Metminco's Imminent Resource Upgrade Should Help It Shake Off The Drag Of Peru's Political Uncertainty
By Our Man in Oz
How do you measure an elephant? In a zoo you might reach for a very large set of scales, but in the mining world it�s not quite that easy, as the South American copper and gold specialist, Metminco is discovering. The only way it can measure its elephantine Los Calatos project in southern Peru is to drill, and with gusto. So that's exactly what the ASX and Aim listed company has been doing since late last year, in an endeavour to build on a resource already estimated to stand at a very respectable 926 million tonnes of material assaying 0.51% copper equivalent, with the equivalent being provided by molybdenum. But, even with four diamond drilling rigs on site, and with up to four more on the way, to make Los Calatos one of the busier exploration projects in the region, investors appear to have been losing sight of Metminco. Its share price has been sinking at about the same rate as the drill holes.
The decline, from a near 12-month high of A47 cents early last month to recent trades of around A29.5 cents could be a directly related to the result of Peru's recent presidential election which was won by a socialist-populist former army officer, Ollanta Humala. What particularly concerns investors is that Mr Humala once promised to model himself on Venezuela's far-left president, Hugo Chavez. More recently, however, he has shifted his rhetoric to say that Peru's road ahead would be modelled on that of Brazil. Last week, Humala flagged his re-direction by making Brazil his first port of call since being elected.
Political uncertainty is nothing new in South America, and if it is clouding the way investors see Metminco then those making an exit from the company over the past month might soon have cause to regret their decision. Over the next few weeks, perhaps as early as by the end of June, Metminco is expected to release a detailed statement which will update on its work at Los Calatos and provide a fresh estimate of the size of the classic South American copper porphyry system it is exploring. And it could be about to get pretty big, as the company already has 926 million tonnes outlined.
Phillip Wing, a founding Metminco shareholder and non-executive director, told Minesite's Man in Oz that exploration at Los Calatos is reaching an important point. �We know from work to date that it will be more than a billion tonnes, he said, a statement which doesn't give too much away, given that Metminco was almost there before it even started its current 50,000 metre drilling campaign. We're trying to establish whether it's two, three, four, or five billion tonnes. That's our challenge.
If Los Calatos is indeed a structure of that size it will not be a complete surprise. Nearby, are a number of existing copper mines working orebodies in the three billion tonne range. Roughly along strike from Metminco's exploration target are the Toquepala and Cuajone mines and the Cerro Verde project. They range in size from 2.7 billion tonnes of ore to 3.7 billion tonnes, with copper grades ranging from 0.4% to 0.52%. The current estimate is that Los Calatos grades 0.37% cent copper and 0.027% molybdenum, to give that copper equivalent figure of 0.51% for a contained 4.7 million tonnes of copper equivalent in metal.
Metminco embarked on its current drilling campaign at Los Calatos late last year with four rigs drilling holes up to 2,000 metres in length which, allowing for the drill hole angle, means they have a vertical depth of up to 1.8 kilometres. The additional rigs on their way to site will lift the monthly cash outlay on the drilling from around A$1.2 million to A$2 million a month, paid for largely from the proceeds of a recent A$30.4 million capital raising. Despite such a focussed effort and heavy expenditure on a project which can already be classified as world-class, most investors have a limited understanding of what�s happening, partly because of the sluggish news flow and limited release of assays.
But fresh light will soon be thrown on Los Calatos. One of the issues with the porphyry we're exploring is that it doesn't express itself at surface, Phillip said. It is a big and complex project, which will be made clearer when we make a major release of data in late June, or possibly with the quarterly report in July. What we're trying to do is get a much clearer understanding of the size and shape of the structure. Our earlier statements have shown the structure to be open everywhere. What where trying to do with the first part of this 50,000 metre campaign is try and find, in particular, the northern and southern boundaries, and get a better sense of the size of the mineralised envelope.
For investors, the best way of looking at what Metminco is chasing at Los Calatos (and its other projects across the border in Chile) is to take a look at slide No.19 on the latest management presentation, available on the company's website. The illustration shows the outline of the original 2009 resource, and the much bigger interpreted outline of copper/molybdenum mineralisation, and it also shows the first of the drill holes to the north and south of the 2009 resource envelope.
To help understand the drilling, and perhaps go a bit further than the company can at this stage, Minesite's Man in Oz matched up the illustration with assay results contained in Metminco's April 14 quarterly report. Two of the holes (CD24 and 25) passed through a portion of the original resource and returned very encouraging assays, including 511 metres at 0.55% copper plus 725 parts per million (ppm) molybdenum, and 684 metres at 0.63% copper and 1,350 ppm molybdenum.
The really interesting hole was CD28, located beyond the southern boundary of the 2009 resource envelope. It returned 211 metres at 0.58% copper and 91 ppm molybdenum, an indication that mineralisation does extend beyond previously known boundaries. What investors should now keep an eye out for are the results to come from CD29 which tests the far northern boundary, as well as from CD30 and 32 which further test the south of the structure. And it is the imminent release of the fresh drilling data, complete with assays from the deep drilling, which makes Metminco a company well worth keeping an eye on.
MNC Price at posting:
29.0¢ Sentiment: Hold Disclosure: Not Held
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