Azucar Minerals (TSX-V: AMZ) CEO Morgan Poliquin on Latest Results & Exploration Strategy at the El Cobre Porphyry Project in Mexico

March 1, 2019

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Azucar Minerals (TSX-V: AMZ)(OTC: AXDDF), Dr. Morgan Poliquin. How are you, Morgan?

Morgan Poliquin: I'm outstanding. Thanks so much. Thanks for having me on. How are you?

Gerardo Del Real: Fantastic, fantastic. Thank you very much for asking. So we just had some news out of Azucar. It's not news that's going to move the stock in either direction, not too much higher, not too much lower. Let me read the headline and then I want to take a couple of minutes and just ask you about the approach. So the headline reads, "Azucar hits 18 meters of 0.51 grams per tonne gold and 0.43% copper at the Villa Rica target at the El Cobre project in Veracruz, Mexico.”

Now, I say that those numbers aren't going to move the stock either way because the company is well cashed up, you have multiple drills turning and I know that the market is anticipating news from not just this target, but other targets as well. The mineralization that was found was found about 500 meters down, 534 meters down.

But I wanted to take a little time and let you give some context as to the approach that you take when it comes to exploration. Everybody knows you have a track record of discoveries. We know that Newcrest is in at about $1.35, if I'm not mistaken. The stock is trading near the $0.30 level. Can you talk a little bit about the approach there, Morgan?

Morgan Poliquin: Absolutely, delighted to do so. It's a big area. That's the bottom line. And when you look at porphyries, look, here's the geologic framework here with what we're dealing with. We're at the top of these porphyry systems. If we have something huge here, it's going to be below us. And of course we're looking for something huge and so is Newcrest. We know that we've got to find the geometry of the potential ore body and drill it to depth. We think these things come right to surface. We think, at the Norte Zone in particular, we've got something potentially open pittable there. So it's not to say that we're looking for something really, really deep and if it can only exist really, really deep, not at all. But we're dealing, we know that we're at the tippy top of the system.

That's the starting place. And what we're playing with is an area that's nearly 5 kilometers by almost the same distance in the opposite direction. We've got multiple different porphyry targets. The history of exploring – this is called a lithocap environment, a big porphyry environment – is that oftentimes the flashy sort of surface anomalies where you have high magnetics, high copper and gold and soil aren't always the core of the system. Some of the more subtle features sometimes are obscuring the bigger porphyries at depth. So we're at the level where we expect things to be below us. We're working with a huge area of high copper, gold and soil anomalies, magnetics. We've got multiple porphyries. It's rare that in a field of multiple porphyries they're all going to be world-class mega things.

Usually there's variety there of grade and tonnage. But the feeling is that this huge environment where there's been so much activity, so much in the way of fluids, there's something significant here to find and that's why I think Newcrest feels the same way. You don't want to put words in their mouth of course, but that's why I've been so focused on this thing for 25 years. So at the Norte Zone, we clearly, internally speaking, we didn't understand the geometry. So that's why we drilled holes in different azimuths and different directions to try to understand that. And as we reported in a previous news release, we really understand we think much better which way things are going. We think it's open as we've explained in previous news releases. And we're still exploring the limits, both to depth and along strike we think. And this year hopefully we'll get to those kinds of limits and get closer to a resource there.

That's the most advanced target. This is 2 kilometers south and we had a very exciting outcrop on the surface. I've said it's one of the best outcrops I've ever encountered in my prospecting. Again, we know that there's breccias and structural things like faults and different things going on. We're high in the system and we think to depth things are going to possibly get better. If they are going to get better, they're going to get better to depth. And we see things increasing to depth like minerals, like the amount of bornite, which is a key mineral in porphyry systems.

So all the holes we drilled so far here, including the ones that reported today, they really, in my opinion, at this stage give us some much better targeting for the drilling we're conducting now and onwards through the year. So they give a better sense of the geometry. We've done some 3D modeling with these holes. The two holes, including the headline hole that were drilled underneath the previous hole from last year, which had 40 meters of – again, this is off the top of my head – but it was about 40 meters of just under 1 gram and around 0.4% copper. That was really exciting to hit. We drilled two holes underneath that and the widths are narrower and it's clear to me these things are coming up from depth, they don't fall from sky. We think that we clipped the side of something here.

That's the exact wording we used in the news release. So, this Villa Rica Zone is part of a huge area that I reminded people, in the first paragraph, it's more than 2 kilometers in one direction and a kilometer in the other direction. So it's a significant area and we're feeling our way into this. We now have the information to, much like the Norte Zone, to target this. It would have been obviously nice to have drilled underneath that first intercept and got into the guts of the thing right away. But we now have the information to understand this better in three dimensions to target it properly.

Gerardo Del Real: The company has a market cap right now of approximately $24 million Canadian. You've done an excellent job via the Newcrest and prior placements, the other Newcrest financing and prior private placements, of positioning the company well. You are fully funded and you happen to own your own drills. I can't help but notice that the news release says not only do you continue to drill the Villa Rica target, but you're also drilling at the Norte Zone, which you just mentioned and the Porvenir/Encinal area.

What does the cash position look like and how is drilling coming along at the other areas?

Morgan Poliquin: Yeah, we wound up the year with around $16 million Canadian – that was at the end of September. We've got our end of the year to come up here with $16.5 at the third quarter, I guess. We're progressively drilling. We have the cash for all the work that we planned out here with Newcrest.

Basically, it's going to be a two-fold year here. On the one hand we're going to be drilling new targets and we're going to be flushing out and really testing, with the information that we've gathered here, the existing targets. So we think this year will be a very dynamic year for the company.

Gerardo Del Real: Fantastic. Morgan, anything else you'd like to add? I thought that was well said. Great context. And for the non-geologist or geologists who maybe never have ran a successful exploration program, I think the context is very important because I often in my conversations will hear, they're drilling holes that are too close together and they're drilling holes that are 50 meters away or 20 meters away. What's the point of doing those? And so I say, well yeah, call Morgan, ask him. Right?

Morgan Poliquin: Well, absolutely. People think that porphyries are huge ore bodies and certainly they ultimately, the best ones are billions of tonnes, but they grow that way. And number one, they don't have to be. Newcrest, our equity partner, their project has grown to 3 billion tonnes that they've started on Cadia in New South Wales, but a very key part of it was a smaller 80 million tonne, or there abouts, high-grade block cave. And they started with 150 million tonne open pit.

All these things evolved over time. These gold-rich porphyries are not sort of the copper-molly porphyry, big blobs of Arizona. They are more complicated and structural. Certainly Newcrest, one thing I've heard from them is that you can be very, very close to high grade in the Cadia district and have almost no indications that you can be 50 meters away and completely miss it. We’re within the footprint, we've already discovered the footprint and now we think we've got great tools and cheap drilling, which is a key, and our acumen. And certainly we're able to tap into Newcrest as well to a degree. We think we're in the best position possible to make a discovery in this extremely exciting exploration district.

Gerardo Del Real: I can't help but notice the similarities with the fact that you have the Norte Zone and anchor deposit, which obviously still has the potential to grow, but it's very predictable and you can put a ruler to the very clear across sections that you always provided and take a guess, take a stab as to the tonnage there. And then of course you have the big upside with some of the stuff that's hopefully there at depth.

Morgan, thank you so much for the conversation. It's always appreciated.

Morgan Poliquin: Thank you so much for your time, likewise.

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