South Zone 3D-IP analysis – part 1 Oroco’s press release on the 3D-IP results from just under two weeks ago was very good news. Since that time, I have been reviewing historical data from the Santo Tomas technical report (“ST report”) off of Oroco’s website, going through a few other companies’ copper porphyry project resource reports and piecing this together. Oroco just did a big makeover on their website, and it’s a beauty. Check it out the 3D pit model!
Now that we have some new data to digest, we can piece things together and draw some inferences and conclusions. This analysis is limited to the South Zone because there are just so many different areas to look at and it’s simply the first one that I started studying in-depth. My subsequent posts will focus on the other areas of the project.
It’s nice to see the 3D topographical pit model representing the scale of the project in relation to various geographical features. I compared features in the 3D model with a satellite view in Apple maps and Figure #32 from page 87 in the ST report to come up with some distance approximations. Figure #32 in the ST report shows locations of the historical drill holes south of STD-32. The press release adds some dimensions as well and reveals a few things.
In the South Zone, a highly-charged area with low resistivity encompasses the ten or so historical drill holes. This charged zone is reported to be some 200 – 400 m thick on the western edge and 600 m thick on the eastern limit of IP data collection. The east side of the IP survey covered areas beyond the historical drilled areas. Comparing the various maps, this newly surveyed area on the east side of the zone extends approximately 400 m – 800 m eastward across topography that was not previously drilled, depending upon the reference point one starts with. This is not a precise measurement, but rather an approximation.
The press release tells us that the highly-charged area extends east to the limit of IP data collection. How far this highly-charged zone extends beyond that is unknown. Looking at the topographical model on the 3D viewer, you can see that the limit of IP data collection roughly coincides with the top ridge alongside a mountain. This means that as the highly-charged zone continues eastward, the top portion of terrain will decrease because it slopes downward. This will make construction of an open-pit easier on this side, because the mountain and ridge can simply be excavated away rather than carefully digging a coliseum into the ground.
The historical 2011 resource estimate assigned value to only the measured and indicated resource in the South Zone of some 478.1 million pounds Cu for the higher grade ore (cutoff of > 0.35% Cu). See ST report page 6. From that table’s data, I calculated the lower grade ore resource estimate (0.15 – 0.35% Cu) and it works out to be 811.7 millions pounds Cu. The historical 2011 resource estimate lumped the remaining South Zone into the “waste + inferred” category, and assigned no Cu mineral value to it. That makes up some 956.6 million tonnes of material (ore and waste).
The 3D-IP highly-charged South Zone extends eastward, beyond the areas that were drilled years ago, and thus into the ”waste + inferred” zone. How big is this highly-charged zone and at what grade is it?
The South Zone historical drill locations are shown in Figure #32 of the ST report. A discussion on page 93 specifically highlights assay data from drill holes STD-36 and STD-50, and Table 8 on page 90 identifies “Listing of Significant Cu Composite Intervals.” Other drill holes in the South Zone intercepted Cu content that ranged from 0.41% - 0.51%. The highly-charged geological area revealed by the 3D-IP survey encompasses these locations. Keep in mind that the Table 8 data indicates gaps in continuity of the reported grades in the drill holes, and talks only of the high grade intercepts. However, the resource estimate on page 6 assigned an average of 0.433% Cu for the high grade in the South Zone.
If you look at the 3D pit model, Figure #32 from the ST report, and read the press release, you can draw some rough interpretations as to the size of the highly-charged zone. Here are some numerical variables to put things into context. Drill hole STD-36 spanned some 232 meters of 0.40% - 0.54% Cu ore, while STD-50 spanned 275 meters of 0.42% - 0.49% Cu ore. The average range of these two measured ore zones is 253 meters. The press release describes a wedge 200 to 400 m thick at the western limit, which tells us that the mineralization is greater than 253 m thick. It is described as 1,200 m long in plan view. From the group of historical South Zone drill holes and table 8 data (reporting grades of > 0.40%), I would conservatively estimate this north-to-south length at 800 m – 1,000 m.
From the 3D pit model and boundary limit of IP collection, it looks as though it extends eastward from the historical drilled area / measured and indicated resource area by another 400 – 800 m. From these numbers, you can approximate a volume as follows:
North-south length: 900 m
East-west width: 600 m
Depth thickness: 275 m
(900 m)(600 m)(275 m) = 148,500,000 cubic meters
A conversion rate of 2.265 tonnes / cubic meter yields 336.4 million tonnes ore.
Assuming a grade of 0.40% Cu yields 2,966 million pounds Cu. The mid-range of drill holes STD-36 and STD-50 is 0.45% Cu, but keep in mind those gaps in continuity I mentioned earlier. So I am being a bit conservative with a 0.40% Cu estimate, which is also slightly lower than the historical average high grade estimate of the South Zone. Here’s my math.
(336.4 Mt)(2,204.6 lbs/tonne)(0.0040) = 2,966 M lbs. Cu
The 0.40% grade approximation is based on limited historical measured grades in the interior of the 3D-IP highly charged zone. It doesn’t account for CuEq credits due to Au, Ag, or Mo. We won’t know for certain what the average grade is across the entire highly-charged zone until drilling and assaying. We also don’t know how much further east it extends, which can add more to the calculated resource estimate. The thickness of the highly-charged zone reportedly grows to 600 m on the eastern limit of IP collection. Keep in mind too that, “Both STD50 and STD36 bottomed in good grade mineralization” (ST report page 93). So the South Zone mineralization appears to run at even greater depth, which the IP data supports. That’s another wild card which is difficult to quantify.
Here is a range of average grades, depths of deposit, and the corresponding Cu resource representing the potential additional South Zone deposit beyond the historical drilled area. I estimated an initial 275 m of deposit depth and included additional columns of data for scenarios where the average depth might be +25 m or +50 m greater. Mineral deposits are never perfect 3-D rectangular or trapezoidal boxes. Volcanic flow just never works that way. You can scale the volume up or down, the grade, and the CuEq credit based on your judgement.
Cu resource estimate in millions of pounds
%Cu (275 m) (300 m) (325 m)
0.50 3,708 4,045 4,382
0.45 3,337 3,640 3,945
0.40 2,966 3,236 3,505
0.35 2,595 2,831 3,067
0.30 2,225 2,427 2,629
Figure 15 on page 48 of the ST report estimated a total resource for the higher grades of 3,204.6 million pounds Cu across the entire project - combined North and South areas. The additional estimate above doubles that number.
The January 2020 RFC Ambrian report provides an analysis of historic prices paid for underlying assets, stating on page 27 that, “Figure 17 shows that the price paid for operating assets has been US$307/t (US¢14/lb), pre-production US$211/t (US¢10/lb), feasibility US$193/t (US¢9/lb) and exploration US$74/t (US¢3 /lb).” While $0.03 / lb. is the average for exploration stage projects, attractive projects might be higher - especially in a higher copper price environment.
Just the South Zone resource alone (assuming an estimated additional 3 billion pounds Cu from the conservative 275 m deposit thickness) would add $90 M at the exploration stage and $270 M at a feasibility stage – which was the published market cap of Oroco today at the closing bell (2/8). So the IP results of the South Zone alone are very positive for the accretive value of the project, particularly since the IP surveyed South Zone extends further east and is thicker.
I will post a separate analysis for the North Zone IP data later. I am still going through portions of the ST report and comparing it to data from the press release and the 3D model. I am even more excited about the North Zone because of the known higher grades, size, and proximity to El Ro Fuerte (translation: strong, robust).
References:
https://www.rfcambrian.com/index.php/2020/01/23/cu-ma-copper-projects-review-2020/
Other copper mine projects generally assign a Cu resource cutoff grade (CuT) of around 0.25%, depending upon operating costs and credit for other metals present such as Au. I didn’t go any lower than an average grade of 0.30% Cu. Examples that I looked at:
Los Azules, Argentina (0.20% CuT)
Vizcachitas, Chile (0.25% CuT)
Los Helados, Chile (0.33% CuT)
La Verde, Mexico (0.20% CuT)