Great reading by Dr. Jim DeCosta regarding Medinah's crown jewel properties in Chile:
http://theminingplay.freeforums.org/weekly-discussion-nov-10-nov-16-2014-t40-25.html
"A geo-modeling exercise you might consider doing is to draw a straight horizontal line on a piece of paper representing the ADL plateau at 2,000 meters above sea level (masl). Then draw downslopes at the left and right ends of the line. In this cross section, you're facing north and to the left is west and to the right is east. Then on the left/west downslope perhaps half way down the downslope put a mark and label the spot Nuoco and 1,350 masl. This is the approximate elevation and location of the Nuoco/LDMC where they already intersected a copper porphyry containing chalcopyrite, chalcocite, bornite and malachite. These are 3 "high octane" types of copper and regular old chalcopyrite. You might also put a mark at the midpoint of the horizontal line and label that as the Gordon breccia. The distance from the Gordon breccia to the Nuoco is 3.2 Km laterally using the UTM coordinates.
Going back to the "orange" model representing the spherical zone of mineralization around a centrally located "porphyry stock" our "orange/porphyry mineralization zone" touches the left/western downslope pretty much at surface at the 1,350 level on the left/west line. You might metaphorically take a bite out of the orange at that spot (via tunneling) and plant a porphyry flag there. We don't yet know how far higher in elevation (upslope) the porphyry extends or lower in elevation (downslope) from this intersection.
The current deep hole, L 14-22, is near the Gordon breccia outcropping and is therefore located about 3.2 Km east (to the right) of this Nuoco porphyry intersection. Worldwide, the average size of these "oranges" (zones of mineralization around a porphyry stock) is about 2 Km. If L 14-22 or one of the other planned deep drill holes hits a long intersection into the porphyry then there appear to be 2 theories out there right now. One is that there is an extraordinarily wide Cu/Mo porphyry present and the other is that there are two or more porphyries present within the mountain. Recall that CS Perez's satellite study cited 2 distinct porphyries one of the Cu/Au variety to the west and one of the larger Cu/Mo variety to the east. His survey suggested that the Cu/Mo porphyry was responsible for most of the metal bearing ore in the mountain. I'm not sure it matters much from an economic point of view whether there is 1 or more porphyries present so maybe it would be easier to just think of it as one big porphyry until proven otherwise.
I'm not sure if David Bent would agree but in a sense this deep hole (L 14-22) near the Gordon breccia might be looked upon as a 3.2 Km (gigantic) "step out" drill hole from the porphyritic intersection already made at the Nuoco via tunnels. We also don't know how far to the east/right the orange/porphyry mineralization might continue on past this deep drill hole should it successfully intersect the porphyry. Whatever distance this might represent would have to be added to the 3.2 Km width if there is "continuity" present as determined by future drill efforts.
If the texture of the ore and its chemical composition is very similar at the Nuoco porphyry and the current deep drill hole then I believe that might suggest one very wide porphyry or two porphyries comming out of a common underlying structure. This might not be surprising as C.S. Perez's hyperspectral imaging satellite study already delineated a 7 Km long corridor containing "about a dozen" intrusives stretching from SW to NE just south of our plateau. Some underlying structure(s) had to serve as the progenitor(s) for all of these intrusives. We haven't been told yet what the recent aeromag/gamma ray spectrometry study revealed but we did notice that AMC is all of a sudden preparing a bid for the Nuoco/LDMC and the survey done involved the entire mountain including the Nuoco/LDMC areas which AMC currently has no ownership interest or contractual opportunities in. Medinah holds a 20% "ownership/equity" interest at both the Nuoco and LDMC in addition to an over-riding 30% (yet to be precisely defined) royalty at the LDMC gold shaft/winze project.
We already knew from the previous IP/IR survey done near the Gordon breccia by Geodatos, SA and confirmed by both PGW, SA and Walcott and Associates in Canada that there is a geophysical anomaly about 50 meters under the surface 800 meters west/left of the Gordon breccia. You might mark this on the horizontal line one fourth of the way west of the Gordon breccia towards Nuoco. ACA Howe (London and Toronto headquartered mining consultants) suggested that Medinah drill out this anomaly found on this "Line A" of their grid. To date they have not. Any 3.2 Km "step out" discovery obviously needs to be corroborated by "infill drilling" in between locations this far apart (about 2 miles). There is a similar geophysical anomaly 800 meters to the east/right of the Gordon breccia which ACA Howe recommended drilling but Medinah has yet to drill it out.
Most porphyry structures are fairly well centralized under the stratovolcano that houses it. Having our "orange(s)" bumping against the western downslope of the mountain is very encouraging. Does it do the same at the eastern downslope about 5 Km to the east as well as the northern and southern downslopes? Also encouraging is the fact that the associated skarns near the Nuoco/LDMC also exit through the side of the mountain versus their typical location well underneath the base of the mountain containing the porphyry. This suggests a favorable "vertical emplacement" of the porphyry i.e. shallow.
At some point in time we're going to want to estimate the NPV (net present value) of Medinah's 15% retained interest in the ADL post option exercising. I won't present the case here in its entirety but there is a compelling case to be made by studying the rather anomalous terms of the JV option purchase agreement that the "option" has already been all but "exercised". In regards to the 15% retained interest, the first question to ask is whether or not Medinah is on the hook for their pro rata share of the CAPEX development costs (a "working interest") which for the moment we might estimate as being in the very rough neighborhood of $1 billion but it could conceivably be much higher depending on the scale of the project. Historically we know that Medinah has always negotiated deals with the "farming in" partners being responsible for 100% of the CAPEX development costs. With management signing off on the Auryn mandated contractual term of only being able to issue a limited amount of new shares this might suggest that the terms in this deal are similar but we'd better wait for the company to clarify this matter when they're allowed to.
As far as porphyry deposits which are nearly always mined via open pit/bulk mineable methodologies the initial CAPEX development costs are SIGNIFICANT and come up front. Thankfully for the holder of an interest with no CAPEX responsibilities (which may or may not be the case here) the OPERATIONAL costs are low on a per ounce mined basis. Although we don't know the exact formula for the calculation of the "purchase price" of the 85% stake in just the ADL 4,100 hectare block of concessions, I think it would be EXTREMELY safe to posit that the 15% retained interest, no matter which type it might be, will dwarf the value of the "purchase price" in a deposit of this size and projected mine life.
The net present value (NPV) of that 15% retained interest would be directly proportionate to the amount of cash flow it generates on a "discounted cash flow" (DCF) basis per unit of time and how long this cash flow is estimated to last i.e. the projected "mine life". A long intersection into the porphyry at L 14-22 or any of the scheduled deep holes for that matter might suggest a very healthy mine life if the ore grade is similar to the contents of the Gordon pipe and that at Nuoco. As far as the grades of the porphyritic material found over at the Nuoco about all we know to date is that they found some "high octane" varieties of copper over there, evidence of "supergene enrichment" (chalcocite) and that one truckload heading to Til Til had an average copper grade of 5.1%. The mine plan submitted by an ENAMI recommended engineer cited 2.5 to 3% copper which is somewhat off the charts for a porphyry deposit and highly suggestive of supergene enrichment.
We do know that a "room and pillar" underground approach has been recommended for now at the Nuoco by this engineer. This might change to an open pit approach once the ownership of the entire property complex is determined. The "room and pillar" approach might imply high enough grades to make even an underground (relatively high cost usually) mining project economic. We don't know if the current mining operation there has been "high grading" a narrow seam of high grade copper or if this is "run of the mine" ore wherein the entire working face of the tunnel is being exploited.
The average copper grade in developed porphyries worldwide is 0.44%. The economics in porphyry systems is typically predicated on grade, tonnage, infrastructure and proximity to surface. Massive near surface deposits can be "economic" with very low grades of copper and gold. Huge near surface open pittable deposits with high grade copper within excellent infrastructures (POWER and WATER availability) would, of course, be the ideal. The key for us is to get a sense of the "representative" grades to be expected in this deposit. The other critical economic parameters (tonnage, infrastructure and proximity to surface) have already been partially addressed.
What will be interesting is how extensive this "extensive network" of "Spanish tunnels" is and how much "channel sampling" has been done to date. These horizontal adits and tunnels might be looked upon as very, very large diameter drill holes that just happen to be horizontally oriented. When you're trying to create a geo-model or determine reserves and resources of a 3-dimensional entity the orientation of the drill holes can be adaptable to the software now available.
Vertically oriented drill holes are by far the easiest to deal with because you can space them apart as you wish. In the "Spanish tunnels" you had artisanal miners chasing down surface outcroppings wherever it led them. Quantifying reserves and resources is a more difficult procedure with these "Spanish tunnels" because GPS doesn't work very well underground but, on the other hand, the volume of material to be sampled is far superior to 2.2 inch in diameter vertical drill holes. As far as expected tonnage goes the one guide we have is that according to the Singer report the average-sized Cu/Mo porphyry weighs in at about 500 million tonnes of ore while the average-sized Cu/Au porphyry weighs in at about 300 million tonnes. The Cu/Mo porphyries are definitely the whales of the copper porphyry family. The singer report did not include the ore tonnage found in the various structures emanating from the porphyry like skarns, breccias, etc.
As far as the upcoming offer for the Nuoco/LDMC it is not clear if there is a mutually agreed upon formula to calculate the "purchase price" as we saw with the ADL or not but if there is I would assume that the channel sample results would play a key role in any computation. Another critical parameter would be how far these "Spanish tunnels" go towards the east in the direction of the Gordon breccia area currently being drilled. We do know that the "mantos" (layered replacement deposits) near the Nuoco dip to the east at about 30-degrees from the horizontal. What we don't know is how far to the east they have been explored and channel sampled. One concept I've wrestled with is just how "drilled out" is this mountain already when factoring in the channel sampling done in these "Spanish tunnels".
I can't stress enough the need to be constantly zooming in and out when studying this particular deposit due to its size. From the extreme macro view you have a mountain whose mining concessions have been pretty much 100% tied down. You also have a huge swath of mining concessions recently tied down by a large Peruvian group from the Mambo borders up towards the NW for a great distance. Zooming in to just the mountain you have a 7 Km long corridor of "about a dozen" intrusives oriented in a SW to NE alignment along the southern downslope from the plateau.
That's a lot of intrusives packed densely into this 900 meter wide corridor. The linear nature of this corridor suggests "structural controls" being involved in the form of "faults" in between adjacent rock formations. This as well as copious amounts of limestone provided a wonderful environment for the fluids and gases released by magma chamber explosions to be transported close to the surface where they could cool and precipitate out of solution the metals they carried. If you don't have a good internal plumbing system like this the deposits will remain at great depths which negatively affects the economic potential as well as the chances of discovering them in the first place.
Sillitoe's work from the early 1970's reveals that the average depth of the very top of a porphyry deposit is in between 1.5 and 3 Km from surface. This deposit appears to be an exception probably due to erosion from the top downwards of the overburden and copious amounts of "uplifting" from high levels of magmatic activity. The distance that a disrupted magma chamber can catapult its contents is directly proportionate to the pressures it can develop which in turn is directly proportionate to its size.
The material in these "about a dozen" intrusives used to occupy one or more underlying magma chambers. The pressures within this one or these magma chambers plural got to a level such that the roof (carapace) gave way and the hydrothermal fluids and various gases/"volatiles" and magmatic material were catapulted upwards to a cooloer and lower pressure environment closer to surface. There they became entrapped in favorable environments, they cooled and the metals contained therein solidified.
The petrographic analyses performed in Canada revealed many of these episodic pressure build ups and explosive releases followed by subsequent pressure build ups and explosions. This resulted in the "overprinting" of many metal bearing structures like densely packed veinlets which host most of the metals within porphyry deposits. This deposits also exhibits a fair amount of late stage cross-cutting veins.
The structures above these relict magma chambers holding these metals took on all kinds of different shapes and sizes determined by the shapes and sizes of the fractured zones/faults serving as the conduit for these liquids and gases as well as the nature of the explosive activity and the permeability of the various rock types. For instance, if reverse boiling magma under very high pressure intrudes upon the water table the explosivity (referred to as phreatomagmatism) will be extensive which typically results in huge amounts of tiny cracks above the roof of the magma chamber that later fill in and become ore bearing "veinlets". This deposit host a vast variety of epithermal veins, skarns, mantos, stockworks, dikes, veinlets, breccias, shear zones, etc. Interestingly, the various structures that can serve as conduits to transport the fluids and gases upwards towards surface can be preexistent in the native rock or caused by the explosive activity itself as in phreatomagmatism.
If there were one overwhelming misconception about this deposit I would have to think it involves the underestimation of what the geoscientists already know about the deposit. The Auryn team has the benefit of overlaying vast reams of geoscientific information gleaned over many years. They're also aided by the number of "vectors" that porphyry environments provide like the various zones of alteration that tell the geoscientists where they are in relation to the metal bearing ore. When the geoscientists start entering into areas of phyllic and potassic alteration like they did shortly before they made the Nuoco porphyry discovery they are given a heads up that they're getting close to their target.
I've read some comments concerning why Auryn doesn't fast track matters and get several drill rigs drilling simultaneously. Even though they have already prepared numerous drill pads for future drilling which might provide a hint concerning option exercising, when you drill based upon a "results driven" basis the results from one hole can enhance the chances for success at the next hole. In between the two you need time to process the information gleaned. Even though a drill pad is prepared, the geoscientists still need to decide in which direction to slant the drill string i.e. its "azimuth" whether it be 360-degrees representing due north or 180-degrees representing due south as well as the angle at which the drill string enters the ground in perhaps a northerly direction. When combined there is a "cone" shaped universe of opportunities within which the drill will be aimed dependent upon the results received from prior drill holes.
What's going to be interesting in regards to hole #4, L 14-22, is its overall role in acting as a "catalyst" towards future developments. The one question that arises is who is going to pay for all of this. Is there going to be an IPO involved? Are there potential consortium members currently on the sidelines awaiting more confirmation of the merits of the deposit? Is a consortium already put together? Are the private equity boys involved? Between the depth of the drilling and its "step out" nature as well as the homogeneity of these deposits and the ability to compare the ore types from this deep hole and the Nuoco porphyry could a "Eureka" moment be at hand? Might a couple of deep holes be needed to provide this "Eureka" moment?
The one term of the deal that I find interesting is that even after spending $10 million on exploration and development Auryn owns ZERO. This is a new one for me. This means that if any of their future plans require partial title to the concessions being in their name Medinah first has to be paid the "purchase price". This suggests to me that this date might be coming a lot sooner than many might expect because nobody is going to want to hold up on developing the mountain for very long and the development funds might be dependent upon at least partial title on the deed.
The one reality that seems obvious to me is that a long intersection into the porphyry is going to explode the NPV (and therefore the costs to any purchaser) of the Nuoco and LDMC deposits. Is this why Auryn seems to be in a hurry to table a "firm offer" on the Nuoco and LDMC? As always, I continue to recommend that your focus be on the AGGREGATE NPV OF ALL OF MEDINAH'S VARIOUS OWNERSHIP AND ROYALTY INTERESTS and what effect any particular development might have on that figure. The results of this one deep hole (or subsequent ones for that matter) could affect the NPV of the about to be calculated "purchase price" for the 85% stake in the ADL, the 15% retained interest, the 20% ownership interest in the Nuoco and LDMC projects as well as the value of the 30% royalty over at the LDMC. The associated credibility enhancement could enhance the NPV of the MDD, the Jota and the Polo also. Fingers crossed!"
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