Hardy explorer AusQuest (ASX:AQD) had a well-deserved day out on the market with its 242% share price gain in response to its maiden drilling program at the Cangallo prospect in southern Peru’s coastal copper belt coming up trumps.

The run up in the share price to 2.4c took the company’s market cap to a little more than $27 million in what was a nice reward for the company, and a beacon of hope for all those other ASX junior explorers out there looking to have a crack at the big time by finding a large scale copper-gold system.

It’s early days but AusQuest managing director Graeme Drew, an exploration industry veteran that has kept the exploration fires burning on AusQuest’s 21-year journey as a dedicated explorer, reckons drilling at Cangallo has confirmed the presence of a “large-scale porphyry copper-gold system and a significant new discovery”.

His call was based on assay results from the first two drill holes (400m apart) into Cangallo, a 100% owned prospect some 10km from the coast and 25km east of the fishing and mining town of Chala, population 10,000.

There was a 348m hit from near surface in the first hole grading 0.26% copper with some gold counts. It included multiple intercepts of higher grade material (34m at 0.39% copper, plus a gold count).

The second hole returned 188m grading 0.28% copper with some gold from 214m. It too included multiple intercepts of higher grade material (38m at 0.46% copper with some gold).

Assay results from the six outstanding drill holes are expected early next month, with AusQuest able to pass on that broad zones of oxide and sulphide material were evident in five of them, visually at least.

AusQuest said the assay results from the first two holes confirmed the “presence of extensive copper mineralisation (with gold credits) throughout the drill holes and the potential for delineating a near surface copper oxide resource as well as locating deeper sulphide mineralisation”.

It is going to take a lot more drilling to confirm Cangallo as a big copper-gold porphyry find. That was reflected in AusQuest’s sharp but nevertheless constrained share price gain in response to the discovery announcement.

Big porphyry discoveries can deliver multi-billion dollar values, with AusQuest’s $27m market cap post its share price spike on news of the discovery perhaps only a teaser of what could come in time should Cangallo live up to its early promise.

Cangallo is in the same district as a bunch of typically low-grade but large scale porphyry-type  copper deposits that the mining world lusts after thanks to their ability to deliver multi-decade large-scale operations in the bottom half of the cost curve.

Deposits in the region that have spawned large-scale copper mining operations include Quellaveco (1.3 billion tonnes grading 0.57% copper). It’s the one that BHP had its eye on in its thwarted takeover bid for Anglo American, the 60% owner and operator of the newish operation.

Quellaveco is planned to reach 300,000 tonnes of copper equivalent annually at a cash cost of less than $US1 a pound. That gives a feel for the potential size of the prize now ahead of AusQuest. No guarantees that  it is in fact on its way to something seriously big, but a great start, nevertheless.

All that raises strategy questions for the AusQuest board which includes Chris Ellis of Excel Coal fame as a non-executive director and 22% shareholder. Delineating and developing big porphyries requires deep pockets.

So the introduction of a major mining company with the wherewithal to make things happen in a partnership – or a takeover – is naturally enough a future consideration. But at this stage, it can be assumed AusQuest would first want to move Cangallo up the value chain before striking any deals.

South32:

As it is, AusQuest is no stranger to dealing with major miners as it is now into the eighth year of being an exploration partner of choice for the $15 billion South32 (ASX:S32)  under a strategic alliance agreement (SAA).

Under the SAA, South32 provides up to $US4.5 million in funding to earn up to a 70% interest in exploration projects (plus 10% on completing a prefeasibility study) worked up by AusQuest, which receives a 15% fee.

South32 doesn’t take up what’s on offer under the SAA all the time and should it withdraw from a project, AusQuest assumes 100% ownership.

The SAA has previously had South32 kicking rocks with AusQuest in Peru. But South32 pulled back from the Peru projects while continuing on with SAA projects worked up by AusQuest back in Australia.

Given the SAA, South32 would be a natural to be invited to have a look at Cangallo. But so would a lot of other majors that are pinning their copper growth ambitions on Latin American porphyry systems.

There are five exploration projects managed by AusQuest which sit under the SAA umbrella.

And given they are of typical district scale plays worked up by AusQuest and have South32 providing the exploration dollars, it could be argued that there is little if anything in AusQuest’s now higher Cangallo-driven market cap for the SAA portfolio.

The SAA portfolio was recently expanded to include the Coober Pedy copper-gold project on the northern end of South Australia’s iron-oxide copper-gold (IOCG) province  – home to BHP’s Olympic Dam, Carrapateena and Prominent Hill mines. Drilling in 2026 is likely.

Drilling in the first half of this year is planned at another SAA project called Balladonia, 50km south of IGO’s Nova-Bollinger nickel-copper mine in the WA’s Fraser Range. And for something a bit different, drilling is also planned in the first half at the Morrisey project, 100km from Geraldton.

It is in prime in nickel-copper-PGE country, but previous work has identified impressive magnetite results. Preliminary metallurgical testwork indicated the potentially large-scale mineralisation can be upgraded to more than 70% iron.

SUNSTONE:

The leveraged response to AusQuest’s exploration results in Peru should shine a light on long-time Latin America porphyry hunter Sunstone (ASX:STM).

It last traded at 0.7c for a market cap of $36 million which is not a lot for a company that has put together a 3.9M oz gold equivalent (gold-copper-silver) resource base across two projects in the north and south of Ecuador.

It is the start of the story at both El Palmar in the north and Bramaderos/Limon (epithermal) down south as Sunstone has worked up legitimate conceptual exploration targets which would blow the socks of its current market cap if anywhere near achieved.

But getting the local market to hop on board to ride home that upside has proved difficult for the capital-constrained Sunstone. So it has set out to unlock value from the discoveries – and what they could become – by kicking off partnership discussions.

Due diligence is underway by interested parties which presumably means boots on the ground in coming weeks. Ideally, the process could be concluded in the current half, with a deal on one or both of the projects possible.

So in a real sense, Sunstone is now a situation stock.

Managing director Patrick Duffy said in the company’s quarterly this week that the partnership discussions “have the potential to drive rapid value creation by applying significant financial and technical resources to our exploration success”.

MST Access analyst Chris Drew has penned a 31-page report on the stock, arriving at a 2.3c a share valuation. He too sees the partnership process as a key valuation catalyst.