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Tesoro Resources Limited (ASX:TSO): Owns 70% of the District Scale El Zorro Gold Project, Chile; Zeff Reeves, Managing Director, Interviewed

on 7/29/2020
Tesoro Resources Limited (ASX: TSO) is an Australian public company, focused in Chile, where it owns 70% of the district scale El Zorro Gold Project, in the Coastal Cordillera region. The Coastal Cordillera region is host to multiple world class copper and gold mines, has well established infrastructure, service providers and an experienced mining workforce. We learned from Zeff Reeves, Managing Director of Tesoro Resources, that the Company is currently undertaking exploration programs at El Zorro, with the goal of defining a maiden resource. Some of the drill results, at Ternera deposit, include 86.45 meter interval at 2.29 grams per ton and 23 meters at 7.3 grams per ton. Tesoro has done some preliminary metallurgical test work that showed gold recoveries up to 99%. Near-term plans include resource definition drilling, detailed metallurgical testwork and commencement of environmental and engineering studies, for a scoping study to commence in early 2021.

Zeff Reeves, Managing Director of Tesoro Resources

Drilling at Ternera - Tesoro Resources Limited

Dr. Allen Alper: This is Dr. Allen Alper talking with Zeff Reeves, Managing Director of Tesoro Resources. Zeff, could you give our readers/investors an overview of your Company and also what differentiates your Company from others?

Zeff Reeves:Tesoro is a gold development company, focused on the coastal belt of Chile. Tesoro has a key strategy, which differentiates us from a lot of other companies. We have a set of fairly strict criteria to meet, to look at and acquire projects, within Chile and within the Coastal Belt. The reason we like the Coastal Belt is because it's so well geologically endowed, with gold and copper resources. But, it is also relatively under-explored, due to its piecemeal and fragmented concession coverage.

The other reason we like it is, the low altitude and access to infrastructure. El Zorro is a gold project that meets all those criteria, being very close to the coast and the Pan American highway, only 10 kilometers away. El Zorro is at low altitude, close to a city called Copiapó, which is a mining centre, and also only 55km from a port called Caldera, where our team is based. So, all those boxes have been ticked for El Zorro. What we are seeing at El Zorro, is an emerging gold system, with a style of mineralization that hasn't been targeted before in Chile. Our exploration model is starting to bear fruit, having produced some excellent results to date.

Dr. Allen Alper: Sounds excellent! Could you tell our readers/investors a little bit about the results you have obtained so far?

Zeff Reeves: At El Zorro we have about an 11,000 hectare concession holding, and we've done three phases of drilling, we're currently into our fourth phase of drilling, which is an infill and extension program, with the aim to achieve a maiden mineral resource by the end of this year. So far we have drilled 27 diamond drill holes into a deposit called Ternera, and we've achieved some quite exceptional drill results from that drilling, all of those 27 holes have hit, arguably minable widths of gold mineralization that defined the deposit, which is so far approximately 750 meters long, and up to 200 meters wide and down to 300 meters deep, where we've drilled it. It's also still open in all directions. There have been some great results returned so far such as 86.45 meters at 2.29 grams per ton.

Typically the holes have a broad 1.20g/t Au to 2.5g/t intercept and a high-grade zone, where the drill hole passes through the high-grade structures. For example, that hole had another interval of 23 meters at 7.3 grams per ton. That's quite typical of what we're seeing at Ternera. We know we have a gold deposit there now, and our model has held up well. That's been proven by the exceptional drill results that we've managed to achieve to date. We're back on the ground, drilling that deposit now, aiming to get a maiden resource out of it by the end of this year and move the project through to its next stage of development.

Dr. Allen Alper: It sounds excellent. Also, I think you have plans to be working on a scoping study that you'll have done by early 2021 or so?

Zeff Reeves: Yes, that's right. We're already collecting inputs for that scoping study. We've done some preliminary metallurgical test work, which has shown that the ore at Ternera is a free milling ore. It had very good results, with gold recoveries up to 99%. The really encouraging part of that is a high proportion of the gold was reporting to the gravity circuit up to 75%. We also managed to get up to 94% recoveries at the coarsest grind size of 250 microns. The next stage of testwork is to do a more detailed program, which will then allow design of a detailed flowsheet and ultimately to design a plant. We're already collecting other inputs, such as, the environmental baseline studies and other things, which are required to start plugging into that scoping study.

We have our foot well and truly on the gas. We have two drill rigs there at the moment drilling an initial 5,000m of drilling, but we expect that will grow as the deposit expands and we could be drilling throughout the year. We are very focused on getting that maiden resource out, and then, as you say, into a scoping study early 2021.

Dr. Allen Alper: Well, that sounds excellent. Could you tell our readers/investors a little bit about your experienced Team, Board and Management and their backgrounds?

Zeff Reeves: I’ll take a step back to the Genesis of Tesoro Resources. The three founders of Tesoro are myself, Geoff McNamara, one of the non-executive Directors, and our in-country Manager, Sergio Uribe. Sergio and I have worked together on various resource projects in Chile for the last 10 years, both in the public and private space. I'm a geologist by background and I spent the first half of my career in production, in Western Australia, predominantly in underground gold and nickel mines. During that time I actually met Geoff McNamara, who's our non-exec Director. He was also a geologist and together we ran the production at a deep gold mine in Western Australia called Bounty.

About 20 years ago, I went off to pursue a career in project development and exploration and found myself in South America, with another ASX listed junior company a number of years ago, where we did something, not dissimilar to what we're doing here at Tesoro. We looked a little bit outside the box, in terms of styles of mineralization that could be present.

We delineated a large gold district in Brazil, as well, and we sold that asset to Kinross. Then I found myself in Chile, where I met Sergio and I've been working predominantly in Chile for the last 10 years. Geoff brings more of a corporate background and corporate financing background. He went on to become a Director at Société Générale's mining finance team, based in New York, where he rolled out equity and debt products to the mid-tier sector of the mining industry, predominantly focused on assets in Australia and South America. He then went on to a career in private equity, here in Australia. We've kept in contact over the years and around about the end of 2016, Sergio and I started to see some nice assets that we had access to in Chile.

We provided some funding, with the help of Geoff, to put Tesoro together and execute a transaction on El Zorro and form Tesoro Resources. Tesoro raised about three and a half million Australian dollars, prior to listing, which we had used to secure the assets and set up all of our corporate infrastructure and also to drill the initial 16 holes into El Zorro. Since being listed in February this year, at a price of 3 cents, we've had some very good success with the drill bit since, and defining a new gold district at El Zorro. We've had quite a bit of interest in the stock from the investors both in Australia and overseas. Tesoro is currently trading at around 8 to 8 and a half cents with a market capitalization of around 35 million Australian dollars. So that's a brief background of Tesoro and how it came about and the people involved.

Dr. Allen Alper: Well, that sounds great. Could you say a little bit more about your capital structure and your share structure?

Zeff Reeves: We've just completed a raising at 6 cents, which was an institutional placement and a rights issue to existing shareholders. Currently we have just over 476 million shares on issue, currently trading in that 8 cents to 8 and a half cents range. We have a market capitalization of around 38 million Australian dollars. We've 7 million cash in the bank. The management team is also incentivized, with performance rights, which upon resource delivery for JORC compliant resource being delivered at 250,000 ounces of gold, 1 million ounces and 2 million ounces of gold. So, everyone's quite aligned to build value in this Company and I think we are in the enviable position of being able to operate in Chile, which is very unique. We can get on the ground very quickly and easily, and we're fully permitted to complete the exploration work required. That's been evidenced by the large amount of what we've been able to complete already and rapidly advance the project. We're quite excited about the six months ahead of us. We have some drilling going on and other activities to help us prepare this project for its next stage.

Dr. Allen Alper: Well, that sounds like 2020 and 2021 are going to be very exciting times for Tesoro Resources.

Zeff Reeves: Yes, absolutely. That's all going to come down to how big the deposit is. We are absolutely sure that there's a significant deposit there, but we just need to get the work done now to define it and see what that answer is, but it certainly is going to be an exciting 6 to 12 months.

Dr. Allen Alper: That sounds great. Could you tell our readers/investors how it is operating in Chile?

Zeff Reeves: I've operated predominantly in Chile for about the last 10 years and where El Zorro is located up in the Atacama region of Chile. We're actually sitting in the middle of region three, which is a mining dominated region, predominantly dominated by IOCG style deposits in the coastal belt and then some large porphyry and epithermal gold deposits in the higher Andes. So, we have the enviable position of being located very close to roads and infrastructure and towns and everything we need to develop a mine. We do not have any communities within the project area that we impact and we are fully permitted and able to get on the ground and do all the work that we need to do.

The Chilean government is very supportive of mining projects, its main source of revenue in that region, and the main source of jobs. And then just to point out the city of Copiapó, which is the regional city, 140 kilometers by road from the project, is around about 150,000 people, all the major mining companies operating in that region, such as Lundin Mining, Anglo, and Kinross all have offices in Copiapó. We source our drilling contractors and some of our skilled workforce, from Copiapó. So it's a very easy place to work. No more permitting to do to be able to do that exploration work. So, it makes life very, very easy.

Dr. Allen Alper: Well, that sounds excellent. Could you tell our readers/investors the primary reasons they should consider investing in Tesoro Resources?

Zeff Reeves: I think looking at our current valuation of around that AUD35 to AUD40 million mark, given the results we've achieved to date, and now that we're into a resource definition style of drilling to determine the ultimate size of the project and looking at some of our peers in the ASX, we're relatively undervalued. Obviously, the gold sector has gained a lot of attention in the last six months, and it's had quite a few strong success stories. It's not difficult to draw parallels between Tesoro and some of those other companies in terms of the scale of the potential gold deposit and the types of drilling intercepts that we're achieving. We drilled 27 holes into this deposit and all 27 holes have returned positive results.

That's a high success rate. It's very unusual and I don't think many of our peers can do that. The valuation that we're currently sitting at is quite low and the project's been relatively de-risked by the work that we've already completed. In a very strong gold price environment, I think there's only one direction that our valuation will be heading, and that'll be up from the work we have planned for the next six to 12 months.

Dr. Allen Alper: That sounds excellent. Is there anything else you'd like to add, Zeff?

Zeff Reeves: Chile and specifically the El Zorro Project is a very easy place to operate. We know the gold's there and the valuation is very reasonable. I think the work that the Company was able to achieve prior to listing, de-risked the project geologically and now we're able to work very methodically, but quickly and push through the work needed to define that resource. I think that's when the real value will be achieved, over the next three to six months.

Dr. Allen Alper: That sounds excellent. We’ll publish your press releases as they come out so our readers/investors can follow your progress.

Zeff Reeves Managing Director
Tesoro Resources Limited
+61 8 9322 1587

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