Herencia Resources eyes resource upgrade at Paguanta zinc-lead-silver-gold project in 2010

Herencia Resources (AIM: HER) will focus on advancing its 70% owned flagship Paguanta project in northern Chile to feasibility study this year, foreseeing the start of mining operations within the next 3-5 years when zinc, lead, silver and gold prices are expected to rise further after bouncing back in 2009.

Last year’s recovery in prices has allowed the company to progress the development at Paguanta after postponing plans to advance the project following the delivery of a scoping study and a mineral resource upgrade to preserve cash due to significant declines in commodity markets.

A drill programme that started at Paguanta in February this year is aiming to test the depth extension potential of the known mineralisation, test the potential for eastern and western expansion and gather information in respect to gold potential. Most importantly, the programme is expected to help update the mineral resource estimate and provide the basis to move the project toward a feasibility study in 2010.

Herencia called the early results from the drilling encouraging, noting the discovery of a new vein at Paguanta early in the drilling programme and the intersection of a western extension to the Cathedral vein. Initial holes from the 2010 drill program, together with over 80% of holes within the existing resource envelope, have returned potentially economically recoverable gold grades. Herencia noted that the gold mineralisation has yet to be incorporated in the mineral resource estimate, adding that any additional tonnage identified would lead to significantly improved project economics and extended mine life.

A mineral resource estimate is expected to be calculated in mid-2010, while the start of production has been pencilled in for the second half of 2012.

The company has hired a geological team to manage the next drilling phase and contracted Major Drilling to drill 3,500 metres starting Q1 after securing all 14 mining leases for the project.

On the financial front, the company successfully raised £1.39 million and won support from existing shareholders and attracted new shareholders after 46% of Herencia that was in the hands of the Administrators of Mineral Securities Limited was acquired by a number of parties including the Anglo Pacific Group (LSE: APF), which upped its stake to 12%.

While focusing on Paguanta, Herencia will also work on advancing the La Rosa and La Serena porphyry-copper targets in 2010.

The Paguanta project currently has an indicated and inferred mineral resource of 3.15 Mt at 3.9% zinc, 1.3% lead and 74 g/t silver including a higher grade component of 1.01 Mt at 6.6% zinc, 2.2% lead and 119pm silver.

Losses for the full year 2009 amounted to £804,330 compared to £393,099 in 2008, while losses per share increased from 0.06 pence to 0.1 pence. The group’s cash and cash equivalents increased from £1.3 million in 2008 to £1.48 million at the end of 2009.

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