Arizona Mining
(TSX: AZ)
CEO: James Gowans
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INTERVIEW TRANSCRIPTS:
WSA: Good day from Wall Street, this is Juan Costello, senior analyst with The Wall Street Analyzer. Joining us today is James Gowans, the CEO for Arizona Mining. The company trades on the Toronto Stock Exchange, ticker symbol is AZ. Thanks for joining us today there, James.
James Gowans: Thanks very much, Juan. Appreciate it.
WSA: Certainly. So starting off, please give us a history and overview of the company for some of our listeners here that are new to your story.
James Gowans: Alright. Arizona Mining goes back to about 2005 or thereabouts, when our Executive Chairman, Richard Warke acquired about 80% of the Alta hardshell property in Arizona. At that time the company he started up was called Wildcat Silver. It was mainly focused, until about 2014, on a manto oxide silver manganese deposit, which is one of the two deposits and now called the Central deposit on our large property claim. And it was during the drilling out of that property that our geologist, our COO at the time or still is, Don Taylor, started to recognize that there might be a carbonate replacement system feeding the solutions. And so he traded in his RC drills for a couple of diamond drills, and punched a couple of deeper holes to confirm that there was a carbonate replacement deposit.
And then in 2015, he drilled off about 25 holes, and that’s when I got involved, in November of 2015, to go down and look at those things. When Richard asked me if I would like to get involved, I was retiring from Barrick at the time. And I said, “Gee whiz, if it’s a significant deposit then I’ll get involved, and instead of retiring I’ll help out, it’ll be exciting.” And I went down, looked at those drill holes, and went, “Wow, I think we have a world-class deposit on our hands.” And we hadn’t put out a resource then. Now, we’ve since put out a resource, in February 2016, which was about 39 million tons of inferred resources. So that was the start, and at that time, we realized that we had two deposits, and so we changed our name to Arizona Mining. It was actually changed in the fall when we realized that there were two deposits there.
That’s kind of the preliminary history. I joined in January of 2016. We acquired the Trench property later that month, which was a large patented claims block that was from the old days of the cycle. We picked up that property in exchange for commitment to the Arizona Department of Environmental Quality to treat the water discharge from the mine. And we started drilling on the area, started with about six drills, moved to 10, and then moved to 14 drills. And we started to really define the Taylor Deposit, which we named after Don to give him a bad time, because it was outstanding work on his part that found the discovery.
And then we put out a resource in October, because we got a lot of feedback from shareholders in the market that we were having so much success but they didn’t really know what the size of it was. We had already committed to having a preliminary economic assessment done by the end of Q1 of this year, but just for the marketplace we did an update on the resource, which brought it up over 100 million tons of indicated and inferred. Then we did a PEA which came out at the end of Q1. So, that’s kind of a quick history of where we are.
WSA: Right. So, in terms of the Taylor Zone, can you talk about some of the recent assays and some of your other recent news there? I think you also just had an announcement today about a private placement.
James Gowans: Yeah, so when we did the infill drilling to put out the PEA, there were a couple of things that came out as we started to do the infill drilling. We realized that we actually had a couple of exciting exploration opportunities. One is that there is a vein system that we kind of knew about before on the Trench property overlying the Taylor deposit in the volcanics. As the solutions come in to replace the carbonate and form the basis of the Taylor Deposit, we knew that the main part of the ore body was kind of contained within an up-thrust block. But in doing the infill drilling for the PEA we also discovered that underneath there was actually what we call the Taylor Deeps now. It’s the top end of the Paleozoic horizon in the Concha formation and its spread out. We actually don’t know the extent of that, but it’s underneath the existing main part of the ore body, and then these veins that are in the volcanics above it. So those were a couple of things that we put out some recent announcements on and some of the assays.
We needed to get funds to get us to the feasibility study, which also includes remediating the tailings area on the Trench, and we want a starter dam so that from a permitting standpoint we can actually have water storage for sinking the shaft and running a decline down. So, we were able to do a strategic placement with South32, which is a large base metal producer from Australia. It’s the spin-off company from BHP. They came in and did a C$110.3 million strategic placement over the weekend for about 15% of our shares. So that’s very exciting for us and that now gives us enough funds to complete the feasibility study.
WSA: So what are the key trends that you’re focusing on right now in this sector, and how are you continuing to position the company to capitalize?
James Gowans: Three areas of focus. One is to understand the extent of the Taylor Deeps and the vein systems. The vein systems, particularly because when we do the detailed mine planning for the feasibility study, if they are located above the deposit – our main deposit runs from about 800 feet down to about 3,600 feet, and then we have even below that, the Taylor Deeps. Well, the Taylor Deeps is actually around the 3,500 feet, but we can ramp deeper from the shaft to get to it. So, we need to do exploration to outline the extent of the vein structures and the Taylor Deeps, but we will just drill it to inferred resource. We just want to know the extent of it.
Feasibility study is another focus, by the first half of 2018. We hope to go from PEA right through to a feasibility study, because the quality of our PEA was quite detailed in terms of the engineering and some of the work. So we don’t need to do a pre-feasibility study. Essentially, the preliminary economic assessment was the pre-feasibility study level quality.
And the third one is to initiate work on the permitting, which we have. We have a unique situation with Arizona Mining and in fact we have a large package of patented lands. We have over almost 20,000 acres of claims in our package. But of that, we have a little over 450 acres of private patented lands, going back to the historic mining days, which are our private lands that we can drill and develop from.
If we do the shaft and ramp, and the process plant and the starter tailings area, we just need state permits to accomplish that. So, if we initiate the permitting for the state permits we can accelerate the development of the deposit, and be up and running by the end of 2020. So that’s what’s exciting for us.
WSA: And what are some of the key factors, James, that you feel make Arizona Mining unique from some of the other players in the sector?
James Gowans: Well, for starters, it’s a major zinc deposit – lead-zinc deposit with good silver value. So if you look at world-class base metal projects that are of world-class size in the last 30 years, there’s probably only been two that have been discovered–Voisey’s Bay, which is a nickel project in Labrador, and Arizona Mining. So I think that’s what’s exciting about Arizona Mining. It’s a big world-class deposit of significance – of a metal that is in great need today, which is zinc. And the other thing that I think and what was exciting for me is to be involved, when I went down and looked at the deposit in November of 2015, myself, I’ve been involved in building six mines with various companies. And we have an outstanding, very experienced team, and Don Taylor who was VP of Exploration for Doe Run, and was involved with BHP, has been involved in developing mines. Our permitting guy was the person who permitted the last mine in North Carolina in the United States, the Romarco or the OceanaGold project. We also have a lot of experience within the rest of our team with Richard Warke, a lot of experience in developing ore bodies.
So I think that’s what’s really exciting, and is quite significant is the fact that we have the necessary expertise to take this project over the line.
WSA: And what are the main goals moving forward here over the next six to 12 months that you’re hoping to accomplish?
James Gowans: Well, definitely the feasibility study by the first half of 2018. We’re also anticipating getting a couple of key permits from the Arizona State for remediation of the old tailings area on the Trench property and for water storage. And get the Aquifer protection permit, which is the most onerous permit through the state to get it going. That would allow us to start looking at shaft sinking and ramp development and finish off the feasibility study. So those would be the key ones, as well as continuing on with our exploration to kind of get a sense of the extent of the Taylor Deeps and the Trench Vein System.
WSA: And you had mentioned some of the key management team there behind the scenes. Anybody else that you might’ve left out?
James Gowans: There’s a couple. One is our government relations person, Greg Lucero, he’s a very impressive guy. He’s a deputy mayor of the city that’s close by, Nogales. He’s on the board of trade in the county, and he’s on the school board. So he knows the communities, he knows a lot of the local people, and has done a great job of taking community people up to the site to walk them through that. And he’s one of the guys that gave me enough confidence to actually get involved in the project. And he knows the Arizona State governor; he was even on the election committee. So he’s very knowledgeable of that area of Arizona as well as the region. I think he’s a key person.
Our investor relations person was with Barrick. We have Richard Warke who was involved with founding the Augusta Group in, I think, about 2005 or thereabouts, and has had a couple of significant successes–the development of Ventana Gold project in Colombia, which he sold off to Eike Batista and his organization for about $1.6 billion. And then also the Rosemont project of Augusta Resources , which Hudbay took out for $600 million. So, he’s had lots of experience in the mining business, and raising funds, and developing junior projects. So he’s a great person to lead this organization.
And myself, like I said, I’d been involved with, almost 20 years, with Cominco/Teck. I was involved in the engineering and design and actual operation of two of their zinc mines, the Polaris mine, which is the world’s most northerly base metal mine, built in the early ’80s. And then I was involved as the manager of engineering for the Red Dog mine, and was involved in the operations for three years. So I’ve got a lot of experience in mine development as well.
WSA: And as far as investors and the financial community, James, what are some of your drivers there that you wish perhaps they better understood about you guys?
James Gowans: Well, I’m amazed at the share price. Because when we put out the PEA, the economics are very robust. The PEA came out at an NPV just a little under US$1.3 billion – $1.26 billion, it has a payback of over 40% at initial capital just a little bit shy of half a billion. So very, very do-able, very robust economics, and of course, it’s a multigenerational size ore body. So it’s going to go well over the 20 years. And it’s got significant zinc, which is a commodity the world needs these daysAnd there’s a shortage of it. So I think that those are the things that should lead shareholders to buy into a world-class deposit.
And also the fact that because we are in a unique situation with a large private land package, we can actually do a starter system and run for about eight years before we have to get a tailings system on federal land. So it allows us to start up quite aggressively.
WSA: Sure. So, once again, joining us today is James Gowans, the CEO for Arizona Mining, which trades on the Toronto Stock Exchange, ticker symbol, AZ, currently trading at $2.12 a share, market cap is about 625 million CAD. And before we conclude here, to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
James Gowans: Well, I just think it gives them access to a world-class deposit in a commodity, zinc, which is in short supply in the globe right now. There’s a shortage of it through a closing of a couple of large mines, one in Australia, one in Ireland. And we’re in Arizona, which is considered one of the best mining jurisdictions in the world. Actually, I think it was number seven on the Fraser Institute’s study last year. So, I think that’s what gives them a great opportunity. And we’ve got great economics.
WSA: Well, we certainly look forward to continuing to track the company’s growth, and report on your upcoming progress. And we’d like to thank you for taking the time to join us today, James, and update our investor audience on Arizona Mining. It was great having you on.
James Gowans: We appreciate very much your interest and support. Very much appreciate it.
