Ex-Software Exec Applies ‘Microsoft Model’ To Mining

Drilling on Vena Resources’ Macusani uranium project, a partnership with Cameco, located in the Puno region of southern Peru.

SITE VISIT

LIMA, PERU–With base metals, precious metals and uranium projects in its portfolio, Vena Resources (VEM-T, VNARF-O) isn’t focused on a single project or commodity–but it has narrowed its focus to Peru.

That decision wasn’t a tough one for Juan Vegarra, Vena’s chairman and CEO. Vegarra hails from the South American country and is familiar with the role mining plays in its economy — especially in the midst of a boom cycle.

Prior to joining Vena, Vegarra worked almost nine years for software giant Microsoft as an executive. That stint explains his professed “Microsoft-model” vision for Vena — with Azulcocha as the flagship asset (analogous to the software company’s Windows operating system) with its other properties providing a diversified base (comparable to Microsoft’s Office product line, etc.).

Vena has structured itself with four strategic business units in Peru: its precious metals division, a uranium division, the mining division and its base metals arm.

Since 2004, Vegarra has built up Vena’s workforce from an initial team of well-connected technical individuals into its current contingent of more than 300 employees, including geologists and miners.

Vena’s mining division is focused on the Azulcocha zinc mine — the flagship project that will provide near-term cash flow to fund ongoing exploration when it is reopened this year. The project is located in the central highlands of Peru, roughly 260 km east of Lima in the Department of Junin.

Azulcocha includes the past-producing Gran Bretana zinc-antimony mine that ran from 1971-1985 as a 450-tonne-per-day underground operation. Reported production of 314,000 tonnes of concentrate (zinc plus lead and silver) came from just over 1.4 million tonnes of ore processed. The operation was apparently closed due to a series of labour strikes and rising terrorist activity in the region by the Shining Path group.

Vena says historic records indicate an estimated 3 million tonnes of high-grade zinc and manganese ore (not compliant with National Instrument 43-101) remain in the workings at a grade of about 5% zinc and 20% manganese. The manganese was not recovered during past mining operations.

Additionally, surface sampling on some of the tailings has returned grades of up to 5% zinc, 10% manganese and 1 gram gold per tonne. The company says historic plant records indicate about 1 million tonnes of mineralized material sits in the tailings impoundment. The previously milled ore could provide planned operations at Azulcocha with an initial source of feed.

Azulcocha sits along a major regional strike-slip fault (Cochas- Gran Bretana) and roughly aligns with several other zinc-lead-silver deposits in the area that have seen varying amounts of development — giving the company additional exploration targets outside of its historic workings.

Mineralization at the Azulcocha deposit is carbonate replacement-style — hosted in limestones within a marine and continental sedimentary sequence. Principal mineralogy includes sphalerite, barite, rhodochrosite (a manganese carbonate), marcasite and minor galena.

The elliptical-shaped orebody has been outlined for 300 by 50 by 160 metres — for a total volume of 2.4 million cubic metres.

Vena has been on-site since mid- 2006, working to fast-track resumption of operations at the mine. It anticipates restoring operations of about 500 tonnes per day by mid- 2008 — later scaling up to 1,000 tonnes with some possible toll-milling arrangements.

“Getting the mine into production is the number one job, with exploration taking a second seat,” explains geologist James Stewart, Vena’s technical adviser and qualified person.

Juan Vegarra thinks Azulcocha could generate about $20 million in cash flow in its first year of operation with that figure doubling in following

years.

If the Azulcocha model plays out successfully, Vena may evaluate the acquisition of other producing projects in the region.

As a past-producing mine, Azulcocha is endowed with significant infrastructure as The Northern Miner observed during a recent visit. Road access is good with some minor upgrading under way.

Conveniently, a high-voltage (220 kilovolt amperes) electrical line crosses the property, powering a new 3-megawatt substation recently installed on the mine site. The company has also purchased a 1,400-tonne-per-day flotation mill circuit. Vena anticipates completion of its mill within three months of receiving final construction and environmental impact assessment permits.

Vena has already processed some ore through a 50-tonne-per-day pilot plant at Azulcocha and has sold the concentrates.

In late 2006, the company granted an option to a subsidiary of Swiss-based metals firm Glencore International, which can earn a 51% interest in the western portion of the Azulcocha property (outside of the mine and deposit). As part of the deal, Glencore must spend US$2.75 million in exploration and development by late 2008 leading to a positive feasibility study, plus make a US$1- million payment to earn its interest.

Exploration has identified skarn mineralized zones in areas of Azulcocha West. Drilling has encountered strong sphalerite mineralization adjacent to a small intrusive with intercepts of up to 12.3 metres averaging 6.1% zinc.

Vena also plans to sell some of its initial Azulcocha ore production to Glencore, which owns and operates (through subsidiaries Los Quenuales and Perubar) the Iscaycruz, Yauliyacu and Rosaura zinc mines in the Central Highlands of Peru. Perubar also owns several concentrate warehouses in Lima and controls roughly half the annual metal concentrate shipments through the port.

Macusani Uranium

In early 2005, Vena inked a deal with the Peruvian Institute of Nuclear Energy (IPEN) to access its data room — containing at least 20 years of data covering past exploration.

IPEN held a monopoly on uranium in Peru until about 1992 and had done a large airborne survey over the southern portion of the country in 1980 to follow up uranium occurrences identified in the 1950s and ’60s.

The airborne radiometric survey reviewed 78 anomalies, but the information was kept private until 1991.

After reviewing the data, Vena acquired roughly 475 sq. km of land in three areas of southern Peru’s Puno region — focused in the Macusani area, a large volcanic plateau and possible caldera structure.

Mineralization is primarily hosted inignimbrites (a coarse ash-flow tuff with pumice fragments) and rhyolitic tuffs enriched with secondary uranium. Geological interpretation suggests that the uranium was carried up by acidic magmas (rhyolitic composition) and was then remobilized by hydrothermal activity.

The Macusani district could potentially host tens of millions of pounds of contained uranium with grades averaging around 0.1% uranium.

Some models suggest that Macusani could be a caldera-type structure similar to McDermitt, in northwestern Nevada, or to the prolific Streltsovka caldera in eastern Russia’s Transbaikkalia region, near the Chinese-Mongolian border.

Streltsovka hosts the world’s largest uranium deposits in a volcanic setting and is Russia’s largest resource of the energy metal. More than 600 million lbs. U3O8have been produced there and current resources within 20 deposits are estimated to average around 0.2% U3O8 with mineralization occurring primarily in strongly altered rhyolites as sub-vertical veins and stock-works, and also stratigraphically in receptive sandstones, conglomerates and tuffs.

Vena’s land position, initial exploration results and potential deposit model attracted the attention of uranium giant Cameco (CCO-T, CCJ-N), which, in September, signed an agreement with the junior toform a jointly owned company to hold and explore the uranium projects.

To earn a 50%
interest in the new company, Minergia, Cameco must spend $10 million over four years. It can boost its ownership to 60% by completing a feasibility study and can vest 70% once mine development begins. Cameco has earned 2% of Minergia so far.

Typically observed uranium mineralization on Vena’sMacusani projects consists of autunite, meta-autunite, torbernite and gummite occurring in veinlets-fracture fillings and as disseminations. Drill core examined during the recent visit was fluorescent under shortwave ultraviolet light, a characteristic of autunite mineralization.

“What’s encouraging is that when we first looked at the core, we saw the fracture-controlled mineralization — the UV shows us disseminated mineralization over good widths,” Stewart says. “It’s a great boon to put together a resource.”

Hole 01-01-07 (from the Tantamaco property) had UV-visible, semi-continuous mineralization over roughly 20 metres. Subsequent assays from that core returned 19.75 metres grading 0.12% U3O8 (about 2.6 lbs. per tonne), including 1.7 metres of 0.34% U3O8 (about 7.5 lbs. per tonne). Vena’s UV lamps, coupled with scintillometers, are proving to be valuable quick-assessment tools.

Keen on results to date, Cameco and Vena have boosted this year’s uranium budget to about US$4 million from US$2.5 million.

The Peruvian government is improving infrastructure in the Macusani region; an upgraded paved highway (the Intra-oceanic Highway) connecting through to Brazil is being built through the area.

Pucara

Pucara, a polymetallic project that saw about 12 years of small-scale historic mining, is also located in southern Peru’s Puna region.

Past mining targeted what appears to be a supergene enrichment zone in the Gladys stockwork structure. An artisanal miner developed a pair of interconnected underground levels across about 280 metres of the structure, with 40-metre long crosscuts driven about 80 metres apart.

Vena took a composite sample from the 1,400-tonne ore stockpile that returned assays of 3.6 grams gold, 19 grams silver per tonne and 4.2% copper.

The project saw an eight-hole drill program (totalling 1,600 metres) by Brazilian major Vale (RIO-N) in late 2006, but only five of the holes were assayed. Hole 7 returned a 90-metre intercept of 1.75% lead, 0.77% zinc and 0.5% copper, including a 22-metre portion running 4.6% lead, 0.68% zinc and 0.4% copper.

Vena’s current 4,400-metre drill effort is aimed at further delineating the varied mineralized structures and towards a resource estimate for Pucara. The company is planning to drill test more than 20 vein targets to depth over an area of several square kilometres.

Recent drill results by Vena include two mineralized veins encountered in hole PK-18 that returned 9.3 metres of 12.3% lead and 34 grams silver, and 3 metres of 7.5% lead.

Aside from the vein structures and breccias, nine mineralized intrusions have also been identified on the project. Pucara geology is offering some challenges for Vena, which is evaluating whether it could be a caldera structure due to some indications of an explosive event.

The company has also recently retained a metallurgical consultant to evaluate whether the oxide mineralized portion of the Gladys structure is suitable for flotation. Positive test results could indicate a standard flotation recovery system is feasible.

Additionally, Vena says it is contemplating a 2,000-metre underground exploration-development project by drifting along some of the identified veins.

Vena’s other property holdings include its Aurora copper-molybdenum porphyry project in the Apurimac region, and several gold projects in the northern portion of the country. The company also recently announced an initial investment in a Peruvian coal company that explores, develops and processes anthracite coal; Vena will eventually acquire a 70% interest for US$2.5 million, which will be used for equipment upgrades by the small-scale producer.

Vena shares recently traded at around 80, giving the company a $57-million market capitalization based on its 1.6 million shares outstanding. The stock posts a 52-week trading range of 52-$1.81.

Vena Resources’ senior geologist Jesus Vilca examines uranium-mineralized drill core at the company’s Macusani uranium project, a partnership with Cameco, located in the Puno region of southern Peru.