Samex announced on Sept. 29 it had started its long-anticipated drilling campaign at several of the project areas at Los Zorros district in Chile.


On Oct. 15 the company made an eye-popping announcement it had arranged a private placement and on Nov. 3 announced the financing had successfully closed. What is so surprising is that at a time when juniors have been finding it hard to raise financing, Samex has not only secured a large $8.8 million of capital injection but has priced it at almost 40% above the stock price prior to the initial announcement. Jeff Dahl, president and CEO, said in the news release that this will allow the company to not only expand its exploration efforts but to accelerate them too. I have not seen any other junior achieve such a large financing under such favorable terms in recent years.


In the last year I have reviewed over 800 junior mining companies; while a handful have good exploration prospects, in my opinion, none come close to the potential that Samex has to discover a world class gold deposit (defined as being in excess of 5 million ounces of gold). It appears the company has attracted investors who hold a similar view.


In the January 2008 Morgan Report at, Dave Morgan commented:


“Over many years, SAMEX has patiently accumulated an excellent group of quality gold-silver-copper exploration prospects located in some of the most prospective mineral belts in Chile and Bolivia. With the continuing strong metals markets supporting the exploration sector, the company stands out as an important contender for the next big discovery.”


The company has diligently advanced its geological field work since then which has led to a much better understanding of the geological model at Los Zorros. This is exciting to say the very least.


It is five years since the company completed its Phase 1 exploration drilling program. Many investors are not aware of the significant successes of that program. The company made two impressive gold discoveries. However, these discoveries were announced in news releases that had totally mundane headlines:
On Jan. 25, 2005, the company issued a release with the incredibly bland title of “Exploration Drilling Update – Exploration Area II – Los Zorros Property, Chile”


This release described a gold discovery of over 97 meters of 0.3 grams per tonne (g/tonne) of gold in which 4.7 meters had an impressive grade of 2.6 g/tonne of gold and 15.9 g/tonne of silver. The target A of Exploration Area II, where the discovery was made, was later identified as “Milagro”.


This was followed on April 5, 2005, with a release with the equally low key title of “Exploration Drilling Update – Exploration Area III – Los Zorros Property, Chile”


This unexciting headline gave no clue as to the outstanding high grade gold discovery announced within the news release. Drill hole DDH-N-04-05 in Target E (later to be identified as “Nora”) intersected two high-grade intervals, each having true widths of 1.53 meters, and containing gold of 35.4 g/mt (1.1 ozs per tonne) and 40.1 g/mt (1.25 ozs per tonne) respectively. These intervals were in a larger mineralized intercept that averaged 15.96 g/mt gold (1/2 oz per tonne) over a true width of 7.66 meters (25 feet).


So why didn’t Samex shout from the roof-tops about these stunningly good gold discoveries? Reading between the lines, the company was at the time involved in broader strategic land acquisition activities and most likely didn’t want to be disadvantaged in those negotiations. This notion is supported by the fact that the exploration areas were initially identified only as Exploration Areas I through VII with alphabetic letters to denote each target within the area. While Samex did successfully complete its acquisition of the targeted land positions on favorable terms the downside to this has been that many investors are unaware what outstanding gold discoveries were made in Phase 1.


In addition to the drill-hole gold discoveries, extensive surface trenching has revealed anomalous gold occurrences distributed across the property. For example, at Nora trenching yielded gold grades ranging from 0.1 g/tonne to an eye-popping 17.8 g/t.


But the most tantalizing aspect of this developing exploration story is the geological work that has been done since 2009 that has sought to understand the geological mechanisms that have been responsible for the gold deposition and that now underpin the on-going second phase of exploration.


The geological model is considered to be an analog of the Carlin Trend in Nevada. Such a hypothesis is supported by observations of geological phenomena on a large scale (regional), medium scale (district) and on a small scale (geology and mineralization). The very nature by which Carlin-style deposits are formed infers the potential for laterally extensive mineralization and as a result the possibility of world class gold deposits.


The Carlin Trend is North America’s most prolific gold-producing district and hosts the second-largest known gold resources in the world, after the Witwatersrand in South Africa. More than 100 million ounces of proven and probable reserves occur on the Carlin Trend and there may be up to 180 million ounces of resources.


Gold deposits have their origins in magmatic intrusions. In general the magmatic intrusion into a host rock creates massive fracturing of the rock. Water from an aquifer interacts with the hot magma giving rise to hydrothermal processes which percolate and concentrate mineral rich fluids. Over millions of years gold mineralization is deposited which fills the fractures and cracks in the host rock. This leads to rich gold veins that can be mined. If such deposits become exposed to the surface at high altitude then rivers and streams can erode the deposit and carry placers or fine grains of gold and deposit them in an alluvial plain or river delta.


Because the hydrothermal process deposits minerals in the cracks and fissures generated by the magmatic intrusion the mineralization is localized near to the intrusion. The Carlin-style deposition, however, is a variation on the typical hydrothermal process and requires a very particular geologic environment for it to occur. Carlin-style deposits typically have very large areal extent giving rise to multi-million ounce gold deposits.


The mechanics of a Carlin-style deposit are broadly described below and shown graphically in Figure 1. A fault or dyke is created in the earth’s crust by tectonic movement such as by strike/slip or wrench faulting. Such a fault has lateral displacement but very little vertical displacement of the fault blocks. Volcanic activity deposits an impermeable “cap rock” over the area which seals off the upper aperture of the fault. At some later stage magma squeezes into the fault. If an aquifer is present then a hydrothermal process commences and hot mineral enriched fluids percolate in the fault. If the faulted block contains a permeable layer, as pressure builds in the cap-rock sealed fault the mineral enriched fluids will flow into the permeable layer or layers. Such layers are typically quartz bearing calcitic siltstones. The hot and corrosive hydrothermal fluids dissolve the inter-granular calcite which increases the siltstone permeability and porosity while the quartz grains prevent the formation from collapsing. Over millions of years the formation is invaded with rich mineralized fluids which eventually crystallize into gold rich minerals that fill the void between the quartz grains. Unlike vein style deposits the gold is distributed throughout the rock in a micro-crystalline form and is often not visible to the naked eye and is only identified by laboratory assays.


Figure 1 Simplified Carlin Geological Model


The nature of the Carlin-style deposition means that deposits can be high grade and be volumetrically very large as has been demonstrated by the Carlin trend itself that has already produced more than 50 million ounces of gold and has underground mine grades that average more than 10 g/tonne and near surface open pit grades of more than 6 g/tonne.


Dr. Ken Snyder is a retired geologist who explored Nevada for more than 30 years and discovered the Ken Snyder (a.k.a. Midas) mine site on the Carlin Trend. He describes the Carlin-style deposition process as follows:


“it was also important to have silty quartz component siltstones as host rocks. The gold bearing fluids were slightly acidic, which dissolved the calcite and made the rocks more porous. There needed to be enough quartz within the siltstones to prevent their increased permeability from collapsing the rock. Once gold-bearing fluid came in contact with the carbonates in the rock, this changed the chemistry during the cool-down period and gold dropped out. Successive waves of gold-bearing fluids may have continually pulsed through these same rock formations over millions of years to build up gold mineralization within them”


The details of the geology at Los Zorros are too complex for an in-depth discussion in this article but I will summarize some of the key observations that justify the application of a Carlin-style geological model.


Figure 2


What is so unique about Los Zorros that the conditions exist there for Carlin-style gold deposits? A clue to this can be seen from the map of Chile shown in Figure 3. The circles on the map are mines. About 30% of the mines on the map fall on a very narrow north-south trend as indicated by the dashed blue line. This almost certainly implies there is a low displacement subterranean fault that is associated with this pronounced linear feature. There is no noticeable fault when looking at a Google Earth satellite map. But it should be noted that with a few small exceptions, none of the major Carlin faults or Cortez faults in Nevada are obvious from the ground or by aerial pictures or satellite reconnaissance, having been covered over by many events in relatively recent geological history, to include volcanic activity and the creation of cross rifts. I mentioned earlier that a strike/slip fault or a wrench fault covered by a cap rock is a general model for a Carlin environment.


Almost 60% of the mines in Figure 3 fall in the pink shaded area that trends NNE-SSW. This roughly corresponds to a cretaceous sedimentary-volcanic belt. This belt contains many horizons that are calcitic siltstones as well as thick overlying gabro. There is a confluence of these two geological features at Los Zorros. This represents the key macro-scale elements required for Carlin-style deposition: A buried fault overlain with volcanic cap rock and within the fault block, permeable calcitic siltstones that could have been invaded with mineral rich hydrothermal fluids. If this is the macro-level geological process that has given rise to the gold that has already been encountered at Los Zorros it would indicate that Los Zorros is ideally situated in the confluence of the regional geological features for such Carlin-style gold deposits.


Figure 3


The Los Zorros property is very large covering approximately 80 square kilometers. The property contains at least seven very prospective project areas any of which could potentially host world class gold discoveries.


The company is considering employing the latest state-of-the-art earth imaging technology to assist in fine tuning the exploration program. This technology is the Titan 24 developed by Quantec Geoscience . Embracing the use of such revolutionary geophysical tools certainly sets Samex apart from the majority of its peers.


The result of a four-year effort to develop advanced tools for very precise and deep subsurface information, the array-based Titan 24 Deep Earth Imaging system is the most advanced electrical earth imaging technology. The system images conductive mineralization, disseminated mineralization, alteration, structure and geology to 700 meters and beyond for reliable and cost-effective targeting of drill holes.


Measuring the parameters of DC (resistivity), IP (chargeability) and MT (magnetotelluric resistivity), Titan 24 measures to depths of 750 meters with IP and can explore beyond 1.5 kilometers with MT data. The depth of investigation coupled with the multi-parameter data make the system the best option available for obtaining subsurface pre-drilling information related to geologic structure and for the direct detection of mineral deposits.


Without a doubt the current drilling program at Los Zorros is what many long time Samex investors have been waiting for. The high-grade gold discoveries that were encountered over large intercepts in the phase 1 drilling campaign and the high-anomalous gold occurrences in surface trenching along with substantial geological field work have culminated in a Carlin-style geological model being postulated as the best description of the Los Zorros geology. If the model is substantiated by drill testing then the implications are that the gold discoveries already encountered could be part of a very big gold deposit or multiple deposits like the clustered gold deposits in the Carlin district.


In addition the company in a January 21, 2010, news release already outlined the potential for the Cinchado project that was not part of the Phase 1 exploration. It is, however, the first project being tested in the current drilling program. The information can be extrapolated to infer a target that could potentially host 3-4 million ounces of gold


There are no guarantees in exploration but a junior that has such large prospective properties hosting multiple targets, having already made significant gold discoveries, having properties in a mining friendly country such as Chile, having a well experienced and knowledgeable exploration team headed up by someone of the caliber and track record of Rob Kell (vice president ofeExploration) certainly shortens the odds.


Samex has recently trading at approximately $0.50 on the TSX (SXG.V) and on the US Bulletin Board (SMXMF.OB). This puts its market capitalization at less than 50 million dollars. Considering that would indicate that Samex is undervalued and if the Phase 1 gold discoveries can be added to and extended, Samex could enjoy outstanding price appreciation in the very near future.


I don’t know of another junior mining company that has acquired 100% ownership of a district-sized property that incorporates multiple projects that each have the potential to host world class gold discoveries, is located close to a major highway and power lines and is in a mining friendly jurisdiction. The world-wide average for gold grade in producing mines is just two grams/tonne. It is, therefore, rare for a junior explorer to successfully hit good intercepts that contain gold mineralization in excess of one ounce of gold per tonne (32 grams/tonne) let alone achieve it in Phase 1 of exploration drilling.


Even if a junior has such phenomenal potential, the major obstacle to success is very often a lack of funds to prove up a discovery. Samex with its latest substantial private placement has resolved that problem and in doing so has shown a clean pair of heels to its peers by securing it at almost 40% above recent average market price which is no doubt being lauded by its shareholders.


Taken altogether Samex provides an extraordinary opportunity for speculative investors.


Adrian Douglas is editor of the Market Force Analysis newsletter and a member of the Gold Anti-Trust Action Committee’s (GATA) board of directors.


This article is based upon publicly available information and the personal observations of the author and its content and conclusions are solely those of the author. It has not been commissioned or authorized by Samex and the author has not and will not be receiving any direct or indirect compensation from Samex for preparing it. The author is, however, a member of Samex’s advisory board and a long time Samex shareholder.


This article is not, and under no circumstances should be construed to be an offer to sell or a solicitation of an offer to purchase securities. This article contains a number of “forward looking statements,” the outcome of which is not certain. The business of mineral exploration involves a number risks, many of which are difficult to predict and impossible to control. Readers are urged to review Samex’s publicly filed disclosure documents for a more detailed statement of those risks. The author is not and does not purport to be a registered investment dealer or advisor and readers are urged to consider their own particular circumstances, including their own tolerance for risk, and consult their own investment advisors before making any investment decisions.


Adrian Douglas

Published 11/15/2010

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