Tesoro Resources (TSO) - Technical Analysis and Due Diligence

Tesoro Resources (also known as Tesoro Gold Limited) is an Australian public company with exploration stage gold assets in Chile. The company is focused on acquiring and developing high-grade gold assets that have the potential to be district-scale mining projects. The company was established with a strategy of acquiring, exploring, and developing mining projects in the Coastal Cordillera region of Chile. This region is host to multiple world-class gold mines and has a well-established infrastructure, service providers, and an experienced mining workforce. Due to the unconsolidated nature of mining concession ownership, large areas of the Coastal Cordillera region remain unexplored. Tesoro Resources, via its in-country network and experience, has been able to secure rights to the emerging El Zorro Gold Project, which is in line with the company’s strategy. 

Merlin-Marr Johnson caught up with Zeffron Reeves, Managing Director, Tesoro Gold Limited. Zeff is a geologist with over 20 years of experience in the resources sector on projects ranging from greenfields exploration, discovery, definition, and feasibility, construction, and production to closure. Zeff previously served as the Managing Director of ASX-listed Metallum Ltd., which had a number of development and operational projects in Chile. He has also held senior management positions with companies developing projects in Brazil. He has had previous exploration success in identifying and delineating new gold districts in Brazil and Chile.

Company Overview

Tesoro Resources is an Australian public company with exploration stage gold assets in Chile. Tesoro Resources is managed by experienced mining professionals with strong geological and finance backgrounds as well as significant in-country expertise. The company is rapidly advancing the El Zorro Gold Project. The company was founded in 2017 and is headquartered in Australia. It is listed on the Australian Stock Exchange (ASX: TSO). 

Tesoro Resources is developing the El Zorro Gold Project in the Atacama region of Chile. The company’s team has done a remarkable job in the past 2 years, finding new host rocks, potential extensions, and new deposits outside of the Ternera area. The team was successful in finding gold mineralization over a large distance. The company hired Dr. Nick Oliveri as a consultant in 2017. Dr. Nick has helped the company with the project’s exploration model. The area within and outside the Ternera site has massive potential. 

Drill Operations

Following its listing on the Australian Stock Exchange in February 2020, the company has drilled about 100,000m in diamond drilling, the majority of which has been focused on the Ternera deposit. The company has defined its maiden mineral resource estimate which was announced to the market in July 2021. It continues to have dill programs with a focus on growing the resource at Ternera. It is also working on district-scale field mapping and sampling in order to delineate other targets that lie outside of Ternera. 

Tesoro Resources has conducted 100,000m of drilling so far and is currently awaiting assay results for the last few holes of the program. The drilling program has been momentarily paused in order to recalculate the MRE (Mineral Resource Estimate). The company is looking to publish the MRE as quickly as possible. 

The company is looking to develop drill targets in other high-prospect areas. Ever since the company started working on the project, it has expanded the concession holdings from 10,000 hectares, or 10 square kilometres to 550 square kilometres. This is a prospective new belt for gold deposits in Chile. 

The July 2021 MRE had a 660,000oz resource that was based on 145 holes. Since then, the company has drilled a total of 300 holes, effectively doubling the amount of drilling that would go into the new resource. It is evident from the last drill announcement that some of the best holes drilled in Ternera have been done in the subsequent drill programs, and a lot of the drilling will be a part of the resource. 

The deposit has returned promising results so far. Every single hole drilled has hit gold mineralization in some shape or form. The deposit features nearly all the mineable grades and widths suitable for a large open-pit mine. The company is yet to find the ends of the mineralization, which is open in north, and south directions and at depth. Some of the really good high-grade drill widths were found at depth, demonstrating the deposit’s underground potential in the future. In essence, the deposit offers an exciting proposition, especially for the grades seen at depth. 

The majority of the holes drilled by the company are 300m down holes, however, these were drilled at a 60-degree angle, making it a 250m vertical distance based on the topography. The majority of the results from inside the pit shell will go down to a depth of 250m. The deposit is a big, wide, and broad ore body with multiple high-grade zones. From a pit optimization perspective, all the zones seem to be a part of the resource. Following the metallurgical work, the cut-off grades are expected to be around 0.3g. The deposit has performed superbly when it comes to metallurgy. This is because it enables the pulling down of the cut-off grade, leading to significantly more ounces. As soon as the ore touches cyanide and goes through a gravity circuit, gold is easily released. 

Underlying Geology

Tesoro Resources has carried out extensive petrography work at the deposit. This includes ore characterization along with geological studies. It was found that a lot of the gold resides on the outer margins of sulphide grains, and it tends to break along the boundaries, liberating gold. 

The company has had highly positive metallurgical results so far. Even at a 0.5g grade, the company has been successful in making 40%-45% recoveries through a gravity circuit. The recoveries are expected to increase with a rise in the grade. Overall, the metallurgical recovery has led to a highly coarse grain size of 150 microns. In comparison, the Western Australia goldfield-type deposits have a grain size between 70-100 microns. This means that the company needs to put in significantly less energy to recover gold at this particle size. At 150 microns, the company has been successful in achieving up to 94.5% gold recoveries with a 4-hour cyanide leach. The deposit has shown phenomenal metallurgical characteristics in terms of the cut-off grades that actually go into the resources. The edge of the high-grade zones is surrounded by a large low-grade halo. 

Gold is present on the outside of the sulphide. Although the deposit features a variety of sulphide species, 90% of the sulphide minerals are pyrite. As per the company, around half of the deposit constitutes pyrites in the high-grade zone. Since the ore isn’t refractory, there isn’t any problem with disposal as it's present in such low quantities. 

The deeper parts of the deposit where the intrusives are drilled appear to feature primary piretite. The company has sponsored a Ph.D. student who is tasked with academic work to determine whether the origin of sulphur in the ore deposit comes from the primary piretite that’s deeper in the intrusive system. The student is working on dating the mineralization and host rocks and is also placing all the igneous rocks within the district into context. 

Interestingly, the host rock was found to be a series of complex dikes. As the dikes warm, zones of intense intrusive bodies develop. The Ternera deposit consists of about 7 main intrusive bodies, all within a relatively short strike width, leading to a 700m-wide window where all the dikes intrude. Within this window, the dikes have been cross-cut by folds, which are backed with fluid conduits, causing brittle deformation into dike swarms that are filled with gold mineralizing fluids. The source of the gold remains to be determined. 

In conjunction with the petrography, the company has carried out multi-element geochemistry along with some highly-detailed work. The deposit has the fingerprint of an intrusive-related gold system. 

Based on the additional work, the company is confident that the intrusives are the source of the gold. The occurrence of brittle deformations is the reactivation of the previous systems that the dikes have treaded into or have provided areas of weakness where the dikes have intruded. As the intrusives cooled, these faults reactivated, causing the flooding of residual fluids into the deformation areas, filling them with gold mineralization. 

Tesoro Resources believes that there’s a large magma chamber at depth that drives the whole system. Based on the gap rows, the company believes that the chamber isn’t far away from the system. The dikes here are fractionated, enabling the company to see granodiorite, diorites, tonalities, and gabbros within the same dike. The same magma chamber appears to be telescoping and has multiple intrusive events coming out. The company believes that the magma chamber was replenished at some point in time because the mineralogy appears to be altered. All these features seem to be related from a geochemical perspective. 

The company is confident that a large magma chamber is located nearby because the underlying gabbros appear to have a distinctive accumulated texture along with coarse grains. These crystals are typically formed in a larger chamber prior to forming dikes and settling under gravity. 

This week, the company found some extraordinary outcrops at the deposit. These dikes have a 10m thick compositional banding, similar to a full-blown cumulative system that is compressed into tiny dikes. The work being carried out by the Ph.D. student will help the company understand the deposit better. The student is carrying out sulphur isotope work, geo-comp work, and detailed specific petrography on the host of all the igneous rocks. 

The company has observed igneous diversity, which it believes to be the key ingredient to gold mineralization. It has found different types of compositional changes in the intrusive rocks along with multiple big plutons in the district, which appears to provide a fertile environment for gold mineralization. The findings will help the company focus on the ore bodies rather than general gold anomalies within this multi-phase, well-plumbed, fluid-rich system. 

The bulk granite intrusions and big plutons are represented by big purple blobs on the map. These are related to the subduction zone, and setting-type rocks and are dated and well-known and dated. The buff colour comes from the background which consists of basement rocks. The basement rocks are Paleozoic sediments that are the oldest rocks in Chile. These rocks are known to be ejected off the seafloor during the subduction process. The dikes and dike swarms are from the intrusions and are represented in pink. 

The Ternera zone is represented by a blue outline. The black dots show the drilling carried out around Ternera. The zone is within a dike swarm and was the only known El Zorro tonalite occurrence on the property before Tesoro Resources got involved with the project. 

Towards the north of the deposit, the company found a big dike swarm that has all the trademark features of the Ternera deposit. This is an 800km wide zone with multiple dikes that feature sheeted veins. There seems to be obvious quartz veining along with sulphide boning. The features have been heavily altered, bleached, and obliterated around the controlling structures. There are a number of controlling structures running in north-south directions. 

This area features low-level anomalous gold running through, which was previously announced. The company’s team is currently working on a detailed sampling. It is looking to deploy a drill rig into the region as quickly as possible. 

The Ternera deposit had an original scale of 1.3km. The team has mapped the deposit up to a 2.5km length and 1km width. There is a break up in the northwest, which appears to be a new area with repeated features. The deposit is based at a very low altitude and is located 15km away from the coast. The bottommost point of the main valley is 500m above sea level, while the very top of the hill is 1,000m above sea level. The land has a highly rugged territory with steep hills. However, the deposit also has quite a lot of topography around it. 

Working in the Atacama Desert has major advantages. Since the project has an 80% outcrop, the geology can be pushed by using field mapping and observation. The company anticipates that there’s another Ternera hidden in the underground package. However, additional work is required in order to uncover the deposit. 

Notably, the original El Zorro Project was a tiny area that was a function of a lack of exploration. The region had historical drilling in the late 80s and early 90s by a North American company. Though the company found some reasonable results, the drilling wasn’t conducted in a systematic manner. Comparing the historical geology map with the current one makes it appear as 2 different projects. This is because the previous operator did not map and sample the deposit properly. 

Notably, there have been artisanal workings on the property around Ternera, which were focused on mining narrow, late-stage quartz veins that, based on the assays, were around 100g/t. These faults are strike-extensive and span for kilometres across the countryside. The orientation of this artisanal work is mostly in the northwest and can be traced for kilometres across the ground. The sedimentary package is mineralized and is part of the plumbing system. 

There seems to be an orthogonal relationship between the dikes and the regional faults. The environment appears to be stressed at the time when the dikes were in place. The structural step is reasonably simple with the north-south fault system along with branching northwest secondary faults. The dikes place up through the fault system, giving it a northeast grain. The sigma stress field appears to have been pushed down from the north and south, particularly on a northeast trend. 

Notably, all of Tesoro Resources’ drill cores are oriented and structurally logged. As a result, the company has a robust database of all the structural information. The company has drilled about 300 holes so far, out of which only 145 holes were included in the previous resource. The majority of the remaining 155 holes are inside the Ternera zone. There are a lot of holes towards the south as well, particularly around the edges. It is important to note that a lot of the holes that are drilled inside behave differently than a conventional gold deposit. 

Tesoro Resources has carried out extensive infill drilling in order to increase the classification of the resource base on completely barren areas that were a part of the original resource. The original pit shell is now getting filled up with ounces. The company is highly optimistic about the growth potential of the Ternera deposit. 

Following the previous resource announcement, the additional drilling consisted of fairly high-risk step-outs, leading to some really good hits 300m south and 200m north. These results won’t be a part of the upcoming resource as it requires infill drilling. The company anticipates that more drilling in these areas can provide easy resource growth. 

Targets 2022 and Beyond 

Tesoro Resources plans to continue drilling in the expansion area. It has yet to determine the actual size of the deposit. The Ternera deposit is currently 1.3km long, however stepping out of the holes could lead the deposit to extend up to 2km, in the northeast and south directions. The company has also hit some high-grade structures in the south, which appear to be controlled in north-south structures and have decent intersections. The faults here appear to be a part of the plumbing system. The north-south folds in a fertile environment that appears to mineralize through everything. However, the bulk of the ounces reside in the intrusions. 

It is important to note that these intrusions continue down to the south, but are buried under sediments. The company has drilled these intrusions, finding a 300m-400m gap back to the resource. It is looking to infill drill this area and continue adding ounces. The deposit is still open to the south. Based on the input from the on-site geology team, the company has an idea of future extensions that need to be drilled. The company is also looking to drill new targets, particularly the dikes located up north. 

Atacama desert is known to be incredibly dry. The dikes can be chipped open in order to access fresh sulphide. In the case of oxidised sulphide, the original sulphide grains are visible. Gold is known to come in at really high temperatures in this deposit. The deposit also contains scarns or endo-scarns in some intrusions. It is also known to carry epidote, garnet, actinolite, and wollastonite associated with gold within veins in some areas. However, the majority of the gold resides in a lower temperature of sand bleach, which is typically quartz-pyrite veins with sericite alteration on the selvages. At a slightly higher temperature, a lot of albite alteration is seen. The albite-sericite texture is destructive in nature. In fact, this texture has completely obliterated the original host rock. Geochemical surveys led to the conclusion that the host rock was tonalite. 

Interestingly, gold mineralization was introduced in the deposit at very high temperatures. When the intrusions formed, the gold hadn’t finished cooling and was not completely crystallised. This led to the formation of cool mineralized sandwiches, indicating a long-lead mineralization event. The company anticipates that the faults kept reactivating in the vein system over a long period of time. 

Tesoro Resources is looking to explore the deposit at a 1km-1.5km depth in order to understand the coastal architecture and determine the source of the dikes. There appears to be a potential for something larger underneath. The company has carried out an IP (Induced Polarisation) survey to establish a structural framework for the deposit. Although IP does not directly detect ore, it helps highlight the structural interposition of the faults. Overlapping these with the geological mapping helps factor into the better parts of the system. 

The company expanded its land position to 55,000 hectares. Initially, it was focused on the area beyond the new swarm. The company has carried out limited regional work and remote sensing, seeking igneous diversity, and potential for dikes. Notably, the alteration in the sediments caused by the intrusion extends 25km north of Ternera. 

In a future geophysics program, the company plans to conduct additional surveys including aerial. If successful, the surveys will help the company work on the deposit on a broader scale. The deposit features extensive outcropping, which makes it easier for field geologists. The topography allows the development of a 3D model that can be used to better understand the geology. 

The company has found some internal waste in the sediment. Generally, the tonalites have anomalous gold contained. Nearly every tonalite sample is over the assay result’s detection limit. As soon as an alteration with sheeting veining is found, it can lead to higher grades. When the big structures crest through the sediment, it is highly visible. This leads to good-looking quartz veins along with very strong alteration brecciation, which is likely to be mineralized. 

The faults cross-cut all the rocks. When these faults hit the tonalites, the grade jumps into 100m wide ore zones. The middle portion of these high-grade zones is closer to the fault. As the fault goes through the sediments, it is more constrained because the faults haven’t damaged the sediments. This is because sediments are softer and are better at handling fault-induced strains. 

Tesoro Resources is prioritising the updated resource estimate. The updated MRE will have an increased classification for a larger portion of the deposit along with significant expansion in the resource base. Based on the results, the company might start working on a Scoping Study. Internally, the company is confident that this deposit can be a decent low-cost producing open-pit mine. The deposit benefits from a well-developed infrastructure, and coast located nearby. 

In terms of drilling, the company will focus on the expansion of the Ternera deposit. The deposit has a lot of potential to add easy ounces. The company plans to kick off the drilling program by the end of May 2022. The company will be able to define the targets once the surface sample results are back. It will take around 6 weeks to define the targets, carry out metallurgical work and set up the area for drilling. In the meantime, the company will continue to expand the Ternera deposit and prepare it for a resource upgrade. 

Later in the year, the company will make decisions on the feasibility-level infill drilling and prepare the resource for the first 2 years of production. This would allow for a Feasibility Study, which is planned for late 2022. 

The Ternera deposit features 4 well-defined high-grade zones. The 2 big thick zones sit in the middle, with an average width of 30m and grades ranging between 2.5g-3.5g. These zones are joined by a halo of lower-grade material which carries grades between 0.5g-1g, providing a global grade profile. 

Based on the metallurgy and recoveries, the company is looking at a 0.85g-0.9g global grade at a 0.3g cut-off. The extensive material outcrop makes this deposit a big bulk mining exercise which is equivalent to a 1.5g open-pit resource in the Eastern goldfields of Western Australia. From an engineering point of view, the deposit features significant zones of mineralization where grades of 2.5g/t can be found on the surface. The surface mineralization can help generate an early cash flow. The company anticipates there will be 2-3 future mines at the El Zorro Gold Project. 

To find out more, go to the Tesoro Resources website