In-Situ Copper from Arizona: Taseko Mines & Arizona Sonoran Copper
Arizona is the largest copper producing state in the US, responsible for 68% of total national output in 2019. Many of the global base metal producers have significant operations in the state whether it be Freeport McMoRan, KGHM and Grupo Mexico, BHP, South 32, or the likes of Hudbay, Capstone and Excelsior. In conjunction with a strengthening copper price (currently at $4.33/lb, representing an increase of 72% since January 1, 2020) much attention has been focused on newer copper projects boasting near $1.00/lb cash costs and having a much cleaner environmental footprint seeing as the mining method is in-situ recovery (ISR). Seeing as this mining method relies on underground injection and recovery wells, the energy needed to recover the ore is estimated to be 3x lower when compared to a conventional open-pit mine (when measured on a kWh/lb of copper recovered). Moreover, the fresh water usage is estimated to be 10x-15x lower while the carbon emissions are estimated to be 4x-6x lower (when measured on a kg CO2/lb of copper recovered). Additionally, given the header house structure of the injection/recovery wells, much less environmental remediation is needed at end of LOM production, when compared to the massive environmental impact of open pit mining. Taseko Mines (TKO, TGB) has been a cash flowing copper miner since 2007 with its primary asset, the BC located Gibraltar mine annually producing approximately 110M lbs of copper and being considered one of the lowest cost open-pit copper mines in the Americas. In terms of pipeline, since 2014, Taseko has pinned much of its future growth on the Florence Copper asset, which has garnered nearly $165M in investment spending since 2014. Following the publication of a technical report in 2017, management decided to push through with a production test facility and begin the permitting process. Located just an hour’s drive from Phoenix Arizona, Florence has been producing copper cathode via a ISR production test facility (PTF, consisting of 24 wells) since 2019. With numerous years of proof of concept behind them, the permitting process has been long but is finally nearing an end. At present, given the receipt of the Underground Injection Control (UIC) permit, the public comment period is currently underway, with the final UIC permit expected for sometime in Q3 or Q4/2022. Once in hand, construction is expected to take 18-24 months with the company still expecting initial production by 2024. Taseko’s explosive share price performance since 2020 has perfectly reflected the on-going progress at Florence, whether it be success on the permitting path or successfully closing project financing. Suffice it to say, as the company’s fortunes with Florence kept advancing, so has the share price, regardless of the output coming from Gibraltar.
Maybe at the same junction as Taseko approximately 3-4 years ago, Arizona Sonoran Copper Company (ASCU) is a new pure-play entrant to the Arizona ISR copper scene given its November 2021 IPO (19.066M shares issued at an IPO price of C$2.45/share, raising gross proceeds of C$46.7M). Located approximately 50km from Taseko’s Florence copper deposit, Arizona Sonoran’s flagship asset is the wholly owned Cactus Copper project which was purchased in July 2020. Cactus is situated at the intersection of Arizona’s three porphyry belts and is also proximal to a number of large scale regional copper mines and processing facilities.
The Cactus mine currently hosts 1.6B lbs of contained copper in the Indicated category along with 1.8B contained lbs in the Inferred category. Via ISR mining, the project is expected to produce 56M lbs of grade A copper cathode per year over an 18 year LOM. Given that the company just recently (May 16) closed on a C$35M private placement, the ambitious drilling program is expected to continue intersecting high grade copper intervals such as the 302 ft at 1.23% Cu and the 595 ft at 1.29% Cu hit earlier this year in April and February. Note that Pre-Feasibility Study (PFS) drilling was just completed in early May, while a 60,000 ft infill drilling program along with a 12,000 ft expansion drilling program is currently underway. Needless to say, given the results to date from this type of aggressive drilling campaign, the risk is on the upside for resource growth and an eventual upgrade in resource quality. The company is lead by the capable hands of CEO George Ogilvie, who most recently lead a turnaround at Battle North, tripling the resource base to 1.2M gold ounces and selling the asset last May to Evolution Mining. Previously, George Ogilvie had a successful tenure as CEO of Kirkland Lake Mining (improving operations at Macassa and acquiring St. Andrews Goldfields) and before that was CEO of Rambler Metals.
Both Florence and Cactus are similar types of ISR amenable copper mines which are situated relatively close to each other. Their stories are at different stages seeing as Taseko is on the cusp of final permitting, construction start and large scale production. Arizona Sonoran is still proving out the resource seeing as mineralization remains open for at least another 1,970 ft to the northwest, with further exploration occurring at the northeast extension as well. Given the current work on technical studies, production may come sooner than one might expect, possibly as early as 2025.
Ultimately, the near-term drivers are as follows:
Taseko Mines: Following receipt of the final UIC permit, construction and initial large scale production sometime in late 2023/early 2024, copper production from the company is expected to increase from the 110M lbs from Gibraltar alone, to just under 200M lbs combined from a two production asset base including from Florence. Note that great mining companies are built on back of a quality asset base. At present (given a recent resource/reserve update), when including the reserve base from Gibraltar, Florence, Yellowhead and New Prosperity, few even know that Taseko has a higher copper reserve base (totaling 15.0B lbs) than Lundin Mining (LUN) or HudBay Minerals (HBM) at 12.0B lbs and 9.2B lbs respectively. Note that we are strictly speaking Proven & Probable reserves, the highest quality category for reserve confidence. This quality ensures that post-Florence, the pipeline has other attractive prospects to develop. There will be a re-rating higher as low-cost production becomes a closer reality.
Arizona Sonoran Copper: Though also still relatively small (Mcap of C$210M), we expect the company to garner investor interest as good news begets good performance while the company embarks on further expanding and de-risking the project. There are plenty of near-term drivers - a Pre-Feasibility Study is due in late summer 2022, followed by a Feasibility Study in late 2022 or early 2023 (and likely project financing to come on back of those studies). Ultimately an 18 month construction build is expected to begin in 2023 or 2024. A recently announced investment partnership with Rio Tinto (RIO) will go a long way to optimizing and pushing the project forward. Arizona Sonoran’s much bigger neighbors in the area will be following the developments closely. Copper remaining over $4.00/lb will also help to martial resources at an even faster pace in order to push things forward.