Ever since US president Joe Biden enacted the 1950 Defense Production Act to boost the nation's supply of domestically-sourced critical minerals, there has been a surge in interest in North American metals projects. However, when it comes to permitting new mines, not all exploration projects are created equal. 

"It's good to be in the United States, but you want to be on land where you can actually build a mine," Pais explained. "Where companies tend to encounter problems is when they are on National Forest land, Indigenous grounds or National Monuments. The Kay Mine Deposit is located on private land, and the surrounding ground is made up of Bureau of Land Management mining claims."

That's a crucial advantage for Arizona Metals' Kay Mine, a gold-copper-zinc VMS exploration play in the south of Arizona's copper belt. Over 60 past-producing mines lie within a 150km radius of the project, including the massive United Verde mine, where open-pit production at a grade of 5% copper ran from 1880 to 1970. The region is one of the world's few to host gold-rich VMS deposits. The Kay Mine Deposit was explored during the 1970s by Exxon Minerals, which in 1982 defined a historic resource estimate of 6.4 million tons at a grade of 2.2% copper, 2.81 g/t gold, 3.03% zinc, and 55g/t silver.¹

The presence of such strong grades across both base and precious metals is another of the project's advantages. "This project has a hedging programme by default," said Paul Reid, the company's chairman. "If you like the idea of gold as an inflation hedge, you get that with this project. If you anticipate growing copper demand from electrification, you get that too. It's the best of both worlds."

Pais and Reid have a track record of identifying historical resources with the potential to become modern mines. In 2011 their previous company, Castle Mountain Mining, drilled out an abandoned California gold mine and later became part of the merger that formed Equinox Gold. In 2016 they turned their attention to high-grade projects in Arizona and came across the Kay Mine, at the time owned by TSX Venture firm Silver Spruce Resources. Impressed by the reported grades, and having cross-checked the historical data with the Arizona Geological Survey, Arizona Metals acquired 100% ownership of the Kay Mine Deposit in 2019.

One of the company's first moves was to move quickly to stake a further 1250 acres of Bureau of Land Management territory to the west of the deposit, where future exploration targets would be identified. The company also  acquired an additional 107 acres of private land located 900 m north of the Kay Mine Deposit, which included underground water rights and operating wells. In January 2020 it set to work testing Exxon's historical resource with a 10,000m drill programme.

"Exxon had done 7,000m of surface drilling but they didn't go very deep, it was very under-explored," Pais said. Many holes drilled by Arizona Metals delivered stronger results than the historical resource. Exxon's exploration had been focused on the copper-rich targets and they didn't trouble themselves to assay the zinc-rich mineralisation they found. "Those zinc regions are turning out to host some of our highest-grade gold holes, such as the 2022 intercepts of 93m of 8.3g/t AuEq, 68.4m of 6.7g/t AuEq, and 84m of 5.3g/t AuEq" he added.

Having confirmed much of the historic exploration data, the company began the first modern exploration campaign on the deposit, including helicopter electromagnetics, ground-loop electromagnetics, gravity surveys, property-wide soil geochemistry, and detailed structural mapping. This was followed up by 60,000 metres of drilling at the Kay Mine Deposit through 2021 and 2022. In 2023 a further 8,600 m of drilling at Kay is planned (at a budget of CDN$3.6 million), which Pais says will bring the company close to issuing a resource estimate on the project. So far, exploration had identified a deposit of a width of roughly 250m and ranging in breadth from five to 100 meters, that dips almost vertically. "From a geometric basis, it's clear this would be an underground mine," Pais said. "Both on a permitting and operational basis, that's what makes sense."

A Phase 3 drill campaign of 76,000 m will begin in 2023, focused on the Kay Mine's Central and Western targets, where a new discovery would be a game changer for the company. "From mid-February onwards we'll have continuous results out of the Kay mine, but we'll also be looking to find additional deposits," he said. The Phase 3 program is budget at CDN$32 million and is fully-funded. The company reported a cash position of CDN$58 million at Sept 30, 2022.

The rapid deployment of drills is another feature of the project's land ownership advantages. Pais says that the company has averaged three months' turnaround for getting drilling permits at a time when other juniors frequently have had to wait substantially, in some cases years. In the Fraser Institute's annual survey, Arizona and Nevada consistently vie for the title of most attractive mining jurisdictions world-wide. The ease of permitting and faster timeline for drilling and development not only enhance the chances of the mine being built, but also help reduce costs during the exploration phase. 

 With its founders' market experience behind it, the company has weathered the tough bear market of the past seven years and has never had a down round of financing. Today it has C$55 million in the coffers, more than enough to fund the current exploration round. "That makes us one of the best-funded exploration play companies around," Reid said.

The project has already attracted significant market attention. In February, Arizona's stock had a 2023 average price target of C$7, based on six analyst ratings. Reid points out that base metal projects usually trade at lower multiples to NAV than precious metals projects, however, KAY should trade at a premium to other base metal projects due to its high precious metal content. "Analyst research has also backed up managements' belief that Kay could be in the lower quartile of cash costs and upfront capital," he explained. "Kay won't be a multi-billion dollar upfront capital cost to build a mine, unlike many large, low grade open pit mines."

As the drill results come in over the course of the coming Phase 3 exploration program, management expects to attract the attention of the mid-tier base and precious metal producers.

"We're not mine builders, but we know what the gold and copper companies are looking for," Reid said. "We're in a jurisdiction they like, but we need to build a production profile that moves the needle for producers looking for additional copper and gold production. We just need to keep showing how big the Kay Mine project can be while we continue to de-risk it."

1. The historic estimate at the Kay Mine Deposit was reported by Exxon Minerals in 1982. The historic estimate has not been verified as a current mineral resource. None of the key assumptions, parameters, and methods used to prepare the historic estimate were reported, and no resource categories were used. Significant data compilation, re-drilling and data verification may be required by a "qualified person" (as defined in National Instrument 43-101 - Standards of Disclosure for Mineral Projects) before the historic estimate can be verified and upgraded to be a current mineral resource. A qualified person has not done sufficient work to classify it as a current mineral resource, and Arizona Metals is not treating the historic estimate as a current mineral resource.