VANCOUVER — Arizona Mining (TSX: AZ; US-OTC: WLDVF) has advanced its Taylor zinc-lead-silver sulphide deposit Arizona at a rapid pace over the past 18 months, and has now released a preliminary economic assessment (PEA) that envisions first production from a proposed 9,100-tonne-per-day operation by 2020.
Arizona completed 70 surface diamond drill holes at Taylor in a 2016–2017 program that targeted stratabound carbonate-replacement resources. The deposit is a down-dip sulphide extension of the Hermosa Central silver-manganese oxide project, which sits in the Patagonia Mountains, 80 km southeast of Tucson, Arizona.
The new mine plan is based on an updated resource that has 65% of total contained metals in the measured and indicated categories. Taylor now hosts 72.4 million measured and indicated tonnes grading 4.3% zinc, 4.4% lead, 88 grams silver per tonne and 0.1% copper. The base case assumes a 4% zinc equivalent cut-off grade.
“There haven’t really been any surprises for us over the past year and a half. Perhaps that’s why the stock is languishing where it is,” Arizona Mining president and CEO Jim Gowans says with a laugh during an interview in Vancouver.
“We now fully understand the size of the deposit … this is my lucky seventh mine. We could have extended our drilling over a few years, but we did it the traditional way. We hit it hard and fast, and our plan had always been to get that PEA out.”
The US$457-million development would centre around an underground mine with initial production beginning in 2020 and ramping up to 10,000 tonnes per day in 2023. This scenario is based on a portion of the resource amounting to 55 million tonnes at 4.4% zinc, 4.3% lead and 48.2 grams silver.
The investments in preproduction capital would include: US$99 million for the process plant, US$84 million for the shaft, US$67 million for underground development, US$63 million for contingency, US$61 million for site infrastructure and US$32 million for mining equipment.
The company estimates sustaining capital of US$500 million.
“We determined the best way forward was to ramp down, and then do the lateral development as you drop the shaft. We had thought of doing a double decline, but the reality is that the timing would have been too long,” Gowans says.
“All of a sudden we’re in production before you even finish the shaft, and you make a stockpile as you ramp up. That meant our initial capital expenses dropped, while sustaining capital increased. Also our initial costs on the processing plant have dropped because it turned out to be relatively simple,” he adds.
Arizona is modelling a standard crushing and grinding circuit followed by froth flotation, concentrate thickening and filtration. The operation would produce a lead (galena) concentrate and a zinc (sphalerite) concentrate with an estimated gross revenue split of 42% zinc, 43% lead and 15% silver.
Arizona has recently battled public criticism related to the Taylor deposit’s manganese content, which could negatively impact revenue due to unforeseen smelting and treatment penalties.
“People were uninformed about our metallurgy,” Gowans says, noting that initial work indicates a manganese content of 0.1% in the lead concentrate and 1.3% in the zinc concentrate.
“I went down to the International Zinc Association after the questions around our manganese content. Even our preliminary test work we put out in early 2016 considered it. So that scenario was always there, and when we did the test work on the concentrates we noted the scenario was not uncommon,” he says.
Arizona’s PEA features an after-tax net present value of US$1.3 billion at an 8% discount rate, and a 42% internal rate of return based on a 19-year mine life. The project could have a 1.7-year capital payback period.
Taylor’s annual production is estimated at 287 million lb. zinc, 286 million lb. lead and 5.5 million oz. silver. Arizona models all-in sustaining costs of US61¢ per lb. zinc equivalent, concentrate treatment charges of US$210 per dry tonne and a manganese penalty of US$13 per tonne.
“We’re driving aggressively towards a feasibility study by year-end. It’s a shaft-based system, so we’ve selected a daily tonnage figure that works well with that design,” Gowans says. “We know that’s the sweet spot, and so we’ll focus on the mine plan and grade optimization. It’s mostly desktop work, though there will be infill drilling on some areas we think have potential. We’ll also push the permitting forward and continue with exploration, because we know we have a lot of veins and Taylor Deep.”
The Taylor Deep discovery, reported early this year, is interpreted as a new zone of mineralized carbonates below a sequence of older volcanic rocks and a thrust fault that separates it from current sulphide resources.
Recent highlights from the discovery are: 5.9 metres of 216 grams silver, 23.2% lead, 7.6% zinc and 0.4% copper from 1,028 metres deep in hole 417; and 7.8 metres grading 336 grams silver, 20.2% lead, 3.1% zinc and 0.3% copper from 708 metres deep in hole 409.
Arizona shares have traded in a 52-week range of 96¢ to $3.49, and closed at $1.99 per share at press time.
The company raised $69 million in various financings in 2016, and reported cash and equivalents of $19 million to end the year. Arizona has 250 million shares outstanding for a $497-million market capitalization.
“We know the zinc market is going to be in deficit for five years. That’s before a few major projects come onstream, including Taylor. I look at the zinc market and it’s going to be stronger for a longer period, but I don’t think you’ll ever have the price spike,” Gowans adds.
“There’s money available because, to be honest, there’s not a great selection of mining investments. In our case we have a world-class deposit and a short timeline to production. If you’re out 10 years, it’s a lot more difficult.”