ON THE INCA ONE TRAIL IN PERU
I just returned from a trip through the amazing country of Peru. Its been a few years since I have had a chance to visit Lima and I was so impressed to see how the economy is thriving. The new construction and growth have been partially fuelled by a friendly approach to foreign investment and this can be a huge opportunity for the mining sector. Inca One Site
Throughout history the world has known of the wealth of gold in the countries mountains. The explorations for gold, silver and copper are in full swing and those companies astute enough to meet the challenge will reap great rewards. There are some challenges to doing business in Peru. The country is willing to work with new companies but does demand some key hurdles be dealt with before moving forward. As one analyst said to me,"in reality they seem to be asking to be treated with fairness and dignity. You can't fault them for that." This could be from a combination of some companies slick entry approach in the past with little regard for sustainability left behind for the communities effected by the exploration and mining. As well as witnessing environmental disasters in countries around the world due in part to fast track permitting. While in Lima I found a local newspaper stating "The government of Peru wants to push ahead with $50 billion in mining projects, saying they are crucial to stoke expansion in one of Latin America's fastest-growing economies."
Ed Kelly the CEO of Inca One knows how to approach the government with a solid plan that works closely with the communities so that their will be an economic benefit to everyone involved. While leaving the smallest ecological footprint on the land itself. CEO video interview.
San Ignacio is a small town in the north of Peru, just south of the border with Ecuador. After taking a small plane into the north there is still a long drive to get to this community that looks untouched for the past 50 years. The people do not have an easy life and the lure of wealth can blind even the most conservative person. As you drive into the mountains you can see evidence that the government is living up to its promise of better roads and the new pavement should extend all the way to Ecuador this year. This provides easy access to the Inca One property, the Las Huaquillas property in northern Peru is Inca One's principal asset. The project consists of 9 mineral concessions totaling 3,700 hectares in size. On May 2, 2011, the company entered into an option agreement with Rial Minera SAC and its founding shareholders, to acquire a 100% interest in the 37 km2 Huaquillas gold property, located in the Department of Cajamarca of Northern Peru. Historic drilling to date has identified the Los Socavones epithermal zone and two potentially large porphyry copper-gold zones (Cementerio and San Antonio).
The region is full of coffee growers and while hiking through the area you encounter families steeped in traditional coffee growing. The family pride in their crops and the simple life and pleasure of providing for their family on their terms. The current Peruvian government promised a Social Inclusion Program during the most recent election cycle. As a result, the government of Peru now requires a Sustainability Program to be designed and implemented by the company exploring and developing natural resource assets prior to the issuance of social and drilling permits. In order to meet these requirements and stay on track with the company's established development timeline and goals, Inca One has partnered with Cooperative Agraria Santuario de la Frontera Ltd. located in Peru.The primary goal of the Sustainability Program is to provide education and training with four main components, while the components include increasing coffee production, quality improvement, certification, and education.The Sustainability Program Inca One has committed to will positively impact 800 families who own and operate a combined 1,237 hectares of coffee-growing farms in the area surrounding the company's mineral resource project for the next three years. It will also train more than 1,200 individuals on maximizing coffee yield from their current operations, which will triple their current yield by the third year. The total increase in economic benefit due to higher coffee yields will be approximately US$1.5 million per year once the Sustainability Program has been fully implemented.
The Los Socavones zone is located at the eastern end of a northeast, 2.2-kilometre long, gold-bearing structure which has been tested via diamond drilling along a strike length of 1,000 metres and explored via underground workings along 400 metres of strike length and averaging 100 metres vertically. The deepest drill hole tested the heart of known mineralization approximately 200 metres below the surface. Using more than 20 mineralized intercepts, Sulliden calculated that the Los Socavones zone hosts a historic geological resource of 6.57 million tonnes grading 2.09 g/t Au and 25.2 g/t Ag (1.5 g/t cut-off), for 443,000 ounces of gold and 5.3 million ounces of silver (608,000 gold equivalent ounces), estimate over 500 metres of strike length.
The Cementerio porphyry system measures approximately 1.5 kilometres in diameter and is located immediately due south of the Los Socavones zone. Four holes were drilled, and the most significant intersection to date comes from drill hole LH97-04 that tested an induced polarization anomaly located on the edge of a strongly magnetic zone. This drill hole intersected 99.5 metres grading 0.47% Cu, 0.11 g/t Au and 4.5 g/t Ag and was still in the mineralized zone at the end of the hole.
Socavonesppb Au, and a discrete molybdenum soil anomaly also characterize the zone. Historic diamond drill hole LH97-17, which led to the discovery of this zone, was drilled to investigate the southern portion of the copper soil anomaly. Composed of quartz-magnetite-chalcopyrite-bornite veins and veinlets in a quartz diorite, the most significant mineralized intersection of this hole is 100.7 m grading 0.28% Cu, 0.38 g/t Au and 4.5 g/t Ag. The grades of the 21 metre-section are similar to average grades of the bulk of the world’s largest porphyry copper-gold deposits.
Excluding the porphyry zones, the Los Socavones zone alone might be able to demonstrate the potential for between 0.6 million and 4.6 million gold and gold equivalent silver ounces through future drilling, based on its historic resource estimate and assumed dip and strike length extensions within the current concession boundary.
The comparables I found show an average in-ground valuation of gold exploration companies of approximately US$48 per ounce and an average take-over value of approximately US$116 per ounce. Based on these metrics and assuming resource potential of between 0.6 and 4.6 million ounces of gold, I believe it is reasonable to estimate a share price potential of between Cdn$0.80 and Cdn$3.00 per share and a take-over price of between Cdn$2.00 and Cdn$7.00 per share. This is subject to the company receiving its social and drilling permits and raising sufficient capital for a significant drilling program.
Las Huaquillas lies within the Miocene Metallogenic Belt of central and northern Peru, which stretches over 900 kilometres along the western Cordillera and adjacent high plateau provinces. This belt is host to several economic gold epithermal and porphyry gold-copper deposits including the high-sulphidation Yanacocha gold mine. Las Huaquillas is located on or close to the trend of the Fruta Del Norte (FDN) fault extensions, which cross the border into Peru south of the FDN deposit. In the Ecuadorian portion of the belt, almost all mineral deposits and occurrences are located within a few kilometres of this prominent north-south fault zone and that pattern of discovery is expected to continue in Peru.
Modern exploration on the Ecuadorian side of the border has resulted in the discovery of multiple, significant and world-class gold and base metal-bearing districts, such as Kinross Gold Corp’s Fruta del Norte Gold deposit with an inferred resource of 13.6 million contained ounces of gold averaging 7.23 g/t gold.
I ran into Rodney Stevens,currently at Wolverton, who will be preparing a due diligence report on Inca One. Rodney has established a reputation for picking home-run stock picks, previously as an analyst at Salman Partners, and more recently Peninsula, headed by Sam Magid. Peninsula is renowned recently for its investments in Ventana Gold Corp. and Canaco Resources.
Rodney was good enough to answer some questions on the Inca One project:
TTD/ "Are there any similarities you see between Inca One and Ventana?"
RS/ "Like Ventana, Inca One has an initial high grade resource (although historic in the case of Inca One, and lower grade) and intends to drill off the full potential of the mineralization along strike and at depth (although Inca One has less mineral potential than Ventana)."
TTD/ "What do you think the mineralized potential is of the property?"
RS/ "Currently there is roughly 0.5M ozs at 2 g/t on 25% of the strike length of the property. If the full 2.2km projected strike length of the vein is mineralized, their might be potential for 4 million ounces. If 1/2 is mineralized, then maybe 2 million ounces. Although the mineralization is open at depth, the grade may be declining, possibly not economic at depth."
TTD/ "How would you value these ounces?"
RS/ "$40/oz in ground and $100/oz in a take-over scenario or take-over speculation scenario."
TTD/ "What are the major hurdles?"
RS/ "Currently the shares of Inca One are trading at a discount in the market because it does not have an active drilling program yet and the resources are historic and not 43-101 compliant (despite being drilled by Sulliden in the past). Currently the companies main challenge is receiving its social and drilling permits in a socially sensitive areas of coffee growers and a Mayor who is against mining. However, I have seen that Ed Kelly has made significant strides in drumming up community support and his past experience in the coffee industry does not hurt. I am confident that the company should receive its drilling and social permits within 4 to 6 months, which might shock the financial community."
The process is under way now for Inca One to get permits to drill and confirm what most already know, or at least suspect. The basin itself could host a multiple of Rodney's calculations if the full extent of the Fruta Del Norte extends this far. Its a long trek across the mountain range in the dark but unfortunately for me the rains caused some roads to halt traffic. This meant a nice brisk walk in the jungle with some flashlights. One of the local coffee farmers Martin was waiting along the path for my group to hike towards the tunnels. The caverns themselves were put in by a German company and extend over 1 km into the mountain. I was pretty excited to go through the tunnel system itself and see what I could of the structure itself. This excitement was doused when I noticed some had collapsed in to some degree and due to the time of day it wasn't safe to go in to deep in the dark. I also noticed the local spiders on the cave walls were the size of house cats. Some tunnels will need to be pumped out and word spread that a group was at the tunnels that day so we were quickly joined by former workers on the site. Oddly enough I was standing on an old road that had grown in but this showed how easy access would be to restore for advanced exploration.
*These calculations are based on many factors and you should draw your conclusion after conducting your own due diligence. Some comments in this report are merely my own opinion and I suggest you speak with an investment professional before investing in the markets. This may or may not meet your portfolio needs.
Sulliden became involved in the Las Huaquillas project after reviewing the results of work done between 1987 and 1992 by the Cooperación Minera Peruano-Alemana (CMPA). This six-year program resulted in the discovery of the Los Socavones gold-silver epithermal zone which was evaluated to have geological reserves of 2.6 million tonnes grading 2.69 g/t Au, 27.0 g/t Ag, 1.09% Zn, 0.34% Pb and 0.18% Cu (292,000 Au + AgEqAu ozs). Realizing the under-explored potential of this region and more specifically this property, Sulliden initiated the process of optioning the complete land package during the Summer 1996. An option agreement was signed in October 1996 and a US$5 million financing for the project was closed in November 1996.
General Geological Setting
Regionally, the property is located within an important assemblage of Mesozoic and Tertiary volcanic and intrusive rocks. With respect to metallurgy, the property lies in the Miocene Metallogenic Belt of central and northern Peru, which runs for several hundred kilometres along the western Cordillera. This belt has undergone several episodes of deformation and is defined by a large number of hydrothermal mineral deposits of different types that were formed between 6 million and 20 million years.
The belt is divided into two sub-belts. The western belt is named the Quiruvilca-Pierina Sub-Belt, and the eastern belt is called the Michiquillay-El Toro Sub-Belt. According to our interpretation, and taking into account recent discoveries made by other companies working in Peru and Ecuador, the Las Huaquillas property is located in the northern extension of the Michiquillay-El Toro Sub-Belt.
Locally, the property is situated within a major caldera characterized by a concentric and radial fracture pattern. The oldest rocks consist of intermediate volcanics belonging to the Jurassic Oyotún Formation, and were intruded by Cretaceous and Jurassic intrusions of dioritic to granodioritic composition. Approximately 50% of the property is covered by Pleistocene and Cretaceous sediments. During the course of our geological surveys, several conjugate fault systems were mapped. Movement along these faults is interpreted to be reverse, based on the juxtaposition of plutonic rocks over older volcanic rocks. Finally, a ring-dyke structure mapped in the Cementerio sector is indicative of the potential for porphyry mineralization in this sector.
The 1998 Sulliden historic resource estimate was based diamond drilling over a 500 metre section of the 2,200 metre long Los Socavones Zone hosts a geological resource of 6.57 million tonnes grading 2.09 g/t Au and 25.5 g/t Ag (608,000 AuEq ozs), which remains open at depth. This historic resource, based on 10 drill holes and 20 mineralized intercepts, was estimated to a depth of 200 metres. The average true width encountered to date is 20+ metres, with some intercepts more than 75 metres in true width. In the table on the following page, we show three scenarios for the resource potential of Los Socavones. The first scenario is based on the historic resource estimate, the second “base case” scenario assumes that ½ of the projected strike length of the zone is mineralized with depth extensions, and the third “Upside” scenario assumes that the all of the projected strike length of the zone is mineralized with further depth extensions. Although the “Upside” scenario may appear aggressive, it is not out of reach for the company to acquire concessions further along strike if the mineralization appears to extend beyond its concession boundaries.
Disclosure: I am invested in Inca One on the TSX-V.
CONTENT POSTED ON THIS BLOG DOES NOT CONSTITUTE A BUY OR SELL RECOMMENDATION. MANY OF THE COMPANIES PROFILED HERE I AM NOT INVESTED IN AND DO NOT INTEND TO INVEST IN. THESE ARE MERELY MY THOUGHTS ON MARKET CONDITIONS AND STOCK VALUATIONS. INVESTING IN THE STOCK MARKET CAN BE VERY RISKY AND YOU SHOULD ALWAYS CONSULT AN INVESTMENT PROFESSIONAL BEFORE MAKING ANY DECISIONS. ULTIMATELY YOU ARE RESPONSIBLE FOR CONDUCTING YOUR OWN DUE DILIGENCE AND PROTECTING YOUR MONEY.