VANCOUVER — Arizona Mining (TSX: AZ) has released an improved preliminary economic assessment (PEA) of its flagship Hermosa zinc-lead-silver project, 81 km southeast of Tucson, Arizona.
The updated study is underpinned by larger defined resource following the completion of 71,000 metres of drilling in 2017.
Hermosa’s measured and indicated resources have jumped 39% year-on-year to 92 million tonnes grading 4.1% zinc, 4.3% lead and 59.5 grams silver per tonne. Inferred resources add another 40 million tonnes of 3.9% zinc, 4.8% lead and 96.4 grams silver. The calculations use a 4% zinc equivalent cut-off grade.
The mine plan is focused on the Taylor sulphide deposit and models an underground mine that would ramp up to 10,000 tonnes per day by 2023.
The nameplate level hasn’t changed since Arizona’s last study in mid-2017, but the mine life has been extended from 10 years to 29 years. Meanwhile, anticipated preproduction capital costs have jumped 14% to US$519 million.
The company attributes the higher price tag to faster shaft development, and more equipment required to access higher-grade Taylor Deeps mineralization in the first years of mining.
The initial focus on high-grade material reportedly cuts the payback period to just 1.6 years.
“We’ve clearly grown the resource quite a bit, and that’s especially true in terms of silver,” chief operating officer Don Taylor said during a conference call. “Yet it remains open in multiple directions there, and we’re still hitting mineralization great distances from the deposit. I really believe this is going to be a multi-generational mine. Based on what we’ve seen from the geophysical, airborne and gravity work, I’m convinced you’ll see more than one headframe on our property in the future.”
The company anticipates producing 9.5 million oz. silver in concentrate in its first five years of operation, which means a 51% increase over previous models.
According to the PEA Hermosa’s life-of-mine annual production would average 211 million payable lb. zinc, 262 million payable lb. lead and 5.6 million payable oz. silver at all-in sustaining costs of US61¢ per equivalent lb. zinc.
Arizona models a standard crushing and grinding circuit followed by froth flotation, concentrate thickening and filtration. The operation would produce two concentrates: a lead (galena) concentrate that would assay 69% lead and 1,100 grams silver, and a zinc (sphalerite) concentrate that would assay 56% zinc and 350 grams silver.
The company’s zinc-equivalent formulas assume preliminary recoveries of 92% for zinc, 95% for lead and 90% for silver.
The PEA yields a 48% after-tax internal rate of return and a US$1.98-billion net present value at an 8% discount rate. The base case uses metal prices of US$1.10 per lb. zinc, US$1 per lb. lead and US$20 per oz. silver.
“This represents, bar none, the world’s best zinc development project. It will also number among the world’s top silver producers,” president and CEO James Gowans added.
“We’re very lucky to be counted among a small number of world-class deposits that have this type of size and grade. There hasn’t been a discovery of this magnitude in 20 years, and I believe this is just the beginning for the district,” he continued.
Arizona is on track to release a feasibility study on Hermosa by mid-year, which would include higher-level metallurgical work that contemplates a coarser grind. The company is planning an exploration decline into Taylor, and has budgeted for more exploration, with nine drill rigs stationed on its patented land holdings.
Arizona has yet to obtain permits to drill the unpatented Hermosa mining claims.
On Jan. 10, the Arizona government granted the company permits for aquifer protection, a pollutant discharge elimination system, and dam safety.
The company said the permits allow it to begin staged construction on a lined tailings storage facility, a water-treatment plant and a collection pond.
Arizona hopes to receive an Arizona Class II air quality permit before March so it can excavate an exploration decline.
The company’s shares hit all-time highs after the PEA release, rising 32.5¢ to a $4.61 close.
Arizona Mining has 312 million shares outstanding for a $1.4-billion market capitalization. It reported US$73 million in cash and equivalents at the end of September.
South32 (LON: S32) grabbed a 15% stake in Arizona in May via a private placement of 45 million shares valued at $110 million.
The diversified Australian miner then entered into an over-the-counter forward contract to acquire another 15 million shares, equivalent to 4.9% of Arizona, in the open market over the ensuing 12 months.