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As announced on October 16, yet another major milestone was achieved by the team at Arizona Sonoran Copper (ASCU) as infill drilling to reactivate the Cactus mine led to a +221% increase in the total Measured & Indicated (M&I) resource, along with a +9% increase in grade (including a corresponding -55% decrease of the Inferred resource).
Specifically, the updated mineral resource estimate (MRE) for the combined Cactus, Stockpile and Parks/Salyer deposits now stands at 445,700 ktons at a Grade of 0.58% CuT for 5.17B lbs of copper (M&I). Of note is 357,600 ktons leachable at a grade of 0.62% of soluble copper for 4.43B lbs of copper (M&I), representing a +316% conversion of lbs from the Inferred category. The recent drilling has also confirmed resource continuity – the total drill database includes 160,420m of drilling in 900 holes, resulting in demonstrated consistency of mineralization overall and a significant upgrade of the Parks/Salyer Deposit from the previous MRE. Drilling is continuing with the focus now being on a 4km mine trend at the Parks/Salyer southern extensions gap zone, north-east of Cactus East.
As can be seen in the graphic above, the Indicated material saw predominant growth from infill drilling within the Parks/Salyer deposit, from the stockpile material and from significant drilling at both Cactus West (including nearly 50M lbs in the Measured category) and Cactus East. Note that upgrading to Indicated material at the Parks/Salyer deposit demonstrates efficient upgrading work given that the maiden Inferred resource was only announced nearly one year ago on September 28, 2022.
Specifically, the updated mineral resource estimate (MRE) for the combined Cactus, Stockpile and Parks/Salyer deposits now stand at 445,700 ktons at a Grade of 0.58% CuT for 5.17B lbs of copper (M&I). Of note is 357,600 ktons leachable at a grade of 0.62% of soluble copper for 4.43B lbs of copper (M&I), representing a +316% conversion of lbs from the Inferred category. The recent drilling has also confirmed resource continuity – the total drill database includes 160,420m of drilling in 900 holes, resulting in demonstrated consistency of mineralization overall and a significant upgrade of the Parks/Salyer Deposit from the previous MRE. Drilling is continuing with the focus now being on a 4km mine trend at the Parks/Salyer southern extensions gap zone, north-east of Cactus East. This updated MRE is now expected to form the basis for the Pre-Feasibility Study (PFS) which will be targeting 45-50 ktpa copper cathode heap leach and SX/EW operation. Compared to Arizona ISR copper peers, the Cactus project is certainly growing to a point in which it is becoming more comparable to Taseko Mines (TGB)'s fully permitted and construction-ready Florence operation. More details on Florence can be found here.
The PFS is expected to be released sometime in Q1/2024. We acknowledge that the updated MRE and inclusion of Parks/Salyer will certainly increase the LOM of the operation (possibly increasing the LOM operation beyond 30 years). A full bankable Feasibility Study is expected to follow come Q4/2024. Ahead of the PFS specifics however, we maintain our current production estimates based on the initial PEA dynamics.
We forecast initial production commencing towards the end of 2026 with a meaningful ~50M lbs produced in FY/2027. Moreover we forecast an average of ~60M lbs produced over 18 year LOM with C1 costs averaging $1.60/lb and total costs averaging $2.10/lb. Note that we are currently basing the production schedule on the preliminary PEA with Cactus intake alone. Given the MRE update, we expect the upcoming PFS to demonstrate a meaningful increase to LOM production (perhaps topping 30 years) along with a material increase to average annual production (targeted at 45-50 ktpa). over LOM.
Using our LT copper price target of $4.35/lb, we calculate a NAV8% of $5.86 per share, representing a current P/NAV valuation of 0.26x. Applying a 0.80x NAV multiple, our price objective is anchored to C$4.70 per share (rounded), equating to upside of 207% from the most recent close. The NAV multiple risk remains on the upside as the project progresses through the de-risking process on the road to a firm construction decision and eventual construction.