Discovery Silver Q2 Earnings Call Highlights

Discovery Silver (TSE:DSV) reported record second-quarter gold production and revenue as higher throughput across its Canadian operations helped offset a planned decline in average grade. The company also highlighted the June acquisition of the Kidd operations, continued exploration success in the Timmins camp and progress toward environmental permitting for its Cordero silver project in Mexico.

President, Chief Executive Officer and Chairman Tony Makuch said the company is advancing a growth plan aimed at producing more than 500,000 ounces of gold annually over the next three to five years, excluding potential future production from Cordero. He said Discovery expects Pamour to become a larger operation than the 150,000-ounce-per-year mine outlined in last year’s technical report.

“We are demonstrating what is going on here, that we are taking the vision from concept to reality,” Makuch said, pointing to exploration results, investments in operations and the Kidd acquisition.

Record production and revenue

Discovery produced a record 67,300 ounces of gold during the second quarter, up 12% from the first quarter. Gold production and gold sales were both reported at approximately 66,000 ounces. Senior Vice President of Canadian Operations Duncan King said the production increase was primarily driven by higher processed tonnage, which more than offset the anticipated reduction in grade resulting from a greater proportion of mill feed from open-pit sources and stockpiles.

The company mined 1.1 million tons during the quarter and ended the period with 14 million tons of stockpiled material. Mining rates improved at each operation, King said.

Senior Vice President of Mineral Processing Gord Leavoy said the company processed 904,000 tons in the quarter, nearly 30% more than in the first quarter. The mills exceeded 11,000 tons per day on 49 days and surpassed 12,000 tons per day on 11 days.

Milling costs were $2,150 per ton, down 14% from the first quarter and slightly above the company’s best quarterly average of $2,120 per ton, recorded in the third quarter of the prior year.

Chief Financial Officer Alison White said second-quarter revenue rose 12% sequentially to $319 million, supported by higher ounces sold and a $30 million contribution from Kidd following the transaction’s June 1 close. Revenue has risen for four consecutive quarters, she said, reflecting higher production and higher gold prices compared with the year-earlier period.

Cash costs were $1,387 per ounce sold, while all-in sustaining costs averaged $2,154 per ounce sold. White said the company expects unit costs to be highest in the first half of 2026 and to improve during the second half as production and sales volumes increase.

EBITDA totaled $170 million, roughly unchanged from the prior quarter, as Kidd’s contribution offset a lower average realized gold price. Adjusted earnings were $92.3 million, or $0.11 per share, compared with $82.7 million, or $0.10 per share, in the first quarter and $28.4 million, or $0.04 per share, in the second quarter of 2025.

Capital spending and liquidity

Free cash flow was an outflow of $11 million during the quarter, reflecting increased capital expenditures and $56 million in working-capital changes. White said the working-capital impact included accelerated accounts-payable payments before implementation of a new enterprise resource planning system at quarter-end.

Capital expenditures totaled $86 million in the quarter, including spending on tailings capacity at Dome, pre-stripping at Pamour and new fleets, equipment and infrastructure at Hoyle Pond and Borden.

For 2026, Discovery plans growth capital spending at Porcupine of $195 million to $235 million, including $25 million to $35 million of capitalized exploration. Sustaining capital is expected to be $120 million to $165 million.

The company ended the quarter with $364 million in cash and more than $600 million in liquidity. Since quarter-end, Discovery increased its revolving credit facility to $400 million, bringing current liquidity to more than $750 million, according to White.

White also addressed the first-month cash-flow timing at Kidd, noting that the operation’s offtake arrangements result in cash receipts being collected in the month after sales. While Kidd contributed about $30 million of revenue against $19 million of production costs during June, cash from those sales was not received in the quarter.

Kidd acquisition supports processing plans

Makuch described the Kidd acquisition as a key enabler of Discovery’s growth plans. The Kidd metallurgical site includes multiple processing circuits that the company expects to use for both base-metal and gold-related opportunities.

The B circuit is expected to continue processing Kidd Creek material through 2026 and 2027. The company is conducting test work on the C circuit, which it expects to process Borden ore beginning sometime in 2027. Makuch said this could add up to 40,000 ounces of annual production through additional processing availability at Dome, improved recoveries and the ability to process higher levels of Borden ore.

Discovery is also reviewing a new conventional gold circuit in the former A Division space at Kidd. The company said the facility could eventually support processing of Pamour material, while the D circuit could potentially process TVZ or other material in the future.

Vice President of Mineral Processing Harold Bird said Kidd had a total reportable injury frequency rate of zero and that growth capital at the site is primarily associated with tailings buttressing and mill modifications for Borden ore processing.

Exploration results and Cordero permitting

Senior Vice President of Exploration Eric Kallio said drilling at Pamour, Dome, TVZ, Owl Creek and Borden continued to produce encouraging results. At Pamour, Discovery drilled 47 holes and identified a mineralizing system extending more than 4 kilometers along strike that remains open in all directions and at depth.

Highlights included 3.05 grams per ton of gold over 30 meters and 2.08 grams per ton over 24 meters at Pamour, as well as 17.36 grams per ton over 5.9 meters in the first hole drilled at the Keora Trend, 200 meters west of the current resource. The company has begun work on an updated Pamour resource estimate targeted for this year.

At Dome, drilling returned results including 9.09 grams per ton over 17.3 meters and a high-grade assay of 278.48 grams per ton over 2.1 meters. Discovery is also preparing an updated Dome resource estimate for year-end.

In Mexico, Senior Vice President of Corporate Affairs and Sustainability José Jabalera said Discovery received a July 24 visit from senior SEMARNAT officials at Cordero. He said the company is in the final stage of the project’s environmental permitting process while continuing studies to update capital and operating cost estimates, along with work related to water, infrastructure and power.

Makuch said Discovery remains on track to meet its 2026 guidance and emphasized that the company continues to invest in production growth, operating performance and lower unit costs.

About Discovery Silver (TSE:DSV)

Discovery is a growing precious metals company that is creating value for stakeholders through exposure to both gold and silver. The Company's silver exposure comes from its first asset, the 100%-owned Cordero project, one of the world's largest undeveloped silver deposits, which is located close to infrastructure in a prolific mining belt in Chihuahua State, Mexico. In April 2025, Discovery acquired the Porcupine Complex, transforming the Company into a new Canadian gold producer with multiple operations in one of the world's most renowned gold camps in and near Timmins, Ontario.

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