One of the Best Speculations in Its Sector

Written by Gerardo Del Real
Posted April 13, 2020

With gold in a new bull market, the early gains are had by producers with healthy margins whose assets become more valuable as the price of gold increases.

However, the most explosive gains are often in successful explorers that are onto significant discoveries.

I just laid out three great picks for my Junior Mining Monthly readers. You can find out more about them here.

Another one is Chakana Copper. It has a robust treasury and a healthy balance sheet that will allow it to immediately continue drilling once its long-awaited permit is issued and the COVID-19 lockdown is lifted.

I spoke with CEO David Kelley about the opportunity and why I believe Chakana presents one of the best exploration speculations in the space.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader


Gerardo Del Real: This is Gerardo Del Real with The Outsider Club. Joining me today is the president and CEO of Chakana Copper (TSX-V: PERU)(OTC: CHKKF), Mr. David Kelley. Dave, how are you this morning?

David Kelley: I'm doing great, Gerardo. Thank you very much.

Gerardo Del Real: Practicing social distancing, washing your hands, I assume?

David Kelley: Absolutely, yep. We're doing everything we can here. I'm based in Colorado. We're following all the right protocols, staying home and staying healthy.

Gerardo Del Real: Excellent. Approximately one year ago, May of last year, Gold Fields came in and wrote a check to the tune of approximately $8 million Canadian. They did it at a significant premium. I believe it was roughly at $0.51 a share, Canadian. And here we are, one year later almost to the day, right? About three weeks away, and you're trading at $0.13 with a market cap of approximately $12.5 million Canadian, the last time I checked.

I want to ask you, for those that are newer to this space or looking for opportunities — because I believe Chakana is one of the best exploration opportunities in the space — I want to ask you about the due diligence process that comes with a cornerstone investor like Gold Fields. What does that look like when they come in and vet the project?

David Kelley: Yeah, that's really a great point, Gerardo. That was huge for us because of the thoroughness of which they made their investment. It was based on several months of due diligence, covering multiple aspects of mining, not only the different technical aspects like resource geology, metallurgy, all the technical disciplines like geophysics and the exploration potential upside assessment, but also much broader than that. They looked at social and legal and the permitting circumstances, and where we're located in particular, being in an active mine district, was a real important thing for them.

So they were very, very thorough. And they're already a miner in the country of Peru. So having a team come in there and look at everything that we've done, and then step back and make an investment at a significant premium, as you mentioned, like they did. That was really, really huge for us. That's part of the reason our treasury today is so strong, is because of that investment.

Gerardo Del Real: And what does that treasury look like today? That's so important, right? I'm focusing right now on opportunities where the companies, as soon as the lockdowns are lifted, companies are ready to go.

I know you already have a drill rig on site, ready. Talk about the treasury and the market cap relative to it.

David Kelley: Yeah. So right now, we're just below $7 million Canadian. They put in $8 million and we're just right below $7 million. Obviously, we're keeping a very close watch on our spending, which has dropped dramatically, of course, because of the nature of the quarantine in Peru and the general shutdown.

So we're very, very healthy on the treasury side of things. As you mentioned, our market cap in there at $11 or $12 million. It's just remarkable, the strength of our treasury compared to the quality of the project and the results we've obtained to date with the 30,000 meters that we've drilled and the fact that we're fully funded for another 15,000 meters that's already planned to test new targets in parts of the project that we have not had access to.

And I can tell you, from looking at the data in detail over several months, the targets we're about to test are as good or better than the targets we've already tested. So we're extremely excited about the upside potential yet to come.

Gerardo Del Real: Let's talk about the upside potential and why I believe Chakana is one of the best opportunities and speculations out there. The bottom line is I think we're in the very early stages of what's going to be a historic precious metals market, led by gold.

I also believe the second half of this year, with supply destruction and everything being shut down, I know it's affected demand a bit with the economy at a standstill, basically. But I believe copper, mid-term, has fundamentals as strong as any. Your project, the Soledad project, has I believe 60% gold-silver component to it and approximately 40% of very high-grade copper. Is that accurate and can you provide a little bit of context there?

David Kelley: Yeah, that's right. And those numbers are derived by looking at all the mineralized intercepts on the project to date from that 30,000 meters and just doing a weighted average of the value of the gold, the silver, and the copper. It works out to be about 60%. Most of that 60 is mostly gold. Silver brings in the other part of that to total 60% precious metal and 40% copper.

But the really important point of this is that the copper, like in Breccia Pipe 1, it averages just below 1% copper. That's not a resource number. That's just a weighted average of the 6,000 meters of mineralized breccia that we drilled in Breccia Pipe 1. We've also drilled Breccia Pipe 5 and 6. Having a high grade of copper like that and having that be 40%, that's really a significant aspect of the deposit.

Part of understanding this opportunity and this story is the deposit type we're exploring, it's somewhat unique in the fact that parts of the deposit are very high-grade gold, parts of the deposit are high-grade silver, and parts are high-grade copper.

There's a big overlap of those three metals. So in many parts of the breccia pipes, all three metals are significantly enriched. In other parts, two of the metals might be enriched and other parts may be a single metal. But when you put it all together, it's a exciting project from the standpoint that you're getting exposed to not only precious metals, but copper as well.

Gerardo Del Real: Now when you talk about breccia pipes in the plural, people that are new to the company in this space may think two, three, four. Can you explain how many exactly you've identified to date?

David Kelley: Yeah. The number's at like 23. It's a rough number, really, because like we count Huancarama, one of our best targets that we've yet to drill, we just count that as one. Because it's multiple breccias in a single area. Obviously, they're all related. We call it the Huancarama Breccia Complex. And there's actually 5 different breccia bodies in that. You could legitimately call each one of those a breccia pipe because potentially they are. We actually think there's a potential that all of these breccia pipes coalesce into one larger breccia body.

The impressive part to point out about this feature is it's about 200 meters wide by about 100 meters north-south. So it's the largest exposure of mineralized breccia on the property to date. We've not put a drill hole in this thing yet, even though there's very high-grade gold right at surface. Gold is our best pathfinder for identifying mineralized breccias. That's part of this next permit approval that we're waiting on that will give us access to drill test this really, really very exciting target.

Gerardo Del Real: So just to summarize. Gold, silver, copper. Excellent grades. A ton of exploration upside. You're fully funded. You have just shy of $7 million Canadian. There's a drill rig on site. As soon as we come out of this COVID-19 lockdown that the world seems to be going through almost simultaneously. Is there anything that you'd like to add to that, David?

David Kelley: Well just that we're in Peru. And Peru is a mining country. It's a great country to be in. They understand mining, they benefit tremendously. I think 16% of the GDP is attributed to mining revenues. So it's huge.

Not only that, we're in an active mining district in Peru. We're in the Ancash province. There's active lead, zinc, silver mines immediately off to our east. Processing plants. All the infrastructure to support mining is already there. The road network. There's plentiful water. There's grid power that serves the mines that are adjacent to us. We're just south of the Pierina mine, 35 kilometers south of Barrick's Pierina mine, a world-class, high sulphidation gold deposit. And we're within the Miocene mineral belt, which is one of the greatest endowed mineral belts in the world. Location counts for a lot in the mining industry, and we're sitting right in the heart of it in Peru.

Gerardo Del Real: I got to believe you're still in touch, David, before I let you go, you're still in touch with Gold Fields and using that deep, technical expertise that they bring?

David Kelley: Absolutely. We meet monthly with them. We have about an hour-and-a-half long technical update meeting with them. They've been tremendously supportive from the start, really, in bringing all of their technical team. They've made everyone available, their legal team, their social team.

We meet monthly with the technical team and go through everything. We've just gotten back results from the MAG survey that was completed in early February, and starting to work through that. So there's a lot of work that goes into interpreting and rendering and presenting that information. We're getting stuck into that now. That's really exciting.

We've also got access to a very talented geophysicist in Gold Fields that's doing some modeling of the EM data that we collected last year. He's helping us refine some of the targets that we already have and he's coming up with some very interesting results. There's actually a lot going on technically behind the scenes, even during this quarantine period. We're able to make good use of this time.

Gerardo Del Real: Dave, I'm looking forward to results from that. Thank you for taking the time today. We'll chat soon. You be safe out there.

David Kelley: You too, Gerardo. Thank you very much.

Gerardo Del Real: Thank you.


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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