LUCA-scatore

At C$0.81 does Canadian listed Luca Mining make sense?

Dear reader

In my June 20th’ Bonkers Conkers article I said Luca at C$1.09 a share was exceptionally cheap. Then it got cheaper: C$0.81.

Let’s examine the madness. A C$223m market cap today is £119m

LUCA is not run by Engineers who love to dig holes but by Finance Guys who love to make holes in the ground profitable by running, optimising and expanding. And who have great Engineers on their team. A past track record in turnarounds - including now at Luca. Barnholden is CEO, and has a COO 30+ years track record running Mexican silver mines e.g. at Endeavour Silver, and a CTO 35+ mine engineering, resource design and process experience ex. First Majestic Silver. Plus Dr Hernandez 20+ years previously from Teck and Anglo American specialising in unlocking higher metal recovery rates in complex ore.

Your eye will be drawn to the fact that one of LUCA’s mines is next to Fresnillo, an £18.6bn market cap, and the other is next to Equinox a $7.5bn market cap. LUCA bought its mines as basket-case loss makers and made both producing and both profitable.

Given the ~$150m market cap you buy two producing mines for 75% off their replacement value.

#1 Tahuehueto (“TA”)

Tahuehueto was built on a shoe-string budget, and financed under highly restrictive covenants that bled it of cash with maintenance backlogs and legacy equipment bottlenecks, plus geographically is up a tall mountain in a remote area. Despite this, LUCA’s turnaround team established a 1,000 TPD operation and transformed it to a debt-free operation as of July 2026, where it can now choose who to sell most of its concentrates too and renegotiate terms. Except for Silver - more on that later.

#2 Campo Morado (“CM”)

Campo Morado contains extremely fine-grained, complex polymetallic ore. Standard flotation lost a massive percentage of precious metals into tailings. Freddie Dodge would be tsk tsking as he panned the effluent. It took years of testing advanced metallurgical processes to separate zinc, copper, lead, gold, and silver effectively. They’ve now got it to 75%-80% recovery levels - except for Gold. More on that later too.

Campo Morado contains extremely fine-grained, complex polymetallic ore

As can be seen below despite the $600m headline numbers LUCA values on net book value and today the CM mine is “worth” US$30m and TA is “worth” US$68m with net G&A minus -US$22.6m. Nearly a 90% discount to replacement value.

So a US$11m capex spend in just three months is a lot, isn’t it? Capex was $30.7m in 2025 too.

Even at current levels of operation LUCA is delivering $12.6m profit so nearly £10m in three months….. so £38m annualised on a share you’re buying for £119m is about 3X right?

But these numbers include two temporary negative factors which makes this even cheaper but we’ll come of those. First I want to point out why C$0.81 share price makes no sense.

The madness of Luca’s comparative past share price

I previously said at $1.09 a share that LUCA’s share price was the same price as in June 2025 and to compare the price of Metals at that time in June 2025 to the date of that article in June 2026. At that time Zinc is was up 35% yoy, Copper 31%, Silver 80%, Gold 23%.

-
Today the disparity of past comparison is even more extreme!

Today at C$0.81 a share LUCA is the same price as it was on 28th January 2025.

The price of its products are not the same today as January 2025 - that’s for sure. Most noticeable is the much higher price of silver (despite dropping by 50% from January 2026 highs)

NB today, 4th August Copper is above $6.5/lb and Zinc is nearly $3,700/t

But if LUCA were just selling the same stuff at a higher price that would be one thing. What if it’s been growing its production too? A lot!

Overall 9.5% more than the period prior to Jan 2025.

(We’ll talk about the -13.5% gold later too)

So LUCA is a beneficiary to near record prices for Copper +50.8% compared to 4Q24 but is producing 20.9% more than when it was last priced at $0.83 a share.

It’s increased silver production by 46.4% at a price 90.9% higher than 4Q24 - but where there remains a large and structural deficit in silver production in 2026.

It’s increased Zinc production by 30.6% at a 27% higher price.

Gold is the only metal reduced in production (by -13%) but at $4,080 an ounce Gold is 48% higher than 4Q24.

Leverage would have meant vastly higher profits since it is only royalties and tax which would increase costs at higher metals prices.

(NB Today Gold is down 20% from its 2026 YTD highest price of $5,486/oz and Silver more than 40% down so today’s prices aren’t exactly at some extreme level today are they?)

Gross Profit of $48m in 2025 would have ballooned at 2026 prices since it’s only really Royalties, Smelter Fees and Treatment charges that would have grown as a result of a higher revenue number. See the cost of sales below.

Post Tax maybe US $150m so triple the profit?

A PE of 1X.

Despite its two problems.

#Problem 1 - and Solution #1 - CM

So why did Gold production drop at CM?

Stockpiling. You see Campo Morado Gold is refractory which means it’s locked within fine pyrite minerals. While the plant extracts 40%–50% into concentrate, the smelter payability is lower (~56.6%) because smelters apply heavy penalties on gold tied to base metal concentrates. This means Gold has always had historically a net ~20% payability. Lose over half to the tailings, and lose another half of its value due to contamination penalties. Ouch!

LUCA have been working with a “Freddie Dodge” gold recovery expert called Ausenco who are working on approaches including fine grinding circuits, Jameson cells, and specialised flotation reagents. They have proven in a Lab they can get the recovery to 70% and the improvements would mean payability would jump to about 90%.

That would be a TRIPLING OF GOLD from Campo Morado! And at a price 48% higher than Jan 2025 too.

Ausenco are preparing a NI 43-101 Technical Report, expected in 2H26, which will reveal an exact capex figure for:

• Phase 1 (Comminution & Flotation): Installing ultrafine grinding mills (e.g., Isamills or Regrind mills) and Jameson flotation cells to physically liberate gold from pyrite at commercial scale.

• Phase 2 (On-site Doré Production): Potentially building a gold/silver leaching circuit to produce gold doré bars on-site, eliminating expensive smelter penalties.

• The Objective: Permanently unlocking the 70% gold recovery rates seen in lab tests.)

So Campo Morado is the "value-add turnaround story." Because its current gold payability and plant recovery are so depressed by refractory pyrite, fixing Campo Morado's plant would massively improve profits.

#Problem 2 - and Solution #2 - TA

Tahuehueto (TA) has a problem. Its silver is sold at an 80% discount to Empress. Ouch. Sold at about $11 per ounce.

This onerous contract applies to the first 1.25 Moz of silver production and today about half have been delivered and TA is generating about 0.45Moz per year. About 18 months remain until the 1.25 Moz is delivered and then the 80% drops to 20% discount until 2031 and ~$11 per ounce revenue jumps to ~$44 per ounce. The extra $33 at 0.45 Moz is worth $15m more pre-tax profit per annum.

If you look on the balance sheet there is a $50m liability which relates to this.

So time is the only solution here, but a glance at LUCA’s AISC at TA might make you think oh it’s production costs are very high. Q1 2026 AISC: $3,321 per AuEq oz.

That AISC hides two numbers: $748 per AuEq oz is accelerated Capex most of which is expansionary. And $1,217/oz ($3.53m) for the effect of the enhanced cost of the Silver Stream.

That means the underlying AISC was $1,356 at Tahueheuto in 1Q26. That’s pretty good for a basket case.

Campo Morado is similar: $1.19/lb ZnEq AISC is $2,380 AuEq. Capex equalled $400/oz so $1,980 AISC net of expansionary capex.

But factor in the stockpiled ore which grew from 12Kt to 63Kt by mid 2026 and at an assumed 1.2g/t of AuEq that’s $472/ounce of extraordinary AISC meaning the underlying AISC was $1,508 at Campo Morado in 1Q26. That’s pretty good for a basket case too!

With a successful higher recovery of 70% and payability 95% (as proven in the Lab but not in the field - yet) the AISC would drop to around an underlying $1,000 per AuEQ - making this a leading polymetallic mine.

CAPEX

Capex spend of about $12m per quarter so for a company you’re buying for £119m about 30% of that £36m per year is going “back into the ground”.

Even after this Capex spend Free Cash Flow is at around $14m so £40m per year. So LUCA “could” pay a 30% dividend at current cash generation if they so choose - even after putting £36m back into the ground.

Will they? Cha Ching? Nope. Growth. LUCA want to become a “mid-tier producer”. Is a £119m market cap co “mid tier” producing (in 2025) 87.4koz of AuEq for the year.

Not at all. They see 200 Koz as a realistic level of production for its EXISTING mines and then acquisition of a third site to rinse and repeat. The Mexico market is “ripe” for a such a player they argue.

LUCA is seeking to grow organically through exploration.

With grades like these you can imagine they could achieve that.

It also invested into efficiency improvements and quadrupling capex in 2025 vs 2024, with a further $8.1m in 1Q26.

We are not yet really seeing the fruits of that investment, although production is growing at Campo Morado the Gold recovery problem remains a central one, while Tahuehueto growth from 400tpd to over 1000tpd has been achieved over the past two years, but has been tempered by variable lower grades and the Silver Stream penalty

LUCA expect “improved operating stability, recoveries and cost performance…. through 2026”

Optimising Campo Morado for gold is now a priority given that 55% of production was Au/Ag while Zinc is only 25%.

It is also in LUCA’s plan in CME Phase 2 to not sell concentrates from CM but instead produce dore bars and receive 100% payability. That would cut transport costs and improve profits. Given the drilling programme and life extensions planned at both mines it makes sense.

RICK RULE AIN’T NO FOOL

LUCA is hated and its headline numbers of AISC of $3000+ give it the look of a failing business.

I love hate. The man who coined that term - Rick Rule - doesn’t love it quite as much because he dislikes the fact that the former CEO and founder of Luca Ralph Shearing owns a second company. Sounds like Dragon’s Den, right?

The key people running Luca are 100% focused on Luca, Shearing is not involved in LUCA day-to-day and he’s not even a 10%+ shareholder (a notifiable owner). I think Rule’s ruling is a bit odd and makes no sense to me.

He also says the resource is too small. The M&I resource was 1 Moz at TA (as at 2022) and 1.4 Moz AuEq at CM ( as at its 2018 PEA). Factoring in depletion there’s 2.2 Moz left.

Paying £119m for 2.2 Moz of AuEq is US$72/£54 per ounce of measured and indicated gold in the ground.

That includes paying £0 for the 1.9 Moz of inferred resource.

That also includes £0 for the district potential (which could be colossal):

District Potential of TA: Epithermal System Expansion

• 4.5 km vs. 11+ km of Strike: The current resource model incorporates only ~4.5 km of mineralised vein strike length across four main structures (Creston, Perdido, El Rey, Santiago).

• 14 Additional Unmodeled Veins: Luca’s geology team has mapped at least 14 additional prospective epithermal structures over 11+ total kilometers of strike length that remain largely undrilled.

• High-Grade Breccia Zones: Active underground drilling programs continue to strike unmodeled breccia ore shoots branching off main structures (e.g., Level 23 Creston vein returning up to 65 g/t Au, and new high-grade intercepts in the Santiago deposit).

Campo Morado: Depth & Lateral VMS Targets

• Deep & Lateral VMS Lenses: The 2018 PEA focused primarily on six main mineralised bodies (Reforma, El Rey, Naranjo, G9, etc.).

• Precious Metal-Rich Zones: Recent drilling at Reforma (intercepting 37.2m @ 13.85 g/t AuEq) and El Rey indicates that the VMS system carries higher gold/silver grades at depth and along structural margins than previously modeled.

Conclusion

Rick Rule ain’t no fool, and he owns LUCA even if he says he won’t add to it.

I disagree with his conclusions because I’m happy to own a business that generates a PE of 3X with one arm tied behind its back and is demonstrating a decent hail of blows from that single fighting arm.

In 18 months time I see a different world where the +$33 per ounce silver stream at TA kicks in, +$15m/year, CM is delivering a higher level of gold recovery at a higher level of payability, and about $70m more capex (so 50% of its market cap) has gone into the ground and into the process meaning LUCA in 2028 is a perhaps 200 KOZ a year lean machine generating Dore bars with an AuEq at low $1,000s AISC at both mines and who knows what metals prices shall be but Copper, Zinc, Gold and Silver are a sweet spot.

Where both mines have defined resources higher than today’s 4.1 Moz Measured, Indicated and Inferred.

Where LUCA have taken on a new basket case Mine (or two) to rinse and repeat.

What price could such a company be valued at? It will not be £119m I know that much. And Rick Rule might like it even less - since such a company would be even more difficult to hate.

Regards

The Oak Bloke

Disclaimers:

This content is for educational and informational purposes only. It does not consider your personal circumstances and is not financial, investment, tax, legal, or professional advice. Nothing here is a recommendation, offer, or solicitation to buy, sell, or hold any investment. Investing involves risk, including the loss of capital. You are solely responsible for your own decisions

Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as “blue chip”