Magna Gold (TSX-V: MGR) CEO Arturo Bonillas on the Mercedes Project in Mexico & Coming Out of Retirement to Continue His Streak of Success

June 12, 2019

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the CEO of Magna Gold (TSX-V: MGR), a company I am excited to tell you about, Mr. Arturo Bonillas. Arturo Bonillas, buenas tardes. Como estas?

Arturo Bonillas: Buenas tardes, Gerardo, great to hear from you.

Gerardo Del Real: It is a pleasure to catch back up. You and I had the opportunity to talk last year at the Beaver Creek Precious Metals Conference. But full disclosure, I am biased. I participated in the financing when you were a capital pool company. I am excited to share this story with listeners and readers for several reasons.

As you know gold has risen some $70 in the past month to month and a half. Your track record, Arturo, is among the best in the business. And when I say that, what I mean is the last five projects, I believe, that you've had the good fortune of working on and developing have turned into mines and/or have been bought out. You of course are the Co-Founder and former President of what was formerly Timmins Gold.

I want to talk about Magna, the property, the goals. But before I get into that it's very important to me that listeners and readers understand your track record and your background, because you bring nearly four decades of experience in the mining space. Can you talk about that a bit, Arturo? And don't be too humble.

Arturo Bonillas: Thank you, Gerardo. I told you last time I was born in a mining town so that's why I like mining and I've been involved in it all the time. I worked at the Cananea Mining Company up until 1988. From then on I moved on to work with a company called Minera de Real de Angeles, which was a subsidiary of Placer Dome and Empresas Frisco. While there I was in charge of new projects and exploration. So we developed the Mulatos Project, now with Alamos Gold. That's in the late '80s. We took it from zero to 750,000 ounces in a pre-feasibility study. And then, well you saw what happened, the project was kept by Placer Dome and they continued developing it until it became what is now Alamos Gold, a multi-million-ounce deposit.

While there we developed San Felipe Mine. San Felipe's located in Baja California, an underground mine. We also took that from zero to 500,000 ounces. The mine operated until it was depleted. It operated for about 10 years. That was under Frisco. And while we were working for Real de Angeles we expanded the processing plant from a daily throughput of 15,000 to 20,000 pounds per day of milling capacity at a very marginal extra cost. We utilized different kind of crushers at the time that were very new in Mexico, so it was a success.

Moving forward, in the early 2000s we developed the early stages of the San Jose de Progeso Mine with a company called Continuum Resources. We drilled it and then the mine was sold to Fortuna Silver Mine, which is a great success now. Also, concurrently we created two companies; Silvermex Resources which we developed five properties in it and that company was sold to First Majestic.

Gerardo Del Real: Correct.

Arturo Bonillas: Some of the properties in there are now with Silver One. And others are being operated by Silvermex. And then the latest was Timmins Gold. Timmins Gold we developed it, built it and operated it for 10 years. We generated a resource of 2.5 million ounces. We reached that point when we were at $1,500 an ounce with gold and we were able to extract while I was there 1.2 million ounces of gold and the company did generate the important cash flow. Then I retired.

Gerardo Del Real: How long did that last? Because I know this story, Arturo.

Arturo Bonillas: Yeah, it lasted about a week. So briefly, that’s our story and not only mine, but our team. I'm very satisfied with that.

Gerardo Del Real: Excellent. You mentioned the team, and this is important. I rarely have the opportunity to speak with people that are five for their last five in taking projects from the exploration stage all the way to the producing stage. It's important to note that the team that you are now bringing with you to Magna Gold is the same team I believe that you've worked for I believe over two decades. Is that correct, Arturo?

Arturo Bonillas: That is correct. Mostly all of them. Of course, there's new people that came in the group over the years but we have created a very interesting work cultural and we like to get things off the ground quickly. It's an interesting mixture of older and wiser with younger and smart. So we continue and it is very important to be together again at the beginning of the Magna Gold and we are all here.

Gerardo Del Real: Excellent. Let's talk about the flagship Mercedes Project because, again, it's important to note that you have the same team that you've worked with for 20 years, and you're looking to execute the exact same business model that you've executed with this team which is find low-cost, high-margin, oxide-gold ounces in Mexico.

Is that correct in a nutshell? That's the game plan for Magna and Mercedes, correct?

Arturo Bonillas: That's correct. That's our model. It has worked before. And I think it's the correct one to use now. At the time we generate ounces we want to extract and sell ounces and be self-sufficient, self-financed. So the Mercedes Project we were very lucky to get it. It wasn't that easy because most of the previous owners have died. So we had to put together a very intricate and complex work to be able to set up all the claims together. Now we have assembled more than 1,600 hectares all together.

The Mercedes Project was a property that’s been drilled in the past, a couple of times, was drilled first built in the late '90s and then the early 2000s. It's located in a very strategic area. I call it “land of giants” because it’s are surrounded by the Mulatos Project, for example, of Alamos Gold. Not far from us is Agnico Eagle with La India. And it's the same vicinity, same type of geology, same type of mineralization. Past screening indicated that the mineralization begins at surface. We have the reports and some of the samples of the old drilling and we have configured a potential open pit that I think we will be able configure well into the 6-8 months.

We are aiming our work towards that. The idea would be to have a resource by the end of the year and on the area called La Lamosa Hill and be able to project a flow diagram from there to be able to see production in the not too far away. At the same time we would like to be able to indicate the potential for at least a million ounces in the ground because you can actually see it on surface. So that's the plan.

Mercedes is very well located. The highway goes through property, the electric line goes through the property. There are towns very nearby and camp will be easy. People will be camping in the nearby towns. Now we will be able to communicate via WiFi, internet signal is very strong there. Added to our experience we now have access to a lot of new technology. That's the plan.

I think that by the end of the year what we want to do is have our resource at least at PEA level and also be able to show five potential areas for drilling. The first phase will be drilling 2,000 meters and by the end of the year we want to finish at least 4,000 meters of drilling over an area that is about half a kilometer long. Also, we will do geology surface sampling, geochem on approximately on 500 hectares, which will cover five additional targets.

We have lately been finding out new information that is new to us that was produced in the past by various companies. Quite interesting, very interesting. We even found some geophysics done years ago and that new information shows more and more interest. I'm very happy with this. And we will be announcing the start of the work program very soon and we will keep investors informed on our progress. And again, our target will be to have a potential, open pit heap leachable deposit by year’s end, at least at PEA level.

Gerardo Del Real: Excellent. So you have the people, you have the experience obviously to do exactly what it is that you say you're going to do because you've done it multiple times with the same team. The share structure is excellent. You have 35.4 million shares, 35.6 fully diluted. You don't have any warrants. You've been able to raise capital in frankly what has been one of the most brutal bear markets in recent memory and for a lot of people period. Right? So you've been able to raise this capital without having to issue any warrants. You have a cash position, I believe as of April 30th, 2019, of approximately $4.1 million.

Can we talk about some of the major shareholders you have? Some of them quote on quote "smartest money in the business." U.S Global Investors. I know Eric Sprott is in. Medalist Capital is in. I believe Jeff Phillips from Global Market Development is in there. You've also done a wonderful job of including newsletter writers, myself included. Mr. Nick Hodge is in there. And management and the board owns almost 19% of the stock, which again I love seeing skin in the game.

You obviously did not come out of retirement to fail on number 6, so I'm excited to tell the story. Can we talk a little bit about the shareholders? It's notable to me that the people you've allowed into Magna tend to be long-term, supportive shareholders.

Arturo Bonillas: Yes, thank you. I think that the shareholders you mentioned are very important for us. Not only their participation but also for support or back up and creditability. They all trust us. Eric Sprott has been very good to us for many years, for example. It is very important for us produce results quickly and continue to have them as shareholders and their support in the future. And as you mentioned we do have $4.1 million dollars in the bank, which is sufficient for us to cover a $1 million dollar exploration program and probably 2 years of G&A. Our G&A, we will keep it very, very low. We want to be known as a very effective and efficient company, not over spending our money.

One adjustment to the numbers the share structure, out of the gate we are going to have 38.8 million shares outstanding. No warrants and 200,000 options. And most of the management position is escrowed so we are really into this. We are really very excited. It would've been a shame if I would have let this go and the team go and not do this. We're happy and we're very happy that all the shareholders came in to support us.

Gerardo Del Real: Arturo, when you and I spoke last year, we talked about the incoming administration in Mexico and your high hopes for the fact that many from the private sector were migrating towards the government, specifically when it came to mining. And you thought they would come in with a very practical and straight forward approach that really de-risked mining in Mexico. Now, I have heard conflicting accounts from people that are not informed as to what is going on all three levels; the local, state and the federal level.

You're a resident of Hermosillo in Sonora. You've been in Mexico in the mining business for over 40 years. Tell me how the interactions have been with both the federal state and the local government there for you. And what do you think now?

Arturo Bonillas: Yes, we have had interactions with new people, and they are fantastic. The Undersecretary of Mines and the General Director of Mines have been promoting Mexico. They went and had interviews with the Fraser Institute and they're all over, not only the country but you know sending good signals abroad. So we've had a very good interactions. They understand mining and they understand that we need investors in mining. And at the state level, the same. What's happened probably is that we have a new regime which is different in the forms and the ways of doing things than the previous ones. We've had a reduction in budget for government agencies which what has effected some of the work.

However, it's adjustments that are going to help us are going to help the country because we had so many people in bureaucracy. It's a cleanup. It's a transition year. We are paying the bill permits for Mercedes, for an example, in record time.

We will continue in Magna Gold with our plans. There's nothing disturbing us or preventing us from considering our work and reaching our targets. We will wait. This year will be a transition year, but I think that we shouldn't have any problems in mining. Again, the private sector is very active in the mining sector in general.

Gerardo Del Real: Arturo, you're five for your last five. You have a market cap approximately of, I want to say, roughly about $12 million. A third of that is backed by cash as of April 30th, 2019. You have strong shareholders. You have a heck of an asset.

The last thing that I want to ask you is how many properties did you look at before you chose Mercedes? Because I know that you have a decade’s worth of database in specifically that part of Mexico, Central and Northern Mexico. How many projects did you look at before settling on Mercedes?

Arturo Bonillas: Well, we have a database of 250 properties. However, that specific area we’ve been looking at it for quite a long time now. The problem was that the claim owners and the claims themselves were pretty unorganized, different owners for different mineralized showings that we have. Now we have been able to put it together now it makes sense. I really like that area. That area has a lot of features as our neighboring companies show.

So yes, I have been after this area, we have been after this for at least five years. However, we continue to receive more offers. People are knocking on our door. They know that we are serious, they know that we work hard. We are effective. We want to show that to our shareholders. That's something that’s top on our list, to show results, work, effectiveness and most of all show ounces in the ground, economic ounces.

Gerardo Del Real: I want to also commend you and your team because you're also very fair in the negotiations. I know that a lot of this land was privately held for a long time. You did very well by those people. You were very transparent and they were compensated fairly and stand to benefit from any success that the company many have so I think that's important to highlight as well, Arturo.

Arturo Bonillas: Thank you very much. Yes, we have to be fair with people in a way that it doesn't make the property unattractive for us. And we all work happy. The landowners, ourselves and the local people. We hire local people, we hired them already and we like to bring benefits to the community.

Gerardo Del Real: Arturo, I can't wait to visit the property to see the drills turning and I can't wait for the first set of results. Again, five for five going for number 6 like Michael Jordan. I’m of Mexican descent. I spent my childhood in Chicago so I had to sneak a Michael Jordan reference in there.

Arturo Bonillas: Of course.

Gerardo Del Real: There you go, Arturo. Thank you so much. I look forward to chatting again very soon.

Arturo Bonillas: Of course. You are very welcome. Thank you very much.

Gerardo Del Real: Thank you again.

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