Peruvian Metals Set to Expand Margins, First Gold Production at Mercedes Property

Peruvian Metals: A Focus on Cash Flow & High-Grade Production in Peru

Key Concepts:

• Toll Milling: Processing ore for a fee, providing a revenue stream independent of direct mining.
• Prospect Generation: Identifying and acquiring mineral properties for potential sale or joint venture.
• Metallurgy: The science of extracting metals from their ores, crucial for maximizing profitability.
• High-Grade Ore: Ore with a significant concentration of valuable minerals, reducing processing costs and increasing revenue.
• Cash Flow Focus: Prioritizing revenue generation and minimizing dilution through financing.
• Vein Mining: A traditional mining method focusing on following mineral-rich veins within rock formations.

I. Company Overview & Historical Context

Jeffrey Reer, CEO and Chairman of Peruvian Metals (TSXV: PER, OTCQB: DUVNF), details the company’s evolution. He has been operating in Peru since 1994, having previously worked extensively throughout Latin America (Mexico, Brazil). Initially, Peruvian Metals operated as a “prospect generator” – identifying and selling or joint venturing properties (including the Aguila Norte copper porphyry deposit and the Panaya project, later developed by Ivo Electric). This model, while successful in booming markets, proved reliant on external factors.

Reer observed the flourishing of small-scale miners in Peru following a 2012 law allowing legal extraction and processing at permitted toll mills. This law was a response to the significant economic impact of the informal mining sector, employing over half a million people and affecting 2-3 million individuals. The government prioritized directing miners to fully permitted toll mills, shutting down non-compliant operations.

II. The Shift to Toll Milling & Cash Flow Generation

In 2014, after selling the Aguila Norte property for approximately $5 million CAD, Reer decided to deviate from the traditional junior resource model of constant share dilution. He invested in building a toll mill, commencing construction in 2017 and beginning production in 2018. This mill has generated significant cash flow, with an operating profit of approximately $1 million CAD annually, despite a temporary dip due to COVID-19. Since 2018, the company has only completed three financings: in 2018, 2020, and 2024, totaling $1.4 million CAD, demonstrating its ability to fund operations through revenue. Reer, as the largest shareholder, emphasizes the importance of protecting shareholder value by minimizing dilution.

III. Strategic Acquisition of High-Grade Properties

Leveraging his geological expertise and the company’s established toll milling infrastructure, Peruvian Metals shifted its focus to acquiring high-grade mineral properties. Recent acquisitions include:

• Paluk Data: A high-grade gold and silver property.
• 50% interest in Mercedes: A private company with properties in southern-central Peru.
• Several other properties: Details not fully specified in the transcript.

The Paluk Data property is particularly promising, with grades of approximately 9 g/t gold and 5-10 oz/t silver, along with some copper (which will be initially ignored).

IV. Production Strategy: From Exploration to Immediate Production

Peruvian Metals is adopting a non-traditional approach for a junior resource company. Instead of extensive and costly drilling programs, the company plans to rapidly move into production at Paluk Data, located approximately 120 km from its toll mill via highway. The strategy involves following existing veins, mirroring the historical approach of successful Peruvian mining companies. The company intends to produce gold and silver concentrates, capitalizing on current metal prices.

A key long-term goal is the construction of a gold oxide plant, projected for 2027, to produce gold bullion entirely from cash flow, further minimizing the need for external financing.

V. Optimizing Metallurgy & Increasing Margins

Reer highlights a significant shift in metallurgical processing. Initially, the company considered including zinc in its concentrates when acquiring properties like Mercedes, based on silver prices around $23/oz. However, with silver now exceeding $100/oz and gold at $2,000+/oz, new metallurgical studies have focused on maximizing gold and silver recoveries, ignoring zinc. This has resulted in recoveries exceeding 95% for both metals.

The company is also strategically shifting its toll milling clients. They are reducing throughput for existing clients and replacing their ore with 100% of Peruvian Metals’ own mineral, increasing margins from $30-$40/ton to levels tied to gold and silver prices and mining costs. Reer emphasizes that “revenues must exceed costs” to define a real business.

VI. 2026 & Beyond: Key Milestones & Investor Focus

Looking ahead, key milestones for 2026 include:

• First Gold Production (2026): Utilizing the existing toll mill.
• Ramping up Underground Development at Mercedes: Extracting mineral from existing 900 meters of rehabilitated workings.
• First Shipment of Own Mineral to the Mill (May 2026): Anticipated production of 10-15 ounces of material.

Investors should focus on the company’s ability to deliver on these milestones and demonstrate continued cash flow growth. Reer stresses the importance of a revenue-focused business model.

VII. Data & Statistics

• Aguila Norte Sale: $5 million CAD
• Total Financing (2018-2024): $1.4 million CAD
• Operating Profit (Peru): Approximately $1 million CAD annually
• Paluk Data Grade: 9 g/t gold, 5-10 oz/t silver
• Paluk Data Gross Metal Value: $1,300/ton
• Paluk Data Mining Costs: $200-$300/ton
• Concentrate Ratio: 1 ton of concentrate produced from 3.5 tons of ore.
• Gold Recovery (Paluk Data - Improved): 75% to 89%
• Silver Recovery (Paluk Data - Improved): >95%

Conclusion:

Peruvian Metals is positioning itself as a unique player in the junior resource sector by prioritizing cash flow, leveraging an existing toll milling operation, and focusing on high-grade gold and silver properties. The company’s strategy of rapid production, optimized metallurgy, and minimized dilution aims to deliver sustainable value to shareholders and establish a robust, revenue-generating mining business in Peru. The emphasis on a “real business” model – where revenues consistently exceed costs – underscores the company’s commitment to long-term profitability and shareholder value.