Regulus Resources (TSX-V: REG) CEO John Black Gives an Update on Exploration at AntaKori

Gerardo Del Real: This is Gerardo Del Real with Junior Resource Trader. Joining me today is the CEO of Regulus Resources, Mr. John Black. John, I imagine you're busy. How are you this morning?

John Black: Hi Gerardo, doing well but quite busy. Thanks for the opportunity to catch up with you.

Gerardo Del Real: Well, thank you for being so responsive. You were able to jump on the phone with me incredibly quickly given the recent news. Before I get into that, I want to say you and the team should absolutely be commended because in reading the release in its entirety from top to bottom, frankly, I know many companies that would have sat on this news. I know many companies that would have hoped to have worked through it and without getting too specific, kudos to you and the team for being transparent. Now, the headline reads, Regulus Provides Update on Exploration Activities. And of course, the update is that you are pausing drilling on the Anta Norte portion of the AntaKori Project. And so I just wanted to have you on to provide some context and then we can talk about the rest of the release here.

John Black: Thank you, Gerardo. And thanks for your comments. That means a lot to us. We strive to be transparent with our shareholders and make sure everybody has the same information in a timely manner. We have a situation that's not that uncommon for an exploration project in Peru. When a project commences with more activity like drilling it starts to become more visible, particularly when there are very few projects working and there's a lot of concern about employment in Peru given the COVID-19 Pandemic crisis. And that often results in a lot of people wanting to know more about the project, looking for opportunities, looking for work or financial benefit from the projects and generally wondering how the project might affect them either positively or negatively. That's normal and we anticipate that. But the situation we find ourselves in is that we have had an escalation of that interest as people from increasingly farther afield from the project are asking questions, expressing concerns, and wanting to know if there are benefits available for them.

Within this context of increased interest in the project, a small group of individuals from a neighboring community brought up an issue where they felt that there was discolouration of the water in a new reservoir a little ways away from the project and they immediately jumped to the conclusion that this was contamination as a result of our exploration work. We are confident that our drilling is not affecting the water in the Aguas Coloradas (Coloured Waters) Reservoir as the reservoir is located at a significant distance from and at a higher elevation than our drilling. The reservoir is also in a totally different drainage basin on the other side of the Continental Divide. We are working to communicate this to all interested parties.

At the same time that interest in the project is increasing we have a rather tumultuous political setting in Peru right at the moment with three different Presidents over a period of a couple of weeks.This has effectively brought forward the election cycle. The normal elections will be held in April of next year. In a typical year, we see a lot of increased campaign activity and  political positioning as we go into an election cycle. This usually doesn't start until January, but the recent changes mean that we're already effectively into the election cycle. The situation at our project has come to the attention of parties that are positioning themselves politically at regional levels beyond the immediate area of influence of the project. This means that more people want to show up on the project and talk to us and it's very difficult for us to handle that many people and still respect COVID protocols to keep our crews and the communities we work in safe.

The situation had potential to escalate to a point that we would be out of compliance with COVID and get into a situation where we had too many voices wanting information at one time and offering strong opinions including that we should stop our drilling activities. So we felt rather than let it escalate into a situation where there might be confrontation that it was best to de-escalate the situation and the best way to do that would be to temporarily stop our drill rigs.

As I mentioned, this is a situation that's not uncommon in projects in Peru. Almost any project will occasionally have a point where you need to stop, make sure everyone has accurate information and that everyone is comfortable with what's going on. If it's a stop for a day or two, we usually work through that and that's not something that makes the news.

However given that our current situation might require that we stop drilling for more than a few days, and that there is information circulating that is not accurate about what the situation is, we made the decision that rather than having a few shareholders hear rumors about something going on, it was best for us to publicly report the situation directly ourselves and make sure everybody is informed. We are now working with all interested parties in the project area to make sure that everyone is in agreement with what we're doing and then look to reinitiate our exploration work.

Gerardo Del Real: Well, again, you should be commended for de-escalating the situation, not allowing it to escalate and for the focus on safety as it relates to COVID and the community. I want to just be sensitive because I understand that discussions are ongoing, but I want to be clear as well. The principal issue is the issue regarding the waters nearby, correct?

John Black: Yes, that's really the issue that brought a lot more people into the discussion — water is always a sensitive issue for everybody in the highlands in the Andes, as many people depend on agriculture or livestock grazing for a living. We're near the end of the dry season and that's when it becomes a more critical issue. We conduct all of our exploration activity with precautions to ensure that we do not affect water resources. The Aguas Coloradas Reservoir waters have experienced some discolouration but we are very confident that this is not due to our drilling activity. The reservoir is actually at a higher elevation than where our work is occurring and it's in a completely different drainage across the Continental Divide. The water from the reservoir drains out to the Atlantic, the water from our project area drains out to the Pacific. So we're quite confident, as geoscientists, that there's absolutely no way that our work can possibly be affecting the waters in the reservoir. However, we share concern with the local communities about what's going on with the reservoir. We've offered to help the community either with our technical experience or by providing funding to have other independent technical experts investigate and find out what's happening. We'd like to help out to see what is occurring and to work with the community members to make sure everybody has the most accurate information possible.

Gerardo Del Real: Excellent. I don't know how many people read through the entire release, given the sell-off in the stock, because it was actually some pretty encouraging news. You did get a chance to drill two holes. One stopped at 813.4 meters. The second stopped at 841.4 meters. And I thought, again, it was commendable of you to explain that you did indeed encounter mineralization at depth, and that when drilling was stopped, both holes were in mineralized material. And I say that you should be commended there, because again, this is a situation where a lot of companies could have sat on this and then put it out a week or two down the road as good news to get positive attention back into stock and you decided to go full, transparent top to bottom. Can you provide some context on the drill holes that you drilled?

John Black: Yes. This is something we thought about carefully when we put the release together. We normally do not like to comment on drill holes until we have the complete assays and release the entire hole at one time. But in this context, given that we felt it was material for us to report that we are temporarily suspending drilling, we felt it was also important that people have an indication of how far we'd gotten on the drilling and what we have encountered. We don’t report visual grade estimates as those are always difficult to do accurately, but we do provide a general description of what we have encountered in the two holes drilled to date. The Anta Norte target is a conceptual target where, based on geologic and geophysical information, we believe the mineralization we've encountered on the main project will extend significantly to the north and to the Anta Norte area. The principal take away from the two holes drilled to date is that we have now confirmed our hypothesis that mineralization does extend significantly to the north.

What we're very pleased about on these holes is that in both holes we've cut long sequences of the favorable carbonate stratigraphy. These are the rocks that we like to see. They are the rocks that can be converted to skarn style mineralization, the target type that we're seeking in the area. So we're in the right host rocks and those host rocks are variable to strongly altered to skarn with increasing intensity as we go down the holes. And with that development of skarn, we see the emplacement of sulfide minerals that are also increasing to depth.

We won't speculate on grades at this time, but there are certainly portions of the holes that are well mineralized and that mineralization is increasing with intensity as we go down the hole. The holes were each at slightly over 800m depth when we suspended drilling and in good mineralization. The holes clearly prove the concept that the mineralization will extend significantly to the north and the assays for those holes will be available in the next few weeks. Once we receive those results, we run them through our QA/QC process to make sure everything's accurate and we should be able to  announce those results before Christmas. 

Gerardo Del Real: That's excellent news. One last question before I let you go, have any of the nearby mining companies been affected in terms of a shutdown that you're aware of, publicly, as a result of the recent escalation in dialogue and interest in the projects?

John Black: Not that we're aware of, and we're in pretty close conversations with the neighboring mining operations for many reasons. To our knowledge, the mines are operating normally.  They are under COVID protocols like all of us, but they're not subject to any work stoppages or protests and they are very much focussed on maintaining production levels in the face of the challenges presented by COVID-19 restrictions. The pattern we've seen recently in Peru is that in general, particularly when there's an economic crisis as a result of the COVID pandemic, it's politically not very wise to be trying to shut down mines and affecting large numbers of good paying jobs. We are a bit more exposed as a smaller operation and one of the few exploration projects active in the area.

Gerardo Del Real: Well, I know short-term it's never fun, but in the mid to long-term, that's extremely bullish for companies like Regulus that have robust economic resources that apparently have a lot more there if these holes are any indication.

John Black: Yes, and it's important to emphasize that the situation we find ourselves in really only affects our ability to continue drilling holes to the north on a portion of the project and in the short term. It doesn't affect the resource we have defined in the main portion of the AntaKori Project and we'll continue with our evaluation activity there. We're quite confident that we will be able to recommence our work in the Anta Norte area to the north after consultation with all parties involved. Our work provides a lot of benefits to the communities around us, both in terms of direct employment, and in terms of public work projects and contributions to improve living conditions for the people who live in the area of the project. We've suddenly had an increase in the number of people that want to have a voice in how we proceed with the project and we need to make sure that we can manage those conversations in a safe and careful manner.

Gerardo Del Real: Excellent. John, thank you so much again for the update. I appreciate it.

John Black: Okay. Thank you very much, Gerardo. Happy to keep in touch with you.

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