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 Tue Apr 18, 2017
Bottom-Fish Comment: Camino pulls discovery hole at Los Chapitos copper project
    Publisher: Kaiser Research Online
    Author: Copyright 2017 John A. Kaiser

Camino Minerals Corp (COR-V: $1.24)

Bottom-Fish Comment - April 18, 2017: Camino pulls discovery hole at Los Chapitos copper project

Camino Minerals Corp, which was recommended a bottom-fish accumulation target below $0.10 on December 31, 2015 based on the management team headed by Ken McNaughton (see Discovery Watch - Feb 24, 2017 for company background), announced a discovery hole on April 18, 2017 for its 100% optioned Los Chapitos copper project in Peru. Hole #2 graded 1.3% copper and 10.9 g/t silver over 106 metres between 188-294 m where the hole was stopped in mineralization grading 0.86% copper. The stock opened modestly, trading below $0.70 until about 10 AM pst when the market finally seemed to understand the tonnage implications of the geological context and pushed the stock to a high of $1.28 before closing up $0.89 at $1.24 on 4.9 million share volume. Based on 49.1 million shares fully diluted, a 100% net interest and a $1.24 stock price the Los Chapitos project has an implied value of $61 million which for a project at the discovery delineation stage would be fair speculative value for a potential $2 billion ultimate outcome value. Camino management optioned Los Chapitos in June 2016 because it saw a great deal of similarity with the Mina Justa (formerly Marcona) IOCG style deposit 100 km to the northwest whose 374 million tonne resource of 0.71% copper and 9 g/t silver is being developed as an SX-EW open pit mine by Minsur. Mina Justa was owned 70% by Chariot Resources Ltd when it was bought out in June 2010 at a price that valued the deposit at CAD $350 million. Chariot had completed a feasibility study in 2009 which indicated an after-tax NPV of USD $890 million at 10%; at today's spot prices the NPV would be USD $1.4 billion or about CAD $1.9 billion.

Los Chapitos is probably not going to be a similar sized open pit mine at 0.76% copper, but it has the geological footprint to host a 500 million tonne sulphide deposit grading in excess of 1% copper that could be developed as an underground block-caving operation. A $2 billion world class outcome is thus conceivable, but from a stock market perspective what matters is the discovery hole has catapulted the project into an S-Curve trajectory that will likely take the stock above $2 when the assays for hole #4 are released. Bottom-fishers should not be in a hurry to take profits; Camino has lots of upside running room. The following is an effort to provide a geological context to support that upside potential. Camino will also present at the Metals Investor Forum May 5-6, 2017 where I suspect it will generate a lot of buzz, especially because this is the sort of discovery that can switch the glass half full for any competent junior with a well thought-out and geologically supported exploration hypothesis.

Los Chapitos hosts a 4-5 km trend of high grade, structurally controlled breccia-hosted copper oxide mineralization that stretches from the Adriana to the Vicky showing in the geological map above. In places the grade reached 6% copper, enough to have attracted artisanal mining in the 1940s and 1950s. The project came to Camino's attention while the company was pursuing another project and the consultant suggested that if this was the junior's fancy he knew of something even better, somewhat in the manner that a geologist called Fredy Huanqui working for Arequipa Resources piped up that if Mr Lowell liked these sort of rocks, he ought to check out something called Pierina which became the basis for a billion dollar buyout by Barrick at $29 in 1996. The target host rock at Los Chapitos is the Chocolate Formation volcanics (the dark green in the geology map above) which were intruded by a younger monzonite that appears to be post-mineral. Both the western (Adriana) and eastern (Atajo) segments of the property have potential; the eastern flank was chosen first for exploration because Camino was able to secure a social license early on. A social license was recently also secured for the western flank but drill permits will probably take another six months to arrive. What intrigued McNaughton's team was the potential that the mineralization at surface is structurally controlled leakage from low temperature, metal enriched brine flow originating from basin sediments to the east, similar to what took place at Mina Justa. That is the definition of an iron oxide copper gold (IOCG) system that creates rich deposits when the right chemically receptive obstacle is encountered.

The diagram above shows the magnetic profile of the 1 km Adriana-Katty trend at a 50 m depth on the left and at a 250 m depth on the right. The diagram below at the same scale shows chargeability at 50 m depth on the left and at 250 m depth on the right. The magnetic anomaly is associated with magnetite which is close to surface near Adriana but deeper southwest of Katty. The IP map shows that the chargeability anomaly is absent at a 50 m depth but prominent at a 250 m depth coincident with the Adriana magnetic anomaly. It is absent at a 250 m depth near Katty where the magnetic anomaly is deeper and largely off the smaller IP survey grid. McNaughton concedes that a bigger IP survey grid should have been used, and would have been during his days as exploration VP for Silver Standard, but things are different when running a tiny exploration junior in a market where the titans were steering investors into optionality projects whose managements had acquiesced to the demand for austerity and hibernation.

McNaughton saw potential for two types of deposits. Along the Adriana-Katty trend he saw potential to develop a medium grade copper oxide resource that would lend itself to an open-pit SX-EW operation. The tonnage footprint limit for an area of 1,000 m by 200 m wide by 100 m deep at 2.6 specific gravity was about 500 million tonnes, maybe 200 million tonnes at an average 0.5% copper oxide ore. The second type of deposit was a deeper sulphide deposit associated with a southeast dipping magnetite body that was created by an earlier hydrothermal system. The copper bearing fluids would have arrived with the later wave of IOCG brines which would have worked its way to the surface within the Adriana-Katty trend to create high grade structurally controlled mineralization that might average out into a bulk tonnage deposit, and maybe became trapped beneath the magnetite body whose base would have been replaced by copper sulphides. The first scenario had a strong likelihood but also a lower value outcome, while the second scenario was less likely because it was entirely blind but if real held potential for a much higher value outcome. When McNaughton left for Peru to oversee the drilling program he figured he would find out very quickly if the second hypothesis was true, especially with the help of an XRF unit his staff planned to use on the RC chips from the drill holes.

A 10 hole RC drilling program of 3,000 m was initiated in late March to assess the Adriana and Katty targets. Hole #1 supported the oxide scenario, intersecting 76 m from surface grading 0.43% copper. McNaughton thinks the grade may be understated due to a poor 70% recovery of drill cuttings and is switching to core drilling. Hole #1 underwent deviation and was going near vertical within near barren magnetite when Camino decided to stop the hole at 300 m rather than lose it. Hole #2 intersected similar near surface grades as #1, but entered the magnetite much sooner at about 100 m and at 188 m encountered 106 m of 1.3% copper including a 38 m section of 2.12% copper that included some spikes to 4.5% copper. The 106 m interval averaged 10.9 g/t silver, similar to the silver grade at Mina Justa. The hole was stopped at 294 m where the last 2 m interval averaged 0.86% copper. The XRF unit loudly proclaimed that the sulphide scenario was also becoming reality, and in a panic McNaughton had the first two holes rush assayed.

The drill plan above shows the locations of holes #3 and #4, of which #4 was taken to 360 m and drilled into the heart of the coincident mag-IP anomaly. I asked him if had rushed #4 for assays, to which he responded "no" while reminding me that the urgency behind getting the first holes assayed was for disclosure purposes. If hole #4 delivers similar or better results than #2 in early May it will be strong support for a strategy of targeting magnetic anomalies interpreted as magnetite with a somewhat deeper IP anomaly interpreted as copper enriched sulphides, bornite and chalcocite at Los Chapitos. A larger IP survey grid will be carried out in May once the diamond core rig is on the property to deepen the first two RC holes and provide better control over hole directions.

The good news about the magnetite acting as a chemically receptive replacement front for copper enriched brines in the vicinity of the Adriana surface showings is that it makes it imperative that an IP survey be done in the 2-3 km area between the Katty and Vicky. If the hypothesis holds we should see chargeability develop at a depth of 250 m or lower. The area between Katty and Vicky is another dual set of 500 million tonne oxide and sulphide footprints. And I am not even talking about the potential in the Atajo and PDA showing areas. One should keep in mind that insufficient drilling has been done to establish the geometry of this discovery, but it is the nature of S-Curve market psychology to dream big during the emerging stage of discovery and conform those dreams to the results delineation drilling eventually delivers.

Camino's next task is to raise serious exploration capital to carry out delineation drilling of the Los Chapitos copper discovery. This is the sort of discovery that should attract a bought deal with no warrants from the Bay Street institutional crowd, though it may also attract a copper producer eager for a 19.9% equity foothold. Camino completed a private placement of 10.5 million units at $0.20 on February 10, 2017 which will not be free trading until early June. The unit included a full warrant exercisable at $0.25 for two years that would raise an additional $2.6 million. The warrant has an acceleration clause triggered if the closing price is above $0.35 for 10 consecutive days. If Camino publishes an acceleration news release the warrant holders will have 30 days to exercise their warrants. It is very likely that this trigger will be reached by May 1 and that the warrants could expire before the hold period for the long position is over. That will upset some placees unless Camino has meanwhile done a big financing which benchmarks a price level that would support 21 million shares bought at $0.20-$0.25 coming onto the market in June. The next major milestone for Camino Minerals Corp is a serious financing of $5 million plus.


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