Arizona Sonoran Copper aims at restarting the Cactus mine

Privately held U.S. explorer-developer Arizona Sonoran Copper Company (formerly Elim Mining) is completing a preliminary economic assessment (PEA) on its Cactus porphyry copper project in Arizona before year-end, recently installed president and CEO George Ogilvie tells The Northern Miner.

The company is working to reactivate the brownfields copper deposit in the shortest possible timeframe. In contrast, the copper price runs red-hot near the record price levels achieved earlier this year, amid solid fundamentals backed by the energy transition and global economic recovery following the pandemic’s impacts.

The early July arrival at Arizona Sonoran of Ogilvie, a 30-year-plus mining veteran credited with managing the turnaround stories at Rambler Metals and Mining, Kirkland Lake Gold (TSX: KL; NYSE: KL; ASX: KLA) and most recently Battle North Gold, marks a strategic corporate reorganization for the company. The reorganization was sealed with a formal corporate name change on July 22.

“I wouldn’t have come on board if I didn’t think that there was going to be some significant returns for our shareholders, both now and in the future on this project,” Ogilvie says in an interview.

Arizona Sonoran’s predecessor was formed in April 2019 to leverage its package of Arizona assets near Taseko Mines‘ (TSX: TKO; NYSE-AM: TGB; LSE: TKO) Florence in-situ project to the east. The assets were acquired in distress as a reclamation project, but the inherent value remaining soon became apparent to the owners at the time.

Elim Mining had moved to expand the landholdings at Cactus last year, acquiring the Parks-Salyer property before solidifying ownership of the Cactus property. It has consolidated a land package from 2,500 acres to 4,600 acres.

Ogilvie says the company completed an internal initial resource estimate on Cactus earlier this year. Still, it is keeping the data under wraps until it is ready to publish the PEA in the next few months.

“We’ve got a preliminary economic assessment that will be filed very soon in the next several months. It’s going to show a robust plan over an extended period,” says Ogilvie. “We think now is the time we want to take this company forward and start thinking about building and developing the project and putting this thing in production. So, it requires a different skill set. And subsequently, I was chosen as that individual to lead the charge.”

Ogilvie says the district offers a potential of about 20 billion pounds copper at higher grades that tend to be around 1% copper.

The Arizona Sonoran team has spent significant effort on re-logging the core with local geologists and completed the first phase of drilling to confirm historical geology and an assessment of the waste rock pile.

Phase two work will include a more comprehensive drill assessment of the northeast extension of the historic orebody at Cactus and a follow-up on historical drilling at the 2020 Parks-Salyer ground acquisition.

At the Parks-Salyer property, management expects “significant exploration potential,” with an unofficial exploration target of at least four billion pounds of copper.

Ogilvie says the company has access to information from limited historical drilling at Parks-Salyer by ASARCO, which discovered it, but the immediate plan is to follow up with geophysics. He says that geochemical and ionic analysis has already shown the target to have “very good metal distribution.”

The Cactus project also has an existing 1,800-foot (549-metre) shaft that ASARCO sank in 1982.

Arizona Sonoran already has a strong starting point to work with. In March 2020, Elim had published a PEA on stockpiled oxide material at Cactus, which the prior operator never processed.

The PEA delivered strong economics, considering the stockpile alone. The early stage study demonstrated an eight-year conventional run-of-mine copper heap leach, solvent extraction and electrowinning process to produce copper cathodes at London Metals Exchange Grade A quality standards, with attractive economics using conservative base-case assumptions.

For a capital outlay of US$71.4 million, the company can build a heap leach operation processing 75.5 million tons grading 0.168% total copper to produce 182.4 million pounds of copper cathode. The average life-of-mine all-in sustaining cost for this operation has been pegged at US$1.87 per pound.

The PEA calculated an after-tax net present value (NPV) at an 8% discount rate of US$71.4 million with a post-tax internal rate of return (IRR) of 28% and a 3.3-year payback period. The project is expected to produce a cumulative free cash flow of US$140 million.

Conceptually, Ogilvie expects the initial leach operation to be supplemented by mined material from a pit layback at Cactus, with mined grades expected to average about 0.6% copper.

According to Ogilvie, the new PEA that will be filed in the next couple of months only deals with oxide and enriched material. He says these resources provide a relatively straightforward flowsheet to produce a copper cathode. “So, the numbers that are to come out do not include the upside from the sulphide materials,” says Ogilvie.

Ogilvie also plans to take the company public after the publication of the Cactus PEA, but details have not yet been finalized.

Arizona Sonoran’s assets are all on private lands, which bodes for no material permitting headaches down the line. It is close to an international airport, has access via paved road and has power and water.

With a comprehensive PEA in the works for publication soon, the milestone will be followed by a prefeasibility study and a feasibility study in 2022. With significant state permits already in place and no federal permitting requirements, pending securing a finance package, Ogilvie expects the first production could take place as soon as early in 2024.

“It is a simple value proposition,” says Ogilvie. “You cannot find another opportunity like this in a jurisdiction which is as mining-friendly as Arizona.”

Ogilvie sees near-term re-rating potential for the company. “I’d see a significant uplift in valuation in this company if we use the same sort of metrics that our peers get for their valuations. So, from today’s levels, I see significant upside over the next two to three years as we put this mine into production.

“And I think to support that, just to show you how confident I am, when I signed on with the company, I put US$500,000 of my own money into the company at US70c per share. Since then, along with the corporate rebranding, we just announced a share consolidation on a three-to-one basis.

“Today, the company’s fully diluted equity is about 49 million shares issued and outstanding. So, that money that I put in today is at a share price of about US$2.10. The value creation is already happening.”

Ogilvie explains the consolidation was undertaken with the future view to financing the project in mind. “We’re going to have to raise additional monies, especially if we greenlight a project to go into production. And, you know, the PEA is telling us how much we must raise, and it’s very reasonable, and it’s a lot lower than your typical greenfield site. That helps minimize future dilution to the shareholders.”