Arizona Mining has a ton of upside at Taylor

VANCOUVER — When it comes to opportunities in the junior space that tick all the boxes for mineral development, there aren’t many that can match Arizona Mining (TSX: AZ) and its emerging Taylor zinc-lead-silver deposit, 80 km southeast of Tucson, Ariz.

The company boasts an accomplished management team and strong financial backing, and it ran a promising drill campaign last year that shows potential for a great mining opportunity, driven by high grades and a clear permitting path.

Arizona Mining is the brainchild of chairman — and well-known corporate finance figure — Richard Warke, who founded Augusta Resource and Ventana Gold. The company previously operated under the Wildcat Silver banner before shifting its identify in mid-2015 to signal a focus on the Taylor discovery, which is part of the 140 sq. km Hermosa project.

Arizona had previously advanced the Central manto-style, oxide deposit at Hermosa and outlined an open-pit prefeasibility study for the project in 2013, based on proven and probable reserves of nearly 60 million tonnes grading 68 grams silver per tonne and 8.3% manganese.

“Our focus had really been on the oxides and working on that study to get it up and running. We recognized for quite some time, however, that we had some intersections of nice sulphide mineralization down-dip,” chief operating officer Donald Taylor said during an interview.

“This is a perfect geological story in terms of zonation for these types of deposits. It was really just a matter of getting ourselves oriented and proceeding with the drilling as we move towards what is likely an intrusive source. It definitely looks like we’ve found the right location because we’ve had some wonderful drill intercepts.” he added.

To solve the “geological puzzle” that would lead to the Taylor discovery, Arizona compiled a wealth of historic data — areas of Hermosa were previously explored by the American Smelting and Refining Co. (Asarco) — and combined it with an airborne versatile time domain electromagnetic survey in 2011.

Once the magnetics led to drilling in a different location, the richness of Taylor’s grades started to emerge. Arizona punched 25 holes over nearly 20,000 metres before releasing an updated resource on the deposit in early 2016. Taylor now hosts 39 million tonnes of 4.5% zinc, 4.5% lead and 0.1% copper, for an 11% zinc-equivalent grade.

The discovery drew the attention of new president and CEO James Gowans, who served as president and CEO of De Beers Canada, and recently as co-president at Barrick Gold (TSX: ABX; NYSE: ABX). Gowans’ mining history includes metallurgical and engineering work on some of Canada’s most prolific zinc-lead mines, however, and he sees a chance for another development at Taylor.

“I was retiring from Barrick and moving back to the Vancouver area when I got a call from Richard about the project opportunity, and lead-zinc deposits are sort of like coming home for me,” Gowans said.

“I was involved in the development of the Polaris and Red Dog mines with Teck Cominco back in the day, so I went down to Arizona to look at the property and go through some drill core. That’s when I decided to postpone my retirement, because I figured it looked like a great opportunity to build my seventh mine.”

Another thing at Taylor that excites Gowans is relatively simple metallurgy. Arizona released test results in early January that indicate overall recoveries of 92.9% lead, 85.5% zinc and 91% silver using standard froth flotation processing techniques. The project also appears to have no penalty credits, which would mean a clean concentrate.

The question for Arizona now is expansion potential. The company is confident that Taylor’s resource hosts the tonnes and grade to support a 12-year operation, but the true continuity and breadth of the deposit have yet to be established.

On Jan. 26 the company acquired 1.2 sq. km of patented mining claims next to Taylor that hosted Asarco’s past-producing Trench Camp mine. The property was part of a US$1.8-billion environmental bankruptcy case in 2009, and Arizona acquired the claims in return for building a passive-water treatment system for US$1.9 million. The company also  posted two bonds totalling US$1.97 million, with Warke loaning the $4 million needed to close the deal.

“Trench was really one of the more unique situations I’ve dealt with in this business. It was a historically owned Asarco property with an operation focused on a high-grade, lead-silver vein up in the volcanics,” Taylor said. “What made it so difficult for us was that when it went through the bankruptcy, they didn’t transfer all the properties to the state trust.”

Asarco completed drilling at Trench in the 1970s in search of porphyry copper, and the results indicate the same carbonate stratigraphy at Taylor. Since the two targets are located on patented mining claims, which is the same as owning the surface and mineral rights, Arizona can proceed with a drill program at Trench right away.

“We believe we’ll connect the two, and we now have around twice as much untested strike length as we have already tested on the patented claims,” Taylor said. “We’re also working to permit for a drill program on the unpatented claims that give us even greater expansion potential. The real goal of this drilling will be to outline the limits of the deposit.”

The company is sizing up the structure and quantity of prospective financing packages, but it is aiming for a widely spaced, 40-hole program over the Trench claim blocks this year.

Depending on the amount of capital raised — and the drilling results — Arizona could release a preliminary economic assessment on an underground mine by late 2016.

“The strategy is to drill across Trench in a program to establish continuity and get an idea of the breadth of the Taylor deposit,” Gowans said. “The question then becomes where to do infill drilling to maximize the net present value of the resource, because there are impressive sections in our core in terms of grades, and a lot of strike distance to work with here.”

The other upside from the Trench deal is regulatory. Acquiring more patented claims means the company could keep its mine infrastructure on private land, and only require state permits for an underground operation.

Arizona Mining shares have traded within a 52-week range of 26¢ to 43¢, and closed at 38¢ per share at press time. The company has 162 million shares outstanding for a $58.5-million market capitalization, with management and insiders holding a 32% equity stake.

The company raised $2.7 million in early November via a $700,000 private placement, and another $2 million loan from Warke. Arizona issued 2 million units priced a 35¢ per unit, which each consisting of a share and a warrant exercisable at 45¢ for five years. Insiders subscribed for 1.3 million units.

“The other opportunity we have in our back pocket are suspect-looking signatures in the magnetics that we believe may represent buried copper-porphyry intrusions, Taylor said. “We’ve put plans for drilling in our permit applications to test those outside targets.”