5M-oz deposit in Ecuador?

How do you top “great” drill results that have included 8.4 grams gold per tonne uncut across 205 metres from a new grassroots discovery in the jungle of southeastern Ecuador? You follow it up with an even better 189 metres averaging 24 grams uncut.

Aurelian Resources (ARU-V, AUREF-O) leaped to over $18 per share in heavy trading after announcing results from hole 57, its latest on the Fruta del Norte (FDN) gold discovery on its wholly owned La Zarza concession, part of the Condor project.

“This represents one of the best drill holes we have seen in a very long time frame (past decade),” wrote Graeme Currie of Canaccord Adams in a recent update. “The FDN discovery is very quickly taking on world-class potential, with significant higher-grade areas.”

The Toronto-based junior has so far announced results for nine holes that have tested a 400-metre strike length of the new discovery, which remains wide open. Currie estimates the new discovery could potentially contain over 3 million oz. gold, assuming dimensions of 400 by 100 metres, a 200-metre thickness and an average grade of 5 grams.

“We have maintained a speculative buy recommendation since April 6, 2006,” Currie said. “We maintain this view. Under current analysis and estimates, the FDN target could host a resource that may reach or exceed five million ounces.”

Results are pending for holes 58 and 59, which have undercut hole 57 to the west, and for hole 60, which stepped out another 100 metres along strike to the north and intersected what has been described as “intensely silicified, veined and brecciated volcanics with visible gold.”

Fruta Del Norte is interpreted as a volcanic-hosted, low-to- intermediate sulphidation epithermal system buried under 165 to 260 metres of conglomerate that is predominantly post-mineralized. The mineralized system is characterized by multiphase quartz-carbonate-sulphide stockwork veining and hydrothermal brecciation. There appears to be two dominant vein sets, a shallow-to-moderately west-dipping set and another set dipping steeply to the west.

Hole 57 was aimed to the east at minus 60 on section 3400N and intersected 189 metres averaging 24 grams gold and 21.4 grams silver starting 196 metres down-hole. At least 17 occurrences of visible gold were recorded over the 189-metre interval, which was highlighted by high-grade sections of: 10.5 metres of 38.6 grams gold and 20.2 grams silver starting at 205.3 metres down-hole; 14.8 metres grading 97 grams gold and 57 grams silver starting at 297.4 metres; and 11.5 metres averaging 149 grams gold and 117 grams silver starting at 346.2 metres, including a 0.35-metre sample assaying greater than 1,000 grams gold and 1,130 grams silver.

The visible gold occurs as fine disseminations in quartz veins and breccia, as fine seams and as coarser grains (up to 5 mm). Gold has also been observed within pyrite clusters. By cutting higher-grade gold assays to 31.1 grams, the grade across the 189-metre interval in hole 57 instead averages 9.47 grams gold.

Hole 57 was collared 100 metres north of hole 56, which intercepted 204.8 metres averaging 8.4 grams (or 6.92 grams cut) gold and 8.5 grams silver, starting 220 metres down-hole on section 3300N. A higher-grade, 79-metre-long interval averaged 16.1 grams gold starting at 246 metres. Abundant visible gold was noted.

‘Pervasive’ mineralization

“Our discovery of the Fruta Del Norte epithermal gold-silver system was the direct result of follow-up from our nearly two-year-long regional sampling program,” said Aurelian president and CEO Patrick Anderson in a letter to shareholders. “That program, which ended in November of 2005, outlined for us the areas of our 95,000-hectare concession block that needed follow-up work.” That included 33 gold targets and 28 copper targets that the company identified for exploration in 2006, which Anderson said demonstrated “the pervasive nature of gold mineralization throughout our large concession package.”

The regional work involved an extensive stream-sediment sampling campaign in which a total of 4,736 samples were taken from over 3,300 sites. Both a -80 mesh stream-sediment sample and a pan concentrate gold colour count were taken at each site. In total, more than 10,000 samples were collected from Aurelian’s concessions.

Aurelian spent $3 million completing its 2005 exploration program, which included detailed follow-up and drilling on some of the more advanced prospects.

Condor project

The Condor project lies in the southeastern corner of Ecuador along the Peruvian border. The southern edge of the La Zarza concession is 80 km east-northeast of Loja, a 5- to 6-hour drive along paved highway for about a third of the distance and then on primary and secondary gravel roads for the remainder. Loja, a city of 177,000, is serviced by daily flights from the capital, Quito. Foot trails and rivers provide access into the heart of the concessions. There are fewer than a dozen homes on the concession.

The local terrain is rugged and generally covered in tropical rain forest. The region is heavily dissected by fast-flowing streams and rivers in the Rio Zamora and Rio Nangaritza valleys at about 800 metres elevation, with steep ridges rising to narrow flat-topped plateaus, which are as high as 2,400 metres along the border.

The project is located mainly in the highlands to the south of Rio Zamora, between the Rio Nangaritza valley and the border.

“Exploration in challenging jungle terrain requires innovation and outside-the-box thinking for success,” Anderson told shareholders. “Aurelian has taken sampling techniques successfully used in places like Borneo and Sumatra and applied them in the Cordillera del Condor.”

Typically, over half a metre of composting vegetation overlies up to 30 or 40 metres of saprolite, produced by tropical weathering of rock.

The very first gold target drilled in 2006 was Fruta Del Norte, which lies roughly 1 km north along strike of the Bonza-Las Peas prospect, where Aurelian outlined a 500,000-oz. gold resource grading 1 gram in 2004. Fruta Del Norte is a 700 by 100-metre size target defined by stream-sediment sampling, mapping and grab sampling. One of the northernmost holes on Bonza-Las Peas, which intersected 29 metres of 2.29 grams and 9.6 metres of 2.32 grams gold in hole 4-26, is just 800 metres south of Fruta Del Norte. Recent mapping identified a large normal fault that cuts across the Bonza-Las Peas structure and drops the FDN target area roughly 250 metres relative to the Bonza-Las Peas epithermal system.

After starting off the 2006 exploration drilling campaign by testing the Camp porphyry copper target (116 metres of 0.35% copper and 0.09 gram gold in hole 47) immediately west of Bonza-Las Peas, Aurelian moved the rig into the Fruta Del Norte area to test two targets. The first, a strong coincident induced-polarization (IP) and resisitivity geophysical anomaly, where hole 49 intersected a weakly mineralized (24 metres of 0.22 gram gold and 8 metres of 0.49 gram) hydrothermal breccia and weak, widely spaced stockwork veining.

The drill rig was then moved 150-250 metres to the west to test a target buried beneath a conglomerate sequence. The conglomerate is interpreted as infill of a large, 7 by 2-km pull-apart basin. A zone of silicification and epithermal veining running parallel to the IP anomaly was identified in geological mapping. Large boulders up to 5 metres in diameter of silicified conglomerate, with fine pyrite, were initially found in a small stream and traced back to outcrops. The silicification was mapped for a strike of 450 metres before disappearing under post-mineralized sandstone. The zone of quartz flooding contained highly elevated levels of arsenic (up to 4,710 ppm), antimony (up to 906 ppm), barium (up to 2,370 ppm) and mercury (up to 78 ppm), with anomalous gold (up to 1.92 grams).

Fruta financing

In April, Aurelian announced the results for the first four holes on the Fruta Del Norte discovery, and on the strength o
f these results, the junior raised $20 million in a bought-deal financing underwritten by Dundee Securities, Canaccord Adams and PowerOne Capital Markets. The private placement of 7.3 million common shares was priced at $2.75 per share.

Angled at minus 45 on section 3300N, drill hole 50 intersected a weakly mineralized zone in the conglomerate (28 metres of 0.18 gram gold) before intersecting 20 metres of buried quartz sinter, followed by a broad, anomalous zone of hydrothermal breccia in the underlying andesitic volcanics (64 metres of 0.16 gram and 26.5 metres of 0.24 gram gold).

The next hole, 51, was drilled at a steeper angle of minus 75 from the same platform to test the system at a deeper level. The geochemistry suggested the first hole was high in the epithermal system. Hole 51 encountered 237 metres averaging 4.14 grams (2.89 grams cut) gold and 8.5 grams silver, starting 192 metres down-hole. There were a number of bonanza-grade intercepts containing visible gold, including 1.4 metres of 175 grams gold and 40 grams silver, plus 0.7 metre of 51.4 grams gold and 21 grams silver.

Hole 52 was drilled on section 3200N, 90 metres south and 90 metres further west of holes 50 and 51. It hit intense stockwork veining and brecciation starting 280 metres down-hole, which assayed 3.42 grams gold and 3.3 grams silver across 60 metres before the hole was lost in mineralization. Stepping out 50 metres to the east, hole 55 averaged a grade of 2.12 grams gold and 6.8 grams silver across 190 metres, starting 245 metres down-hole.

Two additional holes were drilled about 100 metres apart on the southern extension, another 100 metres along strike. Hole 53 intersected 52.2 metres averaging 1.04 grams gold and 3.6 grams silver, beginning 335 metres down-hole on section 3100N. Stepping back to the west, hole 54 cut 27 metres of 2.41 grams gold starting at 356 metres, followed by 86 metres grading 3.2 grams gold and 2.9 grams silver from 408 metres.

Most of Aurelian’s land position is relatively unexplored by modern methods, owing to historical access restrictions related to a now-resolved border dispute with Peru. From 1985 thru 1999, it was only possible to conduct exploration work by receiving permission from the Armed Forces due to the proximity of military camps.

With gold hovering around US$255 per oz. and off the radar screen for most investors, Aurelian was founded by geologists Patrick Anderson and Keith Barron (a director) in 2001. They narrowed their focus to Ecuador because the country had just emerged from the shadow of an economic crisis, favourable new mining laws were in the works, and they believed the mineral deposits found in neighbouring Peru didn’t stop at the border. Aurelian went public in June 2003.

Right place, right time

Aurelian applied for its first concession in Ecuador in February 2001 after conducting a brief reconnaissance and site visit to a number of primitive pick-and-shovel artisanal mining operations in the La Zarza area. In what turned out to be a windfall for the company, the new mining regulations announced in April of that year gave individuals and companies one month to convert their outstanding concession applications (some of them a decade old) into titles and begin paying patents. In the following month, about 80% of the country’s concessions were declared void, giving Aurelian the unprecedented opportunity to acquire a large and contiguous land package.

The company purchased the La Zarza concession from private interests in July 2002 and the concession became the core around which the Condor project took shape. La Zarza is subject to a 1% net smelter return royalty held by Anderson and Barron. Today, the company holds over 950 sq. km in 38 concessions that stretch for 90 km through the Zamora-Chinchipe and Monora-Santiago provinces of southeastern Ecuador, a region known as the Cordillera del Condor.

There are two principal gold mining regions in Zamora-Chinchipe: the Chinapintza district, immediately south of the main block of Aurelian’s concessions; and the Nambija district, about 15 km west. It is estimated that roughly 350,000 oz. gold and 5.8 million oz. silver has been mined from several small-scale bedrock operations in Chinapintza. Artisanal and small-scale, mechanized, alluvial gold mining occurs in many of the drainages.

Australia-based Climax Mining (clxmf-o, cmx-a) explored the La Zarza concession from late 1996 through mid-1998. While conducting reconnaissance sampling that concentrated on drainages near the sites of artisanal colluvium and bedrock mining, Climax turned up the Ubewdy, Bonza and Las Peas prospects. The Aussies would complete 17 holes in three separate drill campaigns while exploring the Bonza and Las Peas artisanal mining sites, which were found 300 metres apart on opposite sides of the Machinaza River. The best intercept was 115 metres of 1.6 grams gold, including 42 metres grading 2.6 grams from drilling at Bonza.

In 2004, Aurelian further tested the Bonza-Las Peas prospect with 28 holes totalling 6,900 metres to confirm and expand upon the previous drilling. The drilling was done on 50 and 100-metre spaced lines.

“Aurelian’s recent work has demonstrated with reasonable confidence that the two zones join together under the Machinaza River,” said an independently prepared 2005 technical report.

Mineral industry consultants Micon International used the results of 45 cored holes totalling 9,760 metres and 15 trenches comprising 580 metres of surface sampling to estimate an inferred resource at Bonza-Las Penas of 15 million tonnes grading 1.07 grams gold and 11.6 grams silver, the equivalent of 517,100 oz. gold and 5.6 million oz. silver.

The Bonza-Las Peas deposit comprises numerous vein-like bodies with intervening lower-grade or barren zones of altered rock spatially distributed over a strike length of 725 metres, a width of up to 80 metres and, in places, open to depth. The shear-hosted mineralization is associated with the Las Peas fault zone, a regional scale, north-south striking structural corridor that is visible for over 30 km on satellite imagery maps. The lineament has been traced on the ground for more than 70 km by the British Geological Survey. The La Zarza concession is 31 sq. km and is bisected north-to-south by about 7 km strike of the regional structure, with a number of parallel faults.

The Bonza-Las Peas deposit is hosted in a corridor of highly tectonized and shattered rock, in laces more than 100 metres wide. The corridor contains cataclastic breccias, hydrothermal breccias, shatter breccias and possible magmatic-rooted intrusive breccia pipes, which are flooded with quartz veins and stockworks, silicified pyritic zones and pyritic gouge. Bonza-Las Peas is a structurally controlled, low-to-intermediate sulphidation epithermal system containing anomalous to significant concentrations of arsenic, antimony, manganese, zinc, mercury, lead and copper.

It is not known if Aurelian has done any metallurgical testing, but preliminary cyanide leach, bottle-roll test work performed by Climax showed gold recoveries ranging from 62% to 96% after 24 hours and 62% to 100% after 48 hours for five composite samples.

Locally, the Las Peas fault strikes close to and parallel to (but dips more steeply than) the contact between andesitic volcanics and a conglomerate unit. The fault zone cuts both lithologies near the surface, but precious metal mineralization is much better developed in the fractured and brecciated volcanics.

During 2005, Aurelian put four holes into an east-west-trending cross structure on the southern end of the deposit. Mechanized trenching on the Peas and Peas east zones had exposed a number of cross-cutting zones of banded quartz-rhodochrosite veins and veinlets. The best hole intersected 101 metres averaging 2.85 grams gold, including a 14-metre section grading 14.5 grams gold and 58 grams silver right at surface.

Cordillera del Condor

The Cordillera del Condor region is considered prospective for both gold-silver
vein mineralization and porphyry copper. Aurelian’s concessions cover the projected extension of the southern end of the Pangui porphyry copper belt. The junior’s package of properties adjoin and partially surround Corriente Resources’ (CTQ-T, ETQ-X) Mirador copper project, just 17 km north of Aurelian’s new gold discovery.

Corriente has recently raised $125 million and is moving towards construction of a starter pit at Mirador, based on a revised measured and indicated resource model of 347 million tonnes grading 0.62% copper, 0.2 gram gold and 1.6 grams silver at a 1.4:1 strip ratio. The project is forecast to produce 131 million lbs. copper, 32,000 oz. gold and 398,000 oz. silver annually for the first five years. The mine model shows a 38-year mine life based on a throughput of 25,000 tonnes per day and an initial capital cost of US$195 million.

The mine plan allows for an expansion in year six to double the daily capacity to 50,000 tonnes, with the twinning of the concentrator at an additional cost of US$100 million. The project’s Environmental Impact Assessment received government approval in May. A construction decision is expected in the next couple of months.

Corriente controls a 100% interest in over 500 sq. km along the copper belt, including the Panantza and San Carlos prospects, as well as the newly discovered Mirador Norte. The Panantza prospect is 47 km north of the Mirador property. As currently defined by 29 exploration drill holes spaced mostly at 100 metres, Panantza contains an inferred resource of 395 million tonnes grading 0.67% copper and 0.08 gram gold. The San Carlos property lies about 5 km southeast of the Panantza prospect, where 25 holes have defined an inferred resource of 657 million tonnes averaging 0.61% copper.

Mirador Norte is the most recently discovered porphyry system, 3 km north of the Mirador deposit. Drilling highlights include 31 metres of 1.15% copper and 99 metres of 0.98% copper (including 24 metres of 1.56% copper).

Aurelian’s regional sampling has identified a string of copper prospects south of Mirador. Two of the targets have been drill tested and confirmed as copper porphyries. The Tranca Loma and Camp porphyry systems occur on the east and west flanks of the Bonza-Las Peas deposit.

“With these results, we have extended Corriente’s porphyry copper belt at least twenty kilometres further south, into the heart of our core gold exploration project area,” Anderson said. “In the Peas area, we have delineated a cluster of three large porphyry systems cut by a regional scale gold-bearing structure. The proximity of the mineralized systems results in a significant package of gold and copper mineralization within a relatively small area.”

Dispute once stymied exploration

Aurelian Resources’ (ARU-V, AUREF-O) Ecuadorian gold discovery lies on land that, until recently, was disputed. The territorial border row, between Ecuador and Peru, originated in Spanish Colonial times. When the Spanish New World Empire was dismantled in the early 19th century, borders were hastily drawn up using both old Incan boundaries and more recent judicial boundaries. Since little was known about the geography of the Amazon basin, or its importance, the 1830 Pedemonte-Mosquere Protocol established the Maranon-Amazon River as the border between Peru and Ecuador. Peru later contested these agreements.

In the 1920s, oil companies began exploring the Amazon basin and, in 1940, Royal Dutch Shell spudded the first well. Between 1936 and 1938, representatives from Ecuador and Peru attempted to negotiate a treaty in Washington, D.C.; consequently, the Peruvians withdrew from the negotiations. A series of border clashes erupted between 1938 and 1940, before Peru invaded Ecuador in July 1941. By the time a ceasefire was in place, some three weeks later, Peru held Ecuador’s southernmost province of El Oro and much of the disputed eastern jungle territory that has been part of Ecuador since the 1830s.

A peace settlement brokered by the U.S. was signed in February 1942. The Rio Protocol awarded some 205,000 sq. km of previously disputed Amazon territory to Peru in return for their withdrawal from Ecuador’s coastal provinces. Soon thereafter, however, Ecuadorian leaders rendered the agreement invalid, claiming that geographical information pertaining to the defined boundary could not be located by survey crews. As a result, a 78-km-long section of territory in the Cordillera del Condor became, in effect, a no man’s land, militarized by both countries.

Up until 1998, the border issue was a serious point of contention, highlighted by military skirmishes that had broken out repeatedly since the Second World War. Most recently, in early 1995, the two nations fought an intense 19-day battle along the disputed section in which a reported 80 soldiers were killed.

The conflict was finally settled with a definitive treaty, known as the Acta de Brasilia, which was signed by the presidents of Ecuador and Peru in October 1998. The border was set along the peaks of the Condor mountain range, confirming Peru’s historical claims, while granting Ecuador the use of 1 sq. km of territory around a disputed military outpost at Tiwinzta, the scene of fighting between Ecuadorian and Peruvian troops in 1995.