Andean Resources 23 Nov 05

Exciting South Amercian gold play

Andean Resources is a focused gold company, with its major asset being its 100%-owned Cerro Negro epithermal gold project, situated in southern Argentina. The company is in the process of an aggressive exploration program that is designed to upgrade the in-ground resource position to a point where a mining operation can be undertaken.

"With short-term potential for gold resources in excess of a million ounces at Cerro Negro, Andean Resources is an attractive gold exposure with significant resource upside and long-term production potential."

The Cerro Negro project is located in the southern Argentinia province of Santa Cruz, also commonly known as Patagonia. Santa Cruz has an established mining history, particularly for gold and silver. The largest gold project in the province is the 3 million ounce Cerro Vanguardia mine, situated 250km away and operated by Anglo Gold Ashanti. The mine has produced in excess of a million ounces of gold since its commissioning in 1999 at a rate of more than 200,000 ounces annually, at a low cash cost of US$150 an ounce.


Andean Resources acquired the Cerro Negro project from MIM in 2004, following the completion of its takeover by Xstrata. The company has joined a group of predominantly North American junior gold companies that are evaluating and/or developing gold projects in Argentina. These projects vary in size from 500,000 ounces up to 1.4 million ounces of gold.

MIM identified ten specific areas within the Cerro Negro project boundary with manifestations of epithermal gold mineralization, of which only four have been tested by drilling. Andean has undertaken an aggressive program of exploration drilling during 2005, with some of the more spectacular intercepts including 36.7 metres @ 14 g/t Au and 83.5 metres @ 6.16 g/t Au.

The company has embarked on its second phase of drilling, which is designed to provide enough data to calculate an Indicated Resource estimate by the end of 2005. The primary area of interest is the Vein Zone, which currently measures 400 metres in length and 150 metres in width, and remains open along strike and at depth.


Work has so far confirmed that gold mineralization extends down to at least 180 metres depth, which merely represents the current limit of drilling. Drilling has also improved the understanding of the very complex geometry and structural controls of the veins that host the gold mineralization. The company is of the view that the lack of any elevated base metals values from the drilling so far suggest that the base of the high-grade 'feeder zone' has not yet been reached, and that there remains further substantial resource potential at depth.

The company will test the depth extent of the gold mineralization during the current drilling program. As results become available they will be included in a scoping study that is being undertaken in tandem with the drilling program


We estimate that the Phase 1 drilling program has already established a base case gold resource at Cerro Negro of 500,000 ounces grading around 3.5 g/t Au. The current program will help increase confidence in this estimate, while simultaneously assessing the potential for significant additional extensions at depth and at higher grade.

We believe that there is the potential for a gold deposit of in excess of 1 million ounces at Cerro Negro, primarily through expansion of the Vein Zone resource. Additional upside comes from the other nine areas that were identified by MIM as being prospective for gold outside of the Vein Zone. Most of these areas have received little or no exploration attention. If repetitions of the Vein Zone mineralization can be identified, which must be likely given Andean's extensive 250 sq km tenement package, then a potential resource in the vicinity of 3 - 5 million ounces is a possibility.


We anticipate a resource statement to be made at Cerro Negro in the first quarter of 2006, along with the release of scoping study results. We anticipate a possible production scenario of around 150,000 ounces annually at Cerro Negro, based on an initial resource figure of around 750,000 ounces grading 4.5 g/t Au, which could generate annual cash flows of more than $30 million based on cash operating costs of US$200 an ounce. We anticipate a full bankable feasibility will be undertaken during 2006.

We rate Andean Resources as a very attractive gold play. Exploration activity on the Cerro Negro project is high and a resource base of at least 500,000 ounces is likely to be confirmed early in 2006. The likelihood of further resource increases are high, both adjacent to the existing work and regionally. The company therefore offers immediate exploration upside as well as longer-term exposure to a producing gold operation.

Argentina has a strong mining history and culture, while Andean possesses the experience of Gavin Thomas as a director, who has extensive experience in epithermal gold deposits in South America and at Lihir Island. Both these factors increase confidence in eventual project development. We recommend Andean Resources (AND) as a buy to all Members around $0.25.


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