Taking Full Advantage of the Disconnect
Editor's Note: Azucar Minerals (TSX: AMZ.V) (OTC: AXDDF) CEO Morgan Poliquin has a track record of discoveries and, along with his father, Duane Poliquin, has pioneered exploration in Eastern Mexico.
Azucar’s new copper-gold discovery — El Cobre — has attracted the attention of 19.9% partner Newcrest Mining. Earlier this year, Newcrest acquired the 19.9% interest in Azucar at a price of C$1.36 a share. Shares today trade at C$0.38.
I plan on taking full advantage of the disconnect between the value in Azucar and the valuation the market has assigned the company. These prices won’t last past this tax-loss selling season.
Here’s an exclusive interview with CEO Morgan Poliquin, who provides a thorough update on the approach to exploration at El Cobre, the support from Newcrest, the cash position, and what to expect in 2019.
To your wealth,
Gerardo Del Real: This is Gerardo Del Real with the Outsider Club. Joining me today is the president and CEO of Azucar Minerals (TSX-V: AMZ) (OTC: AXDDF), Mr. Morgan Poliquin. Morgan, how are you this afternoon?
Morgan Poliquin: I'm doing very well. Thank you very much. Thanks for having me on.
Gerardo Del Real: Well, I needed to have you on, Morgan. I wanted to chat about the El Cobre project. We had some news in late September, where you hit 118 meters of 0.7 grams per tonne gold and 0.23% cooper at the Norte Zone. The Norte Zone is a discovery of significance at the El Cobre copper-gold project. There were some interesting geological insights that you had in the news release that I think a lot of people missed.
So first and foremost, I wanted to get an update on how things are coming along with drilling and where the project stands. Then I want to talk about the disconnect between the overall markets and the progress that you've made, because frankly I think Azucar is one of the most compelling speculations among many in the resource space.
You have a market cap of approximately $27 million. Two-thirds of that, nearly, is backed up by cash and you have a project again that I think is significant. How are things coming along at El Cobre?
Morgan Poliquin: We're very excited about this year. Obviously, the big news this year was founding the new company and putting that cash into the treasury thanks to Newcrest, who shares the same vision we do of the project, which is that at Norte — as you pointed out — we've clearly defined significant potential with that discovery of a new near-surface copper-gold system.
When you're talking about resources and the potential for resources you have to define the box, which is the limits of the mineralization, and then fill in the box to make sure that it's continuous. Last year, since the discovery in 2016 of Norte, we started to work on both those things. We think that box is open and we haven't drawn all the lines on it yet.
We're looking to see where that's going to depth and along strike, and we have a new sense of the orientation of the mineralization. There was a metric to the drilling we did in the past, beyond just simply discovery-based drilling. We also drilled in different azimuths, different directions.
It's clear that there is a number of different geologic features that need defining, and to all be put together, to give us a trend of the mineralization so we know which way to go with future drilling to define the limits of the box. Then once those limits are defined, we'll fill in the box, so to speak, and then that’ll be the basis for the resource.
So we think we're moving well down the track of that process to coming up with a new resource that we can report to our shareholders at some point in the future.
In the meantime, Norte is one of four to five different porphyry centers we think we're defining through the field work that we've done overtime on and now are drilling. Last year, two kilometers south of Norte, we discovered a new zone where we hit, if I'm not mistaken — the exact numbers elude me here, you'll have to look at our news release — around 95 meters of 1.3% copper right from surface, essentially in a new zone of what we call exotic enriched mineralization. So that was a wonderful thing to find two kilometers away and we found some sulfide mineralization underneath that. Understanding how that mineralization all fits together is key to exploring that area, which is, again, two kilometers south.
We also have a sense that our Porvenir zone, which was the first porphyry zone which people have largely forgotten about, is open at depth and along strike from the drilling we did again last year.
Even further south we have a huge area of really exciting looking, from a porphyry perspective, alteration and mineralization which is very large in scale and arguably the biggest area which we call Encinal, with these breccias that have fragments in them and porphyry mineralization. That has proven, so far, to be a bit elusive because it's a bit more complicated we think. But we clearly have significant mineralization there in shorter intervals of past drilling, some of which were quite high grade. It's a huge area that is permissive for a big as-yet-unknown porphyry system. That is, I think, why Newcrest invested and that's our view.
So what we're trying to do is find these porphyries that, despite the fact that they are large-volume systems, you can be very close to and miss.
Systematic exploration is what's required and of course we're shooting for the moon or — you have a lot of American listeners — we're trying to hit it out of the park here. That can happen at any time with the drilling we're laying out on that bigger picture. The drilling we're doing, at a minimum, will vector us in to that we think. It's systematic progressive exploration on the one hand, and on communicating what we have in terms of resources at Norte at some point in the future.
It's a two-fold approach and it's very exciting that we have the budget to tackle things in this way. We have the means through our in-house drilling efforts, which are quite remarkable in that we're able to drill kilometer holes for very low cost with using local teams, as well.
There's a lot going on. We've got three drills spinning at the current time and we look forward to providing regular updates on the progress of this drilling. We believe it's all moving towards a preliminary resource at Norte sometime in the next 12 months, depending on how quickly we can define that box I was talking about earlier. There could be changes in that, but that's what we're looking at while hopefully being able to demonstrate the potential of the property as a whole.
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Gerardo Del Real: I mentioned the giant disconnect between value of companies and what the market is assigning value. As a prime example you mentioned Newcrest. They came into the picture and became a strategic partner to the tune of 19.9% of Azucar at $1.36 per share. Shares today closed at $0.38 Canadian. You're backed by $16.5 million in cash as of the last reporting period, you're well-funded. You mentioned that you are looking to hit a home run despite the fact that you already have a significant discovery.
I heard that you ordered a new drill that goes two kilometers deep. Is that accurate? I only bring that up because I know Newcrest specializes in deep porphyry systems. You have a track record of discoveries, so I'm trying to connect the dots here. Are you drilling kilometer-plus holes?
Morgan Poliquin: I think what any exploration group would advocate in a big area, a big footprint of porphyry potential, is you have to drill long holes to get right across things and get as much information as possible. So longer holes don't necessarily mean — obviously they mean you're drilling deeper — but you're also drilling angle holes as well. It's about power and being able to go deep, certainly.
The history of porphyry systems clearly shows that, as you drill deeper, they very often get better. Not always, not every porphyry system’s like that, but we know we're at the top of our systems. So if there is an increase in grade in terms of copper and gold it's going to come with depth. So that doesn't guarantee it, but we're not at the bottom of this porphyry system we're exploring, we're at the tippy top.
Our view is much like Newcrest, I don't want to put words in their mouth, but from their point of view, they're clearly a block cave specialist. They're exploring with a group in Ecuador, a porphyry that's deeper and higher grade at that depth. They've got a huge block cave operation at their Cadia flagship project in Australia. And with their partner Harmony in Papua New Guinea they've got a deep high-grade porphyry.
They know about exploring those environments, and access to more powerful drills gives us a great deal of flexibility in being able to push deeper when we want to. So we're excited about that.
Gerardo Del Real: Excellent. So just to summarize, Morgan. Three drills turning, it was a quiet summer in terms of news flow. Of course these are deep holes that you're drilling, I know they take time. Do you anticipate consistent news flow leading in to 2019 and beyond, of course?
Morgan Poliquin: Absolutely, that's what we would like to do. We will put holes out in meaningful ways as we've always done. These are kilometer holes, some of the ones we have been drilling in the past and now. These types of holes can take a month to complete and then assaying the hole can take quite some time on top of that. We've gone to three drills recently. That allows us, I think, to provide that news flow as we get it. We anticipate being more regular with releases now that we have all that activity.
Gerardo Del Real: Fantastic. Morgan, thank you so much for the update. Anything else that you'd like to add?
Morgan Poliquin: I think we covered it pretty well. Thank you so much for the opportunity.
Gerardo Del Real: Thank you.
To your wealth,
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.
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