It is my pleasure to share a detailed discussion about where Kerr Mines (TSX:KER) has been and where it is going. Mr. Claudio Ciavarella joined me for a 90-minute conversation, which was recorded on August 28, 2017.

Please note that I was compensated to prepare and distribute this promotional content.

Kerr Mines is a junior mining company focused on bringing the Copperstone gold project in Arizona back into production. The company has 235 million shares outstanding and 261 million fully diluted with a market cap of approximately CAD$60-million. The company had $6.7 million cash and short-term investments as at July 4, 2017. They have $9.5 million in debt. You can find more on the company web site http://kerrmines.com/

Claudio: Hello, Peter. Great to be with you again. How have you been?

Peter: Thanks, Claudio. I have been well. It's a little hot out here on Vancouver Island, but that's okay.

Claudio: We're not getting that heat, so feel free to send some over to us in Ontario.

Peter: I won't send any of the smoke from the wildfires over. I heard that the government had budgeted like $50 million for wildfire control this year and they're up to $500 million in direct expenditures.

Claudio: Yikes.

Peter: Yes, I suspect the new provincial government will be surprised by that. If you've been paying attention, then you've probably heard those statistics about the global insurance industry spending money more than ever before on natural disasters. Whether it's Houston or Hong Kong, there is a lot of happening out there.

Claudio: Yes, that is an incredible story building in Houston.

Peter: Certainly, an awe-inspiring one. Nature is powerful.

Claudio: Mother Nature is in charge, no matter what we want to believe.

Peter: Are you at home today or downtown?

Claudio: I'm in my regular office, where I do most of my work. Truthfully, I don't often go downtown unless if I've got meetings lined up down there.

Peter: Thanks, I know the feeling. I can just imagine the hassle of getting in and out of Toronto. I went back and read through our first interview, which we did in May 2017. That was your first interview as CEO of Kerr Mines. I am grateful to have been there in those were early days.

Claudio: Thanks, Peter. It was very early days and that interview does a good job capturing where we were at that moment. I read it again recently, as well, and I was stunned by just how early it was. We did that interview right after I took the reins of the company in late April-early May this year. We've come a long way since then, but we have largely followed the plan that I laid out at that time.

Peter: I saw a SEDI filing for you in early May that indicated a pretty large acquisition of shares a couple weeks before our interview. I see that you bought 1.75 million shares in May 2017.

Claudio: Yes, that's right. That particular transaction was part of a debt settlement. As we've discussed before, Peter, Kerr Mines went through a financial restructuring in 2016. Most of that was completed in the first nine months of 2016, but this transaction in May 2017 was related to one of the debts that we had settled in 2016. When we settled the debt, we provided stock to the lender but made a condition that we had a right to acquire the stock back from them one year after the settlement at a fixed price. That was prearranged by Mr. Tamimi, our chairman and myself. When that date came up, they reached out to us and asked if we were interested in taking this stock? We said "Yes, absolutely."

Peter: Interesting. That seems to fit with what you've described about getting the company's equity and debt into strong hands. It can be terrible to have someone out there who is a large shareholder that doesn't really care or doesn't know what's going on. Especially if they are determined to sell into the market without any real concerns for the implications. Providing them a way to sell the shares off-market was a clever idea for you.

Claudio: Yes, that was certainly one of the reasons that we added that clause. We did it with a couple different settlements, as well.

Several things we did in the restructuring process were extremely unique. We were quite creative in terms of coming to a solution that was win-win for the company and for the creditors when we settled these debts. That creditor from whom I bought these 1.75 million shares was not really interested in becoming a long-term shareholder of Kerr, but they were willing to accept equity as part of the compensation with the premise that we would have the right to buy it back. As that day approached, we felt that should the situation present itself we would be interested in purchasing the shares, even if the cost was above market.

Peter: Thanks, Claudio. I will try to remember to ask for more details on all of that. This transaction occurred at 21 cents per share at a time when Kerr was trading at 16-19 cents. You were trading below the price where you bought at the time, so I imagine the seller was happy. And it also helps to keep those shares from hitting the public market.

Claudio: Absolutely.

Peter: I would think that people would take that as a good signal, that management were willing and able to buy those shares back. For anybody paying attention at all, I would think that that would be a clearly bullish.

Claudio: (Laughs) That's right, Peter, "if anyone was paying attention". Really, I think that's the whole story of Kerr Mines.

We have stayed under the radar for three years and it wasn't until I took the reigns as CEO that we really started reintroducing the market to our story. It's been a quite successful reintroduction, no question about it. We're gaining a tremendous amount of support and a lot of interest as it continues to grow.

The numbers you mentioned were correct, as well. The stock was trading well below the price where we bought it, but we had no hesitation to do it. In fact, we have another similar transaction coming up in the near future. We are going to do the same thing again, buying at a significant premium to the current value. We like to do that as it signals our belief in the company and the current program.

We didn't restructure this company to sell at 20 cents a share. We believe that we're able to create much more value for shareholders. This project has a tremendous amount of value in the near-term and the long-term. Don't be surprised if the scenario presents itself again that we would highly consider acquiring stock, even if it is above the market.

Peter: Green shoots in the junior mining industry, Claudio. There is hope for all of us yet!

Claudio: Yes, there is some hope out there.

Peter: Amazing to see how you have come storming out of the gate, Claudio. The news flows since our first interview has been substantial. There are some details that I'd love to ask about, but I'll start with what I think was one of the most stunning things: the timeline on the recent financing. The first news release came out, announcing a $5 million financing. Then, a week later, the amount was increased up to $8 million and a week after that was the first close. And maybe 10 days after that, the whole thing was wrapped up and you were able to finance a full $8 million dollars. Wow.

Claudio: Yes, Peter, that is correct. You know, that was a fun time. It was hard work, but it was invigorating.

One of the things that I've said right from the start is that "When we make a commitment to something, we're going to do it and we're not going to take forever to get it done." The financing went exactly as that. We announced it and the initial target was to raise $5 million, but we had tremendous support and ended up being 60% over-subscribed to close $8 million.

I've been sending out that message from the start. It's great to have this financing as an example of that, but there will be other examples where we quickly do what we said we were going to do. As you said, Peter, it is clear enough to anyone paying attention but we haven't had many people paying attention to us! That is starting to change now as we deliver, and it was even reflected in who participated in the financing.

We had a diverse shareholder base that supported the financing. As I mentioned to you, I started introducing the story back to the market after I took the reins and I've continued to do so since. We met some new institutional investors who are starting to become interested in our story and other institutions who have held their position in the company, and even one I know of who increased his position in the company.

What they are seeing from us now is that we deliver. When we make a commitment to do something, we have been able to do so extremely quickly. We're diligent, but we're not slow. We're looking to create shareholder value every step of the way and we're going to continue with all of that. Investors are now starting to recognize the potential value that we're creating and interest in Kerr continues to grow.

We have been able to get several larger shareholders aligned with our long-term view, which gives us critical shareholder support. All the support we've had so far has just been great and we expect it to continue.

Peter: Thanks, Claudio. Lots of information there. One thing I noticed in the news release was details on how much the Chairman was taking in each financing. I wondered about all of that. It seemed to me that he was diluted-down a bit in the financing.

Claudio: Yes, Peter, there are some interesting things there. When we initially planned the financing, the three major shareholders, Mr. Tamimi, Mr. Sprott, and myself, discussed things and agreed that we were not going to participate in the financing. We wanted to bring in a new group of diverse shareholders. We had a lot of interest as people were following our story. Initially, the chairman did not plan to participate in the financing. Then, as he became more involved in it and a lot of his contacts became interested in it, he decided to participate in the financing. Although Mr. Tamimi did participate, he did get diluted a little bit. Even I, myself, was diluted a little bit, which I think is appropriate at this point. It would have been a different story if we had raised all this money, but it all came from a new shareholder base. We believe that is an important sign of increased interest in Kerr Mines.

Peter: And it's not like you haven't been buying the stock -- we discussed earlier how you have bought the stock above the market price as part of these debt settlement deals. It is probably good to see the three of you diluted, as the slide in the presentation shows that you have over 40% of the stock. There are a lot of interesting issues that come up in situations like this with large strategic shareholders, whether management or another company. It can be very important to dilute these groups down when you can. You want them to remain committed to the story, but it's essential to bring new people into the story.

Claudio: Yes, Peter. I think you mentioned a couple critical things there. The chairman and I will continue to lead the company, but we also wanted to bring in others who we felt would be good long-term shareholders. We were very happy with the raise. You may have noticed also that it was a non-brokered private placement.

Peter: Ah, yes. That is such an important detail. I'm sure that some people on the street would have loved to lead that financing, but they will have to wait. Your background in private business really shines through here, with your network of contacts who would like to participate in the financing. I don't know if I've ever seen such a large amount raised in a non-brokered private placement.

Claudio: It went well for my first fundraise as CEO of a public company.

Peter: Congratulations, Claudio. The news didn't mention anything about institutional investors that participated. I wonder if we should expect to see anyone go over 10% ownership?

Claudio: Probably not any time soon. A lot of them like to stay under the 10%, which has pros and cons. Regardless, there will be opportunities in the future for people who came to Kerr late. Some institutional investors are also active in secondary markets, which is important for liquidity of the stock.

Peter: I always wonder the primary versus secondary markets for juniors, Claudio. It seems that many people who buy in the primary markets with private placements actually stay away from the secondary markets, unless they are selling their shares! It would strike me as odd that supposedly sophisticated investors would invest large amounts into a company, but not allocate at least some small proportion to market-making trading in the name. It seems to me that investors put the responsibility for a liquid stock at the door of the company, but increased liquidity really stands to benefit all shareholders.

Claudio: Well, that's getting a bit beyond me, Peter.

Peter: I'm afraid they're only half-baked ideas anyway, Claudio. I will be watching for some adult supervision in the secondary market for Kerr, just to see that the shares don't get too hot as that can be a problem. It can be hard for committed shareholders to sell shares, but I think that will be an important issue for you going forward.

I'm in a lucky position where I can kind of pick and choose what I spend my time looking at and one of the things I like about Kerr is that you're not a typical junior in a several ways. And all those differences have been good from what I've seen so far.

Claudio: We are certainly different in a lot of ways, Peter. I'm not a seasoned veteran as a CEO in the mining space, but I have already seen some major differences between our approach and others' approach. I also hear about some important differences from talking to people. That is certainly one thing I can agree with you on, Peter.

It all affects how people perceive us. We are unique in many ways, how we've gotten here and where we're moving towards. We're definitely unique, for better or worse. Sometimes I have to laugh about the things that differentiate us from a lot of the junior miners out there.

Peter: The speed with which you guys have executed everything so far is a good example. We will be watching to see you continue to deliver on your timelines. Best wishes to you in doing so.

Regarding your speed, allow me to push back a bit. After the financing closed July 10th, it was about a month before we heard that you had awarded key contracts for your exploration program for the year. That may seem like a long time to anyone reading this, but I think it's actually quite short. It's important to make those decisions quickly as the clock is ticking after you raise that money. Being a public company is not cheap.

Then, you started drilling less than one week after that that. Wow. My favorite news release from this summer was probably the next one. A week after starting drilling, you announced that Kerr Mines mobilizes mine development contractor at Copperstone Mine on August 21st, 2017. Allow me to point out that is just one short week ago, as we are recording on August 28th.

I had to do a double take when I saw that "Kerr Mines mobilizes mine development contractor at Copperstone Mine on August 21st, 2017. You had already mobilized the exploration crew, but this was the mine development contractor. That intrigued me to no end.

Are you getting started building the drifts underground there?

Claudio: Yes, that is correct Peter. All of what you've just said sounds fair.

My background is in the private business world and you have to move quickly there. There's no time to sit around.

And let me tell you that the speed we're moving is something I've heard about over and over again from many people. They cannot believe how quickly we are executing.

I look at that and I don't understand it. That's just what I said I was going to do. Here it is on page whatever of my presentation -- I said this is what we're going to try to do. So far, we've been successful.

When I hear people say that they are surprised because we moved so quickly, I don't understand. I said I was going to do something, that means I'm going to do it.

Now, you mentioned some other things Peter.

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The objective of the financing was to allow us to enter the exploration and resource definition phase of our program. We had already started that process in parallel to the financing. We started the process in advance of the time we expected to begin.

This is the first such activity we have done with me as CEO and the largest program the company or the project have seen in a long time.

Again, the process entails going out to different service providers to obtain proposals from consultants that would be capable of preparing the PFS. We are maintaining our prior guidance there of Q1 2018.

In addition, we went out to various contractors to obtain quotes for both the drilling and development work. We ran this process in parallel to the financing so that we could get underway as soon as the financing was done. Running in parallel allowed us to greatly reduce the timeframe while we do the things we had to do. All that saves the company a tremendous amount of money. Time is money, as you said. And I like how you put it, "if" anyone is paying attention.

Peter: Wonderful, thank you.

Claudio: Yes, thank you Peter. Keep in mind that the financing closed in July. We knew we would be in the evaluation phase as soon as the financing closed and July was a good month for that. We were able to evaluate everybody, preform due diligence, check references, and then determine our list of key participants.

One of the most important announcements for the public markets was that we hired Hard Rock consultants to publish the PFS. They are now responsible for publishing the report that will become the basis for a production decision. As I've indicated, we have a target to do that. Our goal is to have it done by Q1 2018. We have everybody focused on that window of Q4 2017 to Q1 2018.

We also brought in two very experienced and highly capable contractors to carry out drilling at site. Godbe Drilling was hired to do the drill program and DMC was contracted to construct the underground drift. Godbe was on site first to start the surface exploration program and we have commenced our surface exploration program, as in the news release you mentioned.

Peter, an important part of the terms for our negotiation with potential drillers was how fast they could be on site. If they couldn't be there until Christmas, then it's not going to work. It was very important for us that everybody understood that this was the timeframe that we're working on and Godbe was able to start work immediately. We are very grateful to them for that. They have done a great job so far. In fact, everyone that we have hired has been great. We are all on the same page with regards to scheduling and standards.

The development drift is also being put into place now. DMC have started working on that, as you noted in the news release from last week. That development drift will double as an underground exploration drift and it is going to be a huge investment for Kerr moving forward. We had an effective process to determine where to putting this drift and I'm extremely happy with our plans here. DMC have been very helpful with that. This exploration drift is going to give us the opportunity to drill into the Copperstone zone from underground and into the footwall targets.

Peter: Yes, the parallel zone.

Claudio: That's right, Peter. I'm sure you recall some of this from our prior conversations. This drift is going to allow us to access areas that have never been drilled before. We're going to be able to drill into the gaps in the Copperstone zone, as well as expanding other areas. It's quite an exciting time. A lot of value creation is being done right now with everybody moving really quickly.

Peter: A pace like that has to be set at the top, Claudio.

Claudio: Absolutely, Peter. If you're the leader, then you have to march. Everybody knows what I want. I want things done quickly, I want things done efficiently, and most importantly I want everybody to think about it before we do it. We're not here to make mistakes.

We do not cut corners to move quickly. We're thinking about things and laying things out properly. Everybody understands the goals and the objectives. Everybody understands the vision of what we're trying to accomplish and everybody is working on that. As the leader of this company, I try to show how much you can get done when you become engaged.

Peter: It occurs to me just how different this is -- how many stories do we hear about the prospector who tripped over a rock and found something special. That is a serendipitous kind of exploration success, which is not what you are primarily looking at here. You're trying to build a mine.

Claudio: Correct. I've said the same thing over and over again. We are very fortunate that our drilling programs are continuing where prior successful programs left off. We're drilling more of a resource definition program than an exploration program at this point in time. There are specific objectives of what we're trying to do in terms of building this. We are certainly open to the kind of genuine exploration success that you referred to, Peter, but it is not where we are starting.

Peter: It's as if you are the mirror image of the typical junior mining exploration company, in terms of the sequencing of your activities over the long-term.

Claudio: Well, we are working underground already. We will complete a resource definition program there at the Copperstone Zone. As we discussed in our first interview, Peter, there wasn't very much underground drilling done there previously. I think that insufficient underground drilling was probably part of the problem that our predecessor encountered, so that will be one where we attempt to learn from prior mistakes.

We know the things that we have to do and we know the goals that we have to accomplish in order to build this as a successful project and that's what we're doing.

Peter: One question that occurs to me is around the scope of the PFS. With the underground development starting now, and the first phase of surface drilling that's underway. I wonder how much of the new results will be included in the PFS?

Claudio: OK. Remember that the drill campaign has a couple aspects to it. One is the surface program, which has commenced. There is also the underground exploration program, which has not started yet. We have started the underground development program, but not announced the start of the underground exploration program itself. That will be commencing soon as we move forward.

A lot of the underground exploration program will be focused on resource definition for the existing ore body. We discussed in the past how this ore body has a resource estimate associated with it, which we will be using as the basis for further estimates. As we complete this drilling, we plan to complete the exploration drifts we talked about before. These drifts will allow us to drill into the existing ore body and into the footwall where we believe a parallel zone is located. These drifts will follow on other underground drifts that are already in place.

You'll continue to hear about all of this sooner rather than later, Peter. We will start drilling to further define the ore body in a way that we can use to enhance our PFS, which will lead us to a production decision.

Peter: Right. There are a lot of moving parts when you're actually bringing a mine into production. I can see just how important it is to have things running concurrently.

Claudio: That's right, Peter.

I didn't really mention the surface drilling program, which has started already. The objective of the first phase is to explore that parallel zone in the footwall. There will be additional phases to the surface program, but this first one is very much focused on that area that. As such, I do not expect a lot of that drilling to be part of the PFS. However, the process of drilling the footwall target is very important for us as a way of meeting our goals of delineating a path to a million ounces. That's our goal -- to answer the question, "How can we get to a million ounces?" This footwall target is one of those areas that give us that opportunity to create such a path and that's why we want to drill into it.

There has been some drilling in the parallel zone that has encountered ore-grade material, but there is still an opportunity for more drilling to move the needle there. The number of holes in the past is fairly small, but they have been successful holes. We look to replicate that success as we move towards our goal of confirming with high confidence that there is in fact a parallel system only 500 feet to the west of the Copperstone zone.

That parallel zone will help create the vision that I have to grow this asset over the next two to five years and beyond. I want to increase the number of ounces that we have across the property and potentially increase the production profile. That's really the broader goal.

Peter: Sometimes I describe this an inchworm process, where you have to push something forward and then pull something else to catch up so that you can move forward. But I think the image of a centipede is actually more appropriate here based on how we've discussed doing things in parallel. The difference may in be the number of things you have going on. Again, Kerr Mines has a lot going on. Much more than a junior with an early-stage exploration project. Thanks, Claudio, it's helpful for me to get my bearings here and just emphasize that this is a development company. It affects how I look at things, I think.

Claudio: Of course, Peter. Great to be talking with you about everything.

 

Peter: I'll just point out as well that you mentioned most of the surface drilling is focused on the parallel fault system, Footwall Zone, and the existing resource area, Copperstone Zone. For anyone who is not familiar, this is an area that was mined as an open-pit. There is a 43-101 resource estimate on the parts of this ore body that were not mined-out.

There are some historical underground workings that the company has access to, which they're going to use in addition to new underground developments. I suspect the old workings will be more for underground mining than exploration, but we will see. Regardless, the underground access provides a way to do some infill drilling to help expand the existing resource.

The geological model of the Copperstone is a single, large sheet of gold mineralization that shows at surface and dips gently. These sheets can be 30 feet thick and carry some good grades, however, these sheets are often very broken up. There is a lot of faulting on a regional scale that breaks up these sheets. Regardless, this gold deposit and other similar ones have been mined effectively. There is a great history to gold mining in this part of Arizona here.

Claudio: Yes, that is fair Peter. And that gives a few examples of how things are unique for us at Kerr.

This existing resource is quite important as it provides a certain amount for our resource base and opens up the question of what next? Well, the drilling underground is a big part of that. We need have a better handle on what is happening underground to create the mine plan and optimize it for the PFS. Then, there is the potential to expand that underground resource and the whole other new, separate area within the footwall. It is all very exciting for us in terms of our goal to grow the resource as it provides many pathways to accomplish our goal.

The Copperstone Fault produced half a million ounces of gold. Right underneath it, which is the main part of our existing resource is another 300,000 ounces of gold. So, we know that the Copperstone Fault has 800,000 ounces of gold, 500,000 historical ounces mined plus the existing resource. Now, it is possible to increase this by bringing in different areas, whether they are from the down-dip extension or one of these gap zones within the resource. When you start to think about all that, the Copperstone Zone could be well over one million ounces itself, including the original 500,000 ounces that was taken out.

And that's why this parallel system is so exciting to us. If it is a duplicate of the Copperstone, then it's very easy to do the math as to what we potentially have here on this property.

Peter: Wow. Well, it would seem clear that you have a pathway to 1 million ounces here. It's not too often that you have a chance to double it in the local area!

Claudio: Yes, exactly. If we are able to get a good handle on that and can start to put some confidence on an estimate of the parallel zone, then things could open up. Keep in mind, Peter, that we're fully permitted and have all the infrastructure on site. We have underground access points, so we can actually start thinking about how to grow this opportunity over the next two to five years. I'm very excited about the upside here. I believe there is significant value creation, but it will take time to get there. For now, we have our fingers crossed that our program produces the results that we anticipate.

This document contains statements that are forward looking statements and are subject to various risks and uncertainties concerning the specific factors disclosed under the heading “Risk Factors” and elsewhere in the Company’s periodic filings with Canadian securities regulators. Such information contained herein represents management’s best judgment as of the date hereof based on information currently available. The Company does not assume the obligation to update any forward-looking statement.