Arizona Sonoran Copper – Unpacking The Acquisition By Hudbay Minerals - Anticipated Synergies Of The New Pro-Forma Company

Hello, and welcome to the K.E. report.

Shad and Corey here is your host,

and today we're getting an update

and possibly one of our final updates

from Arizona Sonoran Copper.

Arizona Sonoran Copper is traded on the TSX

under the ticker ASCU, and on the OTCQX

under the ticker ASCUF.

And we are joined today with the president and CEO

of Arizona Sonoran, George Oglevy,

and George, I was telling you off mic,

it's a bittersweet moment for the company

in the sense that we've been following this journey

since you were just drilling on the project

before you even had main spring,

watch the whole development journey.

We've done a number of iterations

of different economic studies on the Cactus project

in Arizona, and we've seen how it's changed over the years,

and then you drop some news to the marketplace

just on the second of March that Hudbey

is coming in, Hudbey Minerals,

and is acquiring the company.

And so they are gonna be merging the Cactus project

with their large copper world project in Arizona.

There's a lot of synergies there, which we'll dig into,

but I guess just from a high level,

what we can say is shareholders,

and I should disclose I'm a shareholder personally,

are at least seeing a real take over here,

instead of a take under,

you're being taken out at all time highs.

So congratulations to the team on tying the knot here,

maybe talk a little bit about the transaction here,

and coming into what is a new combined copper giant

and the Arizona district.

Yeah, no, thank you for that, Chad,

greatly appreciate it.

I mean, obviously it's a wonderful outcome

for the shareholders of the company.

As you know, it's an all share transaction,

and it was conducted at an all time high,

and I think based on the spot price of the previous day

when we closed, it was a 30% premium to spot,

and a 36% premium to the 20 day VWAP.

And of course, it now gives, you know,

cactus the eventual certainty

of being able to come into production,

given the support of a large, mature,

based metal producer like Cut Bay.

So we're delighted with the outcome of the transaction.

Talk to us about this transaction, then.

It's an all share deal, break down,

more or less what the ending value is here.

What is HUD Bay approximately paying for your project?

Yep, so it's an all share deal,

and for each Arizona Sonora share,

the shareholders of the company at the date of record

will get 0.242 shares of HUD Bay.

When you look at it on a price-to-nav basis,

it's anywhere between sort of 0.8 and 0.95 times price-to-nav,

which is actually being paid.

As I said earlier, it's a 30% premium to the spot,

and a 36% premium to the 20 day VWAP.

On the 208 million shares are actually outstanding.

If you do the calculation,

it values the company at just slightly more

of $2 billion Canadian dollars.

I remember this was a company that IPO'd in November of 2021,

and upon the IPO, I think the company's market cap

was just slightly an excess of $100 million Canadian dollars.

So we've seen obviously exponential growth

over the last five years

as the management team have executed on the plan.

And I think what's even more exciting for me

is not just the fact that we got a nice premium

for the shareholders on the back of an all-time high share price,

but we're taking shares in a company

that's got a fantastic production profile looking forward.

And currently right now,

had paid producers about 145,000 tons of copper annually

from their Canadian and Peruvian asset known as Constantia.

But if you look at their production profile

with copper world, with cactus, with Rosemond,

and then with the Mason project

coming into that pipeline over the next five years,

this is a company that could see production go north

of 500,000 tons of copper annually,

all based in the Americas.

And most of that in five years

will actually be an America itself.

So extremely positive,

when we look at the production profile,

and I would expect, you know,

provided general markets cooperate with a rising copper price,

I would expect significant share price appreciation

and the hot base shares over the next five years.

Yeah, George, you make a great point

that being a domestic producer of a critical mineral

with an administration that's really backing mineral development

in the number one state for copper, Arizona,

it's just the, everything's coming together.

You're also seeing a copper price

hovering closer to six dollars than five dollars

and I remember when copper was stuck in the twos

and the ones for a long time.

So you got a strong metals price,

you got a strong administration,

you got a strong development profile,

and you've got a strong producer with HUD Bay coming in.

Let's talk a little bit more about the synergies though

between it, like when we talked in December,

when Corey and I were asking you questions about the PFS,

that was just as a standalone project.

Now there's some synergies between the two projects,

between cactus and copper world,

maybe give people that are thinking about

holding on for the journey here,

how those come together

because different processing methods

and still close to each other,

but some benefits from working both projects and tandem.

Yeah, well, I mean, copper world,

which will advance ahead of cactus,

copper world is due to deliver a feasibility study this summer

and HUD Bay is intending to make a final investment

decision on copper world by the end of this year

because it's a flotation process

and they'll be producing a copper end concentrate.

They're considering putting in an Albion plant,

which ultimately would produce sulfuric acid.

And as you may remember from our Heapleach operation,

SXCW, which produces copper cathode,

one of the big operating costs and consumables

that we actually use as sulfuric acid.

So there's a wonderful opportunity for HUD Bay

to take a look at where they position that Albion plant

and ultimately get access to sulfuric acid.

And for that reason, one of the things HUD Bay will do

when they acquire the company and the cactus asset

is that they will go back to our pre feasibility study

that we issued and filed last year in November.

And they'll take a fresh look at it

through the eyes of an operator with a strong balance sheet

with free cash flow generation

and see how it can be maybe better integrated

in to their current business and process.

And I'm sure there're gonna be other opportunities

that'll come out over and above the Albion plant itself.

The other thing that'll happen here,

Shad and Cory, is that HUD Bay is known as being

a very, very good mine builder.

They've built a lot of mines in the past on budget,

on schedule for lower costs.

And they have a full project team

that'll sort of be coming off the copper world project

sometime in the second half of this year.

So it's a wonderful opportunity for that team

to move over to cactus and integrate

with the current 25 employees that we have on the ground

at cactus and in around Cassegrand

and add further to that team's intellectual knowledge

and property and then work together

so that they can further refine the pre feasibility study

that we put out last year

and ultimately then drive cactus forward

so that it can come into production behind copper world

which is slated for 2020 now.

So what is a reasonable timeframe then?

If they're focused on copper world right now,

rightfully so, and there could be synergies here,

when could they significantly advance your project,

this cactus project into some sort of construction?

Start putting some shovels in the ground.

Well, they could advance the project

under the same timelines as ourselves

but the challenges that they don't want to be building

both projects at the same time.

So it has to be sequenced.

So copper world will go first.

And if they re-look at the pre feasibility study

as they've communicated and then build on

a definitive feasibility study from that,

I'm thinking you're probably looking at a 12

to sort of 24 month delay

from what we were currently envisaging

with bringing cactus into production in 2029.

So copper world comes on board in 2029

and then you're probably looking at cactus

with first production in 2030 or 2031.

And then behind that,

they've also got a project called Mason,

which is in Nevada.

Again, it's another big copper poultry system

that can be mined via open pet.

It is situated on federal land

so it does involve the beauty of land management

and that therefore means that the permitting on Mason

will take obviously slightly longer

than copper world and cactus

which are both on private land.

And for that reason,

I believe that Bay and Visages

bringing Mason online after cactus

probably some time in the mid 2030s.

But if they execute on that plan, as I said earlier,

they can take their production well

north of 400, if not 500,000 tons

of copper production here in very short order,

all in America.

Yeah, nice to see a strong domestic producer of copper

in the US and to see the staged approach

going from copper world to cactus to Mason.

And I think once they've proved their worth

in Arizona that Nevada will be more than likely

to play ball as well.

The other thing that's interesting

is if people will remember last year,

there was kind of the tariff uncertainty around copper

whether there was gonna be a tariff on concentrates

and people will remember that a lot of the concentrates

could shift over to Asia

and they were gonna be subject to the tariffs.

But I think the other advantage of cactus

for Hudbay is you were gonna do a solvent extraction

electro-winning and do cathode production,

which would not have been subject to that.

So maybe the internally hedged part of that as well.

Maybe you could speak to that.

Yeah, that's a great point as well, Shad.

I mean, the finished product, as you said,

that cactus is a copper cathode.

It doesn't have to be shipped overseas or out of country.

It can be sold directly to US manufacturers,

US industry, and I think strategically,

it's a great asset to own and particularly

with this administration, keeping everything

in America as much as possible.

I think we'll set well very much so with this administration.

You know, the other key thing for the Arizona Sonora

shareholders to remember is that by doing this transaction,

we really take out the risk of financing

and then execution risk.

Myself and the CFO were always very confident

that we would be able to finance the cactus project.

We expected the cross to marginally increase

in our own definitive feasibility study

over and above what we had in the PFS.

But there was no doubt that, you know,

there was gonna have to be a large equity raise,

which in various circumstances can be dilutive

to the shareholders.

So the financing risk has now gone.

Hudbay has a very strong balance sheet.

I believe they have over a billion dollars of liquidity.

They are generating free cash flow.

And of course, they have a JV partner in Nitsubishi,

who has a 30% stake in the Copperworld project.

So when you look at how Hudbay will ultimately finance cactus,

they're gonna be in a much, much stronger possession

than Arizona Sonora would have been.

And probably issuing either no shares

or very limited shares.

And that is gonna help with the NAF per share

and the performance company in the ensuing years.

And then of course, beyond the financing risk,

the other risk that we would have had

as a standalone company would have been the execution risk.

And I see so many junior companies

who try and build these large scale projects.

And where they get into trouble

is usually in the working capital

and that they're unable to deliver on time.

And as soon as you start pushing out your project

by three to six months,

if you're burning through, let's say,

20 million dollars a month

and you miss the schedule by three to six months,

suddenly you can see there's a 60 to 120 million dollar hole

that suddenly now needs to be filled.

And that's where a lot of junior companies

who try and build these projects get into trouble.

It's usually the last 5% of the build

that causes the biggest concern.

So that execution risk has now gone

because we're now working with a counterpartier partner

who has a lot of experience in building these type of projects

and doing it very, very successfully.

So judge, one more question on more or less as transaction.

When I was reading through the news release,

I didn't see any precise details of a termination fee

or a break fee if this deal doesn't go through.

And that also brings up the question

of any chance a competitor could come in here.

There are some thoughts that maybe your neighbor

would bid on this project or other companies.

Now the gold companies are even coming into the copper space.

Can you share with us what the break fee is here

if there is a break fee and what you think the chances

that this could turn into a bidding war?

The break fee itself has never been released.

The Res1 will be filing documents very shortly

and obviously with the management information circular

that will go out, the break fee will be stated there.

I can tell you that when we spoke to our financial advisor

which was Scowsha Bank on this transaction

and the board of directors brought in origin partners

for the independent directors as their financial advisor,

both concluded that the break fee range

would be anywhere between two and a half to 5%

of the actual deal size.

So you're gonna see that when the break fee is announced,

it's well within the constraints

of what we've seen within the market,

other precedents within the market.

So that'll come to the market very shortly.

Cory Shad, Interloper, I suspect when this deal

got announced a lot of corporate development teams

would have been looking at this transaction

trying to see if potentially there was a synergies

with themselves or whether there was an accretive deal

and would have looked at it.

But remember, we IPO this company four and a half years ago,

nobody has approached us other than Hudbey

who put their money where their mouth was in January of 2025.

Since investing in the company,

they've continued to invest.

They've been very respectful.

They've come in the front door.

And since they invested in the company in January of 2025,

you'll have noticed that the share price has gradually

started to appreciate.

Now, obviously that's because of the Arizona Sonora team,

you know, delivering on all the key objectives

that we advise the market, you know,

we would be delivering upon and really executing

on our own plan.

But there's no doubt that Hudbey's endorsement

added credibility to the story and the management team.

And we think that they are the best suitors for the project.

This is an extremely accretive deal.

It's being done at an all time high share price.

And I believe there's significant upside

in the shares of Hudbey over the next five years

for those shareholders that decide

that they're gonna hold some of the Hudbey stock going forward.

All right, thanks for addressing that, George.

And since this transaction is expected to close

in the second quarter of this year,

which is actually quite a quick close,

what are you gonna do next, George?

What's on the table for you here?

It's a great question, Corey.

Well, as you know, my team and I also had a great win

four and a half years ago when Battle North Gold

was sold to evolution mining.

We stepped out of that success immediately into this one

and never really got a break.

So as the timing has fallen, you know,

to sometime probably in May to close the transaction,

I think we're gonna take a little bit of time off

over the summer, go away

and have some quality time with our families

and then come back in the fall

and you know, see what potentially is available.

I can tell you that my team and I have received

two soft inquiries about potential future positions.

So I've got no doubt with success of this transaction.

We'll have quite a few options on the table, come the fall.

Well, George, take some time off with the family,

enjoy the win.

It's definitely a success story that a lot of people

will be referencing in the future

and with two back-to-back deals that were taken

into a takeover with a strong shooter.

I'm sure that you're gonna have even more offers

come in over the next short while,

but enjoy the time off and we'll definitely keep

following along with your success in the industry

and your team success whenever you go to the next project.

Congratulations again to the Arizona Snorn team

for a great process here over the last four and a half years.

It was fun following along with it here at the K.E. Report

and as always, looking forward to our next conversation.

Thank you, Shat, thank you, Cory.