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TABLE OF CONTENTS Aug 1 - 7, 2005 Volume 91 Number 23 - 0 comments

Bear Creek unearths potential bulk-tonnage silver find in Peru

Rio Tinto could reacquire 60% by paying for project construction

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By: Rob Robertson

Based on trenching and the results from the first four holes on the Corani silver prospect, Bear Creek Mining (BCM-V) has uncovered would could be a major new discovery in a remote part of southeastern Peru.

A first pass of diamond drilling encountered multi-ounce silver values across intervals of up to 100 metres thick, starting at surface in each of the first four holes on the northern-most target at Corani.

"We think Corani has significant potential," Bear Creek Chairman Catherine McLeod-Seltzer told analysts during a conference call.

The Corani project, 200 km north of the city of Puno, covers 23 sq. km of arid desert at fairly high elevations ranging from 3,800 to 4,600 metres in a historic lead-silver mining district. It takes about six hours travel time over paved and dirt roads to access the site from either the Cusco or Juliaca airports, served by regular commercial flights. "It's a remotely populated area, with no agricultural or cultural issues," says Andrew Swarthout, president of Bear Creek.

Bear Creek optioned a 70% interest in the Corani project in January of this year from Rio Tinto (RTP-N) by agreeing to make a series of escalating payments totalling US$5.4 million over three years. Bear Creek made an initial payment of US$25,000 in January, followed by a second tranche of US$75,000 in July. The next US$300,000 payment is due at year-end to keep the agreement in good standing.

Upon earn-in, Rio Tinto will have 90 days to either to sell the remaining 30% to Bear Creek for US$5 million or continue as a joint-venture partner. Bear Creek will retain a first right of refusal if Rio Tinto eventually decides to sell its stake to a third party. In addition, Bear Creek will pay Rio Tinto "success payments" of US$1.10 per oz. gold and US1.5¢ per oz. silver based on its share of recoverable ounces as defined by a bankable feasibility study. This does not include payments of US$5 million for every recoverable 1 million oz. gold or 100 million oz. silver.

There is, however, a claw-back provision: should economic resources exceed 10 million oz. gold-equivalent, Rio Tinto could reacquire a 60% stake by carrying Bear Creek through project construction. "This is an extremely high threshold," notes Swarthout, adding that it is the equivalent of about 600 million oz. silver.

Rio Tinto acquired the 23-sq.-km Corani property as a porphyry copper target in 2003. Limited shallow drilling in the mid-1990s by a Peruvian company intercepted variable lengths of mineralization containing up to 0.24% copper, 3 grams gold and 438 grams silver. Rio's field work identified a large area of intense alteration measuring 2 by 5 km, within which low-sulphidation gold and silver mineralization occurs along steep to shallow-dipping structural corridors up to 30 metres in width. Soil geochemical sampling outlined three main soil anomalies:

- A 1.1-sq.-km silver soil anomaly averaging 49 grams and open to the north under post-mineral volcanic cover.

- A gold anomaly averaging 0.49 gram gold (with a high of 9.56 grams) and 11 grams silver in soils over an area of 0.6 sq. km.

- A copper-gold anomaly averaging 707 parts per million (ppm) copper and 0.36 gram gold across 0.5 sq. km.

Rio Tinto says no

Preliminary rock-chip sampling by Rio Tinto returned assays as high as 2.3% copper, 2.94 grams gold and 2,350 grams silver within the confines of the soil anomalies. Swarthout believes Rio Tinto farmed out the Corani project because it would not meet -- and will likely never meet -- its requirements for a porphyry copper system; the grades are simply too low.

While carrying out due diligence on Corani in late 2004, Bear Creek collected six rock-chip samples from the northern silver anomaly. These samples, which exhibited strong barite and silica mineralization, ran 25-451 grams silver for an average of 158 grams (or 5.1 oz.) silver and 0.06 gram gold.

Turning its attention to the bulk-tonnage potential of the structurally controlled silver-gold mineralization, Bear Creek began to systematically trench and channel sample the northern silver anomaly. Results from the first two trenches, set 100 metres apart on the ridge side, included 104 metres averaging 117 grams (3.4 oz.) silver in trench 1 and 50 metres of 91 grams (2.9 oz.), including 215 grams or 6.9 oz. across 10 metres, in trench 2. To date, 16 trenches have exposed a 1.5-km strike length of an oxidized, silver-rich, base metal mineralized system that ranges from 50-300 metres wide. Many of the trenches end in multi-ounce silver mineralization, which remains open laterally in an east-west direction under a younger cover.

Bear Creek also completed several trenches in the southern gold anomaly, 3 km southeast of the silver zone. The first two trenches in this area returned 52 metres of 0.57 gram gold and 58 metres averaging 2.9 grams gold, each ending in mineralization. The two trenches are 200 metres apart. The gold-silver mineralization is hosted by sheeted quartz veining in argillized volcanics. "It looks to be as typical multi-phase, perhaps three or four phases of quartz plus or minus barite mineralization. Based on the results of further sampling and mapping, Bear Creek believes the southern gold-silver zone and the northern silver zone now constitute one continuous target within the mineralized 4.5-km-long structural corridor, with gold-to-silver ratios increasing to the south towards the porphyry copper system.

"We believe that we are looking at lateral zoning surrounding some sort of very weak porphyry copper system," explains Swarthout.

In the wider zones on the north silver zone, exposed in trenches 8 and 15, Bear Creek's geologists are seeing four or five episodes of either very fine stockwork veining or up to several metres of quartz-barite veining in a structural corridor. There is a strong development of veins, up to a dozen per metre, along with some more classic low-sulphidation epithermal veins. There are areas of argillic alteration carrying lower silver values in the 1- to 2-oz. range, which is cut by very fine veinlets in many directions. The alteration is illite-dominated.

Says Swarthout: "It seems to be a classic low-sulphidation, epithermal, quartz-carbonate, precious-base metal system. I think what makes this unique is that it occupies such a wide structural corridor opened up by a dilated zone in a strike-slip fault."

With about one-third of a first phase, 3,000-metre drilling program complete, Bear Creek has targeted the northernmost section of the silver zone, where eight trenches totalling 838 metres in combined length average 127 grams (3.7 oz.) silver. The eight trenches have cut an average true width of 120 metres perpendicular to a strike length of 1.1 km.

This first pass of drilling at Corani is designed to answer two very critical questions pertaining to surface enrichment and vertical continuity, explains Swarthout. The first four holes, for which assays are reported, show a weighted average of 107 grams (3.1 oz.) silver, 1.5% lead and 0.35% zinc for the 430 metres of mineralized intercepts. "This is well within the variability expected for exploration in an epithermal, precious metal gold-silver system," says Swarthout. He adds that drilling has now established a vertical continuity of at least 160 metres.

"This mineralization outcrops at surface and it's contained within a positive topography; a ridge which will be very amenable to open-pit mining, with low stripping ratios," explains Swarthout.

Hole 1, collared beneath trench 5 (216 metres of 107 grams or 3.1 oz. silver, including 18 metres of 312 grams or 9.1 oz.), intersected 94 metres of 79 grams (2.3 oz.) silver, 1.52% lead and 0.12% zinc, starting from surface. The hole then passed through roughly 100 metres of weakly mineralized argillic alteration averaging about 1 oz. silver before bottoming out in 12 metres of 75 grams (2.2 oz.) silver, 1% lead and 1.4% zinc.

Stepping out a little more than 200 metres to the south, hole 3 was drilled under trench 3 (134 metres of 123 grams or 3.6 oz. silver, including 20 metres of 199 grams or 5.8 oz.), intersecting 102 metres of 72 grams (2.1 oz.) silver right from surface. The first 38 metres of the hole averaged 147 grams or 4.3 oz. silver. Lead and zinc values are pending. Bear Creek is also waiting for assay results for hole 5, which was drilled between holes 1 and 3 in the area of trench 4 (120 metres grading 127 grams or 3.7 oz. silver).

Holes 2, 2A and 4 were collared on trench 8 (174 metres of 175 grams or 5.1 oz. silver, including 32 metres of 552 grams or 16.1 oz.), more than 500 metres north of hole 1. Hole 2 cut 52 metres averaging 113 grams (3.3 oz.) silver, 1.32% lead and 0.36% zinc before being abandoned after hitting old underground workings. The last 6 metres of the hole ran 226 grams (6.6 oz.) silver, 3.81% lead and 1.44% zinc.

Hole 2A was steepened from the same collar, returning 78 metres grading 144 grams (4.2 oz.) silver, 1.78% lead and 0.57% zinc from surface. The 193-metre-long hole ended in mineralization grading 51 grams (1.5 oz.) silver across the final 8 metres.

Bear Creek stepped back and undercut the two holes with hole 4, intersecting 113 grams (3.3 oz.) silver across the top 104 metres before losing the hole upon hitting old mine workings. Assays are pending for hole 6, which was drilled further up the hillside to test trench 16 (158 metres of 69 grams or 2 oz. silver). The lateral distance between the westernmost end of Trench 16, which ended in 1 oz. silver, and the easternmost end of trench 8, which stopped in 4.6 oz. silver, is about 425 metres horizontally.

Swarthout acknowledges some of the drill holes were shut down too early but he says the objective of the first pass of drilling was to test the shallow oxide mineralization over as much strike length as possible. Based on the results of the first four holes, the oxide-sulphide interface seems to be between 60 and 80 metres deep. The top part of the column is dominated by a limonite, iron oxide assemblage. The sulphide mineralization consists of galena, sphalerite and pyrite.

The underlying contact between the Tertiary pyroclastics and breccias, with the Paleozoic sediments, was the focus of much of the high-grade mineralization that was mined at Corani during the 1960s. Production at that time was fairly small, totalling about 100,000 tonnes grading in the order of 10-15 oz. silver and 10-12% combined lead-zinc. "We will be going back in and looking at this deeper sulphide target," says Swarthout.

The company is now stepping out along strike to the north using one drill rig, and to the south with a second rig towards the more gold-rich part of the target. A third reverse-circulation rig will be brought in at a later date to expedite both stepout and infill drilling.

"There is a great deal of blue sky in the exploration; it is a significant district and we are looking forward to a good flow of information with an aggressive drilling program," says Swarthout.

Bear Creek has a cash balance of US$3.1 million, with 32.1 million shares outstanding or 39.4 million on a fully diluted basis. With that dilution, the exercise of options and warrants would bring in another $8 million. Company insiders own about 20% and MK Gold (MKAU-O) owns another 15%.

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Historical underground workings in a mineralized zone on Bear Creek Mining's Corani silver-gold project in southeastern Peru.
Historical underground workings in a mineralized zone o...
A view of the Corani silver-gold project in Peru. Bear Creek's flagship property could be the next big silver find in Latin America.
A view of the Corani silver-gold project in Peru. Bear ...
Andrew Swarthout Bear Creek President
Andrew Swarthout Bear Creek President
Bear Creek Chairman Catherine McLeod-Seltzer
Bear Creek Chairman Catherine McLeod-Seltzer

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