Argentine prospects bright for Tenke Investment Commentary

If the efforts of Tenke Mining (TNK-T) are any indication, the Lundin group stands a good chance of building on its earlier successes in Argentina, according to mining analyst Robert van Doorn of Loewen, Ondaatje, McCutcheon.

The same team that was responsible for the discovery of the Veladero gold camp and the subsequent US$190-million takeover of Argentina Gold by Homestake Mining (HM-N) is now searching for gold in an area of the high Andes that has seen minimal previous exploration.

Doorn rates Tenke a speculative buy at 65 and sees plenty of upside in the months leading up to November, at which time the company is expected to begin a 29-hole, 6,300-metre drill program. “Those who want to get in before the start of the drilling program should start building a position during the southern hemisphere’s quiet winter break,” says Doorn. “Although exploration is at an early stage, we expect exciting drill intercepts before the year is over.”

Last year, Tenke put together a package of ground, dubbed the Vicuna project, 75 km north of Veladero, between the Maricunga belt to the north and the El Indio belt to the south. The exploration concessions had been held by Cameco (CCO-T), Westward Explorations (WWE-V) and Cyprus Amax Minerals (CYM-N). Tenke can earn a 100% interest in the land package by spending US$4 million on exploration and issuing 2.4 million shares over four years.

The junior added to its position by optioning the Lirio property, adjacent to Vicuna, in return for exploration expenditures of US$1.5 million over five years. In addition, Tenke has a right of first refusal on several properties north of Vicuna, known collectively as Yamiri.

Winter weather in the southern hemisphere recently brought to a close Tenke’s first season of exploration on the Vicuna project. An aggressive US$1.9-million program of geological mapping, geochemical sampling and geophysical surveying has defined four large target areas strongly anomalous in gold. These targets are to be drilled beginning in November, after the snow has melted.

The Vicuna project straddles the border between Chile and Argentina at an elevation of 5,100-5,500 metres above sea level. There is good road access on the Chilean side, from the major mining centre of Copiapo, and Tenke has built a 45-km access road from Argentina.

The project area is cut by two major northwesterly striking faults. Alteration and mineralization in the area are aligned along a north-northeasterly striking structural zone that links the two northwest fault zones. The property covers a large hydrothermal system, with both high-sulphidation epithermal alteration and mineralization, as well as porphyry copper-gold mineralization.

Four targets

Extensive hydrothermal alteration is traced over an 18-km strike length and width of 1 to 2 km. Epithermal-style alteration, including silicification, occurs over a 13-km strike length of this alteration. Four target areas, spanning 12 km from north to south, have been identified for drilling:

The North anomaly — Measuring 4 km long by 1.5-4 km wide, this target is alteration zone of steam-leached silica containing anomalous mercury and sulphur. Soil geochemical analysis has revealed locally anomalous gold, silver, lead and molybdenum. Rock samples have yielded up to 0.22 gram gold and 93 grams silver per tonne.

Marancelas Breccia — This is a 2-sq.-km alteration zone with widespread silicification and breccias. Soil and rock-chip sampling reveal anomalous gold on the eastern side of the target in an area of quartz-enargite veining.

Filo del Sol — This target, a zone of alteration with multi-stage breccias, measures 1,600 metres long and 200-350 metres wide. The alteration and breccia texture are reminiscent of the Filo Federico outcrops at Veladero. Thirty-nine soil samples have defined a geochemical anomaly measuring 500 metres in diameter and averaging 0.16 gram gold. Rock chip samples range up to 0.41 gram.

Co. Vicuna — This target represents a silicified porphyry with multi-stage vuggy silica covering 1.6 sq. km. Recent trenching returned 24 metres of 1.24 grams gold, 6 metres of 3.04 grams, and 10 metres of 0.93 grams. Cyprus Amax previously tested the porphyry for copper with 16 drill holes. One of these holes intersected 20 metres grading 1.18 grams gold, starting at a depth of 4 metres, near the edge of a soil anomaly.

Tenke also has a 55% stake in the Fungurume copper-cobalt project in the Democratic Republic of Congo, where measured and indicated resources stand at 233 million tonnes grading 2.9% copper and 0.3% cobalt. An additional 314 million tonnes grading 4% copper and 0.25% cobalt are inferred. The remaining 45% interest is held by the state mining company Gecamines (Generale des Carrieres et des Mines).

In December 1998, Tenke signed an option agreement allowing Broken Hill Proprietary (BHP-N) to earn up to a 45% interest in the project in return for funding US$600 million of expenditures. However, escalating hostilities in the country forced Tenke to suspend activities and declare force majeure in February 1999. The project remains halted.

Tenke has 26.8 million shares outstanding, or 28 million fully diluted. Chairman Adolf Lundin owns a 37% stake, following a recent debt conversion at 75 per share.

The company will have to raise money for the next drilling campaign. In 1999, Tenke raised $3.8 million in private placements, and, in April 2000, it raised a further $520,000 at 80 a share. Tenke has a 52-week trading range of $1.58-65.