Heliostar Metals: Record Production, Growing Cash & the Path to a Billion-Dollar Valuation

0:17Trevor Hall: Happy Tuesday, everybody. Welcome back into Mining Stock Daily. We are going to get an update here on HelioStar Metals Q2 Financials, which they did publish late last week, actually, on August 7th. The company recorded record gold production and cash on balance with the production of 14.8 thousand gold ounces and a hefty silver kicker in there, just under 80 ,000 silver ounces produced. And we're going to talk about the numbers and the financials in quite some detail here with CEO, Mr. Charles Funk. Just a quick note, Helio Star Metals does trade on the venture with HSTR and on the OTCQX with HSTXF.

1:01Trevor Hall: I've been a longtime shareholder of the company and they are a partner of the podcast, but they've had a nice bounce in the stock here with a nice rise and a happier mood in gold equity investors here. Charles, good to see you. Thanks for joining us. Yeah, thank you. You're right. It certainly, a couple of weeks makes a big difference. Yeah. All right. I got a lot of kind of, we're going to go in depth here on these because there's a few things that I think have investors maybe want some clarification on. But before we kind of get into the nitty gritty, Charles, just give us an overall like general summary of how Q2 wrapped and were you satisfied?

1:37Trevor Hall: It seems like you were pretty satisfied with how everything was going. Yeah, I think it was a very strong quarter for us. Our two minds are in steady state production. We're making material progress at Annapurla. We're doing what we said we would, and we think if we do that, we're going to be worth a lot more when we build an Apollo. So, a strong quarter delivering on the promises that we made at the start of the year. Okay. Let's kind of jump into some of these numbers. I went back, the last time you were on the pod here, Charles, you did mention, made an important point about keeping that all-in sustaining costs, you know, around$2 ,000, if not lower.

2:17Trevor Hall: And that's really been the story here. So you're making more money per ounce than most of your peer group. That's undeniable. This quarter, that ASIC came in above expectations,$2 ,287 an ounce, which is above that guidance range. But I dug into it and it seems like almost$300 of that was that from the May option grant. If you remove that, the gain is like$36. So is that the right way to really read this? So where does that number settle in the back half? Yeah, you're 100 % right. So there was three kind of quarter over quarter material changes to our ASIC and two of them offset. And so our mining costs significantly reduced at St.

3:00Augustine as it went from startup to steady state. And that was offset by reduced silver credits. We found more gold at St. Augustine, so we're not getting into a silver rich zone. plus the volatility in silver prices has changed the way some of the smelters are completing payment. They don't want to take the risk of the price of silver throughout the processing. So you get a bit of a delay at some smelters there. So they largely offset. So if you want to point the finger at one thing, it's the option grant. That wasn't in our ASIC guidance at the start of the year. It's something that we did above and beyond with our annual grant in this quarter.

3:41and it does almost entirely account for that difference. Our consolidated guidance is 2025 to 2125 for the year. I think we'll be in and around the top end of the range because we want that. It's not when you grant options or RSUs, it's as they vest that you'll see them in your ASIC. They should be in all companies' ASICs. You'll find many juniors, smaller producers, choose not to put them in. Um, so we'll see that moderate in the, in the back two quarters. We have seen some price pressures on the likes of diesel and cyanide. Um, but this quarter, um, we got a benefit in Q1 because we sold gold fines that was slightly lower than where we'll be across the average.

4:26And we're slightly higher this quarter than where we'll be across the average due to the annual option grant.

4:31Trevor Hall: So let me get this straight before we move on. You were not required to allocate the vestiges of those options within the ASIC, but you decided to. Can you tell me why you decided to when most companies don't? Oh, the vagaries of ASIC calculations. I told you we were getting into nitty gritty here today, Charles. Way to start your morning. Yeah. And as everyone who listens to us knows, I'm no accountant. So, I really hope our CFO, Vitalina, will rub a stamp what I'm about to tell you. So, the ASIC is a non-GAAP or non-IFRS measure. So, it's not a formal accounting measure, which leaves it open to significant ambiguities, I think, is well discussed in our industry.

5:19There is a standard from the Gold Council on what should go into it. And simply speaking, it's anything sustaining for your operation. So R &D, like exploration, shouldn't go into it. Big capital spends that are setting up projects shouldn't go into it, but option grants should. But because there's no governing principle on exactly what has to go in precisely, so despite the fact that the World Gold Council suggested it should be, and most, dare I say, grown-up companies include it, you'll commonly see smaller producers not include it. And so we didn't up until about mid last year. And as we have grown up and our systems have increased, we've started including it because we're reporting similar to every mid-tier and major gold company on our ASIC.

6:09And I think if you compare it, you know, I think we had a better ASIC than B2 Gold, better ASIC than Torx for the quarter, pretty similar to IAM Gold. So I think, you know, you'll see as everyone starts to report, I think we're going to be pretty strong on air. There's definitely cost pressures in the gold environment at the moment. And I think our Q2 number is going to age very well when you see our peers present.

6:33Trevor Hall: Very good. All right. Hopefully we don't have your CFO, Miss Lisoon, falling back in her chair at this moment in the interview. But let's keep on going here. I do want to kind of jump into a little bit of the technicals. You and I also previously talked about the injection leaching at La Colorado. You called it the thing that's generating the bulk of your gold this year. You added a second rig in the spring. In the release, you said the wells are drilled to support that through the balance of the year, and then Veda Madre Ord doesn't show up until Q2 of next year. what fills that gap in the first half of next year so it is our injection leaching program it's working quite well for us so we will be doing that until q2 and pre-stripping veta madro and then veta madro being high grade or there's about two years worth of injection leaching at our best estimate on la colorada but it's a sort of it's a meritocracy of grade or profitability whatever makes the most money, um, gets the, the leech solution.

7:43Um, so Vata Madre will make more money than the injection leaching. So it'll be injection leaching, Vata Madre, probably a little more injection leaching and then Creston is the likely sequence to give you a steady state gold production of the color art.

7:56Trevor Hall: Are you expecting any sort of soft patch, uh, in the coming months? Soft patch in terms of ups and downs in the production profile? In the mod, in the modeling and production profile. Yeah, you definitely get a lift in production with Veta Madre, given that it's materially high grade than the Rilige. So I wouldn't so much call it a soft batch as you get a kick up in the period that there's Veta Madre or from the current production rain routes. Okay. All right. The reason I'm setting that up, because I did want to follow up on the reserve life. You've said a lot of Colorado you think gets 10 years plus.

8:33Trevor Hall: You know, so how much drilling do you actually need to convert and by when to keep both minds humming while you're building Annapala? Yeah, so there's a couple of parts to unpack that question. So we intend to start building Annapala mid next year. We've got a six-year reserve life at La Colorado. So the current reserves will comfortably cover the build period of Annapala. We'd also been at the Colorado very focused on resources. We initially drilled off a larger Creston pit. Then we've done the work for Veda Madre Plus. We're targeting an extra 20 ,000 ounces above the current reserve at Veda Madre.

9:17We're just trying to find the right reporting mechanism to show what that drilling results will ultimately lead to. But we're targeting 20 ,000 extra recoverable ounces. And so we just completed that in the geotechnical work. a couple of months ago. So really for the first time, we've got some freedom to do some step out and some expiration at La Colorado. That's not dealing with immediate gold ounces or immediate permitting plans to execute on the program. And so you'll see in the second half of the year, we've got a bit over$5 million allocated for expiration at La Colorado. We're going to start to step out and test some of those targets for the first time.

9:54So La Colorado is going to get some true exploration for the first time in probably five to 10 years, which is pretty exciting. We think it's very fertile and not very well explored outside of the resources. So now's our chance over the coming six months to start that work.

10:13Trevor Hall: All right. Well, those are the questions I love to be talking about, but I got one more kind of diving into the weeds here, Charles, and then we can talk about exploration upside here and what's happening the last half of the year. But let's talk VAT receivables. Little Hina, where are you? I know, right. Your VAT receivables in Mexico is up to$22 million from$13 million at year end. And you've now moved$8 million of that to long-term. So meaning you're not expecting it back inside a year. I don't know. Maybe that hurts. Tell me how much that hurts. But that's a real cash sitting down there. So what's happening with those refunds?

10:55Yeah, so I think two parts. First of all, the VAT profile is very normal. That's not unusual. What you're seeing, again, is twofold. The scale of the business is increasing materially. The amount that we're spending on our projects that cover for VAT receipt is increasing as the business grows. And there's been a change, again, back to CFO talk. there's a change in the way you report. And I think it's related to the updated IFRS 18 standards, but don't hold me exactly to that. And so you'll see breakouts that weren't previously done on what you expect to be in less than 12 months, what you expect to be in 12 months plus.

11:38And our VAT turnaround is typically sort of six to 18 months. So some of it falls early, some of it falls later, depending on what we're prioritizing in our accounting department. So there's greater visibility coming into financial statements, which is why you can see that breakdown and the increase of that speaks to a company that's growing.

11:57Trevor Hall: Okay. All right. Those were the niche, niche questions I had for you, Charles, when it comes to financials. What else in there did I miss or should I be asking you that maybe in the last week or so that shareholders or analysts have been kind of tackling with you after the publication of those financials? yeah i think you might have missed the amount of staplers i've bought trevor i'm very facetious um i think i think there's a couple of big things um i think um one of the one of the ones in the weeds before trying to bring it back up to what it means for shareholders is um the variance in our silver produced quarter over quarter and in silver sales um so we nearly doubled our silver production quarter over quarter um as we got more silver out of the injection leaching and more silver out of San Augustine.

12:51And then that delay that I talked about, one of the refineries that we sell to has changed their silver term. So we expect our silver production to continue to increase and we expect to see more of a benefit of it in the back half of the year. So I think that's one that we've had a few questions on. It comes from good things in that we've spent more time mining in the shallower parts of San Augustine because there's more gold in it than the model suggested, but it means it takes us longer to get down to the more silver-rich parts. Net-net over the life of the corner reserve, we think we're going to produce more ounces.

13:25That means we think we're going to make more money, which is a great thing for us in the lead-up to Anna Paula. The other that I see a lot of companies our size have reported their cash position for the end of Q2, and we're one of the few that have grown our cash position over that quarter. And that includes having paid$10 million for Gold Strike. So our assets, as you said, are some of the highest margin for the small gold producers. We're producing significant free cash flow. And this quarter, we spent over$5 million of it on Annapola. So we're executing on the plan of making money and spending it on growing our production profile.

14:05Okay.

14:07Trevor Hall: Was that silver kicker a pleasant surprise? I mean, obviously, I think you were expecting some sort of silver production, but were those numbers higher than originally expected? No, they fit our profile pretty well. They're slightly delayed. Our production profile is fitting exactly what we budgeted. Our sales profile is a little behind, but we expect it to largely catch up. Okay, very good. All right, so things are moving steadily. There's a few questions regarding just the numbers and taxes and near ASIC. I think we've cleared the air there. I do want to go in and let's talk about the second half of this year here, Charles.

14:46Trevor Hall: I do want to specifically hone in on Anapala because drilling continues there. The last time you and I chatted, you had some banger hits out of Anapala once again. So that thing continues to be expanded. That feels like you're still scraping the surface and it's been very good. Just keeps on delivering. But you're talking about feasibility a year from now, give or take. You're submitting the underground permit by the end of Q3, so within the next few months. Lots of drilling into that expansion zone that you and I have talked about. The construction ramping in the back end of 2028, so about a two-year runway here.

15:28Trevor Hall: What is the most crucial part of Annapala to tackle for the next six months? So if you look at the end of 2026, what does Helios Star need to accomplish to really continue on the accretive pathway for this project? Good question. I like that. I think you're right. I think we've got a slightly two-path sort of progress in the back half of this year. So the most critical thing is the key delivery. You know, for us to meet our feasibility study timeline, the work has to be done now. And that's what the focus in the company is. So this year, we've got to lock down what the capital requirements are going to look like for that feasibility study.

16:10We've got to finalise trade-off studies that we're doing. Is it a single decline? Is it a double decline? What exactly do the stope shapes look like? Have we got the metallurgy to the feasibility standard? That's all happening right now. Very meat and potatoes work that's very consequential for the mine. and so I think that's what and you touched on we intend to submit that permit in September to modify from an open pit permit to an underground permit and you see there's been some pretty positive news out of Mexico in the quarter on permitting so for Anna Paula it is for the mine build that meat and potatoes work that needs to be done and secondarily there is these great results that we're getting down deep in the expansion zone not all of those are going to make it into the feasibility study I think we talked last time if we were just a number crunching company we probably wouldn't be spending that money because it's not going to go into that initial mine life you know we're targeting 10 years at 100 ,000 ounces production profile but we know we've got an open zone we we think it can get bigger.

17:15We think it can show a longer mine life above and beyond or point to a longer mine life above and beyond the feasibility study. So we've got some more results to come from there. We're starting to take some potentially bigger step outs just to see, can we show some big scale steps down deep? And so I think they're the two things. Look for more drill results showing that Annapola has the potential to be a lot bigger and us getting on with the real work of delivering the studies that allow us to finance Annapola. I think you've probably seen the debt market's quite attractive, the project financing market's quite attractive at the moment.

17:52Because companies have been making so much money, they've been paying off all their debts. So debt providers are actually as competitive as I can recall, looking for financing options. There's also not many mines getting built in 27 into 28. So that's a very competitive space. So So we'll provide a comprehensive update in September on where we're at with Annapola. We think we're about to enter into the most proven mine valuation part of the cycle, which is the back end of the Lassonde curve, or at least predictable, because you can't predict the front end of the Lassonde curve where you make discovery.

18:28So we think we're on a pretty proven re-rate path. And we think, you know, the back half of this year as we start to show the engineering progress, the feasibility study progress, the permit, that we can start to demonstrate that value creation. I think putting the debt package would be the cherry on that cake to really kick that re-rate path off for us.

18:47Trevor Hall: Yeah, obviously the economic runway for gold projects here has been positive for mine financiers to go in and provide some debt financing, right? But I'm just kind of curious because there's been so much almost like, I don't want to say maybe capital allocation or capital direction coming in from central governments about the need for critical minerals, base metals, and all that. I mean, is that being at all a challenge or is there a headwind for the gold developers who need financing to try to work in getting those projects financed when there's so much effort being made on the critical minerals path?

19:37Trevor Hall: Are gold projects getting a cold shoulder by chance? I don't believe so, given that gold's effectively doubled. is the incentive to build mines or get a return on capitals. Gold mines are as profitable as they've probably ever been in history right now. So no, I don't think they've struggled for capital. We haven't seen any evidence that they've struggled for capital. I think the government financing of critical mineral projects has opened up a different pocket of capital. So I think that's why you haven't seen... I think the average investor maybe in the second quarter was probably doing less gold deals and more critical minerals deals.

20:16but we still have a world where governments are printing money and they're still the greatest friend of a gold producer there is because they're devaluing their currencies. So oddly enough, the government is supporting gold miners in a slightly different way to you'd think.

20:29Trevor Hall: Yeah, absolutely. All right. All right, Charles, thanks so much for your time. Congratulations on another successful quarter. Things just keep on improving, a clear runway here for the company and getting all things humming and flowing. We will hopefully see another$800 million market cap on HelioStar. You've been there once before, well on your way now, about$580 million Canadian. Charles, what do you think it's going to take to get to that billion dollar market cap and really keep that sustainable? Yeah, I think execution of Annapola, I think you're going to see over the back half of this year as we show the progress that we're making, as we complete that project financing piece.

21:12We think uniquely we can build Annapola without needing equity. It's not to say we wouldn't use equity if we could grow the company in other aspects, but we've got a path in front of us that means that we can triple our production without diluting our shareholders. That's going to get us well north of an 800 million Canadian market cap.

21:31Trevor Hall: yeah what what was your market cap like when we when i participated in helio stars private or it was a it was a it was a financing around like 25 cents this was like what five or six years ago or is it like a 20 million dollar mark 20 million dollar market cap was that what it was it was a 15 it was a 15 million canadian market cap and it was a 22 financing to buy Annapola. Yeah, that's what it was. The market, you know, the cyclicity of our industry creates opportunities to make a lot of money. That's right. All right. That was a good memory. All right. Charles Funk with Helo Star Metals. They do trade on the venture with HSTR and on the OTCQX with HSTXF.

22:17Trevor Hall: Charles, best of luck. We'll talk to you again here next couple weeks. Thank you very much. the information presented should not be considered investment advice mining stock daily and its affiliates are not responsible for any loss arising from any investment decision in connection with the material presented herein please do your own research or speak with a licensed financial representative before making any investment decisions