Lupaka’s 1.2M oz. gold deposit attracts former Canuck as investor

Vancouver – June 2011 was certainly not the best of times to launch a new Peru-focused gold explorer. But the plan to take Lupaka Gold (lpk-t) public – hatched by long-time mining executive Gordon Ellis with the help of Vancouver Canucks hockey legend Geoff Courtnall – had been in the works long before that, so the company had to make do.

Vancouver-based Lupaka closed its $20-million initial public offering on June 28, a tetchy time for the markets at best but also just one day after the Peruvian government stripped Bear Creek Mining (bcm-v) of its rights to the Santa Ana silver project in the southern Peruvian province of Puno. Anti-mining protests in the area had turned deadly amid wide-spread discontent among Peru’s poor, a leading factor behind the election on June 7 of populist left-wing president Ollanta Humala.

The location of Lupaka’s main Crucero gold project only added fuel to the fire for investors. It is located less than 100 km north of Lake Titicaca, an important focal point for the Bear Creek protesters who claimed waste water from Santa Ana would potentially flow into important watersheds in the area and eventually into the lake (Bear Creek claimed otherwise).

Despite selling 13.33 million units at $1.50 each under the IPO, Lupaka’s shares closed at 91¢ on 336,500 shares traded on their first day of trading. They have recovered somewhat since then and last traded for $1.15 on Sept. 12, with the company releasing positive drill results from Crucero on Sept. 8.

For its part, Lupaka says Crucero is in Peru’s Carabaya province about 350 km north of Bear Creek’s Santa Ana project, far enough away from the disgruntled inhabitants of Puno. Lupaka also says it has “the full co-operation of the local community surrounding the Crucero property, including written agreements with the community for continuing exploration and development of the project.” It further notes the property has “very few inhabitants.”

Lupaka optioned an initial 60% interest in Crucero in early 2010 from its Peruvian partner, Minera Pacacorral SAC, for staged cash payments totalling US$10 million ($3 million remains due in July 2012). It can acquire the rest by making a one-time payment of approximately US$8.8 million, which the company expects to do shortly using the proceeds from its $20-million IPO.

The property has never been mined before though it has seen off-and-on exploration work since 1996 by several Peruvian companies. A combination of geophysical surveys and surface sampling has defined 11 anomalies on Crucero, however only one, named the A-1 zone, has been drill tested to date.

According to a recent technical report, the A-1 zone at surface is about 600 metres long by about 150 metres in width and remains open to the north and at depth. The zone dips steeply to the east and although variable in width, has been traced by trenching and drilling, with apparent continuity, over a strike distance of about 450 meters. The mineralization outcrops at surface making the resource potentially amenable to open-pit mining.

Based on 36 drill holes completed up to January 2011, A-1 hosts 786,583 oz. gold in the indicated resource category as well as 406,773 oz. gold inferred for a total of 1.2 million oz. gold. This is contained in 21.9 million indicated tonnes grading 1.12 grams gold per tonne and 13.5 million inferred tonnes grading 0.93 gram gold, all at a cut-off grade of 0.4 gram gold.

Lupaka is currently about halfway through an 11,000-metre drill program with two rigs expected to be completed by the end of 2011, primarily focused on increasing the volume of known mineralization at A-1 by extending the mineralized envelope to the north and at depth. So far it has released results for about 2,500 metres of the drilling, with gold mineralization traced down to around 450 metres (true depth), an improvement over the 250-metre level previously outlined. Drilling has also expanded the deposit to the northwest, with hole DDH-45 returning 172 metres grading 1.07 grams gold, including a 42-metre section grading 6.76 grams gold.

Later this year, Lupaka plans to drill test the nearby A-11 anomaly for the first time. Should assay results come back positive, the company would then follow up by testing one or two of the other most promising anomalies.

Initial metallurgical testing at Crucero has been positive with 88% gold recovery using gravity and floatation processing. The property also has a good infrastructure base, being road-accessible and having a power line within 8 km of the property.

Gold mineralization at the site is associated with axial-plane deformation of a broad scale, contained within altered shales of the Ananea Formation. Gold occurs as saddle reefs in very fine sulphide-rich rhythmic bands or laminations, and is associated with pyrite, pyrrhotite, arsenopyrite and stibnite.

According to a company spokesman, former Canucks forward Geoff Courtnall and Lupaka’s chairman Gordon Ellis found out about the Crucero property through a mutually known Peruvian geologist, and after doing their due diligence, optioned it in 2010. Though Courtnall does not hold a management position with the company, he receives $10,000 a month for investor relations services and holds 828,947 shares through his private company, Havilah Holdings. Havilah also controls 35% of another private company, K-Rok, which holds 4 million shares acquired at a deemed price of 5¢ each.

Acting as president of Lupaka is geologist Eric Edwards, who recently served as president and CEO of Ventura Gold, which was sold to International Minerals in January 2010 for $65 million. He also acted as the transitional CFO for Andean Resources, during its sale to Goldcorp (g-t, gg-n) in December 2010 for $3.6 billion.