Arizona Sonoran Copper Company

Arizona Sonoran Copper Company is a copper mining development company focused on advancing its flagship Cactus Project in Arizona. The company aims to become a mid-tier copper producer in one of the most favorable mining jurisdictions globally. ASCU's Cactus Project is a brownfield site, having previously operated as the Sacaton mine from 1974-1984. The company is leveraging existing infrastructure and historical data to rapidly advance the project towards production.

The Cactus Project consists of three key deposits: Cactus West (open pit), Cactus East (underground), and Parks/Salyer (open pit). The company recently purchased the MainSpring property, host to the up-plunge Parks/Salyer mineralization, which adds 1.8 billion pounds of inferred mineral resources to the overall mineral resource estimation. ASCU's primary focus is on developing an open pit mining operation, which accounts for 94% of the current mine plan. This approach reduces execution risk compared to the previously scoped more complex underground operations at Parks/Salyer. At this point, the market has not yet valued the rescoped economics into the market valuation.

Arizona Sonoran is listed on the Toronto Stock Exchange (TSX:ASCU) and trades over-the-counter in the United States (OTCQX:ASCUF). The company has a market capitalization of approximately C$200 million as of October 2024.

The global transition to clean energy and electrification is driving increasing demand for copper, a critical metal for renewable energy infrastructure, electric vehicles, and energy-efficient technologies. However, there is a projected supply gap in the coming years due to declining ore grades at existing mines and a lack of new major discoveries. This supply-demand imbalance creates a compelling opportunity for new copper projects to enter production.

Arizona Sonoran’s Cactus Project is well-positioned to capitalize on this market dynamic. The project's recent Preliminary Economic Assessment (PEA) outlines a large-scale, long-life copper operation with attractive economics:

• Annual production of 172 million pounds of copper cathode over a 31-year mine life
• After-tax NPV (8% discount) of $2.03 billion and IRR of 24% at $3.90/lb copper
• Low all-in sustaining costs (AISC) of $2.00/lb copper
• Initial capital expenditure of $668 million

The project's brownfield nature provides several advantages, including existing infrastructure, a skilled local workforce, and a simplified permitting process. These factors contribute to lower capital intensity and reduced execution risk compared to many greenfield projects globally.

Furthermore, the Cactus Project benefits from its location in Arizona, a Tier 1 mining jurisdiction with a supportive regulatory environment and proximity to key transportation networks. The project's site has direct access to highways, railways, and is near major industrial facilities, enhancing its logistical advantages.

Arizona Sonoran is led by a seasoned management team with extensive experience in mine development, operations, and financing. Key members include:

George Ogilvie, President, CEO & Director: Over 30 years of experience in the mining industry, including successful leadership roles at Battle North Gold and Kirkland Lake Gold.

Nick Nikolakakis, VP Finance and CFO: More than 27 years of experience in mining finance, having held senior roles at companies such as Battle North Gold, Rainy River Resources, and Barrick Gold.

Bernie Loyer, SVP Projects: Over 35 years of experience in building and delivering large-scale mining projects, including work with major companies like SolGold, Goldcorp, and BHP.

Travis Snider, VP Sustainability & External Relations: 20+ years of experience in the Arizona mining industry, bringing valuable local knowledge and relationships.

The management team's track record of successful project development and operational expertise is a key strength for ASCU as it advances the Cactus Project towards production.

Arizona Sonoran’s growth strategy is centered on rapidly advancing the Cactus Project while continuing to expand its resource base and optimize project economics. Key elements of this strategy include:

• Resource Expansion: The company continues to conduct exploration and infill drilling programs to grow and upgrade its mineral resource. Since 2021, ASCU has increased its Measured & Indicated resources by 352% and Inferred resources by 94%. The recent inclusion of the MainSpring property has added significant potential for further resource growth.
• Project Optimization: ASCU is progressing towards a Pre-Feasibility Study (PFS) expected in mid-2025. This study will incorporate ongoing optimization work, including potential in-pit crushing and conveying, adjustments to the Parks/Salyer open pit design, and evaluation of primary sulphide mining scenarios.
• Phased Development: The company is considering a phased approach to project development, which could reduce initial capital requirements and allow for a faster path to first production. This strategy may involve starting with a smaller-scale operation and expanding over time.
• Strategic Partnerships: ASCU has formed a strategic relationship with Rio Tinto's Nuton venture, which is developing innovative copper leaching technologies. This partnership could potentially enhance recoveries and reduce costs, further improving project economics.
• ESG Focus: The company is committed to developing the Cactus Project as a low-carbon operation, exploring renewable energy options and implementing best practices in environmental and social governance. This approach aligns with increasing investor and stakeholder expectations for sustainable mining practices.

Arizona Sonoran’s financial position is underpinned by the robust economics of the Cactus Project. The recent PEA demonstrates strong cash flow generation potential, with life-of-mine free cash flow projected at $7.3 billion (after-tax, unlevered) at a copper price of $3.90/lb.

Key financial metrics from the PEA include:

• Net Present Value (NPV8%, after-tax): $2.03 billion
• Internal Rate of Return (IRR, after-tax): 24%
• Payback Period: 4.9 years
• Initial Capital Expenditure: $668 million
• Life-of-Mine EBITDA: $11.3 billion

The project's low operating costs, with C1 cash costs of $1.82/lb and AISC of $2.00/lb, position it favorably on the global cost curve, providing resilience against potential copper price volatility.

As of October 2024, ASCU had approximately US$30 million in cash following a recent financing round. The company's current cash position is expected to fund ongoing development work and studies. For project construction, ASCU will likely pursue a combination of debt and equity financing, leveraging the project's strong economics and the management team's financing expertise.

ASCU's shareholder base includes strategic investors such as Rio Tinto (through Nuton) and Tembo Capital, providing validation of the project's potential and potentially facilitating future financing efforts.

Arizona Sonoran Copper Company represents an attractive investment opportunity in the copper mining sector. The company's Cactus Project offers a compelling combination of scale, low costs, and favorable location in a Tier 1 jurisdiction. With robust economics demonstrated in the recent PEA, ASCU is well-positioned to benefit from the growing demand for copper driven by global electrification trends.

The company's experienced management team, clear growth strategy, and focus on sustainable development provide a solid foundation for project advancement. While risks exist, as with any mining development project, ASCU has demonstrated a proactive approach to risk mitigation.

For investors seeking exposure to the copper market, ASCU offers a unique opportunity to invest in a large-scale copper project at a relatively early stage of development. The company's current valuation, with an enterprise value to M&I resource ratio below many peers, suggests potential for significant value creation as the project progresses towards production.

As ASCU advances through key milestones such as the upcoming Pre-Feasibility Study, securing project financing, and ultimately commencing construction, there are multiple potential catalysts for share price appreciation. While the stock may be suitable for investors with a higher risk tolerance given its pre-production status, the company's strong fundamentals and the positive long-term outlook for copper make it a compelling option for those looking to gain exposure to the copper mining sector.