Swingplane Ventures on Course to Develop Chilean Copper
Property
By Steven Ralston, CFA
Swingplane Ventures Inc. (OTC BB:
SWVI
)
holds an option to acquire a 75% interest in 32 mining claims in
an intriguing region of copper deposits located in the Atacama
Desert of northern Chile. Known generically as the Algarrobo
property, the area is in the administrative division of Region
III, approximately 25 kilometers east of the port of Caldera, 43
kilometers northwest of Copiapo and 850 kilometers north of the
country's capital, Santiago. In January 2013, through the
acquisition of Mid Americas Corp., Swingplane Ventures obtained
the option to acquire these 32 tenures or mining concessions (
11 Roble
and
21 Angela
tenures) surrounding and to the southwest of past producing
mining operations that exploited three Major Veins of high-grade
copper in the vicinity of Algarrobo.
Even though Swingplane is in the development stage of resource
exploration and delineation, which will require several rounds of
financing, its option on a past producing property should permit
limited copper production in 2013 due to the Chilean government's
unique promotion of the copper industry. In 1960, the government
created ENAMI (Empresa Nacional de Minería), a large, state-owned
mining company, which is designed to assist small- and
midsize-mining companies by providing competitive milling and
processing services. ENAMI purchases high-grade ore and
concentrates of copper, gold and silver for processing in its
smelter and five refineries.
The potential of the tenures under Swingplane's option is
four-fold: 1) another vein (
Veta Gruesa
) south of the central Major Vein has been discovered on the
Roble tenures and high-grade ore is now being mined by the
company through artisanal methods, 2) limited production of both
high-grade and low-grade copper ores was sold through ENAMI from
2009 to 2010 and a new license is expected to be granted within a
few months, 3) given the extent of the mineralized trend in the
Algarrobo area, further exploration should discover additional
primary and secondary veins on the Roble tenures and 4) the
expansive Angela tenures, which are on trend with the
southernmost Main Vein, provide blue sky potential for the
discovery of the southernmost Main Vein's continuation and/or
other primary vein complexes. Due to the high grade of the rich
copper veins in this area of Chile and the prior permitting of
ore sales to ENAMI, Swingplane should be in a position to
partially fund the exploration and development of its tenures
with operating cash flow, once a mill is constructed and
operational to process ore.
Two other blue sky aspects of the Algarrobo property are: 1)
the presence of low-grade gold content in the high-grade copper
oxide ore and 2) the potential for the delineation of uranium
deposits, which were indicated by an exploration project
conducted by the Chilean Nuclear Energy Commission between 1975
and 1981.
High-Grade Copper-Bearing Veins
During the second half of the 19th century and early 20th
century, most of Chile's copper production was derived from the
exploitation of high-grade copper bearing veins. The high-grade
copper ore was concentrated in the northeast-trending and
steeply-dipping veins associated with long-ago volcanic action in
the Andes. In general, these veins were from 750-to-2,000 meters
in length, 1-to-12 meters wide and about 370-to-670 meters in
depth. Smaller vein structures with individual veins less than
350 meters long and 0.5-to-1.0 meters wide were also encountered
and exploited in near-surface zones of oxidized material down to
depths of less than 100 meters. The rich veins of copper ore were
separated by sections of low-grade ore or completely barren rock.
A prolific area of copper production from high-grade veins is the
region in Chile that is west of the Andes and between Latitudes
21° South and 27° South.
The nature and history of the high-grade copper veins at
Algarrobo are consistent the early history of the exploitation of
Chile's copper resources. Within the Algarrobo project area,
which is located at Latitude 27° South, three systems of
fractures (also known as three Major Veins) have been discovered
and exploited to some extent. The systems are composed of at
least eight primary mineralized veins that are over 2.5 meters
wide and have surface lengths between 300 and 1,300 meters. The
true strike lengths of these primary veins have not yet been
determined due to sand cover. In addition, a number of secondary
veins (classified as splays, horsetails, en echelon, etc.) have
been discovered and presumed to be present across the Mineralized
Trend in the Algarrobo area from the Panga mine in the northeast
to the Alicia mine in the southwest.
The Mining Concessions controlled by Swingplane
Ventures
To better clarify the properties on which Swingplane Ventures
holds an option to acquire, a more accurate description of the
Algarrobo property would be helpful. Historically, the mining
area has been known as
El Roble Y Algarrobo
. The three Main Veins, which have been partially exploited by at
least 30 mines, are oriented in a northeast-southwest direction,
each over a distance of between one and three kilometers. The
northernmost Major Vein
can be identified by the historical operations of the Panga,
Argentina and Uruguay mines. The
central Major Vein
, approximately five kilometers to the southwest, is recognized
by the workings of the Estaca, Viuda and Descubridora mines,
which are on tenures encompassing roughly 300 acres and held by
other leaseholders. The 11 Roble tenures controlled by the option
held by Swingplane Ventures almost totally surround this
historically mined area and encompass approximately 2,300 acres.
A further four kilometers south-southwest is the
southernmost Main Vein
with the Alicia and Caldera mines, also on tenures held by other
leaseholders and encompassing only 250 acres. Swingplane's option
also controls 21 Angela tenures, which contain almost 13,000
acres immediately southwest and on trend with the southernmost
Main Vein.
The Acquisition of the Option
Swingplane Ventures holds an option by which it can earn a 75%
interest in 32 tenures in the area of Algarrobo, Chile. Initially
structured in mid-2012 as a purchase of the option from Mid
America, the deal was restructured in January 2013 as the
acquisition of Mid America (a company incorporated in Belize) for
100,000,000 shares of common stock and 5,000,000 shares of
super-voting convertible preferred stock. Originally, the
Algarrobo option agreement was made and entered into on April 23,
2012 between Mid America, the optionee, and Gunter Stromberger
and Elsa Dorila Duarte Horta, the optionors. The option allows
the holder to earn a 75% interest in 11 Roble tenures and 21
Angela tenures in the mining area of El Roble Y Algarrobo by
making a series of payments totaling $2.70 million to the
optionors and spending $20.0 million towards mine development, in
addition to being subject to three other conditions described
below.
To-date, $1,200,000 has been paid to Gunter Stromberger, Elsa
Dorila Duarte Horta and the Sociedad Legal Minera (Legal Mining
Companies) controlled by them as required under the option
agreement. Two other payments of $750,000 each must be made by
Swingplane on or before June 30, 2013 and June 30, 2014,
respectively, in order to keep the option in force. In addition,
by April 23, 2015, Swingplane Ventures must expend $20,000,000
(half of which must be expended by October 23, 2013) towards the
exploration of minerals and the development of mining operations
in order to fulfill the terms of exercise. Also, until Swingplane
Ventures constructs a mill to process the ore, the rights of
production are retained by the optionors (Gunter Stromberger et
al). After a mill is constructed, the optionors will be entitled
to one-third of the net proceeds until $5,000,000 is received,
and thereafter the interest of the optionors will revert to 25%.
Swingplane must make all necessary payments to maintain the
tenures in good standing during the option period. Lastly, Gunter
Stromberger will act as field supervisor
for the project (for a fee of $25,000 per month) until the 75%
interest is earned by the Swingplane Ventures.
Algarrobo Property
Geologically, the Algarrobo property lies on the western
fringe of the Atacama Fault System and west of the Chilean Iron
Belt, which hosts several significant Iron Oxide Copper Gold
(IOCG) mines, such as the Candelaria mine (80% owned by Freeport
McMoRan Copper & Gold - FCX: NYSE) and the Mantoverde mine
(Anglo American plc - AAL: LSE). The Western side of the Andes in
northern Chile is an important province for copper deposits,
which has allowed Chile to become the world's largest copper
producer. As the country's largest export, copper is considered
strategic to the country's national interest. The copper deposits
of Chile have been categorized into at least eight different
types. Though the rich porphyry copper deposits are the most
prolific, other types, such as the intrusion-related copper
mineralization in the area of the Algarrobo property, are also
noteworthy.
Algarrobo property is in the southern portion of the Atacama
Desert. The northernmost Major Vein and central Major Vein are at
higher elevation of approximately 1,000 meters while the
southernmost Main Vein is about 750 meters above sea level and
the Angela tenures are on a flattish, sandy desert floor at an
elevation of approximately 550 meters.
Historical Production
in the area of Algarrobo
The copper deposits in the Algarrobo area were discovered in
1808; however, large-scale industrial mining operations by a
British company did not begin until 1868. Based on the mine waste
piles, it is estimated that primarily between 1868 and 1910
approximately 800,000 tons of copper ore grading better than 12%
was extracted from approximately 30 mines (exploiting the three
Main Veins) and directly shipped as smelting ore. The central
Major Vein was the most heavily exploited, especially between the
Estaca and Viuda mines where the vein and associated lenses were
mined extensively over a 600-meter strike to a depth of 250
meters. Horizontal levels at depths of 180 meters and 280 meters
connect the vertical main shafts of Estaca and Viuda, which are
350 meters apart. Copper ore was extracted from the oxide zone,
which extends to a depth of between 110-to-120 meters and the
transition oxide-sulphide zone to a depth of 160 meters. At the
Viuda mine, the sulfide ore was extracted down to 450 meters.
Initially transported about 40 kilometers on a wagon road, the
ore quality and reserves at surface were sufficient to warrant
the construction of a 21-kilometer railroad line from Algarrobo
to Caldera in 1906. From Caldera, ore grading higher than 15% Cu
was shipped directly to England and the remaining ore was
processed at a local smelter before being shipped to England.
From the 1920's until 1997, limited mining by local miners
(pirquineros) was conducted to shallow depths up to 40 meters.
The pirquineros excavated and hand-graded the ore, which was
transported to Caldera by railroad until the 1940's. Around 1960,
ENAMI constructed a 35-kilometer road to the area to facilitate
the reprocessing of the waste rock dumps, which initially grading
between 6% and 8%. In 1973, ENAMI increased the acceptable grade
of direct smelting ore from 6% Cu to 12%.
Most recently, during 2009 and 2010,
limited production from
Roble 2A
(a tenure controlled by the option held by Swingplane Ventures)
was sold to the ENAMI facility at Copiapo. The complete
collection of ENAMI assay certificates are not publicly
available; however, a representative sample of certificates
listed in the NI 43-101 technical report (dated January 22, 2013)
document 15 shipments of high-grade (5.75% - 18.0% Cu) copper
oxide material and 17 shipments of low-grade (1.30% - 6.08% Cu)
leachable material. Interestingly, all of the documented
shipments of high-grade copper oxide material contained gold
(between 0.5 and 1.6 g/t Au), for which no credit was given
according to ENAMI's procedures.
Exploration and Development relating to the Roble
tenures
In 1998, after acquiring the mining claims on approximately
3,700 acres (including the northernmost and central Major Veins
but not the southernmost Main Vein)
American Canyon Mining Chile Ltda
., a Chilean company and at the time a subsidiary of a American
Canyon Mine Inc. (a Nevada corporation), began exploring the
Algarrobo property, along with another copper prospect in Region
III (the San Ramon property approximately 30 kilometers south of
Algarrobo). From the Algarrobo area,
187 grab samples
were collected from past producing mines, workings of
pirquineros, vein outcrops and mine dumps in order to map the
deposits in the vicinity. Of the 187 samples, 19 samples assayed
greater than 6% Cu (six over 10% Cu), along with significant gold
mineralization (17 samples graded over 1.0 g/t Au, of which four
were over 5.0 g/t). The mapping project concluded that workings
on the central Major Vein extended over a strike length 1,400
meters, of which 350 meters were mined to a depth of at least 280
meters. The vein width was irregular but at its maximum had been
over 5 meters. In addition, there was evidence of mineralized
lenses, the largest of which was 60 meters horizontally, 40
meters vertically and between 1.5 and 5.0 meters wide. Despite
the results of the mapping project, Gunter Stromberger, President
of American Canyon Mining Chile Ltda., primarily pursued the San
Ramon property, ultimately optioning a 75% interest to Trio Gold
(TGK- TSX-V) in 2002. By 2005, Trio Gold failed to make the
required CDN $5.5 million in exploration expenditures under the
option agreement and forfeited its rights.
Another rock sampling program and mapping project was
conducted on the Algarrobo property in 2000. Gunter Stromberger
collected a total of
160 samples
from existing mines (both at surface and underground) and waste
dumps. Though grab samples are selective by nature, the assay
results confirmed the presence of anomalous to high-grade copper
mineralization accompanied by low-grade gold mineralization,
generally between 0.4 and 1.4 g/t Au. The mapping project
documented that only five of the eight mineralized primary veins
(all of which were over 2.5 meters wide) had been commercially
mined. Another 12 lesser mineralized veins with widths between
1.0 and 2.5 meters had been mined, predominately with hand tools,
but only to a limited depth.
It is important to recognize that the vast majority of the 347
samples taken during 1998 and 2000 project studying the
historical mining sites were taken from tenures not controlled by
Swingplane Ventures (only 8 assuredly are from the Roble
tenures). However, the assay results are indicative of the
presence of high-grade copper veins prevalent in the area. In
addition, the mapping programs indicate the presence of
interpreted veins on many of the Roble tenures, especially on
lands immediately adjacent to historical mine works and on the
tenures of Roble 2, Roble 2A and Roble 2B, which are located
directly between the northern Major Vein and the central Major
Vein. And to reiterate, limited production was sold from Roble 2A
in 2009 at 2010.
In 2009, Gunter Stromberger undertook a 15-hole reverse
circulation (RC) drilling program totaling 842 meters to test the
continuity and grade of near-subsurface copper veins situated in
Roble 5B, approximately 500 meters south of the Estaca mine. Six
holes intersected copper veins (grading between 1.32% Cu over 10
meters and 2.25% over 4 meters), four holes encountered low-grade
anomalous copper (0.1% - 0.8% Cu) and five holes were abandoned,
most due to over 25 meters of overburden. Since 2010, Mr.
Stromberger has driven three drifts (a horizontal cut to access a
mineralized vein) with heavy equipment, outlining a strike
exceeding 450 meters,
confirming the discovery of another vein
, dubbed the
Veta Gruesa
.
More recently, in 2012, Richard Walker (the exploration
geologist who authored the NI 43-101 technical report) conducted
two due diligence property evaluations. The assay results of
29 representative rock samples
confirm the presence of anomalous to high-grade copper (along
with elevated assay values for gold) that is associated with
potentially mineable veins. The proposed budget for the
recommended exploration and mining of the property is $4.25
million, well within the required $20 million required to secure
the 25% interest of the Algarrobo property under the option
agreement.
Finally, high-grade copper ore grading at least 9% Cu is being
stockpiled from the drifts. Once a license is granted, the Direct
Shipping Mineralized Material will be shipped to the ENAMI
facility at Copiapo.
Angela Tenures
Little information is available concerning the Angela tenures,
which are situated southwest of the historically mined El Roble Y
Algarrobo Mineralized Trend. However, 11 out of 29 rock samples
collected by Richard Walker for the due diligence of the NI
43-101 technical report were from the Angela tenures. In
addition, the discovery of the Veta Gruesa and other veins (False
Estaca and Descubridora) south of the central Major Vein at lower
elevations increase the probability that high-grade copper veins
lie below the sand-covered desert. However, the exploration for
the veins will be challenging. The airborne geophysical survey
(specifically a Gryphon Multi-Parameter airborne survey)
recommended by the NI 43-101 technical report may be the key to
locating mineralized veins below the deep sand cover. Many
exploratory drill holes into the dune overburden will be needed
to test for sand-covered copper mineralization in the Angela
tenures.
Chilean Mining Law grants constitutional protection of mining
property rights over mineral tenures but also incorporates the
aspect environmental protection, which requires the fulfillment
of further procedures, most importantly an environmental impact
assessment, adding time and hindrance in the development of a
mining project. The development of the Angela tenures probably
would require an environmental impact study regarding the
phenomenon of Flowering Desert, which at a minimum would include
a list of species of flora and fauna associated with the area of
influence. During the operational phase, the operator would need
to institute procedures to then destroying local wildlife
habitat, such as waterholes, nests, caves, etc. The Algarrobo
area is classified as a Rural Zone and a Dune Protection Zone
(ZPI - 6), which protects the dunes from exploration activities.
Fortunately, American Canyon Mine and Gunter Stromberger in
particular were involved with the process of filing an
Environmental Impact Statement for Algarrobo in 2002.
Uranium
Though not mentioned in any of the Swingplane's press
releases, the Chilean Nuclear Energy Commission, with the
assistance of the International Atomic Energy Agency, conducted
an exploration project between 1975 and 1981. Seven areas in
Chile totaling 105 square kilometers (14% of the Chilean land
area) were systematically surveyed in order to collect geological
data related to uranium. Utilizing exploration techniques (such
as airborne radiometric prospecting, geological and ground
radiometric survey and geochemical surveying of sediments water
and soils) the prospecting project estimated that 513 tonnes of
ore classified as estimated additional resources grading 0.04% U
3
O
8
(Triuranium octoxide) was present at the El Roble Y Algarrobo
claims. Whether there was any follow up to the report and
resource estimation by the Chilean Nuclear Energy Commission
and/or Swingplane Ventures is not known.
Valuation
The valuation of a development stage mining company is
challenging and often adjusts quickly to new information.
Managements of mineral production and exploration companies
create value through evaluating, acquiring, exploring and/or
developing mining properties. As
a development stage company
,
it is not possible to value Swingplane Ventures on an earnings or
cash flow basis due to the lack the data needed for these
traditional techniques of valuation analysis. Since the company
is in the pre-financing phase, book value would neither
adequately reflect the company's ability to attract financing nor
capture the value of the company's resource base. Though book
value can often represent the value of an early-stage junior
exploration company, the Swingplane Ventures has not advanced to
a milestone point in the exploration phase that the resources
have been estimated to a degree of certainty to allow the
utilization of a NI 43-101-compliant resource-based valuation
model.
The prospects for discovery of additional high-grade copper
veins on the tenures controlled by the option held by Swingplane
Ventures are promising. Recent production from Roble 2A in 2009
at 2010 and the driving of three drifts on the newly discovered
Veta Gruesa vein on Roble 5B strongly suggest the continuation of
high-grade copper veining in several of the Roble tenures. In
addition, the discovery of other veins (Manto Ossa and
Descubridora), along with several subordinate veins, advocate for
the existence of other significant veins parallel to the three
Main Veins and networks of secondary veins in the Roble tenures.
The potential of the Angela tenures is more elusive since it is
based on limited rock sampling and conjecture that the prolific
NE-SW trending veining of high-grade copper continues to the
southwest at a lower elevation beneath the sand dunes of the
Atacama Desert.
A report by Gunter Stromberger dated July 13, 2000 speculates
that 5,000,000 to 10,000,000 tons of economic grade copper and
gold mineralization has yet to be discovered. The conjecture is
based on the fact that only five of the 20 veins have been
exploited in the past and that the width of the veins increase at
depth, specifically the width of several veins doubled at a depth
of 20-to-40 meters and increased up to 200% at deeper levels. Mr.
Stromberger's estimate is based on the 187 samples of the
hand-grab sampling program conducted by American Canyon Mining in
1998. Mr. Stromberger's guesstimation is not NI 43-101-compliant.
However, utilizing a attributable resource-based NAV valuation
model that incorporates the company's negative working capital,
$20 million in required exploration/development expenditures, the
current copper price of $3.75 and the assumption that production
will commence next year and continue for nine years, the
5,000,000 to 10,000,000 ton ore estimate (assuming an average
grade of 3.0% Cu) leads to a target from $0.46 to $0.92 per
share, respectively.
The stocks of junior gold companies have a unique trading
profile. The stocks tend to mark time, trading sideways-to-down,
during incubation phases. Then, some event occurs, such as the
announcement of a significant discovery from an exploratory
program, a change in the macroeconomic demand for the company's
commodity, the completion of significant financial funding, the
announcement of a takeover in the industry, etc. The news of the
development stimulates upside price movement in a mark-up phase
as the new information is discounted by first-movers. Generally,
the price appreciation continues, albeit at a slower pace,
usually on heavy volume until the newly created demand instigated
by the announcement is fulfilled. After the initial rally,
another period of time of sideways-to-down action occurs. Often
the stock retraces some, or sometimes all, of the prior
price-appreciation during this digestion phase. If and when a
subsequent important positive event is announced, another mark-up
phase is set in motion.
The Swingplane Ventures currently is the topic of considerable
news flow from the company (12 news releases in the last three
weeks plus the filing its latest 10-Q last week) and by penny
stock promoters. Also, with copper prices having risen steadily
since November 2012 from $3.45 to over $3.70 per pound, investors
and the media are focusing more on ferreting out opportunities in
the copper industry. Furthermore, Canada's First Quantum Minerals
Ltd. (FM:
TSE
) is currently making a hostile offer for Inmet Mining Corp.
(IMN:
TSE
), which is developing a $6 billion copper project in Panamá. All
these events are contributing to the stock's recent rally.
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