South32’s circa-US$80 million injection into Arizona for 15% of the company has given the latter the opportunity to aggressively build out the high-grade resource at Taylor as it finalises the blueprint for a mine already shaping up as world-class producer with first-quartile costs.

The diversified miner paid a 30% premium for its stake in Arizona and its emerging project after an April 2017 preliminary economic assessment determined it could deliver an IRR of 42% on the US$457 million initial project investment, and 1.7-year payback. The PEA showed a post-tax net present value of US$1.3 billion for the planned 19-year mine, using long term metal prices of US$1.10/lb zinc, $1.00/lb lead and $20/oz silver.

Arizona president and CEO Jim Gowans says the South32 premium compared with an average 15% premium for private placements by larger companies into North American juniors mining equities over the past two years.

"Nearly all the examples of these have been in the gold space while in base metals we haven’t seen much activity probably due to a lack of quality projects available to invest in," he says.

Importantly for Arizona, as well as being fully funded to advance Taylor through its remaining feasibility review and permitting over the next year, the company is in a strong position to further test the scale of the carbonate replacement style deposit through one of the industry’s most aggressive current drilling programs.

Seven drill rigs are now at Hermosa, about 100km south-east of Tucson, probing the Taylor Deeps, Trench Vein System and other high priority targets, as well as upgrading the project’s 110 million tons of NI 43-101 resources. Arizona has budgeted about C$15 million for the work over the balance of 2017, with at least 180,000 feet, or 55,000 metres, to be drilled during this period.

Drilling up to August this year will provide results that feed into the project feasibility study, due to be finalised in the first half of 2018. Arizona is targeting first production by 2020 from a 10,000t/day underground mine and flotation plant/mill.

Gowans says Arizona aims to upgrade as much as possible of the project’s current 72.5Mt measured and indicated resource to the proven/probable category, while also upgrading the 38.6Mt of inferred resources and adding more high value tonnes from Taylor Deeps and the Trench Veins material.

“We are drilling these targets to understand their extent and expand the resource,” he says.

“We are currently drilling angle holes on the Veins with two drill rigs as previous holes were more vertical and the Veins are just sub-vertical.”

The plan at this stage is to drill Taylor Deeps to inferred status.

Arizona’s PEA mine planning factored in about 60Mt of the current resource, making it top six in the world on an insitu zinc-equivalent metal basis.

“Our expectation is that the feasibility reserve/resource will move us up the global ranks in terms of size and potentially grade [on a zinc equivalent basis],” Gowans says. "Already the PEA shows an NPV to Initial Capex Ratio of about 2.8-times, which puts us in the top three of global metals projects anywhere. Only Nevsun’s Timok and Ivanhoe’s Kamoa-Kakula score better on this important metric.

“Both the Deeps and the Veins show considerably higher silver values and we have intersected high grade Taylor Deeps material well up-dip from what is in the last resource statement.”

Drill-hole 435, shown on the company’s longitudinal section below, intersected significant mineralisation at about the same elevation as the main Taylor deposit. The hole returned 122ft assaying 12.9% combined zinc-lead and 10.7oz/t silver, including a 27ft interval grading 33.1% combined zinc-lead and 41.2oz/t silver.

“This hole was 1,500ft from the resource and combined with hole 436, 1,700ft from the resource, means that the Deeps could be more than one mile in strike length,” Gowans says.

“We would likely mine the Veins and shallower Deeps material first, so that doesn’t necessarily increase costs given the shallower, higher-grade and still very good width material there.

“We expect to see considerable upside to the PEA NPV based on our recent drilling results and also by factoring in mining of the higher grade Trench veins and shallower Taylor Deeps ore early in the mine plan.”

Arizona’s mine and processing plan has it producing about 253,000tpa of zinc concentrate from a 3.5Mtpa operation – 287 million lbs or 130,000t of metal – at US61c/lb AISC, which will catapult the newcomer into the global ranks of first-quartile-cost producers. Advanced metallurgical work included in the PEA showed improved recoveries for zinc, lead and silver (plus-8% for zinc and 55% for silver in zinc concentrate; and plus-3% for lead) compared to the initial work done in 2016.

The proposed underground mine will have a small surface footprint and Arizona plans to put at least 45% of the tailings back underground in cemented backfill (this could be as high as 60%), decreasing surface impact while boosting underground ore recovery. The company also plans to dry stack tailings to maximise water recovery and further reduce the operating footprint.

Gowans says Arizona has been doing environmental baseline work since 2011 on the project “so we are well advanced on that front”.

“We are voluntarily remediating the historical tailings on the Trench property, and will remove them and put in a lined facility with an active water treatment plant,” he says.

“We just finished drilling a production water hole to its terminal depth of about 1,325ft and are about to start a pump test. We also have a 2-3 million gallon reservoir sitting in the old Trench mine workings, plus several other smaller wells on our patented ground, so are confident we will have sufficient water to supply the 650 gallons per minute we will need for operations.”

Arizona completed a considerable amount of geotechnical work as part of the PEA, particularly on the tailings area and has more testing planned for this area. On the geotech agenda now is a pilot hole for the shaft and test holes for the decline. It needs to complete a PQ hole for metallurgical testwork, and some more hydro testing and surface water studies.

“Our intention is to start up operations with state permits only,” Gowans says.

“The deposit is too big to fit all of the life-of-mine tailings on our patented ground but we have at least eight years of tailings room on the private ground before we will need to expand this onto US Forest Service ground.

“Once we are in operation, we will apply for a federal permit to be able to do this and our expectation is that this process will take 3-4 years.

“We have a number of factors operating in our favour which should translate to a relatively straightforward permitting process.”

Chief among these is the calibre of personnel brought on board to help steer the company through the process, including veteran industry environmental management and permitting figure Johnny Pappas, who guided OceanaGold’s Haile gold project through North Carolina’s testing permitting process in just over three years.

Haile needed a federal 404C permit because of its proximity to wetlands and ‘Waters of the US’, a contrast to Hermosa’s arid surrounds which indicates a clearer federal permitting path.

Arizona has also just added former federal congressional house speaker John Boehner – someone who obviously knows his way around Washington – to its board.

“We have good local and state support for the project based on the outreach done by Greg Lucero, our VP for community and government affairs,” Gowans says. Lucero is deputy mayor of Nogales, the closest major city to Hermosa, and has had longstanding connections with local communities.

“On the state permitting side, our expectation is that we will receive the Aquifer Protection Permit and the AZPDES [water discharge] permit from the Arizona Department of Environmental Quality prior to year-end 2017,” Gowans says.

The two permit applications were submitted in the last month, paving the way for Arizona to break ground at the project.