Arizona Metals Corp. (AMC) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us today. My name is Morgan Knowles, and I'm Investor Relations for Arizona Metals. On the call today, I have Marc Pais, President, CEO and Director; as well as Paul Reid, our Executive Chairman. Marc is going to begin by going through the presentation and updating us on recent results. And then we'll have a short Q&A session. Thank you in advance for everyone who submitted their questions. And at the end of the presentation, then we will have Paul Reid chime in on his thoughts with regards to the recent results as well. So thank you for joining us, and I'll turn it over to Marc.

Thank you, Morgan. Well, welcome, everyone. I know for many of you, this will be an update, but I know we do have some new people on the line. So what I'll do first is just a quick overview of the project, followed by answering all the questions we received. So as you know, Arizona Metals has 2 projects. The Kay Mine deposit located an hour North of Phoenix, as well as Sugarloaf Peak, located 2 hours west. Our focus at the moment is the Kay Mine deposit, which is a high-grade copper, gold, zinc, VMS deposit located on private land in a very favorable mining jurisdiction. I think some of the key highlights here are the grades in which we see, extremely high grades for VMS deposit, but really any deposit in particular. And what that really implies is the potential to have very low capital and very low operating costs relative to any other deposit. We are right now drilling Kay for expansion, as well as infill. And we'll give some updates on the Western target drilling and future plans to explore out there. I think the key thing is our cash position. Currently, we had around 40 million, which I'd say is one of the strongest positions relative to peer companies, fully funded to complete all the work over the next 2 years. And work underway with news flow coming out of the Kay exploration and expansion drilling over the next few weeks and months. So as I mentioned, we are currently doing resource definition drilling at the Kay deposit, as well as map work is underway. We're also doing hydrological studies, rock, geochemistry studies, all the elements that would eventually go into a feasibility study and mine plan. And we are working on an exploration plan of operations to allow us expanded roads and drill pads to test the central and western targets, as well as other new priority areas that we've recently highlighted from a property-wide rock sample grid, which assays are underway, 1,900 samples completed. We see some exciting new targets near and adjacent to the central and western targets and between Kay and Central, and between Central and West. I think another key aspect of that, exploration plan of operations is really the first step to -- it's a stepping stone to get the eventual mine plan of operations. So it serves 2 purposes. It gets us more exploration targets, but it also helps to advance Kay along to an eventual mine permit. Currently, around $310 million market cap, as I mentioned, right now, around $40 million in cash, fully funded to complete all our work. Still strong coverage by the analyst. Average target is still around $7 to $10 based on Kay alone. And obviously, with the recent discovery in the West, we see real potential to grow additional targets, and we'll get into some of that targeting. As I mentioned, Kay an hour north of Phoenix, in a very strong mining trend surrounded by past producing mines, operating smelters, long history of mining in our district. This was originally -- this VMS district, when we're at the southern trend of 100-mile trend in the North was United Verde, which started the copper industry in Arizona, 4 smelters were built for this deposit, extremely high grade, ran at almost 5% in the open pit for more than 80 years and then 10% underground. 60 other past producers within 100 miles of us. But no exploration in this district for the last 40 years. The deposits reached their kind of maximum depth of 1,500 meters, and exploration stopped. So no work has been done here, until we came back into the district 2020 and started drilling. Some other key factors to consider. The Kay project itself is on private land. The rest of our claims, our BLM ground. Importantly, we are not on or near any native land, indigenous land, and we are not on or near any far service, so any permitting we would do would be through the Bureau of Land Management, the BLM, rather than the forest service. And typically, where you see slowdowns in Arizona is if you're permitting through the forest service, which is a much longer process. The BLM has what's called an affirmative permitting process, where as long as you follow all the rules, do everything correctly, they'll give you a permit, and there's a set timeline to getting those permits. Whereas the forest services is an open time line, and that's typically where you see issues. The other key factor is we -- besides being far removed from any indigenous land, we've also done biological studies to show no endangered plants or animals on our claims. And those are independent archeological, biological studies completed before we started drilling. We started out with this historic resource 6 million tonnes defined by Exxon in 1982. Today's prices would be roughly about 4% copper equivalent, which that would be an excellent underground grade today. At the time, it was considered marginal, and that was just a function of copper price at the time, they were using $0.60 per pound. And really, their proximity to United Verde, which was running 5% of the open pit. So at the time, that looked marginal, when you're 4% underground, the neighboring pit is 5%. And today, obviously, a very different situation where the average open pit in Arizona is running from 0.3% to 0.5%. Underground mines in Canada, Kidd Creek, as an example, all around, they're running at 3% equivalent that, in some cases, 2.5 to 3.5 kilometers deep. We're, as we know, right now, we've drilled Kay to only 1 kilometer deep. We think there's lots of depth potential, but our focus at the moment is to define tonnes, shallower tonnes near surface, and that's -- I can show you some of the maps, some recent results we put out in that area, but we still do think there is excellent depth potential. Obviously, the current goal, add tonnes near term in the mine life. The first program we did was just to confirm that Exxon resource. As I mentioned, Exxon was using $0.60 a pound -- per pound copper. 2.5% copper equivalent grade, whereas current mines are running at a cutoff grade, running 1% to 1.5%. So just based on that, we felt there's lots of potential to expand the copper zone. But importantly, Exxon had no interest in zinc. So in these VMS deposits, typically see a copper gold donation, chalcopyrite rich, which is what we see with -- adjacent to sphalerite rich materials, so gold, zinc. Exxon had no interest in the gold, zinc material. So when they would encounter zinc, they would just report not assay. They wouldn't even test it. But that's where we're seeing some of our best holes, where we're getting 50 to 100 meters true width is 80%. So call it, 60 to 80-meter true width zones, running 5 to 10 grams per tonne gold equivalent right next to a very rich copper zone. In terms of land position, you can see this map, the Kay deposit itself is in this red piece of patented, so private land, that sits roughly here, and it dips to the west on to the blue BLM claims. Importantly, no royalties on any of these claims, which is very unusual for the district. Typically, any of the mines around us would have a 3% to 5% royalty. But when Exxon quite claim this in 1984, they also left the royalties behind. So we've got probably one of the very, very few projects with no royalties. And importantly, Kay's on private land, not near indigenous land, not near national forestland. And we announced in August that we are acquiring additional private land. So about 900 meters north of our Kay property boundary, we acquired an additional, roughly 107 acres, which is just outlined here, a couple of years ago. And in August, we announced, we're acquiring even more another almost 50 acres. So that gets us to total private land of around 200 acres. We've estimated internally with our engineering consultants that for a 3,000 to 5,000 tonne per day operation, we would need approximately 90 acres of private land to support all the infrastructure needed for an underground mine. So that would be the underground ramp, what we envision ramping from the underground into the Kay deposit. And because it's only really -- it's only a kilometer and half across these targets, we think you can access from underground any new discoveries that we make. So it would be a very small footprint operation contained in a very small area, which obviously helps with the permitting. And this acquisition will get us to, as I mentioned, 200 acres, where we think you need about 90 acres to support a pretty fair sized operation of 5,000 tonnes per day. And we are working on acquiring additional private land, which we'll probably announce in the next few months. We have water rights, and we have water wells, obviously, Kay in Arizona. I think important to mention here is that because we are in a highly mineralized district, there is lots of groundwater. The issue for local communities, which primarily use surface water, is that water tends to have a lot of heavy metals in, which for us is no problem, we're separate from the surface water, our wells are on groundwater. Although that groundwater does have heavy metaling because it's surrounding these -- like for instance, our Kay deposits, very high grades. It's fine for drilling and it should be fine for processing, too. Some initial testing was done where flotation was done using this ground water. So the water is not potable, it's not suitable for drinking, not suitable for agriculture, but it's excellent source for mining, which is key for permitting and the local community that any water we use is not directing from there. So it's not distracting. It's not -- we're not taking the local water supply. As I mentioned, Kay deposit, we're out here right now drilling Kay to a resource. We've done a few holes. We've done about 5,000 meters on the central target, primarily based on geophysics. We've done another just completed 8,000 meters on the Western target. On the very edge of the Western target up here is where we announced that we had 3 meters, running around 3 grams per tonne gold. And that included almost a meter running 3% zinc with 9 grams gold, and really the type of mineralization we're looking for. Obviously, we're looking for greater widths, but it does appear that it's trending up to the North here, and that's where we're going to be drilling next. In terms of recent results, you can see these are some of the high grades. I mentioned, extremely high grades and widths for a VMS deposit, true with this 80%. So we're seeing 50 to 100 meters true width is, call it, 45 to, in some cases, 85 meters true width, running 5 to 10 grams gold equivalent. This is right down the fold hinge here. And within that, you do get some higher grade zones on the fold hinge right here, 8 to 20 meters, running 10 to 25 grams per tonne gold equivalent. So there is the potential to have some high-grade areas, very low-cost mining, we believe, because the widths are so good, we think this is very amenable to very low-cost long-haul open stoping, maybe even some sort of sublevel stoping, where the typical VMS deposit might consider good width to be 5 to 10 meters to width. We're seeing many multiples of that, which obviously also implies lower CapEx. And this is the current drilling. The red dots are what we drilled to date. We've completed probably about 80,000 meters of drilling at the Kay deposit. We've estimated that we need another 30,000 meters to test these priority targets around it, but also complete the infill drilling for a resource. So our target is sometime next year for that resource, and we'll have a better idea once we've completed a few more holes. We announced some shallower holes. So right now, we have a shallow rig testing really above 200 meters right here. The mineralization, we do see oxide mineralization coming to surface. So we have pretty high confidence that there's a lot of tonnes to be defined up here. The blue holes are what's pending. And we're seeing decent widths and grades that I think -- I expect that we should see some improving grades as we continue the drilling because we are sort of tracing the -- we're tracing the fold hinge as we go up, and it does pinch and swell, and move north and south as you move around, but we're planning to get quite a lot of holes in to try to find some shallow tonnes. And we also have infill drilling. So we had -- wherever we have large gaps, we're putting holes in there to add those tonnes into the resource. The goal is to have a pretty high confidence resource. We want to have as many of the tonnes and M&I as possible. Last week, we announced we had this whole, 84 meters, running 3.6 grams gold equivalent, and within that 15 meters of 6 grams gold equivalent. So obviously, at those kind of widths you can add quite substantial tonnes per vertical meter with each hole, which will obviously keep the eventual possible production output and number of stopes that would be required, et cetera. This is the northern end of the Kay deposit also opened. We recently hit 10 meters running 6% copper equivalent. So we will have some holes going this year. We think there's potential to add some good tonnage up here, and that's this hole right here. And you can see, the drill density is much lower out in this area. So the plan is to get some holes in here for the infill, which we also think can add some significant tonnage. And all that being, as I mentioned, to have the first resource estimate as large as possible. This is why we recently announced that the Western target up here the hole 113 is where we hit really the highest grades that we've encountered. There is about a 740-meter strike zone of mineralized horizon, which is the kind of mineralization you expect for VMS. The goal with all this is to trace the strike to obviously find massive sulfides. And with the last hole, Northern hole we drilled, we are seeing that. And what we're seeing is kind of northern plunge at surface, we're seeing high grades at surface, so 3% copper, 4%, almost 9% copper in rock samples at surface, and most of these also carry pretty decent gold values. So the plan now is to add additional pads going north so that we can target into these areas, and that's going to be part of the plan of operations, which we expect to submit in the next couple of weeks as soon as the assays are back from the rock that were sampled. This is just a view of 113, so it's almost at 600 meters deep. So on top of having the strike potential going north to test here, almost 400 meters of strike, and keep in mind that the Kay deposit itself covers only about 300 meters of strike. So there's lots of room in here to have a deposit as big or so roughly, Kay would be -- put the Kay outline in here, it'd be something like this. So there's lots of room to have a deposit as or bigger than Kay. And also because these holes were drilled from far away, they're quite deep. So there is also good potential to test up towards surface in a year, and you see right above what we're seeing kind of 4% copper. So those will be the 2 areas to target on the Western zone. Shallow areas above 600 meters deep, and on strike North, where we're seeing that same rhyolite unit that hosts Kay and that hosts the best mineralization in Kay. And then just briefly on Sugarloaf, as we mentioned a couple of weeks ago, we put out that -- we had done some sulfide metallurgy, seeing up to 85% recoveries in the sulfide mineralization. So just as a reminder, the Sugarloaf historic resource was defined down to only 70 meters. That was 1.5 million ounces. We have drilled a few holes that are down to almost 400 meters deep, showing sulfide gold mineralization. Obviously, the question is, can you recover those sulfides because they're potentially many multiples of the ounces of the sulfide mineralization at depth, but it only works if you can economically recover it. And based on the wet leach and flotation testing we recently completed, we think there's 2 possible economic flow sheets for this material with very good recoveries up to 85% gold with, I'd say, economic, relatively low-cost flow sheets provided you can prove up a significant tonnage. As I think we've mentioned in the past, the goal is to spin out Sugarloaf and drill it on its own. So we are working for that. But the holding cost for this property is very low. It's permitted, I believe, 28 drill pads permitted. It's ready to drill but we want to spin it out. So it would be spun out to shareholders, where shareholders receive some fractional share based on their AMC holdings, and we would fund that separately. So the $40 million that we have in Kay was --it's still let's say, 99% going towards defining and expanding the Kay deposit. And the plan for Sugarloaf is to spin it out when market conditions are favorable, but it's essentially ready to go. But I think Paul will have a few words about that at the end. And then, I think maybe we'll jump into the questions.

Yes. Great. Marc, here's your first question. The plan in July was to drill 10,000 meters of infill and expansion at Kay. More recently, the number grew to 30,000 meters. Is that number subject to change based on drilling results?

Yes. Yes. So the 30,000 meters is an estimate of what we think is required to complete the infill drilling and test the zones of mineralization open for extension. The final amount of drilling required is going to be -- for both the resource and the exploration, is going to be determined by the geology we encountered. So it may be more or less depending on what we see as we start getting into these zones. But the goal is to focus on drilling Kay towards a resource. So we do -- it's a combination of infill and expansion on the edges.

Have you applied for your exploration plan of operation? And if so, when do you expect to receive the permit?

So we plan to submit the plan of operations once we have received the assay results of the recently completed, property-wide [indiscernible] program, which is about 1,900 samples. We anticipate receiving the final exploration plan permit during the second half of next year. But in the meantime, we will be drilling with the focus on expansion and infill at the Kay deposit.

If AMC's assets are so great, why doesn't the market get it? What strategy changes, with regards to financing, marketing, shareholder structure does management think about to convince the market that the stock price is way too low for the value creation potential of the assets?

So we'll continue to advance the Kay deposits towards a resource, and continue to release results of both infill and expansion drilling as we receive them. The plan of operations will allow us to build additional roads and pads to follow up on the recent discovery of the Western target, as well as new and existing exploration targets that we refined with recent surface sampling, as well as our previous exploration activities. We plan to attend a number of industry conferences over the next 6 months to meet with new and existing shareholders, as well as potential shareholders. We'll continue with social media marketing initiatives, and we're continually investigating other forms of marketing that fits our core Board and management beliefs. And although the stock is down from its highs, we've traded approximately 80 million shares in the last 12 months, making it one of the most liquid stocks in line its peers, and we remain one of the most well-funded stocks among our peers, too. So the plan is to continue value creation through drilling.

Does the management team have any knowledge about a short seller attacks in the market? If so, and if yes, what is the strategy against them?

We're not aware of any such attacks, and the strategy remains, as I mentioned, creating value through drilling.

What is or would be management strategy against a low bid takeover attempt? The risk of that increases with further stock price falls.

So any potential bids would be subject to shareholder approval. And as Paul and I are the largest shareholders, individually and collectively, a hostile bid would be very unlikely to be successful. In the event of a friendly bid, the board would present any bona fide bids to its shareholders, most importantly, the company is an extremely strong financial position, possibly the best among our peers. And we're in no rush to transact at these depressed prices and poor market sentiment. We acquired Sugarloaf and Kay when the markets were even worse than they are today. The plan continues to be always buy at the low, and we don't sell.

What strategy on the financing side for the next 24 to 48 months does management have for both projects, Kay deposit Western Central targets and Sugarloaf on the other hand.

The company has approximately $40 million in cash. We're fully funded to complete the Kay deposit resource definition drilling, as well as additional drilling on the surrounding targets. We plan to spin out the Sugarloaf deposit when market conditions are favorable, with exploration to be funded separately in the spin-out vehicle.