Urumalqui

Urumalqui Silver-Gold Project

The Urumalqui Property is the site of advanced silver-gold project located in the Department of La Libertad in north-central Perú approximately 70 km road kilometres east of the port city of Trujillo.

Inferred Mineral Resource

In Q4 2011 a maiden resource estimate was commissioned by AndeanGold Ltd., which has an option to earn a 60% interest in the project.

Summary of Inferred Mineral Resource Estimate

Notes:

1. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the estimated Mineral Resources will be converted into Mineral Reserves.
2. The mineral resource estimate was calculated in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the Standards Committee on Reserve Definitions and adopted by the CIM Council on December 11, 2005.
3. Inferred Mineral Resources are that part of a Mineral Resource for which quantity and grade can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. It is uncertain if further exploration will result in upgrading them to an indicated or a measured mineral resource.
4. Mineral Resources tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not add up due to rounding.
5. As a step in the resource estimation process a silver equivalent (‘AgEQ’) grade was calculated to “capture” both the gold and silver values found within the Urumalqui vein. The silver equivalent grade was a calculated by combination of its ‘final’ gold value at a 3 year trailing average price of US$1,300/troy oz and 85% metallurgical recovery rate, and its ‘final’ silver value at a 3 year trailing average price of US$26/troy oz and 65% metallurgical recovery rate. Trailing average prices were determined graphically, effective August 26, 2011. Thus, a modeling cut-off grade of 60gpt AgEQ was utilized only for the grade domain modeling purposes, defining the grade shell. Otherwise estimation avoided the use of “metal equivalents” and the silver and gold tenor within the Inferred Mineral Resource Estimate is tabulated separately.
6. he Inferred Mineral Resource Estimate has an effective date of November 8, 2011, meets the guidelines and form as set out in NI 43-101 and was prepared for AndeanGold and Gitennes by Mine and Quarry Engineering Services, Inc. (“MQes”). The assignment was carried-out by Mr Chris Kaye,FAusIMM, B.Eng Chemical, President and Principal Process Engineer, the modelling and estimates were carried out by Mr Doug Blanchflower, P.Geo of Minorex Consulting Limited and Mr. James McCrea, P.Geo. Messrs. Kaye, Blanchflower and McCrea are all qualified persons as defined under NI 43-101 reporting requirements and have consented to applicable disclosure contained herein regarding the Inferred Mineral Resource Estimate. MQes, Minorex, and Messrs. Kaye, Blanchflower and McCrea are independent of both AndeanGold and Gitennes.
7. For further information view “Technical Report Urumalqui Property” dated December 22, 2011filed under the Company’s profile on SEDAR, or click here under ”Reports”.

Background

The property consists of four contiguous mineral concessions totalling 2,700 hectares, owned 100% by Minera Corimalqui SA, an indirectly-owned subsidiary of Gitennes. When Urumalqui was acquired in 2002-2003 it was initially a joint venture with Meridian Gold Inc., but on June 17, 2005, the companies terminated the agreement and Gitennes assumed 100% of the project. On February 1, 2010 Gitennes announced a signed memorandum of understanding with AndeanGold Ltd. whereby Gitennes has granted to AndeanGold the right to earn a 60% interest in the Urumalqui project. AndeanGold’s Peruvian subsidiary PeruGold Resources S.A.C. must spend $3,000,000 in qualifying exploration expenditures on the project over a four-year term, which shall include a minimum of 3,000 metres of drilling by the end of the second year and 7,000 metres of cumulative drilling by the end of the third year. AndeanGold must issue 80,000 shares to Gitennes in four tranches of 20,000 shares upon signing then on the first, second and third year anniversaries of the agreements. Upon PeruGold meeting the terms and exercising its option, Corimalqui and PeruGold will form a new company to act on behalf of the joint venture in any further development of the property.

Location and Access

The property is situated in Andean north-central Peru. Property elevations range from 3,500 to 3,700 metres a.s.l. Topography is gently rolling. There is little standing timber other than plantations of eucalyptus; the land is otherwise given over to agriculture. These high-elevation plains have been farmed for several centuries. Livestock is mostly sheep and cattle, while crops are various potatoes and other tubers, grains and grasses. Access is by road, 2.5 hours from Trujillo. The mining complexes at Quiruvilca and Lagunas Norte are one to two-hour drives further west.

Historical work

Old workings exist at Urumalqui, including short adits, pits and an exploration shaft that was sunk to 50 metres on the Urumalqui Vein. An underground exploration operation was described in a summary for a technical talk given in 1982. Based upon this it appears that there was limited development on the -28-metre level, with a 250-metre drift and winze on the -50-metre level to another minor drift at -80m. In 2008 Corimalqui examined and sampled the -28 level and then capped the shaft for safety.

The property was acquired in 1993 by Minera Andina de Exploraciones, a subsidiary of the SIMSA Group. Andina optioned the property to Sociedad Minera Cambior Perú S.A., possibly in 1996 who drilled five scattered holes on four targets. Andina did not pay its taxes on its concessions at Urumalqui, and they were declared open for re-application in 2002. The concessions were acquired in late 2002 and in 2003 Gitennes and Meridian agreed to pool their resources and formed a joint venture.

Exploration 2003 to 2011

Corimalqui’s exploration activities between 2003 and 2008 included preparing base maps, mapping the veins, mapping the overall geology of the property, establishing a picketed grid, B-horizon soil sampling, two ground geophysical programmes of induced polarization and magnetometer surveys, three differential GPS surveys of the grid and drill pads, rock sampling, a limited rehabilitation of the old exploration shaft, preliminary metallurgical tests of core and rock samples, and environmental, archeological and socioeconomic studies. In late 2003 seventeen holes totalling 2,282.6 metres were drilled, 14 of which were on the main Urumalqui Vein. In late 2004 eighteen holes totalling 2,619.4 metres were drilled, 9 of which were on the Urumalqui vein. In early 2008 twelve holes were drilled on the Urumalqui Vein totalling 2,433.6 metres. There was little activity at the Property in 2009.

During the last half of 2010 PeruGold re-established topographic control followed by detailed geological mapping of the main Urumalqui Vein structure, then re-logging the stored drill cores from the 2003 to 2008 drilling programs undertaken by Corimalqui. On March 28th, 2011 PeruGold commenced a fourth diamond drilling campaign that confirmed and in-filled Corimalqui’s previous drilling along the central and southeastern segments of the Urumalqui vein structure, resulting in a nominal drill hole penetration spacing of 50 metres to a depth of 200 metres. As at July 27th, 2011 PeruGold had completed 31 holes totalling 5,071 metres.

The current Inferred Resource Estimate is based upon all 66 diamond drill holes that intersect the Urumalqui Vein, including the 35 holes (5,835 metres) drilled by Minera Corimalqui S.A. between 2003 – 2008, and the 31 holes (5,071 metres) drilled by PeruGold Resources S.A.C. in 2011.

More exploration remains to be done. Further drilling on the main Urumalqui Vein is needed, including additional in-fill holes, plus results indicate that the structure is open for extension both to the northwest and especially to the southeast. Furthermore, its strong continuity at depth coupled with the textural features of the vein mineralogy indicates that it may have significant depth potential. Finally, seven other veins outcrop on the property and have little or no drilling.

Geology

The region is underlain by rocks of the Cretaceous- to Tertiary-age Calipuy Group. This major unit overlies the pre-Cretaceous basement rocks as a relatively flat-lying, unconformable plate up to 1,500 metres in thickness that caps landforms above 3,200 metres asl. The Calipuy is comprised of subaerial andesitic flows, breccia and pyroclastic tuffs, with subordinate dacite and rhyodacite. These rocks are broadly warped and often transected by northerly, northeasterly and easterly fault structures. Within the Property there is a possible volcanic source that may be one of the youngest in the region at 16.7 Ma.

Calipuy rocks at Urumalqui are green to maroon, porphyritic andesitic flows with plagioclase phenocrysts, volcanic glass and hornblende, interbedded with volcaniclastic rocks and autobrecciated andesitic lavas. These are overlain by a pyroclastic unit containing lapilli and block-sized lithic clasts as well as essential blocks. Overlying is a cap of magnetite-bearing andesitic flows. These are cut by a series of normal faults trending 135, 045 and 090.

Deposit type

The mineralization at Urumalqui is low sulphidation epithermal vein-type. A low sulphidation (sometimes referred to as “quartz-adularia type”) deposit is epithermal based upon the implied temperature of formation estimated to range from less than 100 ⁰C to about 300 ⁰C, by its distinct mineral assemblage and suite of metals, and low sulphidation because the primary minerals are quartz-adularia with only traces of sulphide minerals, implying the amount of sulphur dissolved in the mineralizing fluid was relatively low. These types of veins cut across the bedding of its host rocks, are found within (what were) open cracks or fissures, and are often “crustiform” – banded (bands parallel to vein walls with bands defined by differences in mineralogy, colour and/or textures) and “colloform” – banded (bands are rhythmic but are reniform, or kidney-shaped) in appearance. This type of epithermal deposit is formed approximately a kilometer from surface, often in areas of active volcanism and in areas subject to blanket-like alteration due to steam and hot spring activity. Metals of economic interest that are associated with low sulphidation veins are gold and silver, and vein minerals are quartz (including chalcedony), carbonate, adularia (potassic feldspar), pyrite, sphalerite and galena. Elements in trace levels may include arsenic, antimony, and mercury.

Many examples of low sulphidation epithermal silver and gold deposits exist worldwide in Japan, Canada, Mexico, Australia, Honduras, El Salvador, Nicaragua, Papua New Guinea, Indonesia, Argentina, Chile, Ecuador, elsewhere in Peru, Russia, New Zealand and the western United States. Contemporary examples of active geothermal fields that are likely in the process of making low sulphidation deposits maybe found in Yellowstone National Park (Wyoming) and New Zealand.

The outcropping nature of the Urumalqui Vein allows it to be easily mapped and sampled, and to equate the results of geochemical and geophysical surveys to a known target. The possibility of blind veins occurring or extending under overburden or later volcanic cover cannot be discounted, and for this reason, surveys on the Urumalqui Property have extended well beyond the known limits of the Urumalqui Vein. Results of the surface exploration were used to select sites for core drilling.

Mineralization

Two main vein orientations have been mapped at Urumalqui. A 125 trend includes the Urumalqui Vein, La Mariscala West Vein, La Mariscala South Vein, and the Penélope Vein. A 090 trend includes La Mariscala East Vein, Candual East Vein, the Candual West vein zone, and the Candual Vein. These veins are developed south of the Urumalqui Vein and occur in pyroclastic and andesite flow units.

Three distinct styles of epithermal mineralization have been recognized from surface mapping and drilling on the property:

1. The main Urumalqui vein is a classic “crack-and-fill” style open-space-filling quartz – adularia structure, characterized by sharp vein boundaries, multi-stage quartz mineralization as banded and crustiform veins, and ore-grade gold and silver mineralization. Also present are vugs and cockade, bladed, pelletal (moss) and breccia textures. Gold and silver are the analytical elements of interest, with little or no arsenic, antimony, mercury, lead, zinc or copper. Silver minerals include argentite and electrum, while gold reports to electrum. Portion of both La Mariscala Este and Oeste Veins have similar banded, pelletal and crustiform textures;
2. A broad zone of leaching and argillic alteration roughly symmetrical about the Urumalqui Vein, comprising silicified, chlorite and sericite-altered, zones marked by fine-grained pyrite that has elevated gold values and silver (the “Envelope”). Where unoxidized, pyrite has been the only sulphide observed to date, occurring as several percent or more fine disseminated grains and aggregates in well silicified volcanic tuffs and lapilli tuffs. Gold and silver values consistently in excess of 100 ppb and 20 ppm respectively are common, which increase in tenor toward the vein, and are considered to define the extents of this style of mineralization. Similar alteration occurs adjacent to La Mariscala Vein; and
3. Brecciated and fissure-fill, diffuse-walled and locally replacement-style silicified zones, characterized by fine-grained, grey to black quartz, with highly anomalous to ore grade gold and silver content that are similar to but overall lower than in the Urumalqui-style (1) of mineralization. Locally, quartz replaces clasts and to a lesser extent the adjacent country-rocks, and volcanic textures can still be recognized. These silicified zones appear to be oriented vertically in a vein-like fashion and are fracture-controlled. Mineralization is anomalous in arsenic and mercury, with erratic but sometimes anomalous lead, zinc and antimony. Penélope Vein, the central and eastern-most portions of La Mariscala Vein, and veins in the Candual area are examples of this style.

The principal target on the property, and subject of the Inferred Resource Estimate, is referred to as the “Urumalqui Vein”. This is a near-vertical zone, up to 20 metres wide, comprising a core of one or two banded quartz veins ranging from 0.5 to 11 metres aggregate thickness, and intervening oxidized vein breccias or altered volcanic rocks. The vein is exposed at surface over a strike length of 1,500 metres. Average strike is 125° ± 005° throughout much of this length. The vein shows a number of minor, northeast-stepping offsets. There are eight vein segments between offsets, ranging in length from 40 metres to 400 metres. For the most part, vein outcrop is continuous along each segment. At least one of the offsets is due to an east-west trending fault exposed in outcrop. Elsewhere along the vein, other significant breaks occur in which the vein does not outcrop. The vein is offset right-laterally where these breaks occur, and it is thought that these are also sites of east-west faulting.

Summary of Urumalqui Vein Intercepts

PeruGold (2011)

Corimalqui (2003 – 2008)

Despite having drilled the vein to depths just over 200 metres vertically below surface, the vein structure remains strong and mineralized. All holes are in the “boiling zone”, based upon vein textures, and the potential for good mineralization at deeper levels than those tested thus far is considered to be good.