Silver Cycle “Still Early” as Highlander Maps Multi-Year Growth Plan

Key Concepts

Silver Cycle: The cyclical nature of silver prices, influenced by economic growth, monetary policy, and its dual role as a precious and industrial metal.
Gold-Silver Ratio: The ratio of the price of gold to the price of silver, used as an indicator of market sentiment and potential for silver outperformance.
Structural Bull Market: A long-term upward trend in precious metals prices driven by fundamental, secular factors rather than short-term speculation.
Bought Deal Financing: A type of private placement where an underwriter agrees to purchase all securities offered by a company, ensuring a certain amount of capital is raised.
Permitting Process (Peru): The regulatory framework in Peru for mining projects, with specific provisions for small-scale mining and expedited processes.
Measured and Indicated Resource: Categories of mineral resources that have been estimated with a higher degree of confidence than inferred resources.
Exploration Potential: The possibility of discovering new mineral deposits within a property.
Porphyry Deposits: Large, low-grade copper and gold deposits often associated with other mineralization styles.
Replacement Potential: Mineralization that occurs where a pre-existing rock has been altered and replaced by mineral-rich fluids.
ETFs (Exchange Traded Funds): Investment funds that track an index, such as those focused on precious metals or mining companies.
Index Inclusion: The process by which a company's stock is added to a specific index, which can lead to increased investor demand and liquidity.

Silver Market Outlook and Cycle Analysis

Daniel Earl, President and CEO of Highlander Silver, believes the silver market is still in the early stages of a structural bull market. He explains that typically, gold leads the initial phase of a precious metals bull market, evidenced by a rising gold-silver ratio. This ratio peaked at 106-107:1 and has since begun to decline, with silver starting to outperform gold. Earl anticipates this ratio to be cut in half by the end of the cycle, suggesting a target of 50-60:1 from the current 80:1.

This outlook is supported by a macro framework anticipating global growth acceleration in 2026 and beyond, driven by potential Fed rate cuts and stimulus measures. Earl emphasizes silver's dual nature as both a precious and industrial metal, which should benefit from this economic rebound. He clarifies that the expected reversion of the gold-silver ratio to the mean is not due to a gold price decline but rather a more aggressive rise in silver prices.

Earl notes that despite a "tsunami of disruptive market news," precious metal prices have shown surprisingly little volatility. He points out that significant detachments of prices from moving averages, especially to the upside, can precede sharp corrections, which have been observed recently. However, he considers the recent volatility to be relatively small compared to typical precious metals bull markets, attributing this to underlying secular drivers supporting both gold and silver.

Highlander Silver's Financing and Strategic Positioning

Highlander Silver successfully completed an oversubscribed bought deal financing, raising approximately CAD 95 million. Earl clarifies that the timing was not an attempt to capitalize on a market top but rather driven by powerful upcoming catalysts, including significant drill results and potential index inclusions. The financing was upsized slightly to accommodate global institutions, bringing the company's treasury to over CAD 110 million. This substantial capital infusion is intended to fully fund the company's baseline strategy and insulate it from capital market fluctuations for several years.

Earl discusses the strategic decision to raise a larger amount of capital, influenced by discussions with key shareholders like the Lundines, who advocate for multi-year funding to present a "clean story" to investors without a financing overhang. This approach aligns with Highlander's plan to initiate the permitting process for its starter project in Q1 of the following year, with an estimated capital budget of CAD 70 million for construction in 2027.

Highlander Silver's Two-Phase Strategy for San Luis Project

Highlander Silver's strategy for its San Luis project in Peru is divided into two phases: expediting the existing measured and indicated resource at IEL to production, and pursuing growth potential.

Phase 1: Expediting IEL to Production

Objective: To bring the IEL measured and indicated resource into production.
Process:
- Completion of technical and environmental studies.
- Initiation of the permitting process in Q1 of the following year under Peru's small-scale mining regime (up to 350 tons per day throughput, with potential for 400 tons per day).
- Permitting timeline: 12-18 months.
- Construction timeline: 9 months (revised from a previous 6-month estimate).
- Projected production start: 2028.
Production Potential (at 350 tons per day):
- 80,000 ounces of gold per annum.
- 2 million ounces of silver per annum.
Financial Projection: Implies over CAD 400 million in EBITDA potential at spot prices, with the company trading at less than one turn of this forward EBITDA run rate.
Risk Mitigation: The 350 tons per day approach is a sensible strategy to mitigate project risk by streamlining the first phase. It focuses on underground mining at a modest rate with off-site processing, leveraging Peru's established small-scale mining infrastructure and regional permitting authorities. This approach is in keeping with the "fabric of the industry" in the region, which is dominated by large operations like Antamina and nearby Pucamarca.

Phase 2: Growth and Exploration

Objective: To unlock the significant growth potential of the San Luis property, which is envisioned to yield growth for at least a decade.
Potential: The project has the potential to become a tier-one gold-silver project with globally significant production and multiple million ounces of resource growth potential.
Exploration Targets:
- Bonita Area:
  - Initial focus on visible outcrop along a ridge line, revealing two large structures over an 800m strike by 200m width.
  - Drilling results have exceeded expectations, with highlight holes showing grades significantly above the target range for open pits (e.g., 24m of 15.5 g/t gold and 75 g/t silver from the eastern structure).
  - Geophysics are crucial to understand the full picture, as most of the area is under cover. Geophysics results are expected within the next month, guiding the 2026 drilling program.
- IEL Area:
  - A vein field of approximately a dozen veins exposed in outcrop, representing a growth opportunity.
- Sarah Colorado Area:
  - A confirmed porphyry discovery with associated mineralization.
  - Historical drilling intercepts include 14m of 14% lead and zinc, with silver and gold values.
  - The most exciting target is the replacement potential where the porphyry system cuts across carbonates at depth, which has not been tested.
- Danella Area:
  - An outcropping porphyry system with pre-discovery potential.
Geophysics: Planned geophysics surveys will help identify structures under cover and assess the scale of the opportunity, particularly at Bonita.
2026 Drilling Program: An expanded drilling program is anticipated, with flexibility to ramp up operations due to full funding. This will focus on Bonita and other areas, including Sarah Colorado.

Community Engagement and Social Responsibility

Earl emphasizes that community engagement is a core philosophy from the outset. Highlander Silver aims to build capacity within the local communities, enabling them to deliver on infrastructure, construction, and ultimately, the mining and processing aspects of the project. This approach ensures a seamless transition into production and fosters a sense of ownership and benefit for the local population. Bringing forward production, even at a smaller scale, allows the company to generate taxes, employment, and royalties, thereby supporting social programs and overcoming the common explorer challenge of "promises for tomorrow."

Potential Acquisitions and M&A Activities

Highlander Silver has allocated proceeds from its financing for potential acquisition activities. Earl indicates a focus on small, bolt-on acquisitions in the CAD 10-20 million range, equivalent to the cost of building a new milling facility. These opportunities are being evaluated within a dynamic district with numerous processing operations. The company is considering both acquiring existing operations with mining and exploration potential and building a clean-sheet milling facility. A decision on M&A is not imminent but could occur in the first half of the following year, which would be viewed positively by the market as another step towards de-risking the first phase of the San Luis project.

Index Inclusion Prospects

Highlander Silver is well-positioned for inclusion in various Exchange Traded Funds (ETFs). The company expects to know by the end of the current month whether it will be added to the SILJ index, which is scheduled to rebalance soon. Earl believes Highlander meets all the criteria for inclusion. If not added this time, it is expected in the next update in the first half of the next year. Inclusion in SILJ could lead to further index additions in 2026, such as SIL and GDXJ, and potentially larger indexes depending on market capitalization evolution. Past index inclusions for companies like Vlocity and Discovery Silver have served as powerful catalysts for share price growth and liquidity.

Conclusion

Highlander Silver is strategically positioned within a promising silver exploration landscape in Peru. The company has secured substantial funding to advance its two-phase strategy, focusing on bringing its IEL resource into production while aggressively pursuing significant exploration growth potential. The company's proactive approach to community engagement, potential M&A activities, and strong prospects for index inclusion underscore its commitment to creating shareholder value and de-risking its ambitious project development plans. The upcoming geophysics results and the 2026 drilling program are anticipated to be key catalysts for further value creation.