The 2nd quarter MDA has some good property info on it..
During the quarter the Company
completed the diamond drill program totaling 8,462 meters on the La Gitana gold-silver project
in Oaxaca state. On-going district scale exploration on the 360,000 hectare land package that
surrounds La Gitana has discovered ten quality mineral targets.
An exploration program was commenced on El Tecomate, a large, low-sulfidation gold-silver
project in Durango state. In Chihuahua state, a strong generative exploration effort has identified
several high quality mineral prospects for possible acquisition.
Project Exploration and Development
La Gitana, Oaxaca State
During 2006 the Company completed an additional 12 HQ core drill holes on La Gitana which
overall, totals 40 holes comprising 8,462 meters. Drilling mostly tested Cerro di Oro, a 1.5
kilometer long, NW-trending, structurally-controlled, epithermal system where gold-silver
mineralization is found as high-grade shoots in a set of N-W trending, sub-vertical structures,
and as low grade disseminations within broad zones of quarts stockworks and breccias. The
latest holes tested the NW and SE extensions of Cerro di Oro as well as a portion of the La
Gitana vein structure. The 2006 drill results will be reported shortly.
Pena Blanca, Oaxaca State
Pena Blanca, located 12 kilometers northwest of the La Gitana gold-silver project, is a large
tonnage, epithermal gold-silver prospect. Last year geo-chemical assay results obtained from a
300 meter by 1,000 meter soil sample grid at Pena Blanca show a broad, N – NW trending gold
anomaly with values above 0.2 g/t gold extending across the entire length of the grid. A stronger
anomaly, greater than 0.5 g/t gold, was observed across a core area of 200 meters by 400 meters
to the northwest of the grid. The soil geochemistry data shows that the mineralization has a
strong northwest component and that it is continuous for more than 1 kilometer along strike.
The Pena Blanca prospect covers nine square kilometers of hydrothermal alteration of which less
than 1 square kilometer has been systematically mapped and sampled. Chesapeake is presently
completing an environmental impact study and negotiating a long-term community work
agreement in order to be granted the necessary permits to undertake road construction,
mechanized trenching and geophysics on Pena Blanca.
Rio Minas, Oaxaca State
Rio Minas is a silver – rich, polymetalic skarn prospect located 40 kilometers NW of La Gitana,
and 35 kilometers SE of La Calavera. To date, five major skarn zones have been identified
within a 6 kilometer long, NE trending corridor associated with a NE-trending regional fault
system.
The skarn zones are associated with a large circular feature, about 5 kilometers in diameter that
is believed to represent the surface expression of a major intrusive stock underlying the
calcareous rocks. The mineralization is hosted in a series of altered limestones and calcareous
sediments that are exposed in several small eroded windows cropping out where the rock
sequence has been dissected to lower levels. Two types of mineralized settings can be
recognized, skarns replacing limestone beds, and structurally, controlled skarn zones occurring
within faults and fractures.
During the quarter a detailed mapping and sampling program was undertaken on one zone, La
Zapoteca. The mineralization at La Zapoteca occurs as a copper-silver green garnet exoskarn
surrounded by a broad alteration envelope that ranges outwards from strongly silicified
limestones to marbles. Continuous rock channel samples taken across a 400 meters long, 100
meters wide outcrop exposure, has returned the following results. The Zapoteca zone remains
open along strike and laterally.
MAIN ZONE
Length (m) Copper (%) Silver (g/t)
63 0.90% 75
9 2.80% 52
27 0.27% 8
27 0.54% 31
57 0.54% 33
21 0.51% 18
Poorly exposed, sporadic showings of garnet skarn mineralization were also discovered 100
meters further to the east and 120 meters to the west of Zapoteca’s main zone. On the eastern
flank, the outcrops were mapped in an area 200 meters by 200 meters within an anomalous
envelope of silicified limestones and marbles that overlies the copper-silver mineralization.
Channel samples collected from this particular area are summarized below. To the west, an
initial channel section returned 24 meters of 0.3% copper, 23 g/t silver and 0.57 % zinc.
EAST ZONE
Length (m) Copper (%) Silver (g/t)
12 0.59 43
6 2.70 147
3 0.54 54
18 0.46 30
6 0.47 10
6 0.50 10
3 0.57 70
The geometry and geological characteristics of the La Zapoteca copper-silver skarn suggest that
the above three different mineralized zones may be interconnected below the overlying envelope
of anomalous altered rocks. Follow-up exploration work is planned on the other four skarn
zones, El Camino, La Valentina, Rio Minas Creek and La Victoria.
La Calavera, Oaxaca State
La Calavera is a precious metal-copper skarn project centered over a large, oval-shaped NE
trending intrusion complex, approximately 1.5 kilometers by 4 kilometers in size. This intrusion
event caused widespread alteration around its margins and introduced polymetalic silver-coppergold
mineralization in the form of skarn replacement and locally well-developed porphyry-style
mesothermal to epithermal quartz veining. La Calavera comprises two mineral concessions
totaling 7,200 hectares.
Late last year a 92 kilometer magnetometer geophysical survey was completed on the La
Calavera covering an area of 2 by 3 kilometers centered on the zones of mineralized skarn
previously identified by surface sampling and mapping. The survey grid consisted of 30 northsouth
lines, spaced 50 meters apart. A preliminary analysis and interpretation of the data
identified numerous geophysical anomalies over the area surveyed including a bank of distinct
dipole magnetometer anomalies over the area surveyed including a bank of distinct dipole
magnetometer anomalies extending for more than 1.5 kilometers along the southeast margin of
the intrusion.
Chesapeake plans to joint venture La Calavera and due diligence is being under taken by two
companies interested in the project.
Cucaracha Dorada, Durango State
Cucaracha Dorada is a high-level, epithermal, low-sulphidation gold system that is hosted by
multiple veins, stockworks and breccia zones associated with a major regional fault. The
mineralization zones occur along a 1.2 kilometer long portion of this regional structure and are
concentrated within two major clusters of gold bearing outcrops, the North and South Zones,
situated 900 meters apart. Chesapeake has advanced Cucaracha Dorada to the drill-ready stage.
On June 14, 2006 the Company signed an option agreement whereby Christopher James Gold
Corp. (“Christopher James”) has the right to acquire up to 65% interest in the Cucaracha Dorada.
To initially earn 51%, Christopher James must pay to Chesapeake US$100,000 and issue to
Chesapeake 800,000 common shares of Christopher James during the first year of the agreement,
and either pay an additional US$250,000 or issue and additional 500,000 common shares of
Christopher James to Chesapeake on each of the second and third anniversaries of the agreement.
In addition, Christopher James must incur exploration expenditures totaling US$3.0 million over
four years, US$500,000 of which must be incurred during the first year of the agreement.
Christopher James may further increase its interest to 65% by either completing a bankable
feasibility study or incurring additional exploration expenditures of US$7.0 million during the
five year period after it has acquired its 51% interest in the project. During the option period,
Chesapeake has also granted Christopher James a first right of refusal to acquire an interest in
other mineral projects that Chesapeake decides to joint venture which are located in Durango
state and Chihuahua state. In such event, Christopher James has the opportunity to decide within
30 days if it wishes to accept the option terms specified by Chesapeake.
La Cecilia, Sonora State
The La Cecilia project is a classic low-sulphidation, epithermal-type gold-silver system related to
two well-developed northwest and northeast trending sets of fractures and faults associated with
a rhyolite dome complex. The gold-silver mineralization occurs as high grade in vein structures
and as lower grade within broader zones of stockworks and breccias. The La Cecilia project
comprises as 800 hectare mineral concession which is being acquired from the Consejo de
Recursos Minerales de Mexico (CRM), the mining and geological research division of the
Mexican government.
Chesapeake plans to undertake an IP/Resistivity geophysics survey on La Cecilia in 2006.
Merger
On March 3, 2006 Chesapeake and American Gold agreed to a business combination of the two
companies. Pursuant to the agreement, Chesapeake will issue for everyone (1) outstanding
common share of American Gold ( i ) 0.29 Chesapeake Common shares (“Shares”), (ii) 0.145
Chesapeake common share purchase warrants (“Warrants”) and, (iii) 0.29 Chesapeake rights
(“Rights”). Based on 30,855,525 outstanding common shares of American Gold this would result
in the issuance by Chesapeake of approximately 8,948,102 shares, 4,474,051 Warrants and
8,948,102 Rights.
Each Warrant will entitle the holder to purchase one (1) Chesapeake common share at $8.00 for
a term of 5 years. Each Right will be exercisable for one (1) Chesapeake common share at $1.00
for a term of five years. In the event as the average London PM fix closing trading price of gold
for the trading days on such market during any 90 day period is equal to or greater than US$850
per ounce. If the proposed transaction is completed it is anticipated that Chesapeake will have a
total of 28,685,897 shares issued and outstanding. Of these shares approximately 68.8% will be
held by the existing Chesapeake shareholders and 31.2% will be held by the existing American
Gold shareholders. In addition it is anticipated that American Gold shareholders will hold
Warrants to acquire approximately 4.5 million additional shares and Rights to acquire a further
approximately 9.1 million shares which if fully exercised would represent approximately 53.4%
of the then outstanding shares.
Both parties are continuing in their efforts to complete, and expect to be in position to
execute the definitive combination agreement between the companies in late August-early
September, 2006. The delay in executing the definitive agreement results from the efforts made
in evaluating and structuring the proposed transaction to achieve an optimal fiscal outcome from
the perspective of both parties and their shareholders.
Once the definitive agreement is executed, American Gold will finalize the information circular
for mailing to its shareholders in connection with the holding of a Special Meeting to approve the
proposed business combination. It is expected that the meeting materials will be mailed to
American Gold shareholders in September for a Special Meeting to be held in October. If the
proposed business combination is approved by American Gold’s shareholders, the business
combination should close in early November, 2006.
Upon completion the combined company will have approximately $40 million in cash and cash
equivalents (excluding the exercise of the Warrants) contributed as to approximately $26 million
(65%) by Chesapeake and as to approximately $14 million (35%) by American Gold.
Outlook
Chesapeake is sufficiently funded to carry out the planned acquisition and exploration
expenditures for its Mexican and Nicaraguan projects in 2006. Management recommended a 12
month budget of $3.0 million for the current fiscal year of which $1,202,294 was expended in
the first six months. |
