Juniors examine potential of Chilean deposits

The potential to discover large-tonnage, heap-leach gold and porphyry copper deposits that are minable by open pit in Chile is prompting a small contingent of junior companies to examine the South American country.

Although companies such as Bema Gold Mines (TSE) and Dayton Mining (TSE) have been in Chile for some time, other juniors are beginning to venture into Chile.

One of the latest entries is a joint venture among Princeton Mining (TSE), Rea Gold (TSE), the Northair Group and the Hunter joint venture, a private group directed by John Robins and Matt Mason.

The group is focusing on exploration targets in southern Chile through a jointly owned private company called Arauco Resources. The company was conceived with funding for an initial US$200,000 program to identify base and precious metal targets for further exploration.

Arauco, through an office in Santiago, now has 11 separate properties staked and recently secured an additional $250,000 in funding from a private American mining company based in Denver, Colo.

Fred Hewett, vice-president of the Northair Group and general manager of Arauco, is surprised by the relative lack of junior companies active in Chile. He notes that very few companies have been active in the southern part of the country and as a result, Arauco has been able to stake some excellent properties without resorting to acquisitions.

Recent exploration activity was focused on a previously unrecognized gold-jasperoid belt which the company believes constitutes a significant regional discovery.

Arauco is secretive about specific plans and results, but is concentrating on regional exploration in the belt to identify other surface gold targets for staking before competition in the area accelerates.

Hewett predicts there will be a staking rush on the belt as its prospects become better known. He added that southern Chile has a distinct advantage to northern Chile because of its relatively low elevations (1,500-3,500 ft.), as well as a moderate climate and good infrastructure.

Arauco also staked a number of properties along the southern extension of the country’s main porphyry copper belt. The belt extends from Chile’s northern border with Peru, down to the El Teniente deposit immediately south of Santiago.

Arauco notes that although the geological environment continues to the south of El Teniente, no significant deposits have been identified to date. Hewett said the primary reason for this is that in the past, companies focused exploration efforts on the northern half of the country because of the relative lack of vegetation and ease of exploration.

Arauco plans to list its shares on the Vancouver Stock Exchange within the next six months in order to raise additional capital, although Hewett notes that funding could be arranged through a number of major mining companies that have expressed interest in completing private placements. In northern Chile, Arizona Star (TSE) recently announced it had outlined an extensive gold mineralized stockwork system on its Aldebaran project, about 18 miles south of Bema Gold’s 50% owned Refugio deposit.

Recent drilling on the Aldebaran returned a number of wide intersects including a 302-ft. intersection grading 0.043 oz. gold and a 328-ft. intersection grading 0.038 oz. gold. The company is planning to begin a second drilling program shortly to further define as well as expand the mineralized zone. Arizona Star can earn a 51% interest in the property by spending a total of US$4 million as well as making cash payments of US$2 million over a 3-year period.

Westhill Resources (VSE) recently entered into a property option agreement with the Chilean subsidiary of Canpro Developments (VSE). Westhill can earn a 60% interest in that company’s Junguillar-Calcareous and Cerro Porongo exploration projects in northern Chile.

To earn the interest, Westhill must pay Canpro US$30,000 plus 100,000 post-consolidated shares as well as expend US$1 million on the properties over a 4-year period.

Preliminary work on the Porongo outlined several copper, gold and silver mineralized manto formations, one of which has been traced for a strike length of 700 metres and a thickness of about three metres. Preliminary sampling returned an average copper grade of about 3.5%.

On the Junguillar, preliminary work identified a 7,000-metre-long, 60-metre-wide calcareous unit carrying disseminated copper mineralization. Limited channel sampling along a 3,000-metre section of the unit returned copper values ranging from 0.59% to 2.17%.

A detailed mapping, trenching and drilling program is expected to commence on the two properties within the next two months.

All has not been rosy for Bridger Resources (TSE) in its Chilean venture. The company had an option to earn a 65% indirect interest in the La Pepa mine, a modest-sized gold mine in the Maricunga district of northern Chile, but lost most of the interest in 1990 after it failed to meet a property payment. Under the terms of the original agreement, Bridger had to make staged quarterly instalments of US$850,000 each to a total of US$12.3 million, but startup problems at the mine and a botched financing left the company unable to meet a payment.

Bridger recently announced a restructuring of the Chilean operating company. In return for cancelling debt obligations, Bridger will receive a 3.5% gross proceeds royalty from the mine in 1992, increasing to 7% in subsequent years to a cumulative maximum of US$3.6 million or 30 years.

Bridger expects the mine to produce about 1,600 oz. gold per month in 1992, increasing to about 2,400 oz. gold per month in subsequent years as a result of a plan to re-process tailings and a mill upgrade including the installation of a cyanide circuit.

Bridger plans to stay in Chile, using the bulk of the royalty funds from the La Pepa mine for other mining opportunities in the country.

The Refugio project, 50 miles east of Copiapo in northern Chile, is currently in a holding pattern as 50% owner Bema Gold Mines (TSE) attempts to complete a US$75-million gold loan.

The project is estimated to contain minable reserves totalling 112 million tons grading 0.03 oz. gold per ton at a strip ratio of about 1-to-1. The figure is part of a larger reserve containing an estimated 204 million tons grading 0.026 oz. gold with a strip ratio of 0.9-to-1.

The capital cost of the project is estimated at about US$130 million including about US$30 million in initial working capital.

According to the feasibility, the project should produce an average of 233,000 oz. gold at a cash cost of US$189 per oz. over its 9.4-year life. Bema has already received a commitment from Caterpillar for US$24.6 million in mining equipment leaving the gold loan and about US$30 million in equity financing outstanding.

According to Bema’s option agreement with its Chilean partner, in order to earn its 50% interest Bema must arrange the project financing, while Bema and its partner split the remaining US$30 million in equity funding required. A London-based merchant bank has committed to fund 20% of the gold loan and is attempting to complete a syndicate.

Bema completed a $7-million brokered private placement of convertible debentures through Yorkton Securities late last year and plans to raise the additional US$15-20 million for its equity portion after the gold loan is completed.

Dayton Developments (TSE) is also in the process of arranging financing for its Andacollo gold project in central Chile about 230 miles north of Santiago. Dayton’s project is estimated to contain minable reserves of 30.4 million tons grading 0.034 oz. gold per ton. The company hopes to have the mine in production by the end of 1992 at a rate of about 123,000 oz. per year with a cash cost of about US$146 per oz.