Explorator Resources Inc.
TSX VENTURE : EXO

Explorator Resources Inc.

May 03, 2010 08:30 ET

Explorator Resources Reports on 2009 Financial Results

TORONTO, ONTARIO--(Marketwire - May 3, 2010) - Explorator Resources Inc. ("Explorator" or the "Company") (TSX VENTURE:EXO) reports its financial results for 2009. Set out herein are the highlights and a summary of the MD&A for the year. A full version of the 2009 Financial Statements and Management Discussion and Analysis of the Company is available on the Company's web site at www.explorator.ca and will be available on SEDAR at www.sedar.com.

Highlights:

  • Company closed sale of 51% interest in Explorator Chile to Pucobre in March 2009, for minimum US$17 million capital contribution for El Espino copper-gold project in Chile.
  • Explorator Chile exercised option to acquire 100% of El Espino for US$7.0 million in March 2009.
  • NI 43-101 compliant El Espino Preliminary Assessment filed in May. Highlights include:
    • Average annual production of 77 million lbs copper and 40,000 oz gold over 19 year mine life
    • LOM cash cost of $1.06/lb, net of gold credits (based on a gold price of $680/oz.)
    • LOM production of 1.467 billion lbs copper and 755,000 oz. gold
    • Good potential noted for further resource expansion.
  • Further 17,771 metres drilled in 68 holes at El Espino in 2009. Results generally validate 2008 Micon resource model in Rachel area, while developing additional mineralization below pit shell, including a deeper gold zone.
  • El Espino 2009 expenditures of US$11.4 million, including US$7.0 million for option exercise and US$4.4 million in drilling and other expenditures.
  • US$10.3 million El Espino budget approved for 2010, including US$3.7 million for drilling (20,425 metres in 95 holes) and US$3.2 million for technical studies. 
  • Updated Scoping Study planned for Q3 2009; Pre-Feasibility decision to follow with potential completion in early 2011
  • Walter Segsworth and Richard Colterjohn joined Explorator Board in November 2009, bringing considerable experience in mining operations and capital markets respectively.
  • David Prins appointed President & CEO of Explorator in April 2010, bringing considerable experience in mining project evaluation and development execution across Latin America - will lead Explorator participation in El Espino Technical Committee.
  • David O'Connor appointed Vice President, Exploration, focusing on acquisition of additional exploration or evaluation stage copper projects.
  • Financing activities raised $7.1 million in 2009 - $5.1 million cash balance as of April 2010. Explorator Chile shareholder agreement provides that Explorator shall not face any funding requirement for El Espino during 2010. 
  • Net Loss for 2009 of $2.9 million or $0.04/share – Explorator Chile results consolidated until March 20 and then equity accounted thereafter.

Extract from the Company's Management Discussion and Analysis:

Description of the Business

Explorator Resources Inc. ("Explorator" or the "Company") was incorporated under the Business Corporations Act (Alberta) on May 18, 2005 and was continued under the laws of the Province of Ontario on September 22, 2007. On January 25, 2007, the Company acquired Maximus Resources Chile S.A. ("Maximus"), a private Chilean company and on October 10, 2007 Maximus changed its name to Explorator Resources Chile S.A. Upon acquisition, Explorator Chile's sole asset was an agreement to acquire a 100% interest in the El Espino claim block. In March 2009, Explorator Chile exercised the option-to-purchase agreement relating to the El Espino Project by payment of US$7.0 million and now owns a 100% interest in the El Espino Project.

SPC Investment in Explorator Chile

On March 19, 2009, Explorator completed a previously announced agreement with Sociedad Punta del Cobre S.A. ("SPC") pursuant to which SPC acquired a 51% interest in Explorator Chile in exchange for a payment of US$17 million (the "Agreement"). The Company now records its interest in Explorator Chile as an equity investment.

Under the terms of the Agreement, SPC made a capital contribution of US$10 million to Explorator Chile at the end of March 2009 and will make a further capital contribution of US$7 million to Explorator Chile within 18 months of closing, representing a 51% interest in Explorator Chile. Additionally, the Agreement requires SPC to provide additional funds (up to US$1.5 million) that would be required to carry out a bankable feasibility study with respect to the El Espino Project. Explorator will retain a royalty of US$0.10 per ton of ore that may be processed from the El Espino project.

Of the initial SPC US$10 million capital contribution into Explorator Chile, US$7.0 million was used in March 2009 to complete its acquisition of a 100% interest in the El Espino Copper-Gold Project. The remaining US$3.0 million of SPC's initial capital contribution and SPC's required further capital contributions of up to US$8.5 million will be used to finance the continued exploration and evaluation of the El Espino Project. 

El Espino Project Overview

The El Espino Project lies within the prolific copper-gold mineral area of the Cordillera de la Costa, 240 km. north of Santiago, and is central to an important cluster of "Candelaria-style" copper-gold deposits. 

The latest NI 43-101 mineral resource estimate for El Espino Project audited by Micon International Limited (see press release dated November 25, 2008) described: (1) oxide mineralization containing 26.9 million tonnes grading 0.53% Cu and 0.33 g/t Au in an indicated category and 3.7 million tonnes grading 0.41% Cu and 0.16 g/t Au in an inferred category; and (2) sulphide mineralization containing 96.1 million tonnes grading 0.70% Cu and 0.21 g/t Au in an indicated category and 28.4 million tonnes grading 0.62% Cu and 0.19 g/t Au in an inferred category.

A National Instrument 43-101 compliant preliminary assessment (the "Preliminary Assessment") was completed on the El Espino Project in May 2009 (see press release dated May 11, 2009). The Preliminary Assessment defined the potential for an average annual payable production of 77 million pounds of copper and 40,000 ounces of gold over a 19 year mine life (life-of-mine payable production of 1.467 billion lbs copper and 755,000 oz. gold) at an average cash cost of $1.06/lb, net of gold credits (based on a gold price of $680/oz.) and also noted good potential for further resource expansion. 

El Espino Project Exploration Update - 2009 Program

During 2009, total Explorator Chile expenditures on El Espino amounted to US$11.4 million. This included US$7.0 for the final payment for the exercise of the El Espino option to purchase agreement (see "Description of the Business" above) and US$4.4 million in other project related expenses, consisting of US$2.4 million in drilling and assaying costs, US$0.8 million in IVA and US$1.2 million in other expenditures.

During 2009 a total of 15,380 metres of diamond drilling was completed in 70 holes in the Rachel and Chon Chon areas. A plan map showing pre-2009 drilling, together with 2009 drilling in the Rachel area may be found on the Company's web site at www.explorator.ca. In addition, a total of 2,391 meters of reverse circulation drilling was completed in 13 holes. The reverse circulation drilling was focused on condemnation drilling in preparation for proposed mine infrastructure developments.

In the Rachel zone, which contains over 50% of the current El Espino resource base and extends roughly 1,100 meters north-south and 600 metres east-west, the 2009 drilling has increased drilling density and has resulted in better definition of contiguous zones of copper-gold mineralisation within the stacked mantos. Details of the reported intercepts can be found in the press release dated April 13, 2010 on the Company's website at www.explorator.ca. Details show that the 2009 drilling has generally validated the 2008 Micon resource model for Rachel Area within the 2008 pit shell floated by AMEC. They also show the development of additional mineralization below the 2008 pit shell in their preliminary economic assessment, and which could add to the project's overall economics, in the event that it is subsequently incorporated into a revised pit shell.

The 2009 drilling has intersected a zone of gold mineralization at depth in the Rachel zone, located along the north-east extension of the Portugesas fault. Mineralisation is associated with a stockwork of coarse grained calcite veins in volcanic rocks below a capping siltstone unit. The highest gold grades are generally in veins with free gold and little or no sulphide or specularite. This zone is currently defined over an area of 150m x 300m, from sections 7250 to 7400N and is open to the north and east. To date, 9 drill holes have intersected this zone.

The drill holes in the Rachel area were designed to confirm and extend the resources outlined by previous drilling campaigns. The results support the resource model utilized by Micon International Limited in the latest resource estimate. Of interest is the near surface high-grade mineralization in MXE-330 and MXE-331, which could have a positive impact on project economics.

The drill holes at Chon Chon targeted a high-grade gold zone discovered by previous drilling. The drill holes intersected anomalous gold in the stratigraphically controlled horizon which hosts the high grade gold but failed to return high-grade gold values. The results demonstrate the erratic nature of the high grade gold mineralization at Chon Chon. In results announced on April 13, 2010, the Company reported that four holes were drilled in the Chon Chon zone in 2009. None of these holes intersected high grade gold mineralization, confirming the erratic nature of gold in this area and reducing size potential of the Chon Chon gold zone. This could result in a reduction in the quantity of mineable gold ounces in the Chon Chon portion of the El Espino resource and negatively impact AMEC's cash flow model of the El Espino Project preliminary assessment of May 2009.

El Espino Project Exploration Update - 2010 Program

The board of Explorator Chile has approved a US$10.3 million Program & Budget for evaluation activities at the El Espino Project during 2010, with a significant portion of expenditures directed at the completion of an Updated Scoping Study, expected in Q3 2010.

Included in the 2010 Program & Budget is US$3.7 million for drilling and assaying, consisting of 20,425 metres in 95 holes (see Explorator news release dated April 13, 2010). This includes 41 drill holes planned in the Rachel area in preparation for an updated resource estimate, 9 at Chon Chon to improve the accuracy of the resource model in this area, and a total of 45 holes in the Portugesas, Pirata and Pichanilla areas to test for extensions of resources along strike and at depth.

Also included in the 2010 Program & Budget is approximately US$3.2 million in various studies, including mine, plant and tailings engineering, water supply, environmental, metallurgical test work and geotechnical studies. The balance relates to various salaries and general administrative expenses and approximately US$1.6 million of IVA (sales tax), which would be recoverable in the event of the future development of the El Espino project.

It is currently planned that the Updated Scoping Study will incorporate an updated resource, mine plan, capital and operating costs, together with such additional metallurgical work as may be available at that time. It will also draw from the previous analysis as reported in the 2009 Scoping Study (see May 30, 2009 NI 43-101 El Espino Preliminary Assessment Technical Report which is filed on SEDAR and posted on the Company's web site). Based on the results of the Updated Scoping Study, the Explorator Chile board will make a determination as to whether to proceed to a Pre-Feasibility study, which if commissioned, would be expected to be completed in early 2011.

Other Projects

In addition to its investment in El Espino, Company management continues to evaluate additional potential investment opportunities.

Management

In April 2010, Explorator announced the appointment of David Prins to the position of President and CEO of the Company. Mr. Prins will be replacing David O'Connor as President and CEO, who will continue on in the role as Vice President, Exploration for the Company. In connection with his appointment, Mr. Prins was granted 1,000,000 Explorator Options at an exercise price of $0.54, the terms of which will be governed by the Company's current Stock Option Plan.

Mr. Prins is a Civil Engineer with extensive experience in the evaluation, design, planning and subsequent development execution stages of mining projects, principally in Latin America. Prior to joining the Company, he was the principal of his own Santiago based consulting firm which provided project evaluation and management services to many leading precious and base metals mining companies. In this capacity, Mr. Prins previously assisted Explorator in the preparation of its Preliminary Assessment of the Company's El Espino project (49% owned by Explorator).

In November 2009, the Company announced the appointment of Walter Segsworth and Richard Colterjohn to the Board of Directors. Concurrent with the appointment of these directors, Tony Wonnacott resigned as a director and officer of the Company.

Mr. Segsworth, a professional engineer, brings much experience as an operator and director in the mining sector. His operating roles have included being President and COO of Homestake Mining Company and President and CEO of Westmin Resources Ltd. He has served on a number of boards, including as Chairman of Centenario Copper Corporation, Cumberland Resources Ltd. and Plutonic Power Corporation.

Mr. Colterjohn is a principal of Glencoban and has over 20 years of involvement in the mining sector as an investment banker, director and operator. Most recently, he was founder, President and CEO, and Director of Centenario Copper Corporation. His directorships have also included Cumberland Resources Ltd., Canico Resource Corp., Viceroy Exploration Ltd., MAG Silver Corp., and Gammon Gold Inc. Previously, his career was focused as an investment banker, most recently as Managing Director and Head of the Mining Sector practice for UBS Bunting Warburg Ltd. in Canada.

Results of Operations for the Year Ended December 31, 2009 versus 2008

For accounting purposes, Explorator's results for the year ended December 31, 2009 reflect the results of operations of the Chilean subsidiary, Explorator Chile, up to March 20, 2009, the date the Company completed the sale of 51% of the subsidiary, compared to 100% of the results of its then wholly-owned subsidiary for 2008. As of March 20, 2009, Explorator accounts for its investment in Explorator Chile as an equity investment, whereby it reports its pro-rata 49% share of income or loss of Explorator Chile. The net loss for the year ended December 31, 2009 was $2,914,047 or $0.04 per share compared to a net loss of $7,443,916 or $0.16 per share for 2008.

Liquidity Outlook

As at April 30, 2010, cash balances were approximately $5,100,000, inclusive of the proceeds of a $4.4 million private placement which closed on November 6, 2009.

In connection with the sale of 51% of Explorator Chile, SPC is obligated to make capital contributions into Explorator Chile of a minimum of US$17.0 million, and up to US$18.5 million, in order to advance the El Espino Project. Of this amount, US$7.0 was used in March 2009 to exercise the option-to-purchase agreement relating to the El Espino Copper-Gold Project. The balance of the capital contributions will be directed towards the exploration and evaluation of the El Espino Project. 

Between the inception of joint ownership of Explorator Chile on March 20, 2009 and the end of 2009, Pucobre has funded cumulative Explorator Chile expenditures of US$10.5 million. Based on the approved 2010 Program & Budget, cumulative expenditures from inception of joint ownership to the end of 2010 are projected to amount to US$20.7 million. Pucobre will contribute the balance of its initial capital contribution of US$6.5 million, leaving an expected funding shortfall of US$3.7 million to the end of 2010, of which Explorator's share would be 49% or US$1.8 million. In the event that all or a portion of this shortfall needs to be funded during 2010, Pucobre has agreed to contribute the additional $1.5 million discussed above and may elect to either bridge any remaining funding shortfall until the end of 2010 or delay a portion of the investment program.

Prior to the end of 2010, the Company does not, therefore, currently anticipate the requirement to make any additional funding commitments to Explorator Chile. In the interim, the Company will use existing cash balances for general corporate overhead and working capital purposes as it evaluates additional potential investment opportunities.

Explorator currently anticipates that it will meet any future capital calls in 2011 that relate to evaluation stage activities at El Espino from a combination of cash on hand and the proceeds from offerings of equity securities in the capital markets. In the event of a decision to bring the El Espino project into production, the Company anticipates that it will require access to considerably greater funding resources than it currently has available to it. The Company anticipates that it would meet this funding requirement by means of a combination of debt and equity financing in the capital markets. However, there can be no assurance that such funding will be available to the Company on terms acceptable to it, if at all.

Risks and Uncertainties

Exploration, development and mining of metals involve numerous inherent risks. As such, the Company is subject to various financial, operational and political risks that could have a significant impact on its profitability and levels of operating cash flows. Although the Company assesses and minimizes these risks by applying high operating standards, including careful management and planning of its facilities, hiring qualified personnel and developing their skills through training and development programs, these risks cannot be eliminated. Such risks include changes in local laws governing the mining industry, a decline in commodity prices and the activity in the mining sector, and uncertainties inherent in estimating mineral reserves and mineral resources.

Readers are encouraged to read and consider the risk factors more particularly described in Note 10, "Financial Instruments Risk Exposure and Risk Management" to the Audited Consolidated Financial Statements for the year ended December 31, 2009, which have been filed on the Company's website and on SEDAR (http://www.sedar.com/). Such risk factors could materially affect the future operating results of the Company and could cause actual events to differ materially from those described in forward-looking statements relating to the Company.

An investment in the securities of the Company should be considered speculative due, generally, to the nature of the business in which the Company is engaged, the limited extent of the Company's assets, the Company's state of development and the degree of its reliance upon the expertise of management.

The Company's investment in Explorator Chile represents its sole material investment at this time. As a result of the sale of the majority interest in Explorator Chile in March 2009, the Company now holds a 49% minority interest in Explorator Chile. While the Company believes that it exerts significant influence over the affairs of Explorator Chile, it no longer exerts control, which might compromise the Company's ability to maximize the value of this investment.

Other Information:

A copy of the release, as well as other information related to the Company, is available on the Company's web site at www.explorator.ca and on SEDAR at www.sedar.com.

EXPLORATOR RESOURCES INC.

David Prins, President & CEO

About Explorator Resources:

Explorator Resources is a Canadian-based mining exploration company with a 49% interest in the El Espino Copper-Gold Project in Chile (the "Project"). The Project lies within the prolific copper-gold mineral area of the Cordillera de la Costa, 240 km. north of Santiago, and is central to an important cluster of "Candelaria-style" copper-gold deposits. A National Instrument 43-101 compliant Preliminary Assessment (see press release dated May 11, 2009) has defined the potential for an average annual payable production of 77 million pounds of copper and 40,000 ounces of gold over a 19 year mine life (life-of-mine payable production of 1.467 billion lbs copper and 755,000 oz. gold) at an average cash cost of $1.06/lb, net of gold credits (based on a gold price of $680/oz.) and also noted good potential for further resource expansion. Sociedad Punta del Cobre S.A. ("SPC") acquired the remaining 51% of the Project in March 2009 in return for an investment of up to US$18.5 million, with US$7.0 million used to exercise the option to purchase agreement on the Project and the remaining funds expected to be adequate to fund continued exploration and evaluation through to the end of 2010.

REGULATORY FOOTNOTE

Mr. Michael Schuler, in charge of exploration at Explorator SCM is the "Qualified Person" as defined under the National Instrument 43-101 and is responsible for the scientific and technical work on Explorator SCM's exploration program and is responsible for reviewing the technical disclosure in this news release. All analytical work has been completed by ACME Analytical Laboratories of Santiago in Chile; ACME is a respected international analytical service which is accredited with NATA and complies with standards of ISO 9001:2000 and ISO17025:1999. They employ a variety of international standards for quality control purposes. Samples are transported from the project to the ACME laboratory in Santiago by ACME personnel in an ACME Truck. All analytical testing is performed utilizing a variety of industry standard analytical techniques, including: (1) ACME Analytical Code Au-G6 (Au 30g fire assay with AAS finish), (2) ACME analytical code Au-G6GRAV (Au 30g fire assay with a gravity finish), (3) ACME analytical code 7D (23 element analysis using a four acid digestion and ICP-AS analysis). All diamond drill core is geologically logged, cut in half using a diamond saw and sampled by Company geologists in one (1) to three (3) meter sample intervals depending on visual grade estimates; the archive portion of the sample is securely stored at the company's core shed adjacent to the office in the town of Illapel. The Company has a QA/QC program consisting of utilizing standards, duplicate and blank samples and laboratory cross-checks and routinely repeats sample analysis.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this news release may contain forward-looking information within the meaning of Canadian securities laws. Such forward-looking information are identified by words such as "estimates", "intends", "expects", "believes", "may", "will" and included, without limitation, statements regarding the company's plan of business operations, production levels and costs, potential contractual arrangements and the delivery of equipment, receipt of working capital, anticipated revenues, mineral reserve and mineral resource estimates, and projected expenditures. There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from such statements. Factors that could cause actual results to differ materially include, among others, metal prices, risks inherent in the mining industry, financing risks, labour risks, uncertainty of mineral reserve and resource estimates, equipment and supply risks, regulatory risks and environmental concerns. Most of these factors are outside the control of the company. Investors are cautioned not to put undue reliance on forward-looking information. Except as otherwise required by applicable securities statutes or regulation, the company expressly disclaims any intent or obligation to update publicly forward-looking information, whether as a result of new information, future events or otherwise.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

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