Arizona Metals Update

Kay Mine analyst and investor tour underway today. Drilling at the Western Target from pad W1. #copper #gold pic.twitter.com/bSnILzRdOv

— Arizona Metals Corp (@ArizonaCorp) May 3, 2023

Below is commentary from a visitor to Arizona Metals Analysts tour last week:

On Thursday, May 4, we attended a site visit for Arizona Metals (AMC:CN).

Key Takeaways: We think there is a very attractive asymmetric risk/reward setup.

AMC could be on the verge of a new discovery at the Western conductor. The company believed visual assays were material enough to press release hole #104 on April 11^th. That hole was lost just prior to potentially entering a zone of massive sulphide (based on their experience at Kay).

The company immediately followed up with branch hole 104A from pad W1 and moved a second rig to drill hole 107 from pad W2. Both of those holes are nearing target depths.
As a reminder, mgmt.. has long stated the anomaly at the Western target is much larger than anything on the property, including Kay. I.e.. if the land package had no historic drill holes, it would have begun exploration at the Western conductor.
This is exploration, perhaps neither hole will yield material results, but we think the current $3.80 share price provides a solid floor for the stock, while the upside upon discovery is substantial. Our $10 NAV is based on 24Mt delineated at Kay (our est.) and does not include any upside for a discovery at the Western target. AMC trades at 0.24x NAV, below the peers at 0.54x.
AMC will bring a 3^rd rig to site by the end of May. This rig will target shallow zones at Kay. There is a ~125m gap from surface to the ore body that has yet to be explored as previous rigs were too large to target near-surface mineralization. There is a significant amount of outcrop. As such, we believe there is a strong likelihood of resource expansion and believe 25-30Mt is a reasonable target for the maiden resource at Kay, expected in Q3/23.

Background:

April 11, AMC issued the following press release on the visual assays from hole 104. The drill went through all of the expected stratigraphies and 16m of stringer and semi massive sulphides (assays pending). https://www.arizonametalscorp.com/_resources/news/nr-20230411.pdf
Hole 104 was lost at ~888m, after they saw mineralization/alteration similar to what they see near massive sulphide mineralization at Kay.
As such, the company promptly began hole 104A, re-entering hole 104 and branching slightly to the north. Hole 107 was also begun from pad W2 to the north of hole 104A.
AMC is between 800m and 900m downhole at holes 104A and 107. If the company is successful, like hole #104 a month ago, AMC would likely press release visual assays. Hence, we could know this in the coming days.
Giving further confidence, AMC sampled an outcrop slightly north of pad W1 which yielded upto8.6% Cu. The dip of the stratigraphy lines up with the mineralization in hole 104 making for an interesting target from the mineralization at surface to 900m where hole 104 encountered the 16m of stringer and semi-massive sulphide. Another surface sample contained 3.3% Cu and 3g Au along the prospective horizon approximately 700 m north of drill pad W1.

Again, this is exploration, it could take several more holes to hone in on mineralization. We like the risk/reward tradeoff. Recall, that management has always believed the Western conductor represented the most promising target on the property and management and the geology team like what they see so far during the early stages of the drill program.

Our Thesis:

AMC had a historic resource of 6Mt at 5% CuEq drilled by Exxon in the 1970s.
Through drilling over the last ~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+).
Prime exploration targets lie along the contact zone between felsic and mafic rock structures. AMC has identified 10km of this contact zone folding and weaving across the property. It has explored <10% of that to date.

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$0.14/lb on EV/lb CuEq and 0.24x P/NAV, a discount to peers at C$0.24/lb and 0.54x, 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 ~$50M 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: $3.78

Basic S/O: 116.0 MM

FD S/O: 123.6 MM

FD Market Cap: C$467 MM

Cash: ~C$50MM

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