Atico Mining’s confidence in El Roble grows

Atico Mining’s (TSXV: ATY; US-OTC: ATCMF) El Roble underground mine is the only copper-gold volcanogenic massive sulphide (VMS) deposit in production today in Colombia and the Vancouver-based junior producer is becoming more confident by the day that there is a lot more metal to be found on its enormous land package, 145 km east of Medellin in western Colombia.

Infill drilling this year in the Zeus zone at the El Roble mine has consistently hit mineralization, with half of the holes returning grades that exceed the deposit’s 4.5% copper resource grade.

Drilling below the current mine workings in the Zeus zone, which makes up 40% of the mine’s current inferred resource, returned a 70.1-metre intercept grading 6.3% copper and 1.85 grams gold per tonne in one hole, and 31 metres of 6.9% copper and 3.93 grams gold per tonne in another hole.

Highlights from the first set of assay results released in March included an intercept of 5% copper and 3.71 grams gold per tonne over 86.4 metres.

For the last 22 years, the El Roble mine — carved from the side of El Roble mountain — has produced 1.5 million tonnes of ore grading 2.5% copper and 2.5 grams gold.

In 2014, Atico’s first full year operating the mine, the company expanded throughput at the mill to 650 tonnes per day from 400 tonnes and increased production sixfold to 9.1 million lb. copper and 9,538 oz. gold in concentrates at a cash cost of US82¢ per payable lb. copper. (Cash costs declined in the fourth quarter to US54¢ per payable lb. copper.)

Atico owns 90% of the mine and the surrounding 67 sq. km property, and Colombia’s Gaviria family, the previous full owners and operators, own the remaining 10%. Atico completed its earn-in at a total cost of US$17.5 million in November 2013.

Since then, Atico’s exploration efforts have led to finding high-grade copper and gold mineralization below the mine’s 2,000 level (2,000 metres above sea level) — the lowest production level of the El Roble mine.

Atico is mining at the 1,880 level. (The base of the mountain sits at an elevation of 1,850 to 1,880 metres above sea level.)

This year the plan is to drill the known massive sulphide bodies, as well as new prospective areas below that level from a new adit at the 1,880 level.

The company expects to update the current resource estimate before the end of 2015. El Roble has an inferred resource of 1.6 million tonnes grading 4.5% copper and 3.17 grams gold at a cut-off grade of 0.7% copper equivalent.

In addition to infill drilling at the El Roble mine, Atico will spend part of its funds this year exploring targets on its property.

“The rest of our land package is under-explored, and looks favourable to host additional VMS deposits,” the company’s head of investor relations Igor Dutina says, adding that the company’s regional exploration fieldwork over the last three years has discovered 15 targets that it wants to drill test.

“All of the targets are on the same 10 km trend that runs straight through our property, and El Roble sits more or less in the centre of that trend,” he says. “The farthest targets are 5 km south and north of the mine, so if we are successful and discover another VMS cluster, then all the targets would be within trucking distance to our mill. That’s the exciting part, because you could bring them into production quickly.”

Dutina notes that 1,000 VMS deposits have been discovered around the world. “Quite a few of them occur in clusters within 2 km of each other, all on one property, and we’re hoping that is the case here.”

Dutina says that “the idea is to scale up this mine, which we’ve done well so far, to generate a healthy cash flow for the company, and have that cash deployed to expand organically, both at the mine and regionally.

“We will also continue looking for other properties in Colombia and elsewhere in Latin and South America that have potential for a high-margin operation, and grow Atico as a company.”

Dutina says Atico’s vision is to have two producing mines over the next three to five years. “Our current resource gives us a seven-and-a-half-year mine life at El Roble. but our new drill results point to further growth,” he says.

Ali Khan of Edgecrest Capital Corp. says he expects the infill drill results “will significantly increase the overall resources at El Roble” in the second-half update.

Over the last 52 trading weeks, Atico has traded within a range of 44¢ and 84¢ per share, and at press time changed hands for 51¢ per share.

Brian Szeto of PI Financial has a $1 target price on the stock. “A number of the drill results thus far has surprised to the upside in terms of both grades and widths,” he writes in a client note. “An updated resource is expected in the second half of 2015, where we could potentially see a substantial increase in the project’s resource inventory [and perhaps grades], given the strong exploration results year-to-date.”

Derek Macpherson of M Partners has a $1.30-per-share target price on Atico. “Based on the drill results to date, we believe the resource is likely to increase in confidence and should also grow,” he outlined in a research note. “This could help drive a re-rating of this stock, as investors may have been concerned about El Roble’s 100%-inferred resource and shorter mine life.”