Arizona Sonoran (TSX:ASCU) - Fast Track to Copper Production to Plug Looming Supply Gaps

• Arizona Sonoran is rapidly advancing the Cactus Mine project in Arizona towards production in 3-4 years to meet rising copper demand.
• A recently completed Pre-Feasibility Study outlines a 21-year mine life producing 55,000 tonnes per year of copper cathode.
• The Cactus Mine project generates robust economics including a $509M NPV and 15.3% IRR at a $3.90/lb copper price.
• The company is testing a new leaching technology called Nuton that could significantly boost copper recoveries and production.
• A strategic partnership with Rio Tinto provides $33M upfront plus the option to earn a 40% project interest on favorable terms, reducing ASCU's financing needs.

Accelerating Towards Production

Arizona Sonoran Copper is fast-tracking the historic brownfield Cactus Mine site through technical studies to reach commercial production within 3-4 years, CEO, George Ogilvie said. The company completed a Pre-Feasibility Study (PFS) this year and plans to finalize a Definitive Feasibility Study in mid-2024.

“Our goal is to move this operation through into commercial production over the next 3 to 4 years at a time when there's going to be significant demand for copper,” Ogilvie stated.

The Cactus Mine PFS models an initial 21-year mine life producing 55,000 tonnes of copper cathode per year. This is double the 28,000 tonnes per year envisioned in an outdated 2019 Preliminary Economic Assessment (PEA), reflecting resource growth and optimization.

Interview with President & CEO George Ogilvie

Robust Economics at Base Case Price

The PFS outlines robust economics at a conservative $3.90/lb copper price. It generates an after-tax NPV of US$509M and 15.3% IRR with a 6-year payback period on an initial capex of $515M.

“I can assure the listeners and viewers that there's no copper project in the world today that's going to get built for under $10,000 a ton,” Ogilvie asserted. “That's the reality of the world that we live in today.”

ASCU's capital intensity of $10,300 per tonne of annual cathode production ranks in the lowest quartile globally. This enhances the project’s appeal compared to competing projects requiring intensive upfront capital.

Exploring Enhanced Economics Through New Technology

Beyond the base case, ASCU is testing a new proprietary leaching technology called Nuton from partner Rio Tinto. Nuton aims to economically recover copper from sulfide minerals, which account for over 1.6Blb of ASCU’s resources but are not included in the PFS.

“If we’re able to leach that out with the Nuton technology and take advantage of all the infrastructure we’re putting in, we think this is going to be hugely accretive for shareholders,” Ogilvie explained.

Initial tests suggest Nuton could boost copper recoveries from sulfides by 70-85%. Ogilvie believes integrating Nuton could double production at a fraction of the capital cost uplift.

A Preliminary Economic Assessment incorporating Nuton is slated for this summer. Ogilvie says this will enable informed decisions on whether to re-optimize the PFS or proceed directly to a full Feasibility Study.

Clear Path to Non-Dilutive Project Funding

In addition to the value proposition, ASCU has lined up non-dilutive funding and risk-sharing through an innovative partnership with Rio Tinto. This agreement provides strong backing for Nuton's viability.

Rio Tinto’s Nuton Technologies paid ASCU $33M upfront late last year. In return, Nuton gained an option to earn between 35 and 40% of the project. If exercised, Nuton will pay ASCU 35-40% of the ASCU NPV at a 0.65x multiple. ASCU would then be responsible for 60-65% of the initial capex with Nuton responsible for the remaining 35-40%. The new project ownership structure would reduce ASCU’s financing risk while covering the majority of its equity needs, while also facilitating debt financing, dramatically reducing shareholder dilution. Additionally, within the debt financing, Nuton would provide completion and/or performance guarantees, instilling lender confidence and lowering the cost of capital.

The exercise payment will be ASCU NPV * ownership percentage * 0.65x multiple. The payment would cover the majority of the equity needs rather than 60%, for example:

• Assuming 500M capex @ 40% ownership (NPV $500 M @ 40% * 0.65x = $130 M)
• $300 M ASCU | $200 M Nuton
• ASCU Equity / Debt is $150 M
• ASCU Equity delta post Nuton Payment = 150 – 130 = $20M.

Ideal Backdrop of Copper Market Tightness

Surging demand from decarbonization and electrification against lagging supply growth has copper analysts forecasting large deficits emerging within 2-3 years. The consensus view is that incentives remain inadequate for miners to fund large new projects. Supply is also constrained by declining ore grades, rising input costs, permitting hurdles and jurisdictional risks.

"Gold and copper in particular are two that I certainly would keep an eye on," Ogilvie commented on commodities poised to benefit from inflation and dollar weakness.

With copper prices still below $4.00/lb, Ogilvie expects today's 15% IRR to rise materially. This would unlock substantial value for shareholders as the project is further derisked. ASCU is primed to capitalize on the pending copper boom.

The Investment Thesis for Arizona Sonoran

• Fast-tracking an advanced brownfield asset in a Tier-1 mining jurisdiction towards making construction decisions in 2025, in time for forecast supply deficits
• Robust base case economics at conservative copper price assumptions, providing downside protection
• Upside potential through novel leach technology, funded by strategic partner Rio Tinto
• Innovative partnership structure drastically reduces dilution and execution risk
• Ideal exposure to early-stage copper price appreciation as demand outpaces new supply

Arizona Sonoran presents a compelling copper development story with downside protection and substantial low-risk upside in a prime copper market environment. Its phased de-risking approach, strategic backing and tight share structure offer attractive leverage for investors betting on the burgeoning copper thesis.

Global Decarbonization Driving Massive Copper Demand

The global energy transition and electrification of everything will increase copper demand by 50-100% in the coming decades. With new mine supply lagging, large structural deficits loom. Projects require much higher prices to incentivize the enormous investment in new capacity needed to bridge this gap. Faced with few quality options, miners are positioning to acquire copper exposure ahead of the deficit through exploration companies like Arizona Sonoran offering commodity upside and sound fundamentals.