Entry for Emerging Strategic Opportunities: ESR, Estrella Resources Limited, Copper, Chile, FA. I am picking ESR as an Emerging Strategic Opportunities because I believe they are on the cusp of a major re-rating which will be driven by ongoing exploration success at their Colupo and other prospects in Northern Chile.
Company Facts: Code: ESR Name: Estrella Resources Ltd Sector: Mineral Exploration, Copper Total Shares (Listed and Unlisted): 96.6m Options Listed: Nil Options Unlisted: 11.13m Market Capitalisation: (Based on Total Shares Issued): $19.3m Latest Cash Balance: $2.5m (September Quarterly)
Management Summary Dr Jason Berton is the MD of Estrella. He has a PhD in structural geology and over 15 years mining and exploration experience in roles with BHP, Homestake and Barrick. Jason has also worked as a Senior Geology Consultant for SRK Consulting. His area of expertise lies in gold, copper, uranium and iron ore.
Julian Bevan has over 30 years experience in the mining industry with 20 years spent at Rio Tinto including 8 years as the company’s Exploration Director for South America. Julian is based in Santiago, Chile and he speaks Spanish. His in country knowledge will be invaluable as Estrella progresses their projects towards development.
Simon Kidston and Gavin Solomon have extensive experience in financial markets with both being directors of Helmsec Global Capital Limited.
Fundamental Analysis Estrella Resources Limited is an Australian explorer which has managed to pull off somewhat of a coup by securing access to a large area of ground (2,686 km²) in Northern Chile. The opportunity came about after an agreement was reached with multi-billion$ lithium producer, Sociedad Quimica y Minera de Chile SA (NYSE: SQM). The deal resulted in Estrella Resources becoming the holder of one of the largest high quality tenement packages in Northern Chile. The ground includes both brownfields and greenfields projects which are located close to exisiting mines including Antofagasta Mineral’s Antucoya (642mt @ 0.35% Cu) and Michilla (67mt @ 1.59% Cu).
The tenements straddle the highly prospective Atacama Fault Zone for 130km with the region known to host numerous world class copper/gold deposits.
Highlights of Option Agreement from Feb 2013: • 5 Year Option Agreement with SQM for Project Altair. • Exclusive right to explore/develop 2,686km² of tenements which straddle the prospective IOCG belt along the Atacama Fault Zone for 130km. • Additional ground secured linking Altair North and Altair South. • Estrella now has one of the largest prospective IOCG tenement portfolios in Chile. • Estrella entitled to earn a 100% working interest in all metal discoveries (subject to 49% claw back rights or, alternatively, royalty payments to SQM).
Estrella Tenement Package: Northern Chile
Colupo Prospect: Providing Near Term Upside Exploration at Estrella’s Colupo prospect is well underway with significant results already received. This project has the potential to deliver the company’s first significant copper / gold resource in Chile.
Location of Colupo Prospect
Results for the first four holes at Colupo have now been received and the company has hit high grade mineralization from near surface. Results included the following intersections:
20m @ 2.4% Cu from 12m (RCC04) incl. 6m @ 6.6% Cu, 0.5 g/t Au & 27.1 g/t Ag 16m @ 1.5% Cu from 131m (RCC04) incl. 6m @ 2.2%Cu, 0.2 g/t Au & 11.8 g/t Ag 20m @ 0.9% Cu from 144m (RCC02)
Overhead Image of Colupo Project
Other Key Factors on Colupo 1. Mineralisation extends laterally from surface and vertically to at least 150m (note previous exploration by SQM had only tested down to 70m).
2. Breccia IOCG and Strata-bound systems confirmed at Colupo (any resource is likely to have gold credits which will improve the economics).
3. One hole has identified Strata-bound or Manto style mineralisation beneath the oxide zone which could add a new dimension to the prospect (Manto style deposits tend to be much higher tonnage with pervasive mineralsiation throughout).
4. To date only 3 hectares of a total 2,650 hectares at Colupo has been explored.
Results from the first four holes were consistent with those achieved by SQM. Historical results from SQM at Colupo have included: • 31m @ 1.39% Cu from 28m • 22m @ 0.98m Cu from 28m • 39m @ 0.63% Cu from 1m • 8m @ 1.34% Cu from 55m • 35m @ 0.60% Cu from 6m
I believe that the most significant statement in the results announcement released to the ASX on the 11th of November, 2013 was that the multi-mineralisation system at Colupo appears to be consistent with other nearby operating mines including Michilla (66.7mt @ 1.57% Cu) and Mantos de la Luna (40.5mt @ 1.39% Cu). It would appear that Estrella is targeting a resource of a similar size and grade at Colupo.
Given the positive indications so far ESR has decided to expand the drilling program so there will be a regular flow of news to maintain the interest of investors. Results for the next five holes are due in by the end of November with drilling scheduled to re-commence in early December.
Antucoya East and West The Antucoya East, Antucoya West and Saturno prospects are immediately adjacent to Antofagasta’s PLC giant Antucoya project which has a resource of 642mt @ 0.35% Cu and is currently being developed with an investment of $1.9B.
The prospects cover a total of 92.75 square kilometres with similar a similar magnetic signature to Antucoya, meaning that there is potential for significant a porphyry discovery. Antofagasta have recently been drilling on the boundary of Estrella’s tenements further highlighting the potential.
Location of Antucoya Prospect
The forward work plans for the prospect in 2014 include IP, resistivity and Magnetotelluric surveys to help identify ‘Antucoya type’ copper targets, follow up infill geophysical surveys on identified anomalies to be followed by drilling of priority targets.
Another significant but important factor regarding this project is its proximity to Colupo. Antucoya is approximately 9km away from Colupo so there could be potential for Estrella to sell high grade ore to feed Antofagasta’s “hungry” new operation.
A Comparison with Hot Chilli Ltd, ASX Code: HCH Hot Chilli Ltd has a JORC resource of 165mt grading 0.6% Cu, 0.1g/t Au and 132 g/t Mo (Molybdenum) with 1mt of contained Cu. Within this resource there is a high grade component of 53mt @ 0.8% Cu and 0.2 g/t Au with 420kt of contained Cu.
Based on results so far ESR’s Colupo prospect should have a higher average grade, hopefully well north of 1.0% Cu with gold credits (note that current holes are being assayed for gold content). A resource of around 50mt at Colupo with a grade of around 1.5% Cu on average would contain 750kt of Cu. This is very sizable for a junior like ESR with a market capitalization of only $20m.
With a market cap of around $20m ESR may be the next Australian company to emulate the success achieved by Hot Chilli and based on the difference in market capitalisation there appears to be plenty of upside left in the share price.
