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As noted earlier.

Below is commentaries from Analysts who visited Arizona Metals project this past week.

Bottom line: We think there is a very attractive asymmetric risk/reward setup.

  • We think there is limited downside given the 24 Mt ore body (our est.) and upcoming maiden resource (Q3). Our $10 NAV is based on Kay and does not include any upside for the catalysts discussed below. AMC trades at 0.3x NAV, below the peers at 0.53x.
  • We think there could be outsized gains if AMC is successful at any one of three near-term catalysts: 1) Drilling at the western anomaly has just begun. 2) Mgmt. thinks they have a better understanding of the Central anomaly and will have better targeting going forward; 3) The potential to expand Kay along strike to the north, perhaps connecting Kay to pad 4, 400m away.
  • Also, mgmt and BoD bought stock the week of Feb 6 – illustrating their confidence in the company.

Very high floor: We est. AMC has delineated 24Mt of ore @4% CuEq resulting in a $10 NAV. AMC trades at 0.3x NAV below the peers wh/ trade at 0.53x. AMC will release its maiden resource in Q3/23. We believe 25-30Mt is a reasonable target considering the remaining 5,000m of phase 2 drilling and any of the 76km of phase 3 drilling that is on Kay and completed prior to the resource cutoff. As such, we believe AMC is undervalued based on what they have today.

Any one of 3 near-term catalysts could result in out-sized gains:

  1. Early success on the Western target could increase our NAV to $14.75: AMC began drilling the Western target this week, the largest and most conductive (10x Kay and Central) target on the property. There is an outcropping gossan (as there was at the Kay discovery) and nearby shallow workings/addits/shaft that bolster optimism of a discovery here (see below). The first hole is expected to be ~650m (450m vertical). Mgmt believes the potential mineralized horizon is b/w 200-400m and the rig advances at ~60m/day. Mineralization is evident visually and by weight – as such, mgmt. should have an idea if it is in mineralization on the first hole some time next week. If they make an early discovery, we believe there is substantial near-term upside. However, this is exploration. AMC may not hit on the first hole or even first several holes as they vector in on an ore body. We do not believe success is priced in and therefore believe there is limited downside if it takes them time to hone in on the Western anomaly, Asymmetric upside.
  2. Potential success and new understanding on the Central target: AMC drilled a hole from pad 4 targeting 500m north of the central conductor. While assays are pending, management seemed optimistic they have a better understanding of the central anomaly and will have much better targeting going forward. In addition, AMC discovered an outcrop south of C2. AMC’s technical advisor and VMS expert, Mark Hannington, believes they have a much better understanding of the Central given the data from early central drilling at pad 7 and C1, the pending hole from pad 4 and the outcrop south of C2. He now believes the best targets are to the north and to the south. AMC will test this theory in 1H/23.
  3. Kay resource may extend ~400m along strike: AMC just released hole #93 300m N. of Kay. (4.5m at 1.91% CuEq). When considered w/ other previously released drill holes in the area around pad 4 (similar grades and widths in the 1-3m range), it is possible another smaller hinge exists at pad 4 and there is potential this mineralization connects to Kay (albeit at lower grades and widths).

Our more fulsome thesis:

  • AMC had a historic resource of 6Mt at 5% CuEq drilled by Exxon in the 1970s.
  • Through drilling over the last 18-24 months, AMC has expanded its resource to ~24Mt (including a high-grade Au/Zn discovery) according to Clarus estimates.
  • The existing resource is delineated along a 400m strike extent and down to a depth of ~850m. There is 1km strike extent and management believes there is the potential to extend Kay along strike.
  • There are 2 other massive anomalies on the property that are at least as big, if not bigger (in the case of the Western conductor) than Kay. The Western conductor is being drilled now for the first time. There are numerous other anomalies on the property as well (15+).
  • We believe the land package has world class potential; +100Mt at high grade.
  • The company also owns a 1.5Moz 0.5g/t Au heap leach gold project with potential to 2x in size. We believe this could ultimately be worth ~$300MM and is not valued in the stock.
  • AMC trades at C$0.17/lb on EV/lb CuEq and 0.29x P/NAV, a discount to peers at C$0.24/lb and 0.53x, respectively. Upside can be driven in several ways – through resource expansion, closing the valuation gap with peers, advancing the Au heap leach project and future M&A.
  • Importantly, AMC has ~$55M in cash. This more than funds the 72km for phase 3 drilling (strike at Kay, Central and Western). AMC would still have ~$30M in cash for additional drilling at the end of phase 3.
  • With exploration success, we believe a world-class high-grade project would be attractive to mid-tier and senior producers alike. AMC is located on private and BLM land and is not inside or near a national park. It is also located in a mining friendly county (overwhelmingly republican) and community discussions are already well underway and progressing well.

AMC – Company Snapshot – Arizona Metals

Ticker:  AMC-TSX

Share price:  $4.56

Basic S/O:  115.1 MM

FD S/O:  122.8 MM

FD Market Cap:  C$559 MM

Cash: C$55MM

Key Shareholders: Invesco, ASA/Merk, 1832, Franklin. Mgmt. and directors (~12%).

AMC historic resource:

  • AMC began drilling in 2020 with a historic resource of 6Mt @5% CuEq at Kay Mine (prepared by Exxon in the 70/80s).
  • 320m strike x 600m depth x <10m widths.
  • Exxon stopped drilling/drifting across the face every time they encountered Zn. Exxon’s interpretation of the ore body was inverted pant legs (below).

Significant Zn/Au discovery: AMC drilled through the “pant legs” and made a major discovery in 2021, helping to expand the deposit where it was previously believed to be barren.

Expansion of Kay: The company also expanded the deposit at depth where widths increase to as much as 100m. Our current estimate is 24Mt at 5% CuEq. Dimensions: 320m strike x 900m depth x 50m width. (Historic Exxon resource is in white dashed lines only).

Massive expansion potential beyond Kay along strike and at the Central and Western Conductors:

  • Mgmt believes there could be another 1 or 2 ‘Kay Mines’ along strike.
  • There are also 16/17 undrilled targets on the property including the Central conductor and the Western conductor.
    • The Western target is the best target on the property according to geophysics/IP and would have been the starting point for the company on that basis if Kay had yet to be drilled.
  • We think AMC could ultimately be world class in size (100Mt+).
  • Capital structure: AMC has $55MM in cash, which funds the current phase 3 drill program ($27MM budgeted). AMC has now drilled more than 70,000 metres of HQ core at the Kay Mine Deposit, with the majority of that drilling focused on only 320 metres of strike, representing only 3% of prospectively mineralized structural contact that has been mapped at surface.
  • Located in Arizona – surrounded by majors. Not in a national park. No indigenous population. No environmental protection zones.