Chakana Copper (TSX-V: PERU) CEO David Kelley on Findings from Technical Review of Breccia Pipe 1 at the Soledad Project in Peru

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Chakana Copper (TSX-V: PERU)(OTC: CHKKF), Mr. David Kelley. Dave, how are you this afternoon?

David Kelley: I'm doing great, Gerardo. How are you doing?

Gerardo Del Real: I am well. Thank you for asking, and thank you for taking the time today. You had some news yesterday that was well received by the market, specifically those with a technical background. I say that because I spoke to a lot of the people that I speak with, me not being a geologist, to kind of get into the news release and the finer details, and I can tell you, they were extremely encouraged by the approach that Chakana is taking to understand the metal distribution and the zonation and all of that. 

However, I must admit, as a non-geologist, there was a lot in that news release that I had asked for clarification two or three times. So I wanted to have you on, and I wanted to go into it in a little bit of detail if possible, so we can explain it to, again, the non-geos out there that may not appreciate just how significant the news was.

Let me read the headline. The headline says, "Chakana Provides Initial Results of a Technical Review of Breccia Pipe 1: Controls on Metal Distribution and Gold-Rich Nature of Mineralization." The minute I read the headline, I knew it was going to be technical in nature, and I was not disappointed. So let me give you the opportunity to provide a brief overview, and then let's dig into the details of it.

David Kelley: Yeah. Thanks, Gerardo. The driving force for putting this together was to get the technical team together and really take a detailed look at Breccia Pipe 1, in part because that's where we've done the most drilling. So we have the most confidence in our interpretations. 

In exploration, you try to get really good at finding more of what you already have. In order to do that, you have to really understand what you have. This is a deposit type that's a little bit different. There's not books written on how to explore tourmaline breccia pipe systems like we have here. So we're putting a lot of geologic horsepower behind, or are trying to understand the geological nature of the system, so that it'll help find more of this when we get started drilling again.

Gerardo Del Real: Excellent. Let's start with the fact that this is a review of, like you mentioned, Breccia Pipe 1, because this is the pipe that you've drilled into the most, right? However, there's 23 outcropping breccia pipes, and frankly, I think we would both be comfortable saying there's probably significantly more than 23. Correct?

David Kelley: Yeah, that's right. Because we've already found one blind breccia pipe that does not crop out at surface in our drilling of Breccia Pipe 1. It's immediately to the north. It's 40 meters north, and it's 125 meters below surface. So if there's one, there's likely many. We've also mapped several areas on the property, well over a dozen, that have the alteration that we only see peripheral to breccia pipes, and we've mapped that alteration at surface. So our belief is that beneath that alteration is another breccia pipe, another blind breccia pipe. 

Then we have geophysical targets that add to that number too. So I don't know how many there are. If I had to guess at this point I'd say maybe between 40 and 50. But there are districts in South America and also in Arizona, North America with over hundreds of breccia pipes in the district. So these are not uncommon numbers to be thinking about.

Gerardo Del Real: There's a part in the release, the very next part, that says drill assays, mineralogy, and detailed core logs from the top 215 meters of the breccia pipe between an elevation of 4,345 meters and 4,130 meters were included in the study. Let me start with asking, why the top 215 meters?

David Kelley: Well, there's lots of different ways to look at that. Oftentimes, mining starts in the near surface and progresses down, depending on how you start up a mine. So it's really important to understand what the shallow mineralization is like in terms of its grade and its distribution and its continuity. That was part of the reason. 

It was an arbitrary cutoff. We could have taken it deeper. But as we went deeper, we started losing control on the numbers of samples. We wanted the study to be really robust in terms of statistics, in terms of the number of samples involved in breaking down the study into different rock types or different distances or analyzing the geometry of the breccia pipes, and that's where we had the most data, was in that top 215 meters.

Gerardo Del Real: Let's talk about some of the findings, all of which were positive. Let's start with gold, right? We have gold here at $1,752. The Fed here in the US is making it clear as all day that the printing press will continue, the digital printing press as he so well articulated here in a 60 Minutes interview. But the bottom line is, it seems like gold is forming a robust base at the $1,700 level and headed higher. 

Now, an important finding is that gold is relatively enriched in the top 70 meters of the breccia pipe, with assay intervals averaging 4.76 grams per tonne from surface to 4,275 meters elevation. Can you talk about that first finding there, gold, and why that's important?

David Kelley: Yeah, We knew that we had lots of good runs of high gold in our drilling, over the life of the drilling program that we ran at Breccia Pipe 1. But it was nice to put it all together and actually see that it hangs together, and it hangs together very nicely. If you look at the top 70 meters, it's a very robust concentration of gold. That's a great thing to have, right? It's not real spotty. It doesn't break up. It's something that averages higher than I thought it would just based on looking at the drill data. It's really not until you do this type of a detailed study that some of these patterns start to emerge and it becomes clear. But it's a very distinct zoning pattern where we see – and I'm sure you'll get to that in your questioning as well – but we see very strong gold at the top, and then it transitions as we go deeper in the breccia pipe.

Gerardo Del Real: Let's get right into it. Let's talk about the transition. That was my next question. Can you explain that?

David Kelley: Yeah, it transitions from gold being the dominant metal in the near-surface to copper-silver-gold in places, and copper-silver in other places. So we see some differential zoning. Gold is generally part of the mineralization throughout, but we see where the contribution from copper and silver become very important as we go deeper. We think fundamentally that that's a temperature zonation. As we go down in the breccia pipe, we're going towards the heat source. We don't know how deep that heat source is, and we've drilled mineralization in Breccia Pipe 1 down to 490 meters, and it's still open. 

So we think we have quite a ways to go to get to that heat source. But as we go deeper, we are seeing a change in the mineralogy, a change in the chemistry of the metal zoning, and that's fundamentally telling us about the nature of the system and how that depth extent is controlling the change in the metal distribution.

Gerardo Del Real: That copper and silver content is pretty significant. I think it's an average of 1.11% copper and 76.6 grams per tonne silver from the contact to 3 meters into the breccia. So you're seeing gold at the top, copper-silver as you go down the pipe. Is that accurate?

David Kelley: Yeah, that's right. And then horizontally across the pipe, we see controls that influence the grade as well. What you just mentioned there, that copper and silver are most enriched in those 3 meters from the contact into the breccia pipe. It drops off from there, but it still maintains a relatively robust grade profile. That's something that's good to see, because that suggests that the bulk of the breccia and the mineralization hosted in the breccia is well-mineralized and potentially could contribute to a resource estimate.

Gerardo Del Real: You mentioned in the release that the origin of the pipes comes from a fluid-saturated intrusion at depth. There's been a lot of speculation by some of the better-informed people in the space, geologists that have looked at this and speculated that as fantastic, frankly, as the grades have been near-surface with gold, with silver, with copper, and the amount of pipes that you have, that there's significant potential at depth, that this may all connect together very far down, frankly. 

What does that look like? What are your thoughts on that? Have you gotten to that part of it, or is this the next stage of drilling, seeing how everything plays together at depth?

David Kelley: Yeah, that's another study we're doing right now, Gerardo, is stepping back and looking at the big picture. This release that went out yesterday, this first really detailed study that we've done and published, is looking at the specifics of Breccia Pipe 1. But we're also doing a much broader, district-scale study looking at the big picture and trying to understand the patterns and the alteration, the geology, the structure, putting it all together to see where that intrusion might sit, how deep it might be, and how we might refine targeting of something like that. That's very much in the back of our minds.

Right now we are still really focused on these high-grade breccia pipes, because as you mentioned, they're numerous. They're high-grade. They come to surface in many cases, and it's the obvious target for us to pursue. But there's no doubt that an intrusion drove these Breccia pipes. 

It's a question of, what's the nature of that intrusion? Is it a mineralized porphyry system, or is it something else? And is it in obtainable depths, right? Can we drill target something that's shallow enough that it could be found with a drill hole and potentially factored into a plan for mining in the region? So that's very much in the back of our minds. It's, again, a longer-term study, but we're actively pursuing that now.

Gerardo Del Real: Excellent. You mentioned that higher concentration intervals tend to cluster, and that this would become a key feature for getting to that resource estimate, which we know of course has been delayed a couple of times, for factors out of your control, right? The permit delays, and then we had the COVID-19 lockdowns, and here we are now. But are you encouraged by what you've seen thus far?

David Kelley: Well, absolutely. That is a really important point, because it's one thing to have high-grade hits, but if they're spread all over the place and they don't link up to zones that are high grade, well, then they become more difficult to mine. They get diluted out. They don't have the impact that zones of high-grade mineralization can have from a mining perspective. Even when you have zones of mineralization that hang together nicely, it can influence the sequencing of the mining that you do, so that you might be more influenced to take out higher-grade blocks early on in the mine life and save the more moderate grades for later in the mine life after some of your capital has been paid back. 

So those are features of the breccia pipes that we have seen. We get one really good, high-grade hit perhaps on the margin of the breccia pipe, and we put additional holes around that. We often see that that zone tends to grow in extent, and that's a great feature to have. There are some very nice high-grade zones associated with the margin zones of Breccia Pipe 1. And even as much drilling as we've done already, there's no doubt that additional drilling is going to help define these zones even more discretely.

Gerardo Del Real: I mentioned the delays in permitting. You're waiting for that one important permit to be able to drill what I think everybody believes is the most prospective part of the land package. How is that coming along?

David Kelley: Well, we've had some great news in that just in the last week and a half. I think it was about two weeks ago, and maybe the last time we talked, where I mentioned that the Ministry of Energy and Mines had created a portal that allows companies to start communicating with the people within the Ministry. That was creative. We registered on that portal, and they started doing work from home. So that's great news for all of companies exploring in Peru, is that the Ministry of Energy and Mines has created a way that you can interact with the personnel within the ministry.

On Friday last week, we submitted our preliminary consultation, which is the next-to-last step. We go through preliminary consultation, and then you go into initiation of activities after that. And so that process was started on Friday. We've already gotten feedback from them this week on some additional documentation that they're requesting. So that's great, a great sign that they are active, they're open for business, and they too see that the restart of mining is critical to their economy. They want to do everything they can to prepare companies for going back to work whenever it's safe to do so.

Gerardo Del Real: That is excellent news. How is the treasury? I know that you've been very, very prudent with maintaining a healthy balance sheet to make sure that you're able to take advantage of this market we have as soon as you're able to. What does that look like, Dave?

David Kelley: Yeah, we're right at $6.8 million Canadian. So we do have a very healthy treasury, as you mentioned, and we do watch that carefully. It's great to have that, because money will not be an issue for us when we get the permit in hand and it's safe to go back to work. We will be hitting it hard just as soon as we can.

Gerardo Del Real: Excellent. Anything else that you'd like to add?

David Kelley: Well, just to point out that for me to step back and look at what the technical teams accomplished over the last few weeks with this technical news release. It was a great exercise for them to go through. It largely is an indication of the quality of the technical team that we have. They finally put some geologic explanation behind the long runs of mineralization that we released in all of those news releases while we were drilling Breccia Pipe 1. So it was real gratifying from my standpoint to watch the team do that.

Gerardo Del Real: Fantastic. Dave, thank you for coming on. Thank you for the detailed explanation, and I'm looking forward to the next stage of drilling, as are a lot of subscribers and shareholders. Thanks again.

David Kelley: Absolutely, Gerardo. Thank you.