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Sapuchi Resources

Mineralization and Geology

At Sapuchi, a breccia capped ridge about 1,000 metres to the west of Luz del Cobre, the gold occurs predominantly in breccias consisting of densely packed fragments of intrusive and sedimentary rocks. Silicification is wide spread and a series of northeast and northwest trending faults and fracture systems are notable. The mineralization at Sapuchi is partially tabular in character, likely reflecting the importance of the low angle faults in the breccia, where ore fluids ascending high angle faults were able to migrate laterally.

The rocks at Sapuchi have been more deeply weathered than at Realito, which have locally allowed the development of manto-type secondary gold mineralization at the oxidation -- reduction boundary. Gold mineralization appears to be finely disseminated within the matrix of the breccia, and in the oxide zone probably originates from the oxidization of hypogene gold in pyritic veins and stockworks. Gold grades increase where the veining is better developed but the overall character is that of gold finely dispersed in the matrix material of the breccias.

Local underground workings, likely dating back more than 100 years, are transecting with small stopes and adits the Sapuchi Ridge. Most of these adits and stopes were mapped and sampled in the 1990ies and show that the miners followed high grade steeply dipping veins mainly at the chemical boundary between oxidation and reduction.

Gold mineralization at Sapuchi has been traced by drilling along a distance of approximately 200 m in an east-west direction, approximately 150 m in a north-south direction, and to a depth of approximately 75 m. The overall style of alteration and mineralization is similar to that seen at the Golfo de Oro and California prospects, with the exception that the depth of oxidation appears to be slightly greater than at the Golfo de Oro or California prospects. In cross section, the mineralization is observed to occur as a series of tabular bodies with shallow dips. These bodies occur in breccias that have been intruded by bodies of tonalitic and dioritic compositions and are possibly localized along the intersection of northwesterly trending faults and low angle faults within the breccia.

Sapuchi Cross Section:

Sapuchi: Resources and Preliminary Economic Assessment

Distinct, separate and individual gold bearing areas, some of which have been hand mined by artisans as long as 200 years ago occur on the property. The Independent Technical Report for Resource and Reserve Disclosure for the San Antonio Properties, Sonora State, Mexico (by P&E Mining Consultants Inc.), filed on August 12, 2013, concluded an update resource estimation on the Sapuchi Gold Target and the Realito Gold Target:

Sapuchi Gold Target

The Sapuchi gold target is located following the same breccia-formed ridge from the LdC Deposit to approximately 1,000 metres to the west. Open ended oxidized gold mineralization at Sapuchi has been traced by historic drilling along a distance of approximately 200 metres in an east-west direction, approximately 150 metres in a north-south direction, and to a depth of approximately 75 metres.

The resources are summarized in the following table:
Sapuchi Gold Oxide Zone Resources @ 0.30 g/t Au Cut-Off Grade
Classification Tonnes Au (g/t) Au (oz)
Indicated 2,220,000 1.04 74,300
Inferred 872,000 0.86 24,100

The cut-off grade used: oxide ore at 80% process recovery = 0.30 g/tAu at an applied gold price of US$1,550 per ounce.

Sapuchi Follow-up Work, Concepts and Upside

Based on the geological continuity and grade of the gold mineralized material, the Company believes an excellent potential exists to place Sapuchi into production at the completion of a pre-feasibility or feasibility study that would include the results of additional metallurgical testing and updated capital and operating costs. The relative simplicity of this project's development plan affords an opportunity to fast track construction and take advantage of high gold prices, which would result in a robust operating profit margin.

The estimated time required to put Sapuchi into production is six months from completion of the feasibility study and financing. The required minor alteration to the environmental permit and an extension to the surface rights currently being leased from the San Antonio Ejido are not expected to create any delays. Sapuchi can operate at the same time as Luz del Cobre, with synergies with regards to fixed costs and overheads, as there is no conflict as to location. The estimated capital cost includes a separate leach pad, generators for electric power, a crusher, conveyors and stackers, and a gold recovery plant

Gold mineralization at Sapuchi has not been closed off in any direction, although to the east the body is becoming deeper and extending under the Trion Ridge so that it is effectively closed to open pit exploitation. In all other directions the limits of the gold bearing body have not been found in the drilling, although on the north and south sides of the ridge, drilling is near the limits of the breccia, the most favorable host rock.

The size of the Sapuchi resource will likely increase in two ways. First, the known portion of the mineralized body is incompletely drilled so there are blocks currently designated as internal waste due to lack of data. Also, infill drilling and additional surface sampling should convert some of the Inferred resources to Indicated, if not Measured. As more data become available (additional drilling) a portion of these waste blocks are very likely to be converted to ore, at the same time reducing the amount of (internal) waste. The second possibility for expansion of the resource is expanding beyond the currently known boundaries.

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