Drilling For Copper At A Breakneck Pace

Written by Gerardo Del Real
Posted May 7, 2018 at 8:00PM

Publisher's Note: Today we have the second part of Gerardo Del Real's interview with CEO, President, and Director of Chakana Copper, Mr. David Kelley.

Yesterday, we heard about the Soledad project in Peru, its unique breccia pipe structure, and how Chakana's management team is uniquely qualified to explore it. If you missed it, you can read it here.

Read on to learn about what it all means for the Soledad project and Chakana Copper going forward.

Call it like you see it,

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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Gerardo Del Real: How is the infrastructure of the Soledad project?

David Kelley: You mean in terms of infrastructure to the project and the district?

Gerardo Del Real: Correct. Access to the project, nearby power.

David Kelley: Yeah, that's a really good question because the project's located in Ancash, in central Peru. Ancash is one of the historic mining provinces in Peru. There's the Pierina mine 35 kilometers to the north, and Antamina is 65 kilometers out to the east. So it's one of the historic provinces in Peru where mining has just become part of the culture. Because of that, mining is well accepted.

David Kelley: The communities that are around our project, generally the people that work in the mines immediately to the east of the Soledad project, and there's four operating mines in the district, they come from those two communities, Aija and Recuay. So mining is very much accepted. It's a part of the lifestyle there.

The road network getting to our project is excellent because it's maintained by Lincuna Mines. It's public road access, but it's maintained by Lincuna, who operate their four mines and two processing plants in the district off to the east of our project.

In terms of power, we're not far from the Peruvian grid power system. In fact, part of that grid power is used by Lincuna Mines and supplemented with some hydroelectric power that they've developed themselves. The topography lends itself well to water storage. There's two reservoirs up slope from our project that could be enlarged to store larger amounts of water needed for mine processing.

So really, it sits well from an infrastructure standpoint in a project that could be moved along rapidly because of the benefit of that infrastructure.

Gerardo Del Real: Have you done any metallurgical work for the breccia pipe samples from the Soledad project?

David Kelley: We're just starting that this week. In fact, the first four composite samples are being shipped from Peru. These are coming from breccia pipes one and five. They're going to RDI here in Denver to form the first look at the metallurgical work.

In preparation for that, we've done a very detailed, extensive petrographic and ore microscopy study to identify the mineralogy that we are dealing with, and everything looks very favorable.

David Kelley: The dominant copper mineral on the project, I would say 99% of the mineralization that we see sits in chalcopyrite. Sulfides occur near surface within the first 20 to 35 meters. We get a little bit of digenite.

We actually see a hypogene chalcocite. It's the first time in my career I've seen hypogene chalcocite. Chalcocite normally forms a supergene enrichment mineral that you see in supergene blankets. But these are spectacular, large, thumb-sized crystals of hypogene chalcocite.

Then we get a little bit of supergene chalcocite, supergene covellite, and a few other small minerals like that, minor minerals. But nothing like enargite. This is not a high sulfidation system. We don't see any enargite or copper tied up into that.

We do see, arsenopyrite is very pure petrographically, it's a pure mineral phase. It forms as its own event. It's not intergrown with other minerals, and the metallurgists that have seen the petrographic reports think that that's a very straightforward processing step to be able to separate arsenopyrite from chalcopyrite with PH control on a flotation cell. So we're not too concerned about that.

The gold, interestingly, we see free gold. We see electrum in pyrite on the order of 20 to 100 micron size, and except for the last couple of days I've seen a photomicrograph of the four-millimeter grain of free gold in the sulfide.

So we're actually very optimistic too about the gold and the recovery. We don't know how much of the gold that we see is in that phase, but that test work that we'll be doing at RDI here in Denver will certainly be able to tell us where the gold is occurring and how much of it looks like it'll be recoverable.

In preparation for that too, as a geochemist I'm a little bit of a stickler about sample preservation and making sure that the met work is done on good samples. So we took the extra step to purchase a freezer container and we have that other core facility in Lima. We bring all the core down from the project to Lima to make it easier for people to see when we want to show the core and also to keep it close to the laboratory so we can work with the local service providers there.

But the freezer container is set up in the core facility and all the sulfide rejects go straight from the lab into there, just to keep them from oxidizing and to keep the met work, give the metallurgist the best material to work with so that they can do their best work with the recoveries.

Gerardo Del Real: Excellent. We talked about the community and how it's a mining community. Do you have your surface agreements in place?

David Kelley: We do. The other aspect about Ancash, is a lot of, especially in the mining areas, a lot of the surface rights have been privatized. That's the case in the Soledad project.

All of the surface lands over the breccia pipe field, the cluster of breccia pipes, is privately owned and we have long-term surface access agreements with the four families that own those surface rights, and that also includes exploitation.

Again, it speaks to the point that these families are used to mining. It's not like parks in Peru where mining is not part of the culture and you have to spend a lot of time educating them to the benefits of mining and what that can bring to the communities, and that type of thing.

These people understand that and they're very accommodating and open, and it's been a pleasure to work with them.

Gerardo Del Real: Excellent. I know you recently completed, I believe what was an $8 million brokered private placement. What does the share structure and the current cash position look like, Dave?

David Kelley: Yeah, the current cash position is really healthy. It's right at about $15 million. We had done a $10 million financing last November, and then we did an $8 million financing in March. So our cash position is $15 million in the bank, and that'll carry us well into 2019. We expect to drill a minimum of about 30,000 meters this year. We're already at 14,000 meters, and we'll continue drilling.

The good thing about where we're located too is you can drill right through the rainy season. A lot of projects have to stop for the rainy season, and we're in an area that it's not that intense. We actually got 2,000 meters in the month of April, so that was a great result. That speaks, not only to our local team, but our drill contractor that we're using. AK Drilling has done an outstanding job on the project from the very beginning, so we're very happy with that, at a very competitive price.

Our drill costs are exceptionally favorable to putting lots of money in the ground, and that's what worked out well for everyone. But our outstanding shares are right at 80 million. Fully diluted, we're right at about 89 million.

Gerardo Del Real: Excellent. I mentioned earlier that you have an important permit that you're waiting on. You're hoping to secure that here within the next few months. What does the rest of the year look like, assuming that permit is in hand, here in June or July?

David Kelley: As soon as that permit comes out, we'll have immediate access to drilling pipe three. There's actually two pipes that have traditionally been called pipe three. It's two separate pipes, and we'll have immediate access to drilling on those two pipes as well as pipe six, which is a pipe that we haven't drilled yet.

We'll also have step out platforms around pipe five that will allow us to take drilling deeper on pipe five to get the deeper extent of that. Our goal with the drilling is to get resource drilling from the surface down to about 400 meters. That's about the limit of where you can really be effective with surface drilling on pipe-like structures.

Beyond that, you're really better off drilling from underground. That's another work program that we have going on. There is a gentleman named Tom Kelley, a mining engineer, living in Lima and has about 40 years' global experience in building mines and mine permitting. Tom's working on a conceptual design of an underground access tunnel that would go beneath seven of the pipes, primarily for bulk sampling and underground drilling to take the resources deeper.

That's also a good pre-development type of infrastructure development to put in anyway. So that work program is going on this year. That would be another permit modification that we'd submit in the second half of the year for a work program that would happen in 2019.

Gerardo Del Real: Wonderful. And you're drilling as we speak. Is that correct? So we have assays to anticipate?

David Kelley: That's right, yeah. Like I said, we're up to 14,000 meters. We'll be steadily releasing results throughout the year on a fairly regular basis.

I mentioned we've got one drill rig going now, and we're getting anywhere from 1,700 to 2,000 meters per month, which generally equates to anywhere from four to six drill holes just depending on the angles and where we're drilling on the pipe.

The plan would be to go to a second drill rig as soon as that second permit comes out. Depending on the results that we get from the other pipes, as we've seen already, to drill a pipe-like body out it requires a lot of drilling, and it's not a large bulbous shape or body.

These are vertical pipe-like things that continue at depth. So it does require a lot of meters to get the drill density sufficient to really understand the geometry of the pipe and also the grade profile.

So we'll add a second drill rig as soon as that permit comes through. We're contemplating a third rig by the third quarter of the year, and that would just depend on where we're at with how fast we're drilling out the additional pipes and testing the targets. But we'll be as aggressive as we can.

We've got plenty of money in the bank, we're staffing up our team as we speak, and we'll be ready for it.

Gerardo Del Real: Dave, it sounds like an exciting second half of the year, lots to look forward to. I want to thank you so much for your time today. Is there anything else that you'd like to add?

David Kelley: Well, I just appreciate the interest. It is a very compelling story. As I mentioned, I've worked for the majors for 22 years and this is one of the most exciting projects that I've ever worked on.

We're really hitting it hard. We're putting everything we can into it from a technical standpoint, technically excellent program, execution. We're looking at everything to understand these systems, and we're trying to answer the questions just as fast as we can because we're not looking at this as just a great exploration play.

We actually think that this can be a mine, and so we're trying to do everything we can along the way to do it right, to do all the geotech logging, to get the met work done early and done correctly, and really fully understand this system. It's a very big system.

We think that the nine pipes is just a start. We think these other dozen or so occurrences are the blind parts of pipes. We've got a geophysical program that will be a follow-up to the geophysical program we ran last year that shows vertically extensive conductive bodies that mimic the shapes of the pipes going down to 1,600 meters.

We think that that work is going to generate another series of targets that will need to be tested, so it's a very, very target-rich environment. I think personally the exploration upside on the project is huge, and the grades are simply spectacular. We keep surprising ourselves when we pull out these grades like the one you just mentioned. Visually, the mineralization is stunning. The chalcopyrite matrix to the breccias makes just a really stunning type of mineralization, but the grades that go with it, especially with gold, is really somewhat unique.

We think to Soledad, Doug says he's never seen a tourmaline breccia pipe system that has the gold grade that Soledad has, and we don't know why that is. We think it's probably just the fact that we're in the Miocene metallogenic belt of Peru, which is a world-renowned gold belt in its own right. So we probably have some benefit from that, but we're certainly enjoying this. Every drill hole we pull out and we see those kind of textures and grades, we get really, really excited about the potential.

Gerardo Del Real: Well, I have to commend you and the team. I always love highlighting stories of companies that are actually looking to build mines as opposed to mine shareholder pockets. So you should be commended for that, Dave.

David Kelley: Well, thank you very much. That's absolutely our objective. Yeah.

Gerardo Del Real: Thank you so much for your time. I'm looking forward to the second half of the year and the assays in between. Thanks again, Dave.

David Kelley: You bet. I can't wait to come back and tell the rest of the story.

Gerardo Del Real: Looking forward to having you back on.

David Kelley: All right. Thank you. Take care.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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