In this February edition of the Junior Resource Report I bring to you Inca One Resources. Inca One Resources Corp. (IO:TSXv) is a Canadian resource company focused on advancing gold projects in Peru. Management loves the opportunity in Peru, and I believe there are many reasons that you, as an investor, should too.
Known for its favorable geology, Peru fell quickly out of favor for investors in 2011 when socialist was elected to office. The Lima Stock Exchange had its biggest drop in history and Canadian listed Peruvian mining companies got crushed. However, two years later, business is booming. President Humala has a 55% approval rate by the country, and infrastructure is being built to further stimulate economic growth (See press release here). Although there continues to be pockets of social challenges, the Central Government is taking an impressive stand against protestors and anti-mining groups attempting to block projects of National interest and projects that benefit the economy.
To me, this is what makes Peru attractive. The government WANTS to see growth; yet the projects are being heavily discounted which means we are paying less for more. The perception of Peru is much worse than the actual reality and that is where the money is going to be made.
Inca Ones objective is to define a multi-million ounce high-grade near-surface gold deposit at its Las Haquillas project in Northern Peru. The project has been subject to an historical resource estimate by Sulliden Resources in 1998 that suggest 443,000 ounces of gold at 2.09 g/t with 5.3M ounces of silver. Importantly to note is the cut off grade used in that resource estimate was 1.5 g/t. Lowering the cut off grade to an easily economic .75 g/t gold makes it pretty easy to come up with over a million ounces of gold (in this writer’s opinion). Leaving even more to dream about is that only ¼ of the 2.2Km strike has been tested and it remains completely open at depth.
I hardly believe that Inca One will have a $3M market cap when drilling starts to confirm the historical resource and follow up on the high-grade gold intercepts (78m of 2.71 g/t gold). Click here for some maps and some diagrams of drill intercepts.The company recently submitted its DIA (Environment Impact Study) to the Ministry of Energy and Mines. Once completed, they will need to acquire surface land access and obtain water permits. I’m sure they would be over the moon to be in the position to drill Las Haquillas in the first half of next year.
“However, we don’t want to sit on our hands”.states Edward Kelly, President of Inca One Resources. “We see a significant opportunity in Peru under the new formalization law as a consolidator of small to mid sized mining operations and mills, using our capital, legal team and in-country social experience to formalize and operate the assets.”
What Mr. Kelly is referring to is a new legal framework put in place requiring informal miners (mining less than 350 tpd) to “formalize” their mining operations. This required the “informal miners” to apply to formalize their operations by November 28th of 2012. Once accepted, the miners have a grace period of two years to submit the required studies and apply for commercial operating permits. During this period the miners can explore and produce up to 350 tons per day while working towards these permits.
The vast majority of these informal miners don’t have the human resources, legal team, social experience or capital to formalize these operations. Blowing the doors open for a company with in-country permitting experience to acquire small to mid sized high-grade gold assets, with great infrastructure, authorized for both drilling and production immediately.
So Inca One was the first public company to pounce. On Thursday February 6th they acquired an option to earn 100% interest in the Corizona high-grade gold project in Peru for $50,000 down and a $1.95M balloon payment in two years. The project falls under the formalization framework and is authorized by the Peruvian Government to produce up to 350 tpd while working towards formalized operating permits.
Corizona is a multiple stacked high-grade narrow vein system with two known veins averaging 17 g/t and 14 g/t respectively. 5 veins to date have been identified to run the length of the 1.2Km concession. The veins run up to 3 meters wide while showing impressive consistency on grade. There is potential for further veins to be identified however, there appears to be an abundance of veins already in place, with permits to produce, justifying this acquisition for Inca One. To top it off, the project has direct access via 2.5-hour drive from Lima, with running water, an office building and a 240V power line right to site.
Inca One intends to thoroughly resample and map the historical workings, timber the tunnels and commence bulk sampling of the known veins as soon as possible telling me that they are going to start cash flowing in short order.
At a maximum 300 tpd Corizona isn’t going to be a company maker on its own. However, tie up two or three (which is the company’s objective) on similar terms with favorable characteristics and you’ll get cash flow that the market starts really paying attention to. For an example, look at Peruvian Dynacor Gold Mines (DNG-TSXv), a market darling and a cash flow KING from toll milling small-scale miners ore.
Management has learned first hand that permitting the Las Haquillas project is a slow process. However, the model to build near term cash flow is just what investors want I want to hear. It offers non-dilutive growth, brings news back into the story, and gives something for the Company to build on as they progress towards permitting Las Haquillas.
Las Haquillas is the elephant sized play in this company and should never be forgotten about but clearly management isn’t willing to sit on its hands and watch the share price erode until they get to drill Las Haquillas. And most importantly that tells me that management cares about the share price, which is a good place to be for an investor.
Lets watch how this unfolds.
As always, this article is solely the opinion of the writer and the information provided is not to be relied upon. Always do your own due diligence and contact a investment professional.