Andean Resources Limited: Quarterly Report, For the Quarter Ended 30 September 2007
Andean Resources Limited (TSX: AND)(ASX: AND) –
QUARTERLY REPORT
For the Quarter Ended 30 September 2007
(all dollars expressed in Australian dollars)
HIGHLIGHTS
– Phase 3 drill program completed with drill-hole EDD729 (16.8m of 22.7g/t gold and 702 g/t silver) on the western-end of the Eureka West vein
– Completed a Cerro Negro resource estimate based on the Phase 3 drilling with 1.5 million ounces of gold and 8 million ounces of silver
– Completed initial metallurgical testwork on the Eureka quartz veins with gold recoveries exceeding 90% and silver recoveries exceeding 80%
– Initiated a $1.6 million Cerro Negro Pre-Feasibility Study (PFS) to be completed by June 2008
– Designed, approved, and started a 30,000m Phase 4 drilling program
– At the end of the quarter, Andean’ cash balances were $7.7 million
Cerro Negro Gold Project – Exploration Activities
Phase 3 drilling significantly increases Andean’s mineral resource
The 14,000m Phase 3 drill program was completed at the end of June with the final results being released in July. This program was Andean’s most successful to-date and resulted in the discovery of additional precious metals resources and high-grade mineralization at depth on the Eureka vein system.
There was 8,000m of drilling on the Eureka vein system including 25 holes (5,800m) on the Eureka West vein and 8 holes (2,200m) on the Eureka Main vein. Micon International of Canada, independent mineral consultants, estimated a NI 43-101 and JORC compliant inferred resource at the Eureka West vein of 3.0 million tonnes at 6.4 g/t gold and 82 g/t silver for 624,000 ounces of gold and 8 million ounces of silver.
There was also 6,000m of drilling in the Vein Zone target, focused on drilling up-dip from the Phase 2 drilling and extensions to the main zones. Micon estimated a NI 43-101 and JORC compliant indicated resource of 4.6 million tonnes at 3.7 g/t gold (554,000 ounces gold) plus an inferred resource of 4.3 million tonnes at 2.7 g/t gold (367,000 ounces gold).
The overall global resource at Cerro Negro, based on Vein Zone and Eureka West only, increased 83% to 1.5 million ounces of gold and 8 million ounces of silver, as reflected in the following table.
———————————————————————– —- —————————————————————— ——— Cerro Negro Resource Estimate ————————————————————————— ————————————————————————— Tonn- Product Product age(ii) Au Au Ag Ag (M AuEq(i) Classi- Cut-off (T x Grade (ounces) Grade ounces) Grade Zone fication (g/t Au) 10(6)) (g/t) (iii) (g/t) (iii) (g/t) ————————————————————————— Eureka West Inferred 2.5 3.05 6.4 624,000 82 8.04 7.88 Vein Zone Indicated 1.0 4.61 3.7 533,736 – – 3.70 Vein Zone Inferred 1.0 4.31 2.7 366,888 – – 2.70 ————————————————————————— ————————————————————————— (i) Gold equivalent grades estimated based on a gold to silver ratio of 1:54 based on a 36-month trailing average prices for gold and silver. The formula used was: AuEq(g/t) equals Au(g/t) + (1/54 x Ag(g/t)) (ii) Tonnage is metric tonnes, where one metric tonne is 1000 kilograms, or 2,200 pounds (iii) Ounces are troy ounces, where one troy ounce equals 31.103 grams
The final drill holes from the Eureka vein system reported during the quarter extended the mineralisation intersected at the Eureka West vein, both along strike and to depth. Eureka West is emerging as one or more ore shoots containing high-grade zones of gold and silver mineralisation over a combined strike length potentially in excess of 650m (see long section set out below).
To view a map of the Eureka West Prospect, please view the following link:
http://www.ccnmatthews.com/docs/and1031a.pdf
Project Status – Phase 4 drill program designed to increase resources and complete a PFS
In August, the Andean Board approved a 30,000m Phase 4 drill program, which was designed to add resources (16,500m) and improve confidence in the resource with infill drilling (13,500m) for the Pre-Feasibility Study. Drilling commenced in late September 2007.
Of the 16,500m focused on resource additions:
– 4,500m will be focused on extending the Eureka West Vein along strike. The two highest-grade intercepts (52m of 24.1 g/t Au 379 g/t Ag and 16.8m of 22.7 g/t Au 702 g/t Ag) of the Phase 3 program are on the western extension of this vein. To the east, another potential ore shoot was intersected with EDD721 (17m of 9.2g/t Au 69g/t Ag), which will also be explored.
– 5,000m will be focused on defining a resource on the Eureka Main Vein, where there is currently no resource estimate, but 8 drill holes (at a 2.5 g/t Au cut-off) have intersected quartz veining that averages 9.5 g/t Au, 113 g/t Ag over an intersected width of 3.7m.
– 3,000m will be focused on drilling new veins within the Eureka area, including the Eureka North Vein, where 17 recent rock chip samples all assayed gold and had an average grade of 1.2 g/t Au and 8 g/t Ag; gold grades ranged between 0.1 and 3.7 g/t Au.
– The remaining 4,000m will be focused on finding high-grade mineralization at depth on the south-east extension of the Eureka Main Vein and at various other targets at Vein Zone.
Of the 13,500m included in the infill drilling program targeted for the next quarter:
– 7,500m will be focused on infill drilling the Eureka West Vein, to upgrade the classification into indicated resources from the inferred status, which will enable Andean to incorporate this mineralization into the PFS mineplan.
– 6,000m at Vein Zone will be drilled to convert a significant portion of the 367,000 ounces of inferred mineralization into the indicated category for incorporation into the PFS mineplan.
Planned Phase 4 drilling at Eureka is shown in the satellite photograph below:
http://www.ccnmatthews.com/docs/and1031b.pdf
Planned Phase 4 drilling at Vein Zone is shown below:
http://www.ccnmatthews.com/docs/and1031c.pdf
Positive Initial Eureka Metallurgical Testwork
Metallurgical testwork was completed by specialist metallurgical consultants, Ammtec Limited of Perth, Australia on two samples: one 14kg sample from the Main Eureka Vein and an 11 kg sample from the Eureka West Vein. After 48 hours, the Eureka Main Vein sample showed gold recovery of 97% and silver recovery of 84%; similarly, samples from the Eureka West Vein showed gold recovery of 92% and silver recovery of 82%.
Further detailed testwork has been planned as part of the Pre-Feasibility Study over the next 8 months.
Pre-Feasibility Study Initiated
Following the hiring of Pete Blakeley as Chief Engineer in July, Andean has gathered and reviewed all previous hydrological, environmental, social, baseline, and other related reports to develop a workplan for the PFS. Based on this workplan, Andean expects to spend $1.6 million to complete a PFS by the end of June 2008. Most of the work has or will be outsourced to independent contractors. The first deliverable was the baseline resource estimate for Cerro Negro released on October 10th. In November, Andean expects to contract a well-known engineering company to handle the design, location, and infrastructure required for a processing facility. In March of 2008, Andean will complete another resource estimate, based on both the extension and infill drilling being completed before year-end. This resource estimate will provide the basis for the PFS mineplan.
Corporate
Financings and Liquidity
During the quarter, the Company expended approx. A$1.5 million on advancing the Cerro Negro project. At quarter-end, Andean was well funded with a cash balance of A$7.7million. Additional funds of approx. A$7.38 million are anticipated during the current quarter upon early exercise of 16.4 unlisted options (see below).
A total of 3.0 million unlisted options were issued during the quarter, as part of the Company’s long term management incentive plan.
Acceleration of Options Expiry Date
On 22 October 2007, Andean exercised its right to call for the early exercise of 16.4 million outstanding unlisted options (with an exercise price of A$ 0.45) issued by the Company as part of it’s A$ 9.8 million fundraising completed in February 2007 to North American investors.
The exercise date has now been set as 21 November 2007. If, as anticipated, all the Options are exercised, the Company will receive an additional A$7.38 million. Andean will utilize these proceeds to fund the current Phase 4 exploration programs and for general working capital purposes.
Assuming full exercise of the options, the Company’s issued share capital will be as follows:-
– 362.6 million ordinary shares
– 31.1 million unlisted options ( at various strike pieces between A$0.08 and A$0.70)
Annual General Meeting of Shareholders on 29th November 2007
Post the end of the Quarter, the Company mailed its Annual Report and Notice of Annual General Meeting (“AGM”) to Shareholders.
The AGM will be held in Perth, Western Australia on 29th November 2007at 3.30pm.
Note:
The information in this Report that relates to exploration results is based on information provided by David Shatwell who is a Fellow of the Australian Institute of Geoscientists. Mt Shatwell has extensive experience relevant to the style and type of mineralisation and deposits under consideration, and to the activity undertaken, to qualify as a Competent Person as defined in the 2004 Edition of the “Australian Code for Reporting of Mineral Resources and Ore Reserves” (the J.O.R.C. Code). Mr Shatwell consents to the inclusion in this Report on his work in the form and context in which it appears.
Appendix 5B MINING EXPLORATION ENTITY QUARTERLY REPORT Name of entity ——————— ANDEAN RESOURCES LTD ——————— ABN Quarter ended (“current quarter”) ————– ——————————— 66 064 494 319 30 September 2007 ————– ——————————— Consolidated statement of cash flows —————————- Current Qtr Year to Date (3 months) Cash flows related to operating activities $A’000 $A’000 —————————- 1.1 Receipts from product sales and related debtors 1.2 Payments for: (a) exploration and evaluation (1,540) (1,540) (b) development (c) production (d) administration (1,170) (1,170) 1.3 Dividends received 1.4 Interest and other items of a similar nature received 158 158 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other (provide details if material) —————————- Net Operating Cash Flows (2,552) (2,552) ————————————————————————— Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets (62) (62) 1.9 Proceeds from sale of: (a) prospects 10 10 (b) equity investments (c) other fixed assets 1.10 Loans to/from other entities 1.11 Loans repaid by other entities 1.12 Other Net Investing Cash Flows (52) (52) —————————- 1.13 Total operating and investing cash flows (2,604) (2,604) (carried forward) ————————————————————————— ————————————————————————— 1.13 Total operating and investing cash flows (2,604) (2,604) (brought forward) ————————————————————————— Cash flows related to financing activities 1.14 Proceeds from the issue of shares, options, etc. 1.15 Proceeds from the sale of forfeited shares 1.16 Proceeds from loans 1.17 Repayment of loans 1.18 Dividends paid 1.19 Other – Capital Raising expenses Net financing cash flows ————————————————————————— Net increase (decrease) in cash held (2,604) (2,604) 1.20 Cash at beginning of quarter/year to date 10,722 10,722 1.21 Exchange rate adjustments to item 1.20 (427) (427) —————————- 1.22 Cash at end of quarter 7,691 7,691 ————————————————————————— Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities ————– Current Qtr $A’000 ————– 1.23 Aggregate amount of payments to the parties included in item 1.2 424 ————– 1.24 Aggregate amount of loans to the parties included in item 1.10 ————————————————————————— 1.25 Explanation necessary for an understanding of the transactions ———————————————————————- Consultancy fees (278) Directors fees, salaries & superannuation (146) ———————————————————————- Non-cash financing and investing activities 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest Financing facilities available Add notes as necessary for an understanding of the position ——————————- Amount available Amount used $A’000 $A’000 ——————————- 3.1 Loan facilities ——————————- 3.2 Credit standby arrangements ————————————————————————– Estimated cash outflows for next quarter ——————————- $A’000 ——————————- 4.1 Exploration and evaluation 4,000 4.2 Development ————————————————————————– Total 4,000 ————————————————————————– Reconciliation of cash ——————- Reconciliation of cash at the end of the quarter Current Previous (as shown in the consolidated statement of cash Quarter Quarter flows) to related items in the accounts as follows. $A’000 $A’000 ——————- 5.1 Cash on hand and at bank 716 2,489 5.2 Deposits at call 6,975 8,233 5.3 Bank Overdraft 5.4 Other (provide details) ——————- Total: cash at end of quarter (Item 1.22) 7,691 10,722 ——————- Changes in interests in mining tenements ——————————————————- Tenement Nature of interest Interest at Interest at Reference (note (2)) Beginning End of of Quarter Quarter ——————————————————- 6.1 Interests in mining tenements E29/329 Registered Holder 100% Nil relinquished, E29/441 Registered Holder 100% Nil reduced or lapsed ——————————————————- 6.2 Interests in mining tenements Nil acquired or increased ——————————————————- Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rights together with prices and dates. ————————————————— Number Number Issue price per Amount Issued quoted security paid up (cents) per security (cents) ————————————————————————— 7.1 Preference securities (description) ————————————————– 7.2 Issued during Quarter ————————————————————————— 7.3 Ordinary securities 346,249,749 346,249,749 ————————————————– 7.4 Issued during Quarter ————————————————————————— 7.5 Convertible debt securities (description) ————————————————– 7.6 Issued during quarter ————————————————————————— Exercise Expiry 7.7 Options Price Date (description) 5,000,000 8 cents 30/06/08 4,000,000 20 cents 31/10/07 4,000,000 25 cents 31/10/09 500,000 20 cents 31/12/08 1,000,000 30 cents 30/04/10 1,000,000 35 cents 31/10/10 7,000,000 30 cents 30/09/10 16,400,000 45 cents 27/02/09 1,960,000 35 cents 27/02/09 1,600,000 40 cents 14/03/11 2,000,000 40 cents 30/06/11 3,000,000 70 cents 14/07/11 ————————————————– 7.8 Issued during Quarter 3,000,000 70 cents 14/07/11 ————————————————– 7.9 Exercised during Quarter ————————————————– 7.10 Expired during Quarter ————————————————– 7.11 Debentures (totals only) ————————————————- 7.12 Unsecured notes (totals only) ————————————————-
Compliance Statement
1. This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4).
2. This statement does give a true and fair view of the matters disclosed.
Sign here: “signed” Date: 31 October 2007 Ross Arancini Company Secretary
Notes
1. The quarterly report is to provide a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. Any entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.
2. The “Nature of Interest” (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.
3. Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities.
4. The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report.
5. Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.
A.C.N. 064 494 319
Contacts: Andean Resources Limited Wayne Hubert Managing Director (801) 763-7671 Email: wayne.hubert@andeangold.com Website: www.andean.com.au
SOURCE: Andean Resources Ltd.