One that is beginning to yield very promising results. And it’s an almost identical formula to the one that has recently come up trumps for another closely-associated exploration company, Far West Mining Ltd. (TSX.V-FWM). 

 

By adhering to a philosophy of strength through diversification, Chapleau is also involved in several other early-stage Latin American precious metals projects and one in the gold-rich Cortez Trend in Nevada. More on all of this later.

 

Following in the Footsteps of High-Flying Far West Mining

First let us consider the Company’s progress in Argentina, particularly in an area where there exists excellent ‘blue sky’ potential for one or more world-class copper-gold discoveries. We’re talking about a district-scale exploration play in the rural hinterland of central western Argentina.

 

This is where Chapleau is meticulously following the same exploration methodology as high-flying Far West. However, Far West’s considerable success is largely attributable to the Company being at a far more advanced stage of exploration than Chapleau.  Needless to say, its headline-grabbing copper-gold discovery (a few hundred kilometers to the northwest in neighbouring Chile) is proving to be a real source of inspiration for Chapleau.

 

Here’s the most crucial comparison. Chapleau benefits from the same technological breakthrough that has led Far West and its joint venture partner to a potentially world-class deposit.

 

Another key value driver is the fact that both juniors share the same high-powered senior joint venture partner. Specifically, they are strategically allied with the Latin American division of the multinational mining company – BHP Billiton plc – in their respective quests for buried mineral treasures.

 

By way of background, Chapleau signed a joint venture agreement with BHP World Exploration Inc. in January of 2004 to explore for a notoriously elusive style of bulk tonnage copper-gold deposit, known as iron oxide-hosted copper-gold (IOCG).

 

If successful, such an ambitious endeavour promises to provide Chapleau investors with a ‘home run’ win. And the story is beginning to heat up. In fact, the partners believe that they are not only in the right geological environment but also have one or more of these type of discoveries within their sights.

 

Yet, this is no overnight lucky turn of events. The partners started out at a grass-roots stage about two years ago with the daunting task of systematically exploring an expansive, geologically fertile and largely-unexplored region. One that covers approximately 205,034 hectares or 1,500 square kilometers. This in fact makes the partnership the largest concession holder in this part of Argentina.

 

However, such district-scale exploration programs are not for the feint of heart. They’re technically challenging, very time-consuming and expensive. Readers should note, however, that few opportunities on this grand scale exist anywhere on the planet.

 

That’s because most of the world’s geological provinces have already been thoroughly picked over for ‘elephant-sized’ deposits. Either by generations of prospectors or by modern-day teams of well-funded explorationists, using all the latest and greatest geological sleuthing technologies.

 

Yet, the risk/reward ratio for such a large-scale exploration program is especially compelling. Certainly when considering that Chapleau and BHP may be zeroing-in on not just one, but any number of major mineral deposits. In fact, the partners’ contiguous (uninterrupted) swathe of land holdings may yet prove to be a whole new mineral district.

 

The prospect of such a scenario unfolding has already received a tantalizing boost from the fact that Far West and BHP have already made great strides with their own regional scale exploration program in Chile. As previously mentioned, they already have a headline-grabbing copper-gold discovery to their credit.

 

Still, Far West and BHP are in no way resting on their laurels. On the contrary. Quite a number of other geophysical targets that are geologically comparable to the San Domingo Sur discovery area have also been ‘cherry picked’ for further investigation.

 

All of which were selected from a diversity of widely-dispersed geophysical anomalies. Ones that were identified by the partners’ regional-scale airborne geophysical survey (much like the survey that BHP and Chapleau completed last fall).

 

Accordingly, the market has responded very favourably to Far West’s co-discovery. The Company’s share price virtually doubled overnight on the news in mid 2005. And in the following weeks it appreciated as much as 375%. It has since rallied even further to the Cdn. $5.50 range on the coattails of a rampant bull market for bullion and copper prices, alike.

 

Notably, Far West was at a comparable stage of exploration to Chapleau about two years ago. This is a key reason why SmallCapMedia believes that investors who ‘missed the boat’ with Far West may be inclined to regard Chapleau as a parallel, less advanced investment opportunity. One which has yet to experience its own discovery-driven breakout.

 

BHP’s Secret Weapon for Finding World-Class Copper-Gold Deposits is Hitting Its Mark

Most importantly, the secret weapon that sparked Far West’s emerging success story is the same one that is also now beginning to pay off for Chapleau. It’s a technological breakthrough that is unlocking the secret to finding dozens of prospectively large mineral targets within a very expansive, district-sized land mass. Again, these airborne targets are characterized as IOCG prospects in the La Pampa Project area of central western Argentina.

 

Historically, conventional exploration for world-class, large-scale IOCG deposits in much of the Argentinean Andes has been hindered by extensive overburden. This tends to mask their geophysical signatures. And it explains why other mining companies have only made sporadic, short-lived exploration forays into this region of Argentina.

 

Now BHP’s proprietary airborne geophysical surveying technology – the Falcon™ Airborne Gravity Gradiometer – is finally solving this geological puzzle. Briefly stated, this proprietary ‘black box’ technology has the ability to locate non-magnetic IOCG mineral targets by highlighting their higher densities to surrounding barren rock. This now represents a major competitive advantage over the rest of the world’s mining industry, which has yet to demonstrate the same aptitude with competing airborne gravity technologies.

At the La Pampa Project area, a total of 6,440 ‘line’ kilometers (meaning that a grid-based pattern was used) were surveyed last year within the partners’ 1,500 square-kilometre land package. Since then a total of 46 gravity anomalies/targets that that are associated with potentially large-scale IOCG mineralization have been identified for further investigation.

 

Following ambivalent results for the first 16 drill targets, Chapleau is further refining its drill target selection for the remaining 27 geophysical anomalies -- all of which offer considerable potential for a major IOCG discovery within over an area covering approximately 221 square kilometers. As a side note, Far West’s ‘company maker’ discovery actually resulted from the drilling of a lesser priority target.

 

SmallCapMedia therefore believes that Chapleau’s 2006 drilling campaign may very well make this undervalued Company one of the next ‘darlings’ of the natural resources-oriented investment community. The implications of a significantly mineralized discovery would be far reaching. Especially since bulk tonnage IOCG style deposits tend to be such rare, yet very lucrative finds.

 

However, among the few places in the world where rich IOCG deposits have been unearthed is neighbouring north-central Chile. This is where the La Candelaria 470-million-tonne copper mine boasts an attention-grabbing gross metal value of nearly U.S. $20 billion (based on current copper prices). Similarly, the 350-million-tonne Manto Verde Mine is worth no less than U.S. $14 billion. 

 

Under terms of the agreement with BHP, Chapleau can earn a 70% participating interest within the entire La Pampa land package by spending U.S. $1 million over a three-year period. BHP has certain claw-back rights to earn back as much as a 75% interest.

In turn, BHP must reimburse all of Chapleau’s project expenditures by a factor of three times. BHP must also fund and develop a bankable feasibility study and arrange sufficient financing to also accommodate Chapleau’s remaining 25% remaining participating interest. This agreement would also include a guarantee of 3.75% of production revenue to Chapleau ahead of the Company’s debt servicing obligations.   

BHP may elect for its interest to be reduced to a 2% net smelter royalty if a discovery does not meet its criteria for development. In other words, only a world-class copper-gold find would likely satisfy BHP’s requirements. Nonetheless, Chapleau would still profit handsomely from a small to medium sized economic ore body. Either way, the odds in favour of an attention-grabbing discovery – be it large or more modestly sized – within the coming months are looking all the more encouraging.  

Chapleau’s Madryn Rift Project is Ideally Situated Within an Emerging Gold-Silver Argentinean Mining Camp

Elsewhere, Chapleau also entered into an agreement in early 2005 with Teck Cominco Argentina Ltda. (TCAL) to acquire the sizeable 104,106-hectare Madryn Rift gold-silver project in Chubut Province in south-central Argentina.

Notably, there exist a number of bulk-tonnage and ‘bonanza’ grade (extremely high grade) gold-silver and/or silver deposits within the emerging mining district that hosts the Madryn Rift project area. Covering much of Santa Cruz and Chubut provinces, this mining camp is home to AngloGold’s 3.2-million-ounce Cerro Vanguardia gold mine and the 3.8-million-ounce Esquel gold deposit.

More recent discoveries include IMA Explorations’ world-class Navidad silver-lead deposit. This is where an indicated resource of 300.7 million ounces of silver and 1.2 million tonnes of lead has been outlined.

Rock sampling at the Madryn Rift Project originally led to the identification of several very prospective areas. To date, two of them have only offered sniffs of serious mineralization. However, only about a third of the project area has been systematically sampled, with two-thirds still to be explored.

 

The focus has therefore now shifted to the remaining portion of the project area that has already been closely examined but has yet to be drilled, namely the Lobo target area. This is where grades of up to 16 g/t of silver, 0.95% of lead, 163 g/t of bismuth have been encountered, as well as molybdenum credits. All of which occurs over a four-square-kilometre area. Accordingly, a spring/summer drill program is being contemplated.

 

The property is accessible via paved and dirt roads some 45 kilometres distance from Puerto Madryn, a major deep water port situated on the Atlantic coast. This represents a key logistical advantage in the eventuality that a potentially economic resource is discovered. The land package also benefits from solid infrastructure in the form of major electricity lines and a gas pipeline. The climate is also arid, making it possible to work year-round. 

 

Under the terms of the agreement, Chapleau can earn up to a 100% interest in the property, subject to a back-in right to Teck Cominco Argentina Ltda., by spending U.S. $1.5 million and issuing 400,000 units (each consisting of one Chapleau share and one share purchase warrant) over a period of four years.

 

Argentina: A Land of Largely Untapped Mineral Wealth

From a geopolitical perspective, Argentina’s mineral wealth has only been ripe for the picking within the last decade or so. That’s because Latin America’s second largest nation has a history of protectionism-related restrictions on foreign ownership of mining assets. Additionally, it has only been since the 1990s that Argentina has begun to emerge from the shadow of a military dictatorship and other major political upheavals.

 

Since then, however, Argentina has made serious efforts to attract foreign investment. This move has precipitated the gradual implementation of mining industry reforms, including many legal safeguards and economic incentives for foreign mining companies. The timing has therefore proved very opportune for Chapleau as Argentina is a mineral-rich nation with very little mining history – an ideal scenario to fuel its coming mining boom.

 

Finding Carlin-Style Mineralization at the Heart of Nevada’s Famed Gold Country

Chapleau also benefits from a joint ventured project that is strategically located at the epicenter of the world’s most famous ‘elephant country’ for gold, namely Nevada. Specifically, Chapleau has a joint venture partnership with Placer Dome (U.S.) at the heart of the prolific Cortez Trend – a famed golden corridor that boasts an especially high concentration of multi-million ounce gold deposits.

 

The partnership is beginning to yield impressive results at the Indian Ranch Project. Most recently, a significant gold intercept was encountered in a three-hole, 1,830-metre exploratory drill program. The 9.1-metre intercept returned 1.58 g/t within a broad gold zone 102 meters thick, grading 0.32 g/t.  Significantly, the mineralization is hosted within the upper Roberts Mountain formation which hosts the 10-million-ounce Pipeline Mine and lower portions of the five-million- ounce Cortez Hills Deposit.

 

The thickness of alteration of the discovery also exhibits similar geological characteristics to many of the trend’s other larger Carlin-type gold deposits. Placer has therefore initiated a four-to-six-hole drill program totaling 1,800 to 2,400 meters to more closely investigate this new discovery area.

 

Chapleau owned a 25% interest in the project area. Placer Dome has now earned 60% of Chapleau’s interest by spending U.S. $2 million. Further to vesting its 60% ownership, Placer Dome may now elect to earn an additional 15% by financing a feasibility study on the property.

 

Tapping into Brazil’s Rich Gold Fields

Chapleau’s belief that Latin America will be the next great mining powerhouse has also spurred on the Company’s decision to make an impact among the underdeveloped, prolifically-mineralized goldfields of Brazil. Specifically, Chapleau has recently signed letters of intent to acquire controlling interests in several gold properties.

 

These agreements include the right to earn up to a 70% interest in both the 10,986-hectare Cajueiro and 9,996-hectare Nova Canaa gold properties in northern Mato Grosso State in north-central Brazil.

Both concession areas are located within the Alta Floresta-Tapajos Gold District, which was the site of a major gold rush from the late 1970s until the late 1990s. During this time, about 7 to 10 million ounces of gold were dug up from near surface artisanal workings.

This includes the 400,000 ounces of gold that were produced from alluvial surface workings and shallow underground adits (tunnels) at Chapleau’s new concession areas. Extraordinarily, neither property has ever been drilled.

However, extensive surface workings at both properties have revealed numerous richly mineralized areas, including underground adits. Grab samples taken from some of these locations run as high as 24.6 g/t and 47.1 g/t at Cajueiro and up to 17.6 g/t at  Nova Canaa.

Under the terms of the agreement, Chapleau must make an initial payment of U.S. $40,000 on signing and further payments totaling U.S. $1.61-million to the optionee.

Chapleau must also spend a minimum of U.S. $500,000 in exploration expenditures over a period of three years in order to earn its 70% interest in the two properties. During the initial 12 months of the agreement, the Company is committed to spending U.S. $150,000 in exploration financing to include at least 1,000 metres of drilling.

Based on current exploration and mining activity in the district, the company believes both projects have the potential to host cost-efficient, open-pittable gold deposits. After completing its due diligence assessment, Chapleau intends to step up developments with an aggressive exploration program that is already producing encouraging results.

Chapleau is also poised to earn up to a 100% interest in the 10,000-hectare Mato Velho mining claims in the state of Para. This property, which is situated in the under-explored Tapajos Gold District, hosts at least seven known vein systems encompassing approximately 2% of the concession area.

With strike lengths of up to 1.7 kilometres, the surface expressions of these mineralized structures have been worked in recent years by artisanal miners. However, the majority of the veins have not been explored or mined beneath the zone of oxidation and no drilling of the veins has taken place to date. A total of 18 grab samples taken randomly from the vein systems all returned gold values, 33% of which were within the 30-292 g/t range.

Notably, the entire project area has yet to see any systematic exploration. Accordingly, Chapleau intends to aggressively explore this new project area, with a near-term focus on identifying drill targets among the known gold-bearing systems. 

Diamond drilling of 1,800 metres spanning 10 to 12 holes is commencing in October on the Nova Canaa Gold Project, while diamond drilling of 2,000 metres spanning 10 to 13 holes is commencing soon thereafter at Mato Velho.

Meanwhile, a 1.9 kilometre by 1.2 kilometre soil grid (440 samples) has been completed on the northeastern part of the Cajueiro concession. Results received have confirmed an anomalous gold zone extending over 1,100 metres  by 600 metres. Four rock samples taken from within the anomalous soil zone returned the following impressive gold values:  104.00 g/t, 32.40g/t, 16.15g/t and 2.33 g/t.

Under the terms of the agreement Chapleau will pay U.S. $60,000 and issue 200,000 shares in its capital stock upon completion of its due diligence.  Further payments of U.S. $1,140,000 and an issuance of 1,450,000 shares are required over a three-year period. Further to the agreement, the Company has the first right of refusal for a further 180,000 hectares of equally prospective golf fields. 

Chapleau has also recently acquired the two Coringa mining claims, totaling 20,000 hectares, located in the Tapajos District in the state of Para in north-central Brazil. The two mining claims are immediately south of the 10,000-hectare Mato Velho claim. This acquisition increases the number of Chapleau's exploration projects to five, totaling approximately 66,000 hectares, in the highly prospective Tapajos-Alta Floresta gold district.

 

The Coringa claims have been worked for gold by local miners since the late 1980´s. Most of the historic gold workings on six of the currently identified shallow quartz vein structures, including one with a 3,000 metre strike length. 

 

The two rock samples taken from these new prospects returned 18.35g/t gold with 17.30g/t silver (sample 35006) and 22.00g/t gold with 67.10g/t silver. The majority of the veins and stockworked granite have not been explored or mined beneath the zone of oxidation and no known or reported drilling of any of the historic workings has taken place to date.

 

 

Investment Summary

On a corporate note, the Company benefits from a strong management team with considerable geological experience and decades worth of collective expertise in all areas of the mineral exploration and development business. Among their various accomplishments, they have also been instrumental in a number of noteworthy discoveries, particularly in South America.

 

Chapleau is also well-funded, with enviable technical expertise to explore its many highly promising properties. Among the more unusual value drivers for the Company is the fact that it has access to significant cash flow without diluting its stock.  This involves a 4.2 million share position in Far West which translates into liquid assets valued at in excess of Cdn. $23 million.

 

From a technical perspective, the Company has approximately 75.58 million shares outstanding (about 102.12 million fully diluted). However, nearly 25% of this stock is held by management and other insiders, thereby providing plenty of incentive for the Company to perform.

In closing, Chapleau's partnerships with high-profile partners provide leveraged exposure to as many as several potentially world class mineral deposits. In particular, the prospect of following in the footsteps of Far West Mining towards the joint discovery of a major IOCG deposit appears to be excellent.

Accordingly, SmallCapMedia believes that Chapleau’s stock still remains undervalued when compared to most of its peers in the junior exploration sector. And the advent of one of more high-impact discoveries during the coming months would almost certainly precipitate a sustained and pronounced upwards trend in the Company’s stock. One that we believe will propel Chapleau to much higher share price multiples in 2007 and beyond.