Chakana Copper (PERU) - Technical Analysis

Chakana Copper Corp. is a Canadian-based minerals exploration company and through its wholly-owned Peruvian subsidiary, Chakana Resources S.A.C. is currently advancing the Soledad project near Aija, in the Ancash region of the highly prolific Miocene mineral belt of Peru.

Merlin Marr-Johnson caught up with David Kelley, President, CEO, and Director, Chakana Copper. David is an economic geologist, and an exploration geochemist with over 25 years of international exploration experience across the Americas, Central Asia, and Australasia. He previously worked for Oz Minerals, Zinifex, Newmont, WMC, BHP, West Mining, and Gold Standard. His educational credentials include a B.Sc. degree in geology from Colorado State University and an M.Sc. degree in geology/geochemistry from the Colorado School of Mines. He previously served as a President for both the Society of Economic Geologists Foundation and the Association of Applied Geochemists.

Company Overview

Chakana Copper is a minerals exploration company. The company was founded in 2016 and is headquartered in Vancouver, Canada. The company is listed on the Toronto Stock Exchange (TSX-V: PERU), the OTC Markets (OTCQX: CHKKF), and the Frankfurt Stock Exchange (FRA: 1ZX).

Chakana Copper is a junior company exploring the Soledad project in central Peru. The company made an exciting copper-gold-silver discovery on the project back in 2017. It has spent the past few years drilling out multiple high-grade Tourmaline breccia pipes that host mineralization.

The company recently released an initial resource on 7 of the breccia pipes featuring extremely high grades. It anticipates that the property hosts 50 to 100 breccia pipes that need to be drilled. The company has planned an aggressive exploration program for 2022. Following this, it plans to test the upside potential of the project next year.

The Soledad Project

In 2012, while employed by MMG, David Kelley became interested in the Soledad project. The key highlight of the project was that the grades in the tourmaline breccia pipes were really good. When Chakana Copper was founded, the company went back to see if the Soledad project was available.

Notably, Tourmaline breccia pipe systems are common globally and their presence has been well documented. Tourmaline breccia pipes are often associated with porphyry. The company was interested in determining if these breccia pipes featured an underlying mineralized porphyry.

The Soledad project is situated in the Miocene belt of Peru, a highly prolific mineral belt. This belt is commonly known for hosting porphyry copper systems, skarns, high sulphidation systems, and low sulphidation systems. The company was looking to determine whether these pipes were linked to a porphyry at depth or not. When Chakana Copper was founded, the company went back to see if the Soledad project was available.

A part of the property position was available, leading to the company signing an agreement on the property. During the first year of operations, the company tripled its land position, expanding to the south. This expansion was crucial to capture the geologic opportunity, a 12 square kilometre footprint that encompassed the tourmaline breccia pipes.

The tourmaline breccia pipes were of interest to local geologists as well because the pipes had metal associated with them. Some of the breccia pipes have obvious features as they form monument outcrops. These outcrops are a result of the pipes being replaced by silica and tourmaline, a resistant weathering material. In most cases, a positive outcrop demonstrates the exact position of the breccia pipe. The area has been glaciated and some of the pipes are covered by glacial debris. There are often boulder trails associated with breccia pipes. Tracing these boulders can often lead to the source.

This area also features blind breccia pipes that did not reach the surface. It is important to note that the blind breccia pipes are not volcanic breccia. The blind breccia pipes did not erupt at surface, instead the pipes stopped when there was still 1-2km of rock overburden above them, influencing the shape of the breccias.

Formation of Tourmaline Breccia Pipes

In terms of the basic geology, a porphyry intrusion evolves, matures, and fractures, while volatile metals build up in the cupola of the porphyry. There comes a point in time where the boron-rich fluids with the tourmaline overcome the lithostatic pressure along with the weight of the crust above. This leads to the popping up of a tourmaline breccia pipe at the surface.

High energy along with the placement rushes up, breaking the rock while causing fragmentation. The structure cools as it goes up and rises to a point where the forces balance out.

The outcropping stops once the built-up pressure is released from the porphyry below and the energy is fully expended. The Soledad project’s drill core features shingle breccias, flat tabular structures that lie in a flat arrangement. The volatile intrusion leads to crystallisation that holds its space once the built-up pressure is released, leading to the formation of open spaces. Following the explosion and brecciation at the rock column above the zone, the rock falls down.

Based on Chakana Copper’s highly-detailed stratigraphy, it was found that the downward displacement is 100m. This means that a lot of open space is created as the rock is broken and is falling down the pipe. The rock serves as a great host rock for hydrothermal fluids. These fluids carry the metal that  eventually impregnates and cements the broken rock. This leads to the spectacular mineralized breccia textures found at the Soledad project.

Property Agreements

Chakana Copper’s Soledad project is formed by 3 agreements that encompass a 3,000-hectare land position, capturing the footprint of the tourmaline breccia pipes. In addition, Chakana has staked an additional 1,400 hectares. The original two agreements were both 100% purchase option agreements where once the final payments are made, the company would gain 100% ownership. Each of these agreements has a small royalty associated, half of which can be bought in one case, while 100% can be bought in the other. The company is focused on 100% ownership of the Soledad project to create shareholder value.

In April, a $4.425M payment is due for the northernmost agreement that covers one-fourth of the property.

Additionally, the company has a smaller $1.5M payment due in 2023. This would be the final payment that would grant Chakana Copper 100% ownership of the property, including the area where the Huancarama, Paloma East, and Paloma West breccias are based. These breccias are open at depth and are a part of the company’s current resource. The company intends to continue adding tonnes to all the breccia pipes as well as discovering new breccia pipes. It has numerous targets within the property.

The company’s other notable agreement is on the southern half of the property. This area features 3 large claims that are held by Barrick Gold, the largest gold producer in the world. Chakana Copper has an exploration agreement with Barrick Gold. As part of the agreement, Barrick Gold has a one-time back-in right on the 3 claims.

This allows Barrick to back in if it sees potential in the project. In case the company does not invoke this clause, Chakana Copper will get a 100% ownership of the subject to a royalty on the 3 claims, part of which can be purchased.

Financing Considerations

Chakana Copper is currently working on a plan to cover the pending payments. As a junior mining company, the company has a variety of financing options. The company’s Chairman, Doug Silver is known for his skills in closing deals and acquiring all types of financing within the industry. Doug is an expert in royalties, streams, streaming deals, equity, and debt deals. The company is working internally to determine the best financing options in the interests of its shareholders.

The company has a very strong institutional shareholder base. Gold Fields, the 7th largest gold producer in the world is an equity holder that owns 19.99% of Chakana Copper. The company has been successful in attracting highly-stable and long-term shareholders that understand the mining industry. It recognizes that huge gains can be made by junior mining companies through discoveries and delivery of results. However, It is cautious against any potential issues that might arise as a result of a changing political climate or other unforeseen circumstances.

Drill Permits

In June 2020, Chakana Copper announced that it had obtained the drill permits for the area covering the Huancarama and Paloma breccia pipes. The company is now fully-permitted on the north side of the property. It had to face an 18-month delay in acquiring the permits on the central area where the Huancarama, Paloma East, and Paloma West targets are based.

The agency and the government that manages land ownership for taxation had an error in the database that caused the delay. The database incorrectly showed that the parcel of land on the north side was owned by a community.

To resolve this, the company shared 20 years of tax records from the private individual that was the previous owner of the property. The company was able to eventually convince the government that the land was privately owned and there was a mistake in the database. Eventually, the government acknowledged the error and Chakana Copper was able to obtain the required permits.

The Breccia Pipes

Chakana Copper has identified around 100 breccia pipes, out of which around 16 have been tested so far, and 7 have been included in the inferred resource.

Last year, the company tested a limited number of targets as it was focused on getting the resource done. It carried out extensive drilling on the 7 breccia pipes. It is important to note that this was a demonstration of concept as the company was looking to showcase that these breccia pipes are attractive targets with high-grade hands in the resource estimate. The drilling found that the breccia pipes featured excellent continuity.

The company discovered zones featuring extreme grades and hit massive sulphide deposits within the pipes. In addition, it was found that the massive sulphide was surrounded by mineralization that featured multi-percent copper, along with strong silver grades and gold.

The initial resource estimate helped the company understand the underlying mineralization, the continuity, and its mining potential. Equipped with this information, the company anticipates that it will be able to advance the project at a much faster pace.

The company is looking to determine the number of untested breccia pipes that can yield results similar to the tested pipes. The company can potentially double or even quadruple its resource if it can identify additional mineralized breccia pipes in the next exploration campaign.

Notably, all the breccia pipes that the company has drilled so far are still wide open. The company has yet to reach the bottom of these breccia pipes, further demonstrating the project’s upside potential.

Identifying Breccia Pipes

Chakana Copper has a 4,200 hectare land position. Within this land package, the company has a 12 square kilometre area, 3km x 4km in size which hosts the breccia pipes. These pipes are in various states of exposure and are outcropping from the ground. The company has also found sub-cropping pipes and blind breccia pipes.

Recently, the company carried out a highly-detailed outcrop mapping within the area. It identified 103 tourmaline breccia outcrops on the property. It is important to note that these outcrops need not necessarily represent individual breccia pipes.

In addition, the company traditionally counted 24 sub-cropping breccia pipes that stick out of the ground. Following this, the company identified intense alterations where only the peripheral of the breccia pipe was visible. These pipes are exposed at the surface and feature anomalous geochemistry. The non-exposed breccia pipes are very close to the surface. As per the company, drilling of 10m-30m would lead to the breccia pipes in most cases. The surrounding weathering-resistant altered wall rock helps in the identification of breccia pipes.

The company also identified blind breccia pipe targets through geophysical signatures. These targets mimic the exact signature of the breccia pipes that have been drilled out. Chakana Copper has a really good laboratory to test out new methods for identifying breccia pipes. The company is looking to determine the ideal strategy, optimise it, and apply it to the rest of the property.

The Aija-Ticapampa district

The Aija-Ticapampa district is known for its high-grade veins and mantos ore deposits that are currening being mined east of Chakana Copper’s property. The area has historical mines with Spanish workings in the district that have operated for over 100 years. It features 4 active mines in the district along with 2 concentrate plants.

This part of Peru features an excellent infrastructure. The mines operate on grid power and there’s no shortage of water. Due to the region’s history, the local community has a strong understanding of mining. A major portion of Chakana Copper’s labour comes from the local communities. Local hiring is one of the reasons why the company’s community relations and ESG (Environmental,Social, and Governance) programs have been highly successful.

Ongoing Surveys

Chakana Copper has identified an estimated 60 targets on the permitted north side of the property along with 40 targets on the south side. These numbers are subject to change as the company has an ongoing geophysics survey at the property. In addition, the company is carrying out an offset IP (Induced Polarisation) survey, a form of 3D IP survey to follow up a gradient array IP survey, covering the epicentre of the mineralized portion of the property.

The north end of the property is wide open for drill testing. The company has been working on obtaining the permits for the south side of the property for the past 1.5 years. It anticipates that this permit will be acquired within the next 8-10 months.

This year, the company plans to test out the top 20 targets on the north side, and in 2023, it is looking to test the top 20 targets on the south side of the property. The company expects to add between 15-20 new, mineralized breccia pipes if the target-testing is as successful. Although these pipes would need to be drilled out initially for an inferred resource, the company is prioritising demonstration of scale and the potential size of the project.

Permitting Delays

Chakana Copper faced an 18-month delay to obtain drill permits for the south side of the property. There were several reasons for the delay, including the bureaucratic process, administration changes, and covid restrictions.

Notably, Peru has seen 3 Presidents change in the course of one year. Each president had their own cabinet. Each administration change leads to a change in personnel. Frequent political turnovers have been an ongoing issue in Peru since 2017.

Furthermore, due to covid, the company found it challenging to conduct business as people were trying to work from home. There was a 3 month period where the government set up a remote working environment to conduct business with the mining industry. The company had regular zoom meetings with the regulators. The company is confident that it will obtain the permit for the south side of its property in 2022.

Breccia Grades

Chakana Copper is aiming for a 2% average copper grade across the breccia pipes. At breccia 1, the company has a 2.3%-2.4% copper equivalent, while other pipes range between 1.5%-1.8%. The copper equivalent grade of the current resource is at 1.8%. This includes the open pit resources along with the underground resources.

Currently, there are about 49 new copper projects with resources globally. 90% of these projects have copper grades that are 0.5% or lower. In comparison, Chakana Copper’s grades are 4-5 times higher than a normal copper project. Additionally, the company’s copper project has a smaller footprint which is a good thing from both an environmental and social perspective. Smaller high-grade deposits require much lower CapEx (Capital Expenditure) to develop. The company also has precious metals in its deposits along with copper. This provides investors exposure to copper, silver, and gold.

The open-pits have a pull-down of about 100m on the breccia pipes. Based on the resource estimate, the company was able to put an optimised pit on all the breccia pipes within the resource. These pits are small in size that go up to a depth of 100m. The pits take out the top part of the breccia pipes and offer underground access.

The deposit is based on a moderately steep hillside. This enables the company to approach the valley bottom and intersect these breccia pipes 200m-400m below surface based on the breccia pipe being targeted. At this level, mining can be focused up towards the open cut at the surface.

This allows the ore to be brought down using gravity, enabling the development of multiple breccia pipes simultaneously instead of focusing on a single pipe. Even though the breccia pipes have a smaller footprint, the smallest pipe is still 40m in diameter.

According to the mining engineers, mining these pipes won’t pose a challenge. The company intends to prioritise the mining of pipes that feature desirable grades. Breccia 1, Breccia 5 and Huancarama have a 60m-100m footprint. Consulting 3 different mining engineers, including Gold Fields’ team, the company found that sub-level mining would be the preferred technique to mine similarly rich pipes.

Notably, sub-level mining is one of the most common underground mining techniques in the world. In a recent news release, the company put together a block model which features a 5 x 5 x 10m block size. Each block has a size of 720t. Mining 3 blocks daily will provide a 2000t/daily capacity. Through detailed analysis by Gold Fields and multiple mining engineers, it was concluded these breccia pipes offer exceptional mining potential.

Furthermore, the company found that it can mine 2 pipes at the same time or mine at 2 different levels. It is possible to come in the mid-highs on the mountain and the valley bottom to have 2 different operating faces on a single breccia pipe, leading to significant flexibility in mining. The company intends to target the bigger tonnage pipes.

Resource Tonnage

Chakana Copper had set a goal for a 10Mt resource at 2% copper. Breccia 1 features high-grade copper and is open right at the bottom where drilling was done. Since all the pipes are open, the company can add tons by deeper drilling. As per the company, the ideal strategy is to drill deeper from the underground. It can add tonnes to the resource through the identification of additional breccia pipes.

The company plans to target the larger breccia bodies in geophysics. The presence of larger breccia signatures is evident. The company has an understanding of how the system and resources stack up based on existing data.

Following the resource tonnage guidance, there was a drop in the company’s share price. These investors had invested for the past 2-3 years and were awaiting the results of the first resource. As per the company, the market has an environment of fear which is due to political and global issues. However, the company’s institutional shareholders are happy with the results. The institutional shareholder base understands that mining is a long-term industry.

Chakana Copper seeks to quadruple its resource over time, adding another 10-15Mt to the resource. The company anticipates that this asset has a significant upside and has the potential to be a tier I asset.The company has also identified barren breccia pipes. Two breccia pipes, Breccia 3 East and Breccia 3 West, are strongly mineralized, but mainly with pyrite, yielding low overall grades. As per the 3D diagram by Leapfrog Geo, it is evident that the modeled breccia pipes have been drilled in sufficient detail to show the shape of the pipes.

It is anticipated that this breccia pipe is equivalent to a pyrite halo in a porphyry system, a distinct feature. Traditionally, copper is found inside the pyrite halo. Drilling the pipe deeper and approaching the heap source may lead to the transition into copper mineralization. All the breccia pipes drilled so far feature sulphides.

Chakana Copper has utilised 2 different geophysical techniques to identify the breccia pipes. The first one is the gradient array, a mapping technique used to identify structural corridors that host the breccia pipes. The second technique is offset or 3D IP survey, which provides a 3-dimensional block model of resistivity.

The company currently has numerous drill targets on the property that feature a similar profile, chargeability, and resistivity as the drill-comfined breccia pipes in the resource estimate. It is important to note that these drill targets are in addition to the other targets that the company has generated through surface geochemistry and other survey methodologies.

Interestingly, the 3D IP shows that the Huancarama, Paloma east and Paloma west breccia pipes are open at depths. The combination of conductivity and chargeability signatures shows that these breccia pipes merge at depth. This coalescing leads to the formation of mega breccias. The company anticipates that a 300m mega breccia can provide a 50Mt supply.

Targets 2022 and Beyond

Chakana Copper has been running the 3D offset IP for the past 3 months and it will need an additional 2 months to conclude. By March-end, the company is planning a targeting session where the new data will be merged with the existing data.

The south side of the company’s asset features a stunning 1.3km x 800m gold-molybdenum anomaly. The target is at surface and is ideal for a bulk-mining operation. Chakana Copper also plans to drill test the high-grade breccia pipes in the south along with some very large-scale test targets. This region features some mega breccia along with extremely anomalous metals that sit on top of intrusions. The company has extensive exploration planned for 2022.

The results of March’s targeting session will be conducted at the end of the geophysical survey, with reports expected by April or May. Following this, the company will initiate the drilling phase for the north portion of the licensed area.

Chakana Copper has a total of 110 original targets out of which 16 have been tested. 10 of these breccia pipes are either in the resource or need additional drilling to be included in the resource. The remaining 6 targets are put on hold as the company is looking to explore other targets. The company takes a multi-disciplinary approach when it comes to ranking targets through the analysis of various data sets. Size potential is also a ranking criterion for the targets.

To find out more, go to the Chakana Copper website