Taseko and Mitsui partner to develop Florence copper project in Arizona

Taseko Mines (TSX: TKO) shares rocketed by 23% today on news that it has partnered with Mitsui to develop the Florence copper project, located in Arizona.

Mitsui has committed to an initial investment of US$50 million to be used for construction.  The initial investment will be in the form of a copper stream agreement on 2.67% of the copper produced at Florence.

While the project has attracted controversy over fears of its environmental impact, final permits for Florence are expected to be issued shortly. The in situ mining project received a draft underground injection control licence in August. 

As part of the financing arrangement, Taseko and Mitsui have entered into an offtake contract for 81% of the copper cathode produced at Florence during the initial years of production. The parties intend to use this period to develop premium sales channels for ‘green copper’ in the United States, leveraging Mitsui’s existing U.S. cathode trading business and what the partners say are the unique environmental benefits of Florence. The project is expected to be the lowest carbon and energy-intensity copper producer in North America. 

In addition, Mitsui has the option to invest an additional US$50 million for a 10% equity interest in Florence Copper. The equity option is exercisable by Mitsui within a three-year period following completion of the commercial production facility.  If Mitsui elects to exercise its equity option the copper stream will terminate.

Mineralized rock samples from the Florence copper project. Credit: Florence Copper

“When in production, Florence Copper will significantly expand our U.S. cathode trading business, while providing an environmentally sound, domestically produced product that can be marketed on the basis of its low-carbon advantages,” said Sayu Ueno, president and CEO of Mitsu U.S.A. in a release. “We believe Florence Copper will be a preferred source of ‘made-in-the-U.S.’ copper for many end users in North America.”

Initial capital costs for Florence are a low US$227 million for a 20-year facility that would produce 85 million lb. copper annually at an average cost of US$1.13 per lb.

In a note to clients, Alexander Bedwany, a mining analyst at Canaccord Genuity, noted the deal is the most important part of financing for Florence.

“The company already has access to a US$50m revolver (which we expect will be drawn down), and we understand that ~US$30-40m of items are eligible for equipment financing,” he wrote. “If the equipment financing is secured, we would consider the project fully financed, including potential capex inflation per our modelling where we assume ~US$225m in spending will be required in addition to expenditure already committed/made.”

Bedwany expects final permits for the project to be issued within six months, and construction to begin in the third quarter of next year.

On the news, Taseko shares rose 29¢ to $1.54. The stock has traded in a 52-week window of 89¢ and $2.41. The company has a market cap of $441 million.