Regulus Resources (TSX-V: REG) CEO John Black on Upcoming Drill Program at the Anta Norte Zone of the World-Class AntaKori Copper-Gold Project in Peru

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the CEO of Regulus Resources (TSX-V: REG)(OTC: RGLSF), Mr. John Black. John, how are you today?

John Black: Doing well, Gerardo. Good to hear from you.

Gerardo Del Real: Thank you for taking the time. I'm excited to share this story with people that follow us. I often say in the resource space, oftentimes the better stories are the easiest ones to tell. They have great management teams. They have management teams that have done what they're attempting to duplicate. They have great assets. They have the cash to develop those assets. This checks all the boxes. 

I want to talk AntaKori and we'll talk gold and copper. Before we get into that, can you please let everyone, who may not be familiar with you, know a bit about your background? Because it's pretty impressive.

John Black: Well, appreciate the comments there. I'm an exploration geologist by background. That's what I'm trained for. I spent the first half of my career working for major mining companies. Started out with Kennecott, which became Rio Tinto. With Rio Tinto, I was esconded to a project to work in Northern Chile for a couple of years. That turned into 10 years in South America, in which time I jumped over and began to work for Western Mining as well. 

I cut my teeth really on major copper projects throughout the world, but particular emphasis in the South American Cordillera. That gave me a lot of familiarity with South America and the various countries there, and picked up language and have family there and everything. It's made South America my second home in many ways.

Gerardo Del Real: Well, you've done well for yourself, and you've done well for shareholders. Can you speak a bit about the most recent success? Of course, that was the $650 million sale to First Quantum Minerals. Can you talk about that project, how you developed it, and frankly how you were able to monetize it? Because if I'm not mistaken, people that got in near the bottom in 2008, 2009 saw I think it's a 20-fold return by 2010.

John Black: Yeah. It's part of when we first set up our first company. Regulus is our second company. Our first company was called Antares Minerals. When I say us, we're a team that's been consistent through the companies here. It's myself, Kevin Heather, who's our Chief Geological Officer – we have a CGO to emphasize the importance of geology in our group – and Mark Wayne. We were really the founding core of Antares, our predecessor company, and it's continued to Regulus as well.

With Antares, we had the good fortune to discover the Haquira deposit in Southern Peru. It's part of an intentional strategy, what our business strategy is. Each junior company has to decide what type of company they'd like to be. Some specialize in grassroots or a certain country or a certain commodity. What we do is we look for large copper or copper-gold deposits. What we really look for is projects that have potential to be large deposits. We see those, we capture those, and then we drill them out and show the full size potential to them.

We de-risk them to show that they can be developed into a viable mine, and then ideally we monetize that project. We sell it to a major mining company. We're not developers. We're good explorers. We have good contacts and eyes on projects that are what the major companies would want, but it's best for us to reveal that value and then ideally pass it on to the company that specializes in building them, or has the deep pockets to do that. That's not our best space.

Our first example was exactly what we intended to do when we set out on this. We identified the Haquira project. It was held by Phelps Dodge. They felt it wasn't big enough for them. We saw things that we felt perhaps it could be with time. We acquired the project for $15 million and optional payments over a period of 5 years, we drilled that out, and then we sold it to First Quantum for about $650 million in 2010, during a real peak in the copper price, when major companies were looking to acquire assets like this.

It was exactly what we meant to do when we set up. We had the good fortune to land on the right project. That's the critical stage in our strategy. You have to have a good eye and get that project that's right. Then from that sale, we spun out Regulus.

It took us a few years to identify an opportunity that could compete with what we had with the Haquira. But we landed on the AntaKori project, which was held by another publicly-traded company, Southern Legacy Peru, that was operated by Fernando Pickmann, a prominent mining lawyer in Lima. He quietly put together an outstanding land package that had potential to be a major, major project. The markets were tough at that time, and he was having some challenges raising enough capital for it. 

We made the connection between our two groups, and it was a natural marriage. We amalgamated our companies into Regulus, basically folded his project and his experience and know-how into it. Now, Fernando is a critical part of our team as well.

We're actually a stronger team than we were the first time around. I believe we're on a better project. This AntaKori project we have is just an outstanding deposit in the making right now. We've got a long, good resource right now with good potential to be quite a bit more as we fully reveal the size of this. In this case, in addition to a lot of copper, it actually has a fair amount of gold and silver associated with it as well.

Gerardo Del Real: Just to simplify it, as I mentioned up top, it's a simple business model for you. Explore and monetize, right?

John Black: Explore and monetize, but really the critical thing is you have to identify projects that have that potential to become big enough and economically robust enough that a major company would like to buy it. In our business model, we don't want to find a million-ounce gold deposit. Perhaps you could put it into production and make a little bit of money off of it, but it's not big enough that somebody would buy it from you. We're really looking for those rare deposits that are very large deposits that are attractive to the major mining companies.

Gerardo Del Real: Your corporate presentation makes mention of the fact that AntaKori has a better location, better grade, better strip and bigger potential than your previous project. I just want to get into the resource a bit. You have 2.6 billion pounds of copper in the indicated category, 2.4 billion pounds of copper in the inferred category. You have 2.3 million ounces of gold in the indicated category, 2.2 million ounces in the inferred category. Just for kicks, you have 61 million ounces of silver in the indicated category and 67 million ounces in the inferred category. 

Can you give us a brief overview of where the project stands now? Then let's talk about some of your neighbors and why that plays into the next steps for Regulus, because I think it's critical.

John Black: Exactly, the resource that you just mentioned was our first resource that we put out last year, about PDAC of last year. It was based on our Phase I drill program, about 23,000 meters of drilling on top of 17,000 meters of historical drilling that was on the project already. It's an interim resource. Even though that's quite a sizeable resource already, it's still very much open for expansion on that. We wanted the market to see where we were at, convert some of the outstanding drill results we had into grades and tons.

Then we've continued in our Phase II program since that period of time, putting out some pretty encouraging numbers as we start to drill to the north. The Phase II program had to be suspended due to the COVID-related pandemic issues that we have on that, but we're just about ready to start drilling here at any moment, and continue to drill to the north and expand that resource.

It's a very nice size resource already, and what it is is it's a portion of an even larger deposit. Our project is located immediately next door to an operating mine called the Tantahuatay Mine. Tantahuatay is operated by a joint venture which consists of Buenaventura, Southern Copper, which is Grupo Mexico's Peruvian subsidiary, and a smaller family company called ESPRO. Those three parties operate the Tantahuatay Mine.

It's currently a heap leach oxide gold mine. What they're doing is they're mining the oxidized cap off, over the top of a much larger copper-gold sulfide they find at depth. The copper-gold sulfides are the extension of our mineralization, or our mineralization is an extension of theirs, but basically we share a deposit.

That's one of the challenges on this project, is that we don't have all of the project, even though what we do have right now, the numbers that we were talking about, is just what's on our ground. That would be a perfectly good deposit by itself right now with potential to grow, but it's part of an even larger deposit when we take a look at what the neighbors have next door. It's nice that they already have an operating mine there. They're essentially scalping the oxide cap off, pre-stripping and exposing the potential for this much larger copper-gold sulfide deposit at depth.

Gerardo Del Real: Anta Norte. This is going to be a very important upcoming drill campaign. Can you explain to everyone why? Because I believe that's next, right?

John Black: Exactly. The AntaKori project consists of the main AntaKori area, which is where our drilling has been focused to date, which is the northern extension of the Tantahuatay deposit to the south of us. Then there's an area to the north of us that we refer to as Anta Norte. Our drilling to date has been utilizing permits that are held by the mine.

We have a collaborative agreement with the Tantahuatay mine so that we can each drill out our mineralization, our land positions, kind of interfingered. That collaborative agreement allowed us to drill up to a certain point, but then we had about three-quarters of our prospective area to the north still open, and inaccessible due to lack of drill permits. We received those permits early this year. We were all set up and ready to start drilling in that area in March. That's when the COVID pandemic hit and we had to put things on hold for a little bit.

We're currently mobilizing rigs up to the site. We anticipate we'll be drilling by next week and moving forward into this new area. It's an area that has potential to significantly expand an already sizeable resource that we have right now. What that'll do is ideally it makes the overall deposit bigger, and it makes the portion of the deposit that we have bigger. It increases our hand at the poker table, if you will.

Gerardo Del Real: Let's talk about that hand at the poker table as you put it. The last time that you sold an asset, you mentioned it was for $650 million. You believe you have a better project now, and yet you have a market cap just shy of $150 million Canadian, which of course presents the upside. I don't think it's a coincidence that management and the team has not only significant personal skin in the game, but you also have some cornerstone investors that I think are really important. 

Can you speak to the share structure a bit and some of those key shareholders, John?

John Black: Certainly, yeah. Our share structure is pretty straightforward. We have a little over 100 million shares outstanding right now. We do have one large cornerstone investor, which is Route One. Route One is out of San Francisco. They own about 24% of the company, and they've been great shareholders. They did very well in our predecessor company. They're not a resource-oriented fund by any means at all, but they have a component of their overall investments in resources.

What they often describe to us is they look for teams that have experience, know what they're doing, and have a demonstrated track record of having done that. Then they back those teams that they believe will be serially successful. We fit into that category. 

They like how we operate. It's beyond just what we discover and the return on investment. They're also very interested in the way we operate with the communities, what we do to improve conditions for communities.

They're looking for good, sustainable investment. That's where that confidence that we've developed with them is important. They're clearly a cornerstone investor for us. They participate in all financings as we move forward, and they strongly back us to get on the right project and then take it through.

As management ourselves, we have about 13% of the company. Some of that is a legacy position from our previous sale, but we're still actively investing ourselves. Collectively, our management teams put in over $2.6 million of our own money in the last few years into the project. We participate in every private placement. We oftentimes buy open market when we get seriously undervalued, the way we were in the past year or so.

Gerardo Del Real: John, to play devil's advocate here a bit, can you speak to the arsenic that exists in parts of the project? I just had a real good chat with Joe Mazumdar from Exploration Insights, who also covers the stock, loves the team, loves the project, had nothing but good things to say, and addressed the potential to treat it and the way the team's approaching it. This is something that you have a lot of experience in. I want to make sure that you address how you're approaching that and why Anta Norte becomes so much more important in light of that, right?

John Black: I'm glad you brought that up. It's a really good example of where we can show what our philosophy is on this. We have a long-term approach, or an end-game approach, when we tackle a project like this. For us to be successful, we have to find a deposit, and then we have to demonstrate that the deposit can be economically viable, it can be turned into a profitable mine.

That means that it's not just simply finding grades and tonnes. It's doing all of the other aspects to do what we call de-risking the project. That means in many cases what we're doing is, if there's a particular challenge to the project, if a project is in an area that doesn't have water or something like that, then that's where you need to focus your attention. That's the challenge you need to solve to unlock that value.

In this project, we really have two challenges. One is the complexity of the interfingering of the land, the multi-parties that are in the district and an eventual district consolidation. That's one challenge that we confront on this.

Probably the second challenge we have on this is metallurgical, which you just mentioned. A little less than half of the deposit, as we know it right now, has elevated arsenic content to it. Rather than just to ignore that or say, "Well, the major miner will solve that or something will be developed on that," that's an example of where there's a lot of pretty good mineralization that does have those elevated arsenic contents, so we tackle that head-on and look for possible solutions to go forward with that.

In this case, arsenic is a challenge that all of us in the copper industry face right now. The arsenic content of copper concentrates is going up worldwide. A lot of different groups are exploring how to most efficiently tackle that, what you can do to segregate the arsenic, eliminate the arsenic and separate it from the copper on that.

One of the things that we were finding encouraging on this – we're by no means locked in on the best way to do this yet, we are exploring a variety of different options to go forward – the good news is there are pathways for this. There are different processes that can be applied to tackle this type of mineralization, and we're exploring what will be the best way to go forward.

During the COVID downturn, we've still been able to have our metallurgical samples being processed. The lab is pretty low density and they're allowed to work during this time. Towards the end of this year, we'll have our initial metallurgical data out. Then we're closely monitoring a number of different processing techniques that are being used to tackle these type of ores. Probably the one that we're eyeing the most right now is pressure oxidation, or an autoclave.

It's interesting because traditionally a deposit like this that's copper-dominant – it does have very good precious metals, but it'll be driven by copper – it's been the major copper companies that are most interested in what we're doing. Recently we're getting a lot of interest from the gold companies.

A lot of the gold companies have stated that they wouldn't mind having copper projects that have significant gold associated with them, partly as a hedge, to have a copper hedge against gold prices, and partly to have exposure to much larger, longer-life mines on this. It's hard for a Barrick or a Newmont or a Newcrest to replace what they mine every year without looking at these bigger opportunities on this.

Most of those groups are very experienced with autoclave and moving forward. It's a technique where you rapidly oxidize your sulfide ores, and then that breaks them down and it separates your arsenic out into a stable mineral called scorodite, which can be safely stored and kept away from everything else. It's an environmentally-friendly way to take it on.

The challenge is then the additional capital costs and operating costs. But we believe on the AntaKori project, the fact that we have a large amount of mineralization with very good grade and very low strip, all of those factors offset that additional cost to treat the arsenical material.

We see pathways going forward, and we're actively working with that. We're actually being coached by a number of the major groups that are keeping an eye on this right now.

Gerardo Del Real: I bet they are. I bet they're keeping an eye on the upcoming drill program, which you said you'll have details on imminently, correct?

John Black: Yeah. We anticipate we'll be ready to start that within the next week or so. We're mobilizing to site right now and getting everything set up. There are a few challenges on drilling right now. There are always challenges on getting a drill program set up in the Andes. But with COVID, what we have to do is be very careful that we're performing our drill campaign in a manner that keeps all of our own personnel safe, and that we keep all of the communities that we're interacting with safe as well and comfortable with how we're doing it, because we don't want to jeopardize our social license by rushing in and drilling just because we can, or because the market dictates that we should. We want to make sure we're doing that in a cautious, careful manner. We've got all the steps set up right now, and we'll be launching that program at any moment.

Gerardo Del Real: Well, it sounds like a busy rest of the year. You have the metallurgical work, you're expecting results by year end. You have the drill program, assays from that. 2021, if you make it out of 2020, because I'll speculate that the company is a clear takeout target for a lot of potential suitors, but let's just pretend that doesn't happen and you're here in 2021. You also plan the resource estimate that you mentioned earlier on, which should significantly increase the size of the resource, and possibly a PEA. Is that correct?

John Black: Yeah. Where we're at on this right now is, as I mentioned, our Phase I program allowed us to put out the interim resources we put out last March. We're about 16,000 meters into a Phase II program. Nominally, that has been set at about 25,000 meters. It'll really be determined more on how the results are and what things look like as we get towards that number.

At a certain point, when we feel we have enough additional drilling that we can update a resource and show a significant increase in it, that updated resource will come out. We anticipate that that'll be out next year at some point. We can't exactly estimate how fast we'll be able to drill, due to COVID and things like this. For now, we're comfortable just saying during the year next year. 

With respect to a PEA, that would be the next logical step. The way we approach these projects is that we would normally wait until we've completely drilled the project out, then you apply your PEA. Your PEA's your first real look at NPVs and potential profitability of the project, the resource estimates show the size. Then that PEA is your first glance at the economics of the project. It's usually best for us to wait until we have the entire project defined, because you want to come out with your best look at that, first chance on it.

There is a temptation on this because of the brownfield nature of the neighbors next door and the fact that they run out of oxides in 2025, which would motivate them to be looking towards making a transition to sulfides quite soon on this, to go ahead and begin to put that PEA out. We have a significant challenge with a PEA in that the deposit is partly on our ground and it's partly on the neighbor's ground. For us to put out the best PEA would be a consolidated look at the project. We don't have an agreement to be able to do that at this point in time. We would only be able to put out a PEA that only shows our portion and not the full value.

In this case, one plus one is much greater than two when you consolidate the district and take a look at the whole thing. We'll be evaluating how we do that and how we go forward. In the meantime, companies that take a look at us under confidentiality agreements can build those models themselves. We can build our own internal models on it. We're just a little bit restricted on what we can show publicly.

We'll be pursuing ways to be able to reveal the full, true value of the district as we move forward over the next year. The PEA, it's a little uncertain exactly when we'll be able to present it. It's not because we're at all concerned about it being positive. It will be quite robust when it comes out. It's just we want to make sure we present it in the best light, when we can show the full potential of the whole district.

Gerardo Del Real: Well, I suspect that many of those potential suitors that have signed confidentiality agreements have in-house estimates of the value. Again, I suspect that if you keep finding copper and gold at Anta Norte, you're going to have a lot more options when it comes to the consolidation piece of the puzzle. John, it's been a blast. Is there anything else that you'd like to add?

John Black: No, just a final thought on what we were just discussing on this. We'd really like another year, year and a half to show the full size of this thing.

Gerardo Del Real: I bet you would.

John Black: It's natural that we begin to get people to take a look at it, but at this point we want to show that full size, make the market more aware of what we have and have our market cap more closely reflect it, what we anticipate would be a fair value for the overall project.

Surprisingly enough, even though a lot of groups start to take a look at you when you're at this stage, a lot of times they'd like us to go a little farther too. They'd like us to de-risk the project more, to work out the metallurgy, to look for longer-term social agreements with the communities. A lot of times, they feel that we can do that more cost effectively than they can, and they're willing to pay up a little bit more later with less risk involved. That's the whole de-risking part of what we do. That adds a lot of value by doing that.

We would like to see if we could get another year or two out of this and show that full size. But with these elevated gold prices, and particularly if we get into a spot where copper prices start to move up, then people will start shopping for these things. We think we're going to have a winner delivered right at the right moment here.

Gerardo Del Real: Well, I know you're a good poker player, John. It should be interesting to watch the dynamic unfold. Thank you so much for your time today. Appreciate it.

John Black: Thank you, Gerardo.

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