Executive Summary / Key Takeaways

• DynaResource has achieved a pivotal transition to a Production Stage issuer, underpinned by a maiden S-K 1300 Proven and Probable Mineral Reserve of 250,000 gold ounces at its high-grade San José de Gracia (SJG) mine.
• The company reported a significant financial turnaround, with Q2 2025 revenue surging 43.41% year-over-year to $15.89 million and a return to net income of $504,022, driven by increased operational throughput and favorable gold prices.
• Operational advancements, including a 230% increase in underground development and the upcoming commissioning of a new gravity gold circuit, are enhancing efficiency and unlocking new high-grade exploration targets.
• Despite strong operational momentum and growth prospects, DynaResource faces substantial risks, including negative working capital, 100% customer concentration, ongoing Mexican tax reassessments, and legal challenges to mining concession titles.
• The outlook for 2025 anticipates increased processing throughput to 800 tons per day and significant revenue growth, with the SJG project's Net Present Value (NPV) demonstrating strong leverage to current elevated gold prices.

Setting the Stage: DynaResource's Evolution and Strategic Foundation

DynaResource, Inc., originally established in 1937, has evolved into a minerals investment, production, and exploration company, primarily focused on its high-grade San José de Gracia (SJG) gold mine in Sinaloa, Mexico. Its corporate restructuring in 1998, which saw it re-domicile to Delaware, set the stage for a concentrated strategic focus on precious metals. Over the past decade, DYNR has systematically scaled its operations at SJG, transforming it from a limited site-scale processing operation in 2015 to a significant gold producer.

The global gold mining industry is currently experiencing a favorable environment, with robust demand driven by economic uncertainties and inflationary pressures pushing gold prices above historical averages. This trend provides a significant tailwind for producers like DYNR, whose project economics are highly sensitive to commodity price fluctuations. The San José de Gracia mine's after-tax Net Present Value (NPV) is estimated at $84.40 million at a baseline gold price of $2,500 per ounce, but is projected to materially exceed $133.30 million at current spot prices above $3,200 per gold ounce, underscoring its leverage to market dynamics.

The San José de Gracia Mine: A High-Grade Core Asset

A pivotal moment for DynaResource occurred on January 1, 2025, when the company officially transitioned from an Exploration Stage to a Production Stage issuer under SEC Regulation S-K 1300. This reclassification followed the completion of its first Mineral Reserve estimate, which declared a high-grade Proven and Probable Mineral Reserve of 250,000 gold ounces at the SJG mine. This reserve supports an estimated 7-year mine life, with substantial potential for extension along strike and adjacent to existing infrastructure.

The S-K 1300 Technical Report Summary, filed in May 2025, details a Proven and Probable Mineral Reserve of 1,607 kilotonnes at an average grade of 4.91 grams per tonne (gt) gold. This robust reserve base provides a clear operational roadmap and underpins the company's long-term production strategy. The transition to Production Stage also triggered a change in accounting estimates, leading to the capitalization of mine development costs and the commencement of systematic depreciation and depletion, which will impact future financial reporting.

Operational Momentum and Technological Edge

DynaResource's operational strategy at SJG is centered on continuous optimization and expansion. The company has aggressively increased its underground development, achieving an average of 1,268 meters per month in Q2 2025, a substantial increase from 383 meters per month in Q2 2024. This accelerated development has provided access to over 20 production stopes, significantly enhancing mining flexibility and is expected to positively impact ore tonnage and grades in the coming months.

A key technological differentiator for DynaResource is its ongoing capital works program to integrate a primary gravity gold circuit into the processing plant. This initiative, scheduled for completion and commissioning in Q3 2025, involves the installation of three new Falcon gravity concentrators. These concentrators are strategically positioned downstream of the ball mills to recover a significant portion of the free gold present in the San Pablo, San Pablo Sur, and La Mochomera deposits. This technology is expected to tangibly improve overall gold recoveries and processing efficiency, directly contributing to higher gold production and enhanced profit margins. Process plant reliability has already improved, with ball mill availability exceeding 91% for Q2 2025 following electrical refurbishment and preventative maintenance programs.

Expanding the Resource Horizon: Exploration and Growth Potential

Beyond current production, DynaResource is actively pursuing an aggressive exploration strategy to expand its mineral resource base. Expanded development work has already led to the preliminary identification of two new mineralized veins – the Victoria and Alexa veins at Tres Amigos, and a new high-grade structure, the 532 Vein, at La Mochomera. These discoveries are currently being evaluated as potential additional high-grade ore sources.

The Victoria zone, located approximately 40 meters from existing Tres Amigos infrastructure, has a conceptual exploration target of approximately 100,000 tonnes grading between 7.00 and 8.00 grams per tonne gold, representing a potential of 25,000 ounces of contained gold. Similarly, the Palos Chinos zone, near active Mochomera workings, has a preliminary conceptual target of approximately 90,000 tonnes grading 5.00 to 6.00 gt per tonne gold, with historical data indicating average grades of 11.40 gt Au over 1.20 meters. These targets, while conceptual, highlight significant near-mine growth potential. The company plans to continue underground exploration drilling and commence surface drilling in the second half of 2025, prioritizing high-grade targets that can be readily incorporated into the mine plan.

Financial Performance: A Turn Towards Profitability

DynaResource has demonstrated a notable financial turnaround, reporting a net income of $504,022 for the three months ended June 30, 2025, a significant improvement from a net loss of $2.93 million in the prior-year period. For the six months ended June 30, 2025, the company achieved a net income of $1.11 million, reversing a $7.34 million net loss from the same period in 2024. This shift to profitability was primarily driven by robust revenue growth, which surged 43.41% year-over-year to $15.89 million in Q2 2025 and 44.22% to $29.58 million for the six-month period, attributed to higher tonnage mined and processed, coupled with favorable gold prices.

Operating cash flow also saw a substantial improvement, with $2.96 million provided by operating activities for the six months ended June 30, 2025, compared to a use of $4.73 million in the prior year. This positive trend reflects increased revenue and lower mine operating costs. However, the transition to Production Stage accounting led to a significant increase in cash used in investing activities, totaling $5.92 million for the six months ended June 30, 2025, primarily due to $4.90 million in capitalized mine development costs. This capitalization, along with a $0.38 million increase in depreciation and depletion expense, reflects the company's investment in its long-term production capacity.

Competitive Landscape: Niche Player in a Giant's World

DynaResource operates within the highly competitive precious metals mining sector, where it faces formidable global players such as Barrick Gold Corporation (GOLD), Newmont Corporation (NEM), and Agnico Eagle Mines Limited (AEM). These larger rivals benefit from immense scale, diversified asset portfolios across multiple continents, and superior access to capital and advanced mining technologies. For instance, Barrick Gold typically exhibits gross profit margins around 38% and operating profit margins of 32%, while Newmont and Agnico Eagle also demonstrate strong profitability, with gross margins of 35% and 41% respectively in 2024, and operating margins of 31% and 38%. In contrast, DYNR's latest TTM gross profit margin stands at 46.53%, notably higher than its larger peers, yet its operating profit margin is 8.30%. This suggests that while DYNR achieves strong initial profitability from its ore, its smaller scale and potentially higher relative general and administrative expenses lead to a lower operating margin compared to the more established, efficient operations of its rivals.

DYNR's market positioning is that of a specialized, regionally focused player. While it lacks the global diversification and financial resilience of its larger counterparts, its strength lies in its targeted expertise and proprietary access to the high-grade San José de Gracia property. The upcoming gravity gold circuit represents a technological advantage that could enhance recoveries and efficiency, potentially improving its cost structure and gross margins relative to its size. However, DYNR's smaller scale makes it more vulnerable to commodity price volatility, regulatory changes, and local operational challenges compared to the diversified portfolios of its larger competitors.

Liquidity and Capital Management

Despite its recent return to profitability, DynaResource faces significant liquidity challenges. As of June 30, 2025, the company reported negative working capital of $25.76 million and an accumulated deficit of $67.96 million. These factors "raise substantial doubt about the Companys ability to continue as a going concern," highlighting the critical need for effective capital management and additional funding.

The company's liquidity has been primarily sustained through its operations and revenue from product sales, supplemented by borrowings. An updated credit line facility with Ocean Partners UK Limited, expanded from $12.5 million to $15.0 million with a 6-month grace period on principal repayments, provides crucial financial flexibility. Management believes that existing cash, revenue arrangements, equity sales, and borrowings will be sufficient for the next 12 months. However, future capital requirements will depend heavily on the pace of mining, milling, and exploration activities, necessitating potential additional equity or debt financings.

Outlook and Strategic Initiatives

DynaResource's outlook for the remainder of 2025 is characterized by continued operational enhancements and aggressive exploration. The company targets an average daily processing throughput of 800 tons per day for the second half of 2025, leveraging its installed capacity of up to 1,000 tons per day. This, combined with higher-grade feed material from new development areas like Victoria and Palos Chinos, and favorable gold prices, is expected to drive a "significant increase in revenue in 2025."

The commissioning of the new Falcon gravity concentrators in Q3 2025 is a key milestone, anticipated to improve gold recoveries. Furthermore, planning for a central Raise Bore ventilation shaft in the La Mochomera and San Pablo mines, scheduled for Q4 2025, will further optimize mine ventilation and operational efficiency. The company's focus remains on growing known resources at SJG, prioritizing high-grade underground targets, and expanding regional exploration to unlock the broader potential of its land package.

Key Risks and Challenges

Investing in DynaResource involves several material risks. The "going concern" doubt, stemming from negative working capital and accumulated deficit, is a primary concern. The company's 100% customer concentration exposes it to significant counterparty risk and limits its bargaining power. Operational risks include the inherent volatility of commodity prices and the "primary risk associated with the provisional pricing lies in potential variances between the estimated precious metals content, based on initial assay data, and the actual recoveries confirmed through final processing and settlement," as evidenced by the $1.40 million Q1 2025 settlement adjustment.

Regulatory and legal challenges in Mexico are also prominent. The Mexican Tax Authority's re-assessment for 2021, asserting a $19.00 million USD discrepancy, with $13.30 million USD still under review, represents a substantial contingent liability. Furthermore, the "amparo" legal process initiated to protect rights to nine mining concessions, indicated as "not currently active" on a public website, introduces significant title risk. The conceptual nature of new exploration targets and the reliance on internal, unverified assay results for some disclosures also warrant investor caution.

Conclusion

DynaResource stands at a pivotal juncture, having successfully transitioned to a Production Stage issuer with a declared S-K 1300 compliant mineral reserve at its high-grade San José de Gracia mine. The company's recent financial performance, marked by a return to profitability and strong revenue growth, underscores the operational momentum generated by increased throughput, aggressive underground development, and strategic technological enhancements like the new gravity gold circuit. This transformation positions DYNR to capitalize on a favorable gold price environment and unlock further value from its extensive exploration potential.

However, the investment thesis is tempered by significant financial and operational risks, including persistent negative working capital, customer concentration, and complex regulatory and title challenges in Mexico. While management's strategic initiatives and capital management efforts aim to mitigate these concerns, the company's ability to sustain its growth trajectory and fully realize the value of its assets will depend on successful execution, favorable market conditions, and effective resolution of its legal and financial contingencies. For discerning investors, DYNR represents a high-potential, high-risk opportunity in the precious metals sector, where the promise of a growing gold producer is balanced against substantial hurdles.