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TABLE OF CONTENTS Dec 10 - 16, 2012 Volume 98 Number 43 - 0 comments

Ollachea delivers for Minera IRL in Peru

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By: John Cumming

Lima-based gold miner Minera IRL (IRL-T, MIRL-L) has completed a definitive feasibility study on its wholly owned Ollachea gold project in southeastern Peru that shows strong potential for a robust underground mine that could produce 113,000 oz. gold per year at full capacity.

The project is located in the mountains, 1.5 km west from the 2,000-person village of Ollachea in the Puno region of Carabaya province. The site is a four-hour drive on paved roads from a major airport at Juliaca City, where Minera IRL maintains a large core-storage facility, sample-prep laboratory and related offices. (Cuzco is only 160 km from Ollachea as the condor flies, but that translates to a 16-hour drive.)

The geography at Ollachea is characterized by a steep mountain valley ranging in elevation from 2,700 to 3,000 metres above sea level, with a perennial stream running down the middle. The climate is sub-alpine, with a metre of rain falling annually, mostly between November and April. The Ollachea River, a major potential water source for mining operations, flows through the town.

Ollachea’s geology is dominated by phyllitic slates of the Devonian Sandia formation, with the central portion assigned bedded graphitic slates and shales of the Silurian-Devonian Ananean formation. The gold mineralization is stratabound within northeast-trending and south-dipping carbonaceous phyllites, and associated with meso-thermal quartz-carbonate-sulphide veins, with the sulphides comprising pyrrhotite and pyrite, plus minor chalcopyrite and arsenopyrite.

The key structure containing Ollachea’s reserve is the Minapampa zone, which hosts gold within seven discrete horizons totalling at least 100 metres in thickness and extending over a strike length of 950 metres, and downdip at least 350 metres.

Probable reserves stand at 9.3 million tonnes grading 3.4 grams gold per tonne, for 1 million contained oz. gold. In the indicated resource category lie another 10.6 million tonnes at 4 grams gold for 1.4 million contained oz. gold. These numbers are based on more than 80,000 metres of drilling carried out at the property.

Engineering consultants AMEC completed the study, with assistance from Coffey Mining for the resource estimation and the underground mining aspects.

Using a modest gold price of US$1,300 per oz., the study calculates an after-tax net present value of US$155 million at a 7% discount rate, and an after-tax internal rate of return of 22.1%. (At US$1,600 per oz. gold, the NPV shoots up to US$258 million and the IRR to 30%.) The property vendor retains a 1% net smelter return royalty.

Upfront capital costs are pegged at US$178 million to build a mine capable of operating at a rate of 1.1 million tonnes per year to produce an average of 113,000 oz. gold per year at full tilt. Payback would be in three to four years.

Stopes would be accessed via a 1.2-km, almost horizontal access drive that has so far been advanced 800 metres by Mineral IRL over the past year, starting at a portal in the adjacent valley at a 2,700-metre elevation. The mining method would be long-hole, open-stoping with both paste backfill and dry stacking of tailings in the adjacent valley, which would also host a plant and accommodations for 200 workers.

Minera IRL notes the tunnel will access the orebody near the lower limit of the drill-defined deposit, so most mining under the current plan would be from the bottom upwards. Extraction would occur along the orebody strike direction on a retreat basis.

Cash-operating costs are estimated at US$499 per oz. over the mine’s life, which would be at least nine years, with plenty of potential for extension beyond that.

Conventional processing and recovery using gravity concentration and carbon-in-leach technology would occur on-site, with a gold recovery rate above 91%, according to metallurgical testing completed in Australia and the U.S.

The tunnel would also make exploration drilling at depth of the Minapampa and related structures much easier and cheaper, as drilling these same structures from surface would require holes that extend over 1 km owing to the site’s steep topography.

“It’s one of the most significant milestones in our company’s history, and we’re pleased with the result,” Mineral IRL executive chairman Courtney Chamberlain says of the feasibility study. “It’s going to be a good mine one day.”

He says the study confirms that Ollachea is an “economically and technically robust, long-life project,” and the company is confident of a longer mine life than the initial nine years defined in this study, considering a million-ounce inferred resource has already been identified, with gold-bearing structures open along strike and downdip.

Chamberlain notes that Ollachea is “well served by existing infrastructure” with a paved highway, power lines and abundant water all available nearby, as well as a mining-friendly local workforce.

Next up, Minera IRL plans to submit an environmental impact assessment before year-end, appoint a lead engineering firm and move into final permitting with an eye to achieving first stoping production in early 2015, and ramping up to the full 1.1-million-tonne-per-year rate by mid-2016. A total of 921,000 oz. gold could be mined by 2024 at Ollachea under the current mine plan.

Already the operator of a small, high-altitude heap-leach gold mine in Peru called Corihuarmi, Minera IRL says it has “developed excellent relationships with the local community” at Ollachea, and notes that it has a 30-year development and operating permit in place.

It is noteworthy that the local community — which has been a hub of artisanal mining since at least Spanish colonial times in the eighteenth century — will become a 5% equity participant in Ollachea upon the start of production.

“Community relations is more important in Peru than almost any other place I’ve worked,” Chamberlain comments. “These people have been here a long time — they’re proud, and suspicious of foreigners. You got to really work to get relationships built and get them comfortable with you. They go off the rails easily. They’ll talk a small problem into a big problem. You really have to keep on top of it.”

The company is committed to employing and training local people, and it has worked with the Humala government to move some 120 locals away from unsafe and environmentally damaging artisanal practices, such as unregulated tunneling and tailings disposal, and mercury use.

Historical and more recent artisanal workings have only extended a maximum 50 metres into the deposit, owing to the steep dip of the veins, the crumbly nature of the shale host rock and the heavy water inflow.

Minera IRL has been granted archaeological clearance for most of the required plant, tailings and infrastructure locations — which are on some of the only flattish land around — and the remaining clearances are in progress. The company states that “no sites of national significance have been identified within the area of planned use.” In the area there are remnants of settlements dating back 1,500 years to pre-Incan times.

The company has also struck ­long-term deals to replace minor corn crop losses suffered by local growers owing to mine development.

The first modern exploration at Ollachea was carried out by Canadian-listed Peruvian Gold, which drilled five holes in 1998 and 1999. Rio Tinto “rediscovered” the area in May 2003 thanks to a regional stream-sediment sampling program, and Minera IRL picked up the property from Rio in 2006, making its major discovery in 2008.

In 2009, Coffey calculated a maiden 13.5-million-tonne inferred resource grading 3.62 grams gold per tonne with a 1-gram cut-off, for 1.6 million oz. gold.

During a visit by The Northern Miner to Ollachea in 2011, it was clear Minera IRL had intensively drilled to shallow depths only a 1-km segment of a thick, gold-mineralized structure that spans at least 5 km and plunges deep into the mountainside and under the town.

“There is going to be some kind of exploring going on here for a very, very long time, that’s for sure. It’s just got that much potential.” vice-president of exploration Donald McIver said during the visit.

Chamberlain founded Minera IRL in 1997 after working 29 years with South America-focused Australian gold major Newcrest Mining and related companies, including serving as a director. Minera IRL was an investor relations consultanting firm at first, until it moved into mining in October 2002 with the purchase and development of the Corihuarmi gold mine, which led to an initial public offering in London in 2007 that raised $22 million.

“It was a great experience building a mine at 5,000 metres in a remote location,” Chamberlain says. “The Peruvians really have a can-do attitude.”

Described as “a little gem” by McIver, Corihuarmi — now with maybe three years of life left — has consistently surprised on the upside, delivering profitable ounces for several more years than originally planned, and providing crucial cash flow that allowed a fledgling Minera IRL to acquire and develop Ollachea and its advanced Don Nicolas gold project in Santa Cruz province, Argentina.

“It’s been an interesting exercise — it’s not easy to build a little mining company from nothing,” Chamberlain says. “The only thing that stressed me out over the years was running out of money. In the early days, there were four or five occasions where we were one investor away from not being able to afford to buy a ticket to fly people to Australia.”

But those days are long gone, with Corihuarmi having since generated over $190 million in sales. The mine produced 30,000 oz. gold in 2011, and with Don Nicolas and Ollachea poised for rapid development, Minera IRL is hoping it can produce 180,000 oz. gold from the three mines in 2015.

At the end of September, the company had $10 million in debt and $10.4 million in cash. Management is now sussing out financing options that would allow it to build two mines in the next three years.

Minera IRL has 151.9 million shares outstanding with 169.9 million diluted, for a market capitalization of $134 million. Shares last traded at 88¢ within a 52-week range of 63¢ and $1.23.

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An eastward view towards the Minapampa orebody (centre, in flat, grassy area) at Minera IRL's Ollachea gold project in late 2011. Artisanal miners' structures can be seen at the valley bottom, and hidden even deeper in the valley in the distance is the village of Ollachea. The tunnel portal is in the adjacent valley to the left. Photo by John Cumming
An eastward view towards the Minapampa orebody (centre,...
The portal entrance at Minera IRL's Ollachea gold project in Peru. Source: Minera IRL
The portal entrance at Minera IRL's Ollachea gold proje...

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Minera IRL Limited

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Corihuarmi Mine
Ollachea Project

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