Overview

The Paguanta project area consists of 14 licences covering an area of 39 sq kilometres. The area is on the northern part of the main Chilean porphyry copper belt, which houses some of the world’s largest open-cut copper mines.

The Paguanta Project comprises two seperate components:

• The 'Patricia' Mineral Resource
• The 'La Rosa' porphyry-copper prospect

'Patricia' (zinc-lead-silver-gold)

Within the Paguanta project area the main 'Patricia' zone comprises a zinc-silver-lead mineralised system part of a mine that was last active in the 19th Century. 

The first ever diamond drill program undertaken at Paguanta (1,187m) was completed in December 2006.  Of the 10 holes drilled into the Patricia zone, eight intersected mineralisation, four of which returned high Zn-Ag-Pb grades.  The highest individual grades were 15.75% Zn, 447pm Ag and 5.58% lead (separate 1m samples).   Surface rock chip sampling has extended the zone of anomalous mineralisation to the east with best results of 1515 and 1075 g/t Ag. Surface silver (>225ppm Ag) mineralisation was encountered in veins over a strike lenght of 1.2km and remains open to the east toward Refugio.  

In 2007 the Company undertook a second drill program totalling 5,889m of RC drilling and subsequently announced a maiden Inferred Mineral Resource Estimate.

In 2008 the Company undertook a third drill program of 9,986m (of both RC and diamond drilling) at Paguanta and announced an upgraded Mineral Resource Estimate in October 2008.

In late 2008 the Company announced the results of a Scoping Study into the economic and technical viability of developing the Patricia deposit, completed by Golder Associates (the global resources and engineering consulting group). The results of the Scoping Study were very encouraging with highlights including:

• A total mining inventory of 2.67 million tonnes
• A underground mining inventory of 1.24Mt @ 5.28% Zn, 1.84% Pb and 102ppm Ag 
• Initial potential mine life of approximately 5½ years at 500,000 tpa
• Opportunity to increase mine life with further drilling (see drill hole results below)
• Capital Cost of US$55.6 million (inclusive of all underground mine development and new processing plant equipment costs)
• Site Operating Costs of US$55.32/t
• Substantial positive sensitivity to any potential increase in tonnage and grade

Significantly, the mineralisation remains open at depth and strong potential for depth extension at increased grade.   The three deepest diamond drill holes in the resource envelope returned the following high grade results:

• DDH015 – 6m @ 9.8% Zn, 4.7% Pb, 349g/t Ag and 0.67g/t Au
• DDH024 – 14m @11.9% Zn, 1.1% Pb and 95g/t Au
• DDH033 – 3m @ 5.4% Zn, 3.1% Pb and 150g/t Ag

Mineral Resource

The Paguanta Project comprises a Mineral Resource Estimate (Indicated and Inferred) of:

3.15Mt at 3.9% Zn, 1.3% Pb and 74g/t Ag (at a 2% zinc cut-off)

This Mineral Resource Estimate complies with recommendations in the Australian Code for Reporting of Mineral Resources and ore Reserves (2004) by the Joint Ore Reserves Committee (JORC) of the AusIMM.

Within the above resource is a higher grade component of :

1.01Mt at 6.6% Zn, 2.2% Pb and 119pm Ag (at a 4% zinc cut-off)

Location

The Paguanta Project Area is located approximately 120 km east northeast of Iquique and approximately 30 km west of Chile’s border with Bolivia.  Vehicular access from the highway was first established in 2004 and the road journey is now 120 miles (195 km) from Iquique, the regional capital. A sealed national highway is located 20 kilometres north of the project area.

Regional Geology

Paguanta is located near the Cerro Colorado porphyry copper mine at the northern end of the Domeyko fault system, which stretches over more than 1,000 km in northern Chile and hosts a number of important copper deposits.

The immediate area around Paguanta is highly mineralised with an open-cast copper mine at Cerro Colorado (BHP Billiton) 40km south-west of the project exploiting a supergene deposit of 228 Mt grading 1% copper. Other porphyry copper prospects currently being explored are at Mocha (Codelco), Queen Elizabeth (Anglo American) and Yabricoya (Codelco).

Host rocks comprise tightly folded and faulted Palaeozic basement, Jurrasic-Cretaceous aged sediments and arc-related volcanics. tertiary aged felsic intrusions have been mapped and are spatially related to zones of alteration and mineralisation.

Mineralisation

The Patricia Zone is a zone of zinc, silver, lead and gold mineralization.  Petrographic study of outcrop and diamond drill samples identified low sulphidation style mineralization with economic mineralisation dominated by sphalerite (zinc), galena (lead), and argnetine (silver). Low levels of gold are associated with arsenopyrite. There is evidence of an earlier gold bearing potassic alteration phase, associated with older, deeper felsic intrusions.

One kilometre north of Patricia, the La Rosa Zone is an area of intensely leached, argillic alteration over 3 sq kilometres, prospective for porphyry copper-gold mineraliation in supergene blankets or stocks. Various styles of acid intrusive have been mapped, together with potassic alteration; inlcuding the presence of biotite and magnetite. Geochemical values are subdued as expected, however low levels of copper and gold are co-incident with the higher intensity alteration zones. There remain few untested argillic anomolies of this scale in this important copper producing region.

Elevated gold anomalism has been returned from stream sediment sampling of the Portillo Zone 2 kilometres west of the Patricia zone.

History

Silver was discovered and first worked in the area by a team of miners headed by an Englishman in the 1880's. Together they completed 1,800 metres of underground development into what is now called the Patricia zone. The principal development is an adit running 400 metres in length that intersects three high-grade veins. Mining ceased when the Englishman died.

The Patricia mine at Paguanta was abandoned in the late 19th century and the area was not subjected to further evaluation outside of regional reconnaissance. Herencia are the first modern explorers at Paguanta.

Current Work

The Company proposes to commence a 3,500m diamond drilling program in February 2010.   This 3-month program is aimed at extending the known mineralisation along strike (east and west) and down dip.   Any extensions to the mineralisation will be reviewed with the aim of upgrading the Mineral Resource Estimate in mid-2010.

Subject to positive results, the Company would then look to move to a Feasibility Study phase in 2H2010 with the goal, subject to positive results, of developing the mine and achieving production in 2012.

'La Rosa' (porphyry-copper)

La Rosa is an advanced prophyry copper target covering an area of 3km and which is wholly within the Paguanta Project tenement package (70% owned by Herencia Resources plc).  The area has never previously been explored due to poor access.

La Rosa is 40km from BHP's giant Cerro Colorado Mine and approximately 150km from the world class operations at Quebrada Blanca (Teck), Colluhuasi (Xstrata/Anglo American) and other advanced prospects of CODELCO.   In the immediate vicinity is Anglo American's Queen Elizabeth Project and Colelco's Mocha Project.

Structure and Geochemistry

The La Rosa prospect is an area dominated by altered Cretaceous aged andesite volcanics, with minor felsic volcanic material and sediment.

La Rosa, superficially, ia an area of intense argillic alteration, weathering and limonite (iron oxide) staining, the products of weathered pyrite. This area covers an area of 3km N-S and 1kim E-W, and is bounded by two regional scale, north-south oreintation faults.  One of these faults has exposed quartzite in the footwall, thereby indicating it is a major regional structure.  Due to the intense weathering, surface geochemistry is of limited use, however samples are anomalous in lead, zinc, copper, gold, silver and molybdenum.  Grid surface geochemistry has been completed.  The alteration zone extends to the Patricia epithermal Pb-Ag-Zn vein system, where a maiden resource was announced during 2007.  Herencia believe that the two prospect areas are part of the same mineralising system.  Late barite veins have been mapped at La Rosa and elsewhere adularia is present, increasing the possibility of other epithermal veins within the large alteration system.

Alteration and Petrology

The prospect does not have a broad halo of propylitic alteration, suggestion a relatively high-level of emplacement.  Within the zone of intense weathering there is a smaller zone where there are stocks of porphyritic quartz-diorite and andesite.  Some of these have undergone potassic alteration, as demonstrated by the presence of magnetite, biotite and kspar.  The same area also has evidence of more intense alteration where the dominant clay, illite is accompanied by sercite and quartz stock-work.  Locally there are areas of more intense silica alteration.  Within petrographic samples relict sulphides present include bornite and chalcopyrite.

Geophysics

Zonge Geophysics have completed a grid of Induced Polarity (IP) and ground magnetic, covering the entire altered area.  A 3D inversion model has been completed.  In summary the IP has identified a chargeability high, which is largely co-incidental with the  more intense surface alteration.  At -100m below surface the high covers an area of 750x250m, and this is more extensive at depth.  The anomaly may represent copper bearing sulphides.  The magnetic image shows areas of more intensive magnetic materail which may in turn represent altered prophyritic stocks.