GMS: Arizona Sonoran’s George Ogilvie on copper and the Cactus project

When Arizona Sonoran Copper Company (TSX: ASCU) puts its brownfields Cactus project into production, the mine will produce about 56 million lb. of copper cathode a year over an 18 year mine life, which adds up to about 1 billion pounds of the metal, president and CEO George Ogilvie told the Northern Miner’s Q4 Global Mining Symposium on November 17.

The past-producing mine, about 65 km south of Phoenix, was operated by Asarco between 1974 and 1985. At the time the mine was called Sacaton, and it had a large copper concentrator and flotation mill. Asarco sent the copper concentrate by rail to its smelter in El Paso, Texas. During its lifetime the open-pit operation produced about 400 million lb. copper, 27,000 oz. gold and 759,000 oz. silver.

The mine closed due to the exhaustion of open pit reserves, and an underground operation was contemplated and under development until September 1981. But the work was suspended due to low copper prices coupled with Asarco’s liquidity issues.

Ogilvie notes that Asarco was predominantly targeting the enriched material and chalcopyrite — the primary sulphide — and left a 77-million-tonne stockpile at surface, which it had regarded as waste but was oxide material.  “At a 1.69% total grade of copper, that generates 224 million pounds of copper that’s already been drilled, blasted, and hauled to surface and really just needs to be moved on to a future constructed leaching pad,” Ogilvie told the conference participants.

Based on the column tests Ogilvie and his team have done so far, metallurgical recoveries of the oxide material is close to 90%. “Back in the 1970s and 80s’ the mine was about ten years ahead of the technology,” he said. “Today, the heap leach, SX-EW is very proven technology.”

“We’ve just released a preliminary economic assessment that doesn’t just look at the stockpile,” he continued. “There’s mineralization today sitting in the original pit and there’s also an underground component.”

“In total, the company has a compliant 43-101 resource consisting of 1.6 billion lb. copper in the indicated category and 1.9 billion lb. copper in the inferred category, and we’re very confident that over the next several years, as we complete the technical studies and the project financing, that we can put this mine into production before some juncture in 2024 and start producing copper cathode and selling it into the U.S. market.”

Mineralized core from the Cactus project in Arizona, 40 miles south of Phoenix. Credit: Arizona Sonoran Copper Company.

Currently the project capex  is about US$124 million, but as Ogilvie points out, the stockpile has “all been bought and paid for by the former company, Asarco, and the pit is already there. So it’s really a pit layback. Obviously the costs go up a little bit with underground capital development. But the nice thing is, once we go underground, we start to see grades that are approaching 1% copper. Of course, it will be a big underground bulk tonnage mine. But that’ll drive down the economies of scale.”

Arizona Sonoran based the resource at a copper price of US$3.15 per lb. and the financial and economic modelling at US$3.35 per lb., both of which are substantially below current levels for the metal, which are well above US$4.00 per lb., and approaching all-time highs.

The long-time executive and mining engineer, who has spent 17 years of his career in base metals and 15 in gold, also noted that the PEA still left about 2.5 billion lb. of copper in the ground within that resource, and said he was “very confident as we continue to drill this deposit out, we’re going to be able to further optimize the pit shell, and no doubt increase our annual production and the life of mine at the same time.”

The company is looking at C1 cash costs of US$1.55 per lb. and all-in sustaining costs of about US$1.88 per pound. At a copper price of US$3.35 per lb., that delivers an after-tax net present value at an 8% discount rate of US$312 million and an internal rate of return of roughly 33%.

Ogilvie cautions, however, that with the prevailing inflationary trend, prices will most certainly rise, at least over the next two to three years. “We will face some headwinds when it comes to cost escalation on the capex,”  he said, “but the good news here for the shareholders and any future shareholders is that there’s so much margin in this project that we can absolutely absorb that and we’re going to generate very strong returns.”

Among the project’s other attributes is that it is situated on private land, which means the company only needs to deal with state and county permits to put it back into production. “There are no federal regulators involved, so at the end of the day we’re only dealing with state and municipal authorities. And then once you make your application with the regulators … there is a defined 180 day period, which includes a 30-day public consultation period within that six month window, whereby the regulator must give you a response to your application. We already have some significant permits in place and the others will be applied for next year.”

The project also has a permit approved to take water for the next fifty years and at a rate of 3,600 acre feet per year.

“Essentially our permit alone is three times greater than our actual water requirement,” said Ogilvie, adding that the other good news is that there’s a very strong aquifer that makes water all year round about 2,000 feet below surface or about 1,000 feet below the existing pit, and therefore the project doesn’t need to tap the Colorado River.

“We know that because we have wells into it,” he said of the aquifer, “and we take readings.”

The aquifer is only permitted for industrial use because it contains some minerals and metals, such as selenium and chromium are two that are above certain thresholds, which means that the water is not fit for livestock or farming purposes.”

In addition, there is a 115 megawatt power line with excess capacity that runs right through the property. And about 50% of the power on that line today comes from renewable energy sources, nuclear and solar panel farms, which are abundant in Arizona given the sunshine. The company is also evaluating building its own 8-10 megawatt solar panel farm. “If ultimately we decide to put that in, 100% of our energy or electrification at site will actually be from renewable energy sources,” he said.

As for copper, the metal is “absolutely going to be fundamental to the whole renewable energy thesis and there just isn’t enough copper supply,” he said. “And I think that demand is actually going to rise exponentially here in the coming decades and that means assets such as the Cactus mine are going to become extremely valuable as we go forward here for sure.”

In terms of exploration potential, Ogilvie noted there is a four km mineralized trend extending out on either side of the Cactus project.

“As we drill around the periphery of the open pit we’re finding mineralization that previously would have been classified as waste, and if you think about that, it makes sense because back in the 70s and 80s, as I’ve already mentioned, the oxide material to Asarco would have been classified as waste. I think that’s going to help us eventually expand the pit and get access to some of that additional billion pounds of excess leachable copper that remains in the pit beyond this current PEA.”

Beyond that, Arizona Sonoran also owns 100% of the nearby Parks/Salyer property, about 2 km to the southwest of the main Cactus pit. Asarco drilled two holes there in the early 1980s and Arizona Sonoran also drilled two earlier this year. “All four holes have gone through the same massive copper porphyry system so we see intersections of three to four hundred metres,” Ogilvie said. “We see the copper oxide cap enriched material, and the primary chalcopyrite material. And of course our action plan now is to begin exploring there.”

The Parks/Salyer exploration project is just south of the tailings facility (left-side of the photo). On the right is the stockpile project. Credit: Arizona Copper Company.

The company plans to have its first rig turning there in the fourth week of November and start releasing results next year while it completes the relatively mundane technical reports at Cactus.

Arizona Sonoran intends to release a bankable feasibility before the end of 2022 on Cactus and a first resource estimate for Parks/Salyer.

“I would not have joined this company if I wasn’t 110% confident that this is going into production,” said Ogilvie, who most recently sold Battle North Gold and its Bateman gold project to Australia’s Evolution Mining (ASX: EVN) for US$343 million in May. (His other success stories include optimizing the Macassa mine and acquiring St. Andrews Goldfields while president and CEO of Kirkland Lake Gold.)

Arizona Sonoran IPO’ed on November 16 at $2.45 per share and at presstime was trading at $2.20 per share on the Toronto Stock Exchange.

Tembo Capital, a private equity firm in London, has about invested US$30 million in the project and has a 38% equity stake.

Watch the full interview here: