Arizona Metals Corp. (AMC) Earnings Call Transcript

Good morning, everyone. Thank you so much for joining us today. I'm Morgan Knowles with Investor Relations for Arizona Metals Corp. With me on the call today, we have Marc Pais, Founder, President, CEO and Director; and Paul Reid, Founder and Executive Chairman. We're just going to go briefly through the presentation for a quick update. And then thank you in advance for all the shareholder questions that you've submitted that we will be answering after the presentation. I'll turn it over to Marc.

Thanks, Morgan. Hi, everyone. Thanks for that intro. Before we get to the Q&A period, I'll give a 10-minute presentation to highlight what I believe to be some of the key points of the investment thesis for Arizona Metals Corp. at its current stage of development. This will be followed by comments from Paul Reid, our Executive Chairman. I believe our Kay Mine project ticks all the boxes that need to be considered before investing in any exploration company. All of the following are required for success: significant ownership by management along with the ability to execute favorable share restructure and trading liquidity, institutional and analyst support and favorable relative valuation. The deposit itself needs to have a favorable location and be of the right type, grade and orientation. It should have local and regional expansion potential, along with favorable metallurgical recoveries and the ability to advance permitting towards a mine. I will give an overview of these criteria as they relate to our Kay Mine in the slides that follow. So, next slide, Morgan. Could you go to Slide 5? So management experience and the ability to execute. The Board of Arizona Metals has years of experience in successfully exploring, developing and ultimately selling [ other ] exploration projects. 2 recent additions to the Board: Rosa Rojas Espinoza and Katherine Arnold have added substantial Arizona specific experience in the permitting and engineering design of mining projects. Mike Pilmer, who also recently joined the Board increases its independence and brings years of experience at the highest levels of corporate finance in his role as Chair of the Audit Committee. On a corporate level, some of the key boxes for investors to tick are the capital structure, management ownership, institutional support, trading liquidity and analyst coverage. Arizona Metals has only 116 million shares outstanding, no warrant overhang and only 7.6 million options outstanding, all of which are held by management and directors. Management and directors have substantial ownership at approximately 12% fully diluted, followed by high net worth and institutional investors at 18% and 26%, respectively. In terms of liquidity, the company trades an average of about 200,000 shares per day combined on the TSX and OTC. Analyst coverage. Of the 7 analysts that cover AMC, target prices range from $7 to $10 per share, and these targets are primarily based on the Kay Mine deposit alone with little value ascribed to expansion potential or for surrounding targets or to the Sugarloaf deposit. Deposit location. The Kay Mine project is located in Arizona, the leading producer of copper in the United States, and is only 1 hour north of Phoenix in mining-friendly Yavapai County. This county has a long history of underground mining, specifically of Volcanogenic Massive Sulphide, or VMS, deposits. The Kay deposit is at the southern end of a 150-kilometer long trend that hosts 60 past-producing high-grade underground VMS mines, very similar to our Kay deposits. The Kay Mine deposit has excellent infrastructure. It's only a few kilometers from road, rail and power and within a couple of hours of operating smelters. In terms of deposit type, the Kay Mine VMS deposit is a high-grade polymetallic VMS deposit. The 1982 historic resource estimate by Exxon Minerals had a composition of approximately 40% each of copper and gold, 20% zinc, and the balance in silver. The surrounding 60 past producing underground mines were of similar grade and composition. The high-grade nature of these deposits means they typically have much lower relative capital and operating costs compared to other mines with similar metal output. Favorable metallurgy. A review of the historic metallurgical testing at the Kay Mine deposit indicated the potential to produce clean, payable copper and zinc concentrates with very low deleterious elements. Detailed flotation testing is currently underway with the intent to produce a flow sheet representative of the deposit as a whole. Ability to permit. In Arizona, this is very much related to the type of land which hosts the deposit. The Kay Mine deposit itself is located on private land and the surrounding exploration claims are all Bureau of Land Management, or BLM, federal mining claims. These claims grant the holder the right to develop and extract the discovered valuable mineral deposit. The company has also purchased an additional 107 acres of private land located only 900 meters north of the Kay Mine deposit, primarily to host mine-related infrastructure for a future underground operation. Importantly, this acquisition also came with water wells and water rights. The type of land here is key to the ability to permit. Recent mine permitting problems encountered in Arizona are typically related to deposits being on or near national forest land or indigenous land. This requires permitting through the forest service, which is a much more onerous process than going through the BLM. The Kay project is not on or near any national forest or indigenous lands. Deposit grade. This is the key driver of both capital and operating costs of all mines. Higher grade means less tons need to be moved to achieve the same metal output. This also means a much smaller footprint, less infrastructure, and therefore much lower capital costs. The high grade and polymetallic nature of deposits similar to Kay means they have the best chance of surviving the cyclical nature of metals prices. For this reason, they are also in the highest demand by producers. Underground VMS mines currently in production would typically use cutoff grades of 1% to 1.5% copper equivalent or 2 grams per tonne of gold equivalent and minimum mining widths of 3 meters. From this slide, you can see that Kay is an extremely rare and unique VMS deposit, with numerous drill intervals running a true widths of 40 to 80 meters at grades of 4 grams per tonne up to 9.5 grams per tonne of gold equivalent. Copper dominant zones have returned intervals of 125 meters at 3.2% in copper equivalent and 103 meters at 2.2% copper equivalent. These are many multiples of the widths and grades seen in typical VMS deposits and even in operating mines. Deposit orientation. The Kay deposit dips at 75 to 80 degrees, which means it could be amenable to some of the lowest cost underground mining methods, such as long-haul open stoping and, at these spectacular widths, possibly even blasthole stoping or sublevel caving. In terms of expansion potential, since the inception of drilling in 2020, Arizona Metals has completed more than 70,000 meters of drilling at the Kay Mine deposit, indicated by the red dots on the long section looking east, the image on the right. Yet the deposit remains open for expansion in all directions. Many of the past producing VMS deposits surrounding the Kay mine deposit were mined to depths below 1,500 meters in the 1970s, and that depth was the limit of their technology at the time. Arizona Metals has drilled Kay to a depth of 1,000 meters. And while we believe there is the geological potential for mineralization to extend much deeper, our focus at the moment is to drill for shallower tonnes that could be exploited much earlier in an eventual mine plan. VMS deposits around the world for comparison, such as LaRonde mine in Quebec and Cape Creek in Ontario, are currently operating at well below 3 kilometers deep, at grades similar to or lower than what we see at the Kay Mine. How does this all relate to another key metric for investors, relative valuation. The analysts that cover Arizona Metals Corp. have target prices ranging from $7 to $10 per share based on the Kay Mine deposit alone at its current stage of drilling. Our view is that these valuations will increase as drilling continues to expand the Kay Mine deposit and even more so in a rising copper price environment. Outside of growing the Kay Mine deposit itself, we believe exploration remains one of the major catalysts to drive additional value for shareholders. Typically, where there is one large VMS deposit, there might be one or multiple other deposits in close proximity. Arizona Metals has identified at least 18 highly prospective targets within one kilometer of the Kay mine deposit. Due to the tightly folded nature of the prospective geology, these targets actually cover 10 kilometers of strike. We have planned and recently initiated a 76,000 meter drill program at a budget of CAD 32 million to test these targets. As of today, the company has completed 2,500 meters of this program or approximately 3% of the planned 76,000 meters; holes 5 and 6 of the program are currently underway. Although the program is still in its very early stages, initial examination of the drill core has already shown promising results with the presence of sulphide minerals over large widths, including chalcopyrite and sphalerite, demonstrating that we are in a large mineralized system. As drilling continues, our team will be using all available methods, including downhole geophysics, soil and outcrop sampling, spectral analysis and drone surveys, to vector closer to a source of mineralization and hopefully one or more discoveries. And the final and probably most important box to check in the current weak market, financial position. As of March 31, Arizona Metals had CAD 49 million in cash and is fully funded to complete the Phase III program currently underway as well as metallurgical testing and expansion drilling at the Kay Mine deposit. I'll just say a few quick words on our Sugarloaf project. This project is located 2 hours west of Phoenix, has a historic resource of 1.5 million ounces gold at a grade of 0.5 grams per tonne. It starts right at surface, it's tabular, 300 meters wide at surface. We believe it has all the right elements that you need for a heap leach open-pit deposit: high recoveries in the oxides; because of the nature of it, we think low strip ratio. We have drilled a few holes, oxide recoveries came back better than expected, I would say. We do currently have flotation testing underway on the sulphide portion of the deposit, and we expect those results over the next few weeks. There is, we believe, significant potential -- sorry, Morgan, if you'd just go back to -- 1 slide. We believe there is significant potential to expand this deposit well below the historic estimate. You can see the outline of the historic resource from 1982 in green goes down to only 70 meters. We have tested recoveries down to 110 meters, even 140 meters. So almost double the depth in size and mineralize -- we have seen sulphide mineralization down to almost 580 meters deep. So there is the potential to have a very significant oxide resource near surface, but we are also looking at recoveries to see the potential for an even larger sulphide system, and those tests are underway.

Thank you so much. We're going to move on to the pre-submitted questions part now, Marc. So here's your first question: "Is the Western target a bigger priority than the Central?"

No. Based on the initial 5 drill holes drilled towards the central EM conductor, we believe the priority targets for mineralization will require additional drill pads to target 1 kilometer north along strike of the central conductor. Drill holes through the conductor encountered anomalous graphite and zinc; hole 22-95, located 600 meters north of the central conductor, intersected 2.7 meters grading 0.5% copper equivalent. The observation of decreasing zinc and graphite along with increasing copper in the direction north of the central conductor makes this area a priority target, but it will require new pads to achieve optimal drill geology. The area north of the central target will be included in the upcoming exploration plan of operations permit application to be filed this month, July 2023.

Second question: "Is the maiden resource estimate being finalized after all 3 primary targets, Kay, Central and West, have been drilled, or are there more targets to be included?"

No. We anticipate that the Kay Mine deposit itself will be a discrete deposit for resource estimation purposes. The Kay Mine deposit remains open for expansion in all directions and the company intends to announce an initial resource estimate only once all of the priority target areas for expansion have been drill tested. And there's an outline of these targets in Figure 3 of the June 26 press release. We have hired independent consulting firms to model drill data as holes are completed and assays become available, to allow for rapid estimation of an initial resource once all drilling is completed. So that work is underway and continued -- and is being continuously updated. The company does not have a deadline for an independent estimate, as timing will be driven by geology and drill results.

Thank you. "Can you address what is patented versus BLM land and rights? I understand no royalties are required to be paid, but can you identify the potential risk of government not permitting mine activity on BLM sites, as current admin seems intent on pursuing."

Yes. The Kay Mine deposit, as we mentioned, is hosted on patented land, which is equivalent to private land. This includes surface and mineral rights. The Bureau of Land Management, BLM, unpatented mining claim is a parcel of federal land for which the claimant has asserted a right of possession and the right to develop and extract a discovered valuable mineral deposit. The mining law governing BLM on patented mining claims has been in effect since 1872 and numerous mines of various types have been permitted and are currently in operation on these types of claims. While we do not anticipate any material changes to this law, it is important to note that the Kay deposit lies on private claims and the company has also purchased additional private land located 900 meters north of the Kay deposit with the potential to host mine-related infrastructure.

"Management has repeatedly stated that they have no plans or desire to develop the Kay Mine and are seeking to sell the property. Considering the current weakness in the stock price, would management be open to selling it at a significant premium to the current share price. or are they committed to conducting further drilling to explore all of the targets and determine the property's potential before considering any offers?"

The company currently has in place all the infrastructure, permits, personnel and treasury to complete the Phase III exploration program of 76,000 meters and concurrently advance the Kay deposit through drilling, metallurgical testing and permitting. The company's goal remains to maximize shareholder value through exploration.

"Hypothetically, if the sector does not improve within the next few years, does the company possess the necessary skills, knowledge and desire to initiate the permitting process or take any major preproduction steps?"