Joseph Grosso of Golden Arrow Resources Discusses the Chinchillas Project and Its Agreement with Silver Standard

Nick Hodge Interviews Joseph Grosso of Golden Arrow Resources

Outsider Club Founder Nick Hodge interviews Joseph Grosso of Golden Arrow Resources (TSX-V: GRG)(OTC: GARWF) to discuss its Chinchillas deposit and the agreement it has with Silver Standard. 

Nick Hodge: Hi this is Nick Hodge, the founder of the Outsider Club. Today we have the pleasure of discussing a company called the Golden Arrow Resources, which trades under the ticker GRG on the TSXV, or under the ticker GARWF over the counter. Members of my letter Nick's Notebook financed Golden Arrow back in April of this year at 27 cents, and are now sitting up over 300% on their position, as it trades at a $1.12. Golden Arrow holds a 100% interest in the Chinchilla's project, which hosts a resource of 100 million ounces of silver in the measured and indicated categories, and 44 million ounces of silver in the inferred category.

This is a project that is adjacent to Silver Standard's Pirquita's mine, which is currently running out ore to process. Today to discuss the project and the company with us is it's executive chairman, CEO, and president, Mr. Joseph Grosso. He was one of the early pioneers of the Argentinian mining sector, when it first opened up to foreign investment in 1993. Mr. Grosso, thanks for joining us today, we were hoping you could tell us a little bit more about Golden Arrow resources, and the Chinchillas project.

Joseph Grosso: Nick, or Mr. Hodge as you wish, I feel that it is... I don't want to exaggerate it, but it a sensational, one in a lifetime – that happened to us – opportunity. As we know, first of all finding a discovery is really rare, and that is the reason why gold is at $1,500 or whatever the price level is, and silver is in the price level that it is. We have been in Argentina, as you have mentioned, since 1993, and definitely we are regarded as a pioneer in the development of Argentina mining. Prior to that, unfortunately even though Chile and Argentina share 4 thousand a kilometers of border, on the West side, where is Chile are the biggest mining production in the world, huge projects. But when you come across the border, there is a very thin line of one inch or whatever, east into Argentina, which is the seventh largest country in the world, and therefore their geology is enormous the opportunity.

When I came, obviously we staked, there was the absence of staking right close to the Chilean development, and producing mines, and I took that opportunity of putting 350,000 hectares of property in those days, which I bought or staked. Currently we have reduced it down to 214 thousand hectares, translated in acres is somewhere around 700 thousand acres. The incredible luck that, and I am inviting your listeners to understand that this is very unusual, that a project is found and just completed its feasibility study right now, to accommodate an agreement which we have negotiated with our counterpart, Silver Standard, which have producing nearby for six years. Their production has reached the end as you have mentioned, and they have an infrastructure to replace it will take about five, six years to replace it, and will be worth about $300 million.

We have an incredible synergy, rarely found. We, Chinchillas, with definitely the capability of producing at the level of Pirquitas, which is now shutting down, which is approximately 13,000 ounces per year. Unfortunately, they are coming to a close because they don't have the minerals to sustain the production any longer. We, 20 miles away from them, are sitting with an incredible discovery, Chinchillas Silver. When we met together, the two presidents met and we found the closeness and the synergy was unbelievable to both of us, and we started negotiating. The synergy is basically that we need what they have, which they are shutting down, and worth not much more than 5% of its original value, and we need it... the $300 million in infrastructure that we needed to get to production Chinchilla.

When the two presidents, Joe Grasso of Golden Arrow, and the president of Silver Standard, we were flabbergasted, really, at the closeness of the two projects. We have worked for 14 months right now. We created a merger potential, which will be executed in the form of option by Silver Standard, and by the formation of this synergy, we could contribute nine more years to Pirquitas, which is in the process of closing. Nine more years, which is in addition to the six years that they just had terminating their project.

I am so flabbergasted by all of this that I am having problem in conjugating and communicating as efficiently as I am known for. I like to communicate this enthusiasm to your listeners there. There is really an opportunity where we get to production six, seven years ahead of time, avoid a dilution, which would be incredible to the company, and then they found a new life that we lost nine years more in the same premise, but we will have decades of future production in the region, to develop with the region. Obviously they have got to be smaller production, larger will have to be established in the future, but that won't happen until nine or ten years from now.

Right now, we feel that Golden Arrow is an opportunity that should be considered because the current price point really has a long way to go to reach the opportunity and to reach the value that we have established already.

Nick Hodge: Let's talk about that a little bit. Can we talk a little bit about the option agreement that you have set up with Silver Standard? They have an option agreement, they have been spending money on your Chinchillas project doing condemnation drilling, and geotechnical drilling, and metallurgical testing. What are the parameters of that JV agreement? What are the clauses in there? In some way, you could get revenue from their production going back to October 2015. Could you talk a little bit about the agreement you have with them?

Joseph Grosso: The agreement somehow has been misconceived, Nick. It is misconceived in the fact that we are 25%, and Silver Standard is 75%. While we are avoiding an incredible dilution if we don't raise the $300 million, something that they already have, and the other thing is that we were able to negotiate with them, that in the same contract we would become... If the option were to be exercised, which is still ahead of us, but what is retrospective is that we already started to earn the 25% from the current production of Pirquitas. Of course, once the two values are put together, Chinchillas is not just the Chinchilla value in the deposit that we got... it's that we will acquire 25% of what already is existing. If you combine the two values, it is pretty appreciable that Golden Arrow has made a pretty very deal with Silver Standard, and Silver Standard doesn't have to face a mortality of their operation there, but a continuation for another nine long years.

I must say that we are very happy with that. When it exercises the option, we will of course be the beneficiary of the earnings, net earnings, that will be delivered to Golden Arrow. Golden Arrow will continue with the skill that we have, which will be finding deposits. This is our third deposit that we found, and we are somewhat of a novelty for an exploration company. They will be the operators, obviously, and this is one of the major win is having the skills of one of the best, and efficient operator sin the world. They are producing silver at eight and a half dollars per ounce, and as we see the prices are slowly increasing. We are flirting with $20 right now. There is a huge profit in between the production cost, and the operation net proceeds that it can generate pre-tax or after-tax.

That is basically our existing agreement. We are waiting to exhaust a common list of concerns, feasibility study, do-ability that the two projects can be merged successfully. These are questions that are asked by both directors and managers, and we are in the very final stage of progress. As you said, Nick, they are paying for all the feasibility study, and the study to date which is now in its many months since October of last year. That is right, it has been since October last year, and we have benefited off the profits that they have generated ever since.

We feel this is a good opportunity to be considered, and we will then use the proceeds coming from this production participation to finance and continue financing the extremely well located properties that we still have. They are 214,000 hectares and extremely well located. We feel that Golden Arrow should raise the interest for the opportunity, which is very rare, and the infrastructures, the synergy. That is about what I can say about the contract. It is really positive.

Nick Hodge: Yeah and what do you think about the likelihood, just as we wrap up here, maybe the likelihood that you think they are going to exercise the option, right? What happens is, if they exercise the option you guys create a company, as you say, where you will be owning a silver producing mine together basically. What do you think the likelihood that Silver Standard goes forward with that, considering that the costs associated with shutting down the mine are very high if they were to go that route. Not to mention the layoffs, right, of the local community that counts on that that mine for jobs. The choice of Silver Standard really is to shut down the mine, and lay off a lot of people, or to go forward with the agreement with the Golden Arrow. Where do you think Silver Standard is in that decision process?

Joseph Grosso: Nick, supposing you were one of the directors of that company, and they have a very responsible and knowledgeable directors and board members. They evaluated that shutting down would cost... You are shutting down a $300 million facility that can remain productive for nine more years. How can you justify to the shareholder that you are shutting it down, and not taking advantage of an opportunity like Chinchillas has within 20 miles of distance. Which is very close distances for transportation. Especially, it is facilitated by the production effectiveness that Silver Standard has as a producer.

We have several, several wins as far as we are concerned. In any event, if they do not exercise the option, Chinchillas has an opportunity to be put in production the traditional way, doing a feasibility study and coming up with an infrastructure, and starting production in five, six, seven years depending. What does Silver Standard have to tell their directors? They have lost, not set to work the $300 million even though they depreciated some, but that is what it is worth in replacement value, and that will have an additional shutting down cost, which is mandatory. Which will cost an additional $40-$60, $70 million in addition to that.

We have read, and be part of listening in their conference call... and there has not been one time that they have not strongly categorized this as a deal that has to be made. Then why the delay? Well, as you said it, both companies are very professional, and we feel that we want to defend effectively why we are getting together, by an independent feasibility study that both directorship approve. That is the only thing we are waiting for, and it is continuing without stoppage in a very fast way. Just a couple of days ago, they have okayed to continue with their programs, and they have okayed all of the budgets. We are the operators of the current study, and exploration associated with it. That is our function. We are the operator of the current exploration and study. When the deal is firmed up, they will become the operator and producer of the project.

Nick Hodge: I agree with you. It is one of the reasons I had my investors fund the project back in April, when it was 27 cents. I just don't think there is any way that Silver Standard can let their Pirquitas mine be shut down. I think they will have to further their agreement, go down the road with you taking Chinchillas into production. Especially because I listened to their second quarter conference call the other day, and like you just said, they expect the environmental impact assessment to be submitted later this quarter, and they are working towards funding the feasibility studies. I definitely thing the deal is going to go forward, and it is one of the reasons I wanted to get you on the line today so that we could tell a few more readers about the Golden Arrow Resources opportunity before any decisions are made on the Chinchillas Project.

Mr. Joseph Grosso, who is the executive chairman, CEO, and president of Golden Arrow Resources, let me thank you just again for taking a couple of minutes out of your day to tell my readers a little bit more about the Golden Arrow Resource opportunity. Thank you.

Joseph Grosso: Nick, if I may add just briefly and thank you... For those skeptical people, we say: well but it is not done. I can tell you we have an incredible length of interest of other companies that would be dying to get their hands on Chinchillas, and follow the traditional way of putting it in production. What do we have with something traditional? It is the norm with the majority of producers right now, and almost on a daily basis we have inquiries: “what if it doesn't work, I am interested,” so on, and so on. For those people who basically say, well but it is not done yet, well this is for their benefit. Chinchillas has a way to go, they don't.

Nick Hodge: I am sure Silver Standard is aware of that as well.

Joseph Grosso: Oh, no question about it. Yes. Of course.

Joseph Grosso: Nick, I want to thank you again, and my apologies for the shaky emotional way that I am describing what... I am pinching myself that this has happened to us. It is unbelievable. I am a man of certain age, and six, seven years to wait for my new baby to go into production, it is a long time. I don't want to wait that long, so I am particularly emotional about it.

Nick Hodge: Sure, well congratulations, and congratulations to your shareholders as well. Thanks again for joining us today.

Joseph Grosso: Good night, thank you very much.

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