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Chakana Copper (TSX-V: PERU) CEO David Kelley on Drilling Another 20,000 Meters of the High-Grade Breccia Pipes at the Soledad Copper-Gold Project in Peru

August 17, 2018

Gerardo Del Real: This is Gerardo Del Real, with Resource Stock Digest. Joining me today is President and CEO of Chakana Copper (TSX-V: PERU)(OTC: CHKKF), Mr. David Kelley. David, how are you?

David Kelley: I'm great, Gerardo. How are you?

Gerardo Del Real: I'm doing excellent. The kids are back in school. That's always a transition but a successful first day of classes for the boys, so happy on my end.

David Kelley: That's great.

Gerardo Del Real: So listen, it's a tough precious metals market. Gold is down to $1,170 and despite that, Chakana has held up very well, largely due to the fact that you have been busy. There's a number of updates that I want to bring to everybody, the first being that you got a modification on an existing permit that will allow you to drill two new breccia pipes.

This is important because they haven't seen drilling in the past. You're also waiting on the major permit approval, which, fingers crossed, we get soon, and you wrapped up Phase 1 drilling, so there's lots of assays pending.

Let's go in order. Let's talk about the permit and what it will allow you to do. A little bit of context, you've only drilled two of these breccia pipes thus far, pipe 1 and 5 if I'm not mistaken, and I believe you've confirmed 14 at surface. Is that accurate, David?

David Kelley: Yeah, that's right. The current count is 14 mineralized breccia pipes that we've mapped and sampled at surface.

Gerardo Del Real: Excellent. The modification to the existing permit, tell me about that and why you're excited about that.

David Kelley: Well, we're excited about it because it was the fastest way to get access to drilling the next couple of breccia pipes that we had identified. We are waiting on the EIA-SD, the big permit that adds 160 platforms to the program, but that's still in progress. We're in the final stages of it. We anticipate getting that very soon, within the next few weeks.

But, by doing this modification, it allowed us to move two platforms that hadn't been utilized yet on the existing permit, which we were able to put on Breccia Pipe 3 East and Breccia Pipe 6, two very high-priority breccia pipe targets that we had generated. We've started the drill rigs on both of those pipes. So for the first time in the history of the project we will have two active drill rigs drilling breccia pipes to add to the two that we've already drilled.

Gerardo Del Real: And these are two diamond rigs. Correct?

David Kelley: That's correct. Yeah, they're two AK Drilling diamond rigs. They've been averaging about 2,000 meters a month on the one rig that we've been active with. So we anticipate being able to get about 4,000 meters per month with the two rigs going.

Gerardo Del Real: And drilling has commenced. Right?

David Kelley: That's right. Yep, we're active now on Breccia Pipe 6 and Breccia Pipe 3 East. I expect to start seeing photos of the drill core coming out daily starting today.

Gerardo Del Real: We've talked before about the signature of these breccia pipes. And I have to imagine that pipes 3 and 6, for you to put two rigs on them, got to have very similar signatures to pipe 1 and 5. Is that accurate?

David Kelley: That's true. In terms of the geochemical signature, both pipes have multi-gram gold right at surface. We see the characteristic shingle texture, which is that flat, tabular breccia class, oriented breccia class that we see on all the breccia pipes. That's another one of the characteristics we look for to actually confirm that it is a bona fide breccia pipe.

They do manifest themselves a little bit differently. Breccia Pipe 6 has a very large monument, we call it a monument outcrop. It just juts straight out of the ground. It's a very obvious feature. If you go to our latest news release, you'll see a photograph of that with a person standing by it for scale.

Breccia Pipe 3 is a little bit different. It's in a different geomorphic setting. It's up on the top of a ridge, or kind of on the edge of a ridge, and we think that that's actually been glaciated in the past, and it's disrupted or it's eroded the breccia pipe, which was probably a monument pipe at one point. But it's created this massive debris flow, a debris field we call it, blocks of mineralized breccia down the hill, and that debris field is sourced from the monument outcrop that would have been there at one point. So it's a slightly different expression, but in terms of the characteristic textures and grades of gold that we see at surface, it's identical.

Gerardo Del Real: Now, drilling of these new pipes is important, and I'd like for people that are not familiar with the Chakana story, I'd like for you to explain what the thesis is and what the approach is with all of these mineralized pipes. Can you share that once again for people that may be new to the story?

David Kelley: Yeah. Soledad had been explored in the past for its porphyry potential, and it does have really an exceptional, conceptual porphyry model or target that you could put together based on the zoning and the alteration, the proximal mineralization in the mines that are immediately to the east. But our focus has been on the breccia pipes themselves because they're numerous, they're vertically extensive, they're very high grade. We get multi-gram gold over long, hundreds of meters of runs of continuous mineralization.

Generally, the primary grade in Breccia Pipe 1 has been well over 1% copper, so we're getting some really exceptional grades, and our view is that the pipes themselves are potentially economic ore bodies. Breccia Pipe 1 has been drilled in mineralization down to 490 meters. We have 40 meters of vertical mineralization drilled at Breccia Pipe 5, and both pipes are wide open at depth. We simply have only been able to effectively drill down to those depths from surface.

Our geophysics suggest that they go much deeper than that. As you mentioned, we've got 14 pipes. We also have 11 other strongly altered zones that look identical to what we see on the edge and above the breccia pipes. When we drill above a blind pipe, we see this characteristic alteration. We see that in 11 other places on the property, so we feel that those are potentially blind or buried breccia pipes that haven't been exposed by erosion, and drilling those targets may add additional pipes to it.

So, there's a huge target inventory on the property. And our view is that if we can get significant turns on an individual pipe basis, putting the multiple pipes together for an initial inferred resource, and ultimately a mining operation that would be able to mine multiple pipes at the same time is the real potential of this project.

Gerardo Del Real: Excellent. Now, you mentioned that we have final assays pending for pipes 1 and 5, and then I believe that Phase 2 drilling will incorporate pipes 3 and 6 in that maiden resource estimate. Is that correct, David?

David Kelley: Yeah, that's right. At 3 and 6 and other pipes as well. I'll explain a little bit about the permitting that we're going through. In the next few weeks we'll get what's called the EIA-SD permit. That's just kind of a stage two permit in Peru. The first stage is exploration stage, kind of scout drilling type of thing. That's what we've been operating under. The next stage is really meant for large-scale resource drilling. So lots of platforms, lots of drilling meters, that type of thing. That's the permit that we're waiting on now. That's going to add 160 new platforms to the project for drilling.

The history of the project has been one of expanding the land position. We originally started with the Condor land position on which the initial permit was based. So the EIA-SD permit that we're expecting in the next few weeks will be limited to that original area. As soon as we get that, we'll have a whole bunch of extra platforms, but they'll be limited to the Condor area, so we go through a modification process at that point to expand the work area to include the new mineral rights that we've acquired and has been published in our news releases.

That gives us access to a whole series of other very high-priority breccia pipes, including the Huancarama breccia pipe, which is the biggest and largest complex of breccias on the property, very high-grade mineralization exposed right at surface. We're real excited to be able to drill that.

So you can expect that this drilling, that Phase 2 drilling that we started now encompassing breccia pipes 3 and 6 to expand ultimately in the month of December. November, December is kind of the timeframe we're looking at to include those additional pipes. Our goal for the resource in the first quarter of 2019 is to have a resource that includes four or five or six of these breccia pipes to just kind of give an initial indication of what the upside potential of the project could be.

Gerardo Del Real: Well, exciting times at Chakana. I mentioned it's a tough market in the junior resource space. You're doing everything right. What's the cash position look like, David?

David Kelley: We're just below $12 million cash. We're at about $11.8 million, I believe, Canadian and that's certainly sufficient for us to keep the two drill rigs going through the end of the year. We have a nominal cutoff date for the resource estimate of January 15th, so any drilling between now and then would be included in that resource estimate. That's a lot of drilling. We estimate that we can get about 20,000 more meters in addition to the 18,893 meters that we've completed to date on the first two breccia pipes.

We've also done an engineering study to give us a range of the amount of drilling that's needed to get an inferred resource going forward, and that helps us optimize our drilling. So now we kind of have a target number of meters and number of drill holes that are adequate to get an inferred resource, say in the top 400 to 450 meters, and that's a real advantage for us now in terms of optimizing our drilling and conserving our budget and getting the most out of the shareholders' investment in the company.

Gerardo Del Real: Well, I'll tell you what. If you keep up with the grades and the widths of mineralization that we've seen thus far, and you're able to duplicate that, it's going to be a heck of a way to start the new year.

David Kelley: Yeah, absolutely. I just want to remind people that we do have a lot of drilling to do, a lot of targets. Our targets are not being drilling in the ultimate priority of the breccia pipes, because we do have three different land positions that we're dealing with and so the permitting has to be expanded in time, but all the targets that we're drilling are really exciting in their own right in terms of what they present at surface.

In addition to all the targets we've talked about, we have geophysical targets in areas of cover where there's no outcrop, and they present themselves as very attractive targets that look like breccia pipes. There's just no outcrop at surface in those areas. I anticipate a lot of drilling in the next 18 months for the Soledad project, focused most on the highest priority breccia pipes that are exposed at surface, and eventually we'll get to test some of these other targets as well as we continue through the drill program.

Gerardo Del Real: I understand you also have some pretty important and consistent site visits here over the next several months. Care to comment on that, David?

David Kelley: Yeah, that's right. We've been planning this for some time. We've got three months of site visits to take people to site. Analysts, geologists from retail firms, newsletter writers, people that will help us get the story out. I love this part of the business, because when I take people to a project like Soledad and show them the potential, it's really an impressive sight to see these breccia pipes sticking straight out of the ground, and then spend the day walking between the different breccia pipes and seeing how large the field is and really what the upside potential is.

We'll start by looking at drill core from the previous drilling that we've done. We have a very impressive core facility in Lima that includes space for 90,000 meters of drill core. We also have a freezer container on site. We freeze all of our rejects that come back from the lab so that they can be used for future metallurgical testing. That's another way of conserving our funds from the till, and also giving us the best material to work with for metallurgical testing.

We'll start the tours with that. We'll take them to site. They'll get to see the lay of the land. They'll see and appreciate the fact that there's 500 meters of vertical relief on the mountain where these breccia pipes exist. And that's a great aspect for future mining, to be able to come in from the valley bottom and undercut the breccia pipes, to be able to drift between multiple breccia pipes and get access to several pipes at the same time and, ultimately, mining we would envision would involve the production of multiple pipes at the same time and hence the ability to get the production rate up to a significant level.

Gerardo Del Real: Good stuff, David. Sounds like an exciting second half and start to the new year. Thanks again for coming on for the update.

David Kelley: You bet, Gerardo, anytime. Thank you.

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