Arizona Metals Corp T.AMC

Beacon reacts target price of $10.50 per share. 12 month

[SPACEDOC]

January 22, 2024 Bereket A. Berhe | [e-mail] Alex Brown | [e-mail] This morning, Arizona Metals announced that it intends to create two new companies. AMC plans to spin out the Sugarloaf Peak Gold project and two newly created royalties on its Kay Mine Project. We believe that the planned spin-out of these assets into two reporting issuers has the potential to unlock significant value for AMC shareholders. Highlights: • The first company, expected to be named “Sugarloaf Gold Corp.", will be transferred shares of the company's wholly owned subsidiary, which holds Arizona Metals' Sugarloaf Peak Gold project. o Sugarloaf has a historic MRE of 1.5MMoz Au grading ~0.5 g/t. o The deposit is open for expansion in all directions and recent metallurgical testing has demonstrated the potential for excellent recoveries in both oxide and sulphide mineralization. • The second company, expected to be named "Arizona Royalties Corp.", will hold a newly created 2% NSR on any potential future mineral production at the Kay Mine Deposit, located on patented claims, as well as a 2% NSR royalty on all future potential mineral production from any new deposits discovered through Arizona Metals' ongoing exploration activities at the Bureau of Land Management exploration claims, located at the Kay Mine project. • It is expected that Arizona Metals will retain a 19.9% ownership in shares of Sugarloaf Gold Corp. and Arizona Royalties Corp. with the remaining shares being distributed to the company's shareholders on a pro rata basis. • Arizona Metals plans to make a modest cash injection into both Sugarloaf Gold Corp. and Arizona Royalties Corp. to provide 12-18 months of working capital for the spin outs. • Completion of the spin outs is expected prior to the end of Q2 2024, subject to shareholder, court, stock exchange and regulatory approvals. Our Take: We believe the Sugarloaf project was overshadowed by the value of Kay Mine, as a result its value was not reflected in AMC’s market capital. The spinout is positive to AMC shareholders as it provides a way to unlock value and provide exposure to a second asset that has potential for scale and leverage to the gold price. Additionally, should AMC transact on the Kay Mine property, the royalty assets provide shareholders with additional upside and exposure on eventual production from the Kay Mine deposit and exploration property. Overall, today’s news, as we have already factored in a royalty component to our valuation, does not impact our target price. We believe AMC can at least define 20MMt (with potential to exceed 30MMt). The results to date collectively reinforce our expectations that there is significantly higher resource upside to our estimate at Kay Mine alone. Valuation Summary: AMC is trading at ~0.14x P/NAV. Our valuation is based on the exploitation of a conceptual minable resource of 20MMt, through a milling rate of 1.6MMtpa and 80% base metal recovery and 60% for precious metals. We use a 0.70x NAV multiple, a discount rate of 7% and corporate adjustments to derive our price target. Our assumptions are informed by AMC’s exceptional exploration success thus far. We maintain a BUY and a 12-month target price of $10.50 per share. Arizona Metals Corp. (AMC-T) Spinning Out Two Companies: Sugarloaf & A Royalty Co. Beacon Securities Ltd. | 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5K 1H1 | 41