Altaley Mining: Proven Operators Driving Cash Flows

• Altaley Mining Corporation is a mining company expanding in Mexico with two operating mines: Tahuehueto, a newly operational coal project, and Campo Morado, a primarily zinc mine improving with precious metals and other base metals.
• The company successfully turned around the previously challenging Campo Morado project, resulting in significant profits in 2021, and they are working on improving metallurgical recoveries, which could lead to a potential increase in revenue by 30-40%.
• Tahuehueto, another promising project, recently started production and is expected to be at full capacity by the end of the year, producing about 45,000 ounces of gold equivalent in its first 5 years.
• Altaley Mining has a current debt of $38 million, but they expect to pay it off within 2 years. The company is also considering restructuring this debt, which would free up immediate cash flow, allowing for expedited exploration and potential acquisitions.
• While the company is familiar with operating in Mexico, there's a consideration to diversify and potentially acquire projects in different jurisdictions to mitigate risks, especially given the changing political landscape in Mexico.

Altaley Mining Corporation (ATLY) is a Mexico-focused mining company with two producing assets that generated $26 million in operating profit in 2021. Led by a management team with decades of experience operating in Mexico, Altaley has quickly turned around difficult projects and proven it can generate substantial cash flows even in a challenging operating environment. With exploration upside, potential metallurgical improvements in the works, and acquisition opportunities ahead, Altaley offers investors exposure to a seasoned operator firing on all cylinders.

Ramping Up Production, Driving Down Costs

Altaley's two operating mines are the Campo Morado zinc-lead-silver mine in Guerrero state and the new Tahuehueto gold-silver-lead-zinc mine in Durango state. Campo Morado has been operating since 2017 after Altaley took over the asset and restarted the mine. Tahuehueto began pre-production mining in January 2022 and is ramping up to full production over the next 6-9 months.

At Campo Morado, various metallurgical initiatives underway have the potential to increase recoveries and concentrate grades for zinc, lead, silver and gold. Test work so far on using new flotation and grinding techniques points to the potential for a 30-50% increase in revenues. This would make Campo Morado highly profitable even in a lower metal price environment. The mine generated $26 million in operating profit in 2021 at current recovery rates.

At Tahuehueto, the mine is currently operating at 500 tpd but will double production capacity to 1,000 tpd by Q4 2022 once a second ball mill is installed. Tahuehueto is forecast to produce around 25,000 oz gold equivalent annually over its initial 11-year mine life. All-in sustaining costs (AISC) is estimated at US$1,000/oz, putting Tahuehueto in the lowest quartile cost curve for gold mines globally. Like at Campo Morado, there is strong potential to expand resources and extend mine life at Tahuehueto through further exploration.

Proven Mexico Operators with M&A Experience

Altaley Mining is led by CEO Ralph Shearing, who has over 30 years of experience discovering, exploring, permitting, financing, developing and operating mines globally. The operations team responsible for the successful turnarounds at Campo Morado and Tahuehueto has decades of experience building and operating mines across Mexico.

This management team has experience acquiring distressed assets, turning them around operationally, and selling them at a significant premium. Altaley acquired Campo Morado out of bankruptcy in 2017 for $20 million and sold a partial interest to Wheaton Precious Metals in 2019 for $150 million.

Fully Funded Growth Strategy

With both mines cash flowing, Altaley is on track to repay its $38 million in debt within two years. The company plans to allocate its strong free cash flows over the coming 12-24 months to fund exploration at its existing mines, acquire new projects, and make strategic investments to lower operating costs and improve recoveries.

Acquisitions will likely focus on late-stage exploration or production assets in mining-friendly jurisdictions. Altaley's experienced management team and operational track record unlock unique opportunities to acquire misunderstood or undercapitalized assets and rapidly surface value.

Attractive Entry Point

Trading at a market cap of just $75 million despite two cash-flowing mines projected to generate robust free cash flows at current metal prices, Altaley appears significantly undervalued relative to peers. The company's enterprise value per oz of gold equivalent production is a fraction of larger producers.

With debt paydown imminent, cash flows accelerating, exploration upside, and M&A opportunities ahead, Altaley offers investors an attractive risk/reward proposition. Near-term share price catalysts include the ramp-up to full production at Tahuehueto, positive results from metallurgical initiatives at Campo Morado, and new acquisitions. Altaley has clearly demonstrated an ability to operate successfully in Mexico and surface value; additional projects acquired on similarly attractive terms could drive substantial upside for shareholders.

Potential reasons investors why should exercise caution before investing

Execution Risk

• Altaley Mining is guiding for significant production increases and cost reductions at both mines. There is execution risk in achieving these forecasts on time and on budget. Delays or cost overruns could negatively impact projected cash flows.

Commodity Price Risk

• As a base and precious metals producer, Altaley's profits are highly dependent on commodity prices. A sustained downturn in metals prices could reduce revenues and cash flows below forecasts.

Jurisdictional Risk

• Altaley's operations are entirely located in Mexico. The mining policy environment in Mexico has become less certain under the current government, with rhetoric around increasing taxes and royalties on miners.

Debt Levels

• While Altaley plans to repay debt quickly, the current $38 million debt load is substantial for a company of this size. Altaley's small market cap and equity base gives it little margin for error.

Acquisition Risks

• Altaley's plan to acquire new assets carries integration and execution risks. The company could have difficulty finding and acquiring additional cash-flowing mines at reasonable valuations.

Valuation Risk

• Altaley Mining's low valuation relative to peers likely reflects investor concerns around jurisdiction, execution risks, and leverage. If these issues persist the discount may not narrow.

While Altaley Mining's experienced team and progress made operationally are positives, the risks highlighted above warrant caution by investors. Conservative investors may prefer to observe Altaley Mining's continued execution before investing.