Big-picture explorer with interests in large porphyry copper targets in southern Peru, gold in Burkina Faso and nickel-copper in the Fraser Range province of Western Australia, with major joint venture partners.
|Status: Advanced Explorer|
|Size: Small Cap|
|Commodity Exposure: Various|
|Share Price: $0.019|
|12-month Range: $0.007 – $0.035|
|Shares: 496m, Options: 158m|
|Top 20: 38%|
|Net Cash: $2.4m|
|Market Value: $9m|
|Key Parameters||Rating (✓out of 5)||Quarterly Statistics|
|Management Quality||✓✓✓✓✓||Q2 2015 Exploration Spend: $0.65m|
|Financial Security||✓✓✓✓✓||Q2 2015 Administration Spend: $0.296m|
|Project Quality||✓✓✓✓✓||Exploration Spend 69%, Admin Spend 31%|
|Exploration / Resource Potential||✓✓✓✓✓||Q3 2015 Forecast Exploration Spend: $0.32m|
|Project Risk||✓✓✓✓✓||Q3 2015 Forecast Admin. Spend: $0.15m|
The introduction of AusQuest to our Portfolio after several years of closely following the company’s progress, has been based on the negotiation of potentially company-making joint venture deals with respect to its Peruvian and Burkina Faso exploration projects. These joint venture farm-out deals have the potential to provide tens-of-millions-of-dollars-worth of exploration expenditure to enable project advancement, whilst simultaneously minimizing equity dilution for existing AusQuest shareholders.
AusQuest has always impressed as a company with bold exploration ambitions. It previously held large acreage positions within Western Australia in the search for iron ore and manganese, with the support of its then major shareholder and joint venture partner – US-based Cleveland-Cliffs. The ‘big brother’ concept worked well for AusQuest for a number of years, until a rapid change of fortunes in the iron ore market and plunging profits led Cliffs to an exit of all non-core projects – and a cessation of all non-core expenditure.
AusQuest has since successfully revitalised the ‘big brother’ concept with respect to its Peru and Burkina Faso exploration projects. Not only is there set to be robust exploration activity (with AusQuest shareholders free-carried through all work programs), the introduction of well-credentialed partners means AusQuest has teamed up at an early stage with the sorts of groups that have the experience, credentials and financial backing to successfully appraise and commercialise large-scale resource projects.
Peru Drilling Update
I had the opportunity to catch up with AusQuest’s Managing Director Graeme Drew and Non-Executive Chairman Greg Hancock, in Sydney just recently. Graeme was en route to Peru, where the company’s drilling program was set to commence during November, with the following targets to be tested.
Lana prospect – diamond drilling of a large gravity target is on track to commence during November 2015.
Puite-Colorada and Cardonal joint venture projects – amended drilling programs have been submitted and community consultations have been undertaken. The number of possible drill-holes at each site has increased from 24 to 40, diamond holes will be drilled instead of RC, hole depths will increase from 300 metres to ~500 metres, and the number of porphyry copper targets to be tested has grown from 2 to 4.
Ventana prospect – the program includes drilling of up to 15 holes, where strong indications of porphyry copper mineralisation are evident in road cuttings recently excavated on the property. The graphic above highlights the location of the key drilling prospects in Southern Peru.
The graphic above highlights the location of the key drilling prospects in Southern Peru
The commencement of work is a major milestone that will generate strong market interest. The high level of activity is also a reflection of the recent expansion of AusQuest’s joint venture portfolio, following the signing of an amendment to its Cardonal Agreement with Compania Minera Zahena SAC (Zahena) that will see a fifth porphyry copper target tested over the next 12-18 months. This fourth agreement has the potential to generate total joint venture expenditure over AusQuest’s Peruvian projects of ~US$28 million (~A$39 million), with five porphyry copper prospects to be drill-tested over the next 3 to 4 years.
The Lana prospect is located approximately 30km from the coastal town of Atico in the south of Peru and covers a large ~20k sq km discrete gravity anomaly (8 milligals), located close to the intersection of major structures interpreted from the company’s aeromagnetic data.
The gravity target is offset from a deeper ~400-metre magnetic response, indicating potential for the prospect to host possible buried iron-oxide copper-gold (IOCG) and/or porphyry copper-style mineralisation beneath the sediment cover.
Under the Lana Joint Venture Agreement, Southern is required to complete a minimum 5,000 metres of diamond drilling or spend not less than US$1 million before the first anniversary of the registration date of the agreement (April 9th 2016) to fulfill their obligations.
In order to earn a 70% interest in the project, Southern must then complete a further 15,000 metres of drilling and make staged cash payments to AusQuest totaling a further US$2.925 million over the following 3-year period.
Project Background – Peru Copper-Gold Joint Ventures
AusQuest (through its wholly-owned subsidiary Questdor) has been active in Peru since 2011, assembling an extensive portfolio of high-quality targets for porphyry and IOCG-style mineralization, utilising its proprietary airborne geophysical data-sets. The targets are all situated with the southern coastal belt of Peru, close to existing infrastructure and major world-class deposits.
Over the past three years, AusQuest has assembled a large portfolio of copper-gold prospects, with up to eight targets identified for drilling as possible iron-oxide copper-gold (IOCG) and/or porphyry copper targets, with significance size potential. Peru is one of the world’s most prominent destinations for international copper exploration and is considered to be a prime location for world-class exploration opportunities.
The graphic above highlights the locations of AusQuest’s project and joint venture locations
AusQuest now maintains four landmark joint venture agreements covering five of its large-scale porphyry copper-gold targets in southern Peru, with Compania Minera Zahena SAC (Zahena) and Southern Peru Copper Corporation Sucurs del Peru (Southern). Both Southern and Zahena are quality partners, being leading companies in the copper industry in Peru, with Southern producing more than 300,000 tonnes a year of copper (~US$2.0 billion a year revenue) from its Toquepala and Cuajone mines in southern Peru, whilst Zahena is a major explorer in the region with strong technical expertise in porphyry copper exploration and a number of active exploration joint ventures.
AusQuest further expanded its joint venture portfolio during July following the signing of an amendment to its Cardonal Agreement with Compania Minera Zahena SAC (Zahena) that will see a fifth porphyry copper target tested within the next 12-18 months. The inclusion of an additional three mineral concessions that are contiguous with the original Cardonal Agreement area has resulted in several substantive changes to the original joint venture agreement signed earlier this year.
Under the Amended Cardonal Agreement, Zahena can earn a 70% interest in the increased title area (7 mineral concessions) for an up-front cash payment of US$120,000 (now received), a structured series of cash option payments over a four-year period totaling US$2.995 million, and a total drilling budget of 30,000m (originally 20,000m). The value of the Amended Agreement is estimated at approximately US$10 million (~A$13 million).
When Zahena or Southern complete all agreed drilling and make all agreed payments, they will have earned a 70% interest in the project and a new Peruvian company will be formed (NewCo) into which the tenements will be transferred, with the initial shareholding in NewCo being Questdor (AusQuest) 30% and Zahena 70%.
The agreements are structured to include both staged option payments to Questdor and expenditure towards drilling, with the farm-in companies to earn a 70% interest in the respective projects. If either Zahena or Southern elect to withdraw from an agreement before completing all agreed drilling and making all agreed payments, the titles for that project will remain 100% Questdor and Zahena or Southern will have no residual equity in the project.
Both Zahena and Southern have the right to earn a further 10% equity in their respective projects by completing a Bankable Feasibility Study (BFS) within an additional four-year period. If either party fails to complete the BFS within the four-year period, their equity in NewCo will remain at 70%.
The Cardonal Joint Venture Project is located approximately 20km from the coastal town of Ilo in southern Peru and covers two large porphyry copper targets, Cardonal and Ventana, which were defined by a combination of geological mapping, surface sampling and geophysics.
The Cardonal prospect is a large, buried porphyry copper target identified by mineralized diorite dykes and breccias at surface, containing anomalous levels of copper (100ppm up to 0.74% Cu) with associated propylitic alteration.
An extensive IP chargeability anomaly (>6 sq km), reflecting probable sulphide mineralisation at depths of ~300 metres to 400 metres, supports the concept of a buried porphyry copper target immediately south of the dykes. Drilling under the Joint Venture will test a combination of anomalous features.
The Ventana Prospect contains strong indications of porphyry copper mineralisation that is evident in road cuttings recently excavated on the property. The mineralisation extends over several kilometres in length and will be the subject of drill testing once all permits for drilling have been approved. Up to 15 drill-holes are planned for this prospect.
Joint Venture Benefits
The joint venture arrangements are enormously significant for several reasons. Firstly, they provide AusQuest shareholders with free-carried exposure through a series of aggressive exploration programs, whilst simultaneously aligning the company with a series of established major companies in the region.
Secondly, AusQuest shareholders benefit from having access to the financial and technical capabilities of these local companies, which have ability to advance any discovery through to development and production. Furthermore, the farm-out deals eliminate the risk of AusQuest having to access funding in what is an extremely difficult ASX resource equity market environment, whilst also by association minimizing shareholder dilution.
A major exploration program is underway at its Banfora Gold Joint Venture Project in Burkina Faso, undertaken and funded by AusQuest’s joint venture partner, Ressources Burkinor, a wholly-owned subsidiary of TSX-listed SEMAFO Inc.
During the recent June 2015 Quarter, Ressources Burkinor reported that it had outlined an extensive gold auger anomaly (>30km in length) known as the Mouro Trend within joint venture tenements along the eastern margin of the Banfora Greenstone Belt.
Initial RC drilling comprising 85 holes for 12,785 metres has now been completed along eight drill sections spaced between 200 metres and 600 metres apart, in order to provide a first-pass test over selected portions of the gold auger anomaly, including the historical workings at Mouro South. ). In order to provide complete coverage across the anomalous surface gold zones, drill-holes were generally spaced 60 metres apart, inclined at 50° and drilled to ~150 metres down-hole depth.
As at the end of the June 2015 Quarter, it was estimated that Burkinor had spent in excess of the US$4.5 million required to earn their 65% interest in the joint venture tenements. Burkinor is required to spend a total of US$7.5 million in order to earn an 80% equity in the project.
Burkinor plans to suspend further work programs for at least the period of the wet season in order to provide the opportunity for evaluation and assessment of the multitude of results that have been generated so far under the joint venture.
AusQuest controls approximately a large acreage position within the Fraser Range Province of Western Australia, which hosts the Nova–Bollinger nickel-copper deposit discovered by Sirius Resources (ASX: SIR), along with the Tropicana gold mine discovered by Independence Group (ASX: IGO). Of current interest are the drill results reported recently by Mount Ridley Mines (ASX: MRD), which have significantly upgraded the potential of AusQuest’s Gibson Soak tenement, which lies immediately south Mount Ridley.
During the June 2015 Quarter, AusQuest obtained Native Title clearance for an air-core drilling program along old tracks to test similar magnetic targets south of the Mt Ridley title, and approval received from the Department on Minerals and Energy to complete the drilling. The company plans to commence drill operations as soon as ground conditions are favourable.
Three high-priority conductive targets (Boorara, Gardner and Canterbury) have been confirmed by in-fill ground EM surveys within the company’s Balladonia South tenement. The orientation of the EM targets suggests a close association with cross-cutting mafic intrusive structures, upgrading the potential for sulphide mineralisation to be discovered within or near the base of a mafic intrusion, which is the preferred location for concentrations of nickel-copper sulphides within mafic-hosted systems.
Computer modelling of the moving loop TEM (MLTEM) data optimised six drill-sites to test these anomalies. The three EM targets display moderate-to-strong late-time (156.8 to 194.5msec) responses, typical of sulphide mineralisation. Modelling suggests discrete plate-like targets of variable thickness, with strike lengths <800 metres, moderate conductance and target depths ranging from 125 metres to 250 metres.
A new Exploration Licence application was also submitted to cover potential strike extensions of these targets which are being prepared for drilling. AusQuest plans to commence drilling operations when clearances have been obtained and weather conditions allow.
It is a very exciting time to be an AusQuest shareholder, with credible, big-picture exploration activity taking place on three fronts – Peru, Burkina Faso and Fraser Range. The stock offers exposure to up to $50m worth of combined exploration funding in Peru and Burkina Faso, yet with a market value of just $9m. Accordingly, AusQuest will remain within our Portfolio.