Defiance Silver Focused on Methodically Derisking Portfolio in Mexico

• Defiance Silver is a silver and gold-copper exploration company focused in Mexico. They have made 2 recent discoveries at their Zacatecas silver project.
• A key asset is their San Acacio gold-copper project which has over 1 million ounces of gold and 80 million pounds of copper. This project is currently frozen due to fraudulent transfer of licenses.
• Defiance is focused on derisking assets to attract potential partners or acquirers. This includes getting permits, licenses, and access agreements in place.
• The market has been tough for juniors like Defiance. Raising money at current prices would destroy shareholder value.
• Defiance needs to focus on "winnable gaps" - small achievements that systematically de-risk assets for a future liquidity event.

Defiance Silver Corp. (TSXV:DEF) is a silver and gold-copper exploration company operating in two mining districts in Mexico - Zacatecas and San Acacio. Despite a difficult market environment, Defiance is taking a patient, phased approach to derisking its assets in order to attract partners and position itself for future success.

Defiance holds a dominant land position within the historic Zacatecas silver district, which has produced over 1 billion ounces of silver historically. The company has made two recent discoveries in the district, supplementing its existing San Acacio silver deposit with an inferred resource of 19.8 million ounces of silver equivalent. According to Executive Vice President Douglas Cavey, "In the last year, we've made two discoveries in the Zacatecas district as well as drilled about three times the vertical profile below the current silver resource."

Defiance's exploration team in Mexico is led by Jennifer Roskowski, who previously worked on some of Mexico's largest discoveries with Orco Silver. Defiance has supplemented its technical team with some of Orco's personnel when that company was acquired in 2013.

Flagship Asset Frozen

A key asset for Defiance is the San Acacio gold-copper project located in the historic Charcas Mining District. It hosts an indicated resource of 16.2 million tonnes grading 0.33 g/t gold and 0.17% copper for 1.8 million ounces of gold and 83 million pounds of copper. There is additional inferred mineralization. San Acacio was unfortunately impacted by the fraudulent transfer of Defiance's titles. As Cavey explains, "We had a party fraudulently file transfer documents on our license, they sold our property and said that we sold our property to them, which we didn't." The assets are now frozen pending legal proceedings.

Cavey notes, "We expect we'll have some decisions on that before the end of the year this year." Favorable resolution could serve as a catalyst for the company. San Acacio offers open pit and underground potential with a modest initial capex. Cavey suggests the asset could potentially be spun out to crystalize value.

Methodically Derisking Assets

Despite the challenges, Defiance has continued methodically derisking its assets. As Cavey emphasizes, "I think you need to just continue to derisk projects. I think that as an exploration company that's your number one thing - derisk your projects to a point that someone's going to look at this, the company, and want to acquire it."

He highlights that proactively getting permits, titles, and access agreements in place is pivotal. Although drilling generates important technical data, it doesn't create value if the market is not receptive. Cavey explains, "If you're not getting paid for it, why would you continue to do that?"

Part of the strategy involves analyzing existing data in new ways to extract additional value. For example, Defiance re-logged and re-assayed an old drill hole from Zacatecas, yielding one of its best silver intercepts to date. The exercise provided valuable information at a minimal cost. Cavey emphasizes the team's experience across multiple cycles in Mexico. He stresses the mindset saying, "We are clear that raising money at these levels is nuts, we're just going to destroy our validity. What we are now is a derisking company." There is still work the company can do despite tight budgets.

Attracting Investment Partners

Once assets are derisked, the goal is ultimately to attract investment partners who can provide capital to unlock their full potential. Cavey notes, "The success for the shareholder is going to be proving that this is going to be a generational mine."

He points out that in Mexico, "There's not a lot of operators mining these districts." The intention is to derisk Defiance's assets to the point where mid-tier and major producers take notice. Cavey suggests the ideal situation is "to bring someone in alongside us, whether that's just a good investment firm, a good strategic investor, or whether that's going to be a major." The company has put agreements in place to facilitate large exploration programs in the future.

Navigating Mexico's Evolving Mining Landscape

Defiance is also closely monitoring recent changes to Mexico's mining laws. Cavey acknowledges that updating outdated legislation in consultation with the industry is a positive step. However, the latest reforms were enacted hastily without sufficient consultation.

There are concerns around permitting, requirements for community profit sharing, and the length of land tenure. Cavey expects the evolution of the new laws with time, especially if mineral investment in Mexico is impacted. He comments, "We think that there will be at least a really strong look at the changes and that will favorably benefit when you compare that to how much consultation went on with the mining industry." Federal elections are coming in 2024, potentially catalyzing further modifications.

Ultimately, Cavey emphasizes that Defiance's management team is strongly aligned with shareholders and focused on systematic execution: "We have a pretty clear strategy on just kind of incrementally derisking, a phased approach. And that's worked for our peers and it's worked for us."

The Investment Thesis for Defiance Silver

• Dominant land package in historic Zacatecas silver district with over 1 billion ounces of past production
• Advanced San Acacio gold-copper project provides optionality once the dispute is resolved
• Proven technical team with multiple discoveries under their belts
• Methodically derisking assets while conserving cash in the weak market environment
• Permits, community agreements, and other key infrastructure in place
• Assets positioned for partnerships with mid-tier and major producers once derisked
• Tight share structure limits dilution for existing shareholders
• Company expects favorable resolution on San Acacio title issue within months
• Exploration upside remains substantial within the current portfolio
• Mexico mining law changes expected to evolve incrementally in a constructive manner