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The quest to commercialize one of Latin America’s last undeveloped major gold deposits is one major step closer to a prospectively big pay day for its unlikely owner – a small gold explorer named Exeter Resource (NYSEMKT:XRA). A Canadian-headquartered company, Exeter recently completed a major milestone development. It announced a positive metallurgical study for the sprawling Caspiche gold-copper deposit in northern Chile’s gold-rich Maricunga mineral belt. This is where over 100 million ounces of gold are concentrated among a clutch of mines. The deposit weighs-in at 26 million ounces of gold, 6.7 billion pounds of copper and 48.4 million ounces of silver. This makes it one of the world’s biggest gold discoveries and one of only a handful of mega deposits not yet bought by one of the industry major mining companies.

The only other mine-in-the-making in Latin America that edges Caspiche in terms of size is the nearby Cerro Casale deposit. Jointly owned by global gold mining powerhouses Barrick Gold (NYSE:ABX) and Kinross Gold Corp. (NYSE:KGC), it hosts 28.8 million ounces of gold. It is scheduled for the completion of detailed engineering this year and the startup of mine construction in 2012. Exeter’s vice president of development, Jerry Perkins, says the metallurgical study on the bulk of Exeter’s mineral resources suggests that gold, silver and copper can be mined without any unusual technical obstacles. Perkins says, "Test work has demonstrated that Caspiche sulfide mineralization can be successfully treated using commercially available technologies to produce readily marketable products."

David West, a precious metals analyst for the Vancouver-based investment bank Salman Partners, says that this development goes a long way toward de-risking the project. "It’s one of the larger hurdles that they needed to surpass. In my estimation this makes the company a more attractive takeover candidate for a major company that can afford the large CAPEX (mine building) costs involved in a project of this size and complexity," he says.

Even though Exeter has been the subject of takeover rumors for some time, the company says it’s happy to go it alone through 2011, as it’s convinced that there is considerably more value in the project that has yet to be unlocked.

On that note, Exeter’s metallurgical work will be a key component of a pre-feasibility study (an initial blueprint for a mine) that it has scheduled for completion late this year. Meanwhile, the final major hurdle to validating Caspiche’s commercial viability will be to set out a capital and operating cost analysis, Exeter’s management says.

According to mutual fund manager Marshall Berol, the odds in favor of Caspiche becoming a mine are also reinforced by the presence of plenty of mining infrastructure in the lustrous Maricunga gold belt. Notably, the Cerro Casale mine and Kinross’ 6.2-million-ounce Maricunga Mine straddle Caspiche on either side.

"The Caspiche project is an exceptional resource. And ultimately, significant economies of scale could be realized if the major players get together to share mining infrastructure in the area," Berol says.

Berol co-manages the San Francisco-based Encompass Fund, which has a heavy weighting in mining equities and which has been a stellar performer over the past four years as a result of a resurgent market in gold stocks. This small mutual fund was ranked as the second best performer last year among over 15,700 global equity funds that are tracked by Morningstar, a financial sector ratings agency.

Unlike several other large-scale gold projects elsewhere in Latin America, Caspiche’s location in Chile also offers a key geopolitical advantage to the company and investors alike, Berol adds. Specifically, Chile is a politically stable democracy that has long been mining-friendly, especially since this capital-intensive industry is essentially the backbone of its economy.

West agrees that advanced-stage gold explorers like Exeter that have assets in politically stable jurisdictions offer attractive risk/reward profiles for investors who want leveraged exposure to a "rising tide" market for bullion prices. West says, "There’s much greater potential upside for the share prices of these stocks, compared with the potential upside of owning physical gold. Investors who take further risks by holding equities require risk premiums and should receive them over time."

Another key advantage is that an asset-rich junior gold stock’s upside does not necessarily have a strong correlation to bullion prices, according to West. If a company develops a rich enough deposit to warrant a mine, its share price should likely enjoy a re-rating once the mine is developed, regardless of the prevailing trend in gold prices.

Company Chairman Yale Simpson says that the bull market for commodities is also weighing in Caspiche’s favor. For instance, the price of copper has more or less tripled to over $4 a pound since the depths of its pronounced slump in early 2009. Similarly, a sustained bull market for both gold and silver continues to add significantly greater value to the precious metals component of this world-class asset. And this has further enhanced the economics in favor of Caspiche going into production, Simpson adds.

Elsewhere in the world, the only other gold junior that is developing a comparably huge world-class gold deposit is Ivanhoe Mines (IVN), which is the majority owner of a huge 45-million-ounce deposit in Mongolia. Also worthy of note is Novagold Resources (NYSEMKT:NG), which has two company-maker deposits in Alaska with combined resources of over 31 million ounces of gold.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.