Solex Seeks Yellowcake in ‘Athabasca Basin of Peru’

It was the Pilunani belt, an area of past silver, zinc and lead production that originally interested Vancouver-based junior Solex Resources (SOX-V, SLXRF-O) in Peru. But while the company did acquire a small land package there shortly after incorporating in 2003, it has been the uranium potential of the South American country — rather than the base or precious metals it is well known for — that has proven most alluring to Solex.

Indeed, uranium has become a priority for the Peru-focused company, comprising 90% of its landholdings and consuming two-thirds of its $7-million exploration budget for 2007. Solex even boasts the largest land package — 932 sq. km — in the country’s up-and-coming Macusani uranium district in the southern end of Peru.

The company landed the biggest property package in the underexplored region — which appears to host plenty of low-grade, near-surface uranium mineralization — because its chief geologist, Alexander Hirtz, had been eyeing the district well before uranium prices started to revive, says president and CEO Jonathan Challis.

“We had all the data available long before anybody else did,” he says, explaining that Hirtz — an Ecuadorian by birth who founded the company with former CEO and chairman Sebastian Reidl — had come across many references to uranium mineralization in the district years before.

“So when the interest really started picking up in uranium, we decided we’d start acquiring ground there.”

The Peruvian government lifted restrictions on exploration at Macusani, in Puno district, in the 1990s, but it wasn’t until a few years ago that the area saw the entry of junior Vena Resources (VEM-V, VNARF-O), followed closely by Solex.

More recently, the prospective district has seen uranium giant Cameco (CCO-T, CCJ-N) testing the waters by entering a joint venture with Vena.

Solex first started amassing land at Macusani — its 497-sq.-km Macusani East concession — in late 2004. It was a good time to get into uranium but the company, newly listed on the CNQ at the time, couldn’t afford much.

“We would have acquired a lot more ground at that time had we had the money,” Challis says.

That problem was alleviated with a 2005 joint-venture agreement with Frontier Pacific Mining (FRP-V, FRPMF-O) that freed Solex to pick up more ground, nearly doubling its concessions with the acquisition of the 438-sq.-km Macusani West uranium property.

Under the agreement, Frontier agreed to foot the bill for exploration at Macusani East — up to $4 million over five years — in return for a half interest in the property.

Solex was also able to add the 58-sq.-km Picotani uranium property, near Pilunani, to its portfolio.

Well ahead of schedule, Frontier Pacific is completing its earn-in this year, after which the partners will contribute equally to exploration costs.

Frontier, the operator at Macusani East, is now conducting a 20,000-metre drill program of at least 500 holes on eight targets that will take it through to mid-year.

At the same time, it is conducting a ground program that will generate another eight targets for drilling for the second half of the year.

The partners aim to outline a potential resource of about 50 million lbs. U3O8 in areas with high concentrations that are amenable to open-pit mining.

First-phase drilling of 1,780 metres completed in August 2006 at Macusani East showed economic uranium grades — including a 5-metre intercept of 0.271 U3O8 — on the Sayana target, one of four targets drilled.

Tricky mineralization

Drilling has presented some challenges, as much of the uranium at Macusani is found within coarse-grained, predominantly flat-lying ignimbrite breccias in fractures that go in “umpteen different directions,” Challis says.

“There’s not one dominant orientation of fractures, so when you’re drilling — I won’t say it’s hit and miss — but the grade that you’re finding is determined by the number of fractures you’re intersecting, and in some cases, you might be drilling parallel to them.”

Challis says that a bulk sample may be a better way to get a handle on the grades. Ideally, that would happen next year, he says, depending on permitting.

Drilling so far has focused on shallow mineralization but Challis says there could be up to three layers of stacked mineralization.

“At some point, we’ve got to do some deeper drilling; we’ve got to do some 200-metre holes,” he says.

Much of the uranium mineralization in the Macusani district is found accumulated in fractures, but Jeremy Link, a mining analyst with Northern Securities, says that there is also potential for higher-grade mineralization.

Aside from the low-grade uranium found in the volcanic fields, secondary mineralization that has been leached out of the fields and deposited in sedimentary basins surrounding those fields could be more concentrated, he says. And because of the size of Solex’s land package, Link believes the company has a good chance of finding some of these basins.

A resource estimate on the Calvario III target, the first to be drilled during the current program, and still open in three directions, is expected shortly; that will include some guidance on what grades would be economical. Challis says a scoping study, originally expected during the second half of 2007, may have to wait until 2008 when more drill results are available.

Results from Calvario III included highlights of 16 metres grading 0.053% uranium oxide (from 48 metres depth), including a 1-metre intercept of 0.779%.

In advance of the resource estimate or a scoping study, Link says grades of 0.05% or higher could be economical for an open-pit, heap-leap operation in the area.

Although drilling results have so far failed to impress investors, Calvario III is only the first of 16 targets expected to be drilled at Macusani East by the end of the year. Drilling is currently under way on the Agaton and Sayana West targets, and dozens of additional targets have yet to be investigated at Macusani East alone.

As for its less-advanced, wholly owned Macusani West property, Solex has applied for drill permits for two targets there. However, Challis says drilling at this stage, before more prospecting work is completed, would be premature.

‘Blue sky’ potential

The overall potential of Macusani, which is at a very early stage of exploration, is “blue sky,” Link says.

“In terms of how important Macusani is, right now I’d say it’s at the frontier; it’s the place where the most amount of exploration is going on — it’s kind of like the Athabasca basin of Peru.”

The Peruvian Institute of Nuclear Energy (IPEN) conducted some exploration during the 1970s and 1980s, but the region has largely been unexplored by modern methods. Vena Resources, the first to stake ground in the district after it was opened up by the government, claims to have staked the most prospective land, based on IPEN exploration data, but Link says that’s not necessarily so.

“The government wasn’t very thorough with their investigation,” Link says. “(Vena) got the best targets that the government had found.”

Although the mineralization at Macusani is low grade, as opposed to the Athabasca’s very high grades, mines in the district could still turn a healthy profit since the near-surface mineralization can likely be mined by open pit and processed by heap leaching.

August 2006 leach tests at Macusani East were positive, with a bottle-roll test recovering 99.4% uranium and an acid-leach test recovering 97.6%.

Link says that costs at most South American mines are under US$10 per lb., and it could be possible to mine Macusani at costs as low as US$5-US$8 per lb.

If it is possible, it’s a good bet that Challis — a past president of Shore Gold (SGF-T, SHGDF-O) and Cornerstone Capital Resources (CGP-V, CTNXF-O) — can find a way to make it happen.

A director of Solex before taking the reins as president in 2005, C
hallis is as business-oriented as they come in the exploration industry.

“Too many exploration programs are almost driven by the need to write a PhD, or for other reasons, rather than from the need to find something economic,” he says.

And he isn’t opposed to bringing in a more experienced operator to develop Solex properties.

“I’m a mining engineer by background and exploration companies normally make very bad miners,” he says. “I think this is something that we would be better served and the shareholders would be better served by joint-venturing the property to production stage with a major group.”

In the meantime, Solex is ensuring that it has the expertise needed to advance its uranium properties now; the company recently established an advisory board composed of “some grey hairs who understand uranium,” Challis says. The board members all have 30 years or more of experience with uranium.

Solex’s other properties include: the 10-sq.-km Pilunani lead-zinc concession, about 80 km southeast of Macusani; the 43-sq.-km Cullquimayo base metals project, about 80 km northwest of Cusco; and the 120-sq.-km Princesca silver-lead-zinc property.

All of its properties, including Macusani East and West, are clustered around the southern end of the Peruvian Andes Mountains.

Solex shares traded recently at $1.18 in a 52-week window of 30-$1.61 and the company has a market capitalization of $66 million.