Peruvian gov’t suspends Dorato’s drill permits

Vancouver – Dorato Resources (DRI-V) has been forced to suspend the nascent drill program at its Cordillera del Condor project in northern Peru on orders from the Peruvian government, which appears to be nervous about a political protest for the area scheduled for Feb. 22nd.

Dorato has a right to acquire 100% of Minera Afrodita, a Peruvian company with mineral title to almost 800 sq. km of land in northern Peru’s Cordillera del Condor. The region, which lies on the Ecuador border, remained essentially unexplored until recently. Dorato’s drill program, operated through Minera Afordita, is the first drill program ever in the region.

Now the program is suspended. Minera Afrodita received the necessary drill permits in mid-December and informed the government soon after that drills had started turning. Now, almost two months later, the government has suddenly asked Minera Afordita to present evidence of its authorization to use the land.

Dorato’s president and CEO, Keith Henderson, says the suspension and request are “ridiculous” and “have no legal basis.” He says the property sits on state land and, according to the Peruvian Mining Law, when a company has mining claims and a valid drill permit for a project on state lands no further authorization is required.

“There’s no mechanism or procedure in place for Minera Afrodita to do what the government has asked them to do because it is not required,” says Henderson. “There is no legal basis whatsoever for what the government has done.”

Henderson thinks the government’s move to suspend Dorato’s drill permit is motivated by its nervousness about a protest planned for Feb. 22nd. In mid-2009 a protest at a town some 250 km south of Dorato’s project, led by non-governmental organizations (NGOs) that oppose mineral exploration and development as well as logging, went horribly wrong when government troops opened fire on protestors, killing 12 people.

In the last 18 months the area has not seen any such activity and Henderson says Minera Afrodita worked hard to advance its community outreach programs. But on or around Feb. 15th one of the NGOs involved in the 2009 tragedy announced plans to hold a new protest, closer to Dorato’s project, on Feb. 22nd.

“My guess is the government was feeling nervous about what might happen on the 22nd and rather than trying to deal with the situation they decided to suspend Minera Afrodita’s drilling activities,” says Henderson. “But they didn’t have a reason to do so because we’d complied with everything so they basically had to make up a reason.”

Henderson and his team quickly gathered a legal team and put together a news release. The strongly-worded release emphasizes that Dorato sees no legal basis for the permit suspension; that the suspension will do nothing to control the illegal mining operations being conducted on Peruvian soil by non-Peruvians, which cause the significant environmental damage that the involved NGOs blame on Minera Afrodita and that is rampant on the Ecuadorian side of the border; and that the area is highly prospective for significant discoveries that could, if put into production, represent significant social and financial contributions to Peru.

Dorato will be lodging official complaints with the Peruvian Consulate in Canada, the Canadian Foreign Office, the Canadian Consulate in Lima, and the highest levels of the Peruvian government. The company will also lodge a complaint under the recently-signed Canadian-Peruvian free trade agreement.

More generally, Henderson is surprised that the government of a country in which mining is so important would make such a move.

“Peru is supposed to be a mining country; such a large percentage of its GDP comes from mining,” he said. “It’s been known for having stable mining legislation and jurisdiction. But now we’re looking at a situation where the law is being applied arbitrarily or made up. So where does that leave Peru, if that’s what they’re going to start doing?”

There is no argument that the Cordillera del Condor holds exploration potential but it has remained unexplored for years because of instability in Peru. In the 1980s the Shining Path group terrorized the country in its attempt to overthrow the democratic government and replace it with a Communist system. Just as that unrest was settling, in 1995 the country’s long-standing border dispute with Ecuador boiled over once again, resulting in a month-long conflict.

In 1998 Peru and Ecuador signed a comprehensive peace accord ending the border conflict. Peru established a security zone along the border; since mineral and petroleum exploration were not allowed within the security zone the area was also protected in a manner similar to a park.

When the government dissolved the security zone Minera Afrodita staked swaths of land. Soon after, Dorato started signing option agreements with the Peruvian company, securing the right to acquire 100% of 800 sq. km of prospective territory. The project area sits right on the border, placing it tens of kilometres from several significant gold deposits in Ecuador. Kinross Gold‘s (K-T, KGC-N) 13.7-million ounce Fruta del Norte gold deposit, for example, is less than 20 km west of Dorato’s northern-most land package.

Dorato spent the last two years mapping and sampling parts of its large land position and kicked off the region’s first drill program ever in mid-December. The program was probing the Taricori gold zone, an area of historical artisanal gold workings. Channel sampling of veins in production adits returned an average grade of 11.45 grams gold per tonne, 130.5 grams silver per tonne, 3.92% zinc, and 1.26% lead from 210 samples.

News of the government’s sudden, unexpected decision to suspend Dorato’s drill permit overshadowed the second set of assay results from the budding drill program. In the first set of results, out a week earlier, hole 1 returned 32.2 metres grading 1.03 grams gold from 78 metres depth, hole 3 cut 14 metres averaging 0.93 gram gold from 35 metres downhole followed by 13 metres of 1.36 grams gold from 81 metres depth, and hole 6 hit 38.1 metres carrying 0.51 gram gold from 24 metres downhole followed by 27.3 metres averaging 0.75 gram gold from 154 metres depth.

It is in the second batch of drill hole results, however, that Dorato’s project is starting to show its potential. The first holes were collared on a platform on the periphery of the known system. The drill was then moved in towards the centre of the system.

Hole 12 cut 18 metres grading 35.9 grams gold, 46.9 grams silver, and 1.07% zinc, starting just 16 metres downhole and including 14 metres averaging 46.1 grams gold. A second interval, starting at 49 metres depth, stretched over 22.7 metres and graded 3.39 grams gold, 16.2 grams silver, and 0.96% zinc.

Hole 2, results from which were delayed by re-assaying, extended the known strike of the high-grade sulphide veins 50 metres to the west when it returned 12 metres grading 4.58 grams gold, starting 316 metres downhole and including 4 metres of 12.81 grams gold. Hole 7 intersected an unknown underground working, returning 1.5 metres of 4.59 grams gold and 37.9 grams silver from the hanging wall and 2.8 metres of 3.49 grams gold and 126.3 grams silver from the footwall.

“The results, as you can see, are somewhere between spectacular and excellent,” said Henderson. “These are the first holes to be drilling in the region and this is the first target, and look at what we’ve found. I think we’re proved the prospectivity of the Cordillera.”

The news pushed Dorato’s share price down 17¢ or 21% to close at 65¢. The hit was not as big as some expected, however. Given that Cordillera del Condor is Dorato’s only project, if investors believed the drilling suspension was actually indicative of a move to permanently ban exploration and development in the area the company’s share price would have plummeted much farther. Indeed, Henderson said the investors and funds he spoke with generally
believed “this will get sorted out.”

Dorato recently closed two private placements, both of which offered units for $1.05 a piece, to raise just over $15 million. Each unit comprised a share and half a warrant exercisable at $1.09 for two years. The company has a 52-week trading range of 35.5¢ to $1.35 and has 68 million shares outstanding.