Arizona Mining (TSX: AZ) CEO Interview


Arizona Mining
CEO: James Gowans



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 of Arizona Mining.  The company trades on the Toronto Stock Exchange, ticker symbol is AZ.  Thanks for joining us today there, Jim.

James Gowans:  All right, thanks very much, Juan.

WSA:  So for some of our listeners that may have not caught our last interview, which was about six months ago, can you provide us an overview of Arizona Mining?

James Gowans:  Yes, Arizona Mining is a junior mining company with very exciting lead/zinc deposit in Southern Arizona.  We put out a PEA, Preliminary Economic Assessment back in April of this year, which gave us an NPV of about US $1.26 billion, a little under $1.3 billion, and we’ve been drilling ever since, and continued to expand the ore body.  We have two sections of the ore body; a main Taylor Sulfide Zone and then we’ve discovered a Taylor Deep Zone, which spreads out a bit more extensively.  And we’ve been doing a lot of the drilling on that of late.  We’re targeting to come up with a feasibility study at the end of June of next year.  So pushing ahead on all fronts, on the project as well as exploration.

WSA:  So speaking of Taylor, can you talk about the recent expansion on the Taylor Deep Zone?

James Gowans:  Yeah.  When we were doing some infill drilling we started to get a better understanding of the geology of our deposit. The main part of the ore body, what we call the Taylor Sulfide, it’s like a big thrust block sitting on top of the carbonate bands or formations.  And we realized that underneath the big thrust block which houses the main sulfide, Taylor Sulfide Zone,  we have the sulfides that are carbonate replacement deposit.  They’ve also spread through the repetition of the carbonate formations underneath the main ore body – and it’s spreading out over what you call the Concha formation, which is the top carbonate band.  And we’ve been exploring that for extensions to the east and it’s got an up-dip trend of about 22 degrees.  So it’s moving closer to the surface.  And in fact, the east part of the deposit now is looking to be about the same elevation as the top of the main part of the deposit.  So it’s very exciting.  And then we continued to drill that off our patented lands while we wait for permitting on the unpatented lands, but it’s recognized now, we’re still open to the east,to the north and to the west.

WSA:  And what are some of the key trends that you’re seeing right now in the sector and how you positioning the company to continue to capitalize?

James Gowans:  Well, in terms of zinc, the zinc market is very tight.  We’re starting to reach critical limits or levels of inventories.  Generally speaking, the price of zinc is quite robust and it looks to be that that will continue into the next year and the subsequent years.  And where it works out for us is that we have a very large patented land package, which we only need to get state permits on them.  So we can actually set up a starter mine, and that was our plan in the PEA and will likely be the basis for our feasibility study coming out in the middle of next year to basically start on the patented lands.  We can create a starter tailings dam that would allow us eight years or maybe more depending on the elevated grade that we feed into the process plant for the initial years.  But we can operate for about 8 years before we have to go into the federal permitting process for a second tailings dam.  And that means we can start up—our current plan is to start up at the end of 2020, and reach commercial production towards Q3 of 2021.  So it puts us in a position to be able to take advantage of the elevated zinc market.

WSA: Certainly.  And, so what are some of the key goals and milestones over the next 6 to 12 months that you’re looking at?

James Gowans:  Okay.  Well we put out the PEA resource in April of this year.  We’ve got ongoing drilling happening.  Interestingly enough, we did have a block of 15 percent sold to South32 which is a large Australian company, it was the spin-off company for BHP and they announced in September that they would buy in through a blind agreement an additional 4.9%.  They’re only allowed to go to 19.9%, so that’s pretty exciting.  So they’ve obviously recognized that this is a world-class deposit and are quite keen on that.  If you look at the work we’re currently doing, we’re doing exploration to establish the extent of ore body.  We will continue to do that.  We pretty well have to cut that off at the end of January next year to basically start to develop the resource and the mine plan for the feasibility study to be done at the middle of next year.  We’re also doing metallurgical test work, quite an extensive program on metallurgical test work, and that will be finished sometime in Q1 of next year to allow us to do a detailed design for the process plant.

In the meantime, we’ve also gone out for state permits to allow us to clean up the old historic tailing area and allow us to make a starter dam.  There’s two major permits on that, one is what we call the Aquifer Protection Permit or APP.  And then to allow us discharge water, we need a discharge permit for that.  Those permits are targeting late this year or early next year for delivery.  And so far, it seems like we’re on schedule to do that, you know, to get those permits.  We’re also taking a look at next year, looking at the possibility of starting an exploration ramp down into the upper part of the ore body, which will allow us to hit our target for a production start at the end of 2020 and then moving up into commercial production at the end of Q3 of 2021.  Those are kind of the major areas.  Getting the first permits will allow us to do cleanup and construction of the starter tailings dam, and that would be pretty exciting.  We would have a water treatment plant that’s associated with that as well.

WSA:  Great, so can you talk a little bit about some of the key management team there and some of the key team members as you’ve had some recent additions there lately?

James Gowans:  Yes.  We’ve added some new players.  We have a new CFO Tom Whelan who was the CFO at Nevsun.  So he’s got good mining experience, very keen and has been a great person to work with, although he’s only been with us less than a couple of months.  In Tucson, we’ve added a complete project team, a very experienced project team to be able to develop this project.  Our project director is a gentleman by the name of Richard Lock who was involved in building the Diavik Diamond Mine for Rio Tinto up in the Canadian Arctic.  And then he was at Resolution Copper for a period of time and has been involved in building mines for Rio and other companies.  Our senior mining person is a gentleman by the name of John Barber.  He has lots of experience.  He was the person who was responsible for the overall development design for the underground mine at Grasberg.  So he comes with lots of experience and is well-qualified to lead the overall underground mine design for our ore body.  And also, we have another person on the project team, Ryan Hoel, who was involved in the building of the Eagle Mine from Lundin Mining and Rainy River for New Gold.  So lots of experience on a project team and they’ll be responsible and accountable for delivering the feasibility study at the middle of next year.

WSA:  So as far as investors and the financial community, Jim, what are some of the key drivers that you wish perhaps they better understood about Arizona Mining?

James Gowans:  Well, I think our ore body, when you look at the PEA, we’re trading now at about 0.7 NAV on most of the analyst evaluations, and that’s based on the PEA that was published in April of this year.  So that valuation doesn’t include any of the current drilling if we add the drilling into the resources.  So I think that there’s lots of upside potential.  And the deposits are still growing.  There’s certainly a lot of exploration upside on both our patented grounds and the unpatented claim block.  We have about 20,000 acres of patented and unpatented land.  We believe that there’s district potential.  And even South32 made their significant investment in this view, I believe that.  So I think it’s very exciting.  The work that we’ve been doing on the metallurgical test work says that we’ll produce nice fairly clean concentrates, so they will be easy to sell.  We’ve had lots of conversations with traders and smelters on the Scaleability of our concentrates, and that’s not a problem as well, so, all very exciting.  Large deposit still growing in a couple of directions.  And the quality of the ore body continues to improve as we drill on the Taylor Deeps East.  We were experiencing better grades and higher silver values, so all in all, very exciting.

WSA:  Great.  So once again, joining us today is James Gowans, CEO for Arizona Mining.  The company trades on the Toronto Stock Exchange, ticker symbol AZ, currently trading at 3.29 a share Canadian, market cap is about a billion Canadian.  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:  I think they should take a look at as an investment because it’s a world-class deposit.  We’ll end up having operating costs in the lower quartile, lots of long-life production.  And we have upside continuing on our exploration programs.  So I think all in all, it’s a very exciting project and a great investment for investors.

WSA:  Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress.  And we like to thank you for taking the time to join us today Jim, and update our investor audience on Arizona Mining.  It’s always good to have you on.

James Gowans:  All right.  I’m very pleased to do that, Juan, and we’ll talk again.


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