Exeter advances Caspiche and Cerro Moro

Copiapo, Chile — The road from the city of Copiapo to Exeter Resource’s (XRC-V, XRA-X) Caspiche gold-copper project in the Chilean Andes snakes its way through some of the most majestic mountain scenery in the world.

The project is high, located at an elevation of no less than 4,200-4,600 metres, where the air is thin, a cold wind blows most of the time, and nighttime temperatures can drop to bone-chilling levels even in spring.

It also happens to be prospective, since it is located in the Maricunga district, the same area as Kinross Gold’s (K-T, KGC-N) Maricunga gold mine, also known as the Refugio mine, Kinross and Barrick Gold’s (ABX-T, ABX-N) Cerro Casale gold-copper project.

“The Maricunga is a nice place to be. You really are in elephant country. You really do have tremendous potential,” says Justin Tolman, Caspiche’s project manager. “It’s almost virgin territory compared to some of the other highly-rated places like Canada and Australia. It’s one of the premier places in the world if you are going to go looking for the next company-maker deposit.”

Prior to Exeter’s acquisition of the project, Caspiche lay dormant for 10 years, since the only prospective feature known about the geology at the time was the presence of shallow oxide mineralization, and previous operators believed that grades did not warrant further exploration.

When Exeter started exploring the property, it drilled a number of shallow holes that failed to expand the known low-grade oxidized mineralization.

But that changed in 2007 when, after a geophysical survey, Exeter decided to venture deeper, drilling hole 13 to a depth of 344 metres. The hole, which was drilled at the Caspiche Central zone at a 60° declination, intersected 304 metres of mineralization divided in two parts. The first returned 174 metres of 0.88 gram gold per tonne in oxidized mineralization starting at a depth of 40 metres. This was followed by a 130-metre intersection grading 0.87 gram gold and 0.22% copper in sulphide mineralization hosted in microdiorite porphyry, starting at 214 metres and ending in mineralization.

Exeter was pleased by the discovery, with the grade comparing favourably with the Maricunga mine, 11 km northwest (proven and probable reserves of 280 million tonnes grading 0.72 gram gold, for 6.4 million oz.), and the Cerro Casale project 15 km south (proven and probable reserves of 1.04 billion tonnes grading 0.69 gram gold and 0.25% copper for 22.9 million oz. gold and 5.8 billion lbs copper.)

Following the discovery hole, Exeter followed with more holes at Caspiche Central to confirm the discovery and establish the extent of the mineralized zone. It also decided to go deeper.

Hole 14, drilled 300 metres south of hole 13, returned a 148-metre intercept of oxide-zone gold mineralization starting at surface, grading 0.57 gram gold per tonne. That was followed by 593 metres of copper-gold mineralization starting at 148 metres, grading 0.44 gram gold and 0.25% copper. Hole 15, drilled 400 metres northwest of hole 14, cut 56 metres of 0.35 gram gold starting at 58 metres, followed by 887 metres of 0.62 gram gold and 0.27% copper starting at 114 metres. And hole 16, located midway between hole 14 and hole 15, a distance of 200 metres from each, returned 92 metres of 0.41 gram gold starting at 73 metres, followed by 627 metres of 1.08 gram gold and 0.43% copper starting at 165 metres. (Intersections reported are not true widths.)

Following the drilling results, Exeter has concluded that Caspiche is made up of two mineralized zones: a thinner top zone with oxidized gold mineralization and very little copper, and a thicker lower zone that is in porphyry rock with copper-gold sulphide mineralization. Tolman says the geology is analogous to Cerro Casale.

The drilling currently in progress is designed to produce a National Instrument 43-101 resource estimate in 2009. There are three drills on-site, drilling holes 200 metres apart. With these wide distances, the resource will be inferred.

“This season, we are really focusing on this porphyry. We are looking to get a handle on the size of the prize, to define the limits and see how fast it can grow. And we put very big, aggressive stepouts here to help us with that,” Tolman says.

Yale Simpson, Exeter’s executive chairman, adds: “Scale is really important here. That’s why you’ll see some of the drills drill down to as deep as 1.2 kilometres. It’s the scale of it that’s dictating why you’ll go down so far.”

Assays from hole 23, the first hole from the current drilling round, have been released, and the results follow the same pattern as that in previous holes. It returned 102 metres of oxide mineralization grading 0.65 gram gold, starting at surface, followed by 603 metres of sulphide mineralization in porphyry rock that averaged 0.89 gram gold and 0.32% copper, starting 102 metres down-hole.

During The Northern Miner’s recent visit, the company was just recovering core from hole 30 at about 225 metres depth.

“Already, at this early stage, you can see that we are into the porphyry,” Tolman said, pointing to the core. “It is sitting in an intensive potassic alteration. And that’s important, because potassic alteration, things like potassium feldspar, biotite, it tells you that you are in the core of the alteration for this porphyry system. These systems tend to have a zonation to them, in their alteration. The potassium occurs at the core; things were hot here; this is where the action was.”

The sheeted quartz veins visible in the porphyry carry chalcopyrite, a copper mineral. The alteration and the veining in the drill-core indicate mineralization.

Exeter envisages a scenario where the gold in the shallow oxidized layer will pay for stripping this layer, after which the larger, deeper sulphide mineralization in the porphyry can be mined. The company has sent samples from both mineralized layers to metallurgical laboratories for test work to establish recoveries. These results will find their way into the resource estimate next year.

The company is optioning Caspiche from Anglo American (AAUK-N, AAL-L) for US$2.55 million in exploration expenditures, including 15,500 metres of drilling. The current 9,300-metre drilling campaign will likely meet the conditions of the deal, giving Exeter 100% of the project. (Last year, Exeter drilled about 5,000 metres.) Anglo will retain a 3% net smelter return (NSR) royalty.

Although the anticipated resource estimate will not include a scoping study, it will start addressing possible project infrastructure. Since Exeter believes it is dealing with a potentially large mineralized zone, bringing it to production would raise a number of infrastructure issues.

The project is located at a driving distance of 148 km from the city of Copiapo (population about 130,000). The main economic sector here is mining, which has a history in the area going back to the 19th century. The Candelaria copper-gold mine, owned by Freeport-McMoRan Copper & Gold (FCX-N) and Sumitomo, is located near the city.

Even though Copiapo is in the Atacama Desert, one of the driest places on earth, there are substantial grape plantations in the area. Since rains are infrequent, farmers use irrigation from groundwater. Aquifers are replenished by snow melt runoff from the Andes.

Copiapo is located 42 km from the Atacama Desert Airport, a modern facility serviced by daily scheduled flights from Santiago. The port town of Caldera (population 14,000) is about 75 km from Copiapo.

The 148 km from Copiapo to Caspiche is covered mostly by an unpaved road of a reasonable standard. With the exception of the last 32 km, gradients are not too steep and the road can be negotiated by regular vans or trucks.

The road forks 32 km before the site. The unpaved road continues to Kinross’s Maricunga mine, and a dirt road proceeds toward Caspiche. The dirt road is steep in places. It first reaches Caspiche’s exploration camp (elevation 3,500 metres), a 17-km distance from the fork on the Maricunga road, and then continues to the Caspiche Central site at a distance of another 15 km. The existing road infrastructure is mostly adequate for the needs of a potential mine, but the last 32 km of dirt road would have to be upgraded.

The existing power line to the Maricunga mine passes along some portions of the unpaved road. It can be assumed that the line would not be able to support another mine, so it would have to be upgraded, and an extension built to Caspiche. It is possible that a coal-fired generating station would have to built on the ocean shore near Copiapo to meet demand from large users such as a potential mine at Caspiche and/or at Cerro Casale. In Chile, power generation is a private business, so in order to be built, such a station would have to be an attractive economic proposition.

In the Atacama, water availability can be a challenge, particularly for a bulk user such as a mine. There are a number of options that Jerry Perkins, Exeter’s vice-president of development and operations, is looking at.

The first is buying water rights from a private owner. These rights are not cheap, and can be located tens of kilometres away. Furthermore, a government permit is needed to pump the water, and such a permit is not guaranteed in view of competing uses.

Other options are to explore for water, in the hope of finding a new aquifer or to pump seawater to the project, which raises environmental, permitting, corrosion and cost issues. Nevertheless, Perkins points out that Antofagasta (ANFGF-O, ANTO-L) is planning to pump seawater to its Minera Esperanza project, near Sierra Gorda.

The planned US$253-million Antofagasta pipeline, anticipated to start operating in the first quarter of 2010, will pump seawater 144 km to a 2,200-metre elevation. The flow rate will be 720 litres per second, and maximum pipeline capacity will be 1,200 litres per second. Surprisingly, the pipeline will be made of unlined steel, despite the corrosive nature of seawater. Another surprise is the fact that the tailings dam will not be lined, since mine tailings will be thickened to 67% solids. The pipeline is permitted.

A final option for Caspiche is to desalinate seawater. This is the most expensive and energy-intensive option.

The company is in contact with the local indigenous population and keeping them informed on its progress.

Cerro Moro

While Exeter hopes that Caspiche, once explored, turns out to be a large, low-grade gold-copper porphyry deposit, the company’s second flagship project, Cerro Moro, is a high-grade gold-silver vein system that is a candidate for a much smaller, but low-cost gold-silver mine.

It is located in Argentina, a 105-km drive southwest of the port town of Puerto Deseado (population 10,000) in Santa Cruz province, Patagonia. Most of this distance is covered by an unpaved road, which is in a reasonable condition. The last 15-20 km from the exploration camp to the drilling site is covered by a dirt road. The topography ranges from flat terrain to low hills.

Exeter acquired the 100%-owned, 176-sq.-km project from a subsidiary of AngloGold Ashanti (AU-N, AGD-l), which retains a 2% NSR royalty. Fomicruz, a mining company owned by the government of the province of Santa Cruz, will have a 5% stake in the property if a mine is permitted.

The basement geology comprises gently dipping rhyolitic ignimbrites, felsic flows, acid to intermediate tuffs, tuff breccias and volcaniclastic sediments belonging to the Middle to Upper Jurassic Chon Aike and Matilde Formations. The volcanic rocks are locally overlain by Tertiary basalts and Quaternary gravels and sediments. Lowsulphidation-style epithermal gold and silver mineralization is primarily associated with a number of quartz-bearing veins that strike over distances ranging from 240 to 1,250 metres.

Although Exeter has discovered a number of mineralized veins at Cerro Moro, the company’s current focus is the Escondida vein, and it plans to produce a resource estimate for the project in the second quarter of 2009. The known strike length of Escondida is 2 km, and it is divided into four mineralized zones of about 300 metres each. A further distance of about 2-3 km has not yet been tested. Horizontal widths of the vein range between 0.5 and 5 metres, and typically between 2.5 and 3 metres.

Drilling at Escondida has returned highlights of: 14 metres of 5.7 grams gold and 20 grams silver per tonne at 200 metres depth in hole 393; 2 metres of 54 grams gold and 3,000 grams silver from 113 metres in hole 398; 0.6 metre of 21 grams gold and 54 grams silver from 124 metres in hole 340; 5.6 metres of 302 grams gold and 6,623 grams silver from 150 metres in hole 373; 1.6 metres of 19.7 grams gold and 2,046 grams silver from 90 metres in hole 311; and 0.36 metre grading 35 grams gold and 1,305 grams silver from 252 metres in hole 270.

A total of 50,000 metres of drilling has been completed at Cerro Moro, of which about 32,000 metres was reverse circulation and the rest diamond drilling. However, a substantial part of the drilling was done on veins other than Escondida. Typical drilling depth is 200 metres. During The Northern Miner’s recent visit to Cerro Moro, there was one drill rig on the property, and Exeter has since finished its drilling program.

Exeter is negotiating with Formicruz to finalize a letter of intent for an option to acquire an 80% stake in a 550-sq.-km block contiguous to Cerro Moro. A geophysical survey has indicated that the Escondida structure could extend into the Fomicruz-owned property, and Exeter would like to explore it.

Metallurgical test work was conducted on material from Escondida, which included gravity concentration, flotation and leaching. Results were good, yielding gold recoveries of 99% and silver recoveries of over 90%.

An electrical power line is located about 70-80 km away from the project. Exeter believes that the area also has enough groundwater to support a mine.

Although the company will probably base any production decision at Cerro Moro on a resource estimate of the Escondida vein alone, it can be assumed that a potential mine would eventually encompass a number of veins identified on the property. In this respect, the operation would be similar to AngloGold Ashanti’s Cerro Vanguardia mine, also located in Santa Cruz.

If exploration at Caspiche is successful, the company would probably aim to shop it to one of the majors. Conversely, Cerro Moro is sufficiently small, shallow and high-grade to support a small-scale high-margin operation. Exeter intends to bring the project to production without using outside partners. In fact, Perkins is already starting to look at the availability of suitable second-hand plants for Cerro Moro. Exeter envisages that mill throughput would range from 150,000-350,000 tonnes per year.

A third property, Don Sixto in Argentina’s Mendoza province, is in limbo since the province imposed a ban on cyanide use last year, and Exeter has filed a lawsuit seeking to declare the ban unconstitutional. At a cutoff grade of 0.5 gram gold per tonne, measured and indicated resources at the project are 20.5 million tonnes grading 1.4 grams gold per tonne for 925,000 oz. gold, while inferred resources are 9.3 million tonnes grading 1.1 gram gold for 334,000 oz.

At the end of the third quarter, Exeter had working capital of $23 million. Next fall, once the current drilling program is complete, and with two resource estimates, the company says it will have around $8-10 million left.

On Sept. 30, the company had 50.1 million shares outstanding and 57.8 million shares fully diluted. At presstime, Exeter’s shares traded at $1.92 apiece in a 12-month window of $1.05-5.57.

In a November research report, TD Newcrest analysts Daniel Earle and Shey Ylonen rated Exeter shares a speculative buy with a $3 target. In another report in November, Canaccord Adams analysts Wendell Zerb and Toni Wallis rated Exeter shares a speculative buy with a $2.30 target.