An agreement with Phelps Dodge (NYSE) will result in completion of a feasibility study on the Piedras Verdes copper project in Mexico and the outright sale of the Sanchez copper project in Arizona.
Azco Mining (TSE), which owns both projects, will receive US$40 million from Phelps for a 100% interest in Sanchez and a 70% stake in Piedras Verdes.
A heap-leach, solvent extraction-electrowinning (SX-EW) operation is planned at Sanchez, for which Azco had been trying to raise US$100 million for some time.
The minable reserve is estimated at 229 million tons grading 0.29% copper, and the feasibility study projects yearly output at 56 million lb. for 20 years. The average cash cost would be roughly US52 cents per lb.
At the Piedras Verdes project, situated in Sonora state, a geological resource of 154 million tons grading 0.41% copper is estimated, and Azco has been working to develop a leaching SX-EW operation. Preliminary estimates project output at 100 million lb. per year at a cash cost of less than US50 cents per lb.
Prefeasibility work on Piedras Verdes will include additional drilling to expand the resource.
Phelps will arrange the debt-financing portion (60%) of the project’s capital cost, leaving Azco responsible for 30% of the remaining 40% equity portion. The latter’s expenditures are limited to US$3 million until feasibility.
Azco, which has about 25.5 million shares outstanding, can receive the US$40-million cash payment over a period of three years if it wishes. In this way, it can limit its tax liability.
From the transaction, Azco expects to realize about US$33 million after taxes, leaving the company with about $1.80 in cash, a 30% interest in Piedras Verdes and a 100% interest in the Suaqui Verde copper project, also in Sonora.
The deal with Phelps Dodge is subject to shareholder approval and definitive documentation. Phelps Dodge has already completed its due diligence.
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