Investment Commentary — Arequipa properties advance to drill stage

With total land holdings in Peru encompassing more than 137,000 hectares, Arequipa Resources (VSE) offers investors excellent short-term leverage, says mining analyst Graeme Currie of Canaccord Capital.

The junior, which is focused on copper porphyry projects in the south, as well as gold projects in north-central Peru, has signed two deals with senior American producers.

In one deal, Phelps Dodge (NYSE) was granted an option to earn a 60% interest in five copper porphyry targets, including Los Calatos, a prospect regarded by Currie as “excellent.”

According to a report by Currie, geochemical sampling and surface mapping at Los Calatos outlined two prospective mineralized areas measuring 2,000 by 600 metres, and 900 by 400 metres, respectively. Drilling is expected to start on these prospects within the next few weeks.

A similar deal was struck between Arequipa and Asarco (NYSE), covering 10 copper porphyry targets. The two key projects in this deal are La Ventana and Los Pinos.

At the former, a geochemical survey has defined “windows” of anomalous copper and molybdenum values at the centre of a concentrically zoned porphyry system. Here, too, drilling is expected to start shortly.

Asarco can earn up to a 90% interest in the Los Pinos copper oxide project, where 37.8 million tonnes have been outlined, grading 0.4% copper at a cutoff grade of 0.22%. Should Asarco elect to put the project into production, it could increase its ownership to 90% from 50% by paying Arequipa US$5 million.

Having optioned 15 copper porphyry projects to major companies, Arequipa intends to explore several prospective gold targets on its own.

The Paron project lies at an elevation of 3,600 metres above sea level, but is accessible by road. A typical epithermal gold deposit, the Paron exhibits multi-stage silicification and quartz veining. Based on seven drill holes, three short adits and pit sampling, the deposit is estimated to have a probable reserve of 1.9 million tonnes averaging 3.3 grams gold per tonne.

In Currie’s view, there is good potential for expanding reserves, although, based on current information, a resource containing more than 500,000 oz. is not likely.

Under way is a first-phase, $650,000 exploration program, consisting of 40 short holes centred on 50-metre spacings.

Other Arequipa projects include the 40,000-hectare Paron regional program and the Ferrol prospect, which lies between Newmont Gold’s (NYSE) Yanacocha deposit and Barrick Gold’s (TSE) Cerro Corona project.

Arequipa shares were recently trading at the $1 level.

There are more than 21 million Arequipa shares outstanding, 40% of which are owned by Chairman J.D. Lowell. Working capital stands at $1.8 million; long-term debt at $340,000.