Mining Site Visit Highlight is Operational Plan to Boost Profits
Research Report

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Disclosures for VSA Capital, Sierra Madre Gold and Silver Ltd., June 30, 2025

Investment Analyst Certification In my role as a Research Analyst for VSA Capital Limited, I hereby certify that the views about the companies and their securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. Non-Independent Research This is a marketing communication. It is non-independent research as it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. 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Thus, investors should be aware that the Company may have a conflict of interest that may affect the objectivity of this report. To view our policy on conflicts of interest and connected companies, please go to: http://www.vsacapital.com/policies/conflict-of-interest-policy. VSA Capital acts as Corporate Adviser/Broker to Sierra Madre and is therefore classed as a connected company. Investors should consider this report as only a single factor in making their investment decision. Definition of Ratings VSA Capital Limited uses the following stock rating system to describe its equity recommendations. Investors should carefully read the definitions of all ratings used in each research report. In addition, since the research report contains more complete information concerning the analyst’s views, investors should carefully read the entire research report and not infer its contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor’s decision to buy or sell a stock or investment fund should depend on individual circumstances and other considerations. VSA Capital Limited’s recommendations are defined as follows: BUY: The stock is expected to increase by in excess of 10% in absolute terms over the next twelve months. HOLD: The price of the stock is expected to move in a range between -10% and +10% in absolute terms over the next twelve months. SELL: The stock is expected to decrease by in excess of 10% in absolute terms over the next twelve months. In addition, on occasion, if the stock has the potential to increase by in excess of 10%, but on qualitative grounds rather than quantitative, a SPECULATIVE BUY may be used.

Distribution of VSA Capital Limited’s Equities Recommendations VSA Capital Limited must disclose in each research report the percentage of all securities rated by the member to which the member would assign a “BUY”, “HOLD, or “SELL” rating, and also the proportion of relevant investments in each category issued by the issuers to which the firm supplied investment banking services during the previous twelve months. The said ratings are updated on a quarterly basis. Equities breakdown: 30/06/25 BUY SPEC BUY HOLD SELL Overall equities coverage 91% 9% 0% 0% Companies to which VSA has supplied investment banking services 100% 100% n/a n/a Recommendation and Target Price History Valuation basis Our valuation of SM is based on an EV/Resource multiple derived from a group of silver peers. Risks to that valuation Commodity prices, political risk, macro risk, execution risk, financing risk. This recommendation was first published 10 July 2023.

Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) hosted VSA Capital for a site visit at its La Guitarra project in Mexico, which strengthened Analyst Oliver O'Donnell's confidence in the mine plan, operational team and outlook for the stock, he reported in a June 30 research note. As such, VSA raised its target price on the Canadian explorer-developer by 8%.

"Management now has robust visibility on a development plan that we believe can deliver  consistency of grade and therefore stable margins," O'Donnell wrote. "With current prices, we expect that this can deliver cash flows of at least US$15 million (US$15M) per annum once at target zones for mining and run rates, and we expect those areas to be in production by year-end 2025."

92% Upside, Buy Rating

VSA's upgraded target price on Sierra Madre is CA$1.40 per share, previously CA$1.30, noted the analyst. At the time of O'Donnell's report, the junior miner is trading at about CA$0.73 per share, in the middle of the range for mostly earlier-stage peers. SM is not being rated as a producer or as a company with a large-scale project.

"Given SM has achieved profitability, we believe that a fair target is now towards the top end of the range to capture the growth upside potential that can be funded by production and the fair rating of a profitable producer," wrote O'Donnell. "The achievements to date relating to the [mine] restart warrant a rerating."

From the company's CA$0.73 per share price at the time of the report, the return to target is 92%. Sierra Madre remains a Buy.

Approach Early On

In the early production months, while Sierra Madre has been doing development work to open up areas with higher grades, it has used mineralized backfill materials, or retaques, to provide a useful, low-cost and easily accessible source of feedstock to the mill, explained O'Donnell. The downside to this has been variable and unpredictable grades.

Nameplate capacity differs within the various areas of the mill and the mining fleet availability. Overall capacity now is about 520 tons per day (520 tpd), but could be improved with optimization, according to the analyst.

"The team has been working on opening up new faces with higher-grade fresh ore where grade control can be applied to deliver more consistent feedstock to the mill," O'Donnell wrote.

Greater Profits Ahead

One of the biggest positive takeaways from the site visit, noted O'Donnell, was management's mine plan for at least the next three years.

The plan is to transition from using blended retaques with fresh ore from La Guitarra to using fresh ore only from La Guitarra, Nazareno and the recently restarted Coloso. By the end of this year, Sierra Madre's focus will be on mining fresh ore and areas of stronger grade.

"This is the transition we expect to deliver stronger profits over the next 18 months," the analyst wrote.

As such, VSA Capital expects grades at La Guitarra of 90 grams per ton silver (90 g/t Ag) and 1 g/t gold (Au) this year, increasing after a year of production from fresh ore to 115 g/t Ag and 1.05 g/t Au. Coloso will contribute ore graded 220 g/t Ag and 1.3 g/t Au.

Sierra Madre expects 10% of ore to come from Coloso initially then increase to about 30%. VSA's model has 5% of the 2025 total throughput originating at Coloso but rising to nearly 30% throughout 2026. The company has already achieved recoveries consistent with historical ones at La Guitarra, but VSA believes greater recoveries are possible, given that a dedicated metallurgist with specialist flotation experience is now on board.

"Our assumption on recoveries is largely in line with what has been achieved so far, indicating that there could be upside unlocked in the future," O'Donnell wrote.

Currently, Sierra Madre is considering its options for a tailings facility, looking at optimizing cost, longevity, local impact, and other factors, given the current dam has about one year of capacity left. The company also has the option of building and using First Majestic Silver Corp.'s (AG:TSX; AG:NYSE; FMV:FSE) permitted, dry-stack facility. (First Majestic previously owned/operated La Guitarra and sold it to Sierra Madre in March 2023.)

Exploration Potential Abundant

O'Donnell highlighted the potential for further exploration at La Guitarra, Coloso, and the Eastern District. At La Guitarra, according to Sierra Madre, each of the key zones at the Los Angeles target, which are La Cruz, San Francisco, and San Rafael, likely is surrounded by untapped mineralization. Also, mineralization at all three remains open at depth.

"Mining at these recently drilled structures already highlights a number of factors that support the investment case: the potential to expand the resource footprint at La Guitarra, the short timelines to undertake development work and bring new opportunities into production, and management's past intimate knowledge of the mineralized structures," wrote O'Donnell.

As for Coloso, where gold and silver grades are 1.2 and 1.7 times higher, respectively, than at La Guitarra, the system hosts the Jessica and Joya Larga veins. The strike of these veins is about 2 kilometers long and at least 400 meters deep. The intersection of these two veins could be a high-grade exploration target. Sierra Madre has yet to restart exploration at Coloso.

The broader license area also offers longer-term upside, "which we believe will support a premium valuation in the near term that can be grown into," wrote O'Donnell.

The Eastern District is a prospective area containing many outcroppings and historical workings. The little amount of drilling done historically confirmed at least six deposits converted into small resources. According to Sierra Madre's management, this drilling covers only 15% of the mapped veins so far in six vein systems. Grades from historical drilling and production were exceptional; silver grades averaged between 250 and 600 g/t. Gold credit is between 3 and 4 g/t for some systems, implying an average silver equivalent of 800–1,000 g/t.

"In our view, the exploration upside, which could enable significant additional annual production as well as mine life extensions, is the kind of growth that would make this a valuable asset in a market where mergers and acquisitions (M&A) are gathering pace and larger deals are already happening," the analyst wrote.

Loan Extended One Year

First Majestic recently agreed to extend the term of its US$5M loan to Sierra Madre another year, out to 2027, reported O'Donnell. This will allow Sierra Madre to concentrate on growing profitable production and to repay the loan more easily.

With its expected cash flow jump to US$13.6M in 2026 from about US$1.1M this year, noted O'Donnell, the company could pay off the loan without affecting operational plans.

Updated Model, Estimates

Based on Sierra Madre's recent performance as well as information and insights O'Donnell gleaned from its site visit, he wrote, VSA built a full discounted cash flow model on the explorer-developer. Accordingly, VSA anticipates Sierra Madre's EBITDA in 2025 to reach about US$6M and increase in 2026 to US$19M due to greater throughput and higher grades.

"Silver's potential for a volatile lagged performance seriously enhances Sierra Madre's earnings potential," wrote O'Donnell.

According to VSA's model, the analyst pointed out, Sierra Madre should generate enough cash flow to start exploration in the short to medium term, thereby providing several catalysts for the company's stock.

VSA expects Sierra Madre will decide to expand mill capacity to 1,000 tpd within the next two years and expand beyond this target likely by year-end 2028, supported by potential provided by the Eastern District.

"Demonstrating this growth potential, which is likely to enable expansion substantially beyond 1,000 tpd, will make Sierra Madre an attractive target in an increasingly active M&A market for silver miners, in our view," O'Donnell wrote.

Job Creation Reaps Benefits

In his report, O'Donnell noted that since his last visit to La Guitarra in 2023, several positive changes have taken place in the region. These include 235 new local jobs, new businesses and development in the neighboring towns and along major thoroughfares. Much of this economic development is attributed to employment at Sierra Madre's project.

The company supports various community efforts as well, such as local agriculture and fruit farming, water irrigation, reforestation and forest fire prevention.

More Stock Specifics

Sierra Madre's stock is up 54.2% year to date, thanks in large part to the gold:silver ratio reaching 100, noted O'Donnell.

At the time of the analyst's report, the company has 153.9 million shares in issue. Major shareholders are First Majestic Silver with 44.6%, Commodity Capital AG with 4.3% and Sierra Madre Chief Executive Officer, President and Director Alex Langer with 2.7%.

The explorer-developer's market cap is CA$113.3M. Its 52-week range is CA$0.38–0.83 per share.