

AYA expects to fund all pre-construction work internally. Zgounder is currently generating $180 million EBITDA annually, less $7 million G&A and $25 million per year for EBRD debt repayment.

The timeline for Boumadine is:

• 2026-2027: Intensive drilling (360,000 meters) and ongoing feasibility study work (water management, tailings).
• 2027 (second half): Detailed engineering (FEED).
• End of 2027: Target to start construction.
• 2028-Mid/End 2029: Two-year construction period.

The geology team comprises 400 people, including 35 geologists, operating 20 drills 24/7.

Corporate Strategy and Future Outlook (End of 2026)

By the end of 2026, AYA aims for Zgounder to be at "cruising speed," producing its 6 million ounces per year. The company also hopes to have made a new discovery at Zgounder to ensure a growth profile for this "cash machine."

For Boumadine, the focus extends beyond the main trend (which is on only one of their 30 permits). AYA is actively exploring "Boumadine 2, 3, and 4," which are new discoveries with significant potential (grab samples, trenching, drilling). The company is aggressively expanding its land footprint in Morocco, growing from less than 100 sq km five years ago to 1,600 sq km currently. This is a strategic move to capitalize on the "first mover advantage" before the region becomes more crowded.

Regarding asset diversification and potential spin-outs, AYA has already created a private spin-out company called MX2. This entity, co-founded with industry veterans, holds two assets that didn't fit AYA's core strategy (which focuses on silver with gold, lead, and zinc). MX2 is expected to go public next year. AYA's strategy is to add ground in Morocco where they have expertise and infrastructure, rather than expanding to other countries. Once Boumadine is operational, AYA will be producing 42-43 million ounces of silver equivalent, positioning them as a top-tier player in the silver space.

The company anticipates a lot of news and catalysts in 2026 and 2027.

Synthesis/Conclusion

AYA Gold & Silver is undergoing a transformative period, successfully ramping up its expanded Zgounder silver mine to record production and profitability, driven by strong silver prices and efficient operations. The Zgounder mine is now a robust cash-generating asset with further low-CAPEX growth potential. Concurrently, the company is aggressively advancing its Boumadine polymetallic project, which is poised to be a significant growth driver, adding substantial silver and gold production. The Boumadine PEA has revealed unexpectedly strong economics, particularly from the value of its refractory pyrite concentrate, and the project benefits from being fully permitted and largely funded through a combination of EBRD debt, off-taker prepayments, and internal cash flow, minimizing future equity dilution. AYA's strategic focus on Morocco, leveraging its favorable geology, infrastructure, and mining code, along with a disciplined approach to exploration and asset management (including the MX2 spin-out), positions it for substantial growth and a prominent role in the global silver and gold production landscape.