Azure Minerals (ASX: AZS) - Shares Fall, Nickel Advances, Lithium Beckons

Azure Minerals is led by a proven team of technical and management experts who understand how to successfully develop projects into long-term operations. The company is focused on the efficient progression of its advanced-stage Andover nickel-copper-cobalt sulphide project. The company’s exciting and well-located, high-quality nickel-copper-cobalt and gold projects provide it with significant exploration and mine development potential.

Merlin-Marr Johnson caught up with Tony Rovira, Managing Director, Azure Minerals. Mr. Rovira has worked in the mining industry for over 30 years as an exploration and mining geologist. For the past 17 years, he has held the position of Managing Director for Azure Minerals. He has been responsible for the discovery of several gold and nickel deposits in Australia which were developed into operating mines. His most famous discoveries were the rich Cosmos and Cosmos Deeps nickel sulphide deposits in Western Australia. In 2000, Mr. Rovira was awarded the Prospector of the Year Award by the Australian Association of Mining and Exploration Companies for the Cosmos discovery. Between 2006 and 2020, Azure Minerals operated in Mexico where the company made several silver, gold, and copper discoveries. Due to Covid-19, Mr. Rovira made the decision to refocus on Western Australia and shortly thereafter announced the acquisition of four nickel and gold projects in Pilbara. Leading the way is the Andover Nickel Project where drilling is currently underway and massive nickel-copper sulphide mineralization is being intersected.

Company Overview

Azure Minerals’ Andover Project provides exposure to critical, high-value nickel, copper, and cobalt battery metals required for a clean and green energy future. The company also has large landholdings in two of the hottest gold exploration districts in Western Australia, namely Mallina in the Pilbara and Kookynie in the Eastern Goldfields. The company was founded in 2003 and is headquartered in Australia. It is listed on the Australian Stock Exchange (ASX: AZS).

Azure Minerals is advancing its nickel and copper sulphide deposit towards production in Western Australia. Following the previous technical interview, the company has received a lot of interest from the market.  The company’s representatives recently visited the 121 Mining Investment Conference and the Mines and Money Resource Conference in London.

On the first day of the conference, the company was approached by several interested parties looking to participate in the financing of the Feasibility Study and future construction. The interested parties include banks and financiers along with active mining companies that are looking for the next project to add to their existing portfolios. The inquiries were directed toward both project-level and corporate-level participation.

The Market Landscape

According to the company, share prices skyrocket after a major discovery and enters a more steady state once the results are reported. Unless the results are exceptionally good, interested parties end up looking for the next great story. It is quite challenging to come up with brand-new discoveries on a consistent basis.

Azure Minerals is carrying out nickel exploration along with development studies, however, the process is currently in hiatus. So far, the results have been more of the same. The discovery of the lithium-rich pegmatites at the funnel opening has had a major impact on the share price. The discovery caught the market’s interest, which was evident in the share price. The markets now understand the nickel portion of the deposit and are currently waiting to see the deposit’s lithium potential.

The company’s Board has a slightly stronger focus on lithium compared to nickel. Notably, nickel is by far the most advanced component in the company’s portfolio. The company has plans to push the Andover nickel project forward through Scoping Studies and Feasibility Studies, bringing it into production as quickly as possible. The company recognizes that the lithium pegmatites at Andover provide an opportunity to add significant value.

The company is putting in manpower and funding along with a lot of effort to advance its understanding on lithium as much as possible. The company is yet to drill a hole into the pegmatites. Through the collection of surface samples, the company found that a lot of the pegmatites are sticking out of the ground. These pegmatites seem to have a lot of spodumene within them, which was confirmed through the early grab samples.

Underlying Geology

Azure Minerals is looking to allocate two-thirds of the exploration budget looking for nickel and advancing it, while the remaining one-third will be used towards advancing lithium. The company is awaiting Heritage Approvals from the local traditional owners before it can commence drilling. In terms of the outcrop that hosts the nickel, the mafic and ultramafic rocks are quite different from the outcrop of the pegmatites that host the lithium. This is because the outcrops present at the surface are different. It anticipates that the outcrops could have different levels of importance to the traditional owners. The company is currently in the process of determining the importance of these outcrops.

The company is arranging Heritage Survey’s timing with the traditional owners, which is expected to take between 2-3 months. Once completed, the company will start drilling as soon as possible. Interestingly, a lot of the outcropping pegmatite areas are already well-disturbed as a result of the artisanal mining that was carried out in the 1950s and 1960s by some of the local Aboriginal groups. The artisanal mining was focused on tin, tantalum, and emeralds. The pegmatites are well disturbed and the company has reasonable expectations that it will have a significant cultural value to it. The company is looking to confirm this assumption through surveys and following due process.

At Seaview and Skyline prospects, the company has drilled several holes, hitting a lot of sulphides that also feature nickel presence. It is looking to carry out additional work on these deposits to bring them up to a level where developing a resource can be contemplated. Since the geology for the Seaview and Skyline prospects is a bit complicated, the company is drilling a few holes, awaiting results, and then revisiting the area for additional drilling. In comparison, drilling Andover was a straightforward process as it features a big blog of mineralization, making it easy to step out and continue to hit.

The Ridgeline mineralized zone is about 350m long, featuring a couple of higher-grade shoots which are expected to be 50m long and 20m wide. These shoots plunge towards the northwest and contain massive sulphides featuring high grades of 2%-3% nickel. The company anticipates that the drill results will highlight some nice high-grade paths to the resource. The drill results are expected by January 2023. While Ridgeline isn’t expected to be as big as Andover, it will be a nice addition to the Andover-Ridgeline composite deposit. The deposit’s value is expected to comprise 80% nickel, 15% copper, and 5% cobalt, making it a nickel deposit with credits.

The response from retail investors has been on the quieter side. The company anticipates that retail investors are focused on lithium and aren’t showing a similar interest in nickel. However, both nickel and copper are expected to see an exponential rise in demand going forward. The people that are more knowledgeable or have a longer-term view recognize nickel’s importance. Bankers, corporate and the big players are all looking to increase exposure to nickel. Azure Minerals has a series of large shareholders including the Creasy Group and Deutsche Balaton. Both Groups have been highly supportive so far and plan to continue the support in the future.

Targets 2022 and Beyond

Azure Minerals is planning to announce the Ridgeline resource in January 2023. The drilling at the asset has been completed and all the assays have been received. The resource modeling with independent consultants has also been completed. The resultant data is be collated by the independent consultants to provide a final resource. Interestingly, the mineralization of the high-grade shoots at Ridgeline is still open at depth. Last week, the company announced the results from one of the best drill intersections featuring grades of 14m at 2.5% nickel. Notably, this is the deepest hole drilled in the ore body so far. The drill results show that the deposit continues to be wide at depth with good grades. Ridgeline’s overall size can be potentially expanded in the future through additional drilling.

In the meantime, the company is looking to publish an interim resource so that it can be included in an upcoming Scoping Study. Once the resource is published, the company will combine it with Andover’s Scoping Study. It is important to note that the resource goes down to a depth of 500m. The Scoping Study or the PEA (Preliminary Economic Assessment) is expected by the end of Q1, 2023. The company will include the metallurgy, mine planning, geotechnical studies, and environmental studies in the Scoping Study for both Andover and Ridgeline. It will devise a common mine plan where a single entrance will be conjoined so that turning left or right will allow exploration of Andover and Ridgeline respectively.

Once the Scoping Study is published along with the financial metrics, the company will be in a position to announce the findings to the public, indicating whether it will be going forward with the asset or not. If the outcome of the study is positive, the company will focus on accelerating the next stage of development studies, which could mean going straight for a full Feasibility Study and potentially skipping the PFS (Preliminary Feasibility Study). Given the size and compactness of the Andover project, the company might end up conducting two studies into development rather than three. This is because the resource has already been drilled to the indicated category. The company has contained the geometry of the deposit’s ore body through the drilling density.

The next stage of mine planning will involve turning east to develop Andover and turning west to develop Ridgeline. The Ridgeline deposit is expected to be inferred for the most part. Since the company has a strong understanding of the shape of the mineralized shoots, it is looking to put a mine plan in place.

In order to conduct an advanced study, the company would need to bring the resource into the M&I (Measured and Indicated) category. In order to achieve this, the company would need to carry out additional drilling at Ridgeline. The drill operations will be focused on bringing the resource into the M&I category while adding more tons to the existing resource over time.

The Andover deposit has a 4.6Mt total resource, out of which, 3.8Mt is in the indicated category. The resource is a highly confined block of mineralization that is highly consistent in terms of width and grade. In case an advanced study is carried out, the timeline is expected to be around 18 months, towards the end of 2024. The long lead times are due to the baseline environmental surveys. In the company's area of operation, the standard timeline for conducting environmental studies is around 2-3 years. The company has already completed one year so far. It is also looking to carry out wet-season-dry-season, or winter-summer type studies. The results on the environmental side have been positive so far. The company hasn’t found any rare species in the area. However, environmental studies have innumerable components that need to be covered.

While it is important to take into account the flora and fauna present in the area, Australia’s state and federal government has promoted mining as necessary to advance the world’s fight against climate change. The government and bureaucracies in Australia understand the importance of mining. As a result, mining is supported without any shortcuts, focusing on carrying out due diligence with the studies while ensuring that development decisions are robust and sensible. People are facing the challenge of wanting electric cars, but at the same time not having a lithium mine built next door.

As part of the nickel-focused strategy, the company is working on Ridgeline’s resource along with a Scoping Study that will eventually move into a Feasibility Study. At the same time, the company will continue exploration drilling at Seaview, Skyline, and Pipeline assets. There are several targets at these assets that need to be drill tested. Following this, the company will move the rigs back onto Andover and Ridgeline to carry out detailed internal drilling, which will comprise infill drilling along with some extension drilling.

The company’s nickel-focused strategy comprises a lot of drilling. It is also looking to work on the lithium side of the operation. Once the Heritage Surveys are complete and the company has received the requisite for approvals, it will deploy a drill rig to test the pegmatites. Ideally, the company is looking to drill the lithium targets in the first quarter of the next year. There is a possibility that two different teams operate on the same project area, one being focused on nickel and the other on lithium. The company is gearing up for a very busy 2023.

Financial Considerations

At the end of the last quarter, Azure Minerals had AUD$8.9M in current cash flow. Over the last year, the company has spent an average of AUD$1M per month, giving an indication of future expenditures. In July 2022, the company sold its Mexican assets by way of a two-tranche transaction. The first tranche involved Bendito Resources, a Canadian junior mining company paying Azure Minerals AUD$4M. Bendito is looking to get listed on the TSX Venture Exchange in the first quarter of next year.

Once the listing is successful, the second tranche of the payment will be made, amounting to an additional AUD$6M. This would bring additional funding to the current cash flow. At the same time, Azure Minerals is looking to raise additional capital for the Feasibility Study and drill operations. The company intends to push the Andover deposit forward as quickly as possible to reach an FID (Final Investment Decision) to build an actual mine. Ideally, the FID could happen between 2-3 years from now. To reach this stage, the company would need additional funding. Various parties have shown interest in funding the company, accessing off-take agreements, and more. The company is looking to determine the ideal way to work out a funding arrangement from a corporate perspective.

Azure Minerals anticipates that the Scoping Study will lead to a positive outcome. The shape of the Andover deposit lends to a relatively inexpensive underground mining operation. The current nickel market price is at $20,000/t or $10/lb-$11/lb. If the nickel prices continue to stay above the $20,000/t mark, it will make the Andover asset look very attractive.

To find out more, go to the Azure Minerals website