Andina Riding High At Volcan

SITE VISIT

COPIAPO, CHILE — Using its US$19 million in working capital, Andina Minerals (ADM-V, ADMNF-O) is moving forward on its advanced Volcan gold-sulphur exploration project here, high in the Chilean Andes. And having completed almost 100,000 metres of drilling, the company has proven a large near-surface low-grade gold resource at Volcan, which Andina believes is a good candidate for a heap-leach operation.

Volcan is a low-sulphidation, breccia-hosted deposit. An infill drilling program is currently in progress, and the company is planning to complete a scoping study this year. An environmental declaration permit — which would allow advanced exploration — is pending.

The project’s location in Chile’s Maricunga district is prospective. It is situated 23 km northeast of Kinross Gold’s (K-T, KGC-N) Maricunga gold mine, and 45 km north of Kinross and Barrick Gold’s (ABX-T, ABX-N) Cerro Casale gold-copper project.

Andina has completed extensive drilling at Volcan, no less than 245 holes comprised of 56,000 metres of diamond drilling and 39,000 metres of reverse-circulation (RC) drilling. Previous operators drilled another 10,000 metres in 62 holes, mostly RC.

That drilling has allowed the company to put together a sizable resource. At a cutoff grade of 0.5 gram gold per tonne, measured and indicated resources at the project stand at 242 million tonnes grading 0.85 gram gold per tonne for 6.6 million contained ounces. Inferred resources stand at 114 million tonnes grading 0.9 gram gold for 3.3 million oz. gold. The company believes that further drilling could add to resources. However, in view of the substantial drilling already completed, any increase would probably be limited.

The resources have been defined in four mineralized zones: Dorado West, Dorado Central, Dorado East and Ojo de Agua, of which the largest by far is Dorado West. Another zone, Cerro Azufre, hosts native sulphur mineralization. Most of the gold resources sit within a rectangular zone measuring 8 by 2 km.

At Dorado West, mineralization starts near surface. Andina has typically drilled to a 400-metre depth, and has found mineralization extends to 800 metres depth and beyond. Geophysics tests suggest that Dorado West could be extended an additional 400 to 600 metres northeast.

Mineralization is hosted within a series of Miocene brecciated flows, flow breccias and tuffs that flank dacitic domes. These rocks have been subjected to structurally controlled and extensive high-level, epithermal high-sulphidation alteration.

Extensively developed (multi-phase) gold-bearing sheeted quartz-sulphide veinlets, stockworks, and hydrothermal breccias are seen in the Dorado West zone. Mineralization and alteration are related to, and hosted within, a north-northeast- trending dilation system.

Disseminated gold mineralization appears to be directly associated with increased pyrite content and a greater density of sheeted, grey to black, close-spaced veins and veinlets of quartz.

A large part of the gold mineralization occurs within disseminated sulphides (primarily pyrite) flanking, in between and within swarms of the grey-black quartz-pyrite (hematite-magnetite) veinlets and sheeted (quartz-sulphide) veinlets bearing hydrothermal breccias. Some gold mineralization also occurs as very fine-grained native gold.

At the Ojo de Agua zone, mineralization is associated with one or more telescoped gold-copper porphyry/ high-sulphidation epithermal gold systems. The hydrothermal systems are considered to be related to subvolcanic intrusions of dacite porphyries into volcanic breccias, probably associated with a volcanic dome complex.

During a recent visit by The Northern Miner, Carl Hansen, president and CEO of Andina, described the Volcan drill core at Andina’s core shack in Copiapo.

“From a geology standpoint, what we are looking at here is a large multi-phase volcanic complex,” said Hansen, who is scheduled to step down as president and CEO of the company in January. “There were numerous intrusion events which deposited gold. The key item is the banded quartz veins.”

Hansen says the banding shows multi-phase injections of silica, and that a few micro-fractures are enough to carry 1 gram gold per tonne.

“So it is a dioritic intrusion that has been brecciated a number of times. The gold has come in each subsequent event.”

Hansen says that although this is a typical style for the mineralization, it does not necessarily describe all the mineralization settings here.

Andina has conducted metallurgical testing on material from Volcan, which returned recoveries ranging from 57% for material grading 0.45 gram gold per tonne, to 77% for material grading 1.17 gram gold. It is projected that the average recovery will be 67%, based on a resource grading 0.78 gram gold. The company believes that these recoveries make the Volcan mineralization amenable to heap leaching.

Subsequent tests may indicate that it is possible to raise recoveries to 72%, assuming a higher average gold grade, since Volcan material displays higher gold recoveries at higher grades. Tests also show low cyanide and cement consumption, and no requirement for lime use in the process. Copper and silver levels at Volcan are low, with typical copper grades at around 0.06%.

There are no current estimates for sulphur resources in the Cerro Azufre deposit. However, historic estimates dating back to the 1950s and 1960s put the resource at 4.7 million tonnes grading 40% sulphur.

Andina has cut a 300-metre trench at Cerro Azufre, returning 160 metres of 23% native sulphur with low arsenic and negligible selenium. The low arsenic and selenium levels make the sulphur more suitable for sulphuric acid production. Andina has not drilled Cerro Azufre yet.

Metallurgical flotation tests were conducted on material from Cerro Azufre, ranging in head grade from 18-28% sulphur. Of 10 samples, nine returned recoveries in the 90-97% range, with the tenth returning 82%. Concentrate grades ranged mostly from 50-67% sulphur, with one batch grading 37% sulphur and another 75%. Andina is encouraged by the sulphur recoveries, and plans more metallurgical tests for the deposit, as well as 500 metres of drilling early this year.

Volcan consists of about 98 sq. km, and has a mean elevation of 4,800 metres and an elevation range of 4,500-5,300 metres. At these heights, the air is thin and there is often a cold wind. Nighttime and winter temperatures can be low. Winter weather, high winds and storms could bring any mining operations here to a standstill. The company has an exploration camp 20 km from Volcan, at an elevation of 3,800 metres.

Volcan is located about 170 km east of the city of Copiapo (population 130,000) in northern Chile. The region’s mining history dates back to the 19th century, and mining is an important foundation of the local economy. The Candelaria copper-gold mine, owned by Freeport-Mc-MoRan Copper & Gold (FCX-N) and Sumitomo, is located in the region, and an array of mining and exploration-related services and supplies are available in the city.

Copiapo is serviced by a modern airport offering daily scheduled flights to Santiago. The port city of Caldera (population 14,000) is located at a distance of about 75 km.

Andina owns 100% of the Volcan project but it is subject to a royalty agreement. The first 2 million oz. of gold production are royalty-free, with the next 2 million oz. subject to a royalty of US$5 per oz. Any production beyond 4 million oz. is subject to a 1% net smelter return (NSR) royalty.

Volcan can be accessed via the Maricunga mine road or by a road leading to the Manto Volcan sulphur mine. Both roads are about 170 km, some of which is unpaved, and some of which consists of dirt roads. The Maricunga mine road belongs to Kinross, so it is necessary to obtain permission to use it. Travel time from Copiapo to Volcan is four hours on eithe
r road. If Volcan becomes a mine, the dirt road sections will have to be upgraded.

During The Northern Miner’s recent visit, there was no drill on site and the project was flown over, followed by a visit to Andina’s core shack in Copiapo. A drilling program is now in progress, and the results will be incorporated in a scoping study later this year.

There is one diamond drill onsite, and an RC drill is scheduled to arrive later. The company is planning 8,000 metres in diamond drilling in 11 holes, and 2,000 metres in reverse-circulation drilling in eight holes.

Volcan is located in the Atacama Desert, where water is a scarce and valuable commodity. The Copiapo area is home to extensive grape plantations, which, in the absence of precipitation, are irrigated from local aquifers fed by snow melt runoff from the Andes.

Knowing that water availability in the arid Atacama could be problematic, Andina has purchased water rights in two wells, 21 km from the Dorado zone mineralization. The rights amount to 7.8 million cubic metres of water per year, at an average pumping rate of 124 litres per second per well, and a maximum pumping rate of 170 litres per second per well.

The company envisages a 60,000- tonne-per-day mine, and believes that its water rights are sufficient for such an operation. A pipe and pumping stations would have to be built to bring the water to the site. Andina also owns an additional exploration concession where it can explore for more groundwater, but if water is found, permits would be needed to tap it.

There are two alternatives for bringing electricity to Volcan. One option is to connect a line to the Maricunga mine line, requiring an extension of about 25 km. However, it is unlikely that the Maricunga line can support another mine, so it would have to be upgraded. Another option is to build a 60-km line to the La Coipa mine road.

It is uncertain whether there is

enough spare capacity on the grid to power a mine at Volcan. If it turns out that existing generating capacity is insufficient, Volcan can go ahead only if the private sector in Chile builds a new coal-fired generating station on the ocean coast.

For the project to receive a mining permit, Andina would have to conduct a full environmental impact assessment.

The company has another two exploration projects located to the north. The Pampa Buenos Aires silver-gold property is near Yamana Gold’s (YRI-T, AUY-N)El Penon mine. The property is a 50/50 joint venture with Iron Creek Capital (IRN-V, INCKF-O). A 9,000-metre drilling program is in progress.

Encrucijada is a silver-gold epithermal vein project located 120 km south of El Penon. Peru-based Hochschild Mining (HOC-L)has an option to earn a 60% stake in return for exploration spending and a feasibility study. Drilling is ongoing, and so far, 15 km of veins have been discovered.

Andina Minerals has 79.4 million shares issued, or 89.9 million shares fully diluted. At presstime, the company’s shares traded at $1.29 in a 12- month window of 52¢-$5.29.At current burn rates, the junior expects to have about US$10 million in working capital left at the end of the year.

In January, the company appointed a new president and CEO, George Bee, to replace Hansen, who will continue as a director until the end of February.

Hansen, a geologist, says that the change in the company’s top management is the result of Andina’s changing focus from exploration to potential production at Volcan.