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Almaden Minerals CEO Poliquin Discusses Leveraging the Bear Market to Make Ixtaca More Economic

June 30, 2016

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Almaden Minerals, Morgan Poliquin. Morgan is one of the best explorers in the business. His PhD research on the geology and mineral deposits of Eastern Mexico led to Almaden's involvement, and subsequent discoveries of the Caballo Blanco, and Ixtaca projects. Morgan, it's always a pleasure. Thank you so much for joining us.

Morgan Poliquin: Oh, well thank you so much for having me on the show. I really appreciate it.

Gerardo Del Real: Absolutely. We're excited to have you on, and it's an exciting time with the stock hitting 52 week highs now. I provided a brief introduction there, but for those that are not familiar with you and the Almaden story, could you share with us how you got involved with Almaden and the history of the company?

Morgan Poliquin: Well, I'd be delighted. I come across it honestly, my father founded the company and took it public in 1986. Almaden's been around a while. We're both geological engineers, my father and I. We consider ourselves prospectors, and so really, I came out of the university and geological engineering in 1994 and started working with him formerly at that time, and we focused on Mexico, and gradually, really focused on the Eastern part of the country. We've made a couple of discoveries down there, and I think that's what we're best known for it, but we've got a long history since 1986, and found several other deposits in different locations. The Trinidad deposit we sold to El Dorado in Western Mexico, and a few other things. We've certainly got a track record of finding things and being prospectors but Almaden's recent history is a bit different.

We are focused on developing towards a production decision on our most recent discovery Ixtaca, in market parlance we are a single asset development company because last year in August of 2015, we spun off into a new company, Almadex Minerals, all of our expiration properties and royalties, so that Almaden could focus on Ixtaca.

Gerardo Del Real: Excellent. Now, we talked about your PhD research on Eastern Mexico and I mentioned the Ixtaca deposit in the introduction. Now, that discovery was a blind discovery, that has now grown into a deposit with over 4 million gold equivalent ounces across all categories. Can you share with us what led to the discovery and tell us a little bit about the project?

Morgan Poliquin: Delighted to. Well, I was very fortunate to be able to study epithermal deposits in New Zealand and I went there specifically to do that. The boiling mud pools in New Zealand are actively forming gold deposits, and in fact, in some cases, gold comes right out to the surface. What tends to happen there is the hot fluids that deposit the gold affect the rocks above where gold drops out, and turn those rocks into clay. In the geothermal systems, they're called "steam heated ground" and millions of years later, it manifests itself as blankets of clay alteration and volcanic rocks that's devoid of gold.

What we had been focusing on is looking for these blankets of clay alteration, knowing full well that may or may be overlying a gold deposit, but we found a number of them in Eastern Mexico that we thought had real potential, and in some cases like at Ixtaca, there was some elements, and even a little bit of some sniffs of gold, is what I would call it. We staked the property in 2001. There was a copper showing on the property that a couple of partners of ours explored, and then finally, in 2010, we decided that it was time. We lost a lot of partners in 2008 going to the financial crisis, and we thought, "Well, we've got to test this theory that this clay alteration might be over top of a gold deposit," because that's what it was. It was a real theory.

Incredibly, the first hole hit, and my recollection is it was about 300 metres, 2 grams gold equivalent, and higher grade intervals within that. We actually drilled pretty much into the center of the currently known deposit, so pretty fortunate.

Gerardo Del Real: Wow. That's incredible, and you mentioned the financial crisis. Now, Almaden has a history of using cyclical downturns like the one it appears we're coming out of to add significant value for shareholders. Now, during this latest downturn, you were actually able to purchase a mint condition mill for approximately 6 and 1/2 million plus shares if I'm not mistaking, and that deal shaved a little over 70 million dollars from the projected startup cost to get Ixtaca into production. Can you share with us how that came about? Because it's not the first time that Almaden has been able to use tough markets to add value, and it's also not a coincidence that as a result, your stock, like I mentioned before, is at a 52 week high, as investors wake up, frankly, to exactly how efficient Almaden has been, while no one was else was paying attention.

Morgan Poliquin: Well, you know, we're really fortunate to be guided by our Chairman, my father. He's been through a number of these cycles, and in fact, his first public company, Wesley Mines, he took public in 1974 with a fabulous gold deposit that Homestake wound up mining out ultimately, and he was bought out, but 1974 was a very, very tough market as well, and the long and the short of it is he's a real guiding influence on us. We see these downturns as hard as they are, there's no question the difficulties for expiration and development companies, but on the other side, there's a tremendous silver lining to these markets, and opportunities present themselves. In 2008, the company that operated the processing plant, the mill in Alaska went bankrupt, or were unable to contend ... They just started up the mine just in time for the financial crisis so it was a real challenge, and shut the mine down literally weeks after starting it up.

They'd spent 250 million dollars on building the mine, in large part the processing plant. There it sat, brand new facility, and it's the 2nd time in our history we've actually bought a used mill in a bad market. We bought a used mill for the Elk deposit which Almadex, through an equity position, still holds an interest in, but the long and the short of it is, we've done this before and it was our first instinct to look around for these opportunities, and you're right. It has a major impact on the capital cost for developing Ixtaca, principally because it's brand new, and it fits our flow sheet extremely well, but those sorts of opportunities are really, it's hard to see the good in a tough market like this, but that's the way you have to be thinking.

Gerardo Del Real: Absolutely. Now, I mentioned you being efficient. You own your own drills, you're able to drill at a fraction of what most companies have to pay. Now, you recently announced that those drills would start turning once more at several of the many exploration targets at Ixtaca. Can you share with us the approach, and what shareholders can expect from Almaden in the 2nd half of this year? Because the property is largely unexplored, despite the great resource that you've identified to date, right?

Morgan Poliquin: Well, that's exactly right and the reason for that is just simply the geologic setting. The mineralization that we have discovered, the deposit we have discovered is not exposed at surface. It comes quite close to surface in a few places, the drilling has shown, but it's not really exposed. We don't expect that to be the case elsewhere, obviously, based on the geology, so it's an exploration program that has been a challenge to do in the last little while. You do have to focus your attention in a difficult market, and be very disciplined with your budget. We never thought that the next discovery in the property would be made with the first hole, like in the initial discovery, so our view was we need to focus on de-risking the deposit that we've defined, which is a very exciting deposit, as our recent PEA shows, and doing things like purchasing the milling equipment, and focusing on, infill drilling, engineering drilling, which is necessary for advanced pre-feasibility and feasibility studies.

It's a delight to us as explorationists, with that mindset to get to back to drilling. We see a tremendous opportunity to make an additional discovery in the property, to expand the resource as it's currently understood. We have holes that have intersected interesting, in some cases, high grade veins that's outside of the pits that we've contemplated in the PEA's, so it's really, if you think about it, I would call it "exploration interuptus." There we were, in 2010, with a discovery and by the Autumn of 2011, the market had changed dramatically for the worse, and so I think in a different market, this would have been explored more broadly. It's a great opportunity for us.

Gerardo Del Real: Now, that's fantastic. You know, just thinking out loud a little bit, Morgan, obviously I'm familiar with the Almaden story. I've followed it for quite a while, and one of the characteristics that's always stood out about the team at Almaden is the amazing work that you do in the community to help educate the community, and involve the community. Can you share a little bit with the listeners today about some of the programs and initiatives that Almaden has undertaken in the community, because I think that's essential and I think a lot of times, it just goes unnoticed by the average group that's looking to develop a great asset like an asset that you have, and the attention sometimes is skewed towards the asset, and maybe not always has an emphasis in community relations. Can you talk a little bit to that, Morgan, please?

Morgan Poliquin: Well, I think it's in everyone's interest, particularly the local community. I think it stems from the view that we're all in this together, and in Mexico, there's always going to be a community nearby. In Canada, you might develop a project that's in total wilderness, and that's largely not the case in Mexico. Our view is that the best thing we can do, our role in society, philosophically speaking, is developing a mine. That's the best thing that we can do in our job on this planet, and so if we fail in our ability to communicate the benefits of this, which we really believe in, then we've done everyone a disservice. Our approach is education. We think that our shareholders would like us to participate in community development programs, and investment programs which we've done. We've helped with, for example, we have a physician who's a shareholder who's helped us procure some ultrasound equipment for the local women's clinic which was not available, and many other initiatives that are really impactful.

Those are all very important things, but again, all those necessary community investment projects, I would hesitate to say that they're not meaningful, but in the context of not properly explaining the bigger development proposition, they're a drop in the bucket compared to the positive impact that would come from developing a mine, and the impact that that would bring positively. We focus on education principally, and in terms of our meetings and the way we interact with the local communities, we recognize them immediately as intelligent, capable decision makers, so what we do is we organize mine tours as the key focus, in terms of education, and we take everyone from our cook through to all of our employees, local officials, anyone who we think has concerns or opinions, school teachers, everyone in the community who's willing, to go on a mine tour.

We've done more than, nearly 30 of these mine tours, and we've taken hundreds of people to show them exactly what the proposition is. Show them an open pit, show them a tailing stem, and show them all the aspects of mining, so that they can well understand it and be active participants. We have nothing to hide. We think that mining is a fabulous development and investment proposition for these communities, but they need to understand that with eyes wide open. We feel that once they do that, as opposed to listening to 3rd parties who in many cases, have never been to a mine, seeing it with their own eyes is the best way forward.

Gerardo Del Real: I think that's great, Morgan, and it should be noted that this isn't a recent initiative. It's something that you've done for years, and years, and you should be commended for it. Morgan, is there anything you'd like to add? Anything I missed, maybe?

Morgan Poliquin: Well, just a general comment to anyone listening or reading, these markets are cyclical and they're sentiment driven which is unfortunate when you're living through the tough markets, so I think anybody listening to this obviously should be looking long term, and I think in the case of our company, we've been focused on trying to de-risk a project and move it along, and keeping our feet moving forward, and hopefully what we're seeing here in terms of metal prices will settle into some better sentiment towards all those efforts, but we've been working hard the last few years, and we're excited about the opportunities moving forward. We have a nice gold-silver deposit in Mexico, and I should mention that the other side of the gold coin is silver.

We're about 50/50 gold/silver in value, per tonne, and so we see ourselves as a unique project in that sense, appealing to silver and gold investors, as well as developers of resources of both those metals. We think we're in a unique place, and a great part of Mexico, and a great country in Mexico. There's very few of these projects that have been found in the last number of years, that are in areas that are permissive for development. I think one of the things that we're seeing in the world is that prospectors should focus on areas where you actually can develop a mine and that's been our focus, so I'm hopeful that all our shareholders that have suffered through a pretty difficult market are going to see even better times ahead, but I think they've enabled us to put this hard work in, and in a very good place, and hopefully see some reward. I appreciate your interest very much.

Gerardo Del Real: Absolutely. It's definitely an exciting time, Morgan. I want to thank you very, very much for your time. Now, the team at Almaden is among the best in the business. They have a long track record of discoveries, and they're drilling once again, at a property that already has a great asset, but is still drastically under explored. That's exciting, and I look forward to having you back on, Morgan, as the news starts trickling in.

Morgan Poliquin: Thank you very much, Gerardo. It's a great pleasure.

Gerardo Del Real: Fantastic. We'll chat soon.

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