After visiting Lupaka’s Peruvian operations, and based on the most recent ground magnetics survey, we are quite confident Crucero wil develop into the country’s next 5Moz+ deposit.
Introduction
Lupaka Gold is a Peru-focused gold explorer with geographic diversification and balance through its
asset-based resource projects spread across three regions of Peru. Lupaka’s flagship project is the Crucero Gold Project, its 5,500 hectare gold property located in southern Peru. The Company, based in Vancouver, Canada, is project operator and holds a 100% indirect interest in the Crucero property. Since commencing active exploration in April 2010, the Company has reported NI 43-101 compliant gold resource estimate updates for the Crucero property in the first quarter of 2011, 2012 and 2013.
As a result of the recent acquisition by the Company of Andean American, Lupaka’s assets now include the Invicta Gold Project, which has near- term underground gold and poly-metallic development potential, and a strategic 17% stake in Southern Legacy Minerals (TSX-V: LCY), owner of the AntaKori copper-gold deposit.
Invicta
Lupaka Gold acquired the Invicta Project through the merger with Andean American Gold in the fall of 2012. The 100%-owned Invicta Project comprises of 30,000 hectares of land, and the current resource estimate of 1.2Moz AuEq is contained in only 600 hectares (2% of the land position). Lupaka thinks there is considerable potential to increase the resource base, and the management team will assess the further exploration potential this year. Their field team has discovered several potential targets they will follow up on later this year.
Lupaka Gold is currently exploring all possibilities to increase the shareholder value, including discussing the potential joint venture or sale of the Invicta Project. The company has received several non-binding expressions of interest, and we hope to hear more about this during the summer. We think a joint venture whereby Lupaka would retain a free carried interest in the project would be the most beneficial for the current Lupaka-shareholders.
Crucero
We consider Lupaka’s Crucero Project in the Puno Province to be the flagship project of the company. Lupaka outlined a resource estimate of 2.2Moz at an average grade of 1g/t based on a cut-off grade of 0.4g/t. If we increase the cutoff-grade to 1g/t, the resource estimate still contains a very respectable 1.35Moz at an average grade of 1.37g/t. Keep in mind this resource estimate is only based on drilling the A1 zone. As Lupaka has 10 additional targets at the Crucero project, this resource estimate could increase considerably. We are most interested in the Chaska Zone where the ground magnetic survey highlighted large anomalies. This Chaska Zone comprises the A3, A4 and A5 targets, and those three targets are each at least twice as large as the A1 zone.
Based on these magnetic surveys and the efficiency of drilling at the A1 zone ( Lupaka only drilled 23,000 meters for their 2.2Moz resource estimate, so their drill efficiency is extremely high with 100oz of gold per drilled meter), we are excited about the prospects at Crucero and wouldn’t be surprised if the project would ultimately contain a double digit million ounces of gold.
The proof will obviously only be in eating the pudding, but based on the ground magnetics survey the targets really light up like lights in a Christmas tree, and we are confident the Crucero project will eventually contain in excess of 5 million ounces of gold. As the average recovery is expected to be around 80%, the project should be viable at the current price of gold, but we’ll obviously only be sure after a feasibility study will have been published.
The company has recently signed a new agreement with the local community, valid for a 4-year term. As the land is actually owned by the local community, we don’t expect any big problems. we met with the president of the local community and he is fully supporting the further exploration plans and potential development of the Crucero Project.
2013 Exploration plans at Crucero
This year, the company plans to complete a substantial exploration program mainly consisting of mapping and sampling the newly discovered areas of interest in order to generate new drill targets. It’s unlikely the company will conduct a drill program this year, as they first want to delineate new high-probability drill targets before spending money on further drilling. We don’t expect a future resource estimate before 2015.
The total exploration budget for this year for both Crucero and Invicta is budgeted around C$4M, which will entirely be funded out of the current treasury which contains C$8.5M in cash. We don’t anticipate the company going back to the markets this year, unless they are able to raise money at a much higher price.
Southern Legacy Minerals
Lupaka Gold also owns 17% of Southern Legacy Minerals, which owns the large AntaKori copper-deposit in North Peru. AntaKori is a strategicaly located asset situated between Buenaventura’s Tantahutay-mine and Newmont’s Yanacocha mine. As AntaKori currently has a resource estimate with 5.9 billion pounds of copper equivalent at an average grade of 0.92% CuEq, the deposit might be enticing for both Newmont and Buenaventura to consolidate their land position in the region.
We think Buenaventura might be the perfect suitor (as of this moment, we are not aware of any negotiations between Southern Legacy and any third party), as they also hold a 5% NSR on Lupaka’s A1 zone at Crucero. If Buenaventura makes a move for AntaKori, they’ll have to talk to Lupaka to close a lock-in agreement for their 17% shareholding in Southern Legacy Minerals. As part of the lock-in negotiations, Lupaka might try to re-negotiate the current 5% NSR on Crucero’s A1-zone.
Management Team
Lupaka Gold is managed by seasoned veterans in the mining industry;
Eric H. Edwards – CEO
Eric Edwards has over 25 years total experience in gold mining and exploration holding a number of positions in operations, business development and corporate finance. He holds a Masters of Business Administration.
Prior to being appointed CEO in January 2011, Mr. Edwards was Chief Financial Officer of Andean Resources Limited, acquired by Goldcorp in December 2010. Mr. Edwards held the position of President and CEO of Ventura Gold Corp. and successfully completed the sale and transition of Ventura to International Minerals Corporation, closing in January 2010.
Mr. Edwards served as VP Finance, CFO and Corporate Secretary of Queenstake Resources Ltd. where he coordinated the public process and eventual merger of Queenstake with YGC Resources to form Yukon Nevada Gold Corp. Over the past 15 years, Mr. Edwards has been CFO for a number of publicly traded gold companies including Viceroy Resource Corp. and Ivanhoe Mines. Mr. Edwards was the CFO for Ivanhoe Mines during the time that the company completed the initial public offering raising over $C 275M. Mr. Edwards has completed a number of acquisitions, divestitures, mergers, equity placements, project recourse facilities and corporate bridge facilities.
Mr. Edwards has also held a number of operating positions including; Kinross Gold at Fort Knox Mine in Alaska, NERCO Con Mine, and AngloGold Jerrritt Canyon Mine in Nevada.
Darryl F. Jones – CFO
Mr. Jones is a CA with a wealth of experience in publicly traded companies. Most recently he was CFO with Corriente Resources for 7 years and was a key member of the management team which negotiated and closed the May 2010 cash sale of Corriente to CRCC-Tongguan Investment (Canada) Co., Ltd for approximately $680 million.
Julio Castañeda
Mr. Castañeda is a geologist with more than 29 years of experience in exploration and exploration management. He is the former Regional Manager for Golden Minerals in Peru and Mexico. He has also held senior positions with Barrick Gold and Hochschild Mining.
Carlos Yrigoyen – Country Manager Peru
Extensive experience in mineral exploration, mainly in High – Low sulphidation and Au-Cu porphyries, hydrothermal alterations, geochemistry and 3D modeling with GEMCOM and SURPAC; Senior Geologist from 2010 to 2012 with Ecuacorriente S.A. and from 1998 to 2010 was Senior Geologist with IAMGOLD Ecuador S.A..
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Conclusion
With over C$8M in cash and two very prospective exploration assets, Lupaka should be valued much higher than the current Enterprise Value of just C$17M. Based on the current NI43-equivalent resource estimates containing 3.4M gold-equivalent ounces, Lupaka Gold is trading at an enterprise value of just $5/oz AuEq, which is very cheap, even in this environment. After visiting the projects and considering the prospectivity of the land package at Crucero, we feel a valuation of $20/oz AuEq is more appropriate as we think the current resource estimate can increase considerably from current levels. This means the fair value of the company would be closer to a dollar instead of the current share price of 30 cents.
We are looking forward to see the outcome of the strategic review of the Invicta-asset, which will give us a better indication of the company’s future before the end of the summer. We have no doubt highly-experienced CEO Eric Edwards will try to get the best deal for the Lupaka-shareholders. Keep in mind he has considerable experience in strategic negotiations, as he was part of the management team of Ventura Gold and Andes Resources and both companies were taken out by larger players over the past five years.
As the company expects to spend $4M in exploration this year, there’s no pressure on Lupaka Gold to return to the capital markets to raise more money anytime soon.
After visiting Lupaka’s Peruvian operations, and based on the most recent ground magnetics survey, we are quite confident Crucero wil develop into the country’s next 5Moz+ deposit.
Disclosure: Lupaka Gold Corp. is a sponsoring company. Our site visit costs were reimbursed by the company. Please see our disclaimer for current positions.
