Inca Pacific explores copper deposits in Peru

What a difference a year can make, especially for those involved in the mining and exploration business. In 2002, commodity prices were languishing and the treasuries of most companies were dwindling. These factors combined to stall exploration on most companies’ key projects and limit acquisition opportunities.

Such was the case for Inca Pacific Resources (IP-V). In February 2002, Inca Pacific had working capital of $580,000 and the price of copper, the company’s commodity of choice, was only US75 per lb. Inca Pacific’s two key projects, the 49%-owned Magistral copper-molybdenum project and the wholly owned Antoro Sur copper-gold-silver prospect, were in limbo. They were in need of funds for drilling. Toward the end of 2003, however, Inca Pacific had raised its working capital to approximately $5 million through the issuance of 25 million warrants priced at 20, and the copper price had almost doubled to US$1.30 per lb. The company’s fortunes had changed.

The turnaround began in the fall of 2003, when Inca Pacific was granted a 180-day option to acquire the remaining 51% interest in Magistral from its partner, Anaconda Peru, a wholly owned subsidiary of Antofagasta. (Previously, Inca Pacific had granted Anaconda an option to earn up to a 65% interest in Magistral, and Anaconda had earned a 51% interest by making expenditures in excess of US$5 million.) The price to re-acquire the 51% interest was US$2 million, and in February 2004, with cash in hand from the recently completed financing, Inca Pacific acquired Ananconda’s share, giving it a 100% interest in the project.

Magistral

The Magistral project is situated approximately 450 km northwest of Lima, Peru, and 100 km northeast of the seaport of Chimbote. The property straddles a glacial valley at an elevation ranging from 4,100 to 4,300 metres, and mineralization is found on surface.

By 2001, Anaconda had completed 76 drill holes totalling almost 25,000 metres. Drill holes were spaced on centres varying from 50 to 200 metres, with most of the high-grade portion of the deposit drilled off on 100-metre centres. In addition, Anaconda had completed engineering scoping studies, along with preliminary environmental, geotechnical, metallurgical and soci-economic studies at a cost of approximately US$6 million.

This work enabled Anaconda to delineate a total geological resource of more than 105 million tonnes averaging 0.74% copper and 0.052% molybdenum, plus 3.9 grams silver per tonne, equating to 1.7 billion lbs. copper, 115 million lbs. moly and 13 million oz. silver. The resource was calculated using a cutoff grade of 0.5% copper. Preliminary metallurgical test results indicate a copper recovery rate of 94% and a moly recovery rate of 62%.

At first glance, the economics of the project appear to be solid, with the net present value of the Magistral being $150 million using a discount rate of 10%, a copper price of US$1 per lb., a molybdenum price of US$5 per lb., and a silver price of US$5.50 per oz. But this is only the first glance, and more drilling will be needed (perhaps as closely spaced as 50-metre centres) to firm up the resource figure. Currently only 29% of the resource is in the measured category, whereas 31% is classified as indicated, and the remaining 40% is inferred.

In addition to the known geological resources, several zones of mineralization remain unchecked. The deposit remains open at depth; in particular, the high-grade west- and northwest-plunging hangingwall of the main intrusive stock represents a target that could yield more resources.

Now that Inca Pacific has cash, and the market is supporting a strong copper price, the company will begin a new phase of exploration to advance the project. Recently the company engaged AMEC Peru to begin a bankable feasibility study at Magistral. The feasibility, which should take two years to complete, will include a 3-phase work program. The first phase will consist of fieldwork, an infill drill program, a mineral resource estimate and a scoping study. All of which are expected to be completed by September 2004. The second phase includes follow-up drilling and preliminary feasibility study activities, and should be completed in March 2005. The third phase includes all activities to prepare and present a bankable feasibility report by March 2006.

According to Inca Pacific, Magistral possesses several advantages that should help the project along its path to development. From a geological point of view, the mineralogy and metallurgy are straightforward, and the geology as whole is not complex. The location of the property, at an elevation above 4,000 metres in a somewhat remote portion of the country, also suggests that the potential for land-use conflicts will be low.

Inca Pacific says the local population has been helpful and sympathetic to its endeavours.

Antoro Sur

Inca Pacific’s second project is the Antoro Sur copper-gold project, situated 230 km southeast of Lima. Last year, the two claim blocks that comprise the Antoro Sur property were optioned as part of a larger group of claim blocks, which also included Antoro Norte 1 and Antoro Norte 2 properties. Initial field investigations completed later in the year determined that the Antoro Sur property had the best potential for hosting a supergene copper deposit, and the Norte properties were subsequently dropped.

In preparation for drilling, Inca Pacific conducted geophysical surveys and geological mapping to identify targets on the property. An 1,866-metre drill program was undertaken to test several areas of secondary copper sulphide and oxide mineralization. Twenty-one of the 25 holes were drilled on the southern claim block. The drilling intersected supergene-enriched secondary copper sulphide mineralization in 18 of these 21 holes, with eight intersecting mineralization averaging more than 0.75% copper over intervals ranging between 7.6 and 40.5 metres. The best hole cut 1.35% copper and 0.46 gram gold per tonne over a true thickness of 35 metres.

These eight holes are in the central portion of the southern claim block area, which was previously worked by Rio Tinto. Together, this work suggests that the Antoro Sur southern claim block is underlain by a partially eroded zone of supergene-enriched secondary copper mineralization, which covers an area measuring 900 by 1,050 metres. The limits of this mineralization have not been established, and work by Rio Tinto suggests it may be open in several directions.

The company plans to complete an additional 3,000 metres of infill and step out drilling at Antoro Sur in order to define a preliminary resource. Metallurgical and environmental studies will be initiated as well.

— The author is a Toronto-based geologist and freelance writer.