Riverside Takes Novel Approach To Exploration

SITE VISIT

PENOLES, MEXICO–Other companies missed it, but not Miguel Heredia. He has strong geological legs.

Riverside Resources’ (RRI-V, RVSDF-O)Mexico exploration manager strides up the steepening slope of Capitan Hill just short of a jog, wending through prickly cactus and wiry mesquite trees. Those visiting Riverside’s Penoles property today, about 40 km north of Rodeo, Mexico, straggle behind, huffing on dry Durango state air, and eventually catch up to Heredia at an outcropping of a strongly silicified breccia that he wants to show off.

By the time the group arrives, Heredia is methodically hammering rock and finding specks of gold through his hand lens. “Here,” he says, passing around fists of stone. “Some days it can take a while to find — but not today.”

Here and there visible gold dots the silicified rock from a sedimentary- volcanic contact zone Riverside calls the El Capitan structure. Striking northwest, it outcrops along about a kilometre of Capitan Hill’s north-facing flank. The sedimentary rocks lying below the contact zone are siltstone, shale and limestone, while above it the volcanics mostly come in the form of rhyolite breccia.

“Previous companies misinterpreted it,” Heredia explains, now speed-hiking up over the volcanic crest of Capitan Hill a hundred or so metres beyond the contact.

“They thought it was just a vein,” he says. “But then I walked over the hill and I encountered a lot of silicification.”

He and another Riverside geologist, Carl Nelson, quickly realized they were standing on a hot-spring- style epithermal system capable of hosting a bulk-tonnage disseminated gold mineralization.

As Riverside’s president and CEO John-Mark Staude puts it, “the hot spring call seems obvious now.” But in an area where Mexican mining giant Industrias Penoles (IPOAF-O) made its name in the late 1800s and early 1900s on high-grade silver from the region’s silver-rich vein systems, “No one would have thought to look for that,” he says.

A unique database

Staude says the two were on a field reconnaissance trip on one of 18 properties Riverside had decided to take a look at in Mexico. Of those, Riverside geologists visited six, and following what Staude credits as Heredia and Nelson’s good geological sleuthing, the company optioned the El Capitan property at the beginning of 2008.

To earn a 100% interest, it must pay a private holder US$400,000, issue 1.98 million shares and spend US$1.65 million, all over four years. The private holder also retains a 2% net smelter return royalty, but Riverside can reduce that to 0.5% for an additional US$500,000.

That Heredia and Nelson had the chance to make a good geological call is in large part because of Riverside’s novel approach to prospect generation in Mexico. Staude has developed a multi-layered proprietary database of mineral properties in Mexico.

“That kind of information does exist in Canada,” Staude says. He notes that in Canada, a prospector or mining company could easily get information from a provincial mineral office such as historical exploration data, regional geology, property ownership and the state of local infrastructure as they try and develop targets that fit their business model. But in Mexico, Staude says, that information isn’t by and large available from the government.

So Staude had Riverside gather it in a database, which, in turn, became capable of locating potential prospects based on a user’s criteria. For instance, he says, to generate the Capitan prospect, Riverside narrowed down several hundred potential properties to those that might be suitable to a near-surface, oxide, heap-leach operation. In the process, Staude identified those six properties the company had visited, including El Capitan.

It is this kind of Mexican expertise that has caught the eye of Kinross Gold(K-T, KGC-N), which owns a 7% stake in Riverside. The gold giant recently signed an exploration alliance with Riverside to explore the Mesa Central region of Mexico for potential targets using both Riverside’s field knowledge and its database. Over the next two years, that program will see Kinross spend US$800,000 and Riverside US$300,000 on generating prospects. With about $3.3 million in the bank and $600,000 in work commitments in 2009, Riverside won’t have a problem meeting its share of exploration expenditures.

Six months ago, Staude might not have believed he would become an information farmer. But after the market soured this fall Staude, ever the entrepreneur, realized Riverside needed to look for alternative ways to raise money, beyond the typical exploration/equity model.

“The thinking was rejigged after the markets corrected,” he says.

He realized that Riverside might not only sell its own properties but its ability to generate them using its database. Now Kinross has become one of its first customers.

If the joint exploration program is successful in finding properties worthy of progression, Staude says Riverside and Kinross will negotiate terms of any partnerships. Though it would depend on the nature of the property and its ownership status, terms at the outset would likely see something along the lines of a 51%-49% partnership in favour of Kinross.

Staude says he is giving Kinross a presentation at the Prospectors and Developers Association of Canada convention in Toronto where he will show them potential targets.

Later that day, Staude stands among drill-hole core laid out in a concrete courtyard of a building Riverside rents in the village of Penoles. It’s a small village just below Capitan Hill, the population of which Heredia counts by the family. There are ten. And although half the courtyard is dedicated to core, villagers use the other half to stack hay.

So far, Staude says, El Capitan is Riverside’s main focus on the Penoles property, but it has several other prospective targets on the 350-sq.- km property it blanket-staked north and south of El Capitan.

At El Tubo, about 1.5 km northeast of El Capitan, there appears to be another disseminated gold mineralized area that Riverside has yet to drill. There are also two vein systems that Industrias Penoles mined for silver at the turn of the 19th century and that may hold more.

Tests of dump material from Jesus Maria, a vein system running essentially parallel to the El Capitan contact and about 300 metres north of it, have returned as much as 255 grams silver per tonne. And chip sampling at San Rafael, an east-west-striking vein system northeast of the village of Penoles, assayed as high as 180 grams silver.

For Staude, these targets are on his to-do list. But for now, while gold prices reign, El Capitan is solidly at the top.

In the year since it optioned the property, Riverside quickly drilled five holes and these have not only verified Heredia and Nelson’s hot-spring theory but have begun to define an interesting disseminated gold mineralization.

Alternatively pointing to the transition between sedimentary and volcanic rocks in the boxed core, Staude explains gold mineralization percolated through porous rhyolitic conglomerate and sedimentary rocks forming a main zone of mineralization either side of the El Capitan contact about 30 metres thick and mostly grading between 0.25 gram gold and 1 gram gold per tonne.

Holes 1 and 2 intersected the best of it so far. Hole 1, drilled a few hundred metres from what Staude believes is the northwestern edge of the mineralized area, hit 30 metres grading 0.53 gram gold, starting 47 metres down-hole. Hole 2, collared about 200 metres south, cut 32 metres grading 0.659 gram gold starting at 90 metres. In the first hole, the bulk of gold mineralization appears to occur higher up in the volcanics, while in the second, much of the gold mineralization is in both the contact and below it in sedimentary rocks.

Staude says that to gauge the extent of the mineralized area, Riverside drilled hole 3, collared about 800 m
etres south of hole 1. At depths of 31 metres, 75 metres, 85 metres and 183 metres, respectively, it returned four mineralized intercepts: 4 metres of 0.86 gram gold, 4 metres of 0.724 gram gold, 26 metres at 0.275 gram gold and 7 metres of 0.443 gram gold.

The five holes drilled by Riverside so far, along with three historic holes drilled in 2004 by Aurcana (which was looking for vein systems at the time but noted the low-grade gold) has led to a known mineralized area about 700 metres long and 200 metres wide that is open to the south and west.

Staude believes it has the makings of an open-pit heap-leach mine, something akin to Castle Gold’s (CSG-V, CSGLF-O) Castille mine, about 75 km south. That heap-leach operation, which has a proven and probable open-pit resource (based on US$650-per-oz. gold) of 46.8 million tonnes grading 0.5 gram gold, began operations last year and is expected to produce about 30,000 oz. gold a year.

“Now here’s someone in our area mining exactly something like (El Capitan),” Staude says. Ideally, he continues, Riverside would find a partner like Castle Gold that has technical competence and which isn’t “going to sit on it and do nothing.”

And so, Riverside is currently in discussions with several companies to partner on a 2009 drill program. The big questions are over what kind of grades lie between hole 3 and hole 1 and how far the mineralized area extends southeast and northwest of the holes, respectively. If the deposit turns out to be economically feasible, Staude notes that the El Capitan is not only located near grid power, has good water and is accessible by road, but that Riverside has a solid relationship with the people of Penoles.

That is in large part due to the diligence of Heredia. Not only is he a savvy geologist, but he also doubles as Riverside’s community liaison. It is a subject for which he cares deeply.

“Sometimes geologists come in (to a village) arrogant and people don’t like that,” he says. It might be that geologists do not ask permission to walk on the property of locals or they might not take the time to simply chat, he says. These kinds of perceived slights often ferment animosity between exploration companies and locals.

“Just talk to the people,” he advises. “That’s what we’re doing here. I always stop for two or three hours to have coffee and talk and tell them what we’re doing and ask what they need.”

To that end, he recently helped fix the local wind mill out of his own pocket and since then, he says, people always ask if there is something they can do for him. In this respect, it appears that Heredia is not only acting with Riverside’s interests in mind.

“You have to be human,” he says.