Azucar Minerals (TSX-V: AMZ) CEO Morgan Poliquin on Near-Surface, Hypogene Porphyry Hit at the Raya Tembrillo Target, El Cobre Project

April 5, 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), Mr. Morgan Poliquin. Morgan, how are you this morning?

Morgan Poliquin: I’m outstanding. Thank you very much. And yourself?

Gerardo Del Real: I am well, outstanding as well. You had some pretty important news this week. It's funny because the last time we spoke, we talked about a bit of the criticism that was leveled at the company by random sources. Some of that criticism alluded to the fact that you were just drilling the Norte Zone, that you continued to drill the same holes over and over again. It was a little funny to me because simultaneously in that last news release that criticized by a couple of people. You alluded to the fact that you were drilling in other areas, that you were hitting in other areas, and that it's still relatively early stages, but that you are drilling at a fraction of what everyone else drills at because you own your own drills. Listen, you've got this big, huge mineralized system that you're trying to figure out.

Sure enough, you had some excellent news this morning. You intersected a hypogene porphyry zone at Villa Rica. You hit 168 meters of 0.56 grams per tonne gold and 0.29% copper, including 27.95 meters of 1.53 grams per tonne gold and 0.43% copper, and 12 meters of 2.04 grams per tonne gold and 0.58% copper, importantly from surface at Raya Tembrillo. Really good numbers near surface, high grade. Tell me why this is important, because I know you're excited about this hit.

Morgan Poliquin: Well, it's really exciting and it takes a while to make these discoveries sometimes. We were pretty lucky with the Norte Zone in that we kind of hit with some past drilling that had stopped short and the first hole we drilled there ran across a great zone. Here with the Villa Rica target we had, I think it was – you'll have to correct me and get the right numbers – but it was about 90-odd meters of around 1% copper that we hit above this hole we reported today, on a hill where we found some great outcrop.

We had to drill a number of holes to really figure out where that mineralization was going, because that's what we call super gene, where it's enriched through weathering processes. But this hole beneath that and away from that to the north is where the trend was going and we needed those other holes to really figure it out.

And the reason for that is that porphyries, while they are very large in volume – hundreds of millions or even billions of tonnes in some cases around the world –they tend to be fairly limited in the area. So they're long in one dimension. They're vertical things, they're carrot-shaped things, if people can visualize that. As we've mentioned, we've got an alteration zone that sort of 20-square kilometers or something like that. And we're looking in there for multiple different carrots and you can be pretty close and miss. And so our alteration is widespread, the footprint is big,  and we're dialing in now on what could be the center of this Villa Rica system that we've been exploring for a little while to try to find. We've had lots of smoke and add a little bit of fire and now we're closer to the heart of this system.

So once you find that aerial extent that is smaller, then you can chase it down. That's what makes these systems often very large is that they can extend for a kilometer in some cases, gold-rich porphyry system. So that's what we're looking for at Norte. We still haven't explored that depth extent. We had some complications there with a late mineral, what we call something that came up in the middle of the carrot that is barren and we think pushed the sides of the carrot out. Maybe I'm extending this visual metaphor too far in an oral interview here.

Gerardo Del Real: No, it's a good one, it's a good one. The visual is important, especially for the non-geologists like myself. So please continue.

Morgan Poliquin: The holes that we're drilling, we're very happy with them. Obviously, we've got a strong and very experienced partner that is involved with this on this project. We are very happy with all the holes we drilled. We obviously hope to hit home runs with every hole, who wouldn't? But it takes a while sometimes to be able to know where to focus because these things are fairly discrete and cross sectioned, despite the fact that they can often get very, very large. Not all of them are huge tonnage, a good grade. Newcrest, who is a shareholder of ours, they started with a modest open pit and then they found, I believe it was about 50 million tonnes, their high first high-grade deposit at their Cadia district in Australia, which was Ridgeway's.

So look, they come in all different shapes and sizes, but it's a big area in which to explore. But what's exciting about this today is that we've got our hands around something. We've got significant grades here and the dimensions – it's only one hole, we don't know how big this can be. And that's what we're working on now. We’re drilling more, we've got an evolving plan to find out where this goes on surface and then to start drilling at the depth. So it's a really exciting time for us.

Gerardo Del Real: A couple of points I want to make clear, you mentioned that this hole was drilled adjacent and below that previous hit from December of 2017 that was 94 meters of 1.36% copper. And the second point I want to emphasize is that mineralization starts from 5 meters below surface which, again, when you have the kind of grades and it's near surface, considering the phenomenal infrastructure I've mentioned before, I've been at the project, we've driven there together, the infrastructure is just top notch. You're going to have a hard time beating the infrastructure surrounding this project. So if you can continue with grade, near-surface mineralization and you can show that it's got some continuity and some tonnage, I think 2019 is shaping up to be a pretty exciting year.

Another point I want to touch on is you actually discovered a new target, the Suegro target. You had news on this a few days ago where you intersected 28.5 meters of 1.66 grams per tonne gold and 0.33% copper. Now this was from a little further down. The mineralization starts at 274 meters, and you drilled 184 meters of 0.48 grams per tonne gold and 0.16% copper. The high grade started to come in at about 343 meters where you hit 0.99 grams per tonne gold and 0.26% copper, 72.5 meters there. And then down at 379 meters is where you got that 28.5 meters of 1.66 grams per tonne gold and 0.33% copper. Again, you're finding mineralization everywhere. This is deeper down in the system, but is a newly discovered zone. Can we talk about that a bit?

Morgan Poliquin: Yeah, absolutely. I think those numbers you're quoting might've been from the Porvenir zone.

Gerardo Del Real: That's correct.

Morgan Poliquin: We've got basically three zones, the Porvenir, the Villa Rica that we were just discussing earlier, and the Norte where we've really found kind of what could be the centers of those systems. Porvenir, Villa Rica, it’s early days. The Suegro is a brand-new thing and it's in an area of quite different alteration. And so we've been focused on these magnetic highs, which represent, we think now, early stage alteration which doesn't really have the main copper event in it. So that's another reason for trying to explore the extents of the system which we've been doing.

But in this area, in Suegro, it's between what we call Encinal and Porvenir. We haven't drilled that before. We have a big area of low zinc and manganese, and that doesn't sound very interesting, but around the world when you have low zinc, that's sort of the center of where fluids that bring in copper at depth, push out these mobile elements like zinc. So actually sometimes having these other elements in deficit can tell you where the center of the system is. So it was a theory and we put a hole in there and we hit a new porphyry intrusion. So there actually is an intrusion there. And while we hit it at that depth down the hole, there's no reason to believe that it doesn't come up higher because again, these things are like carrots. If they haven't been shifted by geology, structures and things like that after the fact, they tend to be vertical zones. So we're trying to figure out the orientation of that. We're drilling one hole in that area as we speak and we plan to drill more and it's very exciting.

I mean it's a brand-new center that no one could've predicted from the maps that we had to date, and that's exploration. So these things manifest themselves in all different ways and you can't be blinded by models. Now I would argue that we've got Suegro, Porvenir, Raya Tembrillo and Norte. At Encinal, we've also got porphyry fragments that have been torn up.

So we've got a number of porphyry centers and it's hard to know which one at this stage is going to be the major one of the group. We still haven't drilled these things to depth and what we do know about all these systems is that they're all similar in that we're near the tops of them. The geology, all the different things that we do in this kind of exploration tells us we're near the top of these systems. So I think we have the whole depth extent to explore. But in the meantime we're finding new ones pretty much on surface.

Gerardo Del Real: Excellent. And just to be clear, you are correct. Those first numbers that I cited were from Porvenir. The Suegro target numbers actually were 109.3 meters of 0.24 grams per tonne gold and 0.13% copper, and that was from further down from 603 meters approximately. So important distinction there.

I want to talk a bit, Morgan, about the history of Azucar and Almaden which led to Almadex. You're, of course, President and CEO of Almadex Minerals. I believe Almadex Minerals is one of the single most undervalued project generators in the space. I'll explain why. Not only do you have an over three-decade head start on staking and finding the best projects in eastern Mexico, projects that are now under the Almadex Minerals banner, but you have royalties including Ixtaca and El Cobre, both which obviously in Ixtaca's case have demonstrated economics and El Cobre's case, obviously an earlier stage, but exciting exploration project that with some luck will one day be a mine in that part of Mexico. You also have equities, you have cash and you have gold. Can we talk a bit about Almadex Minerals and a bit about the history, how it came to be?

Morgan Poliquin: Well, I guess three or four years ago, it was just Almaden. What happened is in 2010 we made a great discovery in Almaden, the Ixtaca deposit, which you know well. That started to move out of the realms of exploration into the realms of development and was clear to us that it was moving to where it is right now, a positive feasibility study and we’ve submitted our full permits there. So when that started to look like the case, we thought, that's a different proposition business than early-stage exploration like we've been talking about with drilling. So let's separate those businesses. And of course immediately after doing that, pretty much we made a second discovery in that spin-out Almadex at the time. The thinking was just the same, drilling a big porphyry system requires focus and Newcrest came in as a shareholder to support that endeavor.

So there we are, here with an exploration company that again is focused at doing it all over again with a new discovery. We've got the drills in the company, which is an intangible but a significant one. Our belief is that you've got to drill to find something and the industry is, in general terms, reticent to do that. So obviously there's no X marks the spot in exploration and there's long odds to making the discovery, as we all know. We feel like we've cut down those odds by using good geology and good, sound exploration ideas which are regional and very science-oriented. We think that there are hotspots on the earth that you can identify where you're better – and I'm talking about regions – where you're better off looking in a region where geologic processes happened that can bring about big deposits rather than being deposit focused, finding something without that regional context driving you there.

A lot of times people are looking for an advanced project and they pick something up that's a resource but it's out of the regional geologic context. We have the opposite idea. Let's go where the earth history tells us there's the right conditions for big deposits and where other people aren't looking and go look for them. And so that's what we did in this whole area of eastern Mexico. And we believe we have proprietary knowledge there. Some may know that I did a PhD on it, which really means that we did the research to understand the earth history and we found very specific things that happen at specific times that are really exciting for the exploration geologist.

We focused in those areas, and proof’s in the pudding. Ixtaca is one thing and El Cobre is another, but we have about, I forget the exact number, but we've got in general terms, we've got about 20 projects and a huge number of royalties that have come, they're not producing royalties, but within the case of El Cobre and Ixtaca and Caballo Blanco, they're fairly advanced exploration or development or near production in the case of Ixtaca. So we're backstopped by that value for sure. But the idea with the company is to go out and do it again to put these ideas to work. We'd been a little busy which is the reason why we spun out Almadex is to get back to our knitting and already we've joint ventured a couple of projects out.

We've got one porphyry in Nevada that a group has been working on. We've got two projects we've announced that we've optioned out here in British Columbia, subject to exchange approval, I guess. The idea is to go and make that next Ixtaca, El Cobre discovery. We can't say when that's going to happen, but also to go out and get new projects to use those creative juices to keep exploring. And not necessarily just in Mexico. We've got ideas elsewhere as we've shown in Nevada and British Columbia, for example. So it's really exciting to get back to our knitting.

Gerardo Del Real: So again, everybody, just to be clear, there's a total, as of a few months ago anyway, of 19 properties. Mexico, Nevada, Canada. There's a total of 18 royalties. There's 1,597 ounces of actual gold. There's 3.9 million shares of Azucar. I know as of latest reporting period, there was approximately $6 million in cash. You have seven company-owned portable drills, and you mentioned that proprietary database that I think has to be the single best database in, at the very least, all of eastern Mexico.

Again, it's been quiet, but it hasn't been dormant. You actually drilled a new vein zone discovery on your 100%-owned Yago project just in late February. It was 0.9 meters of 22 grams per tonne gold from surface. That's an example of a low-cost exploration program that's yielded some early stage but positive results that I got to believe you're going to follow up on. Can you talk a bit about the Yago project?

Morgan Poliquin: Yeah, it's a project we've had in our group for many, many years. It's one I've always liked. We've optioned it a few times and I've never felt that the work previously done had tested the area completely or even very well in some cases. That's understandable sometimes. That's the nature of joint venturing projects. This is an area that's never been drilled by our past partners or us. There's veins cropping out at surface that are high grade and they're really exciting looking. So we decided to put a drill on it and to date, we've got some good grades over, as you reported there what we've reported, over narrow widths. It's early days. So we have been drilling subsequent to that so we look forward to updating our shareholders in what we've been doing there.

But you know, that's the kind of stuff that we can do. Instead of sitting on a project for years waiting for somebody to come along and invest or whatnot. Discovery is often more about where things aren't. If you have a good theory, get in there and test it and if it's not there, all to the good so that you can move on and put your energy elsewhere. I'm excited about this area and it's pretty early in the process, but I think this is what we can do. It's very unusual to have your own drills and drill for such low cost and be able to test your theories really easily.

Gerardo Del Real: Well, I think the track record speaks for itself. Morgan, I think it's been a very thorough update. I want to thank you for the time you took today. Any last words here on follow up in regards to El Cobre and what we can expect? I know we've talked about it in the past but I'll let you get the last word in.

Morgan Poliquin: Well, I think we've got 3 drills spinning right now and we certainly have, as you've mentioned, the drills available to us. We have the capacity to increase that. For now we've got 3 drills spinning and I've mentioned we expect the results at least on a monthly basis going forward throughout the year. As you've seen we've kind of done that. It depends on the assays but the drill program is ongoing and as you mentioned for us, especially in the context of this release today, it's going to be a very exciting year. We've kind of started off where we’d hope we would, with the program that we laid out and we'll be updating the market as soon as we have the results in and are able to do so.

Gerardo Del Real: Looking forward to having you back on to report on those. Thank you, Morgan.

Morgan Poliquin: Thank you very much. Really appreciate the time.

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