2014 resource(estimate(and ... - santa cruz silver2014 resource estimate and preliminary economic...

2014 Resource Estimate and Preliminary Economic Assessment San Felipe Project, Sonora, Mexico. 23rd October 2014

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2014 Resource Estimate and Preliminary Economic Assessment

San Felipe Project, Sonora, Mexico

Prepared for Santacruz Silver Mining Ltd.

Qualified Persons:

Hans Smit, B.Sc. (Hons), P.Geo.

Fletcher M. Bourke, M.Sc., P.Geo.

Gary Giroux, M.Sc., P.Eng.

Greg Blaylock, B.Sc., P.Eng.

Deepak Malhotra, Ph.D., SME-RM.

Mark E. Smith, M.Sc., M.SME, G.E., P.E.


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Effective Date: September 4, 2014

Amendment Date: June 29 2016


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Table of Contents

1. Summary ..................................................................................................................................... 15

1.2. Introduction .......................................................................................................................... 16

1.3. Reliance on Other Experts .................................................................................................. 17

1.4. Property Description and Location ...................................................................................... 18

1.5. Accessibility, Climate, Local Resources, Infrastructure and Physiography ......................... 20

1.6. History ................................................................................................................................. 21

1.7. Geology ............................................................................................................................... 22

1.7.1. Regional Geology ........................................................................................................ 22

1.7.2. Property Geology ......................................................................................................... 22

1.7.3. Domain Summary ........................................................................................................ 23

1.8. Deposit Type ....................................................................................................................... 24

1.9. Exploration ........................................................................................................................... 24

1.10. Drilling .............................................................................................................................. 25

1.11. Sample Preparation, Analysis and Security ..................................................................... 25

1.11.1. QA/QC Analysis ........................................................................................................... 25

1.12. Data Verification .............................................................................................................. 26

1.13. Mineral Processing and Metallurgical Testing ................................................................. 27

1.14. Mineral Resource Estimates ............................................................................................ 27

1.15. Mineral Reserve Estimates .............................................................................................. 30

1.16. Mining Methods ............................................................................................................... 31

1.17. Recovery Methods ........................................................................................................... 31

1.18. Project Infrastructure and General Administration ........................................................... 32

1.19. Market Studies and Contracts ......................................................................................... 34

1.20. Environmental Studies, Permitting and Social or Community Impact .............................. 35

1.21. Capital and Operating Costs ............................................................................................ 37

1.22. Economic Analysis ........................................................................................................... 38

1.23. Adjacent Properties ......................................................................................................... 44

1.24. Other Relevant Data and Information .............................................................................. 44

1.25. Interpretation and Conclusions ........................................................................................ 45

1.26. Recommendations ........................................................................................................... 47

2. Introduction .................................................................................................................................. 50

2.1. Sources of Information ........................................................................................................ 52

2.2. Field Examination and Data Review by the Qualified Person ............................................. 54

2.3. Units of Measure ................................................................................................................. 55


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3. Reliance on Other Experts .......................................................................................................... 56

4. Property Description and Location .............................................................................................. 57

4.1. Area and Location ............................................................................................................... 57

4.2. Title and Ownership ............................................................................................................. 58

4.3. Surface Rights ..................................................................................................................... 62

4.4. Environmental Liability ......................................................................................................... 63

4.5. Permits ................................................................................................................................ 63

5. Accessibility, Climate, Local Resources, Infrastructure and Physiography ................................. 65

5.1. Access ................................................................................................................................. 65

5.2. Climate ................................................................................................................................ 67

5.3. Physiography ....................................................................................................................... 67

5.4. Vegetation and Fauna ......................................................................................................... 68

5.5. Local Resources and Infrastructure ..................................................................................... 68

6. History ......................................................................................................................................... 71

6.1. Prior Resource Estimates .................................................................................................... 72

6.1.1. Hochschild 2008 .......................................................................................................... 72

6.1.2. Santacruz 2012 ............................................................................................................ 74

7. Geological Setting and Mineralization ......................................................................................... 76

7.1. Regional Geology ................................................................................................................ 76

7.2. Property Geology ................................................................................................................. 79

7.2.1. Lithology ....................................................................................................................... 82

7.2.2. Structure ...................................................................................................................... 86

7.3. Mineralization ...................................................................................................................... 87

7.4. Geologic Model and Estimation Domains ........................................................................... 90

8. Deposit Type ............................................................................................................................... 93

9. Exploration .................................................................................................................................. 94

9.1. Surface Geochemistry ......................................................................................................... 94

9.2. Geophysics .......................................................................................................................... 98

9.3. Geologic Mapping ................................................................................................................ 98

10. Drilling ......................................................................................................................................... 99

10.1. Boliden (1998-2000) ...................................................................................................... 100

10.2. Hochschild (2006-2008) ................................................................................................. 100

10.3. Santacruz (2013-2014) .................................................................................................. 102

11. Sample Preparation, Analyses and Security ............................................................................. 113

11.1. Sample Preparation ....................................................................................................... 113

11.2. Sample Security ............................................................................................................. 113


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11.3. QA/QC Analysis ............................................................................................................. 114

11.4. Hochschild QA/QC ......................................................................................................... 115

11.4.1. Blanks ........................................................................................................................ 115

11.4.2. Standards ................................................................................................................... 117

11.4.3. Duplicates .................................................................................................................. 120

11.5. Santacruz QA/QC .......................................................................................................... 123

11.5.1. Blanks ........................................................................................................................ 123

11.5.2. Standards ................................................................................................................... 124

11.5.3. Core Duplicates ......................................................................................................... 129

11.5.4. Check Assays ............................................................................................................ 132

11.5.5. Comparison of Drilling Results by Company ............................................................. 133

11.5.6. Twin Hole Comparison ............................................................................................... 135

11.6. Opinion on Adequacy .................................................................................................... 138

12. Data Verification ........................................................................................................................ 139

12.1. Site Visits ....................................................................................................................... 139

12.2. Independent Assays ...................................................................................................... 139

12.3. Validation of Data Base and Digital Data ....................................................................... 140

12.4. Data Adequacy .............................................................................................................. 140

13. Mineral Processing and Metallurgical Testing ........................................................................... 141

13.1. Review of Metallurgical Testwork .................................................................................. 141

13.1.1. Dawson Metallurgical Laboratory Report ................................................................... 141

13.2. Process Flowsheet and Projected Metallurgical Recoveries ......................................... 150

14. Mineral Resource Estimates ..................................................................................................... 152

14.1. Data Analysis ................................................................................................................. 152

14.1.1. Ventana Zone ............................................................................................................ 153

14.1.2. Las Lamas Zone ........................................................................................................ 159

14.1.3. San Felipe Structures ................................................................................................ 163

14.1.4. Transversales ............................................................................................................ 166

14.2. Composites .................................................................................................................... 168

14.3. Variography ................................................................................................................... 172

14.4. Block Models ................................................................................................................. 176

14.5. Bulk Density ................................................................................................................... 179

14.6. Grade Interpolation ........................................................................................................ 181

14.7. Classification .................................................................................................................. 185

15. Mineral Reserve Estimates ....................................................................................................... 199

16. Mining Methods ......................................................................................................................... 199


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16.1. La Ventana Mining Methods .......................................................................................... 200

16.1.1. La Ventana Open Pit .................................................................................................. 200

16.1.2. La Ventana Underground ........................................................................................... 202

16.2. San Felipe Mining Methods ........................................................................................... 210

16.2.1. San Felipe Open Pit ................................................................................................... 210

16.2.2. San Felipe Underground ............................................................................................ 210

16.3. Las Lamas Mining Method ............................................................................................. 211

16.4. Transversales Mining Method ........................................................................................ 211

16.5. Geotechnical parameters ............................................................................................... 212

16.5.1. Underground .............................................................................................................. 212

16.5.2. Open pit ..................................................................................................................... 213

16.6. Hydrologic parameters ................................................................................................... 213

16.7. Waste rock storage ........................................................................................................ 213

16.8. Required mining equipment ........................................................................................... 214

16.9. Mine CAPEX .................................................................................................................. 214

16.10. Mine OPEX .................................................................................................................... 215

17. Recovery Methods .................................................................................................................... 217

17.1. Flotation Mill ................................................................................................................... 217

17.2. CAPEX ........................................................................................................................... 221

17.3. OPEX ............................................................................................................................. 226

18. Project Infrastructure and General Administration .................................................................... 227

18.1. Tailings Storage Facility ................................................................................................. 227

18.2. Power ............................................................................................................................. 232

18.3. Water ............................................................................................................................. 234

18.4. Roads ............................................................................................................................ 235

18.5. Other Infrastructure ........................................................................................................ 236

18.6. General and Administration ........................................................................................... 236

18.7. Reclamation and Closure .............................................................................................. 238

19. Market Studies and Contracts ................................................................................................... 239

20. Environmental Studies, Permitting and Social or Community Impact ....................................... 241

20.1. Environmental Studies ................................................................................................... 241

20.2. Permits ........................................................................................................................... 246

20.3. Social and Community Impact ....................................................................................... 248

21. Capital and Operating Costs ..................................................................................................... 252

22. Economic Analysis .................................................................................................................... 253

22.1. Assumptions .................................................................................................................. 254


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22.2. Taxes ............................................................................................................................. 254

22.2.1. IVA ............................................................................................................................. 254

22.2.2. Environmental Fee ..................................................................................................... 255

22.2.3. Mining Royalty ........................................................................................................... 255

22.2.4. Income Tax ................................................................................................................ 255

22.3. Economic Highlights ...................................................................................................... 255

22.4. Sensitivity Analysis ........................................................................................................ 262

23. Adjacent Properties ................................................................................................................... 264

24. Other Relevant Data and Information ........................................................................................ 264

25. Interpretation and Conclusions .................................................................................................. 265

25.1. Project Risks .................................................................................................................. 270

25.2. Project Opportunities ..................................................................................................... 272

25.3. PEA Sensitivities ............................................................................................................ 272

26. Recommendations .................................................................................................................... 273

26.1. Resource ....................................................................................................................... 273

26.2. Metallurgy ...................................................................................................................... 274

26.3. Mining ............................................................................................................................ 275

26.4. Milling ............................................................................................................................. 275

26.5. Infrastructure .................................................................................................................. 276

26.6. Environment and Permitting .......................................................................................... 277

26.7. Resource Expansion and Exploration ............................................................................ 278

26.8. Budget ........................................................................................................................... 278

27. References ................................................................................................................................ 281

28. Appendix 1 – Drill Hole Location ............................................................................................... 283

29. Appendix 2 – Grade Tonnage Tables ....................................................................................... 290

30. Appendix 3 – Drill Intercepts ..................................................................................................... 294

31. Appendix 4 – Ag Variograms ..................................................................................................... 309

32. Appendix 5 – Certificate of Author Forms ................................................................................. 325


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List of Figures

Figure 1-1 Sensitivity Analysis ............................................................................................................ 44 Figure 4-1. San Felipe project location. .............................................................................................. 57 Figure 4-2 Santacruz Concession ...................................................................................................... 61 Figure 4-3 Area covered by the agreement with the San Felipe Ejido ............................................... 62 Figure 5-1 San Felipe Project location .............................................................................................. 66 Figure 5-2 Proposed power line to San Felipe. .................................................................................. 70 Figure 6-1 Mineralised wireframes of San Felipe zones. Hochschild 2008 resource estimate. ......... 73 Figure 7-1. Generalized map of the pre-Laramide basement in northwestern Mexico and the southwestern United States. MSM-Mojave-Sonora megashear, Cb-Caborca terrane (modified from Valencia-Moreno, 2001). .................................................................................................................... 77 Figure 7-2 Geology of San Felipe region (modified from Servicio Geologico Mexicano, 1999). ........ 78 Figure 7-3. Geology of the San Felipe Project. .................................................................................. 80 Figure 7-4. Resource area geology map (from Longo 2014). ............................................................ 81 Figure 7-5. Stratigraphic column, San Felipe Project. Modified from (Roldan, 1979). ....................... 82 Figure 7-6. Oligocene Volcanics – fragmental rhyolite tuff. ................................................................ 83 Figure 7-7. Fragmental rhyolite, note the fragments of Equigranular rhyolite and LMS. .................... 84 Figure 7-8. Equigranular rhyolite. ....................................................................................................... 84 Figure 7-9. San Felipe Porphyry, (a) outcrop showing amoeboid quartz eyes, (b) SF porphyry dyke looking SW, Cornocopia mineralization along dyke footwall contact. Note the lack of mineralization at ridge top. ............................................................................................................................................. 85 Figure 7-10. LMS: (a) thin section showing fine grained carbonate and coarser epidote (polarized light 100x), (b) typical LMS outcrop – note SF dyke in center. ........................................................... 86 Figure 7-11. Vein orientation analysis. (a) Historgram of vein strike (b) histogram of vein dip. (c) Stereonet showing vein orientations. (d) Structural model of district showing proposed conjugate vein sets formed by E-W tectonic shortening (Nelson, 2007). ............................................................ 87 Figure 7-12. Geology map of the San Felipe Resource area showing the four principle skarn vein systems and the pattern of metal zonation in the district (Longo, 2014). ........................................... 89 Figure 7-13. (a) High temperature skarn (andradite-hedenbergite) (b) Low temperature skarn (rhodonite and bustamite). (c) Low temperature skarn overprint (rhodonite). .................................... 90 Figure 7-14 Plan view of the geologic model used for the resource estimate. ................................... 92 Figure 9-1 Rock chip and stream sediment samples taken at San Felipe. Stream sediment samples show sum of response ratios for Au, Ag, Cu, Pb, Zn. ......................................................................... 96 Figure 9-2 Boliden 1998-1999 Soil Sample Program showing (a) Ag, (b) Pb, (c) Zn. ........................ 97 Figure 10-1. Drilling at San Felipe, (a) by company, (b) drill hole type ............................................... 99 Figure 10-2. Drill plan La Ventana. ................................................................................................... 106 Figure 10-3. Drill plan - Transversales, San Felipe, Las Lamas, Cornocopia and Artemisa. ........... 107 Figure 10-4. Ventana long section showing intercept in true width. ................................................. 108 Figure 10-5. La Ventana drill section (looking west). ........................................................................ 109


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Figure 10-6. Transversales drill section (looking south west). .......................................................... 110 Figure 10-7. San Felipe drill section (looking west). ......................................................................... 111 Figure 10-8. Las Lamas drill section (looking south west). ............................................................... 112 Figure 11-1. Santacruz core shed. ................................................................................................... 114 Figure 11-2. Hochschild blanks (a) coarse blanks, (b) pulp blanks. (Red line shows 5 x detection limit (5ppm)). ............................................................................................................................................ 116 Figure 11-3. Hochschild blanks Pb - Zn, (a) coarse blanks, (b) pulp blanks. ................................... 116 Figure 11-4. Medio standard (a) Groups based on Zn values (b) Ag distribution of Group A and B. .......................................................................................................................................................... 118 Figure 11-5. Graph showing Ag value of Hochschild Bajo standard. ............................................... 119 Figure 11-6. Graph showing Ag value of Hochschild Medio (Group A) standard. ............................ 119 Figure 11-7. Graph showing Ag value of Hochschild Alto standard. ................................................ 120 Figure 11-8. (a) Hochschild core duplicate scatter plot (all data). (b) Hochschild Ag duplicates 5 to 50 ppm. .................................................................................................................................................. 121 Figure 11-9. Hochschild core duplicates (a) control chart, (b) cumulative frequency plot. ............... 122 Figure 11-10. Hochschild duplicates. (a) Re-assay scatter plot, (b) pulp duplicate scatter plot. ...... 122 Figure 11-11. Hochschild duplicate scatter plot. (a) Pb, (b) Zn. ....................................................... 123 Figure 11-12. Hochschild duplicates (a) absolute difference Pb-Zn, (b) Absolute relative % difference plot Ag-Pb-Zn. .................................................................................................................................. 123 Figure 11-13. Graph showing Santacruz pulp blanks, (a) Ag, (b) Pb, Zn. ........................................ 124 Figure 11-14. Santacruz Au standard SL61. .................................................................................... 127 Figure 11-15. Santacruz Ag standard SL61. .................................................................................... 127 Figure 11-16. Santacruz Au standard SG66. ................................................................................... 128 Figure 11-17. Santacruz Ag standard STD-SP49. ........................................................................... 128 Figure 11-18. Santacruz standard SQ70. ......................................................................................... 129 Figure 11-19. Santacruz duplicate scatter plot. ................................................................................ 130 Figure 11-20. Santacruz duplicates, (a) Pb and (b) Zn, Scatterplot. ................................................ 131 Figure 11-21. Santacruz duplicates (a) Cumulative frequency Ag original vs. duplicate, (b) Cumulative frequency Ag absolute difference, (c) Cumulative frequency Pb – Zn absolute difference, (d) Absolute relative % difference plot, Ag, Pb, Zn. .......................................................................... 131 Figure 11-22 Scatter plot showing ALS vs. ACME analytical results. .............................................. 132 Figure 11-23. Lognormal cumulative frequency plot. Comparison of drilling by company at La Ventana (Area A). ............................................................................................................................. 133 Figure 11-24. Lognormal cumulative frequency plot. Comparison of drilling by company at San Felipe (Area B). ................................................................................................................................ 134 Figure 11-25. Lognormal cumulative frequency plot. Comparison of drilling by company at Las Lamas (Area C). ............................................................................................................................... 134 Figure 11-26. La Ventana twins, SCLV-03 vs. SF9801, <5m separation. ........................................ 135 Figure 11-27. San Felipe twins, SCSF-02 vs. HFSF11, <12m separation. ...................................... 136


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Figure 11-28. Las Lamas twins, SCLL-04 vs. HFLL09, <9m separation. ......................................... 137 Figure 13-1 Variable Testing Open Circuit Process Flowsheet ........................................................ 142 Figure 14-1 Drill hole plan view for the La Ventana Zone ................................................................ 154 Figure 14-2 Plan view for the La Ventana Zone showing HG solid in red, LG solid in green and underground workings in purple. ...................................................................................................... 158 Figure 14-3 Isometric view looking NW showing HG solid in red, LG solid in green and underground workings in purple. ............................................................................................................................ 158 Figure 14-4 Isometric view for the Las Lamas Zone looking NE showing the solid, drill hole traces and Surface topography ................................................................................................................... 159 Figure 14-5 Isometric view looking SW showing the solid in red, drill hole traces in green and surface topography in grey. ........................................................................................................................... 160 Figure 14-6 Isometric view looking NE showing Ventana blocks below topo in white, HG in red, LG Envelope in Yellow, Underground workings in green and drill hole composites .............................. 176 Figure 14-7 Isometric view looking NE showing Lamas blocks below topo in white and drill hole composites in magenta ..................................................................................................................... 177 Figure 14-8 San Felipe Zone block models ...................................................................................... 178 Figure 16-1 Relative locations of open pit targets ............................................................................ 200 Figure 16-2 La Ventana Pit Shells Comparison ............................................................................... 201 Figure 16-3 Section showing open pit and underground mining concepts, La Ventana .................. 203 Figure 16-4 Section showing start of underground mining, La Ventana ........................................... 204 Figure 16-5 Section showing continuation of underground mining, La Ventana .............................. 205 Figure 16-6 Section showing continuation of underground mining with backfill introduced, La Ventana ............................................................................................................................................ 206 Figure 16-7 Section showing underground mining advance, La Ventana ........................................ 207 Figure 16-8 Section 567652.5 vein geometry, La Ventana looking West ......................................... 209 Figure 17-1 Proposed mine development ........................................................................................ 218 Figure 17-2 Diagram for 1.250 t/day mill by Santacruz – 2014 ........................................................ 220 Figure 18-1 Tailings storage facility proposed location. ................................................................... 228 Figure 18-2 Schematic section through proposed tailings storage facility. ....................................... 229 Figure 18-3 Proposed Power Line Location ..................................................................................... 234 Figure 20-1 Groundwater Elevation vs Ground Surface Elevation ................................................... 229 Figure 20-2 Water and Sediment Monitoring Sites ........................................................................... 230 Figure 20-3 Federally Designated Bird Protection Areas. ................................................................ 235 Figure 20-4 San Felipe Project Conservation Area Federal Designation ......................................... 251 Figure 22-1 Sensitivity Analysis ........................................................................................................ 264


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List of Tables

Table 1-1 Estimated Metallurgical Recoveries ................................................................................... 27 Table 1-2 Recoveries for each metal .................................................................................................. 29 Table 1-3 Summary of Silver Equivalent Resource for all Zones sorted by potential mining method 30 Table 1-4 Estimated Capital Costs - $M ............................................................................................. 37 Table 1-5 Estimated Operating Costs Per tonne ................................................................................ 38 Table 1-6 San Felipe PEA Production Summary ............................................................................... 40 Table 1-7 Life of mine economics ....................................................................................................... 41 Table 1-8 San Felipe PEA NPV and IRR ........................................................................................... 42 Table 1-9 San Felipe Project Preliminary Economic Assessment 2014 - Sensitivities ...................... 43 Table 2-1 Table of abbreviations ........................................................................................................ 55 Table 4-1 Payment Schedule (US dollar x 1,000) .............................................................................. 60 Table 6-1 Production data from the San Felipe district by Serrana 1975 - 1991. ............................... 71 Table 6-2. Metal prices and recoveries used in the 2008 Hochschild resource. ................................ 73 Table 6-3 Resource summary table from Hoshchild 2008. (20$/t cut off shown). .............................. 74 Table 6-4. Gustavson search ellipsoid distances (in meters). ............................................................ 74 Table 6-5. Gustavson resource classification criteria (distance from block to nearest drill hole in meters). .............................................................................................................................................. 75 Table 6-6. Metal prices and recoveries used by Gustavson. .............................................................. 75 Table 6-7. Gustavson 2012 resource table showing 150 g/t AgEq cuttoff. ......................................... 75 Table 7-1 Domain orientation and average thickness. ....................................................................... 91 Table 9-1: Surface sample summary statistics. .................................................................................. 95 Table 9-2. Surface sample summary statistics by structure. All samples since 1997 (Ag-ppm, Pb-%, Zn-%). ................................................................................................................................................. 97 Table 10-1. Summarized drilling for the San Felipe Project. .............................................................. 99 Table 10-2. Hochschild development holes. ..................................................................................... 102 Table 11-1 Summary of analytical quality control data. .................................................................... 114 Table 11-2 Summary statistics for Hochschild blanks (units in ppm). .............................................. 115 Table 11-3. Coarse blank failures. .................................................................................................... 116 Table 11-4. Hochschild standard summary. ..................................................................................... 117 Table 11-5. Hochschild core duplicate data summary (Ag ppm). ..................................................... 121 Table 11-6. Hochschild core duplicate data summary (Pb ppm). ..................................................... 121 Table 11-7. Hochschild core duplicate data summary (Zn ppm). ..................................................... 121 Table 11-8 Descriptive statistics for Santacruz blanks (units in ppm). ............................................. 124 Table 11-9. Santacruz standard summary. ...................................................................................... 125 Table 11-10. Santacruz duplicate summary. .................................................................................... 130


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Table 11-11 ALS vs. ACME summary statistics. .............................................................................. 132 Table 12-1. Check samples taken by authors vs. Santacruz results. ............................................... 140 Table 13-1 Summary of Mineralization Variability Lead Flotation Results ....................................... 144 Table 13-2 Summary of Mineralization Variability Zinc Flotation Results ......................................... 145 Table 13-3 Summary of Mineralization Variability Test Work Zn Scavenger Tailings ...................... 146 Table 13-4 Typical Reagent Addition for Roughers and Cleaners in Pb/Zn Flotation Test .............. 147 Table 13-5 Open Circuit Lead and Zinc Rougher and Cleaner Flotation Tests for Lamas 1 Sample .......................................................................................................................................................... 148 Table 13-6 Open Circuit Lead and Zinc Rougher and Cleaner Flotation Tests for Lamas 2 Sample .......................................................................................................................................................... 148 Table 13-7 Open Circuit Lead and Zinc Rougher and Cleaner Flotation Tests for San Filipe Sample .......................................................................................................................................................... 149 Table 13-8 Locked Cycle Test Results for Ventana (Test PFCC-2) ................................................. 149 Table 13-9 Simulated Test Results for Lamas 1 .............................................................................. 150 Table 13-10 Simulated Test Results for Lamas 2 ............................................................................ 151 Table 13-11 Simulated Results for San Felipe ................................................................................. 151 Table 13-12 Estimated Metallurgical recoveries. .............................................................................. 151 Table 14-1 Assay Statistics sorted by Domain ................................................................................. 156 Table 14-2 Cap levels and number capped for each variable .......................................................... 157 Table 14-3 Capped Assay Statistics sorted by Domain ................................................................... 158 Table 14-4 Assay Statistics sorted by Domain ................................................................................. 160 Table 14-5 Cap levels and number capped for each variable .......................................................... 161 Table 14-6 Capped Assay Statistics sorted by Domain ................................................................... 161 Table 14-7 Assay Statistics sorted by Domain ................................................................................. 164 Table 14-8 Cap levels and number capped for each variable .......................................................... 165 Table 14-9 Capped Assay Statistics sorted by Domain ................................................................... 166 Table 14-10 Assay Statistics sorted by Domain for Transversales .................................................. 167 Table 14-11 Cap levels and number capped for each variable ........................................................ 167 Table 14-12 Capped Assay Statistics sorted by Domain for Transversales ..................................... 168 Table 14-13 Composite Statistics sorted by Domain ........................................................................ 168 Table 14-14 Pearson correlation coefficients for Ventana ................................................................ 170 Table 14-15 Pearson correlation coefficients for Las Lamas ........................................................... 170 Table 14-16 Pearson correlation coefficients for San Felipe ............................................................ 171 Table 14-17 Pearson correlation coefficients for Transversales ...................................................... 172 Table 14-18 Summary of Semivariogram Parameters for Ventana domains ................................... 173 Table 14-19 Summary of Semivariogram Parameters for Lamas Structures ................................... 174 Table 14-20 Summary of Semivariogram Parameters for San Felipe Structures ............................ 175


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Table 14-21 Specific Gravity determinations Ventana ..................................................................... 179 Table 14-22 Specific Gravity determinations Lamas ........................................................................ 180 Table 14-23 Specific Gravity determinations San Felipe .................................................................. 181 Table 14-24 Specific Gravity determinations Transversales ............................................................ 181 Table 14-25 Kriging Parameters for Silver at Ventana ..................................................................... 182 Table 14-26 Kriging Parameters for Silver at Las Lamas ................................................................. 183 Table 14-27 Kriging Parameters for Silver at San Felipe Veins ....................................................... 184 Table 14-28 Kriging Parameters for Silver at Transversales ............................................................ 185 Table 14-29 Ventana Resource classed as Indicated within Mineralized Solids .............................. 189 Table 14-30 Ventana Resource classed as Inferred within Mineralized Solids ................................ 189 Table 14-31 Las Lamas Resource classed as Indicated within Mineralized Solid ........................... 190 Table 14-32 Las Lamas Resource classed as Inferred within Mineralized Solid ............................. 190 Table 14-33 San Felipe Resource classed as Indicated within Mineralized Solids .......................... 191 Table 14-34 San Felipe Resource classed as Inferred within Mineralized Solids ............................ 192 Table 14-35 Transversales Resource classed as Inferred within Mineralized Solid ........................ 193 Table 14-36 Recoveries for each metal ............................................................................................ 193 Table 14-37 Ventana Resource classed as Indicated within Conceptual Open Pit .......................... 194 Table 14-38 Ventana Resource classed as Inferred within Conceptual Open Pit ............................ 194 Table 14-39 Ventana Resource classed as Indicated in potential Underground .............................. 195 Table 16-1 Summary of Contributions to mill feed by deposit and mining method .......................... 199 Table 16-2 Life of project estimated capital requirements ................................................................ 215 Table 17-1 Capital cost estimate for 750 mtpd plant ........................................................................ 222 Table 17-2 Additional Capital Cost for 1250 MTPD and 2000 MTPD Plants ................................... 224 Table 17-3 Estimated Operating Cost for Varying Feed Rate .......................................................... 225 Table 18-1 Tailings storage facility capacity ..................................................................................... 229 Table 18-2 Cost Estimate for TSF. All tailings go to TSF (no UG backfilling), Freeboard = 3m ....... 232 Table 18-3 G&A Costs ($US) ........................................................................................................... 237 Table 20-1 List of Authorizations and Plans Required for San Felipe .............................................. 247 Table 21-1 San Felipe PEA Estimated Capital Costs - $M .............................................................. 252 Table 21-2 San Felipe PEA Estimated Operating Costs Per tonne ................................................. 253 Table 22-1 San Felipe PEA Economic Model .................................................................................. 257 Table 22-2 San Felipe Pea Production Summary ............................................................................ 260 Table 22-3 San Felipe – Life of mine economics ............................................................................. 261 Table 22-4 San Felipe PEA NPV and IRR ....................................................................................... 262 Table 22-5 San Felipe Project Preliminary Economic Assessment 2014 - Sensitivities .................. 263


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Table 25-1 Summary of Silver Equivalent Resource for all Zones sorted by potential mining method .......................................................................................................................................................... 268 Table 25-2 Recoveries Used in Resource Estimation for Each Metal .............................................. 268 Table 25-3 Estimated Recoveries in PEA for Convential Flotation Mill ............................................ 269 Table 26-1 Estimates of FS/NI43-101 Work Scope for Tailings Storage Facility ............................. 277 Table 26-2 Recommended work program budget ............................................................................ 279


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1. Summary This amended report addresses issues identified by the British Columbia Securities Commission

with the original report that has an effective date of Sept 4, 2014. This amended report does not

include any new data or other inputs and there are no material changes to any interpretations,

results or conclusions. Specific items amended are:

Title Page

• Mark Smith, P.E. added as a Qualified Person

Section 2.1

• Clarification as to which author is responsible for each section of the report

Section 4.2

• A note included regarding changes in the property payment schedule that occured after the

Effective Date of this report.

Section 14

• Canadian Institute of Mining, Metallurgy and Petroleum (CIM) 2014 Definition Standards for

mineral resources referenced instead of CIM 2005 Definition Standards.

• Explanation for base-case cut-off grades added.

• Estimated resources divided by material potentially mineable by open pit and underground

methods and reported as such.

Section 18.1

• Various edits to grammer and clarifications by Mark Smith, P.E.

Sections 25.1, 25.2 and 26.1

• Edits to clarify degree of uncertainty with respect to continuity of higher grade sections within

mineralized zones.

Certificates of Authors

• Added details to the list of relevant experience for Hans Smit, P.Geo.

• Clarification on which authors were responsible for sections 18, 21 and 24 through 27.

• Mark Smith, P.E. added as an author responsible for Section 18.1 and Table 26-1.

Section 1

• Summaries updated to reflect changes in related chapters.

• A paragraph mistakenly copied from 1.4 and inserted in section 1.3 removed.


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This section gives a short summary of each section of the report. In of itself, this summary does

not provide a complete description of the San Felipe project, the work undertaken or the resource

estimation and Preliminary Economic Assessment completed. The reader is referred to the

subsequent sections to obtain a detailed assessment of the project.

1.2. Introduction

The purpose of this report is to provide an independent assessment of the San Felipe Project and,

in particular, to provide an independent mineral resource estimate and a preliminary economic

assessment (PEA) for the project. San Felipe is a mineral exploration project located in

Sonora State, Mexico that is being explored for silver, lead, zinc and copper mineralization. The

project is owned by Impulsora Minera Santacruz, S.A. de C.V, a wholly owned subsidiary of

Santacruz Silver Mining Ltd (“Santacruz”), a public company trading on the TSX Venture exchange

under the symbol SCZ. This report includes information gathered by Santacruz as well as by

previous operators of the project, Minera Hochschild Mexico, S.A. de C.V. ("Hochschild") and

Boliden Mexico S.A. de C.V. (“Boliden”).

Santacruz commissioned Hans Smit, P. Geo. of Hans Smit, P. Geo. Inc. (“Smit”), and Fletcher

Bourke, P. Geo. of Kuu Exploration Ltd. (“Bourke”), to review the project, develop a geological

model for the area drilled, and facilitate completion of a resource estimate and a PEA. Santacruz

commissioned Gary Giroux, P. Eng. of Giroux Consulting Ltd. (“Giroux”), to estimate the resources

for the project based upon the geologic and mineralized domain model created by Smit and

Bourke. Deepak Malhotra, Registered SME Member and President of Resource Development

Inc., (“Malhotra”) was commissioned to complete the metallurgy and milling components of the

PEA. JDS Energy & Mining Inc, under the direction of Greg Blaylock, P. Eng. was commissioned

to complete the mine plan and mining parts of the PEA. Mark Smith, P.E. of RRD International

Corp was commissioned to do a prelimnary design and cost estimate for a tailings storage facility

and provide recommendations for further studies in regards to talings storage.

All the contributors made recommendations for further work, and helped prepare a Technical

Report in accordance with Canadian Securities Administrators National Instrument 43-101 (NI 43-

101).

Bourke, Smit, Giroux, Malhotra, Blaylock and Smith are Qualified Persons as defined by NI 43-101

and are independent of both Santacruz and the title holders, based on the tests outlined in NI 43-

101.


17

The effective date of this report is September 4, 2014, the date that the metal prices used in the

PEA economic calculation were set. The effective date of the mineral resource estimate included

in this report is 3rd April 2014; the date Giroux received the final assay data. Since that time, 6

holes have been drilled on the property for a total of 1,929 meters. The results of these holes will

not materially affect the resource and were not considered in the PEA.

Smit visited the San Felipe Project during the periods of June 18-19, 2013, July 13-22, 2013,

September 18-24, 2013, February 13-16, 2014 and April 3-6, 2014. Bourke visited the San Felipe

site during the periods of July 13-22, 2013, September 18-27, 2013, February 13-17, 2014, and

April 22 to May 1, 2014, May 20-27, 2014 and June 10-16, 2014. Blaylock visited the property on

May 8, June 11, August 20, and September 11, 2014 and examined existing La Ventana

underground workings, La Ventana core, sections of the La Ventana outcrop for sampling, San

Felipe and Transversales deposits, Las Lamas outcrop and existing underground workings,

proposed TSF sites and proposed process plant sites. Smith visited the property February 14-15,

2014 and examined potential tailings storage facility sites.

Giroux has not visited the project but has relied on the geological data and information verified by

Bourke and Smit.

Malhotra has not visited the project but has relied on information supplied by Smit and Bourke,

information supplied by Santacruz and information within reports by Hochschild.

1.3. Reliance on Other Experts

The majority of work in this report is based on data obtained from the authors’ site visits, digital

data supplied by Santacruz, digital data created by Hochschild and their consultants, data

available in Hochschild reports, and assay data obtained directly from ALS Minerals. The

conclusions presented in this report are based on the work of Qualified Persons, as defined under

NI 43-101.

Information from other experts was used for some aspects of the work described by this report as

detailed in section 3.

Best professional judgment was utilized in the collection and interpretation of data discussed in this

report. However, users of this report are cautioned that the valuation methods used herein are

subject to inherent uncertainties and assumptions, over which the authors have no control. These


18

uncertainties and assumptions are stated herein. Users of this report are hereby advised to be

aware of and understand these uncertainties and assumptions.

1.4. Property Description and Location

The San Felipe Project is located in the Sonora River basin approximately 110km NNW of the city

of Hermosillo in the state of Sonora, Mexico. The village of San Felipe de Jesus is situated 6km

east of the resource area. The center of the current resource is located at UTM Zone 12, 567400E,

3305700N NAD27.

The San Felipe Project includes 14 mining concessions covering a total area of 16,265 hectares.

Santacruz’s rights to the concessions are held through its wholly owned Mexican subsidiary,

Impulsora Minera Santacruz S.A. de C.V., (the "Company"). The Company acquired exploration

rights with the right to purchase the project from Minera Hochschild Mexico, S.A. de C.V.

("Hochschild"). Pursuant to a mining exploration and promissory sale agreement dated August 3,

2011, and amended December 9, 2011, October 8, 2012, August 13, 2013 and

September 3, 2014 (the "San Felipe Agreement"), the Company was granted an option to acquire

a 100% interest in the San Felipe project.

In addition to cash payments of $23,700,000 made to date and the issuance of 1,250,000

common shares previously completed by Santacruz, in order to maintain and exercise the

option, the Company is obligated to incur exploration expenditures of $3,000,000 by

October 31, 2015 and make additional payments as follows:

• Annual surface right payments of 520,000 Mexican Pesos ($39,744) on or before

February 19 of each year until the project reaches commercial production;

• $2,000,000 on or before December 1, 2014;

• $5,000,000 on or before December 1, 2015; and,

• $14,000,000 on or before December 15, 2016.

Under the agreement and amendments, the total payments will be $44,700,000 plus 1,250,000

Santacruz shares. Hochschild is also entitled to receive 30% of any capital increase of the

Company (Impulsora Minera) during the remaining life of the San Felipe Agreement as pre-

payment of any remaining payment obligations. The project is subject to a 1% NSR in favour of

Hochschild. The Company has the right at any time to buy back the NSR for a cash payment of

$3,000,000.


19

All of the $3,000,000 in exploration expenditures has been incurred.

Subsequent to the Effective Date of this report, Santacruz reported that on July 7, 2015, the

company entered into a further amending agreement (the "Third Amending Agreement") with

Hochschild pursuant to which the $5,000,000 payment due on or before December 1, 2015 was

deferred to December 1, 2016.

To the date of this amended report, Santacruz reports it has made aggregate cash payments

totaling $25,883,997, issued 1,250,000 common shares and incurred the full $3,000,000 in

expenditures. The author has not independently verified this information.The San Felipe property

is within the boundaries of a number of municipalities and ejidos (agrarian communities) including

San Felipe de Jesus, Aconchi, Rayon, Huepac and Banamichi. The part of the project area that

covers the resources and potential development is entirely within the Municipality of San Felipe de

Jesus and surface rights are owned by the San Felipe Ejido (agrarian community). On September

21, 2008, Hochschild signed a temporary occupation access agreement with the Ejido, allowing

the company access to conduct exploration, development work and exploitation in a 1,596.5 Ha

area. The agreement is valid until December 1, 2038, and includes a renewal clause. An annual

payment of $1.8M pesos is tied to inflation and is now 2.1 million pesos (US$160,000) per year.

This agreement was assigned to Santacruz on August 3, 2011.

There are a number of old mine workings including adits, stopes and small pits within the

San Felipe Project area from previous mining activity. Many of these workings are open and

present a safety hazard. No water discharge was observed from any of the workings, but surface

exposures of mineralized rock and waste dumps are rusty weathering and could result in minerals

being leached into surface waters. There is an old mill site located within the project area proximal

to the location of the proposed new mill. The buildings have been removed, but there are small

piles of mineralized material and some old tailings in the adjacent areas. Drilling activities by

Santacruz and previous operators have resulted in a significant number of drill roads and pads

being created. These should be stabilized to reduce the effects of surface erosion.

Santacruz has initiated a baseline environmental study for the project area. Initial sampling

comprised 8 stream sediment samples and 5 water samples from wells which yielded one

anomalously high lead assay (130 ppm) in a sediment sample taken below the old tailings site. It

will be important to continue baseline sampling, including surface water samples, to establish the

condition of the streams before any potential project development is initiated.


20

As the amount of work authorized by a previous Informe Preventivo (exploration permit) has been

exceeded, a permit will be required before any additional exploration activities that result in land

disturbance are undertaken. The authors are not aware of any issues related to the project which

would prevent authorization of a new drilling permit.

Mine construction and operation activities require preparation and approval of a number of permits.

Details on these are given in Section 20.

1.5. Accessibility, Climate, Local Resources, Infrastructure and Physiography

All current resources and potential development on the San Felipe project are within the

boundaries of the municipality of San Felipe de Jesus. 148 km of paved highway from Hermosillo,

the capital of Sonora, provide year-round access to the village of San Felipe. The access road to

the village of San Felipe from highway 17, while paved, crosses the Sonora River via a ford.

During the rainy season the river occasionally floods and it is not possible to drive across the ford

for a period of hours to rarely a few days. An elevated foot bridge allows access by walking during

these periods. The project area is accessed by gravel roads from the San Felipe village. It is

approximately 7 km along a flat stream valley to get to the proposed mill site. Proposed

underground developments are within 2 km of this site. Road building will be relatively easy.

During the rainy season the local creeks experience flooding. Roads can be built above the

flooding level but no bridges are planned and there will be periods when creek crossings are not

passable. Experience from the last few years suggests these periods will be infrequent and

generally only a few hours long.

San Felipe is located in a semi-arid region typical of the Sonoran desert. Average day time

temperatures vary from around 180C in the winter to 350C in the summer (June through August).

Night time averages vary from around 60C to 280C. Summer temperatures can be as hot as 500C.

Occasionally night temperatures in the winter can fall below zero. Snow is very rare.

Rainfall typically averages around 400 mm per year, with most rain falling in July, August and the

first part of September. Over the last 50 years, annual average rainfall has varied from a low of

279 mm to a high of 700 mm. The maximum estimated 100 year-return 24-hour rain event is 145

mm.

The San Felipe property is situated in moderately to locally rugged topography with elevations

ranging from to 610 to 1830 m. The areas where the resource and potential development are


21

located are characterized by moderate to steep hills with ephemeral creeks in the valleys. In the

area of the resource and potential development there is little land suitable for growing crops.

Cattle ranching is the main non-mining related use of the land.

The vegetation in the San Felipe area is classified as subtropical shrublands; spineless shrubs and

secondary vegetation usually found in semiarid areas. In preliminary surveys within the project site,

protected flora species, as established by NOM-059-SEMARNAT-2010, were not observed.

The village of San Felipe has an estimated population of 400 people. Santacruz has hired most of

the non-technical people employed in exploration from the community. There are only minimal

services available in San Felipe.

The communities in the vicinity of San Felipe along the Sonora River have an estimated total

population of 10,000 people, mostly engaged in agriculture and support industries. The main

source of industrial supplies and services is the city of Hermosillo located by a 2 to 2 ½ hour drive

from the project. While some labour for mining could be sourced locally, it is likely that a

significant proportion of the labour force would have to be brought in from Hermosillo.

San Felipe is connected to the national power grid; however the existing line is too small to support

a major industrial operation. The closest high-tension power line is 40 km to the south. Power

may have to be brought from the town of Ures that has an existing substation which would entail

construction of a 75 to 80 km power line.

Santacruz has water rights and two wells located in the flat Sonora River valley. No production

tests have been done on these wells, but a number of wells are currently being used in the valley

for agriculture and there appears to be a productive aquifer within the valley gravels.

1.6. History

Mining on the San Felipe Property dates back to the turn of the last century. The main mining

area was centered around the current resource area with workings developed on the Artemisa,

Cornocopia, La Ventana, San Felipe and Lamas structures. The first known company to work in

the area was the Artemisa Mining Company which operated the Artemisa Mine from 1920 to 1944.

The property was then briefly owned by a number of small operators before being sold to Minera

Serrana (Serrana) in 1973. Serrana constructed a small flotation plant, processing ore from the

San Felipe district as well as from El Gachi and Moctezuma until 1991. No production has

occurred from the property since 1991.


22

In 1996 Silver Eagle Resources Ltd., through its Mexican subsidiary Liximin, S.A. de C.V. (Liximin),

entered into an exploration agreement with Serrana. Shortly after Liximin entered into an

agreement with Boliden Ltd. Boliden did not spend the total required money on the property and

ownership reverted 100% to Serrana after the four year period ended in 2000. Following this,

Hochschild entered into a joint venture with Serrana in 2006 and took 100% ownership of the

project in June 2008. Santacruz entered into a purchase agreement with Hochschild in 2011.

1.7. Geology

1.7.1. Regional Geology

The San Felipe Project is located in the San Felipe mining district within the southeast end of the

North American Block, northeastern Sonora, Mexico. The project is located at the junction of two

Proterozic basement provinces. To the north lies the Mazatzal province which extends into

Arizona, while to the south lays the Caborca Terrane. The provinces are separated by the

Mojave-Sonora Megashear. The Matzatal province rocks are comprised of a series of

Precambrian metamorphic rocks that include metavolcanics and schists while the Caborca

Terrane rocks include a thick sequence of eugeoclinal deep water sediments and volcanic rocks.

Basement rocks are overlain by Upper Paleozoic quartzites and carbonates and Middle to Upper

Jurassic volcanic rocks. Overlying these are Upper Triassic rocks and include continental red

beds, conglomerates, and a series of shallow marine to fluvial sediments.

During the Triassic and Jurassic a period of plutonism and volcanism swept eastward across the

Sonora from the Paleozoic continental margin and flared up again in late Jurassic-early

Cretaceous. At San Felipe, three Laramide-age granitoids intrude the Lower Cretaceous rocks and

include; the late Cretaceous El Jaralito granodiorite, the early Eocene San Felipe rhyolite porphyry,

and the late Eocene two-mica granite from the Aconchi batholith.

1.7.2. Property Geology

The San Felipe district represents a cluster of deeply eroded late Mesozoic distal Pb-Zn-Ag skarn

vein deposits. The oldest rocks exposed in the San Felipe district belong to a Lower Cretaceous

metamorphic sequence that includes andesitic lavas and tuffs interbedded with siltstone and rare

limestone. In the San Felipe project area these rocks are named the Lower Metamorphic

Sequence (LMS) and are metamorphosed siliceous hornfels, or altered to chlorite-albite-epidote,

and presumed the result of contact metamorphism. Small isolated dikes of the San Felipe

porphyry and sills of fragmental rhyolite porphyry intrude the LMS in the south part of the district;


23

whereas, a granite pluton dominates in the south part of the district. Oligocene volcanic and

sedimentary rocks in the San Felipe District include felsic pyroclastic rocks and andesitic flows

intercalated with polygenetic conglomerates. Overlying these are the clastic rocks of the Baucarit

Formation which are widespread in valleys of Central Sonora.

The San Felipe District contains a series of easterly-trending Pb-Zn-Ag-Mn skarn veins and pipes

that cut the Lower Metamorphic sequence and intrusive rocks. The district hosts five principal,

westerly-striking, vein systems that include Artemisa-Cornucopia, Las Lamas, San Felipe,

Transversales and La Ventana. Primary minerals include sphalerite, galena, pyrite, and magnetite

with lesser native silver, chalcopyrite, arsenopyrite, scheelite, and covelite within a gangue of

garnet, pyroxene, epidote, quartz, rhodonite, and carbonate.

1.7.3. Domain Summary

A three-dimensional geologic model was constructed for mineralized structures at San Felipe

using Leapfrog Geo software (leapfrog) based on detailed geologic logging of drill holes and

surface mapping in the project area. Only mineralization that could be correlated between

drillholes over a significant area was considered for use in the resource estimate. Descriptions of

the geologic domains used are as follows:

• La Ventana – Two domains were constructed at La Ventana (LV & LG). LV corresponds to

the main (high grade) mineralizing event - qtz-sphalerite-galena mineralization with epidote

and minor rhodonite. LG corresponds to a generally low grade, silica rich zone. This

domain is overprinted by and peripheral to the LV domain.

• San Felipe – Three mineralized wireframes were constructed (HW-1, HW-2 and SF). SF

corresponds to the main structure that was historically mined while HW-1 and HW-2 are

mineralization structures in the hangwall.

• Transversales – One domain (VT) was identified at Transversales. The domain

characteristics are similar to San Felipe.

• Las Lamas – One mineralized wireframe was constructed (LL). Garnet (andradite) -

pyroxene (rhodonite) skarn alteration with disseminated sphalerite-galena-chalcopyrite

mineralization.


24

1.8. Deposit Type

Mineralization at San Felipe can be classified as a zinc-lead skarn (Einaudi et al, 1981). These

skarn systems commonly occur in continental settings associated with either subduction or rifting.

They are sulphide rich with Zn + Pb commonly ranging from 10-20 % and Ag from 30-300 g/t.

Zinc-lead skarns are often transitional to massive-sulphide veins and often lack significant

calc-silicate alteration. The San Felipe district is characterized by a strong structural control on

hydrothermal fluid movement and resulting alteration / mineralization in the northern areas

(Ventana, Transversales and San Felipe) and a more disseminated style to the south (Lamas).

Calc-silicate alteration at San Felipe is Mn-rich including bustamite-rhodonite, piemontite, garnet

and pyroxene.

1.9. Exploration

Exploration by Boliden began in 1998 with a surface geochemical sampling program consisting of

763 soil and 52 stream sediment samples. Soil anomalies were detected over the now known

mineralized areas. Boliden noted that Au, Co and V increase in concentration to the south towards

Lamas, while Cu, Cd and Zn are higher in the northern areas. In general, the stream sediment

samples showed the base metals as being the best pathfinders, with only subdued silver values

detected in most samples.

Boliden completed an airborne magnetic geophysical program consisting of magnetics and very

low frequency magnetics (VLF) in May 1997. Problems caused by the operator resulted in the

survey being not reliable enough to use. A ground induced polarization (IP) and magnetometer

(MAG) survey was completed in 1998 over the Santa Rosa, La Ventana, San Felipe, Las Lamas

and Artemisa areas. At Ventana, the magnetic responses were subdued and where present

showed a weak correlation with the mineralized structure. At Lamas and San Felipe, no significant

chargeability or magnetic response were found.

A total of 412 rock chip samples have been taken at San Felipe. Of these, 64 were taken by

Hochschild in 2008 and 2009, with the remainder of samples taken by Santacruz since 2011.

Geologic mapping was completed over approximately 10% of property (1,700 Ha) by Hochschild

from 2006 to 2007. During 2014, Santacruz mapped approximately 30% of the property

(5,000 Ha) as part of an ongoing exploration program.


25

1.10. Drilling

A total of 317 holes have been drilled on the San Felipe property since 1998 for a total of 68,669

meters. Of these, Boliden drilled 5,187 meters in 27 holes; Hochschild drilled 42,452 meters in

199 holes; and Santacruz drilled 21,029 meters in 117 holes. Drilling has been successful in

outlining mineral resources at La Ventana, Transversales, San Felipe and Las Lamas.

1.11. Sample Preparation, Analysis and Security

For all drill campaigns, holes were drilled with HQ and NQ sized core with only select intervals

sampled. Core was sawn in half at site and one half sent to ALS (formerly Chemex and ALS

Chemex). Samples were prepared at the ALS facility in Hermosillo, Mexico. The pulps were then

shipped to Canada and analyzed at ALS in Vancouver. Samples were analyzed for 48 elements

using a four acid ICP-MS package (ME-MS61) and Au using a fire assay with and an AAS finish

(Au-AA23).

Details on sample security for Boliden and Hochschild are not known. Santacruz has a fulltime

caretaker and the core is kept in locked storage. The core from all operators is now kept in the

Santacruz core shed.

1.11.1. QA/QC Analysis

QA/QC programs were undertaken by Santacruz and Hochschild. Approximately 13 percent of the

total number of drill core samples submitted for assaying (ratio of 1:8) are external quality control

samples. The drilling by Boliden did not employ a QA/QC program to monitor the core sampling

and analysis. However, this drilling represents only 6% of the total samples taken on the project

and all holes have been twinned or infilled by either Hochschild or Santacruz. No major

differences in grade distributions were identified between Boliden and other operator holes.

The blanks for both Hochschild and Santacruz show no significant contamination problems at the

laboratory with only 3 samples above acceptable limits. The standards used show no systematic

problems with lab accuracy - only 4 sample results are deemed outside acceptable limits.

Duplicates show good precision and no bias in the data. The main limitations of the QA/QC data

relate to the lack of details on the standard types used by Hochschild and the use of a gold

standard instead of a silver standard for much of the Santacruz drilling. Though there are some


26

problems with the QA/QC data, the author is of the opinion that the analytical results from all drill

campaigns considered at San Felipe are adequate for mineral resource estimation.

1.12. Data Verification

Smit and Bourke spent approximately 87 man days at San Felipe from July 2013 to June 2014.

During these site visits the authors conducted the following verification procedures:

• Visual site inspection of drill collar locations and orientations vs. digital data.

• Historic workings were accessed in La Ventana, San Felipe and Las Lamas.

• Geologic mapping was under taken by T. Longo C.P.G. and F. Bourke P.Geo. Over

approximately 30% of the property (5,000 Ha).

• Detailed geologic re-logging of portions of approximately 250 drill holes by Boliden,

Hochschild and Santacruz (80% of total drill holes), and;

• Verification of digital data versus original hard copies of data from Boliden, Hochschild and

Santacruz (collar orientation, location and geologic logging).

Bourke took three independent samples from core while re-logging. The amount of samples taken

is too small to allow meaningful statistical analysis; however the results confirm the presence of

high grade Ag, Pb and Zn.

A new independent drill hole data base was compiled by Bourke for use in the resource estimate.

The author was able to gain access to the original certificates directly from ALS for drilling

conducted since 2006 by Hochschild and Santacruz. In total, 191 certificates (82% of all

certificates) were imported by Bourke into the new data base.

Drill hole collar location and down hole surveys supplied by Santacruz were checked against the

original hard copies of drill logs and of collar location survey reports for every drill hole. An

independent surveyor was used to verify any discrepancies.


27

1.13. Mineral Processing and Metallurgical Testing

Sufficient amount of test work has been performed by several investigators for the San Felipe

prospect to support a PEA level study. In 2008, Hochschild contracted Dawson Metallurgical

Laboratories to undertake metallurgical test work. The primary objective of this phase of test work

was to determine lead and zinc flotation response on different mineralization type composites.

Seventeen composites, representing oxide, mixed and sulfide mineralization types were prepared

from 51 individual samples and scoping level flotation tests were performed. Material for the tests

was obtained from assay rejects from core drill holes on the Ventana vein. Santacruz did

additional test work in 2013 and 2014 on 4 composites, one from Ventana, two from Las Lamas

and one from San Felipe.

Estimated metallurgical recoveries used on the PEA model are summarized below. To date,

testing has not been able to produce a viable copper concentrate. Therefore, copper is not

considered in the PEA. Further test work to evaluate the potential for copper recovery is

recommended.

Table 1-1 Estimated Metallurgical Recoveries Oxide Sulphide

Ag 70% 80%

Pb 70% 86%

Zn 68% 87%

1.14. Mineral Resource Estimates

Giroux Consultants was contracted by Santacruz to complete a resource estimate for six separate

mineralized structures: the La Ventana, the Las Lamas, the San Felipe, two San Felipe HW

structures and Transversales. The San Felipe mineral resource estimate is supported by 55,050

metres of drilling in 260 drill holes with a total of 11,526 assays. The holes include those drilled by

Santacruz in 2013 and by prior operators in the period 1999 to 2000 and 2006 to 2008. The

mineral resources were defined to a maximum depth of approximately 450 metres below surface

with a total of 1,106 down-hole surveys utilized for control.

Geologic solids for each skarn vein system were built by Bourke defining the mineralized

structures. The geological model has six domains; two at La Ventana (HG, LG), Transversales

(VT), three at San Felipe (SF, HW-1, HW-2) and one at Las Lamas (LL).


28

Assays for each domain were examined and a top cap was applied to each variable within each

domain. Uniform 2 m composites were formed for the domain envelopes. Variography was

completed for all domains in the La Ventana and Las Lamas zones. Due to insufficient composites

in the VT, SF and HW-2 domains, variography from the HW-1 domain was used with the

orientation changed to fit the strike and dip of the structures. Grades for all variables were

interpolated into blocks 5 x 2.5 x 5 m using ordinary kriging. For blocks with multiple domains

present, a weighted average was determined for the mineralized portion. A specific gravity was

established for each domain based on 472 measurements from drill core. Estimated blocks were

classified as indicated or inferred based on geologic and grade continuity.

Giroux Consultants Ltd. completed the mineral resource estimate on the San Felipe Project on six

separate mineralized structures drilled to date: the La Ventana, the Las Lamas, the San Felipe, the

two San Felipe hanging wall structures and the Transversales vein. The San Felipe vein and two

hanging wall structures are combined in resource tables. The new mineral resource estimate was

utilized in preparation of the PEA.

In addition to silver, lead and zinc, the veins contain low amounts of copper and anomalous gold.

Since test work has not been able to produce an economic copper concentrate and gold values

are too low to be significant, the values for these metals have not been considered at this time.

Since the veins contain different metals, a silver equivalent value cut-off is given in the resource

tables to better compare value. The metal prices used in the silver equivalent estimation are from

a 100 day moving average as of June 3, 2014, and are listed below. The metal prices and

recoveries used for the silver equivalents in the resource estimation vary somewhat from those

used in the PEA as the resource was done earlier and the PEA includes some new information.

Factor

Ag - US$ 20.06 per ounce 0.64 $/g

Pb - US$ 0.96 per pound 21.16 $/%

Zn - US$ 0.92 per pound 20.28 $/%

The recoveries used in the resource estimation for each metal within each vein are shown below.


29

Table 1-2 Recoveries for each metal Zone Ag Rec. Pb Rec. Zn Rec.

Ventana 70% 86% 87%

Las Lamas 73% 82% 88%

San Felipe & Transversales 69% 86% 79%

The equation used to establish Ag Equivalent is:

𝐴𝑔𝐸𝑞 =𝐴𝑔𝑝𝑝𝑚×0.64×𝐴𝑔 𝑅𝑒𝑐 % + 𝑃𝑏%×21.16×𝑃𝑏 𝑅𝑒𝑐 % + (𝑍𝑛%×20.28×𝑍𝑛 𝑅𝑒𝑐 %)

0.64×𝐴𝑔 𝑅𝑒𝑐 %

The silver equivalent resource for each mineralized structure is presented in the following Tables.

This resource contains no edge dilution. At this time, only a Preliminary Economic Assessment

has been completed and an economic cut-off is unknown. Based on asumptions made during the

PEA, a cut-off for possible open pit extraction would be 75 g/t Ag Equivalent based on $2.00 /t

mining costs, $19.00 /t milling costs and $18.00 smelter charges and the metal prices shown

above. For possible underground extraction the cut-off would be 150 g/t Ag Equivalent based on

assumed mining costs of $30 /t, milling costs of $19.00 /t and smelting charges of $28.00 /t. The

resources are presented broken down by mining method. For open pit resources only material

within the conceptual pits is reported while for underground resources the material within the

mineralized structures below the open pits is reported.


30

Table 1-3 Summary of Silver Equivalent Resource for all Zones sorted by potential mining method

Zone Classification

Cut-‐off AgEq (g/t)

Tonnes > Cut-‐off Grades > Cut-‐off

(tonnes)

Ag (g/t)

Pb (%)

Zn (%) AgEQ (g/t) AgEq Ozs.

Within Conceptual Open Pits Ventana Indicated 75 10,000 70.61 0.11 7.69 378.11 121,565 San Felipe Indicated 75 87,000 82.27 1.39 4.07 283.26 792,310

Total Indicated 75 97,000 81.07 1.26 4.44 293.04 913,875 Ventana Inferred 75 252,000 54.37 1.66 6.31 370.29 3,000,083 San Felipe Inferred 75 261,000 83.07 1.28 4.56 297.48 2,496,255

Transversales Inferred 75 345,000 55.40 1.41 1.33 159.84 1,772,945 Total Inferred 75 858,000 63.51 1.44 3.78 263.52 7,269,283

Below Pits Possible Underground Ventana Indicated 150 815,000 72.91 2.96 6.78 460.35 12,062,477 San Felipe Indicated 150 118,000 91.38 1.76 5.79 368.79 1,399,110 Las Lamas Indicated 150 84,000 76.18 0.25 5.29 286.28 773,145 Total Indicated 150 1,017,000 75.32 2.60 6.54 435.35 14,234,732

Ventana Inferred 150 1,201,000 59.67 2.86 5.78 403.57 15,583,056 San Felipe Inferred 150 712,000 56.33 1.61 4.09 267.06 6,113,354 Las Lamas Inferred 150 383,000 95.27 0.36 5.50 317.54 3,910,101 Total Inferred 150 2,296,000 64.57 2.06 5.21 346.89 25,606,511

1.15. Mineral Reserve Estimates

There are no mineral reserve estimates for the San Felipe project.


31

1.16. Mining Methods

A variety of mining methods will be used at the San Felipe project including conventional open pit

and underground methods applied to the four deposits targeted for mining at this time. The La

Ventana deposit will be mined using a combination of open pit and underground methods, as will

the San Felipe deposit. Las Lamas will be mined using underground methods only and

Transversales will be mined using open pit methods only.

At an average mining and processing rate of 1,250 tonnes per day the anticipated life of mine is

expected to be 7.5 years.

1.17. Recovery Methods

This Preliminary Economic Assessment is based on a conventional flotation mill that produces a

zinc and a lead concentrate. Silver will be recovered primarily within the lead concentrate. Silver

values within the zinc concentrate are too low to be payable.

A 1,250 mtpd (metric tonne per day) mill will be constructed in the first year of project development.

The mill will be located proximal to the old Artemisa mill site approximately 2 km southeast of the

Ventana vein. The run-of-mine (ROM) mineralized material will be trucked and dumped into a

hopper which will have aira grizzly. The mineralized material will be crushed in a three-stage

crushing system and stored in a fine mineralized material bin. The mineralized material will be fed

from the fine mineralized material bin to a ball mill in closed circuit with cyclones. The cyclone

overflow will be pumped to the lead rougher and scavenger flotation circuit. The scavenger

concentrate will be recycled back to the rougher flotation feed. The rougher concentrate will be

subjected to counter-current two stage cleaner flotation. The lead concentrate will be thickened

and filtered and stored for shipment.

The lead rougher flotation tailing will be sent to the zinc rougher/ scavenger flotation circuit. The

zinc scavenger flotation tailing will be sent to the conventional tailing pond. The rougher zinc

concentrate will be subjected to two stages of counter-current cleaner flotation and the final

concentrate will be thickened and filtered.


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1.18. Project Infrastructure and General Administration

The tailings storage facility (TSF) will be an important component of the infrastructure required for

a mine at San Felipe. In 2008, Hochschild identified a potential site for a TSF and contracted

various geotechnical studies. Work included digging 19 test pits, drilling 4 geotechnical holes in

the area of the proposed dam and establishing 2 monitoring wells. Santacruz contracted Mark

Smith, P.E. (M. Smith) to review the data and to do a comparison between the Hochschild site and

a site proposed and permitted by Santacruz. At this point the Hochschild site appears to be more

favorable, so the PEA model and descriptions below are all based on this site. If further evaluation

finds a significant problem with the Hochschild site, the alternative site will be evaluated as a back-

up.

M. Smith visited the Hochschild site on February 14 and 15, 2014. The following summarizes his

observations:

• Good quality bedrock outcropping in both abutments and in various locations in the

impoundment;

• Abundant borrow sources for soil and good quality rock;

• Good abutment geometry and a good ratio of dam length (distance between abutments),

valley width and valley length, suggesting a reasonable storage efficiency (impoundment

volume divided by dam fill volume);

• Ample room for increasing capacity well above 5,000,000 mt;

• Existing geotechnical and hydrogeological field & lab investigations are probably

sufficient for a PFS-level design.

After the visit, M. Smith completed a PEA level design and cost estimate for a TSF.

The village of San Felipe is connected to the national power grid but the line is under-sized for the

power requirements of the proposed mill. The nearest high tension line from San Felipe is 40 km

south of the project. In very preliminary discussions with the government-owned power company,

Comision Federal de Electricidad (CFE), CFE representatives indicated that a new line would have

to come from Ures where there is an existing sub-station. This would require a 75 to 80 km long

power line. At this time, no engineering or permitting has been done for a power line and there

have been no detailed discussions with CFE.


33

Santacruz has authorization for two wells in the Sonora River floodplain located approximately 5

km from the mill site. There is sufficient water authorized to operate the project as modeled. No

pump tests have been done to see whether the wells can achieve the production rate they are

authorized for. There are a number of wells in the area that are used for agriculture and the

material in the flat river valley appears to host a good aquifer.

Approximately 8 km of road will require upgrading to provide access from the end of pavement at

the village of San Felipe to the proposed mill site. A further 7 km will be needed to connect the mill

site to the various mine workings. All roads will be gravel and road building will be straight forward.

All creek crossings are proposed to be fords, so continued road maintenance will be needed in the

rainy season and there will be occasional times that access is blocked by high water.

Other infrastructure required includes an office, warehouse and shop. These are planned to be

located proximal to the mill. No designs have been made for these structures, but simple buildings

or trailers are planned. A fuel depot will be placed within a lined containment.

This PEA model is based on Santacruz providing overall site management, technical support and

surface and mill personnel. Mining will be done by contractors and all mine personnel besides the

mine superintendent are included in mine costs.

No detailed reclamation and closure plan has been made for the project. There is insufficient test

work to model whether waste rock will be PAG and there is no characterization of the tailings.

Therefore, reclamation plans are very conceptual at this time.


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1.19. Market Studies and Contracts

No market studies have been undertaken for the San Felipe project and there are no contracts for

any possible production. However, metallurgical studies indicate that marketable lead and zinc

concentrates can be produced from the resource material. Santacruz is currently selling similar

concentrates from their Rosario mine and it is reasonable to assume that concentrates from San

Felipe could be sold.

For the PEA model, general details of the contract Santacruz has with a concentrate trader for the

Rosario concentrate were used. Key points include:

Zinc concentrate payables:

Zinc - Pay for 85% of the final zinc content, subject to a minimum deduction of 8 units (percentage

points).

Silver - Deduct 3 ounces (93 gms) per tonne of concentrate and pay 70% of the balance of the

final silver content. The silver values in the zinc concentrate produced in test work for San Felipe

are too low to be payable under this condition.

Lead – No payment.

Lead Concentrate Payables:

Lead - Pay for 95% of the final lead content, subject to a minimum deduction of 3 units

(percentage points). .

Silver - Pay 95% of the final silver content subject to a minimum deduction of 50 grams per tonne.

Zinc – no payment, but no penalty.


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1.20. Environmental Studies, Permitting and Social or Community Impact

There are a number of environment-related regulatory standards (NOMs) that pertain to mining

developed by the Mexican Federal government. All development, operating and closure activities

must conform to these NOMs.

Baseline environmental studies have recently been initiated on the project by Santacruz. To date

these have been limited to a reconnaissance visit to the project area for a preliminary review of the

type of flora and the general environmental conditions at the project area and a first round of water

sampling. On May 20th, 2014, 5 wells were sampled and 8 samples of creek sediments collected.

At the time sampling was done, none of the creeks or the Sonora River had surface water. The

wells had some parameters that were variably elevated including fluorine, sulphur, aluminum and

manganese indicating high levels for these elements occurs naturally in the groundwater. Lead,

zinc and copper levels were low. A high lead value in sediments (130 ppm) is likely due to

contamination from an old mill site.

Water sampling, including both surface and subsurface, will continue. Detailed flora and fauna

studies of the area that would be affected by any potential development are planned within the

next few months.

Tailings characterization and more detailed evaluation of the site will be required before any

construction of a tailings impoundment is initiated.

A comprehensive waste rock characterization program is required before any development is

initiated. To address the issue of acid rock drainage and metal leaching in this PEA, waste rock

dumps were modeled to be contained and engineered to hold rock that is potentially acid

generating (PAG).

An initial study did not identify any rare or endangered flora on the proposed mill or tailings pond

sites. More detailed studies of flora and fauna in the area potentially affected by development are

planned.


36

The main mine permits required for construction and operation activities are the:

• Authorization to Impact the Environment which requires a submission of a Manifesto de

Impacto Ambiental (Environmental Impact Statement), known by its acronym as an MIA,

and;

• Authorization to Change the Use of Forest Lands which requires the submission of an

Estudio Tecnico Justificativo (Technical Justification Study), known by its acronym ETJ.

Santacruz applied for and received a MIA and ETJ for a processing plant (1.39 Ha) and for a

tailings impoundment site (13.86 Ha) valid for 10 years in 2014. The processing plant area is in

the area of the mill site proposed in the PEA, but there may need to be modifications of the area to

meet new plans. The tailings site is not the one currently proposed as the site proposed by

Hochschild appears to be a better alternative. The permitted site provides a possible back-up if

detailed examination of the current proposed site finds some unknown problem with the

Hochschild site.

No authorizations were applied for the open pit portion of the PEA plan as this is a relatively new

concept. No authorizations have been applied for mine waste storage areas or power lines.

Under the MIA and ETJ authorizations already received, Santacruz is required to develop the

project according to the terms and obligations in the MIA and the ETJ and is obliged to develop

management and monitoring plans to ensure compliance. Santacruz is currently reviewing all

permitting requirements in relation to the development and operating scenario described in this

report and Santacruz plans to initiate the work necessary to obtain all permits and authorizations

required to undertake the proposed development.

Santacruz has signed an agreement to acquire water rights to two wells which could provide water

for potentiual operations. Filing of this agreement with Mexican authorities is still pending.

It is the author’s opinion that there are no issues with the project that will prevent obtaining the

permits and other authorizations required to build a mine, provided that Santacruz collects the

required information, designs project components so that environmental values and human safety

are protected, ensures that applications and reports are complete, and correctly responds to

concerns expressed by regulatory agencies.


the non-technical people employed in exploration from the community and has a cordial

relationship with the people in the community.


37


population of 10,000 people, mostly engaged in agriculture and support industries. While some

labor for mining could be sourced locally, it is likely that a significant proportion of the labor force

would have to be brought in from Hermosillo.

Provided that Santacruz puts effort into working with San Felipe and other area communities,

social and community concerns are unlikely to prevent a mine from being developed.

1.21. Capital and Operating Costs

A summary of estimated capital costs is given in Tables 1-4 and of estimated operating costs is

given in Table 1-5.

Table 1-4 Estimated Capital Costs - $M Item Description Initial Sustaining

Mining

Open pit and underground contract mining $2.5 $26.3

Milling

1,250 mtpd mill $15.3 $0.0

Infrastructure and General and Administration

Tailings Dam $2.1 $3.4

Office, shop and warehouse $0.6 $0.1

Power to site $5.0 $1.0

Power on site $0.5 $0.5

Roads $0.9

General and Admin $3.4

Working Capital $6.0 -‐$6.0

Closure and Reclamation

Reclamation $3.0

Salvage -‐$0.5

Subtotal $36.3 $27.8

Total Capital $64.1


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Table 1-5 Estimated Operating Costs Per tonne Mining Per tonne

Open pit – mineralized material per tonne $2.80

Open pit – waste per tonne $2.20

Underground -‐ average per tonne mineralized material $27.62 to $32.71

Average per tonne mineralized material $26.12

Milling

Milling per tonne milled $19.34

Concentrate Costs

Smelter per tonne milled $24.34

Shipping, assay, insurance per tonne milled $3.68 $28.02

General and Administration

General and Administration per tonne mineralized material $6.85

Total per tonne mineralized material $80.33

1.22. Economic Analysis

The PEA is based on a stand-alone project and evaluates the potential economics from the start of

construction. It does not incorporate costs before any production decision. These would include

costs for further technical studies, property payments and taxes. The cost for these items is in part

dependent upon when a potential project decision is made. Potential tax savings a company could

achieve by writing off other expenses and losses against the revenue derived from San Felipe are

also not considered.

The reader is advised that the PEA is preliminary in nature, that it includes inferred mineral

resources that are considered too speculative geologically to have the economic

considerations applied to them that would enable them to be categorized as mineral

reserves and there is no certainty that the PEA will be realized. Mineral resources that are

not mineral reserves do not have demonstrated economic viability.

Assumptions included in the model are:

• Metal Prices – a 100-day average price as of September 4, 2014 was used; $19.91/oz for Ag,

$0.99/lb for Pb and $1.00/lb for Zn

• All $US

• Exchange rate – US$1 = 13.16 Mexican pesos


39

• Mining by contractor

• No cost or revenue escalations over time.

The primary taxes that need to be considered for a mining project in Mexico are:

• IVA – 16% goods and services tax

• Environmental Fee – a 0.5% tax on gold and silver production

• Mining Royalty – a 7.5% tax on mineral production

• Income Tax


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Table 1-6 San Felipe PEA Production Summary

San Felipe -‐ September 2014 PEA Results

This PEA is preliminary in nature and there is no certainty that the results of the PEA will be realized.

The resources incorporated in this assessment are not mineral reserves and do not have demonstrated economic viability.

The first year of this assessment is based almost entirely on inferred resources and there is limited metallurgical information

and no geotechnical information to support the first year of the analysis.

The results of this study show that the project has potential to be economic and further work to determine economic viability is warranted

This study is too preliminary to demonstrate economic viability.

San Felipe PEA Production Estimate

Total Tonnes to Mill 3.4 Mt

Average Milled per Day 1250 t/day

Underground Tonnes to Mill 2.4 Mt

Open Pit Tonnes to Mill 1.0 Mt

Open Pit Tonnes Waste 7.1 Mt

Open Pit Strip Ratio 7:1

Years Production 7.5

Ag Pb Zn

Grade 63.5 g/t 1.7% 5.1%

Metal Mined 7.0 Moz 126.5 Mlbs 385.9 Mlbs

Recovery – Sulphide (Oxide de-‐rated) 80% 86% 87%

Metal Produced in Concentrate 5.5 Moz 107.3 Mlbs 328.7 Mlbs

Metals Payable after Smelting 5.2 Moz 100.9 Mlbs 279.4 Mlbs

Metal Price $19.91/oz $0.99/lb $1.00/lb

Smelter Credit ($US) $104.6 M $99.9 M $279.4 M $483.8 M


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Table 1-7 Life of mine economics San Felipe PEA Economics -‐ Life of Mine

$US '000 $US '000 Per Tonne Mined

Smelter Credit

$483,784

$141.78 Smelter Costs ($83,064)

($24.38)

Concentrate Shipping ($12,571)

($3.68) Total Smelter and Concentrate

Charges

($95,605)

($28.02) NSR (1%)

($3,540)

($1.04)

Site Operating Costs Mining ($89,138)

($26.24)

Milling ($66,004)

($19.34) G&A ($23,380)

($6.85)

Total Site Operating

($178,522)

($52.32) Net Operating Cash Flow

$206,118

$60.40

Initial Capital Costs Mining (2,500)

Milling (15,300) G&A and Infrastructure (12,460) Working Capital (6,000) Total Initial Capital (36,260)

($10.63) Sustaining Capital Costs

Mining ($26,265) Milling $0 Infrastructure (5,025) Total Sustaining Capital ($31,290)

($9.17) Closure

Salvage Value 500 Recoup of Working Capital 6,000 Total Closure Capital $6,500

$1.90 Total Capital

($61,050)

($17.89)

Reclamation (3,000) (3,000)

($0.88)

Net Cash Flow -‐ Pre Tax

$142,068

$41.63 Environmental Fee ($533)

Mining Royalty ($14,143) Income Tax ($39,480) ($53,415)

Net Cash Flow -‐ After Tax

$88,653

$25.98 Total cash cost (Opex, smelter, NSR and Sustaining Capital) ($90.54) per tonne ($12.72) per oz Ag Eq


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Table 1-8 San Felipe PEA NPV and IRR San Felipe NPV and IRR -‐ Base Case $USM

Pre-‐Tax NPV After Tax NPV

Discount Rate 0% 142.1 88.7

2% 125.0 76.4

5% 103.5 61.2

8% 86.1 48.9

10% 76.3 42.0

IRR 60.6 37.7

Payback (years) 1.6 2.3

Note: These tables are in part based on inferred mineral resources which are considered too speculative

geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

*The after tax calculation considers the new Mexican tax regime including a 0.5% environmental fee for gold/silver/platinum, a 7.5% royalty and depreciation and amortization annually at a 10% rate.

Key economic inputs were examined by running cash flow sensitivities on:

• Metal prices

• Capital Costs

• Operating Costs

Sensitivity over the base case was calculated for a range of -20% to +20% variations of the base

case parameters listed above. All were done with a 5% NPV. The sensitivities are shown on

Table 1-9.

The project is most sensitive to metal price. This is followed by the operating costs with the capital

cost being the least sensitive to the economics of the project.


43

Table 1-9 San Felipe Project Preliminary Economic Assessment 2014 - Sensitivities Metal Prices

-‐20% -‐10% Base +10% +20%

Ag 15.93 17.92 19.91 21.90 23.89

Pb 0.79 0.89 0.99 1.09 1.19

Zn 0.80 0.90 1.00 1.10 1.20

NPV 5% $US M pre-‐tax 28.7 66.1 103.5 140.9 178.3

after-‐tax 11.8 36.5 61.2 85.8 110.5

IRR % pre-‐tax 22.3% 42.1% 60.6% 78.6% 96.4%

after-‐tax 12.1% 25.5% 37.7% 49.4% 60.8%

Operating Cost

+20% +10% Base -‐10% -‐20%

NPV 5% $US M pre-‐tax 75.8 89.6 103.5 117.3 131.2

after-‐tax 42.6 51.9 61.2 70.4 79.7

IRR % pre-‐tax 47.2% 54.0% 60.6% 67.3% 73.8%

after-‐tax 28.6% 33.2% 37.7% 42.2% 46.6%

Capital Cost

+20% +10% Base -‐10% -‐20%

NPV 5% $US M pre-‐tax 92.0 97.7 103.5 109.2 115.0

after-‐tax 51.6 56.4 61.2 65.6 70.7

IRR % pre-‐tax 47.4% 53.5% 60.6% 69.3% 80.0%

after-‐tax 28.8% 32.9% 37.7% 43.5% 50.6%

Note: This table is in part based on Inferred Mineral Resources which are considered too speculative geologically to

have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. Mineral resources that are not mineral reserves do not have demonstrated economic viability.


44

Figure 1-1 Sensitivity Analysis

1.23. Adjacent Properties

There is no public information available regarding exploration on the claims adjacent to

Santacruz’s San Felipe property. The closest active mine is the Santa Elena deposit owned by

Silvercrest Mines Inc. The mine is located approximately 20 km to the NE of San Felipe.

1.24. Other Relevant Data and Information

The authors are not aware of any material information relevant to this report, or the resource

estimation and PEA described in this report, that is not included herewithin.


45

1.25. Interpretation and Conclusions

At a 75 g/t Ag equivalent cut-off, the new resource estimate for material that can be potentially

mined by open pit for all veins is:

• Indicated – 0.1Mt at 81.07 g/t Ag, 1.3% Pb and 4.4%Zn = 293 g/t Ag equiv or 0.9 Moz Ag

equiv*

• Inferred – 0.9Mt at 63.5 g/t Ag, 1.4% Pb and 3.8% Zn = 264 g/t Aq equiv or 7.3 Moz Ag

equiv*

At a 150 g/t Ag equivalent cut-off, the new resource estimate for material that can be potentially be

mined by underground methods for all veins is:

• Indicated – 1.0Mt at 75.3 g/t Ag, 2.6% Pb and 6.5%Zn = 425 g/t Ag equiv or 14.2 Moz Ag

equiv*

• Inferred – 2.3Mt at 64.6 g/t Ag, 2.1% Pb and 5.2% Zn = 347 g/t Aq equiv or 25.6 Moz Ag

equiv*

Highlights of the PEA, using a US $19.91 per ounce silver base case, include:

• Pre-tax Net Present Value ("NPV") at a 5% discount rate of US $103.5 million and an

Internal Rate of Return ("IRR") of 60.6%;

• After-tax NPV at a 5% discount rate of US $61.2 million and IRR of 37.7%;

• Production of 24.3 million ounces of silver equivalent (after milling and smelting recoveries);

• Average annual production of 3.2 million ounces of silver equivalent over a 7.5 year mine life;

• Initial capital cost ("CAPEX") of US $36.3 million, including $6 million of working capital;

• Estimated all-in cash costs of US $12.72/oz silver equivalent (including site operating costs,

smelter costs, sustaining capital and NSR payments); and

• Pre-tax payback of 1.6 years after start-up, and 2.3 years after-tax payback.



considerations applied to them that would enable them to be categorized as mineral


46

reserves and there is no certainty that the PEA will be realized. Mineral resources that are

not mineral reserves do not have demonstrated economic viability.

*For the PEA, Silver Equivalent was calculated using prices of US$19.91/oz., US$0.99/lb. and

US$1.00/lb. for silver, lead and zinc, respectively. Metal prices and recoveries used for the resource

are different than those used in the PEA because the resource was completed earlier than the PEA.

The San Felipe project is subject to the usual risks that comparable mining projects face, including

decreases in metal prices, increases in costs and changes in mineral title law and taxation.

Mexico is considered a reasonably stable country and the San Felipe area has not experienced

any drug-cartel related violence. Recent changes in taxation are incorporated in the PEA model.

Santacruz has a good relationship with the community of San Felipe and has an agreement

regarding surface land-use with the local Ejido. There are no known reasons why permits and

other authorizations required to developing a mine cannot be acquired. The PEA is based in part

on inferred mineral resources which are too speculative geologically to have the economic

considerations applied to them that would enable them to be categorized as mineral reserves.

Geotechnical analysis of the rock mass indicates potentially difficult ground conditions. The

continuity of higher-grades at a stope scale has not been determined to the level required to do

detailed mine planning.. If ground conditions require more ground support than currently modeled

or if higher-grades are less continuous than modeled, mining rates could be lower and costs could

be higher.

The first year of open pit production is modeled almost entirely on inferred resources and there is

limited metallurgical information and no geotechnical information to support the model.

The authors are not aware of any legal, environmental, permitting or technical reasons that a mine

could not be built at San Felipe.

Project opportunities include:

• Higher metal prices – Increases in metal prices from those modeled results in significant

increases in NPV and IRR;

• Higher grades – The grade of material mined may be higher if mineralization is more

continuous at a stope scale than currently modelled, resulting in decreased dilution and

increased mining recovery;


47

• Increased resource in mine plan – Any combination of higher metal prices, lower costs,

higher recovery or decreased dilution will result in more of the current resource being

potentially economic;

• Resource expansion – There is some potential to expand resources around the current

resources. A number of new parallel skarn vein systems have been identified from recent

surface exploration work to the east and northeast of Las Lamas (La Ventanita and Veta

Negra). These targets have yet to be drilled but surface work indicates alteration and

mineralization similar to Las Lamas.

• Copper extraction – Copper grades average in the range of 0.3 to 0.4% for the material

considered in the PEA. If further test work can show that a copper concentrate is possible, it

could add to the project economics.

• Use of used equipment – Santacruz can acquire a used ball mill, a crushing system and

some analytical laboratory equipment. This equipment has not been examined by the

authors. Potential capital costs savings by using this equipment were not considered in the

PEA.

1.26. Recommendations

This PEA indicates that the San Felipe project is potentially economic and there is good potential

to increase resources. Therefore, additional work on the project is recommended.

Recommendations include:

• Resume exploration development on the Ventana vein to examine the continuity of higher

grades and vein widths at a stoping scale and perform detailed sampling.

• Drill the upper part of the Ventana and San Felipe structures to upgrade the resources in

these areas.

• Drill the Ventana and San Felipe viens in places with complications in the geological model. .

• Complete a new resource after the test mining, sampling and drilling work is completed.

• Construct a rock-type model for the entire area encompassing the current resources.

• Detailed surface mapping should continue around the resource areas.

• Undertake additional metallurgical test work, including both open-cycle and locked-cycle

flotation tests with oxide, transition and sulphide mineralization.


48

• Complete characterization work on the concentrates and tailings produced in the

metallurgical test work.

• Conduct geotechnical mapping of the ramps and other underground developments during

the proposed field program.

• Gather geotechnical data while logging drill core during the upper Ventana exploration

program.

• Design and implement a geotechnical drill program for the proposed La Ventana and San

Felipe pits.

• Develop geotechnical engineering domains to support geotechnical models for the deposits

intended for mining.

• Using the updated resource model and geotechnical information mentioned above, re-run

Whittle™ optimizations and from those resultant shells design operational pits for La

Ventana and San Felipe to a PFS level of detail.

• Using the updated resource model and new geotechnical information gathered during the

proposed field program, design the La Ventana underground mine to a PFS level of detail.

• Using existing data and any new data on the San Felipe, Lamas and Transversales deposits,

design the San Felipe and Lamas underground mines and an operational pit for

Transversales to a PFS level of detail.

• Revise mine plans, capital and operating costs estimates based on the continuity of

mineralization observed during the Ventana underground exploration program, operational

pit designs and PFS-level of detail underground mine designs for La Ventana, San Felipe

and Lamas as mentioned above.

• Investigate the possibility of obtaining mill feed from other deposits located on IMS

concessions that are not included in this PEA.

• Identify borrow sources for tailings dam construction materials.

• Advance the tailings storage facility design to a PFS level of detail.

• Confirm proposed mill location and dig test pits for geotechnical data collection; finalized civil

earthworks design for mill location.

• Condemn all locations planned for major facilities including the mill site, TSF and proposed

waste rock storage areas to ensure these facilities are not located on geologically

prospective ground.


49

• Advance the existing mill design to pre-feasibility level.

• Used equipment available to Santacruz should be independently examined and if suitable

the cost for buying and refurbishing the equipment used in further analysis.

• Bring the engineering of the powerline to site and the tailings storage facility to pre-feasibility

level engineering.

• Continue the baseline study including water monitoring and flora and fauna studies.

• Permitting for all proposed mine activities should be undertaken.

• An ABA and metal leaching testing program should be developed and carried out.

• Drill areas where the resource may be open and the new skarn vein systems identified at La

Ventanita and Veta Negra.

• Surface exploration including mapping and sampling should continue throughout the

property.

• A one-year budget of $8,260,000 is recommended to undertake the proposed work plan and

cover claim agreement payments, taxes and surface right payments for the period.


50

2. Introduction This amended report addresses issues identified by the British Columbia Securities Commission

with the original report that has an effective date of Sept 4, 2014. This amended report does not

include any new data or other inputs and there are no material changes to any interpretations,

results or conclusions. Specific items amended are:

Title Page

• Mark Smith, P.E. added as a Qualified Person

Section 2.1

• Clarification as to which author is responsible for each section of the report

Section 4.2

• A note included regarding changes in the property payment schedule that occured after the

Effective Date of this report.

Section 14

• Canadian Institute of Mining, Metallurgy and Petroleum (CIM) 2014 Definition Standards for

mineral resources referenced instead of CIM 2005 Definition Standards.

• Explanation for base-case cut-of grades added.

• Estimated resources divided by material potentially mineable by open pit and underground

methods and reported as such.

Section 18.1

• Various edits to grammer and clarifications by Mark Smith, P.E.

Sections 25.1, 25.2 and 26.1

• Edits to clarify degree of uncertainty with respect to continuity of higher grade sections within

mineralized zones.

Certificates of Authors

• Added details to the list of relevant experience for Hans Smit, P.Geo.

• Clarification on which authors were responsible for sections 18, 21 and 24 through 27

• Mark Smith, P.E. added as an author responsible for Section 18.1 and Table 26-1.

Section 1

• Summaries updated to reflect changes in related chapters.

• A paragraph mistakenly copied from 1.4 and inserted in section 1.3 removed.


51

The purpose of this report is to provide an independent assessment of the San Felipe Project and,

in particular, to provide an independent mineral resource estimate and a preliminary economic

assessment (PEA) for the project. San Felipe is a mineral exploration project located in

Sonora State, Mexico that is being explored for silver, lead, zinc and copper mineralization. The

project is owned by Impulsora Minera Santacruz, S.A. de C.V, a wholly owned subsidiary of

Santacruz Silver Mining Ltd (“Santacruz”), a public company trading on the TSX Venture exchange

under the symbol SCZ. This report includes information gathered by Santacruz as well as by

previous operators of the project, Minera Hochschild Mexico, S.A. de C.V. ("Hochschild") and

Boliden Mexico S.A. de C.V. (“Boliden”).

Santacruz commissioned Hans Smit, P. Geo. of Hans Smit, P. Geo. Inc. (“Smit”), and Fletcher

Bourke, P. Geo. of Kuu Exploration Ltd. (“Bourke”), to review the project, develop a geological

model for the area drilled, and facilitate completion of a resource estimate and assessment PEA.

Santacruz commissioned Gary Giroux, P. Eng. of Giroux Consulting Ltd. (“Giroux”), to estimate the

resources for the project based upon the geologic and mineralized domain model created by Smit

and Bourke. Deepak Malhotra, Registered SME Member and President of Resource Development

Inc., (“Malhotra”) was commissioned to complete the metallurgy and milling components of the

PEA. JDS Energy & Mining Inc., under the direction of Greg Blaylock, P. Eng. (“Blaylock”) was

commissioned to complete the mine plan and mining parts of the PEA. Mark Smith, P.E. of RRD

International Corp. was commissioned to do a prelimnary design and cost estimate for a tailings

storage facility and provide recommendations for further studies in regards to talings storage.

All the contributors made recommendations for further work, and helped prepare a Technical

Report in accordance with Canadian Securities Administrators National Instrument 43-101 (NI 43-

101).

Bourke, Smit, Giroux, Malhotra, Blaylock and Smith are Qualified Persons as defined by NI 43-101

and are independent of both Santacruz and the title holders, based on the tests outlined in NI 43-

101.

This report is subsequent to a previous Technical Report authored by D.E. Hulse, P.E. of

Gustavson Associates titled, “Updated NI 43-101 Technical Report on Resources, San Felipe

Project, Sonora Mexico” dated December 19, 2012.

This report has been prepared pursuant to NI 43-101 standards.The effective date of this report is

September 4, 2014, the date that the metal prices used in the PEA economic calculation were set.

The effective date of the mineral resource estimate included in this report is 3rd April 2014; the day


52

Giroux received the final assay data. Since that time, 6 holes have been drilled on the property for

a total of 1,929 meters. The results of these holes will not materially affect the resource and were

not considered in the PEA.

2.1. Sources of Information

Information for this Technical Report includes independent observations by Smit, Bourke, Giroux,

Malhotra and Blaylock.

Smit and Bourke obtained assay data directly from the laboratory (ALS Minerals), geologic maps

and drill hole information from Santacruz. Information on pre-Santacruz work was obtained from

old reports and databases created by Hochschild and Boliden. Smit and Bourke examined core

stored on the San Felipe site as well as rock exposed at surface and underground.

Giroux used the information and geological model supplied by Smit and Bourke; then did

independent analysis and resource estimation.

Malhotra used information obtained directly from Santacruz and available in reports by Hochschild.

Blaylock used the geological model created by Smit and Bourke and the resource model created

by Giroux to create a preliminary mine model. For the mine (NSR) model all commodity prices,

metallurgical recoveries, smelting terms and conditions and other off-site costs were obtained from

the other authors of this report.

Details on mineral titles, taxes, surface access agreements and permitting were obtained from

Arturo Prestamo, President of Santacruz. Details on property agreements were obtained from

Santacruz and compared to audited financial statements. Environmental information was obtained

from Santacruz and reports by Hochschild. The report also references reports as listed in

Section 27.

Descriptions of the regional and local geology and related figures are primarily the work of

geologist Anthony Longo. Author Bourke worked directly with Longo at the project and is

responsible for the geological description in Section 7.


53

M. Smith, P. Eng. of RRD International Corp. completed the preliminary design and costing for the

proposed tailings impoundment presented in Section 18.1. He visited the site during the period of

February 14 and 15, 2014, and used work by Hochschild to support his conclusions. Jay Gow of

Gow Consulting Limited provided information in regards to the price paid for lead and zinc

concentrates and the smelter costs associated with the concentrates. Gow assists producing

companies in negotiating terms with smelters and concentrate traders. His clients include

Santacruz in relation to the Rosario Mine. Author Smit worked directly with Gow and is

responsible for Section 19, Market Studies and Contracts.

This Technical Report incorporates contributions by Bourke, Smit, Giroux, Malhotra, Blaylock and

Smith, all Qualified Persons as defined by NI 43-101. Smit was responsible for sections 1 through

5, 15, 18.6, 19, 20, 22, 24, 25, 26.1 and 26.6 to 26,8 Bourke was responsible for Sections 6

through 12, 23, and 27. Giroux was responsible for Section 14. Malhotra was responsible for

Sections 13 and 17, 18.2 to 18.5, 18.7, 21, excepting mining cost in Tables 21-1 and 21-2, 26.2,

26.4, and 26.5. Blaylock was responsible for Section 16 and 26.3 and the mining costs in Tables

21-1 and 21-2. Smith was responsible for sections 18.1 and Table 26-1. The work of all authors is

summarized in Section 1. Author Smit takes responsibility for this section.


54

2.2. Field Examination and Data Review by the Qualified Person

Smit visited the San Felipe Project during the periods of June 18-19, 2013, July 13-22, 2013,

September 18-24, 2013, February 13-16, 2014, and April 3-6, 2014. During these periods,

approximately half of the intersections within the resource areas were re-logged, various old

underground workings were examined and sites for proposed infrastructure were reviewed.

Bourke visited the San Felipe site during the periods of July 13-22, 2013, September 18-27, 2013,

February 13-17, 2014, and April 22 to May 1, 2014, May 20-27, 2014, and June 10-16, 2014.

During this time, portions of 80% of all holes were re-logged with Smit, historic workings were

visited and drill hole collar locations were compared in the field to the digital data. In addition,

approximately 30% of the property was mapped in collaboration with geologist Anthony Longo.

More details of work undertaken while on site are given in Section 12.1.

Blaylock visited the property on May 8, June 11, August 20, and September 11, 2014, and

examined existing La Ventana underground workings, La Ventana core, sections of the

La Ventana outcrop for sampling, San Felipe and Transversales deposits, Las Lamas outcrop and

existing underground workings, proposed TSF sites and proposed process plant sites.

Smith visited the property February 14-15, 2014 and examined potential tailings storage facility

sites.

Giroux has not visited the project but has relied on the geological data and information verified by

Bourke and Smit.

Malhotra has not visited the project but has relied on information supplied by Smit and Bourke,

information supplied by Santacruz and information within reports by Hochschild.


55

2.3. Units of Measure

Unless otherwise stated, all measurements used in the technical report are presented in metric

units and all references to dollars are in United States dollars.

Table 2-1 Table of abbreviations Abbreviation Term

AA atomic absorption Ag silver

AgEq silver equivalent Au gold Cu Copper Pb Lead Zn Zinc az azimuth cm centimeters DDH diamond drill g gram(s)

GPS Global Positioning System ha hectare(s) HQ HQ size core ICP Inductively coupled plasma mass spectrometry ID2 inverse distance squared kg kilogram(s) km Kilometre(s) km2 square kilometer(s) m metre(s) mm millimetre(s ) Mt million tonnes

NI 43-‐101 National Instrument 43-‐101 NQ NQ size core NSR net smelter royalty return OK Ordinary Kriging oz Troy ounces

QA/QC quality assurance/quality control ppm parts per million g/t grams per tone % Percent


56

3. Reliance on Other Experts

The majority of work in this report is based on data obtained from the authors’ site visits, digital

data supplied by Santacruz, digital data created by Hochschild and their consultants, data

available in Hochschild reports, and assay data obtained directly from ALS Minerals. The

conclusions presented in this report are based on the work of Qualified Persons, as defined under

NI 43-101.

An independent review of the mineral titles was performed by Mauricio Heiras Garibay (Heiras) a

lawyer based in Chihuahua, Mexico. The conclusion in Section 4 that Santacruz controls the

mineral titles that encompass the area of the resources described herein is based on an opinion by

Heiras dated June 18, 2014 with some clarification in an opinion dated October 23, 2014. Heiras

also did an independent review of the agreement between Santacruz and the San Felipe Ejido and

of the water rights held by Santacruz. Statements in Sections 4 and 18 on surface and water

rights are based on an opinion by Heiras dated October 23, 2014.

Copies of environmental permits received from Santacruz were reviewed by Patricia Aquayo, an

environmental consultant based in Hermosillo, Mexico. The conclusions about permitting in

Section 20 are based on communications with Aquayo dated March 26, May 16 and August 1,

2014.


57

4. Property Description and Location

4.1. Area and Location

The San Felipe Project is located in the Sonora River basin approximately 110km NNW of the city

of Hermosillo in the state of Sonora, Mexico. The village of San Felipe de Jesus is situated 6km

east of the resource area. The center of the current resource is located at UTM Zone 12, 567400E,

3305700N. All geographic coordinates in this report utilize North American Datum 27 (Mexico)

Zone 12 (NAD27).

Figure 4-1. San Felipe project location.


58

4.2. Title and Ownership

Mining and exploration rights in Mexico are controlled by the Federal Government. The mining

concessions are administered by the Direccion General de Minas (DGM), a sub secretariat of the

cabinet level Secretaria de Economia. To maintain concessions in legal standing, concession

holders are obligated to pay semi-annual tax payments and to annually file documentation of

exploration or development work on the concession. New mining concessions are valid for a

renewable 50 year period. Hochschild is also entitled to receive 30% of any capital increase of the


payment of any remaining payment obligations.

The San Felipe Project includes 14 mining concessions covering a total area of 16,265 hectares.

Santacruz’s rights to the concessions are held through its wholly owned Mexican Subsidiary,

Impulsora Minera Santacruz S.A. de C.V., (the "Company") Figure 4-2. The Company acquired

exploration rights with the right to purchase the project from Minera Hochschild Mexico, S.A. de

C.V. ("Hochschild"). Pursuant to a mining exploration and promissory sale agreement dated

August 3, 2011, and amended December 9, 2011, October 8, 2012, August 13, 2013 and

September 3, 2014 (the "San Felipe Agreement"), the Company was granted an option to acquire

a 100% interest in the San Felipe project.

In addition to cash payments of $23,700,000 made to date and the issuance of 1,250,000

common shares previously completed by Santacruz, in order to maintain and exercise the

option, the Company is obligated to incur exploration expenditures of $3,000,000 by

October 31, 2015 and make additional payments as follows:

• Annual surface right payments of 520,000 Mexican Pesos ($39,744) on or before

February 19 of each year until the project reaches commercial production;

• $2,000,000 on or before December 1, 2014;

• $5,000,000 on or before December 1, 2015; and,

• $14,000,000 on or before December 15, 2016.

Under the agreement and amendments, the total payments will be $44,700,000 plus 1,250,000

Santacruz shares. Hochschild is also entitled to receive 30% of any capital increase of the


payment of any remaining payment obligations. The project is subject to a 1% NSR in favour of


59

Hochschild. Santacruz has the right at any time to buy back the NSR for a cash payment of

$3,000,000.

With respect to the exploration expenditures commitment, if the Company did not incur $3,000,000

of expenditures by October 31, 2015, it was obligated to reimburse the optionor for the difference

between $3,000,000 and the actual exploration expenditures incurred. All $3,000,000 of

exploration expenditures have been incurred and there are no exploration obligations as of

March 31, 2014.

Any minerals extracted in commercially usable quantities remain the property of the optionor until

Santacruz has exercised its option and acquired the project.

The project is subject to a 1% NSR in favour of Hochschild. Santacruz has the right at any time to

buy back the NSR for a cash payment of $3,000,000. In the event commercial production has not

occurred by December 9, 2015, Santacruz must make an advance royalty payment of $500,000,

which payment will be deducted from the royalty.

Pursuant to the terms of the San Felipe Agreement, a change of control could accelerate payments

required under this agreement to acquire the rights. In the event the Company is unable to make

such payments within 15 days after a change of control, it could lose its rights to the San Felipe

project.

Subsequent to the Effective Date of this report, Santacruz reported that on July 7, 2015, the

company entered into a further amending agreement (the "Third Amending Agreement") with

Hochschild pursuant to which the $5,000,000 payment due on or before December 1, 2015 was

deferred to December 1, 2016.

To the date of this amended report, Santacruz reports it has made aggregate cash payments

totaling $25,883,997, issued 1,250,000 common shares and incurred the full $3,000,000 in

expenditures. The author has not independently verified this information.

On March 7, 2013, pursuant to the San Felipe Agreement, the Company obtained an option to

acquire a 100% interest in the 48,057.33 hectare El Gachi property located 30 kilometers from the

San Felipe project in Sonora State as part of the agreement. El Gachi is an exploration property

that in part covers old mine workings but has had limited modern exploration. The authors have

not visited El Gachi and this property does not form any part of the San Felipe resource, PEA or

exploration potential described in this report.


60

Details of the payment schedule are in Table 4-1.

Table 4-1 Payment Schedule (US dollar x 1,000)

Period Payment 2011 2012 2013 2014 2015 2016 Balance at 15 Sept 2014

On signing 1,000 1,000

On December 15, 2011 1,000 1,000

On October 9, 2012 4,000 4,000

On April 1, 2013 16,000 16,000

On August 13, 2013 700 700

On June 15, 2014 1,000 1,000

On December 1, 2014 2,000 2,000 2,000

On December 1, 2015 5,000 5,000 5,000

On December 15, 2016 4,000

14,000 14,000

Total 44,700 2,000 4,000 16,700 3,000 5,000 14,000 21,000

Plus 1,250,000 SCZ Shares issued in August 2013

Note that subsequent to the effective date of this report, Santacruz reported that the payment due on December 1, 2015 was delayed to December 1, 2016.

The author commissioned a title review of the San Felipe project mineral claims. The review

confirmed that these titles are valid as of the date of this report and that an agreement between

Hochschild and the Company has been registered. The review also confirmed that assessment

work has been filed for the claims and taxes have been paid up to the first semester of 2014. The

review noted a few clerical errors in the assessment and tax filings which Santacruz is addressing.

These errors do not jeopardize the validity of the claims. The authors have relied on statements

by Santacruz that the taxes payable on the mineral titles that comprise the San Felipe Project will

be approximately $184,000 for 2015. Santacruz will have to continue to complete annual

assessment filings and pay mineral title taxes every 6 months in order to maintain the validity of

the claims.

The authors did not commission an independent legal review of the agreement between

Hochschild and the Company and have relied on statements by Santacruz personnel that the

Company is current with all obligations under the agreement. The payment details in Table 4-1

are consistent with the audited December 31, 2013 Santacruz financial statements.

aledwon

Typewritten Text

Figure 4-2 Santacruz Concession

aledwon

Typewritten Text

61

aledwon

Typewritten Text


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Typewritten Text

4.3. Surface Rights

The San Felipe property is within the boundaries of a number of municipalities and ejidos (agrarian

communities) including San Felipe de Jesus, Aconchi, Rayon, Huepac and Banamichi. The part of

the project area that covers the resources and potential development is all in the Municipality of

San Felipe de Jesus and surface rights are owned by the San Felipe Ejido (agrarian community)

(See figure 4-3). On September 21, 2008, Hochschild signed a temporary occupation access

agreement with the Ejido, allowing them access to conduct exploration, development work and

exploitation in a 1,596.5 Ha area. The agreement is valid until December 1, 2038 and includes a

renewal clause. An annual payment of $1.8M pesos is tied to inflation and is now 2.1 million

pesos (US$160,000) per year. This agreement was assigned to Santacruz on August 3, 2011.

The Agreement has not yet been filed with the Agrarian Registry. Santacruz is currently

undertaking the necessary steps to complete this.

Figure 4-3 Area covered by the agreement with the San Felipe Ejido

aledwon

Typewritten Text

62

aledwon

Typewritten Text



63

4.4. Environmental Liability

There are a number of old mine workings including adits, stopes and small pits within the San

Felipe Project area from previous mining activity. Many of these workings are open and present a

safety hazard. No water discharge was observed from any of the workings, but surface exposures

of mineralized rock and waste dumps are rusty weathering and could result in minerals being

leached into surface waters.

There is an old mill site located within the project area proximal to the location of the proposed new

mill. The buildings have been removed, but there are small piles of mineralized material and some

old tailings in the adjacent areas. A larger mill site and old tailings are located close to the village

of San Felipe. Some of these tailings are from material mined within the San Felipe project.

However, this area is owned by the Aconchi ejido.

Drilling activities by Santacruz and previous operators have resulted in creation of a significant

number of drill roads and pads. These should be stabilized to reduce the effects of surface

erosion.

Santacruz has initiated a baseline environmental study for the project area. Initial sampling

comprised 8 stream sediment samples and 5 water samples from wells, which yielded one

anomalously high lead assay (130 ppm) in a sediment sample taken below the old tailings site. It

will be important to continue baseline sampling, including surface water samples, to establish the

condition of the streams before any potential project development is initiated.

More detailed discussions on environmental considerations are given in Section 20.

4.5. Permits

Exploration and mining activities in Mexico are subject to control by the Secretaria Del Medio

Ambiente y Recursos Naturales (Secretary of the Environment and Natural Resources), known by

its acronym SEMARNAT, and regulated by the General Law of Ecological Equilibrium and

Environmental Protection (Ley General de Equilibrio Ecologico y Proteccion al Ambiente, or

LGEEPA). For exploration activities, including mapping, geochemical sampling, geophysical

surveys, mechanized trenching, road building, and drilling, if each particular activity does not

exceed a defined threshold for surface disturbance, which varies by activity, and if in aggregate

these activities will affect less than 25% of the project surface area, LGEEPA allows for an

exemption from the requirement to prepare an Environmental Impact Statement (Manifiesto de


64

Impacto Ambiental) and instead allows the exploration activities to be regulated under Norma

Oficial Mexicana NOM-120-ECOL-2011. In place of an Environmental Impact Statement, the

applicant must submit and obtain approval of an Informe Preventivo which describes the

exploration activities and the accompanying environmental mitigation and restoration procedures.

If the activities permitted under NOM-120-SEMARNAT-2011 and approved in the Informe

Preventivo require clearing of natural vegetation, then a Land Use Change authorization (Cambio

de Uso de Suelos, CUS) is required. A Land Use Change application consists of a Technical

Justification Study (Estudio Tecnico Justificativo) which describes in detail the areas to be cleared

and the types of vegetation affected. The Land Use Change permit will be issued within 60

working days of submittal if it is approved. If the permit is not issued within this period it is

considered as denied. NOM-120-SEMARNAT-2011 defines the impact mitigation procedures that

must be followed for each activity.

The San Felipe project is near, but not inside, a bird protection area (“Sistema de Sierras de la

Sierra Madre Occidental”) and is within a terrestrial region for conservation (with medium priority).

These designations do not restrict mining exploration or development. Therefore basic exploration

activities conducted to date are regulated under Norma Oficial Mexicana NOM-120-SEMARNAT-

2011.

Santacruz considered the drilling in 2013 and 2014 to be covered by notifications by Hochschild to

SEMARNAT in 2006. However, there have been many more holes drilled than were described in

the notifications and the time period of the notifications expired by August 2009. Therefore, a new

Informe Preventivo will be required before any additional exploration activities that result in land

disturbance are undertaken. The authors are not aware of any issues related to the project which

would prevent authorization for more drilling.

Mine construction and operation activities require preparation and approval of a number of

documents and various permits need to be obtained. Details on these are given in Section 20.


65

5. Accessibility, Climate, Local Resources, Infrastructure and Physiography

5.1. Access

All current resources and potential development on the San Felipe project are within the

boundaries of the municipality of San Felipe de Jesus. Access to the village of San Felipe is via

148 km of paved highway from Hermosillo, the capital of Sonora. The first 9 km are on the four-

lane federal highway that connects Hermosillo to the American border. From there, 137 km along

secondary provincial highways 14 and 17 leads to the turnoff to San Felipe located an additional

2 km from the turnoff.

The highways provide year-round paved access to the project area. The access road to the village

of San Felipe from highway 17, while paved, crosses the Sonora River via a ford. During the rainy

season the river occasionally floods and it is not possible to drive across the ford for a period of

hours to rarely a few days. An elevated foot bridge allows access by walking during these periods.

The project area is accessed by gravel roads from the village. It is approximately 7 km along a flat

stream valley to get to the proposed mill site. Proposed underground developments are within 2

km of this site. Road building will be relatively easy. During the rainy season the local creeks

experience flooding. Roads can be built above the flooding level but no bridges are planned and

there will be periods when creek crossings are not passable. Experience from the last few years

suggests these periods will be infrequent and generally only a few hours long. Further analysis of

the creek crossings and the issue of high water making roads impassable are required.


66

Figure 5-1 San Felipe Project location


67

5.2. Climate

San Felipe is located in a semi-arid region typical of the Sonoran desert. Average day time

temperatures vary from around 180C in the winter to 350C in the summer (June through August).

Night time averages vary from around 60C to 280C. Summer temperatures can be as hot as 500C.

Occasionally night temperatures in the winter can fall below zero. Snow is very rare.

Rainfall typically averages around 400 mm per year, with most rain falling in July, August and the

first part of September. Over the last 50 years, annual average rainfall has varied from a low of

279 mm to a high of 700 mm. The maximum estimated 100 year-return 24-hour rain event is 145

mm.

The annual evaporation rate is considerably higher than the precipitation rate.

Exploration and activities can be undertaken any time of the year. Besides occasional times

when high water in creeks and the Sonora River prevent crossing, the local climate should not

preclude any proposed exploration or development activities.

5.3. Physiography

The San Felipe property is situated in moderately to locally rugged topography with elevations

ranging from to 610 to 1830 m. The higher parts of the property are on the north slopes of Sierra

de Aconchi. The areas where the resource and potential development are located are

characterized by moderate to steep hills with ephemeral creeks in the valleys. Drainage is to the

flat bottomed Arroyo Lavadero valley which runs to the east into the Sonora River. Drill collar

elevations range from 700 to 900 m elevation. There are suitable sites for mine infrastructure, a

mill and tailings storage facilities.

The Sonora River valley is a relatively flat and fertile agriculture zone. However, in the area of the

resource and potential development there is little land suitable for growing crops. Cattle ranching

is the main non-mining related use of the land.


68

5.4. Vegetation and Fauna

The vegetation in the San Felipe area is classified as subtropical shrublands; spineless shrubs and

secondary vegetation usually found in semiarid areas. The vegetation type is consistent with the

flora species observed at the project site, including mesquite (Prosopis velutina), tree morning

glory (Ipomoea arborescens), desert hackberry (Celtis pallida), mexican evony

(Havardia mexicana), tree ocotillo (Fouquieria macdougallii), samota (Coursetia glandulosa),

organ pipe cactus (Stenocereus thurberi), among others.

In preliminary surveys within the project site, protected flora species, as established by

NOM-059-SEMARNAT-2010, were not observed.

The area is located in the herpetofaunistic province called Sierra Madre Occidental. The following

fauna species are included among the species that can be found at the project site: gray fox

(Urocyon cinereoargenteus), coyote (Canis latrans), white-tailed deer (Odocoileus virginianus),

bobcat (Linx rufus), wild boar (pecari tajacu), bat (Myotis sp), hawk (Accipiter cooperi), desert

cardinal (Cardinalis sinuatus), mourning dove (Zenaida macroura), western diamondback

rattlesnake (Crotalus atrox), desert tortoise (Gopherus agassizii), among others.

Protected fauna species found in the general area include desert tortoise (Gopherus agassizii) and

western diamondback rattlesnake (Crotalus atrox).

5.5. Local Resources and Infrastructure


the non-technical people employed in exploration from the community. There are only minimal

services available in San Felipe.


population of 10,000 people, mostly engaged in agriculture and support industries. Some supplies

are available in communities such as Aconchi, but the main source of material and supplies and

the closest source of heavy industrial and specialty supplies and services is the city of Hermosillo

located by a 2 to 2 ½ hour drive from the project. Hermosillo is a major city with an international

airport and a wide range of suppliers and contractors that cater to the mineral exploration and

mining industry. While some labour for mining could be sourced locally, it is likely that a significant

proportion of the labour force would have to be brought in from Hermosillo.


69

San Felipe is connected to the national power grid; however, the existing line is too small to

support a major industrial operation. The closest high-tension power line is 40 km to the south.

Power may have to be brought from the town of Ures that has an existing substation which would

entail construction of a 75 to 80 km power line (Figure 5-2).

Santacruz has water rights and two wells located in the flat Sonora River valley. No production

tests have been done on these wells, but a number of wells are currently being used in the valley

for agriculture and there appears to be a productive aquifer within the valley gravels.


70

Figure 5-2 Proposed power line to San Felipe.


71

6. History

Mining on the San Felipe Property dates back to the turn of the last century. The main mining

area was centered around the current resource area with workings developed on the Artemisa,

Cornocopia, La Ventana, San Felipe and Lamas structures. The first known company to work in

the area was the Artemisa Mining Company which operated the Artemisa Mine from 1920 to 1944.

Sampling from the mine workings in 1932 by Schramm and Hammond (Turner, 1999) reported

grades of up to 16.21 oz/t silver, 21.7% lead, 29.5% zinc and 27.65% copper. No historical mine

production records are available from this period but average production is estimated at up to

100 tons/day (Turner, 1999). Mining was suspended in 1944 due to low metal prices.

Mining resumed again briefly from 1957 to 1959 when a small concentration plant was constructed

at La Cuchilla by Pablo Mesa (located adjacent to the Santacruz core shed in San Felipe de Jesus

village). In 1963, Mineral Metalurgica San Felipe resumed operations until 1968. No records exist

but total production from this time is estimated at around 100,000 tons of ore (Turner, 1999).

The property was then briefly owned by Metalurgica Penoles (Penoles) before being sold to

Minera Serrana (Serrana) in 1973. Serrana constructed a 100 ton/day flotation plant processing

ore from the San Felipe district as well as from El Gachi and Moctezuma until 1991. Total

production from this time is shown in Table 6-1 (Turner, 1999). No production has occurred from

the property since 1991.

Table 6-1 Production data from the San Felipe district by Serrana 1975 - 1991. Average Grades

Mine Tonnage Zn % Pb % Cu % Ag g/t

San Felipe 42,000 9.0 3.0 0.2 84.0

Santa Rosa 50,000 10.5 0.6 0.3 70.0

Artemisa 12,000 15.0 9.5 0.5 70.0

Total 104,000 10.4 2.6 0.3 75.7


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In 1996 Silver Eagle Resources Ltd., through its Mexican subsidiary Liximin, S.A. de C.V. (Liximin),

entered into an exploration agreement with Serrana. Shortly after Liximin entered into an

agreement with Boliden Ltd, it enabled Boliden to earn 51% of the property by spending a total of

USD$1,350,000 over four years. A summary of work completed on the property from 1996 to

present is given in Sections 9 and 10. No records are available, but it is presumed that Boliden did

not spend the total required money on the property and ownership reverted 100% to Serrana after

the four year period ended in 2000.

Following this, Hochschild entered into a joint venture with Serrana in 2006 and took 100%

ownership of the project on June 2008. In the period from 2006 to 2008 Hochschild completed a

substantial amount of work on the property including geological mapping, 42,452.6 m of drilling in

199 holes, preliminary metallurgy and various engineering studies. The company completed an

unpublished Scoping Study on the La Ventana structure targeting a production rate of 3,000 t/day

in February of 2008 (Hochschild, 2008) and started work towards a pre-feasibility study. Due to

the fact that the resource size at the time did not meet company expectations and falling metal

prices, Hochschild suspended the San Felipe project in October 2008.

Santacruz entered into a purchase agreement with Hochschild in 2011.

6.1. Prior Resource Estimates

6.1.1. Hochschild 2008

In 2008, as part of a scoping study on the project, Hochschild estimated resources for the

La Ventana, San Felipe and Las Lamas zones (Table 6-3). The estimate was reportedly prepared

to JORC standards with an effective date of December 2008 (Hochschild, 2008) but is not an

NI 43-101 compliant resource. Wireframes were constructed using Minesite software of the

mineralized zones based on geologic logging of drill core as shown in Figure 6-1.


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Figure 6-1 Mineralised wireframes of San Felipe zones. Hochschild 2008 resource estimate.

The resource was estimated using an inverse distance squared (ID2) methodology and ordinary

kriging (OK) - with block size varying by zone from 5x5x5m to 10x10x5m, recovery and metal

prices used are shown in Table 6-4.

Table 6-2. Metal prices and recoveries used in the 2008 Hochschild resource. Metal Price Recovery

Au $600/oz 84%

Ag $10.5/oz 87%

Cu $1.5/lb 85%

Pb $0.435/lb 80%

Zn $0.713/lb 72%

Average density used for the resource was as follows:

• La Ventana – 3.14 g/cm3

• San Felipe - 2.89 g/cm3

• Las Lamas – 2.99 g/cm3

The authors and QP’s have not reviewed the Hochschild resource estimate and the QP’s have not

done sufficient work to classify the historical estimate as current mineral resources. Santacruz is

not treating the historic estimate as a current estimate. There has been a substantial amount of

drilling since the estimate was made. The Hochschild resource estimate is summarized in

Table 6-3 and is only included in this report for background information on the project and should

not be considered as indicative of the current resource on the property.


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Table 6-3 Resource summary table from Hoshchild 2008. (20$/t cut off shown). Tonnes Au (g/t) Ag (g/t) Cu (%) Pb (%) Zn (%)

Measured 1,393,716 0.02 69 0.39 3.10 7.12

Indicated 1,354,261 0.06 82 0.31 2.73 6.14

M & I 2,747,977 0.04 76 0.35 2.92 6.64

Inferred 1,257,731 0.05 84 0.19 2.26 6.18

6.1.2. Santacruz 2012

In 2012 Santacruz commissioned Gustavson Associates LLC (Gustavson) to prepare an

independent technical report on the San Felipe Project and to estimate the mineral resources for

Ag, Cu, Pb and Zn. The report and resource were prepared to NI 43-101 standards. The report

authored by D.E. Hulse P.E., with an effective date of April 5, 2012 (Hulse, 2012), is filed on

SEDAR. Since this report, an additional 117 holes have been drilled by Santacruz as outlined in

Section 10. The Gustavson resource is not current. The author and QP of this report have not

done sufficient work to classify the Gustavson estimate as a current estimate.

Gustavson used indicator kriging (IK) to estimate Ag, Cu, Pb and Zn resources at the La Ventana,

San Felipe and Lamas areas - no geologic models or wireframes were used to constrain

mineralization. Samples with Ag >10 ppm were given an indicator value of 1 and were used to

represent the “vein material”. Variograms were calculated from 1 meter composites at La Ventana

for Ag, Cu, Pb and Zn. The San Felipe and Lamas zones had insufficient samples to calculate

variograms so those from La Ventana were used. The search ellipsoid distances are shown in

Table 6-4 and resource classification criteria in Table 6-5. Block size was 10x2x5m, and a density

of 2.84 g/cm3 for mineralized rock and 2.5 g/cm3 for waste was used. The metal prices used for

the silver equivalent calculations are shown in Table 6-6 and the total estimated resources in Table

6-7.

Table 6-4. Gustavson search ellipsoid distances (in meters). 1st Pass 2nd Pass 3rd Pass

Primary 100 200 300

Secondary 100 200 300

Tertiary 10 20 30


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Table 6-5. Gustavson resource classification criteria (distance from block to nearest drill hole in meters).

Zone Measured Indicated Inferred

La Ventana 42 69 299

San Felipe 59 90 297

Lamas 61 95 299

Table 6-6. Metal prices and recoveries used by Gustavson. Metal Price Recovery

Ag $26.28/oz 100%

Cu $3.491/lb 100%

Pb $0.9988/lb 100%

Zn $0.9531/lb 100%

Table 6-7. Gustavson 2012 resource table showing 150 g/t AgEq cuttoff. Tonnes Ag (g/t) Cu (%) Pb (%) Zn (%) AgEq (g/t) AgEq (koz)

Measured 1,524,000 92.21 0.38 3.4 6.52 385.95 18,913

Indicated 329,000 81.35 0.34 3.38 6.32 366.05 3,869

M & I 1,853,000 90.28 0.37 3.39 6.49 382.42 22,782

Inferred 317,000 63.82 0.33 3.63 6.01 346.58 3,533

The key differences between the Gustavson estimate and the current resource estimate are:

• More drill hole data was used in the current estimate (including new Santacruz data - 117

holes, and additional prior operator data obtained from Hochschild – 34 holes).

• A Geologic model was used to constrain grades in the current estimate. This generally

results in higher grade, lower tonnage estimates than an unconstrained model.

• Variograms were calculated for each zone in the current estimate.

• Based on the new variography and geological variability observed in vein exposures, the

current resource estimate has classified much of the resource in a lower category than the

Gustavson resource.

• Metal recoveries were used in the silver equivalent equations in the current estimate.


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7. Geological Setting and Mineralization

7.1. Regional Geology

The San Felipe Project is located in the San Felipe mining district within the southeast end of the

North American Block, northeastern Sonora, Mexico.

The following section is summarized from Longo, 2014. The trace of the Mojave-Sonora

Megashear (MSM), a Mid-Jurassic age left-lateral strike-slip fault zone, is proposed to pass

through the district and juxtaposes two distinct Proterozoic basement provinces (Figure 7-1).

Rocks of the Mazatzal province lie north of the MSM and extend northeast into Arizona and rocks

belonging to the Caborca Terrane lie south and extend northwest into Baja California (Silver and

Anderson, 1974; Valencia-Moreno et al., 2001; Molina-Garza and Iriondo, 2007; Gray et al., 2008).

Mazatzal province rocks belong to the North American Block and are comprised of a series of

Precambrian metamorphic rocks that includes metavolcanics and schists (1.72-1.62 Ga) that

extend into southern Arizona and New Mexico (Barra et al, 2005). Proterozoic rocks are overlain

by Upper Paleozoic quartzites and carbonates and Middle to Upper Jurassic volcanic rocks, all

intruded by coeval Jurassic granites. The Caborca Terrane represents a thick sequence (3.3 km-

thick) of pre-Mid-Jurassic rocks that rest with disconformity atop the Proterozoic (1.8-1.7 Ga)

crystalline basement (Anderson, 2005). Paleozoic rocks include eugeoclinal deep water

sediments with both siliciclastic and carbonate rocks, and lesser chert and volcanic rocks. Upper

Triassic rocks overlie the later with angular unconformity and include continental red beds,

conglomerates, and a series of shallow marine to fluvial sediments (Molina-Garza and Iriondo,

2007).


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Figure 7-1. Generalized map of the pre-Laramide basement in northwestern Mexico and the

southwestern United States. MSM-Mojave-Sonora megashear, Cb-Caborca terrane (modified from Valencia-Moreno, 2001).

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Figure 7-2 Geology of San Felipe region (modified from Servicio Geologico Mexicano, 1999).

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During the Triassic and Jurassic a period of plutonism and volcanism swept eastward across the

Sonora from the Paleozoic continental margin. These igneous rocks are characterized by granitic

to syenitic plutons (170-150 Ma.) with associated felsic volcanic flows, tuffs and interbedded

volcaniclastic sandstone and quartzite (180-170 Ma.). Tectonics changed, the subducted Farallon

Plate flattened, the arc migrated eastward, and the early andesitic island arc was accreted to the

new continental margin. Early Mesozoic magmatism and subduction ended in late Jurassic.

Sonoran volcanism flared up again in late Jurassic-early Cretaceous with lavas of intermediate

compositions, and magmatism continued its eastward migration into northwestern Mexico. By late

Cretaceous-early Tertiary (~90 to 40 Ma) the large igneous complexes intruded Lower Cretaceous

rocks at San Felipe and included three Laramide-age granitoids (Roldan-Quintana, 1979;

Calmus et al., 1996; Valencia-Moleno et al., 2001); the late Cretaceous El Jaralito granodiorite

(69.6 – 51.8 Ma), the early Eocene San Felipe rhyolite porphyry (50.47 Ma), and the late Eocene

two-mica granite from the Aconchi batholith (36 Ma).

7.2. Property Geology

The San Felipe district represents a cluster of deeply eroded late Mesozoic distal Pb-Zn-Ag skarn

vein deposits. These deposits are hosted with the upper plate of the El Amol detachment fault,

hypothesized as a mid-crustal basal detachment associated with Miocene extensional tectonics. It

is proposed that the San Felipe deposits slid off the Aconchi batholith leaving their roots several

kilometers west (Calmus et al., 1996). The oldest rocks exposed in the San Felipe district belong

to a Lower Cretaceous metamorphic sequence that includes andesitic lavas and tuffs interbedded

with siltstone and rare lensoidal-shaped, discontinuous beds of mictritic limestone. These rocks

are similar to a package of Lower Cretaceous (Aptian-Albian) age rocks that contain well

preserved fossils 63 km northwest of San Felipe near Cucurpe. The rocks at San Felipe are

metamorphosed siliceous hornfels, or altered to chlorite-albite-epidote, and presumed the result of

contact metamorphism (Roldan-Quintana, 1979; Calmus et al., 1996), named the Lower

Metamorphic Sequence (LMS) in the project area. Small isolated dikes of the San Felipe porphyry

and sills of fragmental rhyolite porphyry intrude the Lower sequence in the south part of the

district; whereas, a granite pluton dominates in the south part of the district (Figure 7-3 and Figure

7-4).

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Figure 7-3. Geology of the San Felipe Project.

Oligocene volcanic and sedimentary rocks in the San Felipe District include felsic pyroclastic rocks

and andesitic flows intercalated with polygenetic conglomerates. Overlying these are the clastic

rocks of the Baucarit Formation which are widespread in valleys of Central Sonora (27.7 – 14.1 Ma

based on stratigraphic relationships). Baucarit strata include basaltic-andesite lavas at the base

that decrease in abundance upward in the sequence and are interbedded with alternating

polygenetic conglomerates and sandstones. These rocks filled grabens related to extension

tectonics of the Basin and Range Province. Overlying the Baucarit Formation are Pliocene-age

basaltic lava flows.


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Figure 7-4. Resource area geology map (from Longo 2014).


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7.2.1. Lithology

Figure 7-5. Stratigraphic column, San Felipe Project. Modified from (Roldan, 1979).

The stratigraphy of the San Felipe project (Figure 7-5) is divided from top to bottom into the

following units:

Quarternary Cover

Extensive alluvial conglomerates and sandstones cover most of the lower elevation valleys. These

are widespread in the Northern part of the property.

Baucarit Formation

Middle Miocene conglomerates, sandstones and clayey siltstones, and interbedded volcanic strata.

The formation as defined by King (1939) consists of slightly indurated, well-bedded sandstones,

conglomerates and some clays. The conglomerates contain rounded to subangular fragments of

older volcanic rocks. The lower and upper part of the formation contains interbedded basaltic

flows. The formation has been dated based on stratigraphic relationships and ranges from 27.7 to

14.1 Ma (Bartolini, 1994). The formation is widespread in the valleys of central Sonora and is a

product of graben filling within the Basin and Range Province.


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There is only limited outcrop of the Baucarit Formation - exposed mainly in the Western and

Northern parts of the property. Outcrop is difficult to find and distinguish as it is overlain by the

extensive Quarternary conglomerates which cover most of the lower elevation valley floors.

Aconchi Granite

The Aconchi Granite is characterized by the association of two micas, biotite and muscovite which

has been dated at 36.5 and 32 Ma (cited in Calmus, 1996). The granite is exposed in the south-

west part of the property.

Crosscutting the unit are N-S and NW-SE oriented pegmatite dykes ranging in width up to 4

meters. They are crosscut by numerous andesite dykes more abundant near the edge of the

batholith. The andesite dykes have been dated at 28.3 and 26.7 Ma (cited in Calmus, 1996) and

strike predominantly WNW and NW.

Oligocene Volcanics and Sediments

Composed predominantly of felsic pyroclastics and some andesitic flows, polygenic conglomerates

are intercalated in the unit. The unit outcrops in the western edge of the resource area and near

San Felipe Norte (Figure 7-6.

Figure 7-6. Oligocene Volcanics – fragmental rhyolite tuff.


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Fragmental Rhyolite Porphyry

Light gray medium-grained fragment rich rhyolite porphyry (Figure 7-7). It contains up to 40%

fragments ranging in size from 0.5 to 30 cm. Fragments include: LMS, SF porphyry, equigranular

rhyolite and mineralized epidote skarnoids (in drilling near the resource area).

Figure 7-7. Fragmental rhyolite, note the fragments of Equigranular rhyolite and LMS.

El Jaralito Granitoid

A subduction related calc-alkaline granite to monzogranite. The unit has been dated between 69.6

and 51.8 Ma (cited in Calmus, 1996). There is only limited outcrop on the property, mainly in the

area to the west of the Aconchi granite (near Los Locos).

Equigranular Rhyolite

Light gray, medium-grained, granitic textured rhyolite (Figure 7-8). Typical mineral composition

(volume percent) is quartz 50%, plagioclase 15%, K-felpdspar 25%, and biotite 10%. The

equigranular rhyolite is exposed predominantly to the north and west of the resource area.

Figure 7-8. Equigranular rhyolite.


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San Felipe (SF) Porphyry

The SF porphyry contains characteristic amoeboid quartz-eye phenocrysts up to 1 cm in size in a

fine grained, commonly pink to cream, siliceous groundmass composed predominantly of quartz

and feldspar (Figure 7-9). The intrusion is dated at 50.47 Ma and contains alteration (quartz-

sericite) dated at 49.5 Ma (cited in Calmus, 1996). The SF porphyry is interpreted as the

subvolcanic facies of the calc-alkaline magma of the El Jaralito granitoid. The porphyry commonly

strikes N, ENE and WNW, ranging from 1 to 150 meters thick.

Figure 7-9. San Felipe Porphyry, (a) outcrop showing amoeboid quartz eyes, (b) SF porphyry dyke looking SW, Cornocopia mineralization along dyke footwall contact. Note the lack of mineralization at

ridge top.

Lower Metamorphic Sequence (LMS)

Meta-andesites and siliceous hornfels, altered to chlorite-albite-epidote (Figure 7-10). Typically

very fine grained with little discernible mineralogy in hand sample, interbedded with porphyritic

flows (feldspar phenocrysts 1-3 mm) and rare discontinuous beds of mictritic limestone . Model

mineralogy (volume percent) determined from petrographic study is epidote 60%, calcite 25%,

chlorite 10%, and quartz 5%.


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Figure 7-10. LMS: (a) thin section showing fine grained carbonate and coarser epidote (polarized light 100x), (b) typical LMS outcrop – note SF dyke in center.

7.2.2. Structure

Structural relationships in the San Felipe district are complex. The early Tertiary El Amol

detachment fault separates the mineralized Lower Metamorphic sequence in the San Felipe

district from the late Laramide-age Aconchi batholith (Calmus et al., 1996). Upper plate rocks

above the detachment fault host the San Felipe Pb-Zn-Ag skarn veins in Lower sequence rocks,

and the lower plate consists of unaltered two mica granites from the Aconchi batholith. Vein

systems in the upper sequence are hosted in steeply dipping and easterly striking fault zones

hypothesized as right lateral, oblique-slip normal faults as shown in Figure 7-11 (Nelson, 2007).

Veins are crosscut by N-S trending fracture zones and northwest-striking normal faults. Small low-

angle faults cut the veins with little displacement (Nelson, 2007). The northwest-striking normal

faults are hypothesized as listric extensions from the detachment surface that displace all veins

and porphyry intrusions (Figure 7-11). Geologic estimates suggest that upper plate rocks

slide ~40 km east-northeast from the original location; however, the roots of the San Felipe vein

system have never been found and likely were eroded (Calmus et al., 1996; Rodriguez-Castaneda,

1999).


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Figure 7-11. Vein orientation analysis. (a) Historgram of vein strike (b) histogram of vein dip. (c) Stereonet showing vein orientations. (d) Structural model of district showing proposed conjugate vein

sets formed by E-W tectonic shortening (Nelson, 2007).

7.3. Mineralization


that cut the Lower Metamorphic sequence and intrusive rocks. The district hosts five principal,

westerly-striking, vein systems that include Artemisa-Cornucopia, Las Lamas, San Felipe,

Transversales and La Ventana (Figure 7-4). Primary minerals are sphalerite, galena, pyrite, and

magnetite with lesser native silver, chalcopyrite, arsenopyrite, scheelite, and covelite within a

gangue of garnet, pyroxene, epidote, quartz, rhodonite, and carbonate (Roldan-Quintana, 1979:

Calmus et al., 1996).

Three types of felsic intrusions are spatially associated with the deposits and include the

San Felipe rhyolite porphyry, a coarse grained quartz-feldspar porphyry with large amoeboid-

shaped quartz eyes (up to 1 cm-dia.) in a pink ground mass; the fragmental rhyolite porphyry, a

medium-grained rhyolite with fragments of Lower sequence including epidote skarnoid; and granite,

a medium-grained, equigranular plutonic rock with rhyolitic composition.

Skarn veins are late, structurally controlled, and crosscut all rock types. Hydrothermal fluid flow

paths followed the dike margins, and the same fractures and minor faults that controlled the

rhyolite porphyry intrusions.

Skarn-related calc-silicate minerals and sphalerite are useful indictors of system zonation and

temperatures. Those minerals with high Fe/Mn ratios formed at higher temperature closer to the


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hydrothermal source, and minerals with decreased Fe/Mn ratios formed at lower temperatures

further from the source. The San Felipe skarns are distal expressions of a larger hydrothermal

system, and the skarn mineralogy and Ag-Pb-Zn-bearing sulfides display a metal zonation across

the district from high Zn, low Mn in the south to high Pb, high Mn in the north Figure 7-12.

Skarn in the south parts of the district at Las Lamas and Artemisa-Cornucopia contains Fe-rich,

dark brown garnets (andradite) and dark green pyroxenes (hedenbergite) with epidote, magnetite,

quartz, and carbonate associated with low Pb/Zn ratios, low Mn contents, and high Fe contents

(Figure 7-13). This sphalerite is dark brown to deep red with high Fe contents and indicates high

formation temperatures >300°C (Meinert, 2007).

In contrast, skarn in the north part of the district at La Ventana and San Felipe Este contain

Mn-rich pyroxenoids (pinkish-tan rhodonite and bustamite), Mn-rich epidote, and quartz with

increased Mn and Ag contents, increased Pb/Zn ratios, and decreased Fe contents. This

sphalerite is honey-colored, an indication of decreased iron content, and the galena is

argentiferous, and both are consistent with decreased temperatures of crystallization. Grossular

garnet and wollastonite are common in areas with more abundant limestone (ie. Santa Rosa and

Las Lamas).


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Figure 7-12. Geology map of the San Felipe Resource area showing the four principle skarn vein systems and the pattern of metal zonation in the district (Longo, 2014).


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Figure 7-13. (a) High temperature skarn (andradite-hedenbergite) (b) Low temperature skarn (rhodonite and bustamite). (c) Low temperature skarn overprint (rhodonite).

7.4. Geologic Model and Estimation Domains

A three-dimensional geologic model was constructed for mineralized structures at San Felipe

using Leapfrog Geo software (leapfrog) based on detailed geologic logging of drill holes and

surface mapping in the project area. To reduce inconsistencies in rock type and alteration logging

by different geologists, the authors relogged the major mineralized intersections and surrounding

wallrock of approximately 80% of the holes drilled on the project (250 drillholes) during site visits in

2013 and 2014. Table 7-1 shows the average thickness of each domain and the average

orientation. Only mineralization that could be correlated between drillholes over a significant area

was considered for use in the resource estimate as shown in Figure 7-14

No attempt was made to make a geological model of the rocks that host the vein structures. Host

rocks typically influence the geometry and grade of structures and a geological model of the entire

resource area would help to improve the resource estimation and possibly aid in exploration.


91

Table 7-1 Domain orientation and average thickness. Domain Thickness (m) Strike/Dip

LL 3.3 240º/90º

HW-‐1 3.8 122º/63º

HW-‐2 2.8 080º/70º

SF 3.2 097º/76º

VT 4.8 240º/72º

LV 4.3 095º/72º

LG 5.3 095º/72º

Descriptions of the geologic domains used are as follows:

• La Ventana – Two domains were constructed at La Ventana (LV & LG).

LV corresponds to the main mineralizing event - quartz-sphalerite-galena mineralization with

epidote and minor rhodonite, Zn+Pb contents are typically >10%. Sphalerite is generally

dark gray and Fe-poor (~<1% FeS). Skarn alteration is less common.

LG corresponds to a generally low grade, silica rich zone (retrograde alteration). This domain

is overprinted by and peripheral to the LV domain. Calc-silicate alteration is typical of the LG

domain with rhodonite peripheral to the mineralized LV domain grading into > quartz-epidote-

chlorite > epidote-chlorite. The domain is silica rich with variable amounts of silicified breccia.

In weathered rock Mn oxides are common.

• Transversales – One domain (VT) was identified at Transversales. The domain

characteristics are similar to San Felipe.

• San Felipe – Three mineralized wireframes were constructed (HW-1, HW-2 and SF). SF

corresponds to the main structure that was historically mined while HW-1 and HW-2 are

mineralization structures in the hangwall. The majority of the current resource is within the

HW-1 domain. This area has a strong structural control, similar to Transversales and La

Ventana.

• Las Lamas – One mineralized wireframe was constructed (LL) which compriseds a zone of

garnet (andradite) - pyroxene (rhodonite) skarn alteration with disseminated sphalerite-

galena-chalcopyrite mineralization - most of the pyroxene has been altered to amphibole.

Magnetoplumbite is common. The sphalerite at Lamas is relatively Fe-rich (~1% FeS) and

has a deep red colour.


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Figure 7-14 Plan view of the geologic model used for the resource estimate.


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8. Deposit Type

Mineralization at San Felipe can be classified as a Zinc-Lead Skarn (Einaudi et al, 1981). These

skarn systems commonly occur in continental settings associated with either subduction or rifting.

They are sulphide rich with Zn + Pb commonly ranging from 10-20 % and Ag from 30-300 g/t.

Zinc-lead skarns are often transitional to massive-sulphide veins and often lack significant

calc-silicate alteration. Distinguishing features of this skarn type include:

• Mn – Fe rich mineralogy.

• Distal to intrusive source.

• Occurrence along structural and lithologic contacts.

• Absence of significant metamorphic aureoles.

• Pyroxene as dominant calc-silicate mineral.

• Retrograde mineralogy of Mn rich pyroxenoids, amphibole and chlorite common.

The San Felipe district is characterized by a strong structural control on hydrothermal fluid

movement and resulting alteration / mineralization in the northern areas (Ventana, Transversales

and San Felipe) and a more disseminated style to the south (Lamas). Calc-silicate alteration at

San Felipe is Mn-rich including bustamite-rhodonite, piemontite, garnet and pyroxene. Some of

the mineral compositions are unusual and all indicate distal alteration relative to the source of the

hydrothermal fluids. A number of samples at San Felipe were analysed by XRD and electron

microprobe by Meinert in 2007 as part of a site visit. Pyroxenoid at San Felipe varies from Rd

73-78 to Wo 15-20. The garnets found at Lamas are typical skarn andradite, while at Ventana are

more unusual in that they are spessartine and grossular rich (Sp 59-73, Gr 17-34), which reflect

the silicious Ca-poor system (Meinert 2007).

The San Felipe district has characteristics in common with other intrusion-related skarn districts in

North and South America. La Ventana and San Felipe are similar to the Japon and Manganesa

breccias in the Cananea district (Meinert, 1982). These breccias are all resistant knobs due to

silicification and are coated or cemented with Mn oxides. Both the Japon and Manganesa

breccias overlie mineralized skarns at depth. The skarns are Zn-rich at surface and become more

Cu-rich at depth.


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Other analogous districts are Uchucchacua in Peru (Bussell et al., 1990) and the Darwin Ag-Zn-Pb

skarn in California (Newberry et al., 1991). Uchucchacua is a large Pb-Zn-Ag district and one of

the largest Ag producers in Peru. Uchucchacua contains both vein and skarn mineralization. The

veins are zoned from sulfide-only at surface to increasing amounts of calc-silicate minerals such

as bustamite at depth. Darwin is a structurally-controlled Ag-Zn-Pb skarn similar to San Felipe.

Garnet-quartz-carbonate skarn veins and pipes contain Ag-Pb-Zn bearing sulfide and crosscut all

rock types including dacite porphyry. Mineralization occurs in anastomosing steeply inclined

swarms of skarn veins up to 100 meters wide.

9. Exploration

Exploration conducted prior to 1997 is discussed in Section 6 (History).

9.1. Surface Geochemistry

In 1998 and 1999, Boliden completed a surface geochemical sampling program consisting of 763

soil and 52 stream sediment samples.

Sampling procedure for the stream sediment samples involved collecting sand and gravel directly

from the dry creek beds. The material was then sieved to -2mm with a 1-2 kg sample sent to ALS

laboratories. The -80 mesh fraction of the samples was analyzed for Au by fire assay with an AA

finish and for 24 elements using ICP-AES. The sampling protocol for the soil samples is

unknown - the analytical method used was the same as for the stream sediment samples.

Results from the stream sediment survey are shown in Figure 9-1. The samples were taken from

creeks draining the known mineralized areas. In general base metals were the best pathfinders

with only subdued silver values detected in the samples (Table 9-1 and Figure 9-1).


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Table 9-1: Surface sample summary statistics. Stream Soil

Element Mean 75th 95th Mean 75th 95th

Au 16.5 <5 25 11.2 10 40

Ag 2.9 1.4 4.8 5.8 4.8 17.8

Al 8.05 8.42 8.74 8.2 8.86 9.78

Ba 772.7 883 985 798.7 970 1259

Be 2.5 2.6 3.5 2.7 3 4.5

Bi 4.1 2 9 17.5 6 38

Ca 1.45 1.89 2.35 1.06 1.31 2.08

Cd 4.6 6 11.1 8.3 8.5 27

Co 17.8 23 29 20.6 25 42

Cr 15.1 16 47 14.1 17 33

Cu 148 131 410 346 244 1191

Fe 3.82 4.43 5.21 4.32 5.09 6.42

K 3.41 3.6 4.11 3.4 3.92 4.51

Mg 0.83 1.14 1.47 0.64 0.8 1.19

Mn 4566.5 5715 7672 4843.8 6425 >10000

Mo 12.5 10 30 12.6 14 45

Na 1.36 1.54 2.31 0.8 1.04 1.74

Ni 7.9 11 19 9.1 13 23

P 623.1 715 850 878.3 1040 1709

Pb 898.8 906 2214 2106 1175 6516

Sr 234.9 265 350 194 223 321

Ti 0.33 0.4 0.48 0.29 0.36 0.45

V 81.1 108 128 81.1 108 145

W 12.4 10 35 26.6 20 60

Zn 1094.5 1348 2555 2186.9 2270 6546


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Figure 9-1 Rock chip and stream sediment samples taken at San Felipe. Stream sediment samples show sum of response ratios for Au, Ag, Cu, Pb, Zn.

A total of 763 soil samples were taken by Boliden over known mineralized areas at the time

(Figure 9-2). Sumary statistics for the soil survey are shown Table 9-1. As can be seen from the

maps, soil sampling is an effective exploration tool in the district. Soil anomalies can be seen over

all of the known mineralized areas - although it should be noted that some of the soil anomalies

are related to contamination around old mine dumps. Boliden noted that Au, Co and V increase in

concentration to the south towards Lamas, while Cu, Cd and Zn are higher in the northern areas.


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Figure 9-2 Boliden 1998-1999 Soil Sample Program showing (a) Ag, (b) Pb, (c) Zn.

A total of 412 rock chip samples have been taken at San Felipe (Figure 9-1), summary statistics

for each structure are given in Table 9-2. Of these, 64 were taken by Hochschild in 2008 and 2009,

with the remainder of samples taken by Santacruz since 2011. It should be noted that the

statistics shown in Table 9-2 include 13 samples taken from within the old Las Lamas mine which

are responsible in part for the relatively higher grades shown in the table for Las Lamas.

Table 9-2. Surface sample summary statistics by structure. All samples since 1997 (Ag-ppm, Pb-%, Zn-%).

Average Min Max

Count Ag Pb Zn Ag Pb Zn Ag Pb Zn

Santa Rosa 40 93.0 0.91 1.58 0.8 0.01 0.07 1190 6.8 6.2

Ventana 65 38.7 1.28 1.05 2.1 0.10 0.01 395 10.7 19.1

Transverales 22 27.9 1.13 0.13 1.2 0.09 0.01 84.2 4.3 0.5

San Felipe 35 13.8 1.10 0.50 0.2 0.01 0.01 65.6 9.2 11.3

Lamas 22 169.6 0.47 7.27 5.7 0.06 0.06 422 1.2 17.2

Ventanita 6 80.4 0.24 6.79 0.7 0.04 0.02 178 0.5 15.2

Veta Negra 5 91.6 0.27 4.53 8.0 0.01 0.40 240 0.5 12.6

Cornocopia 18 11.8 1.46 0.26 0.4 0.01 0.01 62.6 14.4 1.8

Artemisa 25 43.4 0.80 3.40 0.4 0.01 0.01 247 4.3 15.3


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9.2. Geophysics

Boliden completed an orientation airborne magnetic geophysical program consisting of magnetics

and very low frequency magnetics (VLF) in May 1997. The orientation VLF survey consisted of

five lines over Artemisa, one over Lamas and three over Santa Rosa. The results of the survey

were sufficiently positive that a full airborne survey of the property was commissioned. A

helicopter-borne geophysical survey of the property was conducted in October and November

1997 under the supervision of consultant geophysicist D.A. Smith. Approximately 91 line

kilometers of magnetic and VLF electromagnetic surveying was completed over a 3km2 area.

Problems caused by the operator (Aerophysics Mexico) resulted in the survey being not reliable

enough to use (Turner, 1999).

A ground induced polarization (IP) and magnetometer (MAG) survey was completed in 1998 by

Lloyd Geophysics Inc over the Santa Rosa, La Ventana, San Felipe, Las Lamas and Artemisa

areas. In total 16.2 km of MAG and 14.2 km of IP surveys were completed. At Ventana in general

the magnetic responses were subdued and where present showed a weak correlation with the

mineralized structure. At Lamas and San Felipe no significant chargeability or magnetic response

were found.

9.3. Geologic Mapping

From 2006 to 2007, Hochschild completed reconnaissance geologic mapping (1:5,000 scale) over

approximately 1,690 Ha (~10% of the property), and 1:1,000 scale mapping over an additional 93

Ha (<1% of property). During 2014 Santacruz mapped approximately 5,000 Ha (~30% of the

property) as part of an ongoing exploration program.


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10. Drilling

A total of 317 holes have been drilled on the San Felipe property as shown in Table 10-1 and

Figure 10-1). The drilling campaigns are discussed by company below.

Table 10-1. Summarized drilling for the San Felipe Project. Company Year RC holes DDH holes Average Depth (m) Total Meters

Boliden 1998-‐2000 0 27 192 5,187.24

Hochschild 2006-‐2008 26 173 213 42,452.6

Santacruz 2013-‐2014 0 105 180 20,127.65

Total 26 305 67,767.49

Figure 10-1. Drilling at San Felipe, (a) by company, (b) drill hole type


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10.1. Boliden (1998-2000)

Boliden drilled a total of 27 diamond drill holes (NQ size) from 1998 to 2000 for a total of 5,187.24

meters. Drilling was focused on the La Ventana structure with only nine holes drilled on the Santa

Rosa, San Felipe, Las Lamas and Artemisa zones. Drill hole location and orientation are given in

the Appendices and shown in Figure 10-2 and Figure 10-3. Collar locations were later resurveyed

by Hochschild by Precision GPS (the authorized Trimble™ dealer in Hermosillo). The re-surveyed

locations from Hochschild were used in the current resource estimate. Original geological drill logs,

assay certificates and cross sections are held by Santacruz on site. No down hole survey data is

available from the Boliden drilling. The sample preparation and analysis is discussed in

Section 11.

The first drilling on the project was deemed a success by Boliden in that it had identified significant

mineralization at La Ventana (Turner, 1999). However, drilling at Santa Rosa failed to intersect

the mineralized structure at depth. No assays results are available for the 7 holes drilled at

San Felipe, Las Lams and Artemisa by Boliden. Drill Intercepts are shown in Appendices.

10.2. Hochschild (2006-2008)

Hochschild drilled 199 holes from surface for a total of 42,452.6 meters between 2006 and 2008.

The majority of the drilling was HQ sized core with 37,700.75 meters drilled in 173 holes. An

additional 4,751.85 meters were drilled in 26 reverse circulation holes. The drill contractors used

were; Major Drilling Group International Inc., Perforservice S.A. de C.V., GeoDrill, Landdrill

International Mexico, S.A. de C.V., and Globexplore Drilling S.A. de C.V.

Down hole surveys were taken by the drill contractors with a REFLEX instrument approximately

every 50 metres where possible. The precision of the instrument is 0.1º in azimuth and dip. All drill

hole collar locations were surveyed by Precision GPS to decimeter accuracy. Core was ½ split

with samples sent for preparation to ALS in Hermosillo and on to Vancouver for assaying. Sample

interval was based on visual inspection of the core by project geologists. Sample size ranged from

5 cm to 17.7 meters, with an average of 1.11 meters. Core recovery varies by location with an

average of 78.6% and a standard deviation of 24.5%. Samples with recoveries less than 2

standard deviations below the mean are considered unreliable by the authors and were not used in

the resource estimate (see Section 14 for more details).


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Drilling by Hochschild was targeted at exploration of the veins and completing a resource estimate

as part of their Scoping Study on the project. As part of this, the following holes were completed:

La Ventana

• HFLV01 to 74 – drilling was designed to test the continuity and grade of the La Ventana

structure. Drilling identified mineralization consistent with previous drilling by Boliden and

extended the strike and dip of the mineralized zone.

San Felipe

• HFSF01 to 47 – drilling to test for mineralization on the San Felipe structure. Drilling by

Hochschild initially targeted the down dip extension of the historically mined San Felipe

structure (termed the SF domain by the authors). Mineralization at the SF zone was

shown to pinch out below the level of historic mining (drill hole HFSF24 was drilled to 764

meters with no significant intercepts at depth). Drilling along strike to the west of SF zone

similarly only encountered thin zones with lower grades. Drilling was successful however

in discovering a new hanging wall structure (termed HW-1 and HW-2 by authors).

• INFSF01 to 18 – RC drilling at San Felipe. Assays for only eight of the RC holes have

been found by the authors.

Las Lamas

• HFLL01 to 17 – were designed to test the Las Lamas structure. Drilling was successful in

extending mineralization down dip and approximately 150 meters along strike (to the

WSW) from the historic Las Lamas Mine. Drilling on the north east side of the creek

(HFLL01, 2, 16, & 17) adjacent to the mine entry only encountered weak mineralization.

The mineralized structure is interpreted by the authors to have a more ENE trend and

passes south of the drill holes (based on new mapping by Longo 2014).

• INFLL01, 4 to 6 – four RC holes were drilled at Las Lamas, no assay data for these holes

were available to the authors.

Artemisa & Cornocopia

• Hochschild only drilled one hole each at Artemisa and Cornocopia. Both holes failed to

intersect mineralization below the areas historically mined.


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In addition to the drilling targeting mineralization, Hochschild drilled a number of holes for technical

evaluations as shown in Figure 10-1 and Table 10-2.

Table 10-2. Hochschild development holes. Hole Name Type Number Holes Total Meters

CT1 & 2 CPS1, CWF1 Condemnation 4 402

MGLV1 to 8, TW1, MGSF1 & 2

Geotech & Metallurgical 12 3,174

HG1 to 4 Hydrogeologic 4 802

PF1 to 6 Mine Plant 6 241

TSF1 to 4 Tailings Dam 4 325

SWBH1 to 3, WRSF1 & 2 Waste Rock 5 214

APF2 Plant Site 1 Unknown

10.3. Santacruz (2013-2014)

Santacruz drilled a total of 20,127.65 meters of HQ core (105 drill holes) between March 2013 and

June 2014. The drill contractor was AP Explore Drilling S.A. de C.V. of Oaxaca, Mexico. Drill hole

collars were surveyed by a Santacruz surveyor. A problem was detected by the authors with the

drill hole collar surveys at Lamas - caused by the use of an incorrect survey base point by the

Santacruz surveyor. To rectify the problem, an independent surveyor was used to resurvey the

drillholes at Lamas and San Felipe. Unfortunately, the results were not available in time for the

new resource estimation. However, in most cases the Santacruz drillholes were drilled from drill

pads used by Hochschild. To mitigate the survey problem for the resource estimate, the

Santacurz collar locations were modified by the author at Las Lamas. The Santacruz holes were

adjusted to match the Hochschild drill holes which were correctly surveyed and used the same drill

pads. The results from the independent surveyor (after the resource estimate) showed an average

error of 3.4 meters easting and 2.7 meters northing at Las Lamas (collar location used in the

resource vs. corrected collar location). It is the author’s opinion that this error, although not ideal,

is not significant for an inferred resource at Las Lamas.

Down hole surveys were taken by the drill contractors with a REFLEX instrument approximately

every 50 metres where possible. Core was retrieved from the drill rig by Santacruz personnel and

brought to their central core shed in San Felipe village where it was washed and photographed

before geotechnical logging. The core was then logged by geologists for lithology type, alteration

and mineralization before being ½ split by diamond disk saw with samples sent for preparation to


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ALS in Hermosillo and on to Vancouver for assaying. Sample interval was based on visual

inspection of the core by the geologist. Sample size ranged from 10 cm to 9.6 meters, with an

average of 1.01 meters. Core recovery varies by location with an average of 86% and a standard

deviation of 25%. Samples with recoveries less than 2 standard deviations below the mean are

considered unreliable by the authors and were not used in the resource estimate (see Section 14.1

for more details on recoveries).

The 2013 – 2014 drill program had a number of goals including:

1. Confirm drilling by previous operators.

2. Conduct exploration along strike and down dip of the known zones.

3. Drill test new structures (Transversales, Santa Rosa and Artemisa).

Results of the drilling are discussed by zone (from north to south):

Santa Rosa

A total of 4 holes (SCSR-01 to 4) were drilled at Santa Rosa (438 meters). Similar to the

drilling by Boliden, no holes intersected any mineralization. It appears that the mineralization

exposed at surface at Santa Rosa is within a thin lens of country rock overlying an intrusive

body.

La Ventana

A total of 6 holes (1,325.95 meters) were drilled at La Ventana (SCLV01 to 6) to verify drilling

by precious operators. Drill intercepts are given in Appendix 3, highlights include:

SCLV-01 - 141.8 g/t Ag, 8.0 % Pb and 13.0 % Zn over 7.05 meters (4.7 m true thickness)



Drilling by Santacruz confirmed the location and style of mineralization drilled by previous

operators at La Ventana. A more detailed comparison between drill holes is given in Section

11.

Transversales

The Transversales structure was drilled for the first time by Santacruz with 32 holes totalling

5,443.95 meters (SCVT-01 to 32). The structure was drill tested over a 300 meter strike


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length to approximately 200 meters below surface. The structure was variably mineralized

with the best grades found in the northeastern area. Highlights include:

SCVT-02 – 143.3 g/t Ag, 0.8 % Pb and 0.7 % Zn over 7.65 meters (6.6 m true thickness)

SCLV-07 – 102.6 g/t Ag, 5.7 % Pb and 0.4 % Zn over 4.4 meters (3.8 m true thickness)

Mineralization is spatially associated with a northeast striking felsic dike (San Felipe rhyolite

porphyry) which forms the resistant ribs seen at surface.

San Felipe

Fifteen drill holes (SCSF-01 to 15) totalling 3,258.8 meters were drilled at San Felipe. Drilling

was focused on the western half of the San Felipe zone and was designed to infill and verify

holes drilled by Hochschild. Highlights of the drilling include:

SCSF-02 – 221.5 g/t Ag, 1.4 % Pb and 2.8 % Zn over 9.0 meters (7.0 m true thickness)

SCSF-08 – 58 g/t Ag, 5.4 % Pb and 5.1 % Zn over 4.95 meters (3.8 m true thickness)

SCSF-09 – 167 g/t Ag, 0.6 % Pb and 8.8 % Zn over 3.8 meters (1.8 m true thickness)

Santacruz drilling confirmed the location and style of mineralization drilled by Hochschild.

See Section 11 for more details drill hole comparisons.

Since the 2014 resource was estimated, 6 new holes were drilled at San Felipe for a total of

1,928.95 m (SCSF-16 to 21).

Las Lamas

Thirty two drill holes were drilled by Santacruz for a total of 5,720.6 meters (SCLL-01 to 32).

Drilling was designed to infill and confirm the drilling by Hochschild and to test the zone to

the east. Highlights include:

SCLL-03 – 110.3 g/t Ag, 0.3 % Pb and 10.1 % Zn over 5.9 meters (4.1 m true thickness)

SCLL-05 – 138.9 g/t Ag, 0.4 % Pb and 6.7 % Zn over 17.35 meters (12.1 m true thickness)

Mineralization is in the hanging wall contact of a roughly east – west trending 40 meter thick

felsic dike (San Felipe rhyolite porphyry). The footwall contact of the dyke has yet to be drill

tested.


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Artemisa

Four holes were drilled at Artemisa (SCVA-01 to 3bis), for a total of 791.45 meters. Drilling

was targeted to test below the historic Artemisa mine workings where mineralization is

spatially associated with the hanging wall contact of an east – west striking felsic dike

(San Felipe rhyolite porphyry). This area was previously drilled by Boliden but no results are

available for the four Boliden holes drilled in this area. Of the Santacruz drillholes, only drill

hole SCVA-03bis intersected mineralization, as follows:

SCVA-03bis – 1970 g/t Ag, 4.0 % Pb and 0.01 % Zn over 1.05 meters (0.36 m true

thickness)

The footwall contact of the dike has not been drill tested to date.

Cornocopia

Six holes were drilled in the Cornocopia area (SCVC-01 to 6) for a total of 1,129.95 meters.

Drill holes were targeting the location of the structure based on mapping by Hochschild.

SCVC-1 and 04 intersected the structure with grades of:

SCVC-01 – 26.7 g/t Ag, 0.6 % Pb and 0.7 % Zn over 3.45 meters (1.2 m true thickness)

SCVC-04 – 29.8 g/t Ag, 1.2 % Pb and 1.5 % Zn over 1.6 meters (0.5 m true thickness)

Surface outcrop of mineralization is difficult to find in this area but recent mapping suggests

the structure may lie 70 meters to the north of the previous interpreted location (Longo,

2014) and would explain why SCVC-01 and 04 were the only holes to intersect the structure.


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Figure 10-2. Drill plan La Ventana.


107

Figure 10-3. Drill plan - Transversales, San Felipe, Las Lamas, Cornocopia and Artemisa.


108

Figure 10-4. Ventana long section showing intercept in true width.


109

Figure 10-5. La Ventana drill section (looking west).


110

Figure 10-6. Transversales drill section (looking south west).


111

Figure 10-7. San Felipe drill section (looking west).


112

Figure 10-8. Las Lamas drill section (looking south west).


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11. Sample Preparation, Analyses and Security

11.1. Sample Preparation

For all drill campaigns, holes were drilled with HQ and NQ sized core with only select intervals

sampled. Core was sawn in half at site and one half sent to ALS (formerly Chemex and ALS

Chemex), an independent and certified laboratory service - accredited by the International

Organization for Standardization (ISO). Samples were prepared at the ALS facility in Hermosillo,

Mexico, were they were crushed to 70% less than 2mm, then a 250g sample was split by riffle

splitter and crushed to better than 85% passing 75 microns. The pulps were then shipped to

Canada and analysed at ALS in Vancouver. Samples were analysed for 48 elements using a four

acid ICP-MS package (ME-MS61) and Au using a fire assay with and an AAS finish (Au-AA23).

Samples with high grade Au, Ag, Pb, or Zn were rerun by a HF-HN03-HCI03 digestion with HCI

leach and an ICP-AES or AAS finish (OG62).

11.2. Sample Security

Boliden

Core was cut on site by Boliden geologists with samples delivered to the ALS lab in Hermosillo.

Core was stored at the attendant’s house on the old San Felipe Mill site. Most of the core from

Boliden is now kept in the Santacruz core shed. Details on sample security during Boliden’s work

are not known.

Hochschild

Core was delivered from the drill rigs to the San Felipe core shed by Hochschild staff where it was

logged and cut. Samples were delivered to the ALS lab in Hermosillo with the remaining core kept

in storage in what is now the Santacruz core shed. Details on sample security during Hochschild’s

work are not known.

Santacruz

Core for sampling was delivered directly to the core-cutting area or secure storage area before

cutting. Lids were kept on boxes during transfer. Unauthorized personnel were not allowed in the

core storage, logging or cutting facilities during the core logging and sampling process.


114

Once cut, the samples were bagged and labeled and assembled into batch shipments. These

were stored in sealed sacks. The batches were delivered to the ALS lab in Hermosillo along with

sample submission forms by Santacruz staff. The remaining core is kept in locked storage under

supervision of a caretaker (Figure 11-1).

Figure 11-1. Santacruz core shed.

11.3. QA/QC Analysis

QA/QC programs were undertaken by Santacruz and by Hochschild. No QA/QC samples were

inserted by Boliden. Approximately 13 percent of the total number of drill core samples submitted

for assaying (ratio of 1:8) are external quality control samples (Table 11-1).

Results of the quality control data are discussed in the following sections by company.

Table 11-1 Summary of analytical quality control data.

Samples % of Total

Sample Count 16,053 Boliden 960 6% Hochschild 8,854 55% Santacruz 6,239 39% Blanks 688 4% Hochschild 434 2% Santacruz 254 2% Reference material 398 2% Hochschild 175 1% Santacruz 223 1% Duplicates 881 6% Hochschild 562 4% Santacruz 319 2% Total QC Samples 1976 12% Hochschild 1171 7% Santacruz 796 5%


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11.4. Hochschild QA/QC

11.4.1. Blanks

In total, 434 blanks were used by Hochschild (ratio of 1:20). Two types of blank material were used

(Hochschild, 2007):

• Coarse Blanks – fresh unmineralized rock inserted after high grade samples.

• Pulp blanks – pre crushed packaged blanks inserted directly after high grade samples.

Results for the 434 blanks are shown in Table 11-2, Figure 11-2 and Figure 11-3. The pulp blanks

show no contamination in the Ag results with all values below 5 x detection limit (detection limit

was 1 ppm). The coarse blanks show more variability with 3 assays deemed over acceptable limits.

One sample (56926) is within a mineralized zone. It is the author’s opinion however that this

sample was labeled incorrectly as a blank. The multi-element data for this sample are identical to

the next sample (56927) suggesting that the sample was probably a field duplicate and not a blank.

There is no information available on whether the Hochschild staff followed up on the 3 errors

identified. (Table 11-3)

The majority of the Pb and Zn analytical results for the pulp blanks are below 200 ppm as can be

seen in Figure 11-3 (a), with 2 samples having slightly higher values around 1000 ppm. The

coarse blanks show more variation as can be seen in Figure 11-3 (b) with 4 samples over 3000

ppm. The blanks used by Hochschild may not have been certified for Pb-Zn and this would explain

the higher variability seen in the analytical results for these metals. It is the author’s opinion

however that these small errors do not indicate any significant problems with contamination

affecting analytical results.

Table 11-2 Summary statistics for Hochschild blanks (units in ppm). Pulp Blank Coarse Blank

Ag Pb Zn Ag Pb Zn

Mean 0.132 23.7 34.5 0.527 105.9 303

Std dev 0.170 136.0 92.0 2.942 595.0 2212.0

Min 0.1 1 1 0.005 1 2

Max 2.4 1980 1200 37.8 8030 31100

n 217 217


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Table 11-3. Coarse blank failures. Sample Hole Depth (m) Ag (ppm) Preceding Sample

Ag (ppm)

42007 HFLV65 12.6 11.3 1.3

56823 HFLV37 211.15 37.8 0.5

56926 HFSF38 134.65 18 3

Figure 11-2. Hochschild blanks (a) coarse blanks, (b) pulp blanks. (Red line shows 5 x detection limit (5ppm)).

Figure 11-3. Hochschild blanks Pb - Zn, (a) coarse blanks, (b) pulp blanks.


117

11.4.2. Standards

In total 175 silver standards were used by Hochschild (ratio of 1:40). There is no information on

what type of standards they were or where they came from other than the label of the standards.

From the sample labels there are thought to have been four types of standards used:

• Bajo (low) – Average Ag value of around 29 ppm

• Medio A (medium) – Average Ag value of around 75 ppm

• Medio B (medium) – Average Ag value of around 105 ppm

• Alto (high) – Average Ag value of around 164 ppm

Table 11-4. Hochschild standard summary. Type Bajo Medio -‐ A Medio -‐ B Alto

Mean (Ag ppm) 28.70 75.25 104.60 164.04

Std dev (Ag ppm) 1.68 6.03 4.87 10.49

Min (Ag ppm) 24.9 62.8 97.6 108.0

Max (Ag ppm) 32.7 96.1 111.0 179.0

n 48 71 6 50

n > 2 std dev 3 4 0 1

n > 3 std dev 0 2 0 1

As there was no information on the certified standard values, the assay results of each standard

were compared to the average and standard deviation of all the results for that standard in the

Hochschild sample submissions. The standards labeled as “Medio” by Hochschild were subset by

the Author into two groups (A and B), as the Zn grades showed at least 2 distinct populations with

slightly different Ag values (shown in Figure 11-4).The results are shown in Table 11-4 and Figure

11-5 to Figure 11-7.


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Figure 11-4. Medio standard (a) Groups based on Zn values (b) Ag distribution of Group A and B.

In total there were 3 standard failures - defined here as an assay value beyond the control limits (3

standard deviations from the mean (Shewhart, 1929)). Analytical results for the Bajo standard are

all within control limits. The results for the Medio standard (Group A) have 2 samples slightly

above the Upper Control Limit (UCL). The failed standards were all within unmineralized intervals.

Group B samples were all less than 2 std dev from the mean. The Alto standard had 1 sample

below the Lower Control Limit (LCL), (sample 38593) which was within an unmineralized interval.

There were 6 additional standards (4% of total) that did not fail, but were over 2 standard

deviations from the mean. All were within unmineralized intervals. Details of the standards are as

follows:

• Bajo – HFLV45 (38083, 174m) unmineralized interval

• Bajo – HFLV59 (39533, 50.5m) unmineralized interval

• Bajo – HFLV60 (39623, 164.4m) unmineralized interval

• Medio (Group A) – HFLV71 (48003, 137.35m) unmineralized interval

• Medio (Group A) – HFSF08 (54603, 231.25m) unmineralized interval

• Alto – HFLV51 (38593, 238m) unmineralized interval

There is no information on whether the anomalous standards were identified by Hochschild staff or

if there were any investigation into their failures. The failures identified in the standards are all

within un-mineralized intervals and do not indicate any systemic problem with the Hochschild

analytical data.


119

Figure 11-5. Graph showing Ag value of Hochschild Bajo standard.

Figure 11-6. Graph showing Ag value of Hochschild Medio (Group A) standard.


120

Figure 11-7. Graph showing Ag value of Hochschild Alto standard.

11.4.3. Duplicates

A total of 562 duplicates were used by Hochschild (ratio 1:40). Three types of duplicates were

used:

• Core Duplicate – ¼ split of core.

• Duplicate Pulp – new sample split by lab from coarse reject.

• Re-Assay – new sample split from original pulp.

The core duplicates show no bias and are evenly scattered around the x-y line as can be seen in

Figure 11-8. The lognormal cumulative frequency plots also show no bias with the grade

distribution curves overlapping (shown in Figure 11-9). As can be seen in Figure 11-9a, only 3

core duplicates show significant variation (< 2% of the duplicates). Of the three sample types the

core duplicate sample, as expected, shows the most variation. As can be seen in Figure 11-9b, the

grade of the samples are predominantly low (90% less than 20 ppm Ag) with only 7 samples over

50 ppm Ag. The duplicate pairs have very good correlation, with a Pearson correlation coefficient

of 0.95 for Ag, 0.99 for Pb and 0.97 for Zn. The duplicate pulp and re-assay both show no bias

with the analytical results tightly scattered around the x-y line as can be seen in Figure 11-10.


121

Table 11-5. Hochschild core duplicate data summary (Ag ppm). Ag (ppm) Duplicate Duplicate Pulp Re-‐Assay

Original Duplicate Original Duplicate Original Duplicate

Mean 9.02 8.31 14.36 14.68 12.59 12.53

Std dev 26.28 21.26 66.19 70.08 30.76 30.56

Min 0.1 0.1 0.1 0.1 0.1 0.1

Max 226 186 844 898 225 220

n 183 191 188

Table 11-6. Hochschild core duplicate data summary (Pb ppm). Pb (ppm) Duplicate Duplicate Pulp Re-‐Assay


Mean 4130 4331 6,398 6,911 6,672 6,534

Std dev 14,229 15,143 21,783 24,435 24,211 23,776

Min 8 6 4 4 1 5

Max 136,000 141,000 215,000 235,000 244,000 238,000

n 183 191 188

Table 11-7. Hochschild core duplicate data summary (Zn ppm). Zn (ppm) Duplicate Duplicate Pulp Re-‐Assay


Mean 6,343 6,568 8,057 8,847 10,376 10,390

Std dev 18,480 20,568 20,622 23,673 31,765 31,410

Min 31 36 35 16 28 28

Max 185,000 190,000 166,000 162,500 279,000 271,000

n 183 191 188

Figure 11-8. (a) Hochschild core duplicate scatter plot (all data). (b) Hochschild Ag duplicates 5 to 50

ppm.


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Figure 11-9. Hochschild core duplicates (a) control chart, (b) cumulative frequency plot.

Figure 11-10. Hochschild duplicates. (a) Re-assay scatter plot, (b) pulp duplicate scatter plot.

The Pb and Zn values for the Hochschild duplicates show a similar pattern as seen with the Ag

results. Overall the results are unbiased with an even spread around the x-y line (Figure 11-11) -

90% of the duplicates show < 0.5% difference (Figure 11-12a). The overall low grade of the

duplicates enhances the variability when looking at the data in relative percent plot (Figure

11-12b).


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Figure 11-11. Hochschild duplicate scatter plot. (a) Pb, (b) Zn.

Figure 11-12. Hochschild duplicates (a) absolute difference Pb-Zn, (b) Absolute relative % difference plot

Ag-Pb-Zn.

The author is of the opinion that the variability seen in the duplicate sample data is the result of

normal variability within the rock and does not indicate any sampling problems. It is likely that the

duplicate samples were quarter splits of core and results show the importance of cutting the core

so that mineralized sections are divided as best as possible.

11.5. Santacruz QA/QC

11.5.1. Blanks

In total 254 pulp blanks were used by Santacruz (ratio of 1:20). The blanks used were a certified

gold blank (AuBlank55) from Rocklabs in New Zealand, they are not certified for Ag. The blanks

were a pre-packaged, 50g sachet placed into the sample stream. All Ag values for the blanks are

below acceptable limits as can be seen in Table 11-8 and Figure 11-13. Although the results show


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no contamination, it is recommended that a certified Ag and/or Zn coarse blanks be used in future.

The pulp blanks used are not useful for monitoring contamination within the sample preparation

area (the main purpose for using blanks).

Table 11-8 Descriptive statistics for Santacruz blanks (units in ppm). Ag Pb Zn

Mean 0.086 32.6 48.2

Std dev 0.122 40.9 54.7

Min 0.005 3 16

Max 1.3 522 773

n 254

Figure 11-13. Graph showing Santacruz pulp blanks, (a) Ag, (b) Pb, Zn.

11.5.2. Standards

A total of 223 standards were inserted by Santacruz (ratio of approximately 1:20). Six standard

types were used, these are:

• SL61 – 5.931 ppm Au, certified Au standard from Rocklabs.

• SG66 – 1.086 ppm Au, certified Au standard from Rocklabs.

• SP49 – 60.2 ppm Ag and 18.34 ppm Au, certified Ag and Au standard from Rocklabs.

• SQ70 –159.5 ppm Ag and 39.62 ppm Au, certified Ag and Au standard from Rocklabs.

• CDN-ME-1301 – 26.1 ppm Ag, certified (Au, Ag, Cu, Pb, Zn) standard from CDN

Laboratories Ltd.

• CDN-ME-1302 – 418.9 ppm Ag, certified (Au, Ag, Cu, Pb, Zn) standard from CDN

Laboratories Ltd.


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Standard pulps were inserted by Santacruz staff into the sample stream before delivery to the lab.

The standards were used to monitor the accuracy and precision of the lab. The gold standards are

unfortunately not useful for this purpose as gold values at San Felipe are generally low.

Approximately 55% of the standards used by Santacruz were Au standards. The results for all the

standards are discussed below.

Table 11-9. Santacruz standard summary. SL61 (Au) SG66 (Au) SP49 SQ70 ME-‐1301 ME-‐1302

Mean (ppm) 5.71 1.07 62.2 159.6 436.7

Std dev (ppm) 0.47 0.03 3.66 5.32 10.82

n 90 31 25 70 1 6

Min (ppm) 2.91 0.99 55.3 147 421

Max (ppm) 6.18 1.14 67.6 175 451

n > 2 std dev 4 1 0 3 0

n > 3 std dev 3 0 0 0 0

Certified Mean (ppm) 5.931 1.086 60.2 159.5 26.1 418.9

ALS vs Mean (%) -‐4 -‐1 3 0 4

Manufacturer Rocklabs Rocklabs Rocklabs Rocklabs CDN CDN


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A comparison of the average ALS assay results for the standards versus the certified mean vary

but overall show no bias (Table 11-9).

In total, 1% of the Santacruz standards failed. Standard failure is defined here as an assay value

beyond the control limits (3 standard deviations from the mean) (Shewhart, 1929). Standard SL61

has 3 failed Au standards. The Ag results from this standard are shown in Figure 11-14Figure

11-15 (uncertified). Although the Ag values are low for this standard (mean of 1.01 ppm) the failed

Au samples have Ag values within control limits. The failed samples are also all within weakly to

unmineralized drill intervals. No remedial action was taken by Santacruz staff for the failed

standards. Results from standards SG66, SP49, SQ70, and ME-1301 & ME-1302 are all within the

control limits as can be seen in Figure 11-15 to Figure 11-18.

There were 5 additional standards (2% of total) that did not fail, but that were over 2 standard

deviations from the mean. Details of these are as follows:

• SL61 - SCLV-05 (10871, 156.65m) HG domain

• SG66 - SCLL-27 (12398, 225.8m) thin mineralized interval

• SQ70 - SCSF-09 (14461, 88.75m) unmineralized interval

• SQ70 - SCSF-09 (14473, 98.4m) unmineralized interval

• SQ70 – SCSF-11 (14874, 156.6m) unmineralized interval

Overall, the performance of the Santacruz standards performed well with only 3 failures (1% of the

total) and the standards show no bias in the lab results. However, the standards used for most of

the QA/QC program were not appropriate. Au standards have little use in the project as values in

core are generally less than detection and very few Ag, Pb or Zn standards were used. A recent

change in standard types to match the metals at the project (Ag, Pb and Zn) will mitigate this

problem in future drilling. Standards should also be monitored more closely at the project with any

intervals with failed standards re-assayed.


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Figure 11-14. Santacruz Au standard SL61.

Figure 11-15. Santacruz Ag standard SL61.


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Figure 11-16. Santacruz Au standard SG66.

Figure 11-17. Santacruz Ag standard STD-SP49.


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Figure 11-18. Santacruz standard SQ70.

11.5.3. Core Duplicates

A total of 319 core duplicates were taken by Santacruz (ratio 1:20). For these samples the core

was ¼ split creating an original and a duplicate sample. The average Ag difference between the

original and duplicate is -0.55 g/t Ag (). As can be seen in Figure 11-19 and Figure 11-20, the

duplicate data shows no bias between the original and duplicate Ag values with 90% of the data

showing less than 5 g/t difference (Figure 11-21b) and less than 0.25% Pb and Zn. When looking

at relative percent difference plots, (Figure 11-21d) the variability in the data is increased due to

the high proportion of duplicates with low grades with 60% of the data having less than 30%

difference. As can be seen in Figure 11-21a, 90% of the duplicate data has Ag grades of less than

17 ppm. The duplicate pairs have very good correlation, with a Pearson correlation coefficient of

0.95 for Ag, 0.99 for Pb and 0.98 for Zn.

The Santacruz core duplicates were spread over a wider range of Ag values and overall show

lower variability when compared with the duplicates assayed by Hochschild. The precision

demonstrated by the field duplicates is within normal limits caused by variability of mineralization

within the rock and the data indicates the sampling is reliable and adequate for resource


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estimation purposed. However, it is recommended in future to obtain higher grade duplicate pairs

by selectively taking more samples from mineralized intervals.

Table 11-10. Santacruz duplicate summary. Ag (ppm) Pb (%) Zn (%)


Mean 9.78 10.33 0.033 0.032 0.052 0.052

Std Dev 31.09 34.72 1.560 1.499 2.024 1.905

Minimum 0.09 0.07 <0.001 <0.001 <0.001 <0.001

Maximum 276 407 >20 >20 20.4 19.8

Figure 11-19. Santacruz duplicate scatter plot.


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Figure 11-20. Santacruz duplicates, (a) Pb and (b) Zn, Scatterplot.

Figure 11-21. Santacruz duplicates (a) Cumulative frequency Ag original vs. duplicate, (b) Cumulative frequency Ag absolute difference, (c) Cumulative frequency Pb – Zn absolute difference, (d) Absolute

relative % difference plot, Ag, Pb, Zn.


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11.5.4. Check Assays

A total of 98 sample pulps were sent directly from ALS to ACME lab for re-assaying. The results

correlate well between laboratories with the results tightly scattered around the 1:1 line as can be

seen in Figure 11-22. The average difference between the laboratories is shown in Table 11-11.

The results show very good correlation between labs, ALS is approximately 0.89 ppm higher (8%)

for Ag, 10 ppm lower (0.3%) for Pb and 65 (1%) ppm higher for Zn (when comparing the means).

Table 11-11 ALS vs. ACME summary statistics. Ag (ppm) Pb (ppm) Zn (ppm)

ALS ACME Abs Diff ALS ACME Abs Diff ALS ACME Abs Diff

Mean 11.47 10.58 0.89 3,768 3,778 10 6,307 6,242 65

Std Dev 45.83 41.41 4.69 16,548 16,965 878.8 19,629 19,289 681.1

Min 0.07 0.15 0 6 2 0 22 18 0

Max 382 344 38 132,500 140,200 7,700 120,500 117,800 4,300

n 98 98 98

Figure 11-22 Scatter plot showing ALS vs. ACME analytical results.


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11.5.5. Comparison of Drilling Results by Company

To determine if any bias exists between the drilling results by company, the silver grade

distributions are compared in the following areas by company:

• La Ventana (Area A) – 567500 to 567650 E and 3306200 to 3365025 N.

(Hochschild = 955, Santacruz = 266, Boliden = 290 assays)

• San Felipe (Area B) – 566900 to 56750 E and 3305350 to 3305750 N.

(Hochschild = 1586, Santacruz = 1537 assays)

• Las Lamas (Area C) – 566900 to 567150 E and 3305050 to 3305300 N.

(Hochschild = 373, Santacruz = 450 assays)

As can be seen in Figure 11-23 to Figure 11-25, the grade distributions between companies are

roughly parallel and show no bias. The slight deviations are well within normal variability.

Figure 11-23. Lognormal cumulative frequency plot. Comparison of drilling by company at La Ventana (Area A).


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Figure 11-24. Lognormal cumulative frequency plot. Comparison of drilling by company at San Felipe

(Area B).

Figure 11-25. Lognormal cumulative frequency plot. Comparison of drilling by company at Las Lamas

(Area C).


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11.5.6. Twin Hole Comparison

In order to analyse for bias between drilling by companies, 6 drill holes drilled less than 12 meters

apart are plotted in Figure 11-26 to Figure 11-28. The twins show similar results and the variations

lie within expected variation for this type of deposit.

Figure 11-26. La Ventana twins, SCLV-03 vs. SF9801, <5m separation.


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Figure 11-27. San Felipe twins, SCSF-02 vs. HFSF11, <12m separation.


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Figure 11-28. Las Lamas twins, SCLL-04 vs. HFLL09, <9m separation.


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11.6. Opinion on Adequacy

The blanks for both Hochschild and Santacruz show no significant contamination problems at the

laboratory with only 3 samples above acceptable limits. The standards used show no systematic

problems with lab accuracy - only 4 sample results are deemed outside acceptable limits.

Duplicates show good precision and no bias in the data, with Pearson correlation coefficients of >

0.95 for Ag, Pb and Zn.

The main limitations of the QA/QC data relate to the lack of details on the standard types used by

Hochschild and the choice of standards and blanks used by Santacruz. It is also thought that some

of the variation seen in the duplicate data is caused by the high proportion of low grade samples

used as duplicates. (The Author recommends taking more pairs from within potential mineralized

intersections to alleviate this problem in future).

The drilling by Boliden did not employ a QA/QC program to monitor the core sampling and analysis.

However, this drilling represents only 6% of the total samples taken on the project and all holes have

been twinned or infilled by either Hochschild or Santacruz. No major differences in grade

distributions were identified between Boliden and other operator holes. The Author is of the opinion

that the addition of more sampling results in the resource estimate outweighs the lack of QA/QC

data thus justifies the use of the Boliden data in the current resource estimate.

Though there are some problems with the QA/QC data as explained above, the author is of the

opinion that the analytical results from all drill campaigns considered at San Felipe are adequate for

mineral resource estimation. Recommendations to improve the QA/QC regime in future drilling are

given in Section 26.


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12. Data Verification

12.1. Site Visits

Smit and Bourke spent approximately 87 man days at San Felipe from July 2013 to June 2014.

During these site visits they conducted the following verification procedures:

• Visual site inspection of drill collar locations and orientations vs. digital data.

• Historic workings were examined at La Ventana, San Felipe and Las Lamas.

• Geologic mapping was under taken by T. Longo C.P.G. and F. Bourke P.Geo. over

approximately 30% of the property (5,000 Ha).

• Detailed geologic re-logging of portions of approximately 250 drill holes by Boliden,

Hochschild and Santacruz (80% of total drill holes). Visual inspection of assay results vs.

drill core was done at the same time, confirming that the sample intervals with high metal

results coincided with the presence of alteration and/or veining.

• Verification of digital data versus original hard copies of data from Boliden, Hochschild and

Santacruz (collar orientation, location and geologic logging).

12.2. Independent Assays Bourke took three independent samples from core while re-logging, supervised the splitting of the

samples, and then placed the samples in sealed bags. The samples remained in Bourke’s control

and were personally delivered to ALS in Hermosillo City. Analysis was the same as used by

Santacruz and are shown in Table 12-1. The amount of samples taken is too small to allow

meaningful statistical analysis, however the results confirm the presence of high grade Ag, Pb and

Zn.

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Table 12-1. Check samples taken by authors vs. Santacruz results.

12.3. Validation of Data Base and Digital Data

A new independent drill hole data base was compiled by Bourke for use in the resource estimate.

The author was able to gain access to the original certificates directly from ALS for drilling

conducted since 2006 by Hochschild and Santacruz. In total, 191 certificates (82% of all

certificates) were imported by into the new data base; Assays for the remaining 18% were

imported from the Santacruz database. In addition to this, assay values were randomly spot

checked against the original pdf certificates from ALS to check that the data was correctly

transcribed.

Drill hole collar location and down hole surveys supplied by Santacruz were checked against the

original hard copies of drill logs and of collar location survey reports for every drill hole. An

independent surveyor was used to verify any discrepancies.

12.4. Data Adequacy

Based on the above verification procedures, it is the opinion of the author that the database is of

high quality, meets industry standards and is appropriate for use in resource estimation.

Sample SC Sample SC Ag (g/t) Ag (g/t) SC Zn (%) Zn (%) SC Pb (%) Pb (%)

23091 11651 98 112.0 5.28 5.72 0.41 0.53

23092 10873 105 45.1 20.8 >30% 0.84 0.31

23093 10126 199 429.0 13.95 15.00 7.98 7.26

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13. Mineral Processing and Metallurgical Testing

13.1. Review of Metallurgical Testwork

Sufficient amount of testwork has been performed by several investigators for the San Felipe

prospect to support a PEA level study. The following reports were reviewed to confirm the

metallurgical process flowsheet and estimate the metallurgical recoveries for the project:

1. Final Report on Test Work on Samples from the San Felipe Project in Mexico, Dawson

Metallurgical Laboratories, Inc. October 8, 2008.

2. Optical Microscopy Scanning Electron Microscopic Analysis, DCM Sciences Laboratories,

Inc. June 27, 2008.

3. Petrographic/X-Ray Diffraction Scanning Electron Microscopy Analysis, DCM Sciences

Laboratories, Inc. September 29, 2008.

4. San Felipe Project Appendix 7.3.2 Process Flow Diagrams, Civil Drawings and General

Arrangements, Samuel Engineering Inc.

5. Proyecto San Felipe Informe General, Santacruz Silver Mining Ltd.

6. Calculo De Equipos Para Planta De Beneficio, Proyecto San Felipe Capacidad De

750TMPD, Santacruz Silver Mining Ltd.

A brief review of the metallurgical testwork is presented in the following sections.

13.1.1. Dawson Metallurgical Laboratory Report

Hochschild contracted Dawson Metallurgical Laboratories in 2008 to undertake metallurgical

testwork. The primary objective of this phase of testwork was to determine lead and zinc flotation

response on different mineralization type composites. Seventeen composites, representing oxide,

mixed and sulfide mineralization types were prepared from 51 individual samples and scoping level

flotation tests were performed. Material for the tests was obtained from core assay rejects. It was

noted in the report that some of the samples showed signs of secondary copper mineralization on

particle surfaces.

Following several series of tests to optimize the type and dosage of collectors and depressants,

kinetic variability open-circuit rougher-scavenger lead and zinc flotation tests were performed on the


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seventeen composite samples. The simplified test flowsheet is given in Figure 13.1. The reagent

suite consisted of adding zinc depressants ZnSO4, NaCN and metabisulfite to the mill and adding

collectors 3418A and AP242 and frother methyl iso butyl caranol (MIBC) to the lead circuit to float

lead minerals. Copper sulfate was added to lead rougher tailings to activate zinc and then pH

adjusted with lime to 10.5 and sodium isopropyl xanthate (SIPX) added to float zinc minerals.

Following several series of tests to optimize the type and dosage of collectors and depressants,

kinetic variability open-circuit rougher-scavenger lead and zinc flotation tests were performed on the

seventeen composite samples. The simplified test flowsheet is given in Figure 13.1.

Figure 13-1 Variable Testing Open Circuit Process Flowsheet

The test results, summarized in Tables 13-1 to 13-3, indicated the following:

• Lead flotation results showed excellent lead recovery (> 90% in most cases) and concentrate

grade (± 30% Pb). Silver recovery into lead concentrate ranged from 50% to 87% while zinc

recovery into lead concentrate ranged from 13% to 40%. The lower recovery of silver was

for oxide mineralization. However, significant amount of silver reported to the lead

scavenger concentrate (± 20%)

• Zinc flotation was robust for all tests with 45% to 82% of zinc reporting to zinc concentrate.

The concentrate grades ranged from 34% to 54% Zn.


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• The Bond’s rod mill work index was 15.0 kwh/mt for mixed mineralization and 15.3 kwh/mt

for sulfide mineralization.

• The Bond’s rod mill work index was 13.9 kwh/mt for oxide, 15.8 kwh/mt for mixed and 16.1 kwh/mt for sulfide mineralization.


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Table 13-1 Summary of Mineralization Variability Lead Flotation Results Test No.

Type Primary Grind, Mill pH

Wt. % Assay, g/t or % % Distribution

% -‐200 mesh

P80 μm

Ag Pb Zn Cu Ag Pb Zn Cu

1D Oxide 76 81 6.4 6.7 386 25.2 25.0 1.59 60.7 60.5 21.8 38.9

2 Mixed (med)

70 89 6.7 13.0 322 26.1 21.0 3.19 81.2 93.5 40.3 87.4

3 Mixed (med)

73 85 6.8 15.4 376 29.9 17.0 6.63 75.6 85.0 31.7 88.0

4C Mixed (high)

66 95 6.4 8.9 755 38.1 17.1 3.74 58.9 68.9 13.8 49.8

5 Mixed (high)

73 85 6.7 11.1 710 27.1 22.5 3.63 87.3 94.2 25.8 85.5

6 Sulfide (high)

68 93 7.5 8.7 918 16.0 26.4 2.74 86.1 93.9 22.7 81.3

7 Sulfide (low)

74 84 7.4 7.1 375 29.1 12.8 5.55 85.4 95.1 22.2 86.1

8 Mixed (low)

75 82 7.7 7.5 298 29.1 12.5 2.22 77.0 93.0 26.8 69.8

9 Sulfide (low)

68 93 7.8 5.6 583 31.6 8.1 1.81 85.4 95.8 18.6 72.7

10 Mixed (low)

71 88 7.8 7.1 160 24.2 11.2 1.12 49.8 91.7 19.1 71.5

11 Sulfide (low)

71 88 7.7 4.6 390 25.9 8.9 1.63 72.2 93.0 17.2 69.7

12 Sulfide (low)

66 97 7.9 11.2 393 37.3 13.6 2.24 67.7 93.1 26.3 65.9

13A Sulfide (high)

65 96 7.4 21.3 573 35.1 19.6 4.10 81.7 95.8 29.0 85.0

14 Sulfide (low)

72 88 7.8 5.1 719 30.7 10.5 2.80 77.1 90.2 13.3 57.8

15 Sulfide (high)

68 92 7.5 22.1 351 41.1 16.2 4.65 74.1 95.4 30.3 86.3

16 Sulfide (low)

71 90 7.9 5.4 314 35.7 10.4 1.13 65.7 92.1 16.6 36.4

17 Sulfide (med)

63 102 7.9 8.4 484 39.6 13.6 3.39 82.5 97.2 21.9 78.3

Note: Targeted Grind = 70% - 200 mesh (75 micron) Pb Ro/Scav Concentrate: 8 Minutes Flotation Time (Natural pH = 6.4 - 7.9)


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Table 13-2 Summary of Mineralization Variability Zinc Flotation Results Test No.

Type Primary Grind,

Total Ca(OH)2 added, g/t

Total CuSO4, 7H2O (OH)4 7H2O

added, g/t

Wt% Assay, g/t or % % Distribution

% -‐ 200 mesh

P80 -‐

Ag Pb Zn Cu Ag Pb Zn Cu

1D Oxide 76 81 1200 500 11.6 103 5.33 36.8 1.01 27.9 22.1 55.4 42.9

2 Mixed (med)

70 89 900 450 7.7 44 0.56 39.8 0.31 6.5 1.2 44.9 4.9

3 Mixed (med)

73 85 1050 550 9.5 86 1.45 48.9 0.51 10.7 2.5 56.4 4.2

4C Mixed (high)

66 95 1000 700 18.9 180 6.42 44.7 1.18 29.7 24.6 76.4 33.3

5 Mixed (high)

73 85 1100 650 12.7 43 0.36 52.1 0.22 6.0 1.4 68.1 5.8

6 Sulfide (high)

68 93 800 650 15.1 55 0.22 50.4 0.18 9.0 2.2 75.1 9.5

7* Sulfide (low)

74 84 700 550 6.5 43 0.41 46.9 0.58 9.1 1.2 75.1 8.3

8* Mixed (low)

75 82 700 550 6.6 49 0.62 34.1 0.69 11.1 1.8 64.4 18.9

9* Sulfide (low)

68 93 650 650 5.0 40 0.32 38.1 0.40 5.2 0.9 78.4 14.6

10* Mixed (low)

71 88 750 600 7.5 60 0.47 42.6 0.26 19.9 1.9 77.4 17.9

11* Sulfide (low)

71 88 750 700 4.8 49 0.40 38.9 0.34 9.5 1.5 78.5 15.1

12* Sulfide (low)

66 97 750 650 9.0 125 0.87 44.5 0.99 17.5 1.8 70.0 23.5

13A Sulfide (high)

65 96 800 800 18.3 83 0.62 54.0 0.41 10.2 1.5 68.7 7.3

14* Sulfide (low)

72 88 900 700 7.7 73 0.48 42.7 0.96 11.8 2.1 82.1 29.9

15* Sulfide (high)

68 92 1300 1150 15.0 122 0.88 52.9 0.57 17.5 1.4 67.2 7.3

16* Sulfide (low)

71 90 650 700 6.8 77 0.71 39.1 1.30 20.6 2.3 79.5 53.3

17* Sulfide (med)

63 102 700 650 8.4 63 0.36 47.2 0.75 10.7 0.9 76.0 17.3

Note: Add CuSO4.5H2O at a dosage of 50 g/t per % Zn *had to stage add additional CuSO4.7H2O to activate the ZnS

Targeted Grind = 70% - 200 mesh (75 micron), Zn Ro/Scav Concentrate: 3 Minutes Flotation Time (pH = 10.5 - 10.8)


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Table 13-3 Summary of Mineralization Variability Test Work Zn Scavenger Tailings Test No. Type Primary Grind, Wt. % Assay, g/t or % % Distribution

% -‐ 200 mesh P80 -‐ Ag Pb Zn Cu Ag Pb Zn Cu

ID Oxide 76 81 81.6 6 0.60 2.16 0.06 11.4 17.4 22.8 18.3

2 Mixed (med) 70 89 79.3 8 0.25 1.27 0.05 12.3 5.3 14.8 7.7

3 Mixed (med) 73 85 75.1 14 0.90 1.31 0.12 13.8 12.4 11.9 7.8

4C Mixed (high) 66 95 72.2 18 0.44 1.51 0.16 11.4 6.5 9.9 16.9

5 Mixed (high) 73 85 76.2 8 0.18 0.78 0.05 6.7 4.3 6.1 8.7

6 Sulfide (high) 68 93 76.2 6 0.08 0.29 0.04 4.9 3.8 2.2 9.2

7* Sulfide (low) 74 84 86.4 2 0.09 0.13 0.03 5.6 3.6 2.7 5.6

8* Mixed (low) 75 82 85.9 4 0.14 0.36 0.03 11.8 5.2 8.8 11.3

9* Sulfide (low) 68 93 89.4 4 0.07 0.08 0.02 9.4 3.3 3.0 12.8

10* Mixed (low) 71 88 85.4 8 0.14 0.17 0.01 30.2 6.4 3.5 10.6

11* Sulfide (low) 71 88 90.7 5 0.08 0.11 0.02 18.4 5.5 4.3 15.2

12v Sulfide (low) 66 97 79.8 12 0.29 0.27 0.05 14.8 5.2 3.7 10.6

13A Sulfide (high) 65 96 60.4 20 0.35 0.56 0.13 8.1 2.7 2.4 7.7

14* Sulfide (low) 72 88 83.2 6 0.15 0.21 0.03 11.1 7.7 4.6 12.4

15* Sulfide (high) 68 92 62.9 14 0.49 0.47 0.12 8.4 3.2 2.5 6.4

16* Sulfide (low) 71 90 87.8 4 0.13 0.15 0.02 13.8 5.5 3.9 10.3

17* Sulfide (med) 63 102 83.2 4 0.08 0.14 0.02 6.8 2.0 2.2 4.3

13.1.2 DCM SCIENCES LABORATORIES, INC.

Bulk mineralogy was determined for the seventeen Hochschild composite samples. The study

indicated that sphalerite was present as coarse to fine particles with inclusions of chalcopyrite and

galena. Some coarse galena and arsenopyrite was also seen in the samples. There was no

mention of silver minerals in the study.

13.1.3 SANTACRUZ SILVER MINING LTD. DOCUMENTS

Santacruz personnel have undertaken additional testwork on four composites, one from Ventana,

two from Lamas and one from the San Felipe vein. Results are in a report dated April 4, 2014

titled Investigacion Metalurgical Proyecto San Felipe, Sonora. Composites were made from drill

core assay rejects. All were of sulphide material. Results for the open-circuit flotation test results

for the various composites are summarized in a Santacruz report. A locked-cycle test for Ventana

mineralization was performed by Minera Hochshild and was also reported in the Santacruz


147

document. The metallurgical balances and the typical reagent dosages determined by Santacruz

are summarized in Tables 13- 4 to 7 and the locked-cycle test results are in Table 13-8.

Table 13-4 Typical Reagent Addition for Roughers and Cleaners in Pb/Zn Flotation Test Operation Mixture NH4

HSO3 238 3418-‐A TF

1035 X-‐343 Cu

SO4 Ca

(OH)2 211 pH Minutes

Mill 500 100 30 1000 7.5 15

Pb Rougher 40 7 7.33 4

Pb Conditioner

30 1

1st Cleaner 100 5 7 3

2nd Cleaner

250 5 7 2

Conditioner Zn

1150 2000 50 10.41 15

Rougher Zn 14 100 4

Conditioner Zn

40 2

1st Cleaner 200 9.3 4

2nd Cleaner

100 8.33 3

Note: Mixture is 12:1 of ZnSO4 and NaCN


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Table 13-5 Open Circuit Lead and Zinc Rougher and Cleaner Flotation Tests for Lamas 1 Sample Product Grade Distribution %

g/t Au

g/t Ag % Pb % Zn % Cu

% Fe Wt. Au Ag Pb Zn Cu Fe

Pb Concentrate

2.38 5697.38 21.59 8.60 9.81 15.76 2.13 28.03 59.16 64.60 1.53 36.41 4.43

Pb Middlings

0.3 541.81 1.75 5.74 1.17 6.98 10.08 16.73 26.65 24.80 4.83 20.51 9.29

Zn Concentrate

0.2 51.33 0.18 52.52 0.72 11.72 19.36 21.43 4.85 4.90 84.90 24.31 29.98

Zn Middlings

0.3 60.39 0.27 3.35 0.30 7.65 10.74 17.84 3.17 4.08 3.01 5.62 10.86

Final Tailing 0.05 21.94 0.02 1.19 0.13 5.96 57.69 15.97 6.18 1.62 5.73 13.08 45.44

Cal. Feed 0.18 205.00 0.71 11.97 0.57 7.57 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Table 13-6 Open Circuit Lead and Zinc Rougher and Cleaner Flotation Tests for Lamas 2 Sample Product Grade Distribution %

g/t Au

g/t Ag

% Pb % Zn % Cu


Pb Concentrate

0.6 4190.84 39.06 11.55 9.10 11.40 2.93 9.85 64.54 81.28 2.45 40.46 4.86

Pb Middlings

0.16 450.43 2.22 5.94 1.53 6.97 8.34 7.49 19.77 13.17 3.60 19.39 8.46

Zn Concentrate

0.4 51.33 0.18 53.28 0.72 10.72 22.40 50.27 6.05 2.87 86.67 24.51 34.95

Zn Middlings

0.3 60.39 0.27 3.35 0.30 7.65 9.83 16.54 3.12 1.89 2.39 4.48 10.94

Final Tailing 0.05 21.94 0.02 1.19 0.13 4.96 56.50 15.85 6.52 0.80 4.88 11.16 40.78

Cal. Feed 0.18 190.0 1.41 13.77 0.66 6.81 100.0 100.0 100.0 100.0 100.0 100.0 100.0

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Table 13-7 Open Circuit Lead and Zinc Rougher and Cleaner Flotation Tests for San Filipe Sample Product Grade Distribution %

g/t Au

g/t Ag

% Pb % Zn % Cu


Pb Concentrate

5.38 4848.50 37.64 9.43 6.10 13.52 3.41 28.15 56.74 76.55 6.14 44.16 7.69

Pb Middlings

1.66 639.44 2.66 5.76 1.18 6.42 11.43 29.11 25.08 18.13 12.58 28.63 12.24

Zn Concentrate

0.6 89.93 0.29 50.59 0.65 9.54 7.62 7.01 2.35 1.32 73.65 10.51 12.12

Zn Middlings

0.55 169.26 0.47 2.28 0.36 8.43 8.42 7.10 4.89 2.36 3.67 6.43 11.83

Final Tailing 0.27 46.16 0.04 0.30 0.07 4.87 69.12 28.63 10.95 1.65 3.96 10.27 56.12

Cal. Feed 0.65 291 1.68 5.23 0.47 6.00 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Table 13-8 Locked Cycle Test Results for Ventana (Test PFCC-2) Product Grade Distribution %

g/t Ag % Pb % Zn % Cu Wt Ag Pb Zn Cu

Lead Concentrate 1059 46.91 16.45 3.46 5.70 70.06 86.45 9.83 61.94

Zinc Concentrate 106 1.66 53.81 0.41 15.50 19.18 8.33 87.49 19.73

Final Tailing 12 0.21 0.33 0.07 78.80 10.7 5.23 2.69 18.33

Cal. Feed 85.7 3.09 9.53 0.318 100.0 100.0 100.0 100.0 100.0

Note: Locked-Cycle Test Performed by Minera Hochshild


150

13.2. Process Flowsheet and Projected Metallurgical Recoveries

The process flowsheet for the proposed process plant is given in Figure 17.1. The run-of-mine

(ROM) mineralized material will be trucked and dumped into the hopper which will have a grizzly.

The mineralized material will be crushed in a three-stage crushing system and stored in a fine

mineralized material bin. The mineralized material will be fed from the fine mineralized material

bin to a ball mill in closed circuit with cyclones. The cyclone overflow will be pumped to the lead

rougher and scavenger flotation circuit. The scavenger concentrate will be recycled back to the

rougher flotation feed. The rougher concentrate will be subjected to counter-current two stage

cleaner flotation. The lead concentrate will be thickened and filtered and stored for shipment.





Since only one locked-cycle test has been performed so far, it was used as the basis for

determining the metallurgical recoveries (Table 13-8). The locked-cycle test, documented in

Santacruz Silver Mining Ltd.’s report, was performed on Ventana mineralized material which

constitutes the majority of the resources. The recoveries for the composites from other veins were

estimated from open-cycle tests (Tables 13-5 to 7) using the assumption that 50% of the metal

values reporting to the middlings (first-and second-cleaner tailings) will report to the concentrates

for both lead and zinc at the same grade as the concentrate in the tests. The simulated results for

these composites are reported in Tables 13-9 to 11. These results are reasonably close to the

results for the locked-cycle test for Ventana.

Table 13-9 Simulated Test Results for Lamas 1

Note: Test Results estimated based on 50% of mids going to the concentrate at the same grade as concentrate

Product Grade Distribution %

g/t Au g/t Ag % Pb

% Zn

% Cu

Wt Au Ag Pb Zn Cu

Lead Concentrate 2.62 5945 21.6 8.6 10.6 2.5 36.4 72.5 77.0 1.8 46.7

Zinc Concentrate 0.32 135.3 0.46 52.52 0.93 19.85 34.5 13.1 13.1 87.1 32.3

Final Tailing 0.065 38.0 0.09 1.71 0.16 77.65 29.1 14.4 8.9 9.0 21.0

Cal. Feed 0.18 205 0.7 11.97 0.57 100.0 100.0 100.0 100.0 100.0 100.0


151

Table 13-10 Simulated Test Results for Lamas 2


g/t Au g/t Ag % Pb % Zn % Cu Wt Au Ag Pb Zn Cu

Lead Concentrate 0.77 4459.3 39.06 11.55 10.43 3.17 13.6 74.4 87.9 2.7 50.1


Final Tailing 0.065 33.4 0.096 1.59 0.16 73.88 26.0 13.0 5.0 8.5 18.3

Cal. Feed 0.18 190 1.41 13.77 0.66 100.0 100.0 100.0 100.0 100.0 100.0


Table 13-11 Simulated Results for San Felipe


g/t Au g/t Ag % Pb % Zn % Cu Wt Au Ag Pb Zn Cu

Lead Concentrate 7.27 5279 37.64 9.43 7.19 3.82 42.7 69.3 85.6 6.9 58.5


Final Tailing 0.29 64.8 0.14 0.87 0.07 88.06 39.5 19.6 7.4 14.5 13.5

Cal. Feed 0.65 291 1.68 5.23 0.47 100.0 100.0 100.0 100.0 100.0 100.0


Additional test work completed by Santacruz Silver indicated an average silver recovery of 80%

based on recent open-circuit tests and the same methodology applied to the open-circuit tests

discussed in this section.

Review of the limited oxide test work using the same methodology for metal recovery estimation

indicated 70% silver, 70% lead and 68% zinc recovery, most material in the resource is sulphide,

but the relative amount of oxide, mixed and sulphide material in the upper part of the veins is not

well known at this time. To account for lower recoveries due to oxidation, the open pit portion of

the Ventana vein was all considered to be oxide for the PEA. Estimated metallurgical recoveries

used on the PEA model are summarized in Table 13-12. To date, testing has not been able to

produce a viable copper concentrate. Therefore, copper is not considered in the PEA. Further

test work to evaluate the potential for copper recovery is recommended.

Table 13-12 Estimated Metallurgical recoveries. Oxide Sulphide

Ag 70% 80%

Pb 70% 86%

Zn 68% 87%


152

14. Mineral Resource Estimates

Giroux Consultants was contracted by SantaCruz Silver Mining Ltd. to complete a Resource

estimate for a number of separate veins on the San Felipe Project located 130 km North East of

Hermosillo Sonora State, Mexico. The resources were estimated by Gary Giroux, P.Eng. MASc.

who is a qualified person and independent of the both the issuer and the title holder, based on the

tests outlined in National Instrument 43-101.

The San Felipe Project is comprised of six separate mineralized structures: the La Ventana, the

Las Lamas, the San Felipe, two San Felipe HW structures and Transversales.

14.1. Data Analysis

The data supplied for the San Felipe Project consisted of:

Ventana – 96 drill hole collars, 387 down hole surveys and 5,239 assays for Au (g/t), Ag (g/t), Cu

(ppm), Pb (ppm) and Zn (ppm). Of the total holes 72 intersected the mineralized solid.

Las Lamas - 54 drill hole collars, 241 down hole surveys and 1,594 assays for Au (g/t), Ag (g/t),

Cu (ppm), Pb (ppm) and Zn (ppm). Nine drill holes had collars but no assays. A total of 38 holes

intersected the mineralized solid.

San Felipe and HW structures – 78 drill hole collars, 478 down hole surveys and 3469 assays for

Au (g/t), Ag (g/t), Cu (ppm), Pb (ppm) and Zn (ppm).

Transversales – 34 drill hole collars, 155 down hole surveys and 1,224 assays for Au (g/t), Ag (g/t),

Cu (ppm), Pb (ppm) and Zn (ppm). Of these holes 30 intersected the mineralized solid and were

used in the estimate.

Geologic solids for each vein system were built by Bourke defining the mineralized structures. The

solids were built from geologic logging using Leapfrog Geo software. A list of drill holes is

provided as Appendix 1 with the holes that intersected the mineralized solids and were used for

the estimate, highlighted. The remaining holes were used to estimate the surrounding waste.

Gaps identified in each data set, in the from-to record had values of 0.01 g/t for Ag, 5 ppm for Zn,

Pb and Cu and 0.001 g/t for Au inserted. Each vein system is estimated separately.

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14.1.1. Ventana Zone

The data supplied for the Ventana Zone Resource Estimate consisted of 96 drill hole collars, 387

down hole surveys and 5,239 assays for Ag (g/t), Zn (ppm), Pb (ppm), Cu (ppm) and Au (g/t). See

Figure 14.1 for the drill hole locations.

Two geologic solids were built by Bourke defining a High Grade domain (HG) and a surrounding

lower grade envelope (LG). The solids were built from geologic logging using Leapfrog Geo

software. Of the supplied 96 holes, 72 intersected the mineralized solids. A list of drill holes is

provided as Appendix 1 with the holes intersecting the mineralized solids highlighted. The

remaining holes were used to estimate the surrounding waste.

A total of 720 gaps in the from-to record had values of 0.01 g/t for Ag, 5 ppm for Zn, Pb and Cu

and 0.001 g/t for Au inserted. Five of these gaps were in the Low Grade envelope while the rest

were in waste.


154

Figure 14-1 Drill hole plan view for the La Ventana Zone

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Figure 14-3 Isometric view looking NW showing HG solid in red, LG solid in green and underground workings in purple.

Figure 14-2 Plan view for the La Ventana Zone showing HG solid in red, LG solid in green and underground workings in purple.

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Drill holes were “passed through” the mineralized solids and all assays were back tagged with a

code if inside or outside the domains. Table 14-1 shows the simples statistics for assays inside

the Ventana high grade structure, inside the lower grade envelope or outside the solids in waste.

Table 14-1 Assay Statistics sorted by Domain Domain Variable Number Mean Standard

Deviation Minimum Value

Maximum Value

Coef. Of Variation

Ventana High Grade Structure (HG)

Au (g/t) 496 0.017 0.031 0.003 0.32 1.78

Ag (g/t) 496 75.91 101.68 0.10 826.00 1.34

Cu (%) 496 0.47 0.70 0.001 4.72 1.51

Pb (%) 496 3.39 4.62 0.008 24.40 1.36

Zn (%) 496 7.42 8.28 0.014 39.20 1.12

Ventana Low Grade Envelope

(LG)

Au (g/t) 487 0.018 0.07 0.001 0.96 3.64

Ag (g/t) 487 13.61 22.71 0.01 160.0 1.67

Cu (%) 487 0.07 0.17 0.001 1.82 2.54

Pb (%) 487 0.74 1.78 0.001 19.75 2.41

Zn (%) 487 1.25 2.49 0.001 20.40 1.99

Waste Au (g/t) 5,010 0.019 0.308 0.001 20.09 16.56

Ag (g/t) 5,010 5.97 24.18 0.01 911.00 4.05

Cu (%) 5,010 0.03 0.12 0.001 2.65 4.09

Pb (%) 5,010 0.41 1.39 0.001 24.60 3.43

Zn (%) 5,010 0.53 1.56 0.001 27.10 2.97

In order to determine if capping was required for each variable within each of the mineralized

domains, lognormal cumulative frequency plots were produced and evaluated. Erratic outliers

were identified and capped as shown in the following Table.


157

Table 14-2 Cap levels and number capped for each variable Domain Variable Cap Level Number Capped


Au (g/t) 0.18 g/t 3

Ag (g/t) 490.0 g/t 5

Cu (%) 3.3 % 5

Pb (%) 23.0 % 1

Zn (%) 35.0 % 4


(LG)

Au (g/t) 0.36 g/t 4

Ag (g/t) 113.0 g/t 6

Cu (%) 0.9 % 3

Pb (%) 7.4 % 6

Zn (%) 17.0 % 1

Waste Au (g/t) 0.21 g/t 23

Ag (g/t) 122.0 g/t 20

Cu (%) 0.66 % 35

Pb (%) 6.0 % 61

Zn (%) 8.4 % 44

The results, of capping these erratic outliers, are shown below in Table 14-3. Slight reductions in

mean grade, with significant drops in coefficient of variation, are produced in many cases.


158

Table 14-3 Capped Assay Statistics sorted by Domain Domain Variable Number Mean Standard


Maximum Value

Coef. Of Variation


Au (g/t) 496 0.016 0.025 0.003 0.18 1.52

Ag (g/t) 496 74.53 94.31 0.10 490.0 1.27

Cu (%) 496 0.46 0.66 0.001 3.3 1.45

Pb (%) 496 3.39 4.61 0.008 23.0 1.36

Zn (%) 496 7.40 8.21 0.014 35.0 1.11


(LG)

Au (g/t) 487 0.016 0.04 0.001 0.36 2.59

Ag (g/t) 487 13.33 21.27 0.01 113.0 1.60

Cu (%) 487 0.06 0.14 0.001 0.9 2.25

Pb (%) 487 0.67 1.24 0.001 7.4 1.86

Zn (%) 487 1.24 2.44 0.001 17.0 1.96

Waste Au (g/t) 5,010 0.011 0.022 0.001 0.21 2.09

Ag (g/t) 5,010 5.34 13.63 0.01 122.0 2.56

Cu (%) 5,010 0.03 0.08 0.001 0.66 3.07

Pb (%) 5,010 0.35 0.93 0.001 6.0 2.66

Zn (%) 5,010 0.49 1.21 0.001 8.4 2.49

Drill hole core recovery data was available for drill holes HFLV-1 to 74 with core recoveries

estimated from 1.8% to 100% in assayed core intervals. The mean recovery percentage for 4,269

assays was 83.05% with a standard deviation of 19.64%. A lower threshold of 2 standard

deviations below the mean was 43.77%. Assays in intervals with core recovery less than 43.8%

were considered unreliable. A total of 252 assays had core recovery less than 43.8 % representing

6 % of the assays with core recovery documented. These intervals were ignored when forming

composites assuming the gaps were simply missing data. The assumption was made that for these

assays with low recovery there was too much of the sample missing to consider these samples

representative. Of the assays with core recovery less than 43.8% only 50 or 5% were within the

HG or LG Envelope domains.


159

14.1.2. Las Lamas Zone

The data supplied for the Lamas Zone Resource Estimate consisted of 54 drill hole collars, 241

down hole surveys and 1,594 assays for Au (g/t), Ag (g/t), Cu (ppm), Pb (ppm) and Zn (ppm).

A geologic solid was built by Bourke defining a mineralized structure striking 255o and dipping 86o.

The solid was built from geologic logging using Leapfrog Geo software. Of the supplied 54 holes,

38 were used to define the mineralized solid. Of these, 9 holes had no assays. A list of drill holes

is provided as Appendix 1 with the 29 holes that intersect the mineralized solid and were used for

the estimate, highlighted. The remaining holes were used to estimate the surrounding waste.

A total of 114 gaps in the from-to record and 84 gaps at the start or end of drill holes had values of

0.01 g/t for Ag, 5 ppm for Zn, Pb and Cu and 0.001 g/t for Au inserted. Five of these gaps were in

the Low Grade envelope while the rest were in waste.

Figure 14-4 Isometric view for the Las Lamas Zone looking NE showing the solid, drill hole traces and

surface topography.


160

Figure 14-5 Isometric view looking SW showing the solid in red, drill hole traces in green and surface topography in grey.

Drill holes were “passed through” the mineralized solid and all assays were back tagged with a

code if inside or outside the domain. Table 14-4 shows the simple statistics for assays inside the

Lamas structure and outside the solid in waste.



Maximum Value

Coef. Of Variation

Lamas Structure

(LL)

Au (g/t) 233 0.020 0.049 0.0001 0.49 2.50

Ag (g/t) 233 63.75 114.73 0.01 1055.0 1.80

Cu (%) 233 0.11 0.17 0.001 1.0 1.48

Pb (%) 233 0.22 0.37 0.001 2.3 1.63

Zn (%) 233 3.73 6.02 0.001 30.0 1.61

Waste Au (g/t) 1,559 0.010 0.025 0.0001 0.43 2.55

Ag (g/t) 1,559 4.07 17.25 0.01 247.0 4.23

Cu (%) 1,559 0.01 0.08 0.001 2.0 6.77

Pb (%) 1,559 0.04 0.43 0.001 16.0 10.49

Zn (%) 1,559 0.19 1.37 0.001 29.3 7.32


161

In order to determine if capping was required for each variable within each of the mineralized

domains, lognormal cumulative frequency plots were produced and evaluated. Erratic outliers

were identified and capped as shown in the following Table.


Lamas Structure

(LL)

Au (g/t) 0.28 1

Ag (g/t) 450.0 2

Cu (%) 0.6 2

Pb (%) 1.8 2

Zn (%) 25.5 2

Waste Au (g/t) 0.13 10

Ag (g/t) 102.0 13

Cu (%) 0.34 8

Pb (%) 0.7 7

Zn (%) 6.0 10

The results, of capping these erratic outliers, are shown below in Table 14-6. Slight reductions in

mean grade, with significant drops in coefficient of variation, are produced in many cases.



Maximum Value

Coef. Of Variation

Lamas Structure

(LL)

Au (g/t) 233 0.019 0.042 0.0001 0.28 2.24

Ag (g/t) 233 60.72 95.80 0.01 450.0 1.58

Cu (%) 233 0.11 0.16 0.001 0.60 1.41

Pb (%) 233 0.22 0.35 0.001 1.8 1.57

Zn (%) 233 3.70 5.91 0.001 26.5 1.60

Waste Au (g/t) 1,559 0.009 0.017 0.0001 0.13 1.95

Ag (g/t) 1,559 3.62 12.89 0.01 102.0 3.56

Cu (%) 1,559 0.01 0.03 0.001 0.34 3.79

Pb (%) 1,559 0.03 0.08 0.001 0.7 3.14

Zn (%) 1,559 0.13 0.61 0.001 6.0 4.85


162

Drill hole core recovery data was available for 16 HQ drill holes with core recoveries estimated

from 7.2% to 100% in assayed core intervals. The mean recovery percentage for 606 assays was

86.89% with a standard deviation of 17.77%. A lower threshold of 2 standard deviations below the

mean was 51.35%. Assays in intervals with core recovery less than 51.35% were considered

unreliable. A total of 42 assays had core recovery less than 51.4 % representing 6.9 % of the

assays with core recovery documented. Of the assays with core recovery less than 51.4% all

were in Waste.


163

14.1.3. San Felipe Structures

For the San Felipe Structures a total of 78 drill holes, 478 down hole surveys and 3,469 assays for

Au (g/t), Ag (g/t), Cu (ppm), Pb (ppm) and Zn (ppm) were provided. A total of 238 gaps in the

from-to record were identified and values of 0.01 g/t for Ag, 5 ppm for Zn, Pb and Cu and 0.001 g/t

for Au were inserted.

Geologic solids were built by Bourke defining a San Felipe, and two HW veins. The solids were

built from geologic logging using Leapfrog Geo software. Of the supplied 78 holes, 65 were used

to define the three mineralized solids. Of these, 13 holes had no assays. A list of drill holes is

provided as Appendix 1 with the 52 holes that intersect the mineralized solid and had assays

highlighted.


code if inside or outside the domains. Table 14-7 shows the simple statistics for assays inside the

San Felipe structures and outside the solids in waste.


164



Maximum Value

Coef. Of Variation

San Felipe Au (g/t) 169 0.07 0.32 0.003 3.0 4.48

Ag (g/t) 169 39.62 111.99 0.10 892.0 2.83

Cu (%) 169 0.08 0.14 0.001 0.8 1.81

Pb (%) 169 1.16 2.47 0.001 20.0 2.13

Zn (%) 169 1.74 3.27 0.002 21.4 1.89

HW1 Au (g/t) 188 0.13 0.72 0.003 9.6 5.76

Ag (g/t) 188 88.00 148.38 0.10 878.0 1.69

Cu (%) 188 0.11 0.21 0.001 1.6 1.92

Pb (%) 188 1.66 3.41 0.001 20.0 2.06

Zn (%) 188 4.77 7.56 0.001 38.2 1.58

HW2 Au (g/t) 53 0.06 0.17 0.003 1.1 3.15

Ag (g/t) 53 47.31 81.72 0.50 397.0 1.73

Cu (%) 53 0.13 0.26 0.002 1.4 2.08

Pb (%) 53 1.89 3.02 0.002 12.9 1.60

Zn (%) 53 3.06 4.42 0.007 15.1 1.44

Waste Au (g/t) 3,297 0.01 0.05 0.001 1.5 3.71

Ag (g/t) 3,297 4.10 21.01 0.01 705.0 5.12

Cu (%) 3,297 0.01 0.06 0.001 2.6 5.25

Pb (%) 3,297 0.11 0.51 0.001 12.8 4.72

Zn (%) 3,297 0.21 0.89 0.001 22.3 4.27

The grade distributions were examined for each variable within each domain to identify erratic

outliers and cap them if necessary. Table 14-8 shows the capping strategy for each domain.


165


San Felipe Au (g/t) 0.15 g/t 6

Ag (g/t) 230.0 g/t 6

Cu (%) 0.62 % 1

Pb (%) 7.5 % 2

Zn (%) 10.5 % 3

HW1 Au (g/t) 0.60 g/t 4

Ag (g/t) 500.0 g/t 6

Cu (%) 0.85 % 2

Pb (%) 11.0 % 4

Zn (%) 28.0 % 3

HW2 Au (g/t) 0.08 g/t 3

Ag (g/t) 80.0 g/t 6

Cu (%) 0.35 % 3

Pb (%) 5.0 % 6

Zn (%) 10.0 % 6


Ag (g/t) 100.0 g/t 13

Cu (%) 0.4 % 4

Pb (%) 5.6 % 6

Zn (%) 9.5 % 3


166

The results from capping are tabulated below.



Maximum Value

Coef. Of Variation

San Felipe Au (g/t) 169 0.03 0.04 0.003 0.15 1.42

Ag (g/t) 169 29.14 56.14 0.10 230.0 1.93

Cu (%) 169 0.07 0.13 0.001 0.6 1.77

Pb (%) 169 1.05 1.86 0.001 7.5 1.77

Zn (%) 169 1.59 2.61 0.002 10.5 1.64

HW1 Au (g/t) 188 0.06 0.11 0.003 0.6 1.75

Ag (g/t) 188 82.44 126.33 0.10 500.0 1.53

Cu (%) 188 0.10 0.17 0.001 0.9 1.67

Pb (%) 188 1.50 2.71 0.001 11.0 1.81

Zn (%) 188 4.70 7.28 0.001 28.0 1.55

HW2 Au (g/t) 53 0.02 0.02 0.003 0.1 1.01

Ag (g/t) 53 29.69 27.84 0.50 80.0 0.94

Cu (%) 53 0.08 0.11 0.002 0.4 1.31

Pb (%) 53 1.41 1.83 0.002 5.0 1.30

Zn (%) 53 2.65 3.46 0.007 10.0 1.30

Waste Au (g/t) 3,297 0.01 0.04 0.001 0.5 2.85

Ag (g/t) 3,297 3.47 10.44 0.01 100.0 3.01

Cu (%) 3,297 0.01 0.03 0.001 0.4 3.09

Pb (%) 3,297 0.10 0.42 0.001 5.6 4.12

Zn (%) 3,297 0.20 0.74 0.001 9.5 3.69

14.1.4. Transversales

Transversales had a total of 34 drill holes, 155 down hole surveys and 1,224 assays for Au (g/t),

Ag (g/t), Cu (ppm), Pb (ppm) and Zn (ppm). A total of 50 gaps in the from-to record were

identified and values of 0.01 g/t for Ag, 5 ppm for Zn, Pb and Cu and 0.001 g/t for Au were inserted.

A geologic solid, constraining the Transversales vein was built by Bourke from geologic logging

using Leapfrog Geo software. Of the supplied 34 holes, 29 intersected the mineralized solid. A list

of drill holes is provided as Appendix 1, with the 29 drill holes used to estimate the mineralized

solid, highlighted.


167


code if inside or outside the domains. Table 14-10 shows the simple statistics for assays inside

the San Felipe structures and outside the solids in waste.

Table 14-10 Assay Statistics sorted by Domain for Transversales Domain Variable Number Mean Standard


Maximum Value

Coef. Of Variation

Transversales Vein

Au (g/t) 216 0.030 0.068 0.001 0.94 2.28

Ag (g/t) 216 31.53 59.85 0.01 485.0 1.90

Cu (%) 216 0.08 0.25 0.001 2.92 2.95

Pb (%) 216 1.20 2.50 0.001 20.00 2.09

Zn (%) 216 1.74 3.52 0.001 27.20 2.02

Waste Au (g/t) 1,058 0.011 0.037 0.001 0.86 2.56

Ag (g/t) 1,058 4.32 11.05 0.01 118.0 2.56

Cu (%) 1,058 0.02 0.09 0.001 2.02 4.82

Pb (%) 1,058 0.23 0.83 0.001 13.25 3.65

Zn (%) 1,058 0.33 0.92 0.001 11.70 2.75

The grade distributions for each variable within each domain were examined to identify erratic

outliers and cap them if necessary. Table 14-11 shows the capping strategy for each domain.


Transversales Vein

Au (g/t) 0.15 g/t 3

Ag (g/t) 250.0 g/t 5

Cu (%) 0.70 % 4

Pb (%) 8.0 % 6

Zn (%) 12.5 % 5


Ag (g/t) 70.0 g/t 8

Cu (%) 0.25 % 7

Pb (%) 5.1 % 6

Zn (%) 5.0 % 9

The results from capping are tabulated below with significant reductions in the coefficient of variation.


168

Table 14-12 Capped Assay Statistics sorted by Domain for Transversales Domain Variable Number Mean Standard


Maximum Value

Coef. Of Variation

Transversales Vein

Au (g/t) 216 0.026 0.027 0.001 0.15 1.04

Ag (g/t) 216 29.54 48.92 0.01 250.0 1.66

Cu (%) 216 0.07 0.14 0.001 0.70 2.04

Pb (%) 216 1.04 1.64 0.001 8.00 1.58

Zn (%) 216 1.56 2.58 0.001 12.50 1.65

Waste Au (g/t) 1,058 0.010 0.022 0.001 0.20 2.17

Ag (g/t) 1,058 4.13 9.51 0.01 70.0 2.30

Cu (%) 1,058 0.01 0.03 0.001 0.25 2.22

Pb (%) 1,058 0.21 0.62 0.001 5.10 2.99

Zn (%) 1,058 0.31 0.71 0.001 5.00 2.28

14.2. Composites

Within each of the mineralized structures uniform down hole 2 m composites were produced that

honoured the boundaries of the mineralized solids. Intervals less than 1 m at the solid boundaries

were combined with the adjoining sample. In this manner a uniform support of 2 ± 1 m was

produced. Within waste 5 m composites were produced in a similar manner. The statistics for 2

m and 5 m composites are tabulated below.

Table 14-13 Composite Statistics sorted by Domain Domain Variable Number Mean Standard


Maximum Value

Coef. Of Variation

Ventana High Grade Structure

2 m Composites

Au (g/t) 240 0.016 0.019 0.003 0.15 1.20 Ag (g/t) 240 71.10 75.20 0.10 424.7 1.06 Cu (%) 240 0.43 0.57 0.002 3.1 1.32 Pb (%) 240 2.96 3.28 0.012 16.5 1.11 Zn (%) 240 6.91 6.19 0.014 27.6 0.90


2 m Composites

Au (g/t) 262 0.013 0.028 0.001 0.35 2.09 Ag (g/t) 262 12.49 16.21 0.01 97.9 1.30 Cu (%) 262 0.06 0.09 0.001 0.6 1.72 Pb (%) 262 0.56 0.81 0.001 5.6 1.44 Zn (%) 262 1.16 1.78 0.001 14.9 1.54

Ventana Waste

5 m Composites

Au (g/t) 3,100 0.004 0.008 0.001 0.13 2.11 Ag (g/t) 3,100 1.36 4.21 0.01 71.1 3.09 Cu (%) 3,100 0.01 0.03 0.001 0.54 3.68 Pb (%) 3,100 0.09 0.29 0.001 4.7 3.36 Zn (%) 3,100 0.12 0.39 0.001 6.2 3.16

Las Lamas Structure

Au (g/t) 109 0.017 0.034 0.0001 0.22 1.95 Ag (g/t) 109 47.47 68.86 0.01 355.6 1.45


169

Domain Variable Number Mean Standard Deviation

Minimum Value

Maximum Value

Coef. Of Variation

2 m Composites Cu (%) 109 0.09 0.12 0.001 0.4 1.35 Pb (%) 109 0.19 0.27 0.001 1.6 1.45 Zn (%) 109 3.00 4.37 0.001 20.4 1.46

Las Lamas Waste

5 m Composites

Au (g/t) 1037 0.002 0.005 0.0001 0.05 2.64 Ag (g/t) 1037 0.78 3.40 0.01 40.9 4.37 Cu (%) 1037 0.002 0.010 0.001 0.2 4.29 Pb (%) 1037 0.01 0.03 0.001 0.5 4.12 Zn (%) 1037 0.03 0.18 0.001 3.3 6.35

San Felipe 2 m Composites

Au (g/t) 86 0.02 0.03 0.002 0.15 1.36 Ag (g/t) 86 28.18 47.20 0.10 211.3 1.68 Cu (%) 86 0.07 0.12 0.001 0.5 1.56 Pb (%) 86 0.94 1.52 0.001 6.8 1.63 Zn (%) 86 1.52 2.28 0.004 10.5 1.50

San Felipe HW1 2 m Composites

Au (g/t) 94 0.06 0.11 0.001 0.6 1.82 Ag (g/t) 94 70.74 99.08 0.01 446.0 1.40 Cu (%) 94 0.08 0.11 0.001 0.5 1.40 Pb (%) 94 1.15 1.93 0.001 9.3 1.67 Zn (%) 94 3.84 5.64 0.001 28.0 1.47

San Felipe HW2 2 m Composites

Au (g/t) 32 0.02 0.02 0.001 0.1 0.99 Ag (g/t) 32 25.68 24.48 0.01 80.0 0.95 Cu (%) 32 0.06 0.08 0.001 0.3 1.42 Pb (%) 32 1.23 1.72 0.001 5.0 1.40 Zn (%) 32 2.19 3.07 0.001 10.0 1.40

San Felipe Waste

5 m Composites

Au (g/t) 1,430 0.006 0.015 0.001 0.2 2.39 Ag (g/t) 1,430 1.59 5.08 0.01 77.6 3.19 Cu (%) 1,430 0.005 0.012 0.001 0.2 2.51 Pb (%) 1,430 0.04 0.13 0.001 2.8 3.42 Zn (%) 1,430 0.09 0.32 0.001 5.3 3.61

Transversales Vein

2 m Composites

Au (g/t) 102 0.025 0.019 0.002 0.11 0.77 Ag (g/t) 102 25.68 32.82 0.43 197.3 1.28 Cu (%) 102 0.06 0.11 0.001 0.6 1.74 Pb (%) 102 0.90 1.19 0.006 6.9 1.33 Zn (%) 102 1.37 1.76 0.01 10.0 1.29

Transversales Waste

5 m Composites

Au (g/t) 1,095 0.003 0.007 0.001 0.12 2.47 Ag (g/t) 1,095 0.73 2.62 0.01 37.4 3.56 Cu (%) 1,095 0.003 0.012 0.001 0.15 3.60 Pb (%) 1,095 0.031 0.122 0.001 1.3 3.98 Zn (%) 1,095 0.054 0.209 0.001 4.0 3.89

aledwon

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170

Pearson Correlation coefficients were produced from composites, for each of the domains in each

of the structures.

Ventana

Table 14-14 Pearson correlation coefficients for Ventana Domain Ag (g/t) Zn (%) Pb (%) Cu (%) Au (%)

Ventana HG

Ag 1.0000

Zn 0.8617 1.0000

Pb 0.7275 0.6853 1.0000

Cu 0.7895 0.6358 0.7728 1.0000

Au 0.5651 0.5364 0.5814 0.5444 1.0000

Ventana LG

Ag 1.0000

Zn 0.9053 1.0000

Pb 0.8854 0.9174 1.0000

Cu 0.7952 0.8016 0.7581 1.0000

Au 0.4190 0.3462 0.3540 0.3081 1.0000

Within the HG domain there is excellent correlation between Ag-Zn, Ag-Pb, Ag-Cu and Pb-Cu.

There is reasonable correlation between all other variable combinations between Ag, Zn, Pb and

Cu. Gold is not well correlated with any of the other variables.

Within the LG domain there is excellent correlation between Ag, Zn, Pb and Cu. Gold is poorly

correlated with all other variables.

Las Lamas

Table 14-15 Pearson correlation coefficients for Las Lamas Domain Ag (g/t) Zn (%) Pb (%) Cu (%) Au (%)

Lamas Ag 1.0000

Zn 0.9512 1.0000

Pb 0.9186 0.9094 1.0000

Cu 0.9401 0.9378 0.8617 1.0000

Au 0.6878 0.6109 0.6521 0.5421 1.0000


171

Within the Lamas Structure there is excellent correlation between Ag, Zn, Pb and Cu. There is a

reasonable correlation between gold and all other variables.

San Felipe

Table 14-16 Pearson correlation coefficients for San Felipe Domain Ag (g/t) Zn (%) Pb (%) Cu (%) Au (%)

San Felipe SF Ag 1.0000

Zn 0.7378 1.0000

Pb 0.7459 0.8541 1.0000

Cu 0.8140 0.7683 0.7695 1.0000

Au 0.7003 0.3163 0.3291 0.4548 1.0000

San Felipe HW1

Ag 1.0000

Zn 0.9184 1.0000

Pb 0.7891 0.8763 1.0000

Cu 0.8257 0.8732 0.7753 1.0000

Au 0.7217 0.5494 0.5629 0.5379 1.0000

San Felipe HW2

Ag 1.0000

Zn 0.7984 1.0000

Pb 0.8232 0.9590 1.0000

Cu 0.7970 0.7541 0.7924 1.0000

Au 0.7949 0.6889 0.6464 0.6039 1.0000

Within the San Felipe structure there is good correlation between Ag and all other variables. Zn,

Pb and Cu all have good correlations with each other. Gold is weakly correlated with Zn, Pb and

Cu.

In the HW1 structure there is good to excellent correlation between Ag and all other variables.

Again there is good correlation between Zn, Pb and Cu. Gold has reasonable correlation with the

3 base metals.

In the HW2 structure there is good to excellent correlation between all variables.


172

Transversales

Table 14-17 Pearson correlation coefficients for Transversales Domain Ag (g/t) Zn (%) Pb (%) Cu (%) Au (%)

Transversales Ag 1.0000

Zn 0.6661 1.0000

Pb 0.6263 0.7127 1.0000

Cu 0.7102 0.5378 0.5200 1.0000

Au 0.6311 0.3310 0.4090 0.3235 1.0000

Within Transversales there is a good correlation between Ag and all other variables, between Pb-

Zn, Cu-Zn and Cu-Pb. There is a weak correlation between gold and Zn, Pb and Cu.

14.3. Variography

Pairwise relative semivariograms were produced for each of the five variables within each of the

domains. Nested spherical structures were identified in all cases. The semivariograms for silver

are shown in Appendix 4 and all variogram parameters are tabulated for each of the main

structures.

Ventana

The principal directions of anisotropy in each domain were along the strike of the structure at

azimuth 260o dip 0 and down dip along azimuth 170o dip -60o. For the High Grade Domain a rake

of -60o to the west was noted from the geology so the along strike direction for HG was adjusted to

azimuth 260o dip -60o. For silver, zinc, copper and gold this produced a longer range than along

dip 0o. For lead the longest along strike continuity was found along dip 0o.


173

Table 14-18 Summary of Semivariogram Parameters for Ventana domains Domain Variable Az / Dip C0 C1 C2 Short Range

(m) Long Range

(m)

High Grade Structure (HG)

Au

260 / -‐60 0.35

0.20

0.20

50.0 160.0 350 / -‐30 12.0 15.0 170 / -‐60 20.0 50.0

Ag 260 / -‐60 0.38 0.20 0.30 40.0 120.0 350 / -‐30 12.0 16.0 170 / -‐60 20.0 40.0

Cu 260 / -‐60 0.50 0.20 0.40 50.0 150.0 350 / -‐30 15.0 20.0 170 / -‐60 20.0 60.0

Pb 260 / 0 0.40 0.10 0.35 20.0 80.0 350 / -‐30 15.0 30.0 170 / -‐60 20.0 40.0

Zn 260 / -‐60 0.30 0.20 0.30 40.0 60.0 350 / -‐30 15.0 20.0 170 / -‐60 30.0 80.0

Low Grade Envelope

(LG)

Ag 260 / 0 0.40 0.15 0.45 20.0 120.0 350 / -‐30 30.0 50.0 170 / -‐60 15.0 60.0

Cu 260 / 0 0.45 0.10 0.55 20.0 120.0 350 / -‐30 20.0 40.0 170 / -‐60 15.0 50.0

Pb 260 / 0 0.40 0.10 0.63 20.0 100.0 350 / -‐30 15.0 40.0 170 / -‐60 20.0 80.0

Zn 260 / 0 0.40 0.10 0.65 20.0 60.0 350 / -‐30 15.0 40.0 170 / -‐60 15.0 76.0

Au

260 / 0 0.20

0.15

0.30

20.0 80.0 350 / -‐30 10.0 30.0 170 / -‐60 15.0 40.0

Waste Au

260 / 0 0.10

0.22

0.16

10.0 20.0 350 / -‐30 12.0 42.0 170 / -‐60 12.0 40.0

Ag 260 / 0 0.30 0.40 0.40 15.0 60.0 350 / -‐30 15.0 90.0 170 / -‐60 20.0 120.0

Cu 260 / 0 0.20 0.15 0.24 18.0 40.0 350 / -‐30 10.0 70.0 170 / -‐60 30.0 90.0

Pb 260 / 0 0.35 0.25 0.40 15.0 40.0 350 / -‐30 12.0 80.0 170 / -‐60 20.0 100.0

Zn 260 / 0 0.30 0.40 0.32 12.0 40.0 350 / -‐30 15.0 80.0 170 / -‐60 20.0 100.0


174

Las Lamas

The principal directions of anisotropy in each domain were along the strike of the structure at

azimuth 255o dip 0 and down dip along azimuth 345o dip -86o. For each variable in waste, an

isotropic model was fit to the data.

In each case nested spherical models were used. The semivariograms for silver are shown in

Appendix 4 and the parameters for all models are tabulated below.

Table 14-19 Summary of Semivariogram Parameters for Lamas Structures Domain Variable Az / Dip C0 C1 C2 Short Range

(m) Long Range

(m)

Las Lamas Structure

(LL)

Au

255 / 0 0.20

0.88

0.32

40.0 140.0

165 / -‐4 2.0 5.0

345 / -‐86 18.0 90.0

Ag 255 / 0 0.40 0.60 0.45 50.0 120.0

165 / -‐4 2.0 5.0

345 / -‐86 5.0 20.0

Cu 255 / 0 0.40 0.60 0.40 40.0 120.0

165 / -‐4 2.0 5.0

345 / -‐86 5.0 20.0

Pb 255 / 0 0.40 0.40 0.80 50.0 150.0

165 / -‐4 2.0 5.0

345 / -‐86 3.0 20.0

Zn 255 / 0 0.60 0.60 0.60 50.0 140.0

165 / -‐4 2.0 5.0

345 / -‐86 10.0 40.0

Waste Au Omni Directional 0.30 0.10 0.35 15.0 40.0

Ag Omni Directional 0.35 0.20 0.28 20.0 40.0

Cu Omni Directional 0.12 0.10 0.09 30.0 60.0

Pb Omni Directional 0.20 0.20 0.07 30.0 46.0

Zn Omni Directional 0.30 0.20 0.18 30.0 40.0


175

San Felipe

Of the four vein solids; San Felipe, HW1, HW2 and Transversales only the HW1 had enough

composites to model. Since the strike and dip for the San Felipe, HW1 and HW2 structures was

similar the HW1 model was used to estimate each of the three veins.

For the Transversales the HW1 model was used but the orientation was changed to fit the strike

and dip of the Transversales structure. Pairwise relative semivariograms were produced for each

of the 5 variables within the HW1 structure in the along strike (Az. 281 Dip 0) and down dip (Az.

191 Dip -70) directions. For the across dip direction a small range was assumed as there were

insufficient pairs in this direction to model.

For waste Isotropic nested models were fit to each of the 5 variables. The model parameters are

summarized below.

Table 14-20 Summary of Semivariogram Parameters for San Felipe Structures Domain Variable Az / Dip C0 C1 C2 Short Range

(m) Long Range

(m)

San Felipe HW1

Au

281 / 0 0.20

1.00

50.0 191 / -‐70 80.0 11 / -‐20 10.0

Ag 281 / 0 0.40 0.80 72.0 191 / -‐70 60.0 11 / -‐20 10.0

Cu 281 / 0 0.40 1.00 60.0 191 / -‐70 80.0 11 / -‐20 10.0

Pb 281 / 0 0.60 0.75 50.0 191 / -‐70 40.0 11 / -‐20 10.0

Zn 281 / 0 0.40 1.05 76.0 191 / -‐70 60.0 11 / -‐20 10.0

Waste Au Omni Directional 0.20 0.26 0.16 20.0 60.0 Ag Omni Directional 0.50 0.25 0.40 12.0 40.0 Cu Omni Directional 0.22 0.16 0.17 20.0 60.0 Pb Omni Directional 0.40 0.30 0.24 15.0 60.0 Zn Omni Directional 0.40 0.40 0.30 15.0 80.0


176

14.4. Block Models

Block models with blocks 5 x 2.5 x 5 m were superimposed over the mineralized solids and

topography within each mineralized zone. For each block the percentage below surface

topography and within the mineralized solid was recorded.

The origins of the bock models are as follows:

Ventana

Lower left corner

567260 East Column size = 5 m 217 columns

3306265 North Row size = 2.5 m 148 rows

Top of Model

1015 Elevation Level size = 5 m 115 levels

No rotation.

Figure 14-6 Isometric view looking NE showing Ventana blocks below topo in white, HG in red, LG Envelope in Yellow, Underground workings in green and drill hole composites

aledwon

Typewritten Text


177

Las Lamas

Lower left corner


3305115 North Row size = 2.5 m 104 rows

Top of Model


No rotation.

Figure 14-7 Isometric view looking NE showing Lamas blocks below topo in white and drill hole composites in magenta


178

San Felipe

Lower left corner


3305372.5 North Row size = 2.5 m 248 rows

Top of Model


No rotation.

Figure 14-8 San Felipe Zone block models


179

14.5. Bulk Density

Ventana

The Ventana zone has had specific gravity determinations completed in three different programs.

A Hochschild data set contained 127 measurements from drill core but the hole numbers were not

available so as a result, grades could not be established to compare with the specific gravities.

There was a description of the sample, however, that allowed for determining if the sample was

mineralized or in waste. The average specific gravity from 59 mineralized samples was 3.41 while

the average specific gravity from 68 samples in waste was 2.74.

Santacruz took 63 specific gravity measurements using the Archimedes method, from drill holes

SCLV-01 to 06, within the La Ventana zone. Of these samples 6 were from the HG domain and

averaged 3.62. The remaining 57 samples were from waste and averaged 2.90.

The third data set was sent by Santcruz to ALS where the laboratory measured the specific gravity

of 61 samples using their SG-OA-GRA08b methodology. These samples and the 6 in the HG

domain from the Santacruz data set could be sorted by combined lead plus zinc grade as shown

below. The waste samples from Hochschild could be combined with the waste samples from the

Santacruz set and are shown as Waste.

Table 14-21 Specific Gravity determinations Ventana Number of Samples

Combined Pb + Zn %

Average SG

24 < 1% 2.80

8 ≥ 1 < 5 % 2.90

13 ≥ 5 < 10 % 3.16

21 ≥ 10 % 3.30

125 Waste 2.81

The average for the samples from waste is nearly identical to the average for blocks with

combined Pb+Zn less than 1%. There are, however, mineralized intervals outside the HG and LG

solids that could not be joined up and as a result blocks in these areas should have an SG that

reflects the mineral content. For this resource estimation a specific gravity was assigned to all

blocks based on their combined estimated lead plus zinc grade. For blocks containing more than


180

one domain, a weighted average combined Pb+Zn grade was established and the appropriate SG

assigned.

Las Lamas

At Las Lamas there were a total of 197 specific gravity determinations reported using the

Archimedes method of weight in air – weight in water. The samples were subdivided into Lamas

structure or waste. Table 14-22 shows the results.

Table 14-22 Specific Gravity determinations Lamas Domain Number of

Samples Minimum

SG Maximum

SG Average

SG

LL Structure 32 2.47 3.82 3.14

Waste 165 2.12 4.32 2.81

Total 187 2.12 4.32 2.87

For this resource estimation a specific gravity was assigned to all blocks based on their domain

average. For blocks containing more than one domain, a weighted average specific gravity was

determined. In future drill campaigns more specific gravities should be taken within the LL

structure to allow for a relationship between contained sulphides and density to be established.

This will allow for better tonnage factors to be determined that allow for higher sulphide content.

San Felipe

For the San Felipe zone only 8 specific gravity determinations were available (taken by

Hochschild) and there was no indication if these were in vein or waste rock material. As a result

the average of the eight samples was applied to all blocks.

More attention needs to be paid to specific gravity particularly within skarn-vein material to

establish the relationship between sulphide content and density.


181

Table 14-23 Specific Gravity determinations San Felipe Hole Site Depth (m)

From To Sample SG Density

SCSF-‐01 San Filipe 22.2 22.3 D1 2.49

SCSF-‐01 San Filipe 39.15 39.25 D2 2.60

SCSF-‐01 San Filipe 96.9 97 D3 2.66

SCSF-‐01 San Filipe 120.4 120.5 D4 2.72

SCSF-‐01 San Filipe 152.6 152.7 D5 2.60

SCSF-‐01 San Filipe 170.75 170.85 D6 2.82

SCSF-‐01 San Filipe 197.4 197.5 D7 2.49

SCSF-‐01 San Filipe 241.15 241.25 D8 2.88

Average 2.66

Transversales

A total of 86 specific gravity determinations were available from the Transversales zone taken from

drill holes SCVT-2 to 17. Of these 26 were taken in un-assayed waste intervals and were not

useful in determining the specific gravity of the mineralized material. The correlation between SG

and combined Cu, Pb and Zn grades was 0.4014 and the regression equation was not considered

reliable. There is probably considerable iron in these samples that is not accounted for. As a

result the average specific gravity of 3.07 was applied to the Transversales mineralized material

while 2.84 was used for waste.

Table 14-24 Specific Gravity determinations Transversales Domain Number Min Sg Max Sg Average Sg

Vein 11 2.60 3.86 3.07

Waste 49 2.17 4.75 2.84

14.6. Grade Interpolation

For each of the mineralized zones, grades for Au, Ag, Cu, Pb and Zn were interpolated into each

block in the model in a series of passes by Ordinary Kriging (OK). In all kriging runs a minimum of

4 composites were required within the search ellipse with a maximum of 3 allowed from a single

hole. In this manner every block was estimated from a minimum of two drill holes. A maximum of

12 composites were allowed. The estimates were completed in a series of 4 passes with the

search ellipse tied to the range and orientation of the semivariogram, for the variable being

estimated. The first pass used a search ellipsoid with dimensions equal to ¼ of the semivariogram


182

range. For blocks not estimated in Pass 1, a second pass was completed using a search ellipsoid

with dimensions equal to ½ the semivariogram range. A third pass using the full range and a

fourth pass using twice the range completed the kriging exercise.

Ventana

The first kriging runs were completed for all blocks with some percentage within the high grade

solid using only HG composites. Each variable was estimated and stored in the block model. The

next set of kriging runs used LG composites and blocks with some percentage within the LG solid

were estimated. Finally blocks containing some percentage of waste, or material outside the two

mineralized solids, were estimated using composites from waste. For waste only three passes

were completed. A total grade for the block was a weighted average of these three estimates as

shown below for silver.

Total Ag = (HG_Ag * %HG) + (LG_Ag * %LG) + (Waste_Ag * % Waste)

% Below Topography

The kriging parameters for silver are tabulated below along with the number of blocks estimated in

each pass for each domain.

Table 14-25 Kriging Parameters for Silver at Ventana Domain Variable Number

Estimated Az / Dip Dist.

(m) Az / Dip Dist.

(m) Az / Dip Dist.

(m)

High Grade Structure (HG)

Ag 204 260 / -‐60 30.0 350 / -‐30 4.0 170 / -‐60 10.0

3,993 260 / -‐60 60.0 350 / -‐30 8.0 170 / -‐60 20.0

10,949 260 / -‐60 120.0 350 / -‐30 16.0 170 / -‐60 40.0

8,186 260 / -‐60 240.0 350 / -‐30 32.0 170 / -‐60 80.0

Low Grade Envelope

(LG)

Ag 806 260 / 0 30.0 350 / -‐30 12.5 170 / -‐60 15.0

11,315 260 / 0 60.0 350 / -‐30 25.0 170 / -‐60 30.0

13,395 260 / 0 120.0 350 / -‐30 50.0 170 / -‐60 60.0

4,875 260 / 0 240.0 350 / -‐30 100.0 170 / -‐60 120.0

Waste Ag 67,280 260 / 0 15.0 350 / -‐30 22.5 170 / -‐60 30.0

316,583 260 / 0 30.0 350 / -‐30 45.0 170 / -‐60 60.0

491,790 260 / 0 60.0 350 / -‐30 90.0 170 / -‐60 120.0


183

Las Lamas

The first kriging runs were completed for all blocks with some percentage within the mineralized

Lamas solid using only Lamas composites. Each variable was estimated and stored in the block

model. In the next run blocks containing some percentage of waste, or material outside the

mineralized solid, were estimated using composites from waste. A total grade for the block was a

weighted average of these two estimates as shown below for silver.

Total Ag = (LL_Ag * %LL) + (Waste_Ag * % Waste)

% Below Topography



Table 14-26 Kriging Parameters for Silver at Las Lamas Domain Variable Number


(m) Az / Dip Dist.

(m) Az / Dip Dist.

(m)

Las Lamas Structure

(LL)

Ag 81 255 / 0 30.0 165 / -‐4 5.0 345 / -‐86 5.0

358 255 / 0 60.0 165 / -‐4 5.0 345 / -‐86 10.0

888 255 / 0 120.0 165 / -‐4 5.0 345 / -‐86 20.0

9,034 255 / 0 240.0 165 / -‐4 10.0 345 / -‐86 40.0

Waste Ag 2,664 Omni Directional 10.0

19,804 Omni Directional 20.0



San Felipe

Each of the three structures, the San Felipe, HW1 and HW2 were estimated using only composites

from the particular vein being estimated, using Ordinary Kriging as described above. The

surrounding waste was then estimated using composites outside the vein solids. A total block

grade was produced as a weighted average of these estimates as shown below for Ag.

Total Ag = (SF_Ag * %SF) + (HW1 Ag * %HW1) + (HW2 Ag * %HW2) + (Waste_Ag * % Waste)

% Below Topography


184



Table 14-27 Kriging Parameters for Silver at San Felipe Veins Domain Variable Number


(m) Az / Dip Dist.

(m) Az / Dip Dist.

(m)

San Felipe Structure

(SF)

Ag 9 281 / 0 18.0 191 / -‐70 15.0 11 / -‐20 5.0

1,283 281 / 0 36.0 191 / -‐70 30.0 11 / -‐20 10.0

6,324 281 / 0 72.0 191 / -‐70 60.0 11 / -‐20 20.0

11,280 281 / 0 144.0 191 / -‐70 120.0 11 / -‐20 40.0

HW1 Ag 18 281 / 0 18.0 191 / -‐70 15.0 11 / -‐20 5.0

2,065 281 / 0 36.0 191 / -‐70 30.0 11 / -‐20 10.0

8,940 281 / 0 72.0 191 / -‐70 60.0 11 / -‐20 20.0

4,868 281 / 0 144.0 191 / -‐70 120.0 11 / -‐20 40.0

HW2 Ag 1 281 / 0 18.0 191 / -‐70 15.0 11 / -‐20 5.0

264 281 / 0 36.0 191 / -‐70 30.0 11 / -‐20 10.0

3,095 281 / 0 72.0 191 / -‐70 60.0 11 / -‐20 20.0

6,376 281 / 0 144.0 191 / -‐70 120.0 11 / -‐20 40.0

Waste Ag 704 Omni Directional 10.0




Transversales

Blocks containing some percentage of the Transversales domain (VT) were estimated for Au, Ag,

Cu, Pb and Zn by Ordinary Kriging, as described above, using only composites from the

Transversales structure. The surrounding waste was then estimated using composites outside the

mineralized solid. A total block grade was produced as a weighted average of these estimates as

shown below for Ag.

Total Ag = (VTAg * %VT) + (Waste_Ag * % Waste)

% Below Topography


185



Table 14-28 Kriging Parameters for Silver at Transversales Domain Variable Number


(m) Az / Dip Dist.

(m) Az / Dip Dist.

(m)

Transversales Structure

(VT)

Ag 0 59 / 0 18.0 320 / -‐70 15.0 140 / -‐20 5.0

1,913 59 / 0 36.0 320 / -‐70 30.0 140 / -‐20 10.0

11,769 59 / 0 72.0 320 / -‐70 60.0 140 / -‐20 20.0

10,763 59 / 0 144.0 320 / -‐70 120.0 140 / -‐20 40.0

Waste Ag 34 Omni Directional 10.0

495 Omni Directional 20.0



14.7. Classification

Based on the study herein reported, delineated mineralization of the San Felipe Deposit is

classified as a resource according to the following definitions from National Instrument 43-101 and

from CIM (2014):

“In this Instrument, the terms "Mineral Resource", "Inferred Mineral Resource", "Indicated

Mineral Resource" and "Measured Mineral Resource" have the meanings ascribed to those

terms by the Canadian Institute of Mining, Metallurgy and Petroleum, as the CIM Definition

Standards (May 2014) on Mineral Resources and Mineral Reserves adopted by CIM Council,

as those definitions may be amended.”

The terms Measured, Indicated and Inferred are defined by CIM (2014) as follows:

“A Mineral Resource is a concentration or occurrence of solid material of economic interest in

or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable

prospects for eventual economic extraction. The location, quantity, grade or quality, continuity

and other geological characteristics of a Mineral Resource are known, estimated or interpreted

from specific geological evidence and knowledge, including sampling.”

“The term Mineral Resource covers mineralisation and natural material of intrinsic economic

interest which has been identified and estimated through exploration and sampling and within

which Mineral Reserves may subsequently be defined by the consideration and application of


186

Modifying Factors. The phrase ‘reasonable prospects for economic extraction’ implies a

judgement by the Qualified Person in respect of the technical and economic factors likely to

influence the prospect of economic extraction. The Qualified Person should consider and

clearly state the basis for determining that the material has reasonable prospects for eventual

economic extraction. Assumptions should include estimates of cut-off grade and geological

continuity at the selected cut-off, metallurgical recovery, smelter payments, commodity price or

product value, mining and processing method and mining, processing and general and

administrative costs. The Qualified Person should state if the assessment is based on any

direct evidence and testing. Interpretation of the word ‘eventual’ in this context may vary

depending on the commodity or mineral involved. For example, for some coal, iron, potash

deposits and other bulk minerals or commodities, it may be reasonable to envisage ‘eventual

economic extraction’ as covering time periods in excess of 50 years. However, for many gold

deposits, application of the concept would normally be restricted to perhaps 10 to 15 years,

and frequently to much shorter periods of time.”

Inferred Mineral Resource

“An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which quantity and grade

or quality are estimated on the basis of limited geological evidence and sampling. Geological

evidence is sufficient to imply but not verify geological and grade or quality continuity. An

Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated

Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected

that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral

Resources with continued exploration.”

“An ‘Inferred Mineral Resource’ is based on limited information and sampling gathered through

appropriate sampling techniques from locations such as outcrops, trenches, pits, workings and

drill holes. Inferred Mineral Resources must not be included in the economic analysis,

production schedules, or estimated mine life in publicly disclosed Pre-Feasibility or Feasibility

Studies, or in the Life of Mine plans and cash flow models of developed mines. Inferred

Mineral Resources can only be used in economic studies as provided under NI 43-101.”

“There may be circumstances, where appropriate sampling, testing, and other measurements

are sufficient to demonstrate data integrity, geological and grade/quality continuity of a

Measured or Indicated Mineral Resource, however, quality assurance and quality control, or

other information may not meet all industry norms for the disclosure of an Indicated or

Measured Mineral Resource. Under these circumstances, it may be reasonable for the

Qualified Person to report an Inferred Mineral Resource if the Qualified Person has taken

steps to verify the information meets the requirements of an Inferred Mineral Resource.”


187

Indicated Mineral Resource

“An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or

quality, densities, shape and physical characteristics are estimated with sufficient confidence

to allow the application of Modifying Factors in sufficient detail to support mine planning and

evaluation of the economic viability of the deposit. Geological evidence is derived from

adequately detailed and reliable exploration, sampling and testing and is sufficient to assume

geological and grade or quality continuity between points of observation. An Indicated Mineral

Resource has a lower level of confidence than that applying to a Measured Mineral Resource

and may only be converted to a Probable Mineral Reserve.”

“Mineralisation may be classified as an Indicated Mineral Resource by the Qualified Person

when the nature, quality, quantity and distribution of data are such as to allow confident

interpretation of the geological framework and to reasonably assume the continuity of

mineralisation. The Qualified Person must recognise the importance of the Indicated Mineral

Resource category to the advancement of the feasibility of the project. An Indicated Mineral

Resource estimate is of sufficient quality to support a Preliminary Feasibility Study which can

serve as the basis for major development decisions.”

Measured Mineral Resource

“A Measured Mineral Resource is that part of a Mineral Resource for which quantity, grade or

quality, densities, shape, and physical characteristics are estimated with confidence sufficient

to allow the application of Modifying Factors to support detailed mine planning and final

evaluation of the economic viability of the deposit. Geological evidence is derived from

detailed and reliable exploration, sampling and testing and is sufficient to confirm geological

and grade or quality continuity between points of observation. A Measured Mineral Resource

has a higher level of confidence than that applying to either an Indicated Mineral Resource or

an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a

Probable Mineral Reserve.”

“Mineralisation or other natural material of economic interest may be classified as a Measured

Mineral Resource by the Qualified Person when the nature, quality, quantity and distribution of

data are such that the tonnage and grade or quality of the mineralisation can be estimated to

within close limits and that variation from the estimate would not significantly affect potential

economic viability of the deposit. This category requires a high level of confidence in, and

understanding of, the geology and controls of the mineral deposit.”


188

Modifying Factors

“Modifying Factors are considerations used to convert Mineral Resources to Mineral Reserves.

These include, but are not restricted to, mining, processing, metallurgical, infrastructure,

economic, marketing, legal, environmental, social and governmental factors.”

Geologic continuity has been established from surface and underground mapping and drill hole

interpretation. This has led to the geologic solid model which constrains the estimate. The grade

continuity has been established from the semivariogram analysis. The semivariogram orientations

and ranges have been used to align and dimension the search ellipsoids, used in the grade

interpolation.

Ventana

At Ventana blocks estimated in Pass 1 and 2 using up to ½ the semivariogram range are classified

as Indicated in the HG and LG domains. All other blocks in these domains and all blocks in waste

are classified as Inferred at this time. Blocks containing some percentage of underground

workings had this percentage subtracted from the HG percentage if there was HG within the block.

If no HG was present it was subtracted from the LG percentage before the tonnage was

determined.

The resource is presented in grade-tonnage tables first for only the proportion of blocks within the

mineralized solids (Tables 14-29 & 30). This assumes one could mine to the limits of the solids

and take no external dilution.

Next the resource is presented for total blocks. This assumes one would mine a total 5 x 2.5 x 5 m

block and includes edge dilution (see Appendix 3).


189

Table 14-29 Ventana Resource classed as Indicated within Mineralized Solids Cut-‐off Ag (g/t)

Tonnes > Cut-‐off (tonnes)

Grade > Cut-‐off

Ag (g/t) Zn (%) Pb (%) Cu (%) Au (g/t) 60.0 422,000 110.76 8.86 3.62 0.71 0.020

70.0 357,000 119.04 9.19 3.71 0.75 0.021

75.0 325,000 123.66 9.39 3.77 0.78 0.021

80.0 290,000 129.29 9.60 3.87 0.81 0.022

90.0 245,000 137.39 9.95 4.01 0.87 0.022

100.0 205,000 145.80 10.31 4.15 0.93 0.023

110.0 164,000 155.82 10.75 4.39 1.02 0.023

120.0 136,000 164.42 11.20 4.50 1.09 0.024

130.0 116,000 171.25 11.48 4.58 1.15 0.024

140.0 94,000 179.90 11.98 4.74 1.22 0.025

150.0 75,000 188.78 12.46 4.88 1.29 0.026

Table 14-30 Ventana Resource classed as Inferred within Mineralized Solids Cut-‐off Ag (g/t)


Grade > Cut-‐off

Ag (g/t) Zn (%) Pb (%) Cu (%) Au (g/t) 60.0 672,000 88.42 8.07 3.17 0.58 0.020

70.0 528,000 94.92 8.42 3.20 0.62 0.020

75.0 444,000 99.12 8.57 3.29 0.63 0.021

80.0 378,000 102.97 8.70 3.37 0.64 0.021

90.0 251,000 112.35 9.12 3.64 0.65 0.023

100.0 177,000 119.91 9.52 3.95 0.67 0.025

110.0 112,000 128.78 9.99 4.45 0.69 0.028

120.0 60,000 140.79 10.19 4.97 0.78 0.028

130.0 34,000 152.60 10.16 5.31 0.84 0.027

140.0 20,300 165.08 9.64 5.26 0.92 0.025

150.0 13,800 175.06 9.24 5.19 0.96 0.024

Las Lamas

Blocks at Las Lamas were classified as Indicated if estimated in Pass 1 or Pass 2. All other blocks

are classified as Inferred at this time.

Tables 14-27 and 14-28 present the resource present within the mineralized solid. This assumes

one could mine to the limits of the solid boundaries and contains no edge dilution.


190

Table 14-31 Las Lamas Resource classed as Indicated within Mineralized Solid Cut-‐off Ag (g/t)


Grade > Cut-‐off

Ag (g/t) Zn (%) Pb (%) Cu (%) Au (g/t) 60.0 43,000 108.75 6.05 0.36 0.20 0.012

70.0 40,000 112.76 6.25 0.38 0.20 0.012

75.0 38,000 114.73 6.27 0.39 0.21 0.012

80.0 33,000 119.74 6.27 0.41 0.21 0.012

90.0 25,000 130.73 5.79 0.44 0.22 0.011

100.0 21,000 137.53 6.02 0.46 0.23 0.012

110.0 12,800 158.67 6.72 0.56 0.25 0.014

120.0 11,400 163.50 6.79 0.59 0.26 0.014

130.0 9,700 170.32 7.15 0.64 0.27 0.015

140.0 8,700 174.51 7.33 0.67 0.27 0.016

150.0 8,100 176.72 7.46 0.68 0.28 0.016

Table 14-32 Las Lamas Resource classed as Inferred within Mineralized Solid Cut-‐off Ag (g/t)


Grade > Cut-‐off

Ag (g/t) Zn (%) Pb (%) Cu (%) Au (g/t) 60.0 299,000 109.36 5.92 0.42 0.18 0.021

70.0 271,000 113.89 6.14 0.44 0.18 0.020

75.0 258,000 115.90 6.22 0.44 0.18 0.020

80.0 234,000 119.89 6.33 0.46 0.19 0.020

90.0 213,000 123.24 6.45 0.47 0.19 0.020

100.0 169,000 130.52 6.71 0.50 0.21 0.019

110.0 138,500 136.00 6.98 0.53 0.21 0.020

120.0 94,700 145.40 7.40 0.57 0.23 0.018

130.0 56,800 159.10 7.54 0.61 0.25 0.017

140.0 33,600 175.43 8.35 0.66 0.27 0.017

150.0 25,900 184.75 8.80 0.69 0.29 0.017

The resource presents within total 5 x 2.5 x 5 m blocks includes edge dilution and is shown in

Appendix 3.


191

San Felipe

For the three mineralized structures San Felipe, HW1 and HW2 blocks estimated during Pass 1 or

Pass 2, using search ellipses up to ½ the semivariogram range, were classified as Indicated. All

other blocks were classified as Inferred.

Tables 14-29 and 14-30 report the resource present within the mineralized solids. This assumes

one could mine to the limits of the solids with no edge dilution applies.

Table 14-33 San Felipe Resource classed as Indicated within Mineralized Solids Cut-‐off Ag (g/t)


Grade > Cut-‐off

Ag (g/t) Zn (%) Pb (%) Cu (%) Au (g/t) 60.0 147,000 114.13 5.71 1.53 0.13 0.089

70.0 128,000 121.65 6.14 1.58 0.14 0.093

75.0 119,000 125.30 6.36 1.62 0.14 0.094

80.0 110,000 129.10 6.56 1.65 0.15 0.096

90.0 96,000 135.76 6.89 1.67 0.15 0.100

100.0 84,000 141.77 7.20 1.71 0.16 0.103

110.0 70,600 148.64 7.52 1.76 0.17 0.105

120.0 58,100 155.78 7.98 1.75 0.17 0.096

130.0 43,200 166.64 8.68 1.72 0.18 0.083

140.0 34,200 174.88 9.24 1.67 0.18 0.078

150.0 27,200 182.87 9.73 1.69 0.18 0.076


192

Table 14-34 San Felipe Resource classed as Inferred within Mineralized Solids Cut-‐off Ag (g/t)


Grade > Cut-‐off

Ag (g/t) Zn (%) Pb (%) Cu (%) Au (g/t) 60.0 469,000 106.18 5.61 1.31 0.10 0.070

70.0 380,000 115.68 6.24 1.29 0.11 0.072

75.0 338,000 121.19 6.67 1.29 0.11 0.073

80.0 309,000 125.19 6.94 1.28 0.11 0.073

90.0 250,000 134.72 7.56 1.28 0.11 0.074

100.0 196,000 145.48 8.25 1.28 0.12 0.073

110.0 155,100 156.22 9.10 1.27 0.12 0.063

120.0 127,500 165.24 9.86 1.29 0.12 0.053

130.0 107,500 172.79 10.48 1.30 0.12 0.049

140.0 80,300 186.12 11.03 1.22 0.12 0.050

150.0 64,900 195.81 11.64 1.18 0.12 0.048

The resource present within total 5 x 2.5 x 5 m blocks which includes edge dilution is shown in

Appendix 3.

Transversales

Due to drill hole density and the inability to establish semivariogram models all estimated blocks on

the Transversales were classified as Inferred.

Table 14-31 reports the inferred resource present within the mineralized solid. This assumes one

could mine to the limits of the solid with no edge dilution applies. The inferred resource within total

5 x 2.5 x 5 m blocks which includes edge dilution is shown in Appendix 3.


193

Table 14-35 Transversales Resource classed as Inferred within Mineralized Solid Cut-‐off Ag (g/t)


Grade > Cut-‐off

Ag (g/t) Zn (%) Pb (%) Cu (%) Au (g/t) 40.0 453,000 61.74 1.83 1.39 0.15 0.036

45.0 374,000 65.91 1.81 1.50 0.17 0.036

50.0 322,000 68.89 1.80 1.56 0.17 0.036

55.0 270,000 72.05 1.81 1.59 0.18 0.037

60.0 213,000 75.97 1.86 1.57 0.17 0.037

70.0 112,000 86.79 1.62 1.73 0.19 0.039

75.0 89,000 90.55 1.52 1.67 0.18 0.039

80.0 69,000 94.27 1.42 1.61 0.17 0.039

90.0 47,000 98.98 1.21 1.59 0.17 0.040

100.0 17,000 104.86 0.87 1.48 0.15 0.040

Mineralization at San Felipe has multiple variables and as a result a silver equivalent value cut-off

would be a better way of presenting the resource. Metallurgical test work to date has not produced

a copper concentrate that is potentially economic. Gold values in the concentrates produced in

testing are lower than the minimum paid for under normal contracts. Therefore, copper and gold

were not included in the silver equivalent calculation The metal prices used in the silver equivalent

calculation are from a 100 day moving average and are listed below. The metal prices and

recoveries used for the silver equivalents in the resource estimation vary somewhat from those

used in the PEA as the resource was done earlier and the PEA includes some new information.

Factor

Ag - US$ 20.06 per ounce 0.64 $/gm

Pb - US$ 0.96 per pound 21.16 $/%

Zn - US$ 0.92 per pound 20.28 $/%

The recoveries for each metal within each zone are shown below. As the relative amounts of

oxide, mixed and sulphide material, and the effects of oxidation on recovery, are not well

established, the same recovery estimate was used for the entire vein.

Table 14-36 Recoveries for each metal Zone Ag Rec. Pb Rec. Zn Rec.

Ventana 70% 86% 87%

Las Lamas 73% 82% 88%


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194

The equation to establish Ag Equivalent is then:

AgEq (Pb% * 21.16 * Pb Rec%) + (Ag g/t * 0.64 * Ag Rec%) + (Zn% * 20.28 * Zn Rec%)

(0.64 * Ag Rec%)

The silver equivalent resource for each mineralized structure is presented in the following Tables.

Again this resource contains no edge dilution. At this time, only a Preliminary Economic

Assessment has been completed and an economic cut-off is unknown. Based on asumptions

made during the PEA, a cut-off for possible open pit extraction would be 75 g/t Ag Equivalent

based on $2.00 /t mining costs, $19.00 /t milling costs and $18.00 smelter charges and the metal

prices shown above. For possible underground extraction the cut-off would be 150 g/t Ag

Equivalent based on assumed mining costs of $30 /t, milling costs of $19.00 /t and smelting

charges of $28.00 /t. The resources are presented for each deposit broken down by mining

method. For open pit resources only material within the conceptual pits is reported while for

underground resources the material within the mineralized structures below the open pits is

reported.

Table 14-37 Ventana Resource classed as Indicated within Conceptual Open Pit Cut-‐off

AgEq (g/t) Tonnes > Cut-‐off

(tonnes) Grades > Cut-‐off

Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 10,000 70.61 0.11 7.69 378.11 121,565

60.0 10,000 70.61 0.11 7.69 378.11 121,565

65.0 10,000 70.61 0.11 7.69 378.11 121,565

70.0 10,000 70.61 0.11 7.69 378.11 121,565

75.0 10,000 70.61 0.11 7.69 378.11 121,565

80.0 10,000 70.61 0.11 7.69 378.11 121,565

90.0 10,000 70.61 0.11 7.69 378.11 121,565

Table 14-38 Ventana Resource classed as Inferred within Conceptual Open Pit Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs.

50.0 257,000 53.65 1.64 6.21 365.05 3,016,312

60.0 256,000 53.76 1.64 6.23 365.79 3,010,666

70.0 253,000 54.28 1.66 6.30 369.63 3,006,620

75.0 252,000 54.37 1.66 6.31 370.29 3,000,083

80.0 252,000 54.37 1.66 6.31 370.29 3,000,083

90.0 249,000 54.87 1.68 6.37 374.06 2,994,549


195

Table 14-39 Ventana Resource classed as Indicated in potential Underground Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 1,447,000 46.82 1.97 4.26 294.63 13,706,805

75.0 1,097,000 58.40 2.42 5.39 369.33 13,026,026

100.0 972,000 64.03 2.65 5.94 405.51 12,672,391

125.0 880,000 68.94 2.83 6.41 436.23 12,342,097

150.0 815,000 72.91 2.96 6.78 460.35 12,062,477

175.0 752,000 77.26 3.10 7.16 485.03 11,726,737

200.0 709,000 80.53 3.19 7.44 503.09 11,467,867

Table 14-40 Ventana Resource classed as Inferred in potential Underground Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 2,090,000 40.80 1.96 3.84 271.64 18,252,853

75.0 1,815,000 45.05 2.18 4.31 303.36 17,702,136

100.0 1,580,000 49.51 2.42 4.77 335.62 17,048,872

125.0 1,333,000 55.67 2.69 5.39 377.20 16,165,628

150.0 1,201,000 59.67 2.86 5.78 403.57 15,583,056

175.0 1,092,000 63.38 3.02 6.13 427.56 15,011,028

200.0 1,009,000 66.42 3.14 6.44 447.64 14,521,477

Table 14-41 Las Lamas Resource classed as Indicated in potential Underground Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 114,000 64.61 0.21 4.41 240.01 879,680

75.0 109,000 66.82 0.22 4.58 248.67 871,446

100.0 104,000 68.81 0.22 4.72 256.09 856,282

125.0 98,000 71.14 0.23 4.90 265.66 837,034

150.0 84,000 76.18 0.25 5.29 286.28 773,145

175.0 70,000 81.98 0.27 5.77 311.19 700,349

200.0 59,000 89.50 0.30 6.17 334.94 635,345

aledwon

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196

Table 14-42 Las Lamas Resource classed as Inferred in potential Underground Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 546,000 75.14 0.31 4.25 247.86 4,351,007

75.0 461,000 84.34 0.32 4.91 282.56 4,187,958

100.0 429,000 88.65 0.33 5.17 297.13 4,098,213

125.0 402,000 92.72 0.35 5.36 309.24 3,996,800

150.0 383,000 95.27 0.36 5.50 317.54 3,910,101

175.0 356,000 98.63 0.37 5.71 329.13 3,767,109

200.0 322,000 103.55 0.39 5.96 344.41 3,565,516

Table 14-43 San Felipe Resource classed as Indicated within conceptual open pit Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 87,000 82.17 1.39 4.06 282.89 791,275 60.0 87,000 82.17 1.39 4.06 282.89 791,275 70.0 87,000 82.26 1.39 4.07 283.25 792,282 75.0 87,000 82.27 1.39 4.07 283.26 792,310 80.0 86,000 82.62 1.39 4.08 284.26 785,968 90.0 85,000 83.10 1.40 4.10 285.72 780,819

Table 14-44 San Felipe Resource classed as Inferred within conceptual open pit Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 262,000 82.66 1.28 4.54 295.99 2,493,269 60.0 261,000 82.94 1.28 4.56 297.04 2,492,563 70.0 261,000 82.98 1.28 4.56 297.18 2,493,738 75.0 261,000 83.07 1.28 4.56 297.48 2,496,255 80.0 261,000 83.12 1.28 4.57 297.63 2,497,514 90.0 260,000 83.36 1.29 4.58 298.33 2,493,797

Table 14-45 San Felipe Resource classed as Indicated in potential Underground Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 212,000 61.21 1.25 3.75 245.20 1,671,272 75.0 180,000 69.55 1.40 4.28 278.57 1,612,121 100.0 148,000 79.56 1.56 4.96 319.12 1,518,471 125.0 130,000 86.51 1.68 5.46 348.67 1,457,299 150.0 118,000 91.38 1.76 5.79 368.79 1,399,110 175.0 108,000 96.27 1.84 6.12 388.73 1,349,779 200.0 99,000 100.89 1.91 6.42 406.74 1,294,622


197

Table 14-46 San Felipe Resource classed as Inferred in potential Underground Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 1,931,000 35.74 1.08 2.30 161.49 10,025,791 75.0 1,623,000 38.81 1.20 2.60 180.05 9,395,121 100.0 1,284,000 43.50 1.34 3.00 204.57 8,444,962 125.0 1,046,000 47.01 1.45 3.36 225.57 7,585,841 150.0 712,000 56.33 1.61 4.09 267.06 6,113,354 175.0 561,000 62.94 1.71 4.58 295.31 5,326,375 200.0 419,000 73.65 1.80 5.22 332.57 4,480,101

Table 14-47 Transversales Resource classed as Inferred in conceptual open pit Cut-‐off



Ag (g/t) Pb (%) Zn (%) AgEQ (g/t) AgEq Ozs. 50.0 345,000 55.40 1.41 1.33 159.84 1,772,945 60.0 345,000 55.40 1.41 1.33 159.84 1,772,945 70.0 345,000 55.40 1.41 1.33 159.84 1,772,945 75.0 345,000 55.40 1.41 1.33 159.84 1,772,945 80.0 344,000 55.45 1.41 1.33 159.97 1,769,244 90.0 343,000 55.51 1.41 1.33 160.13 1,765,865

The results for all zones are summarized below in Table 14-48 for the two mining methods.


198


Zone Classification



(tonnes)

Ag (g/t)

Pb (%)








199

15. Mineral Reserve Estimates

There are no mineral reserve estimates for the San Felipe project.

16. Mining Methods

For this PEA, it is postulated that a variety of mining methods will be used at the San Felipe project

including conventional open pit and underground methods applied to the four deposits targeted for

mining at this time. The La Ventana deposit will be mined using a combination of open pit and

underground methods, as will the San Felipe deposit. Las Lamas will be mined using underground

methods only and Transversales will be mined using open pit methods only.

Table 16-1 below summarizes mill feed contributions from each of these deposits.

Table 16-1 Summary of Contributions to mill feed by deposit and mining method

Note: The mill feed tonnes and grades shown are fully diluted with mining losses considered

At an average mining and processing rate of 1,250 tonnes per day the anticipated life of mine is

expected to be 7.5 years.

Underground development requirements for La Ventana, San Felipe and Las lamas total

approximately 8,100 meters and includes ramps, level accesses, and vertical developments such as

ventilation and service raises. Sill development in mineralized material is not included in this figure

because sill development costs are included in the overall underground mining costs for each

deposit planned for exploitation by underground methods.

Deposit & MethodMill Feed Tonnes

Waste Rock Tonnes Ag gpt Zn% Pb%

Ventana Open Pit 270,600 2,070,100 51.42 6.09 1.04Ventana Underground 1,604,708 257,342 58.56 5.50 2.54San Felipe Open Pit 507,150 3,056,100 62.35 3.40 1.04San Felipe Underground 351,529 70,204 83.56 4.96 1.32Transversales Open Pit 254,610 1,930,650 49.19 5.82 0.99Lamas Underground 423,671 150,406 83.55 4.92 0.31

3,412,268 7,534,803 63.53 5.13 1.68


200

Figure 16-1 shows relative locations of open pit targets as described above.

Figure 16-1 Relative locations of open pit targets

16.1. La Ventana Mining Methods

Initial mining of La Ventana will be by conventional open pit mining methods and will provide first mill

feed while La Ventana underground is being developed.

16.1.1. La Ventana Open Pit

An open pit Whittle™ analysis was done for the La Ventana deposit and results showed that the

deposit would support a large pit if no underground mining were considered (unconstrained). The

resultant pit shell however was deemed an unreasonable solution due to high strip ratios, local

topography and anticipated difficulties finding adequate waste rock storage capacity for the large pit

scenario. Also, when the open pit/underground operating cost exercise using Whittle™ to determine

where underground mining is potentially more economic than continued open pit mining, the results

showed the majority of La Ventana mineralized material is more attractive economically using

underground mining methods. This results in a shallow pit shell where it is more attractive to take

near-surface mineralized material using open pit methods than trying to do so from underground.


201

See Figure 16-2 for a visual comparison of the smaller shell utilized in this plan and the larger shell

that while potentially economic to mine, is less attractive than the relative economics of mining

deeper resources using underground methods.

Figure 16-2 La Ventana Pit Shells Comparison

Choosing the small shell also provides flexibility in design between the pit bottom and top of

underground mining, as minor deepening of the shallow shell to accommodate a reasonable

transition to underground mining does not result in material being mined uneconomically from a

slightly deeper open pit. The design of this transition from surface to underground mining will be

finalized in the next phase of project advancement when more information is obtained from

continued exploration activities in the upper areas of La Ventana.

For La Ventana open pit mining a dilution factor of 10% at zero grade was assumed and no mining

losses were applied. This differs from the dilution and mining losses applied to the other two open

pits. This was done in the absence of metallurgical test work on upper La Ventana material where

the degree of oxidation is unknown as is the effect such oxidation might have on metallurgical

recoveries, so metallurgical recoveries for upper La Ventana were de-rated accordingly. Mining

losses were not applied in this instance because upon reviewing the resource model JDS realized


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there is likely more potentially economic mill feed than shown in Table 16-1 that could be recovered

from the La Ventana open pit shell used in this analysis.

16.1.2. La Ventana Underground

La Ventana underground mining will be a variation of longhole open stoping with rock backfill

provided from surface using waste rock reclaimed from Ventana open pit operations. During the first

year when the La Ventana pit is providing mill feed, the underground development of La Ventana will

begin on levels 800, 780 and 760 with completion of the sill drifts on these levels in year 1. Access

to the levels above 800 will be from the pit floor designed for this interface and transition. Refer to

Figure 16-3. Figures 16-4 through 16-7 serve to illustrate the proposed underground mining method

and sequence.

All underground development and stoping on the La Ventana deposit was designed to remain

entirely within the La Ventana mining concession boundary.

For La Ventana underground mining a dilution factor of 20% at zero grade was assumed and 20%

mining losses were applied.


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Figure 16-3 Section showing open pit and underground mining concepts, La Ventana

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Figure 16-4 Section showing start of underground mining, La Ventana


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Figure 16-5 Section showing continuation of underground mining, La Ventana


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Figure 16-6 Section showing continuation of underground mining with backfill introduced, La Ventana


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Figure 16-7 Section showing underground mining advance, La Ventana

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Waste rock from open pit mining will be stored east of La Ventana where topography is favorable for

waste rock storage. Much of this waste rock will be reclaimed at a later date for use as backfill for

underground operations. Waste rock selected for backfill will be introduced into the underground

from the east end of the pit and allowed to flow by gravity as shown in Figure 16-7. Note that the

above figures show mining cycles simplified for illustration purposes, when in fact multiple levels are

available for drilling uppers, blasting and mucking cycles. Drilling and blasting will be controlled and

limited to 3-4 drill rings per level so tight blasting against rock backfill is achieved, dilution is

minimized and there are no large spans left open. Backfilling from surface occurs more or less

continuously and by using select rock (no fines or oversize) the flow of rock backfill by gravity should

not be problematic to at least elevation 760. Above level 760 the Ventana vein is vertical with widths

exceeding 12 meters according to the current geologic interpretation and resource model. See

Figure 16-8. It is no surprise that the “unconstrained” version of the La Ventana open pit as shown

in figure 16-2 extends down to elevation 760, where modeled vein width starts to narrow.

There is a practical limitation to the depth which this method is expected to work and that elevation is

estimated to be the 680 level for purposes of this report. By the time mining advances to this

elevation the western extent of rock backfill in the above levels is close to the footwall ramp and is

thus accessible for drawdown, transport and placement as rock backfill in the lower levels.

Additional costs were assumed for this waste rock backfill rehandle underground on the lower levels.

According to the current resource model, grades increase beneath level 680 so this higher value

material at depth more than compensates for additional costs of rehandling backfill.

Levels shown in red on the above figures represent the extent of mill feed planned from underground

sources for the first two years. Sills on levels 800, 780 and 760 are planned for completion from the

underground ramp in year 1 while the Ventana pit provides mill feed at a sustained rate of 1250

tonnes per day. Sills on levels above 800 will be also be developed and accessed from the pit floor

in year 1, thus year 1 mill feed is comprised of a mix of open pit and underground sill development.

In year 2 the majority of mill feed comes from stoping between the pit floor and elevation 760 as

illustrated in figure 16-7, with development contributions from sills on levels 740, 720 and 700. In

year 3 sills are developed on levels 680, 660 and 640 but by year 3 La Ventana is unable to sustain

a mining rate of 1250 tonnes per day, so San Felipe open pit mining begins in year 3 to make up the

difference.

This plan is flexible in that open pit mining of San Felipe can start in year 2 should significant issues

be encountered in La Ventana underground. According to the current mine plan, year 2 is the only


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period in which mill feed is provided from a single source; that source being from La Ventana

underground as described above.

Figure 16-8 Section 567652.5 vein geometry, La Ventana looking West


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16.2. San Felipe Mining Methods

Initial mining of San Felipe will be by conventional open pit mining methods while San Felipe

underground is being developed. There are three mineralized structures in the San Felipe area that

the open pit encounters, but underground mining is limited to the HW-1 structure because it is the

only structure of the three with sufficient resources and grades identified at depth to support

underground mine development and operating costs.

16.2.1. San Felipe Open Pit

An open pit Whittle™ analysis was done for the San Felipe deposit and results showed that the

deposit would support a large pit if no underground mining were considered (unconstrained). The

resultant pit shell however was deemed an unreasonable solution due to high strip ratios, local

topography and anticipated difficulties finding adequate waste rock storage capacity for the large pit

scenario. Also, when the open pit/underground operating cost exercise using Whittle™ to determine

where underground mining is potentially more economic than continued open pit mining, the results

showed much of the San Felipe mineralized material was more attractive economically using

underground mining methods. This results in a shallow pit shell where it is more attractive to take

near-surface mineralized material using open pit methods than trying to do so from underground.

For San Felipe open pit mining a dilution factor of 15% at zero grade was assumed, and mining

losses of 10% were also applied.

16.2.2. San Felipe Underground

The HW-1 structure of the San Felipe deposit will be mined beyond what the pit takes out using

underground methods comprised principally of conventional longhole stoping techniques, starting at

the bottom of the deposit and working up so as to avoid the need to leave sill pillars or construct

structurally engineered sills. It is anticipated that Cemented Rock Fill (CRF) may be used during

longhole stoping operations, and the cost of placing this type of engineered backfill was applied to

30% of San Felipe tonnes planned for underground mining.

For San Felipe underground mining a dilution factor of 20% at zero grade was assumed and 10%



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16.3. Las Lamas Mining Method

Las Lamas will be mined using only underground methods comprised principally of conventional

longhole stoping techniques, starting at the bottom of the deposit and working up so as to avoid the

need to leave sill pillars or construct structurally engineered sills. It is anticipated that Cemented

Rock Fill (CRF) may be used during longhole stoping operations, and the cost of placing this type of

engineered backfill was applied to 30% of Las Lamas tonnes planned for underground mining.

An open pit Whittle™ analysis was done for the Las Lamas deposit and results showed that the

deposit would support a large pit if no underground mining were considered. The resultant pit shell

however was deemed an unreasonable solution due to local topography and anticipated surface

water inflow issues. Also, when the open pit/underground operating cost exercise using Whittle™ to

determine where underground mining is potentially more economic than continued open pit mining,

the results showed virtually 100% of remaining Las Lamas mineralized material was more attractive

economically using underground mining methods.

For Las Lamas underground mining a dilution factor of 20% at zero grade was assumed and 10%


16.4. Transversales Mining Method

An open pit Whittle™ analysis was done for the Transversales deposit and results showed that the

deposit would support a pit with or without underground mining. The resultant pit shell without any

underground mining was deemed a reasonable solution. Also, when the open pit/underground

operating cost exercise using Whittle™ to determine where underground mining is potentially more

economic than continued open pit mining was conducted, the results were that virtually 100% of the

Transversales resource is more attractive economically to take using open pit methods rather than

using underground mining methods. The amount of Transversales resource that showed up as

theoretically mineable using underground methods in this analysis was too small to support

underground development and operating costs.

For Transversales open pit mining a dilution factor of 15% at zero grade was assumed, and mining

losses of 10% were also applied.

It is important to note that the Whittle™ analyses described in this section do not take into

consideration relative capital costs of developing open pit vs. underground mines; it only considers

the difference in operating costs.

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16.5. Geotechnical parameters

16.5.1. Underground

CRUX engineering group (CEG) provided a report to Santacruz Silver Mining Limited regarding

geotechnical scoping study dated May 7, 2014. CEG (formerly Fisher & Strickler Rock Engineering,

Inc.) and Wyllie & Norrish Rock Engineers, Inc. (collectively the Wyllie & Norrish Team) completed a

geotechnical study for the project in 2008 on the behalf of the previous owners, Hochschild Mining

Mexico. This information, coupled with drill intercepts based on the project’s most recent block

model and core photographs provided by Santacruz, encompassed the data set available for the

updated evaluation provided by CEG.

CEG applied the data described above to the La Ventana and Las Lamas deposits for underground

ramp support requirements and open stope size limitations. The conclusion reached by CES is that

“the rock mass at La Ventana and Lamas is considered “Very Poor” based on the Rock Quality

Tunneling Index (Q-System)”. Their conclusions and recommendations reflect this rock quality

assessment, and their recommendations for further work includes geotechnical mapping of the

ramps and other underground developments. This is included in the underground exploration

portion of the proposed field program. CEG also recommended that engineering domains be

developed to allow for better classification of geotechnical properties which ultimately would support

a geotechnical model. One of the doubts expressed by CEG regarding the data available is the

possibility that previous diamond drilling practices may have affected the quality of recovered rock,

and JDS shares those doubts.

JDS agrees in principle with most of the ground support methods recommended by CEG but did not

incorporate the bolting, screening and shotcreting to the extent CEG recommended for La Ventana

and Las Lamas underground mining. This difference between the CEG recommendations and what

JDS used for anticipated ground support requirements is explained by inspection of diamond drill

core and existing underground workings by experienced JDS mining personnel during various site

visits, concluding that ground conditions as observed likely do not require the extensive, ubiquitous

ground control measures as recommended by CEG. The effect of such extensive ground control

measures is reflected in development costs and more importantly, advance rates.

A very large part of the proposed field program is underground exploration which includes drifting on

levels 800 and 780 to investigate continuity of mineralization, actual geotechnical conditions and

ground support requirements.


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16.5.2. Open pit

In previous work done by others on the San Felipe project the open pit potential of the four deposits

included in this report was not investigated, so no geotechnical analyses have been performed in

this respect. For purposes of this PEA, the slopes of existing terrain where the proposed pits are

located were observed to be greater than 50°, so an overall pit slope of 50° was assumed as one of

the inputs to Whittle™. The proposed field program also includes geotechnical data collection for

the next phase of open pit mine designs.

16.6. Hydrologic parameters

Little is understood about the groundwater regime of the four deposits planned for development,

other than exploration logs that indicate where water was encountered and some monitoring wells

that were drilled and equipped with vibrating-wire piezometers. These monitoring wells and drill logs

provide static groundwater levels, but no pump tests, groundwater recharge or hydrologic gradients.

More advanced groundwater testing is included in the proposed field program.

Piezometer evidence suggests groundwater may be encountered at about elevation 780 in La

Ventana but inflow rates and water quality are unknowns at this time.

16.7. Waste rock storage

Table 16-1 shows the estimated waste rock that will be generated by surface and underground

mining activities envisioned for the project, over 90% of which comes from open pit mining.

Approximately half of the waste rock coming from La Ventana open pit operations is planned for use

as backfill for Ventana underground, and there is ample space east of the proposed Ventana open

pit for short-term storage of all Ventana waste rock and permanent storage for the waste rock that is

not used as backfill. Waste rock from Ventana underground operations will either be stowed

underground as backfill or placed in a separate area on surface as shown in Figure 17-1.

The largest source of waste rock is expected to be from San Felipe open pit operations. Several

areas close to the San Felipe deposit have been identified as suitable locations for waste rock

storage. These waste rock storage areas for the San Felipe open pit will likely be permanent

features and thus require reclamation. Development waste rock from San Felipe and Las Lamas

underground mining will either be stowed underground as backfill, stored in the same locations as

waste rock from open pit operations, or placed in the empty San Felipe pit.


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Transversales is the last open pit to be mined according to the mine plan developed for this PEA,

and due to this timing and proximity to the San Felipe open pit the plan is to place all Transversales

waste rock in the empty San Felipe open pit.

Waste rock storage areas on surface are designed to remain stable by placing waste rock at angle

of repose in favorable topographic locations where there is little possibility for significant run-off of

stormwater onto or into the rock piles. These multiple locations also provide flexibility in segregating

waste rock types if certain types are deemed to be potentially acid generating. Limiting how much

water ends up flowing through the waste piles also limits the volume of potentially acidic drainage.

Another possibility that should be investigated is co-disposal of potentially acid generating rock with

tailings. Some acid base accounting (ABA) work was done by the previous owners on various rock

types and these results in conjunction with other testwork planned during the proposed field program

will better qualify and quantify potentially acid generating rock types as well as potentially

neutralizing rock types.

16.8. Required mining equipment

For the deposits included in this report JDS used contractor mining costs for all open pit and

underground mining. All required primary mining equipment is included in the contractor rates used

for estimating operating costs. Equipment provided by Santacruz includes ventilation fans, pumps,

communications, and other ancillary equipment.

16.9. Mine CAPEX

Pre-production mine capital is estimated to total $2.5mm and includes $0.5mm for open pit

contractor mobilization, $1.0mm for pioneering works to prepare la Ventana pit for production, and

$1.0mm for waste rock storage preparation and waste rock haul road construction.

Total capital estimated for year 1 is estimated to be $5.0mm and includes $1.0mm for underground

contractor mobilization, $1.0mm for capital equipment provided by Santacruz as summarized in the

preceding section, and $3.0mm in mine development done by contractor planned for the first year of

operations. Note that since the existing portal for La Ventana is planned for use there are no new

portaling costs included in pre-production or year 1 capital estimates.

Table 16-2 below summarizes estimated life-of-project mine capital. For San Felipe and

Transversales open pits the pioneering work and waste rock storage area preparations are timed in

years 2 and 5, respectively, one year in advance of when mill feed is planned for release from these


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pits. In year 4 there is another $1.0mm slated for underground capital equipment provided by

Santcruz for initiating development of the San Felipe and Lamas underground mines, including new

portals for both of these deposits. According the current mine plan the majority of underground

capital development for La Ventana, including finishing the ramp as designed, is complete by the

end of year 3. This frees up the underground mining contractor to develop the San Felipe and

Lamas underground mines in year 4. The San Felipe and Lamas portals are located approximately

200 meters apart and by developing them at the same time there are certain synergies that can help

keep costs down. By far the bulk of sustaining mining capital is required for continued capital

development done by contractor, with other minor sustaining capital expenditures required from

Santacruz.

JDS used an average of $2,500/meter for contractor development rates. This estimate was built

from first principles and is an all-inclusive cost for underground development in Mexico, including

contractor rates, materials, and mie services. Additionally, JDS does work for other clients in Mexico

who are developing underground mines in difficult ground conditions and their all-in ramp and

access development costs average $2,500/meter.

Table 16-2 Life of project estimated capital requirements

16.10. Mine OPEX

Mine operating costs are also based on a mix of contractor rates, materials, and mine services. For

open pit mining an average waste rock mining cost of $2.20/tonne was used. This cost is based on

work JDS is doing for other clients in Mexico with open pit projects and will be confirmed by

competitive bidding when the time comes. The mineralized material mining cost from open pits is

estimated to be $2.80/tonne and includes haulage to the plantsite using an average haul distance of

approximately 2km as shown in Figure 17-1. Note the haul profiles from all three open pit and

underground mines are downhill to the plantsite.

For underground mining the estimated operating costs vary depending on the deposit being mined.

For La Ventana the average operating costs was estimated to be $27.62/tonne, and this includes sill

Mine Capital Pre-‐prodn Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 TotalUnderground costs in $1000U/G Capital Development 2,980 2,905 2,572 4,004 4,443 2,037 1,024 300 20,265Underground Capital Infrastructure and Machinery 1,000 100 100 1,000 100 100 100 2,500Mine Contractor mobilization (UG and OP) 500 1,000 1,500Pioneering of pits 1,000 750 500 2,250Mine Waste Dump Prep 1,000 750 500 2,250

2,500 4,980 4,505 2,672 5,004 5,543 2,137 1,124 300 28,765

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development and waste rock backfilling. The extra cost of rehandling waste rock in the lower levels

of Ventana is also included in this average mining cost.

For San Felipe and Lamas underground mining the average operating costs was estimated to be

$32.71/tonne, and this includes sill development and backfilling costs. As mentioned previously in

this section an estimated 30% of mined voids in San Felipe and Lamas are planned for backfill using

an engineered cemented rock fill (CRF), with other backfill requirements met by using waste rock fill.

Both of these underground mines employ conventional longhole open stoping methods, and the

development timing as discussed in the capital section above is such that the planned ramps for

both of these deposits reach mine bottom before stoping mineralized material is scheduled, thus

eliminating the need to leave sill pillars in mineralized material or incur the cost of constructing an

engineered sill as is often required when longhole mining is started before reaching mine bottom.


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17. Recovery Methods

17.1. Flotation Mill

This Preliminary Economic Assessment is based on a conventional flotation mill that produces zinc

and lead concentrate. Silver will be recovered primarily within the lead concentrate. Silver values

within the zinc concentrate are too low to be payable.

The mill will be located proximal to the old Artemisa mill site approximately 2 km southeast of the

Ventana vein. (See Figure 17-1). To date, there has not been any detailed geotechnical

investigation of the site. As the site is located on the flat part of a seasonal drainage, investigation

of the maximum projected water level and methods to protect the site are required.

The process flowsheet for the plant is given in Figure 17-2. The run-of-mine (ROM) mineralized

material will be trucked and dumped into a hopper which will have a grizzly. The mineralized

material will be crushed in a three-stage crushing system and stored in a fine mineralized material

bin. The mineralized material will be fed from the fine mineralized material bin to a ball mill in

closed circuit with cyclones. The cyclone overflow will be pumped to the lead rougher and

scavenger flotation circuit. The scavenger concentrate will be recycled back to the rougher

flotation feed. The rougher concentrate will be subjected to counter-current two stage cleaner

flotation. The lead concentrate will be thickened and filtered and stored for shipment.


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Figure 17-1 Proposed mine development


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A 1,250 mtpd (metric tonne per day) mill will be constructed in the first year of project development.

A diagram showing the mill components is given in Figure 17-2.

The power requirements for the mill were estimated to be 25kwh/mt. Power will be supplied by

grid power as described in Section 18. Tailings will be pumped to the tailings pond located 300 m

to the southwest. Details of the tailings impoundment are given in Section 18. Water will be

reclaimed from the tailings to the mill. An estimated 1,250 m3 per day of make-up water will be

required. Make-up water will be comprised of a combination of precipitation into the tailings pond

and water pumped from wells in the Sonora River valley.


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Figure 17-2 Diagram for 1.250 t/day mill by Santacruz – 2014

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17.2. CAPEX

Order-of-magnitude capital costs were determined by Santacruz for three mill sizes; an initial 750

mtpd and then increases to 1,250 and 2,000 mtpd. These costs were reviewed by the author and

are considered reasonable for the purpose of a PEA. The cost estimate is provided in Table 17-1

for 750 mtpd. Additional equipment requirements and costs for higher throughputs are given in

Table 17-2. As the estimated production rate in the PEA is 1,250 tonne per day, the costs for the

750 mtpd mill and up upgrade to 1,250 mtpd were used for the model and it was assumed the mill

will be built in one year.

The capital costs are estimated to be approximately $10.8 million for 750 mtpd plant,

approximately $15.3 million for 1250 mtpd and approximately $ 27.8 million for 2000 mtpd.


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Table 17-1 Capital cost estimate for 750 mtpd plant Cost (USD)

No Item Units Equipment Civil Works

Structural

1 Coarse mineralized material Bin 1 108,500

2 Apron Feeder 30 ft. X 9 ft. 1 26,300 3 Jaw Crusher 24 in X 36 in 1 110,000 11,500

4 Electro Magnet 1 23,600 5 30 in Belt Conveyor 1 75,000 21,400

6 Double Deck Vibrating Screen 6 ft. X 16 ft.

1 10,500 44,500

7 4¼ Standard Cone Crusher 1 226,500 14,000 8 30 in Belt Conveyor 1 50,000 9,900

9 Return 30 in Belt Conveyor 1 50,000 9,900 10 Vibrating Screen 6 ft. X 16 ft. 1 10,500 44,500

11 4 ft. Short Head Cone Crusher 1 211,000 14,000

12 Fine mineralized material Bin 1 37,000 17,000 13 Vibrating Feeders 2 10,000

14 Crusher Building 234,000 15 24 in Belt Conveyor 1 24,000 9,900

16 10.5 ft. X 20 ft. Ball Mill W/motor 1 336,000 23,000

17 8 in X 6 in Pump 2 32,400 18 Cyclone D-‐20 2 12,500

19 Mill Building 198,000 20 10 ft. X 10 ft. Conditioning Tank 1 20,000 50,800

21 8 ft. X 8 ft. Bank Cells 3 480,000 22 2 ½ in X 48 in Pump 1 5,800

23 Bank Cells Sub-‐A # 30 2 76,800

24 Conditioning Tank 5 ft. X 5 ft. 1 15,000 25 Bank 4 cell 50 ft3 2 38,400

26 Pb Thickener 30 ft. X 10 ft. 1 245,000 92,300 27 Cu Thickener 20 ft. X 8 ft. 1 245,000 92,300

28 Concentrate Filters 6 ft. X 6 ft. 2 114,000 57,000

29 2 ½ in X 48 in Galigher Pumps 2 116,000 30 8 in X 6 in Warman Pump 2 32,500

31 4 in Duplex Pump 2 20,000 32 Nash Pump 2 102,000

33 Flotation Building 240,000 34 10 ft. X 10 ft. Conditioning Tank 1 20,000 50,000

35 8 ft. X 8 ft. Bank Cells 5 800,000

36 Bank Cells Sub A # 30 3 115,200 37 3 in X 48 in Galigher Pump 1 6,500


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38 44 ft. X 10 ft. Thickener 1 275,000 92,000

39 8 ft. X 8 ft. Filter 2 113,000 58,000 40 8 in X 6 in Warman Pump 2 32,500

41 4 in Duplex Pump 1 12,500 42 Nash Pump 1 102,000

43 Submersible Pumps 4 64,000

44 Horizontal Water Pumps 2 17,000 45 2500 PCM Blower 2 60,400

46 Reagent Conditioning Tanks 4 10,500 20 62.5 47 Laboratory 1 153,000 50,000

48 Mobile Offices 4 100,000

49 Water Supply Pond 88,000 50 Recovered Water Pond 35,000

51 Wells 15,400 120,000 5,000 52 Floors 207,000

53 Plant Hydraulic Network 140,000 56,000 54 Electrical Substation 500,000 23,500

55 Piping Water, Tailings Pond etc. 350,000 148,000

56 Truck Scale 56,000 35,000 57 Equipment Assembly 750,000

58 Basic Engineering 100,000 59 Detailed Engineering 270,000

60 Top Soil Stripping 221,000

Sub-‐Total Per Column 6,718,800 1,918,000 795,500 Sub-‐Total Cost 9,432,300

Contingency (15%) 1,414,845 TOTAL 10,847,145


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Table 17-2 Additional Capital Cost for 1250 MTPD and 2000 MTPD Plants No. Item Units Cost, $ (U.S)

1250 MPTD 2000 MTPD Equipment Civil and

Structural Works Equipment Civil and

Structural Works GRINDING CIRCUIT 1. 24 in Belt Conveyor 1 24,000 24,000 2. 10 ft. X 9 ft. Ball Mill W/motor

10.5 ft. X 20 ft. Ball Mill W/motor

1 1

1,034,000

1,550,000

3. 8 in X 6 in Warman Pump 2 32,400 32,400 4. Cyclones 2 12,500 12,500 Pb -‐ Cu FLOTATION CIRCUIT 5. 8 ft. X 8 ft. Bank Cells 4 640,000 640,000 6. 2 ½ in X 48 in Pump 1 5,820 5,820 7. Condition Tank 6 ft. X 6 ft.

10 ft. X 10 ft. 1 1

15,000

15,000 20,000

8. 100 ft3 Bank 2 Cells 2 35,200 35,200 9. 4 in X 3 in Warman Pump 2 19,000 Zn FLOTATION CIRCUIT 10. 8 ft. X 8 ft. Bank Cells 3 480,000 480,000 11. Nash Pump 1 103,000 12. 10 ft. X 10 ft. Condition Tank 1 20,000 13. Bank Cells 3 480,000 14. Warman Pump 4 in X 3 in 1 5,000 VARIOUS AREAS 15. Floors 35,000 100,000 16. Electrical Substation 17. Equipment Assembly/Civil and

Structural Works 462,000 955,000 6,490,000

18. Basic Engineering 20,000 20,000 19. Detailed Engineering 15,000 15,000 Sub-‐Total 2,878,920 990,000 3,373,920 6,590,000 Project Sub-‐Total 3,868,920 9,963,920 Contingency (15%) 580,338 1,494,588 TOTAL 4,449,258 11,458,508


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Table 17-3 Estimated Operating Cost for Varying Feed Rate No. Item No Cost/Tonne (U.S $)

750 MTPD 1250 MTPD 2000 MTPD 1. SUPERVISION

Assistant Coordinators

1 4

0.13 0.27

0.08 0.16

0.01 0.09

2. LABOR FORCE Crusher Operators Mill Operators Flotation Operators Filter Operators Concentrate Handling Equipment Operator Relief Operators General Labor

6 3 3 2 2 1 3 4

0.13 0.08 0.06 0.39 0.06 0.04 0.10 0.10

0.08 0.06 0.04 0.23 0.02 0.02 0.04 0.04

0.05 0.05 0.02 0.15 0.01 0.01 0.02 0.02

3. Maintenance (Mechanical & Electrical) Superintendent Supervisor (Mechanical) Supervisor (Electrical) Welders Electrical Helpers Sub-‐total Personnel Indirects (56%) Total Personnel

1 1 1 4 2

0.27 0.08 0.07 0.24 0.07 2.36 1.32 3.64

0.16 0.05 0.04 0.15 0.07 1.40 0.79 2.19

0.10 0.03 0.03 0.09 0.05 0.83 0.46 1.29

4. Energy @ $0.11/kw 3.00 2.75 2.50 5. Steel

Crushers 0.2kg/tonne @ $1/kg Mill Liners

0.20 0.33

0.20 0.33

0.20 0.33

6. Balls 1kg/tonne @ $1/kg 1.00 1.00 1.00 7. Reagents

NaCN 100 g/ton @ $8/kg Lime 4kg/ton @ $1.10/kg Aerophine 35 g/ton @ $8/kg Promotor 30 g/ton @ $5.20/kg Frother 60 g/ton @ $2.50/kg ZnSO4 1500 g/ton @ $1.05/kg CuSO4 1000 g/ton @ $2.30/kg Ammonium Bisulfite 500 g/ton @ $3.20/kg

0.80 0.44 0.28 0.16 0.15 1.58 2.30 1.60

0.80 0.44 0.28 0.16 0.15 1.58 2.30 1.60

0.80 0.44 0.28 0.16 0.15 1.58 2.30 1.60

8. Repairs and Materials Crushers Mill Flotation Thickeners Filters Pumps

0.76 0.54 0.54 0.22 0.22 0.11

0.76 0.54 0.54 0.22 0.22 0.11

0.76 0.54 0.54 0.22 0.22 0.11

9. Concentrate Bagging 0.21 0.21 0.21 10. Laboratory Analyses 0.90 0.90 0.90 11. Tailings Dam

Equipment Operation 0.59 0.47 0.36 12. Water Storage, Make-‐up and Taxes 1.18 1.18 1.18 TOTAL 20.26 19.09 17.77


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17.3. OPEX

The basis used by Santacruz to prepare estimated operating costs for the plant was the actual

operating costs at the Rosario mill. These costs were reviewed by the author and are considered

reasonable for PEA purposes. The breakdown of the cost is given in Table 17-3 The process

plant operating cost is estimated to be $20.26 per tonne for 750 mtpd, $19.09 per tonne for 1250

mtpd, and $17.77 per tonne for 2000 mtpd. These costs are based on energy cost of $0.11/kw

which is assumed to be available from the utility company. For the PEA model, the estimated

operating cost for a 1,250 mtpd plant was used.


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18. Project Infrastructure and General Administration

18.1. Tailings Storage Facility

The tailings storage facility (TSF) will be an important of the infrastructure required for a mine at

San Felipe. In 2008, Hochschild identified a potential site for a TSF and contracted Ausenco

Vector (Vector) to do various geotechnical studies. Work included advancing, logging and

sampling 19 test pits and 4 geotechnical holes in the area of the proposed dam and establishing 2

wells. Data from this work is available to Santacruz and was revised as part of this study. The site

Hochschild proposed is well located in relation to the current proposed mill site.

Santacruz contracted Mark Smith, P.E. (M. Smith) to review the Vector data and to do a

comparison between the Hochschild site and a site later proposed and permitted by Santacruz.

At this point the Hochschild site appears to be more favourable, so the PEA model and

descriptions below are all based on this site. If further evaluation finds a significant problem with

the Hochschild site or a cost advantage to the Santacruz site, the alternative site will be evaluated.

M. Smith visited the Hochschild site on February 14 and 15, 2014 in company of Smit and Bourke.

A reconnaissance of the site was made by truck and on foot several of the geotechnical drill holes

and wells. The following summarizes Smith’s observations:

• Good quality bedrock outcropping in both abutments and in various locations in the

impoundment;

• Abundant borrow sources for soil and good quality rock;

• Good abutment geometry and a good ratio of dam length (distance between abutments),

valley width and valley length, suggesting a reasonable storage efficiency (impoundment

volume divided by dam fill volume);

• Ample room for increasing capacity well above 5,000,000 mt, which is greater than the

resource size considered in this study;

• Existing geotechnical and hydrogeological field & laboratory investigations are probably

sufficient for a PFS-level design.

After the visit, M. Smith completed a PEA level design and cost estimate for a TSF. The proposed

TSF will be created by constructing a rock-fill dam at the lower end of the valley (See site location

Figure 18-1). The proposed dam will be constructed of a combination of locally quarried rock from

within the TSF, and development rocks from the underground mine. The dam will be constructed


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in annual increments using downstream construction methods, with the pre-operation starter dam

constructed to a crest elevation of 690 m (19 m high, measured toe-to-crest at the highest section).

Annual downstream raises will create crest lifts ranging from 2 to 5 m vertically as follows:

Figure 18-1 Tailings storage facility proposed location.


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Figure 18-2 Schematic section through proposed tailings storage facility.

Table 18-1 Tailings storage facility capacity Year Dam Crest Elevation, m Dam Height, m Tailings Capacity, mt

Preproduction 690 19 Nil

1 694 24 609,000

2 697 27 1,113,000

3 699 29 1,449,000

4 704 34 2,121,000

5 706 36 3,129,000

6 706 36 3,129,000

The upstream face of the dam will include a two-layer filter system (gravel and geotextile) placed

over the rock shell, and a composite liner consisting of a 2-m thick layer of compacted clay and a

geomembrane (most likely 2.0 mm thick LLDPE). (See Figure 18-2). The clay and geomembrane

liner will be connected to competent bedrock via a combination of a clay-filled keyway and a cut-off

trench.

The rock shell has been assumed to be constructed with 90% locally quarried rock and 10% mine

development rock. Some of the mine development rock may be potentially acid generating (PAG).

However, rock placed immediately beneath the liner system will be isolated from the environment,


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water from the TSF, and have limited access to oxygen and thus will not be a high risk to generate

acid. The 10% is likely a lower bound figure and is limited by the mining schedule rather than

available rock quiality.

Hydrologic issues include both the average annual (446 mm) and extreme precipitation (145 mm

for the 100-yr, 24-hr event). The catchment basin is 174 ha (per the Vector analysis). Thus, the

average annual rainfall will produce about 194,000 m3 in runoff (assuming 25% runoff), or 530

m3/day based on an annual average. Allowing for lower bound evaporation, the net water

produced from precipitation will be about 273 m3/day. The tailings will consume over 500 m3/day

in the permanent uptake into their porosity. The peak storm event of 145 mm will be contained

within the 3.0 m freeboard. For these reasons no diversion works are planned around the basin

but rather the runoff will contribute to the mine and mill water supply.

The assumptions used in the conceptual design and resulting cost estimate include:

• Freeboard between crest of dam and highest tailings or pool elevation of 3.0 m. A constant

freeboard was assumed for each stage of dam raise but it is likely that this can be reduced

slightly as the dam approaches its final elevation and the resulting available area for a pool is

at its greatest. This may result in smaller dam raises in production years 4 and 5;

• Geologic containment of the basin, augmented with a face liner on the dam, will be sufficient

for environmental purposes. A small amount of “dental work” to seal exposed joints and

bedding in a few small areas of the impoundment may be prudent. This work may consist of

simply sequencing tailings deposition to ensure these areas have a thick layer of tailings

before any free water is allowed to accumulate;

• An average settled dry density of the tailings of 1.20 (this is from the prior Vector studies)

was used for this study, which is consistent with experience at other projects with similar

tailings;

• Temporary spillways are included in the early phases of embankment construction, and then

they will not be used as the impoundment capacity can be made to store the Probable

Maximum Flood (PMF). A final spillway has also been provided for in the cost estimates.

• Tailings will be discharged along the face of the dam using spigots to create a beach and

hold the operating pool well away from the dam; and,

• Reclaim water will be recovered using a floating barge pump (or pumps) at the far end of the

impoundment (removed from the dam).


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There are several opportunities to optimize or reduce the costs of the TSF, which include:

• Since the operating pool will be held well away from the dam, the geomembrane liner could

be omitted and the clay liner reduced in thickness above the elevation of about 699 m. This

will have little effect on the cost of materials, but will simplify and speed construction;

• Mine development rock could be increased from a nominal 10% of the total rock shell to

between 25% to as much as 40%, depending both on the availability of good quality rock and

the ability to locate it in the dam in such a way as to minimize the acid generating risk. This

would decrease the cost by $100,000 to $199,000 over the life of the dam construction; and,

• Temporary spillways may be avoided if the dam elevation is advanced sufficiently quickly to

provide storage for at least the PMF at every elevation raise. For example, if each raise was

constructed one year earlier than shown in Table 18-1. This would save about $100,000 for

each phase where a temporary spillway is avoided, and would simplify construction. Further,

avoiding spillways also reduces the likelihood of an unpermitted discharge. Whether this is

feasible will depend on the total site construction commitments and the capacity of the

available contractors.

There are also risks for cost escalation, the most obvious of which being:

• The cut-off between the dam and competent bedrock may be deeper or more complicated

than assumed;

• There may be areas inside the impoundment that require localized treatment, beyond

selective tailings placement, to seal naturally porous or permeable zones; and,

• Spillway construction could be more complex than assumed.

• The cost to construct the dam as sequenced in Table 18-1 were estimated using estimated

quantities of materials required and the prevailing rates for construction and installation. The

results of this cost estimate are summarized in Table 18-2.


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Table 18-2 Cost Estimate for TSF. All tailings go to TSF (no UG backfilling), Freeboard = 3m Dam Tailings Production Tailings Impoundment Capacity Costs, USD

Year Crest Elev (m)

Height (m)

Increment (t)

Cum (t) Increment (m3)

Cum (m3) Cum (t) Increment ($)

Cumulative $/t of capacity

PP 690 19 0 0 0 2,052,000 $2,052,000 na

1 694 24 220,000 220,000 507,000 507,000 609,000 605,000 $2,657,000 $4.37

2 697 27 585,000 805,000 420,000 927,000 1,113,000 444,000 $3,101,000 $2.79

3 699 29 585,000 1,390,000 280,000 1,207,000 1,449,000 285,000 $3,386,000 $2.34

4 704 34 585,000 1,975,000 560,000 1,767,000 2,121,000 846,000 $4,232,000 $2.00

5 706 36 585,000 2,560,000 840,000 2,607,000 3,129,000 955,000 $5,187,000 $1.66

6 706 36 585,000 3,145,000 0 2,607,000 3,129,000 0 $5,187,000 $1.66

Since the PEA study began, the total estimated amount of material processed by the mill in the

PEA model was increased slightly to 3.4M tonnes, or 8.7% larger than shown in Tables 18-1 and

18-2. The site chosen has ample room to handle this increase, with an upper bound capacity

greater than 5M tonnes. Estimated costs were escalated from those shown in Table 18-2 to

account for the extra tonnage.


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18.2. Power

The village of San Felipe is connected to the national power grid. An analysis of the amount of

power available from the grid has not been done, but the line is under-sized for the power

requirements of the proposed mill. The cost of grid power is estimated at US$0.11/Kw and for

diesel generated power the cost estimate is $0.30/Kw. Therefore, getting grid power to the site

has a significant impact on the operating costs.

A power line for the mill would have to be rated for 115Kv. The nearest high tension line from San

Felipe is 40 km south of the project. In very preliminary discussions with the government-owned

power company, Comision Federal de Electricidad (CFE), CFE representatives indicated that a

new line would have to come from Ures where there is an existing sub-station. This would require

a 75 to 80 km long line along the route shown in Figure 18-3.

At this time, no engineering or permitting has been done for a power line and there have been no

detailed discussions with CFE.

To distribute the power on site, power lines will be required from the millsite to the various mine

portals. As power requirements for mining are much less than the mill, the lines will be lower

capacity and there will need to be a step-down transformer at the mill. Transformers and switching

gear at each portal may also be required. The capital costs in the PEA for the power line to site

were estimated based on the costs for a power line recently built to service Santacruz’s Rosario

mine located in the state of San Luis Potosi. As some of the terrain that a power line to San Felipe

would need to cross is more rugged than at Rosario, a 10% cost escalation was included. Cost

was estimated to be $75,000 per km resulting in a total cost of $6.0M for an 80 km line (with $5.0M

in the construction year and $1.0M in the first year of production). Another $1.0M was estimated

for on-site power distribution costs (with $5.0M in the construction year and $1.0M in the first year

of production).


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Figure 18-3 Proposed Power Line Location

18.3. Water

Santacruz is acquiring the rights to two wells located in the Sonora River floodplain located

approximately 5 km from the mill site. Each well is authorized for 215,000 m3 of water per year for

a total of 430,000 m3. Make-up water requirements for the mill are estimated at 1 m3 for each

tonne of mineralized material milled. At 1,250 t/day milling rate, this equates to 450,000 m3 of

water. Since there will be some input from rainfall into the tailings storage facility, there is

sufficient water authorized to operate the project as modeled. No pump tests have been done to

see whether the wells can achieve the production rate they are authorized for. There are a

number of wells in the area that are used for agriculture and the material in the flat river valley

appears to host a productive aquifer.

For the PEA, it was assumed water for mining purposes would come primarily from dewatering of

the workings. The elevation of the water table at Ventana is around 780 m, which is 20 m below


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the level of the lowest current development on the structure. The water inflow rates that any lower

development would encounter are not known.

San Felipe is in the Rio Sonora aquifer which is in an availability zone 2. Costs for water to the

federal government are currently $7.2062 pesos per m3 ($0.55) in zone 2. These costs are

included in the cost per tonne to mill mineralized material.

18.4. Roads

Approximately 8 km of road will require upgrading to provide access from the end of pavement at

the village of San Felipe to the proposed mill site. A further 7 km will be needed to connect the mill

site to the various mine workings.

The road from the village to the mill site is in a fairly flat gravel-filled valley and road building

should be easy. The road will be gravel and allow 2-way traffic for highway licensed vehicles.

There are a number of stream crossings which can be problematic during summer rain storms. All

crossings are proposed to be fords, so continued road maintenance will be needed in the rainy

season and there will be occasional times that access is blocked by high water.

Roads from the millsite to the various mine workings are in part on steeper ground, but no

significant problems with road building are expected. Primary access from the deposits planned

for mining and the plantsite will be roads constructed and maintained in valley bottoms, which are

dry for most of the year. In steeper areas, a separate road may be constructed for vehicles going

up and down the road and in the case of La Ventana an alternate access road is planned to

separate haul truck traffic from light vehicle traffic and provide all-weather access to and from La

Ventana during the entire year. As with the site access road to the mill, all crossings are proposed

to be fords, so continued road maintenance will be needed in the rainy season and there will be

occasional times that access is blocked by high water.

No engineering has been done for roads to date. Roads will more or less follow existing access

with the exception of the La Ventana alternate access road. Estimated costs for upgrading

existing roads located in valley bottoms is $25,000 per km. A total of $900,000 was estimated for

road development including the access road, roads to the mine areas and haul roads to mine

waste storage areas.


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18.5. Other Infrastructure

Other infrastructure required includes an office, warehouse and shop. These are planned to be

located proximal to the mill. No designs have been made for these structures, but simple buildings

or trailers are planned. A fuel depot will be placed within a lined containment. Estimated cost for

these structures is $725,000, with $600,000 in the construction year and the rest in the first year of

production.

18.6. General and Administration

This PEA model is based on Santacruz providing overall site management, technical support and

surface and mill personnel. Mining will be done by contractors and all mine personnel besides the

mine superintendent are included in mine costs. General and administration costs for Santacruz

will include:

• General Management

• Mine, mill and surface superintendents

• Mine technical (engineers, geologists, surveyors, environmental and assistants)

• Environmental management

• Worker safety and security

• Purchasing and warehouse

• Surface work including road maintenance

• Insurance

• Mineral claim taxes

Estimated costs for General and Administration (G&A) costs are given in Table 18-3. Costs

include room and board for senior personnel who will be housed in San Felipe during their work

shifts. The G&A costs total $2,840,400 per year.


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Table 18-3 G&A Costs ($US)

Item Number Wage (Annual) Wage (45% Load) Cost (per Unit) Total

General Management

General Manger 1 120,000 54,000 174,000

Mine Superintendent 1 70,000 31,500 101,500

Mill Superintendent 1 70,000 31,500 101,500

Surface Superintendent 1 56,000 25,200 81,200

Accountant 1 42,000 18,900 60,900

Secretary 1 12,000 5,400 17,400

Payroll clerk 2 10,000 4,500 29,000

Supplies and support 1 20,000 20,000

Vehicles 2 12,000 24,000

Travel and Training 3 10,000 30,000

Sub-‐Total 639,500

Technical Services

Mine engineer 2 70,000 31,500 203,000

Mine geologist 2 60,000 27,000 174,000

Technical Assistant 2 28,000 12,600 81,200

Environmental Monitor 1 42,000 18,900 60,900

Surveyor 2 36,000 16,200 104,400

Supplies and Support 1 20,000 20,000

Vehicle 2 12,000 24,000

Environmental Sampling 300 50 15,000

Travel and Training 5 5,000 25,000

Technical Consultants 4 25,000 100,000

Independent Environmental Sampling 3 20,000 60,000


Worker Safety and Security

Manager -‐ Security and Safety 1 42,000 18,900 60,900

Security Guards/First Aid 8 15,000 6,750 174,000


Vehicles 2 12,000 24,000


Safety Supplies 200 250 50,000

Training Costs 200 100 20,000

Safety audits 2 5,000 10,000


Purchasing and Warehouse

Manager -‐ Purchasing and Warehouse 1 42,000 18,900 60,900

Warehouse Clerk 2 12,000 5,400 34,800



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Item Number Wage (Annual) Wage (45% Load) Cost (per Unit) Total

Warehouse Operation 12 2,000 24,000


Housing for Senior Staff

Cook 2 12,000 5,400 34,800

Cook Helpers 4 10,000 4,500 58,000

Food and Supplies 12 5,000 60,000

House rental in San Felipe 3 6,000 18,000


Surface Costs

Surface worker 4 10,000 4,500 58,000

Office Maintenance 12 1,000 12,000


Vehicle 1 12,000 12,000

General Freight 12 5,000 60,000

Communication 12 5,000 60,000

Road maintenance 12 5,000 60,000

Power for Office and Houses 12 2,000 24,000


Mineral Claim taxes 2 92,000 184,000


Insurance 1 150,000 150,000


Total ($2.8 M / year) 2,840,400

18.7. Reclamation and Closure

No detailed reclamation and closure plan has been made for the project. There is insufficient test

work to model whether waste rock will be PAG and there is no characterization of the tailings.

Therefore, reclamation plans are very conceptual at this time.

In the PEA mine plan, there will be 7.1 Mt of waste rock produced during open pit mining. Around

1 Mt will be back-filled into the underground workings, and the rest will remain in engineered waste

rock storage areas created by each open pit working (Ventana, San Felipe and Transversales).

The waste rock will be re-contoured for long-term stability at the end of mining for each pit.

Requirements for any additional work such as installing a cap to reduce water infiltration, addition

of lime or water treatment are dependent upon further analysis of the waste rock chemistry. The


239

Ventana and San Felipe open pits are planned early in the mine life, therefore reclamation can be

done on these well before mine closure.

All underground openings will be secured upon completion of mining. As development is by ramps

from surface which are above the water table, post-closure issues related to water draining out of

the workings should not be an issue.

The mill will be dismantled and the surface area reclaimed. As there are currently piles of

mineralized material and a small area with old tailings, reclamation should result in improved

conditions from the current status.

The tailings dam will be designed for long-term stability. An engineered overflow will be installed in

the latter parts of the operation. After milling ceases, the tailings will be covered with soil salvaged

during construction and the area seeded and planted with native shrubs.

For the PEA model, an estimate of $3M was used for the cost of reclamation. Since some of the

mill equipment will still be useable by the end of the modeled project, $500,000 has been

incorporated as salvage value.

19. Market Studies and Contracts

No market studies have been undertaken for the San Felipe project and there are no contracts for

any possible production. However, metallurgical studies indicate that marketable lead and zinc

concentrates can be produced from the resource material. Santacruz is currently selling similar

concentrates from their Rosario mine and it is reasonable to assume that concentrates from San

Felipe could be sold.

For the PEA model, general details of the contract Santacruz has with a concentrate trader for the

Rosario concentrate were used. Key points include:

Zinc concentrate payables:

Zinc - Pay for 85% of the final zinc content, subject to a minimum deduction of 8 units (percentage

points). For example, if the zinc concentrate contains 54% zinc (or 1,080 lbs per ton), payment

would be for 0.85 x 1,080lbs = 918 lbs x price of zinc per lb for each ton of concentrate.


240

Silver - Deduct 3 ounces (93 gms) per tonne of concentrate and pay 70% of the balance of the

final silver content. The silver values in the zinc concentrate produced in test work for San Felipe

are too low to be payable under this condition.

Lead – No payment.

Lead Concentrate Payables:

Lead - Pay for 95% of the final lead content, subject to a minimum deduction of 3 units

(percentage points). Based on testwork, the result of this condition will be that 94% of the lead

content will be payable. This is because the estimated lead content of the concentrate at 47%

triggers the minimum deduction clause. The maximum payable is 44% of the lead content, so

payment would be 44/47 = 94% of the contained lead.

Silver - Pay 95% subject to a minimum deduction of 50 grams per tonne.

Zinc – no payment, but no penalty.

Concentrate fees have been dropping since the Rosario concentrate agreement was signed so

estimates based on some recent contract prices were used for the PEA. These were:

Zinc Concentrate - $190/tonne concentrate

Lead Concentrate - $220/tonne concentrate

Silver in the lead concentrate - $1.50 per payable ounce of silver.

No price escalation for the concentrate fees was used in the metal price sensitivity analysis in the

PEA model. Costs for concentrate shipping were estimated at $30/tonne based on trucking the

concentrate to the Port of Guaymas. Insurance and assaying costs of $3/tonne concentrate were

based on costs for Rosario concentrate.


241

20. Environmental Studies, Permitting and Social or Community Impact

Environmental and permitting considerations that relate to exploration activities are discussed in

Section 4. Environmental, permitting and social or community impact considerations for a

potential mines are discussed in this section.

20.1. Environmental Studies

There are a number of environment-related regulatory standards (NOMs) that pertain to mining

developed by the Mexican Federal government. All development, operating and closure activities

must conform to these NOMs.

Some of the main standards applicable to the San Felipe project are:

• NOM-141-SEMARNAT-2003 - Establishes procedures for tailings characterization, as well

as specifications and criteria for characterization and site preparation, construction, operation

and post-operation of tailing dams. There are a number of studies which need to be

performed including geotechnical, hydrology, acid base accounting (ABA) and metal leaching

of tailings. Construction, operation and closure plans and monitoring programs are also

required.

• NOM-157-SEMARNAT- 2009 - Establishes criteria and procedures regarding mine waste

rock and includes the requirement for waste rock management plans. ABA and metal

leachability testing of waste rock is required.

• NOM-059-SEMARNAT-2001 – Concerns environmental protection and refers to Mexican

wild native flora and fauna species. This NOM establishes risk categories and specifications

for their inclusion, exclusion, or change and publishes the list of endangered species.

• Amendment to NOM-127-SSA1-1994. Establishes the permissible quality and treatment

limits to which water must be subject to make it potable.

• NOM-001-SEMARNAT-1996. Establishes the maximum permissible pollutant limits of waste

water discharges into national waters and properties.


242

In 2008 Hochschild initiated some environmental studies at San Felipe, but these were

discontinued at the end of the year when the company stopped work on the project. Work

included:

• Drilled and established 8 water monitoring wells and put vibrating wire piezometers in 6

geotechnical bore holes.

• Collected preliminary environmental baseline data including sampling of surface water and

ground water.

• Carried out pump tests on wells.

• Did a preliminary vegetation analysis in the select areas.

• Did 40 Acid Base Accounting (ABA) tests on samples comprised of core assay rejects.

Because work on the project stopped, results were never completely compiled but Santacruz has

the data from this work and will incorporate the results into new studies.

Groundwater elevation as determined by Hochschild from water depth in monitoring and

geotechnical holes is shown in Figure 20-1. A check by Smit on April 5, 2014, found seven of the

8 wells still open but the vibrating wire piezometers were no longer attached to the installations in

the geotech holes. Water depths were similar to those reported by Hochschild from

measurements taken during the period from May through September 2008.

Baseline environmental studies have recently been initiated on the project by Santacruz. To date

these have been limited to a reconnaissance visit to the project area for a preliminary review of the

type of flora and the general environmental conditions at the project area and a first round of water

sampling. On May 20th, 2014, 5 wells were sampled and 8 samples of creek sediments collected.

At the time of the site visit, none of the creeks or the Sonora River had surface water. The wells

had some parameters that were variably elevated, including: fluorine, sulphur, aluminum and

manganese indicating that high levels for these elements occur naturally in the groundwater or are

conditions resulting from historic mining operations. Lead, zinc and copper levels were low. A

high lead value in sediments (130 ppm) is likely due to contamination from the tailings by an old

millsite.


243

Notes: Figure from Hochschild 2008 files. VW = vibrating wire piezometer Standpipe= monitoring well

Figure 20-1 Groundwater Elevation vs Ground Surface Elevation


244

Water sampling, including both surface and subsurface, will continue. Due to the arid conditions,

only seasonal surface water is anticipated. Figure 20-2 shows potential sample sites for sediment

and water sampling. The actual locations of surface water samples will be dependent upon where

surface water is present during sampling sessions. Detailed flora and fauna studies of the area that

would be affected by any potential development are planned within the next few months and a site

weather station will be installed.

At this time, Santacruz has not undertaken the tailings characterization work required under NOM-

141. Preliminary geotechnical evaluations, including test pitting and drilling, of the proposed tailings

site was done by Hochschild. Tailings characterization and more detailed evaluation of the site will

be required before any construction of a tailings impoundment is initiated.


245

Figure 20-2 Water and Sediment Monitoring Sites


246

There were 40 samples taken from core close to, but not in, the Ventana structure and analyzed for

ABA to characterize waste rock. Results were variable, with some rocks showing low acid potential

and others showing moderate to high potential. The majority of the potential underground

development to access various levels is well away from the vein and there are no samples to

characterize the material that will be mined as part of development. There are also very few

samples that characterize waste rock from any open pit development. As the sulphur content in

assay samples throughout the areas drilled is commonly greater than 1%, much of the waste rock

could be acid generating. Therefore, a comprehensive waste rock characterization program is

required to guide waste management strategy. To address the issue of acid rock drainage and

metal leaching in this PEA, waste rock dumps were modeled to be contained and engineered to hold

rock that is potentially acid generating (PAG).

An initial study did not identify any rare or endangered flora on the proposed mill or tailings pond

sites. More detailed studies of flora and fauna in the area potentially affected by development are

planned.

20.2. Permits

The main mine permits required for construction and operation activities are the:

• Authorization to Impact the Environment which requires a submission of a Manifesto de

Impacto Ambiental (Environmental Impact Statement), known by its acronym as an MIA,

and;

• Authorization to Change the Use of Forest Lands which requires the submission of an

Estudio Tecnico Justificativo (Technical Justification Study), known by its acronym ETJ.

Properly prepared MIA and ETJ applications and mine operating permits for a project that does not

affect federally protected biospheres or ecological reserves can usually be approved within 12

months. The San Felipe project is near, but not inside, a bird protection area (“Sistema de Sierras

de la Sierra Madre Occidental”) and is within a terrestrial region for conservation (with medium

priority). (See Figures 20-3 and 20-4). These designations do not restrict mining exploration or

development. Therefore there are no special requirements required for these or other permits.


247

Table 20-1 List of Authorizations and Plans Required for San Felipe Authorization or Plan English Translation Agency Documents required to

support permit Permiso de exploración Exploration Permit SEMARNAT1 Aviso de Exploración (After May

2012). Autorización en materia de impacto ambiental

Authorization to Impact the Environment

SEMARNAT1 Manifestación de Impacto Ambiental/estudios ambientales

de línea base Autorización en materia de riesgo ambiental

Environmental Risk Analysis

SEMARNAT1 Estudio de Riesgo Ambiental

Autorización para cambio de utilización de terrenos

forestales

Authorization to Change the Use of

Forest Lands

SEMARNAT1 Estudio Técnico Justificativo

Licencia de uso de suelo y/o construcción

Licence to use H. Ayuntamiento de San Felipe de Jesús

Carta solicitud de la Licencia de Uso de Suelo

Permiso para disposición de residuos no peligrosos

Permit for Non-‐Toxic Waste Disposal

H. Ayuntamiento de San Felipe de Jesús

Carta solicitud del permiso

Permiso-‐concesión para uso de agua

Water Use Concession

CONAGUA2 Solicitud ante CONAGUA

Permioso para descarga de agua de servicios

sanitarios(fosas sépticas)

Permit for the Spetic System

CONAGUA2 Solicitud ante CONAGUA

Permiso para uso y manejo de explosives

Explosive Use, Handling and Storage

Permit

SEDENA3, Ayuntamiento de San Felipe de

Jesús, Gobierno del Estado de Sonora.

Solicitud ante SEDENA

Carta de liberación arqueológica

Archaeological Release Letter

INAH4 Solicitud a INAH, reporte de visita de campo y dictamen del INAH

Aprobación del Plan de Manejo de Residuos

Mineros (*)

Approval of the Mine Waste Management

Plan

SEMARNAT1 Plan de Manejo de Residuos MIneros

Aprobación del Plan de Abandono y Restauración

(*)

Closure and Reclamation Plan

SEMARNAT1 Plan de Abandono y Restauración

Registro como generador de residuos peligrosos (*)

Registration as Generator of

Hazardous Waste

SEMARNAT1 Documentos de registro

Licencia de Operación/Licencia Ambiental Única (*)

Operation Licence SEMARNAT1 Formatos y reportes técnicos ingresados a SEMARNAT

Aprobación del Plan de Prevención de Accidentes

(*)

Accident Prevention Plan

SEMARNAT1 Plan de Prevención de Accidentes

1SEMARNAT: Secretaría de Medio Ambiente y Recursos Naturales, 2CONAGUA: Comisión Nacional del Agua,3SEDENA: Secretaría de la Defensa Nacional , 4INAH: Instituto Nacional de Antropología e Historia,* Permisos necesarios en la etapa de operación


248

Santacruz applied for and received a MIA and ETJ for a processing plant (1.39 Ha) and for a

tailings impoundment site (13.86 Ha) valid for 10 years starting in 2014. The location of the

approved areas is shown on in Figure 20-2. The processing plant area is in the area of the mill

site proposed in the PEA, but there may need to be modifications of the area to meet new plans.

The tailings site is not the one currently proposed. There has been only limited work completed on

this site, but a site proposed and studied by Hochschild appears to be a better alternative. It is

anticipated that additional studies will include review of the best alternative.

No authorizations were applied for the open pit portion of the PEA plan as this is a relatively new

concept. No authorizations have been applied for mine waste storage areas or powerlines.

Under the MIA and ETJ authorizations already received, Santacruz is required to develop the

project according to the terms and obligations in the MIA and the ETJ and is obliged to develop

management and monitoring plans to ensure compliance. Santacruz is currently reviewing all

permitting requirements in relation to the development and operating scenario described in this

report and plans to initiate the work necessary to obtain the permits and other authorizations

required to undertake the proposed development.

Santacruz has signed an agreement to acquire water rights to two wells which could provide water

for potential operations. Filing of this agreement with Mexican authorities is still pending. Each

well has an authorized volume of 215,000 m3 per year for a total of 430,000 m3.

In the author’s opinion that there are no issues with the project that will make obtaining the permits

and other authorizations required to build a mine difficult or impossible to obtain provided

Santacruz collects the required information, designs project components so that environmental

values and human safety are protected, ensures that applications and reports are complete, and

any properly responds to any concerns expressed by regulatory agencies.

20.3. Social and Community Impact


the non-technical people employed in exploration from the community and has a cordial

relationship with the people in the community.


population of 10,000 people, mostly engaged in agriculture and support industries. While some


249

labour for mining could be sourced locally, it is likely that a significant proportion of the labour force

would have to be brought in from Hermosillo.

To date, no labour availability analysis has been done for the area and it is not known how many

people are likely to be hired from local communities. If the project proceeds, it is likely most of the

technical people and a considerable number of the non-technical workers will be from Hermosillo

or other parts of Mexico. Over time, some may move into the local communities but a camp for

workers and housing for senior staff in San Felipe is envisioned at this point.

Santacruz will need to use the good relationship they have with the San Felipe community to work

out a strategy that addresses community needs and concerns to ensure that the impacts to the

community are mostly positive. Provided that Santacruz puts effort into working with San Felipe

and other area communities, social and community concerns are unlikely to prevent a mine from

being developed.


250

Figure 20-3 Federally Designated Bird Protection Areas.


251

Figure 20-4 San Felipe Project Conservation Area Federal Designation


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21. Capital and Operating Costs

Details on the PEA plan and how estimated capital and operating costs were derived are given in

Sections 16, 17, 18 and 19. For some cost items, estimates were made before the final production

plan was completed. For these instances, costs were scaled to match the new proposed mining and

milling rate. Working capital of $6M was added to the construction year of the project and was

recovered in the last year of the project.

Mine and milling operating costs were increased by 10% of the estimated cost per tonne in year 1 of

production to account for higher costs during start-up of the project. General and Administration

operating costs were estimated as an annual cost as they will not vary appreciably with tonnage

mined and milled. An extra $500,000 in included in the construction year and year 1 to cover owner

costs for engineering and construction management.

A summary of estimated capital costs is given in Tables 21-1 and of estimated operating costs is

given in Table 21-2. The operating costs include the higher costs estimates for year 1.

Table 21-1 San Felipe PEA Estimated Capital Costs - $M Item Description Initial Sustaining

Mining

Open pit and underground contract mining $2.5 $26.3

Milling

1,250 mtpd mill $15.3 $0.0

Infrastructure and General and Administration

Tailings Dam $2.1 $3.4

Office, shop and warehouse $0.6 $0.1

Power to site $5.0 $1.0

Power on site $0.5 $0.5

Roads $0.9

General and Admin $3.4

Working Capital $6.0 -‐$6.0

Closure and Reclamation

Reclamation $3.0

Salvage -‐$0.5

Subtotal $36.3 $27.8

Total Capital $64.10


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Table 21-2 San Felipe PEA Estimated Operating Costs Per tonne Mining Per tonne

Open pit – mineralized material per tonne $2.80

Open pit – waste per tonne $2.20

Underground -‐ average per tonne mineralized material $27.62 to $32.71

Average per tonne mineralized material $26.12

Milling

Milling per tonne milled $19.34

Concentrate Costs

Smelter per tonne milled $24.34

Shipping, assay, insurance per tonne milled $3.68 $28.02

General and Administration

General and Administration per tonne mineralized material $6.85

Total per tonne mineralized material $80.33

22. Economic Analysis

The estimated mining production tonnes and grades were combined with the mill and smelter

recoveries and the estimated capital and operating costs to develop a PEA economic model (Table

22-1). A summary of the production model is in Table 22-2, a summary of the economics is in Table

22-3 and a summary of the base case NPV and IRR calculations is in Table 22-4.

The PEA is based on a stand-alone project and evaluates the potential economics from the start of

construction. It does not incorporate costs before any production decision. These would include

costs for further technical studies, property payments and taxes. The cost for these items is in part

dependent upon when a potential project decision is made. Potential tax savings a company could

achieve by writing off other expenses and losses against the revenue derived from San Felipe are

also not considered.



considerations applied to them that would enable them to be categorized as mineral reserves

and there is no certainty that the PEA will be realized. Mineral resources that are not mineral

reserves do not have demonstrated economic viability.


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22.1. Assumptions

Assumptions included in the model are:


$0.99/lb for Pb and $1.00/lb for Zn. These prices vary from those used to estimate silver

equivalents in the resource calculation because the resource was completed before the PEA.

• All $US




22.2. Taxes

The primary taxes that need to be considered for a mining project in Mexico are:




• Income Tax

22.2.1. IVA

IVA is assessed on the sale of good s and services, leasing and imports. The rate of 16% is

imposed on all activities conducted within Mexico. IVA paid on purchases is refundable as long as

the expenses are business related and are deductible for income tax purposes. The economic

model assumes IVA is charged on 90% of the capital and operating costs and that 100% will be

refunded but that the refund will be 6 months after the cost was incurred. For simplicity, any

remaining IVA is refunded in the model in the last year of the mine life.


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22.2.2. Environmental Fee

The environmental fee is a 0.5% royalty tax on the net smelter return for any gold and silver

production. The cost of this fee can be deducted for income tax purposes. A 62.5% portion of the fee

is intended to be for the use of the municipality in which the mine is located and a 37.5% portion goes

to the state government.

22.2.3. Mining Royalty

A 7.5% tax is applicable on net revenues from the sales of minerals. Depreciation and interest costs

cannot be deducted when calculating this tax, but operating costs can be. The royalty payment can

be deducted for income tax purposes. A 62.5% portion of the royalty is intended to be for the use of

the municipality in which the mine is located and a 37.5% portion goes to the state government.

22.2.4. Income Tax

A 30% Mexican income tax rate is included in the model. When calculating taxable income, operating

costs and environmental fee and mining royalty costs can be deducted from annual revenues. Capital

costs are depreciated at 10% per year and the depreciated amount can be deducted. Mine “earth

works” such as pre-stripping and underground development are not considered capital costs for

depreciation purposes and therefore can be deducted 100% in the year they are incurred. Any

remaining capital costs can be fully depreciated in the last year of the mine, but no tax credit can be

claimed for this if a negative income tax calculation results. Losses in any year can be carried forward

to the next year.

In the model, mine development costs are given as capital costs as they are normally considered as

capital in Canada. They are not treated as depreciable capital in the model however and are written

off 100% in the year they are incurred as per the Mexican tax law.

22.3. Economic Highlights

Highlights of the PEA, using base case metal prices, include:

• Pre-tax Net Present Value ("NPV") at a 5% discount rate of US $103.5 million and an Internal

Rate of Return ("IRR") of 60.6%;


256









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Table 22-1 San Felipe PEA Economic Model PP Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Total

Open Pit

Mineralized material 270,600 0 124,200 216,729 110,176 102,620 140,760 67,275 1,032,360

Waste 2,070,100 0 819,750 1,811,180 372,343 496,828 1,258,000 228,650 7,056,850

Underground

Mineralized material 182,038 449,219 320,095 244,976 349,417 340,568 326,114 167,482 2,379,908

Tonnes milled 452,638 449,219 444,295 461,705 459,593 443,188 466,874 234,757 3,412,268

Grade Ag (g/t) 54.9 54.1 51.4 61.2 70.2 72.7 74.6 73.3

Pb (%) 1.6 2.3 1.8 2.2 2.1 1.5 0.7 0.8

Zn (%) 6.3 6.1 4.7 4 4.7 5.3 5.4 4.2

Metal Mined Ag (toz) 800 782 735 908 1,037 1,037 1,120 553 6,971

Pb lb 15,810 22,846 17,681 22,432 20,989 14,716 7,665 4,377 126,515

Zn lb 62,575 60,775 46,313 40,209 47,222 51,469 55,632 21,751 385,946

Site Metallurgical Recoveries

Underground mineralized material Ag 80% 80% 80% 80% 80% 80% 80% 80% 80%

Pb 86% 86% 86% 86% 86% 86% 86% 86% 86%

Zn 87% 87% 87% 87% 87% 87% 87% 87% 87%

Ventana Open pit mineralized material (oxidized) Ag 70% 70% 80% 80% 80% 80% 80% 80% 80%

Pb 70% 70% 86% 86% 86% 86% 86% 86% 86%

Zn 68% 68% 87% 87% 87% 87% 87% 87% 87%

Site Recovered Ag (toz) Pb con 592 626 588 727 830 829 896 442 5,529

Pb lb Pb con 12,085 19,647 15,205 19,291 18,050 12,655 6,592 3,764 107,291

Zn lb Zn con 47,332 52,874 40,292 34,982 41,083 44,778 48,400 18,924 328,665

Payable from smelter Ag (toz) 95% Pb con 562 594 558 690 788 788 851 420 5,252

Pb lb 94% Pb con 11,360 18,468 14,293 18,134 16,967 11,896 6,196 3,538 100,853

Zn lb 85% Zn con 40,233 44,943 34,248 29,734 34,920 38,061 41,140 16,085 279,365

Smelter Credit Ag $19.91 11,195 11,831 11,120 13,742 15,690 15,687 16,942 8,368 104,575

Pb $0.99 11,246 18,284 14,150 17,953 16,798 11,777 6,134 3,503 99,845


258

Zn $1.00 40,233 44,943 34,248 29,734 34,920 38,061 41,140 16,085 279,365

Sub Total 62,673 75,058 59,518 61,429 67,409 65,525 64,216 27,957 483,784

Smelter Cost -‐11,051 -‐13,435 -‐10,435 -‐10,745 -‐11,608 -‐11,020 -‐10,311 -‐4,428 -‐83,034

Concentrate Shipping, assay, insurance -‐1,718 -‐2,090 -‐1,598 -‐1,600 -‐1,729 -‐1,653 -‐1,541 -‐643 -‐12,571

Net Smelter Revenue 49,904 59,532 47,485 49,084 54,071 52,852 52,365 22,886 388,180

Net Revenue to Company 49,405 58,937 47,010 48,593 53,530 52,438 51,955 22,771 384,640

Mine Costs Capital -‐2,500 -‐4,980 -‐4,505 -‐2,672 -‐5,004 -‐5,543 -‐2,137 -‐1,124 -‐300 -‐28,765

Opex -‐11,375 -‐12,409 -‐10,994 -‐11,396 -‐11,172 -‐11,792 -‐13,830 -‐6,170 -‐89,138

Mill Costs Capex -‐15,300 -‐15,300

Opex -‐9,505 -‐8,576 -‐8,482 -‐8,814 -‐8,774 -‐8,460 -‐8,913 -‐4,482 -‐66,004

Infrastructure Capex -‐9,100 -‐2,225 -‐400 -‐300 -‐900 -‐1,000 -‐200 -‐14,125

G&A Capex -‐3,360 -‐3,360

Opex -‐3,360 -‐2,860 -‐2,860 -‐2,860 -‐2,860 -‐2,860 -‐2,860 -‐2,860 -‐23,380

Working Capital -‐6,000 6,000

Closure and Reclamation -‐2,500

Total Capital -‐36,260 -‐7,205 -‐4,505 -‐3,072 -‐5,304 -‐6,443 -‐3,137 -‐1,324 3,200 -‐64,050

Total Operating Costs -‐24,240 -‐23,845 -‐22,335 -‐23,070 -‐22,806 -‐23,113 -‐25,602 -‐13,512 -‐178,522

Total Site Costs -‐36,260 -‐31,445 -‐28,350 -‐25,407 -‐28,374 -‐29,249 -‐26,250 -‐26,926 -‐10,312 -‐242,572

Net Cash Flow -‐ pre tax (with Capex) -‐36,260 17,961 30,587 21,603 20,219 24,282 26,188 25,029 12,459 142,068

Cumulative Cash Flow pre tax -‐36,260 -‐18,299 12,287 33,891 54,110 78,392 104,580 129,608 142,068

Pre Tax Cash flow -‐36,260 17,961 30,587 21,603 20,219 24,282 26,188 25,029 12,459 142,068

IVA

IVA amounts (90% subject to IVA) 16% -‐5,221 -‐4,528 -‐4,082 -‐3,659 -‐4,086 -‐4,212 -‐3,780 -‐3,877 -‐1,485 -‐34,930

IVA return (6 month lag) 2,611 4,875 4,305 3,871 3,872 4,149 3,996 3,829 3,424 34,930

Net Cash Flow after IVA -‐38,871 18,307 30,810 21,815 20,006 24,219 26,404 24,980 14,398 142,068

Environmental Fee 0.5% on Silver 0 -‐56 -‐59 -‐56 -‐69 -‐78 -‐78 -‐85 -‐42 -‐523

Net Income subject to Royalty and Income Tax -‐2,500 21,130 30,628 22,048 21,451 25,203 27,210 25,244 5,918 176,330

Mining Royalty 7.5% -‐1,585 -‐2,297 -‐1,654 -‐1,609 -‐1,890 -‐2,041 -‐1,893 -‐444 -‐13,412

Net minus royalty and fee -‐2,500 19,545 28,331 20,394 19,842 23,313 25,169 23,351 5,474 162,918

Loss Carry Forward -‐5,276


259

Taxable Income Before Depr -‐2,500 19,545 28,331 20,394 19,842 23,313 25,169 23,351 5,474 162,918

Tax Depreciation -‐2,776 -‐3,099 -‐3,109 -‐3,159 -‐3,289 -‐3,389 -‐3,499 -‐3,529 -‐8,940 -‐34,785

Taxable Income -‐5,276 11,170 25,222 17,236 16,553 19,925 21,670 19,822 -‐3,466 122,857

Income Tax (30%) -‐3,351 -‐7,567 -‐5,171 -‐4,966 -‐5,977 -‐6,501 -‐5,947 -‐ -‐39,480

Net Of Income after Environmental Fee, Mining Royalty and Income Tax 20,174 25,169 17,795 18,880 22,779 20,705 18,428 8,774 152,703

Net cash flow after tax (considering Capex and IVA) -‐38,871 13,316 20,887 14,935 13,362 16,273 17,784 17,055 13,912 88,653

Cumulative -‐38,871 -‐25,555 -‐4,668 10,267 23,629 39,902 57,685 74,741 88,653


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Table 22-2 San Felipe Pea Production Summary

San Felipe -‐ September 2014 PEA Results

This PEA is preliminary in nature and there is no certainty that the results of the PEA will be realized.

The resources incorporated in this assessment are not mineral reserves and do not have demonstrated economic viability.

The first year of this assessment is based almost entirely on inferred resources and there is limited metallurgical information

And no geotechnical information to support the first year of the analysis.

The results of this study show that the project has potential to be economic and further work to determine economic viability is warranted

This study is too preliminary to demonstrate economic viability.

San Felipe PEA Production Estimate

Total Tonnes to Mill 3.4 Mt

Average Milled per Day 1250 t/day

Underground Tonnes to Mill 2.4 Mt

Open Pit Tonnes to Mill 1.0 Mt

Open Pit Tonnes Waste 7.1 Mt

Open Pit Strip Ratio 7:1

Years Production 7.5

Ag Pb Zn

Grade 63.5 g/t 1.7% 5.1%

Metal Mined 7.0 Moz 126.5 Mlbs 385.9 Mlbs

Recovery – Sulphide (Oxide de-‐rated) 80% 86% 87%

Metal Produced in Concentrate 5.5 Moz 107.3 Mlbs 328.7 Mlbs

Metals Payable after Smelting 5.2 Moz 100.9 Mlbs 279.4 Mlbs

Metal Price $19.91/oz $0.99/lb $1.00/lb

Smelter Credit ($US) $104.6 M $99.9 M $279.4 M $483.8 M

Note: This table is in part based on inferred mineral resources which are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources that are not mineral reserves do not have demonstrated economic viability.


261

Table 22-3 San Felipe – Life of mine economics San Felipe PEA Economics -‐ Life of Mine

$US '000 $US '000 Per Tonne Mined

Smelter Credit

$483,784

$141.78 Smelter Costs ($83,064)

($24.38)

Concentrate Shipping ($12,571)

($3.68) Total Smelter and Concentrate

Charges

($95,605)

($28.02) NSR (1%)

($3,540)

($1.04)

Site Operating Costs Mining ($89,138)

($26.24)

Milling ($66,004)

($19.34) G&A ($23,380)

($6.85)

Total Site Operating

($178,522)

($52.32) Net Operating Cash Flow

$206,118

$60.40

Initial Capital Costs Mining (2,500)

Milling (15,300) G&A and Infrastructure (12,460) Working Capital (6,000) Total Initial Capital (36,260)

($10.63) Sustaining Capital Costs

Mining ($26,265) Milling $0 Infrastructure (5,025) Total Sustaining Capital ($31,290)

($9.17) Closure

Salvage Value 500 Recoup of Working Capital 6,000 Total Closure Capital $6,500

$1.90 Total Capital

($61,050)

($17.89)

Reclamation (3,000) (3,000)

($0.88)

Net Cash Flow -‐ Pre Tax

$142,068

$41.63 Environmental Fee ($533)

Mining Royalty ($14,143) Income Tax ($39,480) ($53,415)

Net Cash Flow -‐ After Tax

$88,653

$25.98 Total cash cost (Opex, smelter, NSR and Sustaining Capital) ($90.54) per tonne ($12.72) per oz Ag Eq

Note: This table is in part based on Inferred Mineral Resources which are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. Mineral resources that are not mineral reserves do not have demonstrated economic viability.


262

Table 22-4 San Felipe PEA NPV and IRR San Felipe NPV and IRR -‐ Base Case $USM

Pre-‐Tax NPV After Tax NPV

Discount Rate 0% 142.1 88.7

2% 125.0 76.4

5% 103.5 61.2

8% 86.1 48.9

10% 76.3 42.0

IRR 60.6 37.7

Payback (years) 1.6 2.3

Note: This table is in part based on inferred mineral resources which are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves.

22.4. Sensitivity Analysis

Key economic inputs were examined by running cash flow sensitivities on:

• Metal prices

• Capital Costs

• Operating Costs

Sensitivity over the base case was calculated for a range of -20% to +20% variations of the base case

parameters listed above. All were done with a 5% NPV. The sensitivities are shown on Table 22-5.

The project is most sensitive to metal price. This is followed by the operating costs with the capital

cost being the least sensitive to the economics of the project.


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Table 22-5 San Felipe Project Preliminary Economic Assessment 2014 - Sensitivities Metal Prices

-‐20% -‐10% Base +10% +20%

Ag 15.93 17.92 19.91 21.90 23.89

Pb 0.79 0.89 0.99 1.09 1.19

Zn 0.80 0.90 1.00 1.10 1.20

NPV 5% $US M pre-‐tax 28.7 66.1 103.5 140.9 178.3

after-‐tax 11.8 36.5 61.2 85.8 110.5

IRR % pre-‐tax 22.3% 42.1% 60.6% 78.6% 96.4%

after-‐tax 12.1% 25.5% 37.7% 49.4% 60.8%

Operating Cost

+20% +10% Base -‐10% -‐20%

NPV 5% $US M pre-‐tax 75.8 89.6 103.5 117.3 131.2

after-‐tax 42.6 51.9 61.2 70.4 79.7

IRR % pre-‐tax 47.2% 54.0% 60.6% 67.3% 73.8%

after-‐tax 28.6% 33.2% 37.7% 42.2% 46.6%

Capital Cost

+20% +10% Base -‐10% -‐20%

NPV 5% $US M pre-‐tax 92.0 97.7 103.5 109.2 115.0

after-‐tax 51.6 56.4 61.2 65.6 70.7

IRR % pre-‐tax 47.4% 53.5% 60.6% 69.3% 80.0%

after-‐tax 28.8% 32.9% 37.7% 43.5% 50.6%

Note: This table is in part based on Inferred Mineral Resources which are considered too speculative geologically to have

the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. Mineral resources that are not mineral reserves do not have demonstrated economic viability.


264

Figure 22-1 Sensitivity Analysis

23. Adjacent Properties

There is no public information available regarding exploration on the claims adjacent to Santacruz’s

San Felipe property. There are no significant mine workings or disturbance from exploration visible in

the surrounding area.

The closest active mine is the Santa Elena deposit owned by Silvercrest Mines Inc. The mine is

located approximately 20 km to the NE of San Felipe and consists of low sulphidation epithermal Ag,

Au mineralization. Probable reserves include 8.2 million tonnes grading 74.9 g/t Ag and 1.24 g/t Au for

a total of 20 million ounces silver and 330 thousand ounces gold (from www.Silvercrestmines.com).

The mine has an estimated 8 year mine life with a cash cost of $11 per ounce (silver equivalent).

24. Other Relevant Data and Information

The authors are not aware of any material information relevant to this report, or the resource

estimation and PEA described in this report, that is not included herewithin.


265

25. Interpretation and Conclusions

Santacruz has the right to acquire 100% of the San Felipe project under an agreement with

Hochschild for a total purchase price of $44.7 million and 1,250,000 Santacruz shares, of which

$23.7 million and all the shares have been paid. (Note: subsequent to the Effective Date of this

report, Santacurz reports that payments now total $25.9M). Hochschild is also entitled to receive

30% of any capital increase of the Company (Impulsora Minera) during the remaining life of the

San Felipe Agreement as pre-payment of any remaining payment obligations. The agreement

covers 14 mineral titles totaling 16,265 Ha at San Felipe as well as claims covering the El Gachi

prospect. The El Gachi project is not described in this report. A 1% NSR payable to Hochschild if

production commences can be purchased for $3 million. Annual holding costs include taxes of

approximately $184,000.

Access to the project is favourable with 148 km of paved highways from the city of Hermosillo and

7 km of gravel roads in flat to moderate terrain. Santacruz has good relations with the local

community of San Felipe and has a surface access agreement with the San Felipe Ejido that

covers identified resources and potential development areas. The annual rental for the land is

currently $160,000. The economies of the village of San Felipe and other communities in the

surrounding area are primarily based on agriculture. Some workers and limited supplies can be

acquired locally. For a mine, many workers and most industrial supplies and services would likely

be sourced in Hermosillo which has an extensive network of mining-related services.

The project area covers a number of old mine workings. Santacruz has initiated a baseline

environmental study and has dome preliminary flora and fauna studies. No rare or endangered

species have been found to date. Santacruz has secured permits for a mill area and a tailings

impoundment, but a different impoundment area is now proposed. Permit requests for the new

proposed tailings impoundment area, potential open pit mine sites and mine waste storage areas

need to be submitted. No impediments to acquiring these permits are known.


that cut andesitic volcanic and interbedded siltstone and younger felsic intrusive rocks. The district

hosts five principal, westerly-striking, skarn systems that include Artemisa-Cornucopia, Las Lamas,

San Felipe, Transversales and La Ventana. Primary minerals are sphalerite, galena, pyrite, and

magnetite with lesser native silver, chalcopyrite, arsenopyrite, schellite, and covelite within a

gangue of garnet, pyroxene, epidote, quartz, rhodonite, and carbonate.


266

Resources were calculated for four vein systems: La Ventana, San Felipe, Las Lamas and

Transversales.

At a 75 g/t Ag equivalent cut-off, the new resource estimate for material that can be potentially mined

by open pit for all veins is:

• Indicated – 0.1Mt at 81.07 g/t Ag, 1.3% Pb and 4.4%Zn = 293 g/t Ag equiv or 0.9 Moz Ag equiv*

• Inferred – 0.9Mt at 63.5 g/t Ag, 1.4% Pb and 3.8% Zn = 264 g/t Aq equiv or 7.3 Moz Ag equiv*

At a 150 g/t Ag equivalent cut-off, the new resource estimate for material that can be potentially be

mined by underground methods for all veins is:

• Indicated – 1.0Mt at 75.3 g/t Ag, 2.6% Pb and 6.5%Zn = 425 g/t Ag equiv or 14.2 Moz Ag equiv*

• Inferred – 2.3Mt at 64.6 g/t Ag, 2.1% Pb and 5.2% Zn = 347 g/t Aq equiv or 25.6 Moz Ag equiv*

The new mineral resource estimate is supported by 55,050 metres of drilling in 260 drill holes with

a total of 11,526 assays. The holes include those drilled by Santacruz in 2013 and by prior

operators in the period 1999 to 2000 and 2006 to 2008. The mineral resources were defined to a

maximum depth of approximately 450 metres below surface with a total of 1106 down-hole

surveys utilized for control.

Prior to estimating the resource, a detailed examination of the sample database and QA/QC was

completed. While deficiencies were noted, the information was considered suitable for resource

estimation purposes. The resource estimate utilized a new geological model that has six domains;

two at La Ventana (HG, LG), Transversales (VT), three at San Felipe (SF, HW-1, HW-2) and one

at Las Lamas (LL). Assays for each domain were examined and a top cap was applied to each

variable within each domain. Uniform 2 m composites were formed for the domain envelopes.

Variography was completed for all domains in the La Ventana and Las Lamas zones. Due to

insufficient composites in the VT, SF and HW-2 domains, variography from the HW-1 domain was

used with the orientation changed to fit the strike and dip of the structures. Grades for all variables

were interpolated into blocks 5 x 2.5 x 5 m using ordinary kriging. For blocks with multiple

domains present, a weighted average was determined for the mineralized portion. A specific

gravity was established for each domain based on 472 measurements from drill core. Estimated

blocks were classified as Indicated or Inferred based on geologic and grade continuity.


267

A summary of the new resource at ditterent cut-offs based on potential mining methods is given in

the table below. The San Felipe vein and 2 hangingwall structures are combined in the table. In

addition to silver, lead and zinc, the veins contain low amounts of copper and anomalous gold.

Since testwork has not been able to produce an economic copper concentrate and gold values are

too low to be significant, the values for these metals have not been considered at this time.


268


Zone Classification



(tonnes)

Ag (g/t)

Pb (%)







Since the veins contain different metals, a silver equivalent value cut-off is given in the resource

tables to better compare value. The metal prices used in the silver equivalent estimation are from

a 100 day moving average as of June 3, 2014 and are listed below.

Factor

Ag - US$ 20.06 per ounce 0.64 $/gm

Pb - US$ 0.96 per pound 21.16 $/%

Zn - US$ 0.92 per pound 20.28 $/%

The recoveries used in the resource estimation for each metal within each vein are shown below.

As the relative amounts of oxide, mixed and sulphide material, and the effects of oxidation on

recovery, are not well established, the same recovery estimate was used for the entire vein.

Table 25-2 Recoveries Used in Resource Estimation for Each Metal Vein Ag Rec. Pb Rec. Zn Rec.

Ventana 70% 86% 87%

Las Lamas 73% 82% 88%



269

The equation used to establish Ag Equivalent is:

𝐴𝑔𝐸𝑞 =𝐴𝑔𝑝𝑝𝑚×0.64×𝐴𝑔 𝑅𝑒𝑐 % + 𝑃𝑏%×21.16×𝑃𝑏 𝑅𝑒𝑐 % + (𝑍𝑛%×20.28×𝑍𝑛 𝑅𝑒𝑐 %)

0.64×𝐴𝑔 𝑅𝑒𝑐 %

The metal prices and recoveries used for the silver equivalents in the resource estimation vary

somewhat from those used in the PEA as the resource was done earlier and the PEA includes

some new information.

The resource is still open in some areas. There are a number of other skarn-veins known on the

property and there is a good chance to identify additional resources with continued exploration.

A Preliminary Economic Assessment based on the resource indicates that the San Felipe has

potential to be economic. The PEA envisions a combination of open pit and underground mines

on the skarn systems on which the resource estimate is based. Material will be trucked to a milling

complex that mills 1,250 tonnes per day. A total of 3.4 M tonnes of material are mined and milled

in the PEA model and an additional 7.3 M tonnes of waste rock mined.

Metallurgical recoveries in the PEA are based on testwork by Santacruz and Hochschild. More

testwork is recommended, but work to date is sufficient for a PEA level study. To date, testwork

has been able to produce viable zinc and lead concentrate, but not a viable copper concentrate.

Most silver reports to the lead concentrate. Estimated recoveries used in the PEA for a

conventional flotation mill are given below.

Table 25-3 Estimated Recoveries in PEA for Convential Flotation Mill Oxide Sulphide

Ag 70% 80%

Pb 70% 86%

Zn 68% 87%

Assumptions included in the PEA model are:


$0.99/lb for Pb and $1.00/lb for Zn

• All $US





270

The primary taxes that were considered are:




• Income Tax

Highlights of the PEA, using base case metal prices, include:

• Pre-tax Net Present Value ("NPV") at a 5% discount rate of US $103.5 million and an Internal

Rate of Return ("IRR") of 60.6%;










considerations applied to them that would enable them to be categorized as mineral reserves

and there is no certainty that the PEA will be realized. Mineral resources that are not mineral

reserves do not have demonstrated economic viability.

25.1. Project Risks

The San Felipe project is subject to the usual risks that comparable mining projects face, including

decreases in metal prices, increases in costs, and changes in mineral title law and taxation.

Mexico is considered a reasonably stable country and the San Felipe area has not experienced

any drug-cartel related violence. Recent changes in taxation are incorporated in the PEA model.

Santacruz has a good relationship with the community of San Felipe and has an agreement

regarding surface land-use with the local Ejido. There are no known reasons why permits and

other authorizations required to developing a mine cannot be acquired. The PEA is based in part

on inferred mineral resources which are too speculative geologically to have the economic

considerations applied to them that would enable them to be categorized as mineral reserves.


271

Geotechnical analysis of the rock mass indicates potentially difficult ground conditions. The

continuity of higher-grades at a stope scale has not been determined to the level required to do

detailed mine planning.. If ground conditions require more ground support than currently modeled

or if higher-grades are less continuous than modeled, mining rates could be lower and costs could

be higher.

The first year of open pit production is modeled almost entirely on inferred resources and there is

limited metallurgical information and no geotechnical information to support the model.


272

25.2. Project Opportunities

Project opportunities include:

• Higher metal prices – Increases in metal prices from those modeled results in significant

increases in NPV and IRR;

• Higher grades – The grade of material mined may be higher if mineralization is more continuous

at a stope scale than currently modelled, resulting in decreased dilution and increased mining

recovery;

• Increased resource in mine plan – Any combination of higher metal prices, lower costs, higher

recovery or decreased dilution will result in more of the current resource being potentially

economic;

• Resource expansion – a number of new parallel skarn systems have been identified from recent

surface exploration work to the east and northeast of Las Lamas (La Ventanita and Veta Negra).

These targets have yet to be drilled but surface work indicates alteration and mineralization

similar to Las Lamas.

• Copper extraction – Copper grades average in the range of 0.3 to 0.4% for the material

considered in the PEA. If further testwork can show that a copper concentrate is possible, it

could add to the project economics.

• Use of used equipment – Santacruz can acquire a used ball mill, a crushing system and some

analytical laboratory equipment. This equipment has not been examined by the authors.

Potential capital costs savings by using this equipment were not considered in the PEA.

25.3. PEA Sensitivities

To evaluate the effect of changes in input parameters and the level of risk associated with various

project components, cash flow sensitivities were run on:

• Metal prices

• Capital Costs

• Operating Costs

The economic model was calculated for a range of -20% to +20% variations of the base case

parameters listed above. All were done with a 5% NPV. The project is most sensitive to metal


273

price. This is followed by the operating costs with the capital cost being the least sensitive to the

economics of the project. A 20% negative change in any of the three parameters still results in a

potentially economic project.

26. Recommendations

A PEA indicates that the San Felipe project is potentially economic and there is good potential to

increase resources. Therefore, additional work on the project is recommended. Specific

recommendations and a budget are included in this section.

26.1. Resource

While geological and grade continuity is sufficient to categorize much of the resource as Indicated,

uncertainty remains as to how continuous some of thehigher grade and width portions of the

mineralized structures are at a stoping scale as this will affect mining methods and costs.. To

investigate this issue, development along the vein is recommended. Details of this development are

given in Section 26.3. The vein should be carefully mapped and sampled each round of

development. Sampling should be by cutting the vein with a rock saw, resulting in samples that are

similar size to half HQ core.

The proposed underground development and drilling will provide information on another key

uncertainty which is the stability of the rock mass and the need for ground control. Evaluation of this

issue will aid development of the next level of mine planning and cost estimates. The development

and drilling will also provide material for additional metallurgical testwork.

The upper part of the Ventana vein has very few drill holes and is categorized as Inferred resource.

As this area is the first to be mined in the PEA model, infill drilling is recommended. Some of the

holes should be close spaced to further evaluate the continuity of grade and zone width at a stoping

scale. Some drilling in the middle part of the Ventana structure is also recommended to evaluate

areas where the current geological model shows complications. A total of 3,000m of drilling is

recommended for infill drilling on Ventana. Infill drilling on the upper part of the San Felipe

structure is also recommended to upgrade the resource and to evaluate the continuity of grade and

width. A total of 1,500 m of drilling is recommended for this structure.

For QA/QC during drilling, three standards with differing silver values should be used and duplicates

should be concentrated in areas with mineralization. Standard, blank and duplicate data should be


274

analyzed each time results are received and appropriate steps taken if there are any indications of

analytical problems.

More density measurements of mineralized material from both core and underground sampling

should be taken.

When the recommended work is completed, a new resource estimate should be completed. With

more close-spaced data from in-fill drilling and underground sampling, the quality of the

semivariograms in the 0 to 50 m range should be improved. This may allow upgrading of the

resource category not just in the areas with more drilling but also in other areas.

Infill drilling on the rest of the resource to upgrade the category should wait until after the work

recommended above is completed and the results from underground exploration are known. This

will enable a better evaluation of recommended drill intercept spacing.

Rock type likely has an influence on the morphology of the vein and on grades. There is

mineralization peripheral to the veins, which appears to follow lithological contacts and could

possibly be put into a resource if it is modeled. Therefore, a rock-type model for the entire area

around the current resources should be constructed. The model could be constructed using the

existing drill database in conjunction with examination of core.

Detailed surface mapping should continue around the resource areas.

26.2. Metallurgy

Existing open-circuit metallurgical studies have established that a conventional Pb/Zn differential

flotation process will produce saleable Pb and Zn concentrates. No credit was given to copper.

Existing data is sufficient for a PEA, but additional testwork is required to determine product

recovery (i.e. Pb, Zn and Cu) and concentrate quality that can be achieved with samples of various

alterations and oxidation types. This will include both open-cycle and locked-cycle flotation tests

with oxide, transition and sulphide mineralized material.

It will be important to do characterization work on the concentrates and tails produced in the

testwork to determine what penalties may be payable for the concentrates and to model the

potential environmental effects associated with the tailings storage facility.


275

26.3. Mining

As part of the proposed field program, exploration drifting on levels 800 and 780 is planned with

vertical developments between these levels to investigate continuity of mineralization along strike

and dip. During this exploration activity geotechnical mapping of the ramps and other underground

developments will take place. Other sources of new geotechnical data include logging drill core

during the upper Ventana exploration program and designing a geotechnical drill program for the

proposed La Ventana and San Felipe pits. This data in conjunction with existing geotechnical

information should be used to develop geotechnical engineering domains to support geotechnical

models for the deposits intended for mining.

Using the updated resource model and geotechnical information mentioned above, re-run Whittle™

optimizations and from those resultant shells design operational pits for La Ventana and San Felipe

to a PFS level of detail and design the La Ventana underground mine to a PFS level of detail.

Using existing data and any new data on the San Felipe, Lamas and Transversales deposits, design

the San Felipe and Lamas underground mines and an operational pit for Transversales to a PFS

level of detail.

Revise mine plans, capital and operating costs estimates based on the continuity of mineralization

observed during the Ventana underground exploration program, operational pit designs and PFS-

level of detail underground mine designs for La Ventana, San Felipe and Lamas as mentioned

above. Other inputs to these revised cost estimates should include quotes from potential open pit

and underground contractors.

Investigate the possibility of obtaining mill feed from other deposits located on IMS concessions that

are not included in this PEA.

26.4. Milling

Once the metallurgical testwork is completed, the existing mill design should be brought up to pre-

feasibility level. The used equipment available to Santacruz should be independently examined and

if suitable the cost for buying and refurbishing the equipment used in cost estimates


276

26.5. Infrastructure

The two most significant infrastructure items are the powerline to site and the tailings storage

facility. Both these items should be brought to pre-feasibility level engineering. Further evaluation

of the powerline will require discussions with the power provider, CFE, and a more detailed analysis

of the line options.

Details for the work recommended for the Tailings Storage Facility are in Table 26-1.


277

Table 26-1 Estimates of FS/NI43-101 Work Scope for Tailings Storage Facility Work Item Hochschild TSF Site

Field Investigation

Appears to be complete. Perform data gap analysis of MTB/Vector documents to verify.

Laboratory Testing

Flotation tailings: SG, classification, terminal density, consolidation, ABA, leach extraction; and, Clay from borrow source: classification, proctor, permeability, and strength, double sieve analysis (dispersion & erosion potential).

Concept design

Verify status of MTB/Vector analysis.

Topographic mapping

Verify accuracy of existing map, improve accuracy as needed with additional aerial or ground surveying.

Hydrogeology, Hydrology & Hydraulics

Update meteorology; calculate extreme events, wet/dry years; Determine peak run-‐off for sizing diversions, spillway, pond storage and freeboard (PMP, PMF, flow vs return interval); Update water balance; and, Diversion works & spillway: are these required and what are their sizes (including inlet control for spillway)?

Containment Determine level of containment required from site conditions, tailings chemistry testing, and Patricia’s input; Estimate seepage quantities; and, Determine need for, extent and size of underdrain system and downstream collection system.

Seismicity Determine probabilistic and deterministic seismic risks; Determine MCE & DBE for operating life & closure; and, Perform static & pseudo-‐static stability analyses (probably will not require displacement analysis).

Deliverables to FS & NI 34-‐101 standards

Design drawings; Design report with executive summary for inclusion in NI 43-‐101; Material quantity take-‐offs; Key equipment list; and, Engineer’s cost estimates.

26.6. Environment and Permitting

The baseline study including water monitoring and flora and fauna studies should continue. It will

be important to work with SEMARNAT to quantify the degree of existing disturbance on site.

Permitting for all proposed mine activities should be undertaken as these can be long-lead items for

any potential development.

An ABA and metal leaching testing program should be developed and carried out.


278

26.7. Resource Expansion and Exploration

There is some potential to expand the resource on the existing veins and drilling the new skarn

systems identified at La Ventanita and Veta Negra holds potential to further expand resources. An

initial program of 35 holes totaling 4,500m is recommended on the structures with current resources

and newly identified structures in an effort to expand resources. Surface exploration including

mapping and sampling should continue throughout the property. Exploration should target not just

skarn mineralization but should also consider the potential for bulk-mineable targets. A few holes

on some of the newly discovered targets will help determine their potential. Twenty holes totaling

2,000 m is recommended for this effort.

Additional drilling will be dependent upon the results from the recommended program.

26.8. Budget

A one-year budget of $8,260,000 is recommended for the San Felipe project and is presented in

Table 26-2. Costs in addition to those required to do the recommended work include claim

payments due in the remainder of 2014 ($2 M), one year of claim taxes ($184,000) and one year of

surface access payments ($160,000).

Drilling costs are based on total payments to the contractor of $120 per metre drilled and $70 per

metre for assaying, geology and support costs for a total of $190 per metre.


279

Table 26-2 Recommended work program budget

Item Unit Amount Item Cost Cost

Resource Definition Surface Drilling metres 4,500 190 855,000

Rock type model man-‐days 40 600 24,000

Analysis and estimation 50,000


Metallurgy

Recovery testwork

50,000

Characterization

2,000

Sub-‐Total

52,000

Underground Development Program design 5,000

Compilation of Bid Package 5,000

Contractor Mobilize/Demobilize 50,000

Planned drifting and test stope mining 896,000

Extra Drifting allowance (200 meters on sill development) 496,000

Equipment rentals, miscellaneous 100,000

Mining supervision & Engineering support 530,000

Sub-‐Total 2,082,000

Geotechnical

Design Program

2,000

Oriented Core drilling -‐ pit design

40,000

Oriented Core drilling -‐ UG design

40,000

Core Logging, televiewer

15,000

Underground observations and analysis

8,000

Calibration of existing data

5,000

Report

8,000

Sub-‐Total

118,000

Infrastructure Powerline Evaluation 100,000

TSF Engineering 105,000


Environmental

Water Sampling times 4 15000 60,000

Other Baseline 150,000

ABA and Metal Leaching -‐ initial samples 100 100 10,000

ABA and Metal Leaching -‐ follow-‐up samples 10 1000 10,000

Sub-‐Total

230,000

Resource Expansion and Exploration Geology man-‐days 300 600 180,000


280

Item Unit Amount Item Cost Cost

Surface Sampling samples 1,000 50 50,000

Drilling metres 6,500 190 1,235,000

Support days 150 500 75,000

Sub-‐Total 1,540,000

Project Management Senior Santacruz months 12 5,000 60,000

Surveying, drafting, data months 12 2,500 30,000

Accomodation and support months 12 5,000 60,000

Consultants days 300 1,200 360,000

Sub-‐Total

510,000

Permitting 250,000

Claim Payments 2,000,000

Claim Taxes 184,000

Surface Access Agreement 160,000

Total 8,260,000


281

27. References

Anderson, T. H., Rodriguez-Castaneda, J. L., & Silver, L. T. (2005). Jurassic rocks in Sonora, Mexico: Relations to the Mojave-Sonora megashear and its inferred northwestward extension: Geological Society of America Special Papers, v. 393, p. 51-95.

Barra, F., Ruiz, J., Valencia, V. A., Ochoa-Landin, L., Chesley, J. T., & Zurcher, L. (2005). Laramide Porphyry Cu-Mo Mineralization in Northern Mexico: Age Constraints from Re-Os Geochronology in Molybdenite: Economic Geology, v. 10, p. 1605-1616.

Bartolini, C., Damon, P. E., Shafiqullah, M., & Morales, M. (1994). Geochronologic contributions to the Tertiary sedimentary-volcanic sequences (“Baucarit Formation”) in Sonora, Mexico. Geofisica International, v.33, p. 67-77.

Bussell, M. A., Alpers, C. N., Petersen, U., Shepherd, T. J., Bermudez, C., & Baxter, A. N. (1990). The Ag-Mn-Pb-Zn vein, replacement, and skarn deposits of Uchucchacua, Peru; studies of structure, mineralogy, metal zoning, Sr isotopes, and fluid inclusions: Economic Geology, v. 85, p. 1348–1383.

Calmus, T., Perez-Segura, E., & Roldan-Quintana, J. (1996). The Pb-Zn ore deposits of San Felipe, Sonora, Mexico: “Detached” mineralization in the basin and Range Province: Geofisica International, v. 35, p. 115-124.

Einaudi, M., Meinert, L. D., & Newberry, R. (1981). Skarn Deposits: Economic Geology, v. 75 (Anniversary Volume), p. 317–391.

Gray, G.G., Lawton, T.F., and Murphy, J.J., (2008). Looking for the Mohave-Sonora megashear in northeastern Mexico: Geological Society of America Field Trip Guide 14, p. 1-25.

Hochschild Mining plc. (2007). Procedimientos QA/QC (Aseguramiento y control de calidad): Hochschild Mining, PLC. In-house report, p27.

Hochschild Mining plc. (2008). Reporte interno – recursos minerales proyecto San Felipe, San Felipe – Hermosillo, Sonora – Mexico: Hochschild Mining, PLC. In-house report, p49.

Hulse, D.E. (2012). Updated NI 43-101 technical report on resources San Felipe project Sonora, Mexico: SEDAR, p86.

King, R. E. (1939). Geological reconnaissance in northern Sierra Madre Occidental of Mexico: Geol. Soc. Am. Bull., v50, p.1625-1722.

Longo, A. (2014). Geology of San Felipe Project. Santacruz Silver Mining Ltd. In-house report.

Meinert, L. D. (1982). Skarn, manto, and breccia pipe formation in sedimentary rocks of the Cananea mining district, Sonora, Mexico: Economic Geology, v. 77, p. 919–949.

Meinert, L. D., (2007). Exploration review of San Felipe district: Hochschild Mining, PLC. In-house report.


282

M3 Engineering & Technology Corporation. (2008). San Felipe project scoping study: Hochschild Mining, PLC. In-house report.

MTB Project Management Professionals, Inc. (2009). Prefeasibility study close out report for San Felipe Project Hochschild Mining, Lima, Peru: Hochschild Mining, PLC. In-house report.

Molina-Garza, R.S., and Iriondo, A., (2007). The Mojave-Sonora megashear: The hypothesis, the controversy, and the current state of knowledge, in Alaniz-Alvarez, S.A., and Nieto Samaniego, A.F., eds., Geology of Mexico: Celebrating the Centenary of the Geological Society of Mexico: Geological Society of America Special paper 422, p. 233-259.

Nelson, E.P., (2007). Structural geological analysis of the San Felipe district, Sonora, Mexico: Hochschild Mining, PLC. In-house report, p. 14.

Newberry, R.J., Einaudi, M.T., and Eastman, H.S., (1991). Zoning and genesis of the Darwin Pb-Zn-Ag Skarn deposit, a reinterpretation based on new data: Economic Geology, v. 86, p. 960-982.

Rodriguez-Castaneda, J.L., (1999). Cretaceous-Tertiary detachment surface- Cerro El Vigia structural block in the Banamichi-San Antonio region, central Sonora, Mexico: Revista Mexicana de Ciencias Geologicas, v. 16, no.1, p. 63-72.

Roldan-Quintana, J., (1979). Geologia y yacimientos minerales del distrito de San Felipe, Sonora: Uni. Nal. Auton. Mexico, Inst. Geologia, v. 3, p. 97-115.

Roldan-Quintana, J., (1991). Geology and chemical composition of the Jaralito and Aconchi batholiths in east-central Sonora, Mexico. Geological Society of America, SP 254. p. 69-80.

Shewhart, W., A., (1929). Economic quality control of manufactured product: A.A.A.S., p. 364-389.

Turner, A. T., (1999). 1999 summary report on geological mapping, soil and stream sediment geochemical surveys, airborne and ground geophysical surveys, and diamond drilling programs at the San Felipe Project, Sonora, Mexico: Unpublished Boliden Report, p. 58.

Valencia-Moreno, M., Ruiz, J., Barton, M.D., Patchett, P.J., Zurcher, L., Hodkinson, D.G., Roldan-Quintana, J., (2001). A chemical and isotopic study of the Laramide granitic belt of northwestern Mexico: Identification of the southern edge of the North American Precambrian basement: Geological Society of America Bulletin, v. 113, no. 11, p. 1409-1422.


283

28. Appendix 1 – Drill Hole Location Area Hole Easting Northing Elevation Total

Depth Az DIP

Lamas HFLL01 567294.27 3305191.09 691 144.2 347 -50

Lamas HFLL02 567405.48 3305228.88 742.23 139.37 317 -50

Lamas HFLL03 567062.516 3305298.907 703.508 214.01 174 -45

Lamas HFLL04 567097.695 3305270.052 700.706 137.85 170 -45

Lamas HFLL05 567097.901 3305268.84 700.747 188.4 170 -65

Lamas HFLL06 567061.582 3305269.317 707.239 147 170 -45

Lamas HFLL08 566976.329 3305215.2 764.105 213.5 160 -47

Lamas HFLL09 567012.373 3305265.2 733.381 218.85 160 -45

Lamas HFLL12 566842.304 3305032.745 720.644 189.5 160 -58

Lamas HFLL11 566920.754 3304995.739 728.084 165.6 160 -47

Lamas HFLL07 567065.296 3304965.49 751.934 323.6 340 -45

Lamas HFLL15 567004 3305313 711 256.4 168 -47

Lamas HFLL14 566957.013 3305262.4 739.799 236.8 160 -53

Lamas HFLL13 566976.696 3305218.625 763.975 204.2 160 -60

Lamas INFLL01 567028.982 3305219.968 740.035 100 158 -45

Lamas INFLL04 567093.251 3305270.072 702.146 225.8 170 -58

Lamas INFLL05 567082.189 3305323.488 703.692 320.05 170 -58

Lamas HFLL16 567346.884 3305378.08 771.235 125 160 -45

Lamas HFLL17 567318.047 3305424.93 770.736 180.5 160 -45

Lamas INFLL06 567153.008 3305239.02 699.7 99.5 170 -45

Lamas SF0021 567096 3305223 717.835 91.4 180 -50

Lamas HFLL10 566916.338 3305205.963 779.182 276.95 160 -57

Lamas SCLL-01 567132.903 3305245 698.855 96.1 169.8 -45.8

Lamas SCLL-02 567101.387 3305265 700.492 150.9 169.6 -51.4

Lamas SCLL-03 567063.77 3305271 706.868 145.35 172.2 -46.1

Lamas SCLL-04 567017.686 3305261 731.86 199.7 160 -46.1

Lamas SCLL-05 567017.474 3305262 731.838 291.3 163.4 -59.2

Lamas SCLL-06 567064.228 3305025 785.581 115.7 334.5 -50.5

Lamas SCLL-07 567318.102 3305247 721.391 96.9 331.7 -55.2

Lamas SCLL-08 567317.882 3305249 721.416 162.5 356.5 -49.5

Lamas SCLL-09 567393.138 3305311 756.546 187.5 332.2 -53.8

Lamas SCLL-10 567000.043 3305176 760.871 124 153.5 -44.6

Lamas SCLL-11 567401.912 3305278 744.993 147 331.7 -61.8

Lamas SCLL-12 567325.888 3305318 747.402 54.3 149.6 -45.7

Lamas SCLL-13 567038.675 3305213 738.702 108.85 161.1 -48.3

Lamas SCLL-14 567304.306 3305353 736.208 127.2 149.8 -45.6

Lamas SCLL-15 567009.394 3305302 711.669 297.2 167.6 -52

Lamas SCLL-16 567303.796 3305353 736.343 190.5 151.3 -68.5


284

Area Hole Easting Northing Elevation Total Depth

Az DIP

Lamas SCLL-17 567252.646 3305314 710.769 150.55 149.1 -44.2

Lamas SCLL-18 567251.847 3305315 710.72 112.75 154.1 -75.6

Lamas SCLL-19 567354.354 3305386 769.7 110.15 155.7 -45.5

Lamas SCLL-20 567008.478 3305313 711.504 305.2 163.5 -60.1

Lamas SCLL-21 567239.218 3305338 715.832 182.5 152.2 -69.9

Lamas SCLL-22 567354.07 3305387 769.668 167.5 154.9 -63

Lamas SCLL-23 566986.927 3305215 762.039 221.05 161 -52

Lamas SCLL-24 566986.605 3305216 762.126 234.8 163.5 -64.3

Lamas SCLL-25 567327.825 3305430 769.371 230.3 151.8 -54.8

Lamas SCLL-26 566965.942 3305261 737.908 230.5 158.6 -60.3

Lamas SCLL-27 566965.74 3305261 737.952 254.85 163.9 -68.8

Lamas SCLL-28 567005.3 3305097 784.714 207.05 142.4 -66.9

Lamas SCLL-29 566984.622 3305125 786.485 176.8 141.6 -65

Lamas SCLL-30 566941.294 3305200 781.276 260.6 160.8 -49.8

Lamas SCLL-31 567432.118 3305553 805.306 190.2 161.6 -50.4

Lamas SCLL-32 566967.279 3305146 781.556 190.8 141 -61.3

San Felipe HFSF33 567051.79 3305661.606 795.547 225.9 45 -48

San Felipe HFSF36 567047.427 3305405.065 713.222 360 10 -45

San Felipe HFSF32 567519.077 3305442.74 771.909 309.15 10 -56

San Felipe HFSF31 567361.716 3305361.09 775.287 424 10 -50

San Felipe HFSF27 567375.042 3305445.22 798.092 204.05 10 -66

San Felipe SF0019 567476 3305472 791.49 235.6 0 -50

San Felipe SF0018 567319 3305518 757.929 284.6 0 -50

San Felipe HFSF01 567477.17 3305421.04 784.64 329.75 0 -54

San Felipe HFSF02 567231.49 3305420.53 728 260.7 0 -45

San Felipe HFSF03 567573.24 3305481.33 795 222.1 350 -55

San Felipe HFSF04 567499.82 3305355.42 767.29 225 10 -54

San Felipe HFSF05 567500.62 3305358.25 767.39 459.6 10 -54

San Felipe HFSF06 567707.18 3305404.4 776.75 170.65 10 -47

San Felipe HFSF07 567232.13 3305519.33 767.81 237.7 10 -65

San Felipe HFSF08 567427.7 3305440.65 819.39 291.45 10 -55

San Felipe HFSF09 567632.02 3305460.84 794.18 160.1 10 -56

San Felipe HFSF10 567341.42 3305534.02 765.75 179.3 10 -48

San Felipe HFSF11 567133.11 3305588 796.33 103.1 10 -45

San Felipe HFSF12 567427.64 3305440.96 819.36 289.55 10 -46

San Felipe HFSF13 567237.46 3305571.55 798.2 90.3 10 -45

San Felipe HFSF14 567132.82 3305586.43 796.17 218.6 10 -70

San Felipe HFSF15 567233.007 3305516.66 767.43 143.8 10 -45

San Felipe HFSF16 567624.35 3305410.64 773.52 147.45 10 -53


285


Az DIP

San Felipe HFSF17 567296.92 3305521.55 763.88 172.3 0 -45

San Felipe HFSF18 567197.75 3305564.33 795.58 183.7 10 -68

San Felipe HFSF19 567088.47 3305518.4 779.5 187.2 0 -50

San Felipe HFSF20 567375.18 3305445.55 798.1 275.5 10 -50

San Felipe HFSF21 567197.48 3305562.89 795.5 127.9 10 -45

San Felipe HFSF22 567574.69 3305440.63 776.94 50.25 0 -60

San Felipe HFSF23 567088.58 3305518.4 779.5 190.8 0 -75

San Felipe HFSF24 567161.02 3305416.46 764.04 762 10 -51

San Felipe HFSF25 567572.07 3305442.12 776.96 219.35 10 -52

San Felipe HFSF26 567047.72 3305554.24 768.93 272 10 -55

San Felipe HFSF28 567214.58 3305391.99 728.38 313.2 10 -58

San Felipe HFSF29 567133.191 3305456.15 757.439 353 10 -58

San Felipe HFSF30 567083.801 3305354.699 712.803 409.5 10 -45

San Felipe HFSF34 567151.876 3305319.182 711.647 398 10 -45

San Felipe HFSF35 566989.348 3305475.16 722.984 315.4 10 -45

San Felipe HFSF38 567087.568 3305476.86 756.086 236.5 10 -50

San Felipe HFSF37 567153.491 3305368.188 738.245 343.5 10 -48

San Felipe HFSF40 567057.532 3305582.646 783.859 183.4 10 -45

San Felipe HFSF41 567087.513 3305476.32 756.01 194.6 10 -62

San Felipe HFSF42 567035.457 3305529.311 758.385 279 10 -60

San Felipe HFSF39 567015.237 3305554.37 775.076 218.4 10 -60

San Felipe HFSF43 566929.492 3305497.498 726.112 252 10 -45

San Felipe HFSF44 566932.367 3305558.884 766.715 395.75 10 -45

San Felipe HFSF45 566902.042 3305581.857 771.542 156.2 10 -45

San Felipe HFSF46 567019.049 3305596.58 791.199 111 10 -50

San Felipe HFSF47 566910 3305776 819 149.9 28 -50

San Felipe INFSF01 567548.034 3305492.935 796.429 145 8 -45

San Felipe INFSF02 567187.043 3305443.937 757.734 264 9 -45

San Felipe INFSF05 567473.965 3305272.018 747.669 475 10 -45

San Felipe INFSF06 567480.967 3305436.993 787.495 287 9 -45

San Felipe INFSF07 567336.04 3305450.976 783.197 157 10 -45

San Felipe INFSF10 567130.016 3305495.003 775.976 174 10 -45

San Felipe INFSF11 567262.036 3305434.026 754.829 190 9 -57

San Felipe INFSF14 567171.982 3305592.99 799.365 80 10 -45

San Felipe INFSF15 567163.03 3305546.02 781.172 129 10 -45

San Felipe INFSF03 567102.986 3305616.011 800.802 65 10 -45

San Felipe INFSF12 567253.89 3305384.093 729.411 309 9 -43

San Felipe INFSF16 567240.015 3305300.007 710.856 240 9 -45

San Felipe INFSF17 567437.994 3305315.987 744.913 282 9 -45


286


Az DIP

San Felipe INFSF18 567556.004 3305375.019 747.176 133 8 -43

San Felipe SCSF-01 567248.608 3305382.26 723.429 266.75 1.7 -44.3

San Felipe SCSF-02 567137.041 3305581.34 795.048 115.5 16.7 -46.4

San Felipe SCSF-03 567131.01 3305554.382 788.819 184.95 20.9 -62.5

San Felipe SCSF-04 567070.626 3305602.988 798.087 167.05 20.7 -48.8

San Felipe SCSF-05 567132 3305495 771 271.95 9.3 -58.4

San Felipe SCSF-06 567131 3305450 760 301.35 10.6 -61.5

San Felipe SCSF-07 567180 3305581 796 205 28.2 -49.7

San Felipe SCSF-08 567033 3305526 756 150.8 22.9 -44.5

San Felipe SCSF-09 567033 3305526 756 269.75 22.4 -69.6

San Felipe SCSF-10 566984 3305624 777 131.65 17.3 -42.9

San Felipe SCSF-11 567040 3305482 736 252.55 6.8 -66.8

San Felipe SCSF-12 566997 3305594 776 219.95 16.9 -58.1

San Felipe SCSF-13 566949 3305653 798 158 17.7 -50.3

San Felipe SCSF-14 567013 3305550 772 120.2 0 -60

San Felipe SCSF-15 566922 3305580 770 3.05 18 -55

Transversales SCVT-01 567510.614 3305775.59 848.56 97.55 144 -56.6

Transversales SCVT-02 567576.44 3305841.9 823.778 88.45 144.9 -61.8



Transversales SCVT-05 567482.108 3305821.97 824.426 187.7 147.1 -66



Transversales SCVT-08 567900.695 3305899.84 765.648 180 144.7 -59.9









Transversales SCVT-17 567385.095 3305771.84 853.409 185.85 151.13

-64.7



Transversales SCVT-20 567320.788 3305677.085 808.389 140.05 118 -60





287


Az DIP










Ventana HFLV01 567594.21 3306236.01 825.906 285.6 0 -55

Ventana HFLV02 567723.74 3306228.24 842.53 121.01 349 -45

Ventana HFLV03 567723.53 3306228.93 842.57 276.01 349 -55

Ventana HFLV04 567710.34 3306380.24 908.22 142.34 354 -65

Ventana HFLV05 567552.03 3306396.79 864.739 162.03 0 -60

Ventana HFLV06 567552.03 3306396.54 864.76 167.23 0 -70

Ventana HFLV07 567494.17 3306195.78 780.837 249.2 0 -60

Ventana HFLV08 567601.47 3306378.16 875.2 157.58 0 -45

Ventana HFLV09 567601.47 3306378.16 875.2 185.01 0 -65

Ventana HFLV10 567601.47 3306378.16 875.2 227.69 0 -75

Ventana HFLV11 567641.786 3306378.62 889.466 111.86 0 -50

Ventana HFLV12 567641.786 3306378.62 889.466 175.87 0 -65

Ventana SF0023RL 567637.5 3306343.5 876.73 293.5 0 -75

Ventana SF9910RL 567524.64 3306305.5 814.08 230.73 0 -45

Ventana SF9910 567531.31 3306302.97 813.32 230.73 0 -45

Ventana HFLV13 567706.18 3306380.76 908.23 98.62 0 -45

Ventana HFLV14 567554.16 3306173.69 800.364 350.52 0 -58

Ventana HFLV15 567695.37 3306329.3 885.3 200.25 0 -60

Ventana HFLV16 567786.45 3306362.28 884.84 215.49 1 -68

Ventana HFLV17 567494.17 3306195.78 780.813 307.7 0 -60

Ventana HFLV18 567554.16 3306173.69 800.364 382.52 0 -65

Ventana HFLV19 567786.45 3306362.81 884.81 166.73 1 -50

Ventana HFLV20 567889.45 3306355.47 865.79 172.82 0 -50

Ventana HFLV21 567554.16 3306173.69 800.364 393.19 0 -70

Ventana HFLV22 567889.45 3306355.47 865.79 142.34 0 -73

Ventana HFLV23 567792.84 3306298.33 852.73 273.3 0 -63

Ventana HFLV24 567438.46 3306230.19 786.24 281.94 0 -60

Ventana HFLV25 567634.97 3306190.14 819.56 317.65 0 -62

Ventana HFLV26 567443.559 3306258.07 787.041 223 0 -65

Ventana HFLV28 567641 3306345 875.735 59.75 0 -45


288


Az DIP

Ventana HFLV29 567437.81 3306297.52 789.856 245.36 0 -64

Ventana HFLV30 567387.846 3306326.659 807.147 186.35 0 -62

Ventana HFLV31 567596.719 3306190.476 820.094 306.15 0 -65

Ventana HFLV32 567489.017 3306202.959 782.085 329.18 0 -51

Ventana HFLV33 567387.95 3306327.06 807.23 223.95 0 -77

Ventana HFLV34 567641.641 3306347.056 875.735 149.75 0 -45

Ventana HFLV35 567485.557 3306260.382 792.462 220.98 0 -54

Ventana HFLV36 567692.853 3306326.685 885.904 204.35 0 -54

Ventana HFLV37 567496.73 3306317.88 810.01 131.7 0 -49

Ventana HFLV40 567689.44 3306170.02 818.57 298.1 0 -49

Ventana HFLV41 567378.85 3306237.3 794.59 312.5 0 -68

Ventana HFLV42 567950.76 3306306.79 854.33 230.75 20 -50

Ventana HFLV43 568082.05 3306334.01 876.53 172.35 20 -45

Ventana HFLV44 567850.05 3306254.95 836.85 261.85 0 -50

Ventana HFLV45 567337.19 3306287.47 799.56 248.25 0 -60

Ventana HFLV46 567725.538 3306228.774 843.38 330.25 7 -54

Ventana HFLV47 567405.571 3306404.487 817.633 152.5 0 -45

Ventana HFLV48 567394.263 3306372.574 814.545 149 0 -60

Ventana HFLV49 567724.94 3306228.434 843.34 222.5 354 -61

Ventana HFLV50 567385.664 3306324.919 807.269 217.7 13 -68

Ventana HFLV51 567698.17 3306280.61 860.36 287.7 20 -52

Ventana HFLV52 567553.74 3306397.6 864.98 231.7 25 -79

Ventana HFLV53 567496.35 3306195.19 781.16 16 0 -58

Ventana HFLV54 567338.48 3306288.43 799.27 203.65 3 -45

Ventana HFLV55 567696.54 3306281.04 860.25 318.35 340 -69

Ventana HFLV56 567785.84 3306361.14 885.71 220.75 20 -66

Ventana HFLV57 567442.17 3306151.22 785.65 70.85 0 -55

Ventana HFLV58 567697.31 3306280.43 860.28 338 7.5 -69.5

Ventana HFLV59 567786.49 3306361.53 885.69 131.35 26 -53

Ventana HFLV60 567531.51 3306307.61 815.15 249.85 0 -69

Ventana HFLV61 567889.4 3306354.29 867.06 251.6 26 -81

Ventana HFLV62 567780.79 3306303.57 854.85 248.05 357.5 -54

Ventana HFLV63 567848.56 3306349.39 869.35 193.35 0 -62

Ventana HFLV64 567592.52 3306235.91 826.11 306.1 9 -58

Ventana HFLV65 567442.15 3306149.79 785.71 383.5 0 -55

Ventana HFLV66 567641.79 3306378.62 889.47 158.7 31 -54

Ventana HFLV67 567379.26 3306237.84 795.75 362.35 345 -61

Ventana HFLV68 567592.37 3306236.42 826.07 309.15 350 -62

Ventana HFLV69 567597.51 3306188.43 820.17 351.45 0 -60


289


Az DIP

Ventana HFLV70 567380.24 3306237.77 794.2 369.55 4 -76

Ventana HFLV71 567495.808 3306315.31 810.018 208 0 -45

Ventana HFLV72 567757.952 3306357.791 888.771 201.15 0 -60

Ventana HFLV73 567379.413 3306237.564 794.383 334.95 11 -65

Ventana HFLV74 567343.218 3306396.709 831.402 251.2 5 -70

Ventana SF0022RL 567637.5 3306343.5 876.73 211.5 0 -60

Ventana SF9801 567756.83 3306357.21 887.88 138.99 0 -45

Ventana SF9802 568139 3306311 868 180.4 0 -45

Ventana SF9803 567939 3306436 928.1 84.73 0 -45

Ventana SF9804 567841.74 3306350.48 869.5 159.72 0 -45

Ventana SF9805 567439.62 3306375.6 797.26 69.5 30 -45

Ventana SF9908 567848.41 3306347.95 868.73 242 0 -70

Ventana SF9909 567750.17 3306359.74 888.6435 240.74 0 -70

Ventana SF9911 567939 3306340 873.1 121.01 0 -45

Ventana SF9912 567531.31 3306302.97 814.07 241.79 0 -60

Ventana SF9913 567449.88 3306366.84 796.51 217.9 0 -50

Ventana SF9914 567449.88 3306366.84 796.51 216.2 0 -70

Ventana SF9915 567531.31 3306302.97 814.07 270.36 0 -75

Ventana SF9912RL 567524.64 3306305.5 814.08 241.79 0 -60

Ventana HFLV38 567696.48 3306280.93 860.44 241.4 10 -50

Ventana HFLV39 567496.81 3306317.86 809.95 218.4 10 -60

Ventana SCLV-01 567575.03 3306236.84 825.744 300.25 4.6 -54.3

Ventana SCLV-02 567574.615 3306236.312 826.147 305.05 352.9 -57.2

Ventana SCLV-03 567763.965 3306368.871 886.008 184.3 357.9 -49.3

Ventana SCLV-04 567619.541 3306383.58 889.769 119.5 5.1 -54.7

Ventana SCLV-05 567764.004 3306368.326 885.912 203 356 -67.1

Ventana SCLV-06 567585.628 3306377.4 877.332 213.85 359.8 -71.8


290

29. Appendix 2 – Grade Tonnage Tables

Ventana Total Blocks including edge dilution

Ventana Resource classed as Indicated within Total Blocks

Cut-off

Ag (g/t)

Tonnes > Cut-off

(tonnes)

Grade > Cut-off

Ag (g/t) Zn (%)

Pb (%)

Cu (%) Au (g/t)

60.0 385,000 105.83 8.32 3.37 0.66 0.020

70.0 315,000 114.87 8.74 3.50 0.71 0.020

75.0 286,000 119.21 8.93 3.57 0.74 0.021

80.0 255,000 124.23 9.13 3.67 0.77 0.021

90.0 213,000 132.01 9.48 3.81 0.83 0.022

100.0 170,000 141.32 9.91 3.98 0.90 0.022

110.0 136,000 150.45 10.30 4.17 0.97 0.023

120.0 109,000 159.37 10.74 4.30 1.04 0.024

130.0 88,000 167.40 11.09 4.41 1.11 0.024

140.0 71,000 175.62 11.63 4.58 1.18 0.025

150.0 53,000 185.67 12.25 4.76 1.25 0.026

Ventana Resource classed as Inferred within Total Blocks

Cut-off

Ag (g/t)

Tonnes > Cut-off

(tonnes)

Grade > Cut-off

Ag (g/t) Zn (%)

Pb (%)

Cu (%) Au (g/t)

60.0 516,000 83.65 7.50 3.03 0.54 0.019

70.0 353,000 92.41 7.99 3.21 0.57 0.020

75.0 283,000 97.29 8.19 3.32 0.58 0.021

80.0 235,000 101.42 8.31 3.44 0.59 0.021

90.0 149,000 110.97 8.81 3.71 0.62 0.024

100.0 98,000 119.73 9.35 4.07 0.64 0.026

110.0 62,000 128.02 9.68 4.43 0.66 0.029

120.0 31,000 141.10 9.68 4.99 0.73 0.028

130.0 18,000 152.72 9.41 5.20 0.78 0.028

140.0 11,000 165.07 8.53 4.95 0.88 0.025

150.0 8,200 171.93 8.30 4.98 0.89 0.024


291

Las Lamas Total Blocks including edge dilution

Las Lamas Resource classed as Indicated within Total Blocks

Cut-off

Ag (g/t)

Tonnes > Cut-off

(tonnes)

Grade > Cut-off

Ag (g/t) Zn (%)

Pb (%)

Cu (%) Au (g/t)

60.0 39,000 102.86 5.63 0.35 0.18 0.012

70.0 33,000 109.03 5.88 0.37 0.19 0.012

75.0 31,000 112.02 5.86 0.38 0.20 0.012

80.0 27,000 117.07 5.90 0.40 0.20 0.012

90.0 20,000 127.03 5.35 0.43 0.21 0.011

100.0 16,000 135.15 5.84 0.46 0.22 0.012

110.0 10,000 154.32 6.50 0.56 0.24 0.014

120.0 9,000 158.25 6.58 0.58 0.25 0.014

130.0 7,600 164.20 6.84 0.62 0.26 0.014

140.0 6,600 168.82 7.12 0.65 0.27 0.015

150.0 5,700 172.59 7.59 0.68 0.28 0.017

Las Lamas Resource classed as Inferred within Total Blocks

Cut-off

Ag (g/t)

Tonnes > Cut-off

(tonnes)

Grade > Cut-off

Ag (g/t) Zn (%)

Pb (%)

Cu (%) Au (g/t)

60.0 227,000 103.31 5.57 0.39 0.17 0.017

70.0 195,000 109.66 5.92 0.42 0.17 0.017

75.0 177,000 113.32 6.09 0.43 0.18 0.017

80.0 158,000 117.75 6.24 0.45 0.19 0.017

90.0 136,000 123.04 6.53 0.47 0.19 0.017

100.0 110,000 129.68 6.85 0.50 0.21 0.017

110.0 84,700 137.00 7.30 0.53 0.22 0.017

120.0 57,000 147.72 7.83 0.57 0.24 0.014

130.0 35,200 161.71 8.16 0.61 0.26 0.014

140.0 23,900 174.18 8.80 0.64 0.28 0.015

150.0 18,800 182.33 9.17 0.67 0.29 0.015


292

San Felipe Total Blocks including edge dilution

San Felipe Resource classed as Indicated within Total Blocks

Cut-off

Ag (g/t)

Tonnes > Cut-off

(tonnes)

Grade > Cut-off

Ag (g/t) Zn (%)

Pb (%)

Cu (%) Au (g/t)

60.0 142,000 107.89 5.43 1.42 0.13 0.083

70.0 118,000 116.44 5.91 1.47 0.14 0.086

75.0 110,000 119.57 6.08 1.49 0.14 0.088

80.0 99,000 124.54 6.35 1.53 0.14 0.089

90.0 84,000 131.31 6.70 1.57 0.15 0.091

100.0 72,000 137.51 7.01 1.59 0.16 0.093

110.0 57,700 145.59 7.43 1.63 0.16 0.095

120.0 44,700 154.42 7.91 1.61 0.17 0.087

130.0 32,100 166.16 8.63 1.58 0.18 0.078

140.0 24,600 175.56 9.23 1.57 0.18 0.073

150.0 20,300 182.07 9.60 1.54 0.18 0.074

San Felipe Resource classed as Inferred within Total Blocks

Cut-off

Ag (g/t)

Tonnes > Cut-off

(tonnes)

Grade > Cut-off

Ag (g/t) Zn (%)

Pb (%)

Cu (%) Au (g/t)

60.0 379,000 99.70 5.44 1.11 0.09 0.063

70.0 294,000 109.76 6.12 1.12 0.10 0.066

75.0 257,000 115.19 6.51 1.13 0.10 0.067

80.0 227,000 120.12 6.83 1.15 0.10 0.068

90.0 176,000 130.32 7.46 1.17 0.11 0.067

100.0 138,000 140.09 8.11 1.18 0.11 0.065

110.0 105,400 150.97 8.94 1.22 0.11 0.057

120.0 83,800 160.37 9.65 1.23 0.12 0.051

130.0 66,700 169.50 10.26 1.23 0.12 0.049

140.0 50,100 181.31 10.83 1.22 0.12 0.050

150.0 38,100 192.69 11.64 1.20 0.12 0.048


293

Transversales Total Blocks including edge dilution

Transversales Resource classed as Inferred within Total Blocks

Cut-off

Ag (g/t)

Tonnes > Cut-off

(tonnes)

Grade > Cut-off

Ag (g/t) Zn (%)

Pb (%)

Cu (%) Au (g/t)

40.0 312,000 60.84 1.41 1.40 0.14 0.032

45.0 254,000 65.12 1.41 1.48 0.15 0.033

50.0 210,000 68.82 1.39 1.53 0.16 0.034

55.0 168,000 72.91 1.36 1.56 0.16 0.035

60.0 131,000 77.28 1.33 1.57 0.15 0.036

70.0 77,000 86.15 1.32 1.59 0.17 0.037

75.0 61,000 89.85 1.28 1.59 0.17 0.037

80.0 46,000 93.72 1.15 1.54 0.16 0.038

90.0 30,000 98.85 0.99 1.50 0.16 0.039

100.0 11,000 105.40 0.87 1.46 0.15 0.040


294

30. Appendix 3 – Drill Intercepts

Hole_ID From To Interval True Thickness

Ag g/t Pb % Zn % Domain

HFLL03 48.05 124.18 76.13 45.0 4.5 0.172 0.143

HFLL03 124.18 126.90 2.72 1.6 69.7 0.241 0.275

HFLL03 126.90 136.93 10.03 6.1 20.3 0.039 0.927

HFLL03 142.75 147.68 4.93 3.0 73.7 0.128 4.841 LL

HFLL03 171.06 171.56 0.50 0.3 1.9 0.019 0.058

HFLL03 172.23 173.04 0.81 0.5 141.5 0.238 13.267

HFLL03 187.97 203.80 15.83 9.8 2.9 0.058 0.214

HFLL04 44.18 44.50 0.32 0.2 2.4 0.009 0.015

HFLL04 84.40 93.18 8.78 5.4 80.7 0.269 4.884 LL

HFLL04 93.18 93.76 0.58 0.4 4.8 0.027 0.169

HFLL04 122.60 122.87 0.27 0.2 111.0 0.293 4.230

HFLL04 129.78 130.55 0.77 0.5 7.8 0.010 0.261

HFLL05 35.85 92.90 57.05 14.4 1.3 0.006 0.054

HFLL05 94.80 95.05 0.25 0.1 7.2 0.081 0.311

HFLL05 95.05 131.80 36.75 9.1 1.8 0.014 0.056

HFLL05 131.80 132.25 0.45 0.1 182.0 1.640 8.150 LL

HFLL05 132.25 168.05 35.80 8.8 3.5 0.074 0.134

HFLL06 28.90 112.90 84.00 47.9 3.8 0.021 0.170

HFLL06 113.85 126.00 12.15 7.0 68.2 0.216 4.505 LL

HFLL06 144.90 145.90 1.00 0.6 11.9 0.061 0.141

HFLL07 303.70 311.10 7.40 5.8 0.4 0.003 0.014 LL

HFLL08 75.10 76.54 1.44 0.7 11.2 0.452 0.364

HFLL08 113.05 116.05 3.00 1.4 35.6 0.086 5.747 LL

HFLL09 61.20 113.40 52.20 25.6 13.7 0.047 0.120

HFLL09 113.40 124.90 11.50 5.4 43.7 0.132 2.522 LL

HFLV01 106.10 189.50 83.40 58.7 6.0 0.659 0.584

HFLV01 189.50 191.11 1.61 1.1 39.3 4.385 5.477 LVu

HFLV01 191.11 241.80 50.69 35.7 2.6 0.258 0.341

HFLV01 241.80 255.12 13.32 9.5 229.0 2.252 7.446 LV

HFLV04 1.80 102.21 100.41 57.4 8.4 0.452 0.204

HFLV04 102.21 124.05 21.84 12.3 44.5 2.118 6.985 LV

HFLV04 124.05 129.05 5.00 2.8 21.1 0.395 3.641 LG

HFLV04 129.05 142.34 13.29 7.5 7.4 0.871 0.953


295



HFLV05 14.45 112.20 97.75 61.8 5.5 0.429 0.486

HFLV05 112.20 128.20 16.00 9.7 17.9 1.772 3.064 LV

HFLV05 128.20 135.00 6.80 4.1 22.0 0.299 0.578 LG

HFLV06 19.60 118.90 99.30 48.9 3.3 0.183 0.448

HFLV06 118.90 120.80 1.90 0.9 10.8 1.435 1.717 LV

HFLV06 120.80 140.15 19.35 9.2 3.6 0.234 0.385 LG

HFLV06 140.15 162.10 21.95 10.5 3.1 0.380 0.377

HFLV08 10.30 99.25 88.95 72.8 3.6 0.186 0.384

HFLV08 99.25 109.80 10.55 8.5 19.0 1.141 5.290 LV

HFLV08 109.80 138.45 28.65 23.2 13.1 0.334 1.136 LG

HFLV09 33.82 153.00 119.18 65.9 9.4 0.234 0.289

HFLV09 153.00 155.65 2.65 1.4 93.6 2.426 5.517 LV

HFLV09 155.65 175.87 20.22 11.0 3.1 0.143 0.312 LG

HFLV10 53.35 190.95 137.60 53.2 2.8 0.285 0.676

HFLV10 190.95 200.15 9.20 3.4 120.3 11.543 15.142 LV

HFLV10 200.15 201.65 1.50 0.6 2.7 0.208 0.171

HFLV11 38.71 91.56 52.85 40.4 6.0 0.590 1.379

HFLV11 91.56 103.80 12.24 9.4 138.9 1.649 9.751 LV

HFLV11 103.80 106.81 3.01 2.3 7.9 0.168 0.374

HFLV12 26.08 150.00 123.92 70.3 2.1 0.151 0.222

HFLV12 150.00 166.65 16.65 8.9 45.2 2.043 4.694 LV

HFLV12 166.65 175.87 9.22 4.9 6.8 0.559 0.621

HFLV13 27.80 64.90 37.10 29.7 12.0 1.119 1.748

HFLV13 64.90 69.40 4.50 3.5 77.6 5.305 10.922 LV

HFLV13 69.40 73.60 4.20 3.3 3.7 0.104 0.223 LG

HFLV14 43.17 314.13 270.96 184.2 3.5 0.424 0.516

HFLV14 314.13 316.33 2.20 1.5 16.3 1.366 1.945 LV

HFLV14 316.33 326.70 10.37 7.1 3.7 0.145 0.259

HFLV15 33.20 180.55 147.35 92.8 1.7 0.108 0.477

HFLV15 180.55 200.25 19.70 11.6 9.6 1.621 1.592 LG

HFLV16 21.10 156.90 135.80 71.2 7.1 0.395 0.557

HFLV16 156.90 170.35 13.45 6.6 117.2 3.566 10.279 LV

HFLV16 170.35 184.85 14.50 7.0 34.5 0.388 2.506 LG

HFLV17 272.45 296.27 23.82 15.3 3.2 0.270 0.355

HFLV17 296.27 305.75 9.48 6.1 9.1 1.172 1.084 LG

HFLV18 27.70 311.66 283.96 163.5 6.7 0.548 0.654

HFLV18 349.50 350.52 1.02 0.6 12.3 0.314 0.158 LV

HFLV19 15.80 80.30 64.50 49.5 5.6 0.378 0.408

HFLV19 80.30 83.90 3.60 2.8 91.9 5.396 6.767 LV


296



HFLV19 83.90 166.53 82.63 63.6 2.7 0.119 0.300

HFLV20 47.45 55.90 8.45 6.3 87.4 1.987 7.170 LV

HFLV20 55.90 166.75 110.85 82.4 5.4 0.293 0.708

HFLV23 65.10 249.60 184.50 103.2 8.1 0.672 0.885

HFLV23 249.60 252.25 2.65 1.5 31.0 0.240 0.209 EV

HFLV23 252.25 254.15 1.90 1.1 7.7 0.165 0.181

HFLV23 254.15 259.00 4.85 2.7 29.7 0.864 3.103 LV

HFLV23 259.00 261.00 2.00 1.1 7.6 0.173 0.698

HFLV24 47.90 239.25 191.35 124.6 5.4 0.386 0.512

HFLV24 239.25 239.65 0.40 0.2 45.9 3.550 3.160 LG

HFLV24 239.65 248.00 8.35 5.2 61.2 6.064 7.232 LV

HFLV24 248.00 254.50 6.50 4.0 7.9 0.110 0.051 LG

HFLV24 254.50 278.90 24.40 15.0 2.8 0.074 0.076

HFLV25 17.30 291.97 274.67 169.5 23.9 1.288 1.783

HFLV29 62.48 170.69 108.21 65.9 4.1 0.524 0.929

HFLV29 170.69 178.85 8.16 4.9 7.0 0.598 0.685 LG

HFLV29 178.85 187.45 8.60 5.2 24.7 1.722 1.657 LV

HFLV29 187.45 195.07 7.62 4.6 6.2 0.506 0.567 LG

HFLV29 195.07 223.65 28.58 17.3 6.3 0.271 0.514

HFLV30 97.90 149.31 51.41 30.4 5.9 0.212 0.305

HFLV30 149.31 159.00 9.69 5.8 2.7 0.175 0.181 LG

HFLV32 81.45 244.61 163.16 120.7 2.8 0.294 0.399

HFLV32 244.61 256.03 11.42 8.3 13.9 1.297 1.389 LG

HFLV32 256.03 324.61 68.58 49.6 2.0 0.116 0.088

HFLV33 74.27 195.76 121.49 46.1 3.1 0.314 0.435

HFLV33 195.76 202.60 6.84 2.5 11.1 0.845 0.671 LG

HFLV33 202.60 207.23 4.63 1.7 93.6 4.529 6.946 LV

HFLV33 207.23 220.20 12.97 4.8 2.2 0.030 0.065

HFLV34 115.80 117.30 1.50 1.2 2.5 0.183 0.959

HFLV34 117.30 142.10 24.80 20.1 103.4 3.985 9.394 LV

HFLV34 142.10 146.40 4.30 3.5 2.9 0.204 0.388

HFLV35 73.30 200.13 126.83 89.9 3.1 0.498 0.219

HFLV35 200.13 208.79 8.66 6.0 14.5 1.079 1.122 LV

HFLV35 208.79 214.00 5.21 3.6 0.2 0.006 0.008 LG

HFLV36 77.85 169.55 91.70 61.2 9.1 0.730 0.929

HFLV36 169.55 200.66 31.11 20.8 9.7 1.033 1.360 LG

HFLV38 136.07 233.78 97.71 71.4 4.3 0.360 0.396

HFLV41 247.31 288.22 40.91 19.5 11.4 0.523 0.547 LG

HFLV41 288.22 293.74 5.52 2.6 111.4 8.435 11.151 LV


297



HFLV41 293.74 309.45 15.71 7.5 2.0 0.038 0.057

HFLV42 37.90 144.43 106.53 78.5 2.4 0.168 0.454

HFLV42 144.43 145.73 1.30 1.0 30.7 0.337 3.369

HFLV42 145.73 204.29 58.56 42.8 4.7 0.176 0.299

HFLV43 68.76 90.02 21.26 16.8 0.8 0.017 0.265

HFLV43 92.33 94.93 2.60 2.1 4.6 0.322 0.208

HFLV43 96.67 157.50 60.83 48.5 0.9 0.027 0.111

HFLV44 12.20 246.65 234.45 179.8 3.5 0.134 0.191

HFLV44 246.65 251.55 4.90 3.6 21.7 1.637 1.372 LG

HFLV44 251.55 253.65 2.10 1.6 6.1 0.310 0.240

HFLV45 21.40 165.15 143.75 90.9 1.7 0.098 0.106

HFLV45 165.15 181.05 15.90 9.7 3.3 0.366 0.331 LG

HFLV45 184.75 187.35 2.60 1.6 9.0 0.826 0.307

HFLV45 187.35 200.30 12.95 7.8 2.4 0.205 0.170 LG

HFLV45 200.30 245.20 44.90 27.0 2.1 0.176 0.225

HFLV46 191.85 245.45 53.60 36.7 6.3 0.209 0.284

HFLV46 277.40 290.35 12.95 8.7 2.3 0.091 0.113 LG

HFLV46 290.35 290.85 0.50 0.3 7.4 0.134 0.599

HFLV47 22.60 50.25 27.65 22.7 3.3 0.033 0.396

HFLV47 50.25 52.40 2.15 1.8 13.9 1.440 1.388 LG

HFLV47 52.40 138.80 86.40 71.0 4.1 0.417 0.364

HFLV48 25.20 83.75 58.55 37.6 18.7 0.398 0.820

HFLV48 92.80 98.75 5.95 3.9 16.5 0.897 1.820 LG

HFLV48 101.30 132.25 30.95 20.3 6.5 0.285 0.323

HFLV50 36.50 148.05 111.55 58.4 9.7 0.478 0.327

HFLV50 158.50 163.55 5.05 2.6 6.8 0.452 0.455 LG

HFLV50 163.55 180.80 17.25 8.9 2.4 0.136 0.172

HFLV51 28.45 250.00 221.55 157.3 4.9 0.334 0.326

HFLV51 250.00 255.50 5.50 3.8 0.5 0.022 0.017 LV

HFLV51 255.50 258.25 2.75 1.9 6.1 0.196 0.130 LG

HFLV51 258.25 263.00 4.75 3.3 5.1 0.087 0.098

HFLV52 26.85 198.20 171.35 54.8 4.2 0.360 0.531

HFLV52 198.20 206.10 7.90 2.2 55.5 2.428 3.636 LV

HFLV52 206.10 223.90 17.80 5.0 3.1 0.141 0.166

HFLV54 63.70 133.50 69.80 57.1 1.8 0.077 0.141

HFLV54 141.35 152.90 11.55 9.5 14.9 0.755 1.196 LG

HFLV54 152.90 179.80 26.90 22.0 6.7 0.638 0.721

HFLV54 179.80 181.15 1.35 1.1 21.4 3.390 3.047 LG

HFLV54 181.15 184.90 3.75 3.1 57.5 2.921 3.056 LV


298



HFLV55 25.85 292.00 266.15 132.3 9.2 0.867 0.921

HFLV55 292.00 296.70 4.70 2.2 65.0 2.125 3.255 LV

HFLV55 296.70 302.85 6.15 2.8 7.4 0.141 0.130

HFLV56 12.25 16.90 4.65 2.5 4.3 0.401 0.137

HFLV56 21.75 28.35 6.60 3.4 35.0 0.793 0.109

HFLV56 28.35 145.40 117.05 60.7 1.1 0.068 0.247

HFLV56 145.40 161.10 15.70 8.2 65.6 0.490 7.598 LV

HFLV56 161.10 171.50 10.40 5.4 10.7 0.248 0.419 LG

HFLV56 171.50 208.80 37.30 19.4 3.9 0.399 0.354

HFLV58 22.10 306.30 284.20 138.9 4.0 0.193 0.296

HFLV58 306.30 322.40 16.10 7.3 24.8 0.789 1.833 LV

HFLV58 322.40 324.40 2.00 0.9 0.4 0.006 0.009 LG

HFLV59 9.85 20.50 10.65 7.1 18.4 1.640 0.098

HFLV59 20.50 23.20 2.70 1.8 11.6 1.621 0.258

HFLV59 23.20 94.90 71.70 48.1 3.5 0.126 0.401

HFLV59 94.90 101.55 6.65 4.5 82.4 4.157 9.001 LV

HFLV59 101.55 119.65 18.10 12.1 7.3 0.332 0.982

HFLV60 27.25 204.10 176.85 91.9 3.4 0.188 0.303

HFLV60 204.10 213.30 9.20 4.9 63.1 1.425 3.394 LV

HFLV60 213.30 227.00 13.70 7.3 5.3 0.051 0.093

HFLV62 52.85 80.90 28.05 20.2 19.8 2.357 3.208

HFLV62 80.90 81.70 0.80 0.6 1.5 0.133 0.586

HFLV62 81.70 179.15 97.45 69.2 2.0 0.126 0.191

HFLV62 179.15 183.30 4.15 2.9 17.0 1.661 4.034 LV

HFLV62 183.30 191.60 8.30 5.8 1.9 0.090 0.116

HFLV62 191.60 205.80 14.20 10.0 8.8 0.178 0.417 LG

HFLV62 205.80 240.00 34.20 24.0 2.2 0.091 0.110

HFLV63 58.80 108.75 49.95 30.8 5.5 0.124 0.607

HFLV63 108.75 133.60 24.85 15.3 90.5 3.074 11.650 LV

HFLV63 133.60 143.70 10.10 6.2 26.1 0.423 2.466 LG

HFLV63 143.70 190.30 46.60 28.7 2.9 0.084 0.176

HFLV64 17.45 262.65 245.20 163.6 3.8 0.343 0.423

HFLV64 262.65 268.50 5.85 4.1 40.4 1.061 2.300 LV

HFLV64 268.50 290.20 21.70 15.1 0.5 0.019 0.046

HFLV65 5.00 304.60 299.60 211.8 2.0 0.085 0.108

HFLV65 304.60 305.20 0.60 0.4 22.5 2.510 2.620 LV

HFLV65 305.20 337.40 32.20 22.8 2.4 0.105 0.159

HFLV66 5.35 99.65 94.30 60.0 4.9 0.517 0.141

HFLV66 99.65 118.15 18.50 11.8 25.4 2.642 4.009 LV


299



HFLV66 118.15 123.00 4.85 3.1 49.7 0.700 3.998 LG

HFLV66 123.00 150.85 27.85 17.7 8.0 0.582 0.751

HFLV67 7.40 242.50 235.10 143.9 0.9 0.046 0.046

HFLV67 242.50 251.50 9.00 5.2 12.0 0.812 0.762 LG

HFLV67 251.50 264.60 13.10 7.5 14.8 0.960 0.940 LV

HFLV67 264.60 294.60 30.00 17.2 6.0 0.428 0.301 LG

HFLV67 294.60 347.15 52.55 30.3 1.4 0.083 0.095

HFLV68 103.15 261.70 158.55 100.7 14.9 0.709 0.815

HFLV68 261.70 263.40 1.70 1.1 164.2 6.411 9.600 LV

HFLV68 263.40 284.00 20.60 13.7 3.2 0.122 0.132

HFLV69 30.20 324.95 294.75 192.1 8.2 0.820 0.988

HFLV69 324.95 336.50 11.55 7.4 13.5 0.220 0.598 LG

HFLV69 336.50 338.15 1.65 1.1 5.2 0.082 0.210

HFLV70 22.66 317.00 294.34 116.7 2.7 0.105 0.127

HFLV70 317.00 325.25 8.25 3.0 1.5 0.032 0.098 LG

HFLV70 325.25 325.95 0.70 0.3 6.5 0.293 0.358 LV

HFLV70 325.95 327.80 1.85 0.7 0.2 0.008 0.008

HFLV71 25.00 131.55 106.55 88.3 12.4 0.372 0.616

HFLV71 131.55 159.20 27.65 23.1 9.8 0.781 1.210 LG

HFLV71 159.20 164.00 4.80 4.0 1.0 0.022 0.053

HFLV72 17.70 120.85 103.15 66.3 5.3 0.394 0.355

HFLV72 120.85 133.45 12.60 8.1 71.3 2.181 7.789 LV

HFLV72 133.45 187.95 54.50 35.0 14.2 1.320 1.098

HFLV73 13.20 230.80 217.60 122.7 1.7 0.090 0.108

HFLV73 230.80 265.50 34.70 18.5 10.5 0.217 0.272 LG

HFLV73 265.50 288.00 22.50 11.9 33.7 2.193 2.723 LV

HFLV73 288.00 305.05 17.05 9.0 1.5 0.042 0.048

HFLV74 21.00 83.45 62.45 30.6 1.8 0.030 0.066

HFLV74 83.45 92.60 9.15 4.3 11.2 0.414 0.906 LG

HFLV74 95.65 232.90 137.25 64.5 4.2 0.268 0.303

HFSF01 174.50 176.05 1.55 1.1 7.8 2.350 2.440

HFSF02 25.15 89.40 64.25 53.0 2.4 0.015 0.096

HFSF02 89.40 97.20 7.80 6.5 105.4 0.551 6.792 HW-1

HFSF02 97.20 100.35 3.15 2.6 4.9 0.033 0.072

HFSF02 100.35 106.70 6.35 5.3 24.6 0.281 0.564 HW-2

HFSF02 106.70 201.60 94.90 78.7 4.2 0.105 0.113

HFSF02 201.60 202.55 0.95 0.8 107.0 0.207 20.500 SF

HFSF02 202.55 254.50 51.95 43.4 3.8 0.039 0.170

HFSF03 102.15 171.00 68.85 47.4 1.5 0.017 0.033


300



HFSF03 171.00 179.40 8.40 5.7 36.0 2.331 3.208 SF

HFSF03 179.40 188.55 9.15 6.2 0.5 0.011 0.017

HFSF05 201.60 369.10 167.50 106.7 1.1 0.139 0.154

HFSF05 369.10 371.25 2.15 1.3 9.0 0.784 1.039 SF

HFSF05 371.25 459.60 88.35 54.1 0.8 0.059 0.069

HFSF06 36.15 75.00 38.85 30.6 1.5 0.014 0.123

HFSF06 75.00 89.22 14.22 11.2 1.2 0.028 0.734 HW-3

HFSF07 9.70 45.70 36.00 20.4 1.2 0.009 0.155

HFSF07 45.70 49.60 3.90 2.2 18.7 2.672 4.108 HW-2

HFSF07 49.60 150.70 101.10 57.3 1.2 0.166 0.223

HFSF07 150.70 152.85 2.15 1.2 0.1 0.001 0.007 SF

HFSF07 152.85 224.10 71.25 40.4 0.7 0.007 0.055

HFSF08 57.25 262.93 205.68 140.1 1.1 0.027 0.033

HFSF08 262.93 263.75 0.82 0.5 80.0 4.540 7.310 SF

HFSF08 263.75 268.20 4.45 2.9 1.2 0.019 0.047

HFSF08 268.20 269.10 0.90 0.6 192.7 -9.212 4.983 SF

HFSF08 269.10 288.05 18.95 12.4 1.0 0.023 0.049

HFSF09 22.90 74.85 51.95 35.6 0.4 0.003 0.019

HFSF09 74.85 77.10 2.25 1.5 2.8 0.119 0.520 HW-3

HFSF09 77.10 96.05 18.95 12.9 1.9 0.032 0.104

HFSF10 9.00 15.05 6.05 4.7 1.6 0.013 0.021

HFSF10 15.05 20.25 5.20 4.0 127.1 0.062 0.173 HW-2

HFSF10 20.25 93.30 73.05 56.8 0.7 0.010 0.081

HFSF10 93.30 97.20 3.90 3.0 0.1 0.001 0.005 SF

HFSF10 97.20 118.30 21.10 16.2 0.3 0.002 0.016

HFSF11 17.10 60.60 43.50 34.9 5.2 0.003 0.040

HFSF11 60.60 68.30 7.70 6.2 200.1 0.253 0.431 SF

HFSF11 68.30 73.45 5.15 4.1 2.0 0.020 0.041

HFSF12 10.60 136.73 126.13 100.6 6.6 0.086 0.048

HFSF12 136.73 137.33 0.60 0.5 52.7 0.183 0.148 HW-2

HFSF12 137.33 216.45 79.12 61.2 0.5 0.018 0.025

HFSF12 216.45 224.92 8.47 6.5 0.6 0.019 0.024 SF

HFSF12 224.92 267.45 42.53 32.4 3.7 0.023 0.030

HFSF14 26.92 40.10 13.18 6.5 1.2 0.006 0.121

HFSF14 40.10 47.87 7.77 3.8 84.2 0.336 0.277 HW-1

HFSF14 47.87 64.93 17.06 8.4 3.3 0.058 0.106

HFSF14 79.10 81.10 2.00 1.0 1.0 0.158 0.185 SF

HFSF14 81.10 184.10 103.00 51.0 2.4 0.173 0.236

HFSF15 1.20 27.90 26.70 21.6 1.9 0.037 0.157


301



HFSF15 27.90 29.20 1.30 1.0 19.6 0.971 6.350 HW-2

HFSF15 29.20 113.50 84.30 67.5 3.6 0.249 0.974

HFSF15 113.50 116.80 3.30 2.6 6.2 0.817 0.929 SF

HFSF15 118.30 126.20 7.90 6.2 0.7 0.030 0.037

HFSF17 9.45 10.30 0.85 0.7 1.4 0.007 0.266

HFSF17 10.30 12.50 2.20 1.8 24.9 0.258 0.594 HW-2

HFSF17 15.70 100.10 84.40 68.6 1.2 0.042 0.173

HFSF17 103.75 106.30 2.55 2.0 0.4 0.012 0.035 SF

HFSF17 106.30 112.30 6.00 4.8 0.6 0.002 0.006

HFSF18 13.70 120.30 106.60 56.5 1.5 0.074 0.388

HFSF18 120.30 124.20 3.90 2.0 18.6 1.317 1.961 SF

HFSF18 124.20 161.71 37.51 19.0 0.4 0.010 0.018

HFSF19 48.80 101.00 52.20 42.0 10.6 0.051 0.149

HFSF19 101.00 103.00 2.00 1.6 52.9 8.378 7.539 HW-1

HFSF19 103.00 154.40 51.40 40.7 1.5 0.068 0.080

HFSF19 154.40 154.80 0.40 0.3 2.6 0.003 1.030 SF

HFSF19 154.80 157.25 2.45 2.0 0.7 0.008 0.044

HFSF20 66.60 117.11 50.51 36.0 1.8 0.017 0.271

HFSF20 117.11 119.05 1.94 1.4 25.5 0.119 0.266 HW-2

HFSF20 119.05 234.70 115.65 81.5 1.5 0.006 0.130

HFSF20 234.70 235.10 0.40 0.3 192.0 0.000 0.162 SF

HFSF20 235.10 242.05 6.95 4.7 1.7 0.075 0.073

HFSF21 18.08 46.90 28.82 23.3 2.4 0.091 1.165

HFSF21 46.90 51.69 4.79 3.9 4.0 0.451 5.036 SF

HFSF21 51.69 115.90 64.21 51.7 1.0 0.029 0.453

HFSF23 51.90 109.35 57.45 35.5 26.4 0.651 0.810

HFSF23 109.35 112.70 3.35 2.0 47.2 9.106 9.371 HW-1

HFSF23 112.70 148.90 36.20 22.0 5.7 0.189 0.269

HFSF24 78.50 152.00 73.50 53.0 0.7 0.013 0.020

HFSF24 152.00 239.92 87.92 63.2 0.5 0.004 0.010 HW-1

HFSF25 14.40 197.80 183.40 134.6 1.8 0.073 0.068

HFSF25 197.80 202.10 4.30 3.3 1.2 0.028 0.018 SF

HFSF25 202.10 213.40 11.30 8.6 6.1 0.060 0.060

HFSF26 28.40 94.15 65.75 45.8 2.2 0.022 0.026

HFSF26 94.15 100.90 6.75 4.6 9.1 0.691 0.591 HW-1

HFSF26 100.90 117.95 17.05 11.7 6.6 0.084 0.064

HFSF26 117.95 196.50 78.55 53.5 0.2 0.016 0.016 SF

HFSF26 196.50 205.60 9.10 6.1 9.9 0.053 0.412

HFSF28 6.50 130.60 124.10 82.0 5.0 0.066 0.262


302



HFSF28 130.60 132.50 1.90 1.3 0.5 0.004 0.008 HW-1

HFSF28 132.50 241.00 108.50 74.6 1.3 0.033 0.020

HFSF29 17.32 126.52 109.20 73.3 1.6 0.016 0.024

HFSF29 126.52 128.95 2.43 1.7 41.5 0.645 4.272 HW-1

HFSF30 10.10 218.30 208.20 168.3 2.4 0.038 0.052

HFSF30 218.30 225.90 7.60 6.1 3.6 0.187 0.239 HW-1

HFSF30 225.90 227.90 2.00 1.6 8.6 0.107 0.087

HFSF31 42.40 211.55 169.15 126.2 1.3 0.023 0.150

HFSF31 211.55 212.20 0.65 0.5 65.0 10.650 6.190 HW-2

HFSF31 212.20 410.20 198.00 145.7 1.7 0.104 0.110

HFSF32 16.35 107.25 90.90 61.8 3.8 0.147 0.330

HFSF32 107.25 109.10 1.85 1.2 37.1 1.619 3.541 HW-3

HFSF32 109.10 144.15 35.05 23.2 6.1 0.292 0.343

HFSF32 144.15 145.00 0.85 0.6 79.3 1.920 0.749 HW-2

HFSF32 145.00 268.15 123.15 81.5 3.8 0.095 0.089

HFSF32 268.15 271.70 3.55 2.3 1.2 0.025 0.067 SF

HFSF32 271.70 299.70 28.00 18.1 4.9 0.054 0.117

HFSF34 60.00 197.40 137.40 113.1 2.6 0.159 0.187

HFSF34 197.40 199.60 2.20 1.8 10.9 0.068 0.087 HW-1

HFSF34 199.60 255.40 55.80 46.5 3.3 0.076 0.060

HFSF34 255.40 259.35 3.95 3.4 30.3 1.098 2.030 SF

HFSF34 259.35 328.40 69.05 58.9 3.8 0.295 0.120

HFSF35 38.05 150.40 112.35 89.7 4.5 0.121 0.250

HFSF35 150.40 151.66 1.26 1.0 20.6 0.202 0.149 HW-1

HFSF35 151.66 226.26 74.60 59.7 4.8 0.166 0.192

HFSF35 226.26 227.95 1.69 1.4 3.0 0.187 0.181 SF

HFSF35 227.95 300.40 72.45 58.4 4.9 0.181 0.276

HFSF36 30.60 190.75 160.15 131.1 1.4 0.045 0.054

HFSF36 190.75 196.50 5.75 4.7 6.3 0.031 0.169 HW-1

HFSF36 196.50 345.00 148.50 122.1 1.6 0.087 0.132

HFSF37 35.00 184.10 149.10 113.7 8.5 0.139 0.279

HFSF37 184.10 191.20 7.10 5.3 5.2 0.097 0.157 HW-1

HFSF37 191.20 238.85 47.65 35.7 2.8 0.080 0.149

HFSF37 238.85 241.15 2.30 1.7 27.9 1.387 1.710 SF

HFSF37 241.15 333.80 92.65 68.9 1.9 0.047 0.077

HFSF38 38.45 121.00 82.55 61.6 3.4 0.020 0.045

HFSF38 121.00 132.55 11.55 8.5 199.9 0.246 4.837 HW-1

HFSF38 132.55 218.70 86.15 63.0 2.7 0.089 0.154

HFSF39 49.15 92.45 43.30 26.9 1.2 0.013 0.016


303



HFSF39 92.45 95.25 2.80 1.7 50.1 1.525 1.797 HW-1

HFSF39 95.25 175.30 80.05 48.6 9.7 0.213 0.278

HFSF39 175.30 180.70 5.40 3.2 55.6 6.189 6.900 SF

HFSF39 180.70 182.85 2.15 1.3 1.0 0.121 0.103

HFSF43 181.90 194.35 12.45 9.9 1.5 0.013 0.027

HFSF43 194.35 195.40 1.05 0.8 21.6 0.948 1.250 SF

HFSF43 195.40 250.25 54.85 43.6 1.4 0.039 0.051

INFSF01 79.00 90.00 11.00 8.4 29.4 3.277 4.627

INFSF01 90.00 102.00 12.00 9.1 23.8 3.937 7.279 HW-2

INFSF02 92.00 93.00 1.00 0.8 64.4 0.119 0.131

INFSF02 93.00 102.00 9.00 7.1 313.3 2.128 5.704 HW-1

INFSF02 102.00 103.00 1.00 0.8 35.5 0.178 3.270

INFSF03 23.00 24.00 1.00 0.8 1.4 0.031 0.171

INFSF03 24.00 27.00 3.00 2.3 4.1 0.084 0.067 HW-1

INFSF03 27.00 32.00 5.00 3.8 0.8 0.007 0.243

INFSF03 32.00 45.00 13.00 9.8 4.2 0.315 0.458 SF

INFSF03 45.00 46.00 1.00 0.7 1.2 0.007 0.020

INFSF07 89.00 91.00 2.00 1.6 24.4 0.126 0.921

INFSF07 91.00 96.00 5.00 4.0 41.0 0.201 1.094 HW-2

INFSF07 96.00 108.00 12.00 9.5 1.8 0.013 0.272

INFSF10 90.00 92.00 2.00 1.6 7.8 0.059 0.327

INFSF10 92.00 100.00 8.00 6.2 203.7 0.249 10.677 HW-1

INFSF10 100.00 101.00 1.00 0.8 6.8 0.011 0.397

INFSF11 74.00 75.00 1.00 0.6 77.6 0.163 3.790

INFSF11 75.00 77.00 2.00 1.3 317.1 0.374 15.125 HW-1

INFSF11 77.00 78.00 1.00 0.6 28.1 0.047 1.390

INFSF14 0.00 40.00 40.00 1.8 0.016 0.056

INFSF14 40.00 49.00 9.00 7.2 31.0 2.799 3.390 SF

INFSF15 33.00 34.00 1.00 0.8 49.4 0.156 2.660

INFSF15 34.00 45.00 11.00 8.5 123.6 1.721 6.735 HW-1

SCLL-01 16.35 44.70 28.35 15.6 2.6 0.025 0.157

SCLL-01 44.70 46.15 1.45 0.8 156.2 0.660 12.040 LL

SCLL-01 46.15 47.50 1.35 0.7 41.2 0.070 2.076 FW

SCLL-01 47.50 53.75 6.25 3.5 7.0 0.068 0.249

SCLL-02 31.55 88.50 56.95 26.8 1.6 0.013 0.037

SCLL-02 88.50 94.45 5.95 2.8 28.8 0.105 2.281 LL

SCLL-02 94.45 127.50 33.05 15.4 3.3 0.010 0.090

SCLL-03 103.75 108.25 4.50 2.4 2.9 0.043 0.074

SCLL-03 108.25 118.55 10.30 5.4 77.5 0.198 7.156 LL


304



SCLL-03 118.55 123.80 5.25 2.7 5.6 0.009 0.091

SCLL-04 100.25 109.05 8.80 4.2 9.4 0.030 0.134

SCLL-04 109.05 121.70 12.65 6.1 88.6 0.254 4.351 LL

SCLL-04 121.70 141.35 19.65 9.3 2.6 0.016 0.128

SCLL-04 141.35 141.80 0.45 0.2 135.0 0.125 12.200

SCLL-04 141.80 170.70 28.90 13.4 2.9 0.017 0.125

SCLL-04 170.70 175.05 4.35 2.0 81.7 0.280 8.558

SCLL-04 175.05 178.70 3.65 1.6 0.7 0.004 0.023

SCLL-05 150.45 161.55 11.10 3.4 3.0 0.015 0.237

SCLL-05 161.55 178.90 17.35 5.3 138.9 0.372 6.710 LL

SCLL-05 178.90 287.70 108.80 32.6 3.4 0.022 0.230

SCLL-07 52.45 91.35 38.90 25.0 0.3 0.006 0.009

SCLL-08 35.60 48.90 13.30 10.3 0.5 0.009 0.017

SCLL-08 48.90 62.60 13.70 10.6 0.2 0.003 0.007 LL

SCLL-08 62.60 142.55 79.95 61.5 0.9 0.023 0.044

SCLL-09 32.80 41.85 9.05 6.0 1.6 0.010 0.035

SCLL-09 41.85 50.00 8.15 5.4 1.2 0.030 0.215 LL

SCLL-09 50.00 185.50 135.50 89.3 1.1 0.011 0.027

SCLL-10 69.85 114.90 45.05 23.1 3.4 0.011 0.028

SCLL-12 7.40 25.75 18.35 8.6 15.7 0.101 0.058

SCLL-12 25.75 32.90 7.15 3.4 43.4 0.514 0.975 LL

SCLL-12 32.90 41.20 8.30 3.9 0.9 0.012 0.211

SCLL-13 30.45 35.20 4.75 2.3 1.7 0.031 0.068

SCLL-13 35.20 37.55 2.35 1.2 13.0 0.018 0.246 LL

SCLL-13 37.55 70.45 32.90 16.2 1.9 0.006 0.017

SCLL-13 70.45 71.40 0.95 0.5 247.0 0.661 3.700

SCLL-13 71.40 92.55 21.15 10.5 9.8 0.031 0.108

SCLL-14 67.25 80.40 13.15 6.2 6.2 0.091 0.268

SCLL-14 80.40 84.25 3.85 1.8 12.1 0.189 0.342 LL

SCLL-14 84.25 119.00 34.75 16.3 3.9 0.168 0.218

SCLL-15 53.90 187.05 133.15 61.0 2.5 0.078 0.047

SCLL-15 188.00 200.45 12.45 6.3 74.1 0.213 6.291 LL

SCLL-15 200.45 206.55 6.10 3.1 1.8 0.014 0.041

SCLL-16 42.00 159.65 117.65 18.5 1.4 0.017 0.062

SCLL-16 159.65 166.20 6.55 0.9 1.4 0.115 0.360 LL

SCLL-16 166.20 170.70 4.50 0.6 0.3 0.028 0.029

SCLL-17 20.30 23.85 3.55 1.7 6.4 0.020 0.126

SCLL-17 23.85 27.40 3.55 1.7 21.5 0.150 0.405 LL

SCLL-17 27.40 141.55 114.15 55.7 1.1 0.014 0.031


305



SCLL-18 67.10 83.35 16.25 0.9 1.7 0.024 0.059

SCLL-18 83.35 87.40 4.05 0.2 2.6 0.111 0.201 LL

SCLL-18 87.40 95.60 8.20 0.4 2.9 0.084 0.095

SCLL-19 67.75 78.70 10.95 5.6 1.5 0.046 0.065

SCLL-19 78.70 90.40 11.70 6.0 9.3 0.320 0.675 LL

SCLL-19 90.40 91.65 1.25 0.6 3.9 0.044 0.150

SCLL-20 279.05 282.05 3.00 1.0 8.2 0.004 0.011

SCLL-20 282.05 285.00 2.95 1.0 30.7 0.222 2.371 LL

SCLL-20 285.00 288.05 3.05 1.0 1.1 0.014 0.065

SCLL-21 4.50 121.35 116.85 16.0 4.0 0.019 0.191

SCLL-21 121.35 132.80 11.45 1.7 1.3 0.007 0.012 LL

SCLL-22 120.90 126.75 5.85 1.5 0.7 0.019 0.033

SCLL-22 126.75 130.15 3.40 0.9 15.4 0.135 0.221 LL

SCLL-22 130.15 133.70 3.55 0.9 0.4 0.011 0.016

SCLL-23 108.45 115.70 7.25 3.3 5.1 0.022 0.043

SCLL-23 115.70 117.50 1.80 0.8 383.1 1.120 3.777 LL

SCLL-23 117.50 139.10 21.60 10.0 14.5 0.080 0.179

SCLL-24 37.55 158.65 121.10 30.8 1.1 0.013 0.022

SCLL-24 158.65 171.05 12.40 3.5 49.3 0.080 2.761 LL

SCLL-24 171.05 192.30 21.25 6.2 1.1 0.007 0.048

SCLL-25 63.00 133.30 70.30 25.5 16.8 0.198 0.820

SCLL-26 0.00 161.95 161.95 9.4 0.310 1.411

SCLL-26 213.90 218.15 4.25 1.5 2.3 0.007 0.047 LL

SCLL-27 146.60 224.15 77.55 13.1 7.9 0.008 0.024

SCLL-27 224.15 226.50 2.35 0.4 52.4 0.505 0.789 LL

SCLL-27 226.50 227.55 1.05 0.2 1.3 0.006 0.013

SCLV-01 103.45 250.90 147.45 102.8 10.7 1.018 1.085

SCLV-01 250.90 257.95 7.05 4.7 141.8 8.036 13.012 LV

SCLV-01 257.95 291.70 33.75 22.4 1.8 0.116 0.154

SCLV-02 110.95 208.45 97.50 64.9 8.1 0.761 0.838

SCLV-02 208.45 220.00 11.55 7.6 77.5 3.252 3.862

SCLV-02 220.00 257.95 37.95 25.1 2.3 0.220 0.303

SCLV-02 257.95 265.45 7.50 5.0 26.8 1.584 2.182 LV

SCLV-02 265.45 277.35 11.90 7.9 4.7 0.499 0.392

SCLV-03 13.20 88.20 75.00 58.0 6.1 0.464 0.359

SCLV-03 88.20 91.15 2.95 2.3 14.7 1.209 1.526 LV

SCLV-03 91.15 151.75 60.60 46.5 2.3 0.126 0.319

SCLV-04 70.50 105.80 35.30 25.0 2.4 0.236 1.341

SCLV-04 105.80 110.30 4.50 3.2 214.9 4.925 11.046 LV


306



SCLV-04 110.30 114.20 3.90 2.7 7.4 0.122 0.394

SCLV-05 18.40 142.15 123.75 67.1 7.2 0.514 0.738

SCLV-05 142.15 154.80 12.65 6.7 40.2 0.933 5.026 LG

SCLV-05 154.80 161.95 7.15 3.8 90.6 1.314 11.769 LV

SCLV-05 161.95 187.25 25.30 13.3 12.2 0.867 0.913

SCLV-06 31.25 178.05 146.80 69.4 3.7 0.059 0.299

SCLV-06 178.05 185.00 6.95 3.0 53.0 1.432 6.171 LV

SCLV-06 185.00 210.15 25.15 10.9 11.7 0.728 0.929

SCSF-01 95.75 97.70 1.95 1.6 4.5 0.338 0.405

SCSF-01 149.90 154.30 4.40 3.6 98.4 1.370 2.528 HW-2

SCSF-01 154.30 177.60 23.30 19.1 3.1 0.084 0.133

SCSF-02 1.50 49.50 48.00 37.3 4.9 0.003 0.068

SCSF-02 49.50 58.50 9.00 7.0 221.5 1.440 2.802 SF

SCSF-02 58.50 115.50 57.00 44.3 4.5 0.124 0.129

SCSF-03 21.45 49.05 27.60 16.0 1.1 0.020 0.078

SCSF-03 49.05 62.30 13.25 7.7 92.9 3.077 3.871 HW-1

SCSF-03 62.30 88.70 26.40 15.2 1.1 0.062 0.150

SCSF-03 88.70 92.85 4.15 2.4 4.0 0.400 0.316 SF

SCSF-03 92.85 143.85 51.00 29.0 1.1 0.026 0.037

SCSF-04 21.75 61.55 39.80 29.4 1.9 0.015 0.018

SCSF-04 61.55 61.95 0.40 0.3 35.5 1.520 1.815 HW-1

SCSF-04 61.95 63.85 1.90 1.4 2.8 0.175 0.206

SCSF-04 63.85 69.20 5.35 3.9 22.9 1.195 1.617 SF

SCSF-04 69.20 120.40 51.20 37.7 6.2 0.061 0.065

SCSF-05 19.55 100.20 80.65 53.0 1.3 0.016 0.031

SCSF-05 100.20 121.75 21.55 14.2 21.5 0.420 0.903 HW-1

SCSF-05 121.75 163.40 41.65 27.7 3.4 0.065 0.061

SCSF-05 163.40 165.90 2.50 1.7 40.0 2.373 2.527 SF

SCSF-05 165.90 242.90 77.00 51.7 2.3 0.158 0.183

SCSF-06 58.30 142.95 84.65 52.0 2.4 0.049 0.053

SCSF-06 142.95 154.85 11.90 7.1 17.2 1.027 1.569 HW-1

SCSF-06 154.85 225.55 70.70 42.5 0.9 0.031 0.042

SCSF-06 225.55 228.30 2.75 1.7 22.1 1.984 2.781 SF

SCSF-06 228.30 273.10 44.80 27.2 4.2 0.215 0.294

SCSF-07 45.10 46.15 1.05 0.7 0.6 0.006 0.531

SCSF-07 46.15 58.80 12.65 8.8 2.6 0.098 0.995 SF

SCSF-07 58.80 181.90 123.10 85.3 2.4 0.069 0.451

SCSF-08 12.45 93.20 80.75 62.1 5.0 0.108 0.138

SCSF-08 93.20 98.15 4.95 3.8 58.0 5.438 5.059 HW-1


307



SCSF-08 98.15 104.30 6.15 4.7 10.3 0.969 0.856

SCSF-08 104.30 107.35 3.05 2.3 25.6 1.131 0.429 HW-1

SCSF-08 107.35 127.40 20.05 15.3 1.2 0.055 0.060

SCSF-09 12.20 126.55 114.35 54.9 1.7 0.011 0.018

SCSF-09 126.55 130.00 3.45 1.6 86.4 1.252 3.479 HW-1

SCSF-09 130.00 171.05 41.05 19.5 19.2 0.509 1.085

SCSF-09 171.05 174.85 3.80 1.8 167.0 0.564 8.839

SCSF-09 174.85 223.00 48.15 22.7 4.2 0.076 0.139

SCSF-09 223.00 226.75 3.75 1.8 8.0 0.510 0.478 SF

SCSF-09 226.75 235.45 8.70 4.1 5.0 0.483 0.467

SCSF-10 8.95 51.40 42.45 34.3 1.1 0.026 0.040

SCSF-10 51.40 52.10 0.70 0.6 0.5 0.009 0.014 SF

SCSF-10 52.10 73.75 21.65 17.5 3.2 0.020 0.038

SCVT-02 1.50 38.85 37.35 8.5 15.0 0.043 0.047

SCVT-02 38.85 46.50 7.65 1.7 143.3 0.777 0.703 VT

SCVT-02 46.50 88.45 41.95 9.6 7.9 0.370 0.315

SCVT-04 57.50 66.90 9.40 2.1 2.7 0.083 0.389

SCVT-04 66.90 79.15 12.25 2.7 8.6 0.815 1.360 VT

SCVT-04 79.15 85.20 6.05 1.3 4.1 0.026 0.504

SCVT-17 31.10 142.65 111.55 22.9 2.1 0.066 0.154

SCVT-17 142.65 153.95 11.30 2.4 38.0 0.423 3.358 VT

SCVT-17 153.95 155.10 1.15 0.2 2.6 0.088 0.097

SCVT-19 74.80 166.20 91.40 32.7 2.7 0.212 0.407

SCVT-19 166.20 167.20 1.00 0.4 0.8 0.007 0.014 VT

SCVT-19 167.20 169.50 2.30 0.9 7.7 0.286 0.499

SF0022RL 180.30 181.60 1.30 0.8 12.5 0.975 1.100

SF0022RL 181.60 195.86 14.26 9.2 143.4 3.898 7.283 LV

SF0022RL 195.86 196.60 0.74 0.5 1.8 0.085 0.105

SF0023RL 193.66 198.73 5.07 2.1 88.0 10.989 12.304

SF0023RL 245.50 247.25 1.75 0.7 131.7 4.067 10.525 LV

SF0023RL 247.25 248.90 1.65 0.7 1.9 0.059 0.351

SF9801 3.10 97.70 94.60 77.5 2.5 0.114 0.394

SF9801 97.70 101.60 3.90 3.2 113.3 5.345 11.950 LV

SF9801 101.60 138.99 37.39 30.6 13.4 0.718 1.118

SF9802 14.00 100.60 86.60 70.9 1.3 0.097 0.147

SF9802 100.60 103.90 3.30 2.7 34.2 2.533 0.446

SF9802 103.90 180.40 76.50 62.7 2.7 0.070 0.191

SF9803 3.10 25.50 22.40 18.3 3.4 0.073 0.293

SF9803 25.50 33.70 8.20 6.7 4.3 0.237 0.344


308



SF9803 33.70 84.73 51.03 41.8 0.8 0.108 0.194

SF9804 18.10 77.30 59.20 48.5 2.3 0.092 0.870

SF9804 77.30 97.80 20.50 16.8 53.6 0.575 9.164 LV

SF9804 97.80 138.20 40.40 33.1 3.4 0.258 0.345

SF9908 28.72 192.28 163.56 81.8 1.8 0.080 0.131

SF9908 192.28 205.22 12.94 6.5 2.6 0.136 0.348 LG

SF9908 205.22 242.00 36.78 18.4 7.2 0.105 0.150

SF9909 47.85 191.60 143.75 71.9 3.1 0.373 0.475

SF9909 191.60 199.40 7.80 3.9 37.4 0.332 6.285 LV

SF9909 199.40 213.20 13.80 6.9 50.8 1.167 6.399 LG

SF9909 213.20 233.05 19.85 9.9 2.6 0.130 0.170

SF9910 59.10 166.26 107.16 87.8 2.7 0.264 0.407

SF9910 166.26 172.95 6.69 5.5 29.1 5.103 4.735 LV

SF9910 172.95 229.07 56.12 46.0 2.4 0.334 0.315

SF9910RL 166.26 172.95 6.69 5.5 28.8 4.822 4.263 LV

SF9911 27.43 77.28 49.85 40.8 2.1 0.084 0.150

SF9911 77.28 78.33 1.05 0.9 10.8 0.131 0.033

SF9911 78.33 121.01 42.68 35.0 1.0 0.032 0.069

SF9912 43.75 186.75 143.00 91.9 3.4 0.273 0.373

SF9912 186.75 193.41 6.66 4.3 270.9 6.362 19.209 LV

SF9912 193.41 227.38 33.97 21.8 4.9 0.143 0.165

SF9912RL 186.75 193.41 6.66 4.3 312.2 5.605 11.325 LV

SF9913 9.14 96.93 87.79 67.3 3.7 0.287 0.429

SF9913 96.93 104.20 7.27 5.6 17.9 2.226 3.192 LG

SF9913 104.20 209.60 105.40 80.7 3.5 0.303 0.379

SF9914 47.90 127.28 79.38 39.7 5.7 0.480 0.480

SF9914 127.28 133.70 6.42 3.2 39.4 2.457 2.362 LG

SF9914 133.70 174.30 40.60 20.3 22.8 0.985 1.145

SF9915 72.90 245.90 173.00 73.1 3.2 0.327 0.404

SF9915 245.90 256.50 10.60 4.5 77.0 5.361 5.714 LV

SF9915 256.50 261.90 5.40 2.3 2.9 0.171 0.822


309

31. Appendix 4 – Ag Variograms


310


311


312


313


314


315


316


317


318


319


320


321


322


323


324


325

32. Appendix 5 – Certificate of Author Forms

HANS SMIT, P.GEO.

I, Hans Q. Smit, P.Geo., Consulting Geologist, do hereby certify that:

1. I am a Professional Geologist with a residence and business address at 10084 Hislop Road, Telkwa, British Columbia, V0J 2X1.

2. I am a graduate of the University of British Columbia (1984) with a Bachelor of Science (Honours) in Geology.

3. I am a Registered Professional Geoscientist in good standing with the Association of Professional Engineers and Geoscientists of the Province of British Columbia.

4. I have worked in the mineral exploration and development industry since 1981 and have worked in the industry for a total of 30 years since my graduation from university. I have been involved in various mineral resource estimates and economic assessments including managing resource estimates and a Preliminary Economic Assessment for the La India project in Sonora, Mexico (2008 - 2010), managing a resource estimate for the Gavilanes project in Durango, Mexico (2014), managing a Feasibility Study and resource estimate on the Dublin Gulch project in Yukon, Canada (1996 - 1997), manager for the resource estimate and Pre-Feasibility study for the Swamp Point Aggregate Project, British Columbia, Canada (2005) and assistant manager for the exploration, resource definition and feasibility level work at the Red Mountain project in British Columbia, Canada (1994-1995)

5. I have read the definition of “qualified person” set out in National Instrument 43-101 and certify that by reason of education, experience, independence and affiliation with a professional association, I meet the requirements of an Independent Qualified Person as defined in National Instrument 43-101.

6. This report titled “2014 Mineral Resource Estimate and Preliminary Economic Assessment, San Felipe Project, Sonora Mexico” dated effective September 4, 2014 and amended on June ,29, 2016, (the "Technical Report"), is based on a study of the data and literature available on the San Felipe Project. I am responsible for sections 1 through 5, 15, 18.6, 19, 20, 22, 24, 25, 26.1 and 26.6 through 26.8 of the report.

7. My most recent personal inspection of the San Felipe property was from April 3 to 6, 2014.

8. I have not had any prior involvement with the San Felipe project.

9. As of the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

10. I am independent of the issuer applying all of the tests in section 1.5 of National Instrument 43-101.

11. I have read National Instrument 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.


326

Dated this 29 day of June, 2016

{Original Signed and Sealed} “H.Smit”

H. Q. Smit, P.Geo., BSc(Hons).


327

FLETCHER BOURKE, P.GEO.

I, Fletcher M. Bourke, P.Geo., Consulting Geologist, do hereby certify that:

1. I am a consulting geologist with a business address of 4-11 13-Chome, Miyanomori 1-Jyo, Sapporo, Japan.

2. I am a graduate of University of Canterbury (2002) with a Master of Science in Engineering Geology.

3. I am a Registered Professional Geoscientist in good standing with the Association of Professional Engineers and Geoscientists of the Province of British Columbia (#38499).

4. I have worked in the mineral exploration and development industry since 2002 and have worked as a geologist for a total of 12 years since my graduation from university. I have been involved in various mineral resource estimates including the La India and Tarachi projects in Sonora, and the Gavilanes project in Durango, Mexico.

5. I have read the definition of “qualified person” set out in National Instrument 43-101 and certify that by reason of education, experience, independence and affiliation with a professional association, I meet the requirements of an Independent Qualified Person as defined in National Instrument 43-101.

6. This report titled “2014 Mineral Resource Estimate and Preliminary Economic Assessment, San Felipe Project, Sonora Mexico” dated effective September 4, 2014 and amended on June 29, 2016, (the "Technical Report"), is based on a study of the data and literature available on the San Felipe Project. I am responsible for sections 6 through 12, 23, 27, and Appendix 1 and 3.

7. I visited the San Felipe property 6 times during the period from July 2013 through June 2014. My most recent personal inspection of the San Felipe property was from June 10th to 16th, 2014.

8. I have not had any prior involvement with the San Felipe project.

9. As of the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

10. I am independent of the issuer applying all of the tests in section 1.5 of National Instrument 43-101.

11. I have read National Instrument 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.


{Original Signed and Sealed} “F.Bourke”

F.M.Bourke, P.Geo., MSc.


328

CERTIFICATE G.H. Giroux, P.Eng.

I, G.H. Giroux, of 982 Broadview Drive, North Vancouver, British Columbia, do hereby certify that:

1) I am a consulting geological engineer with an office at 982 Broadview Drive, North Vancouver, British Columbia.

2) I am a graduate of the University of British Columbia in 1970 with a B.A. Sc. and in 1984 with a M.A. Sc., both in Geological Engineering.

3) I am a member in good standing of the Association of Professional Engineers and Geoscientists of the Province of British Columbia.

4) I have practiced my profession continuously since 1970. I have had over 30 years’ experience estimating mineral resources. I have previously completed resource estimations on a wide variety of precious metal vein deposits around the world, including Monterde, Efemcukuru and El Bronce.

5) I have read the definition of “qualified person” set out in National Instrument 43-101 and certify that by reason of education, experience, independence and affiliation with a professional association, I meet the requirements of an Independent Qualified Person as defined in National Instrument 43-101.

6) This report titled “2014 Mineral Resource Estimate and Preliminary Economic Assessment San Felipe Project, Sonora Mexico” dated effective September 4, 2014 and amended on June 29, 2016, (the “Technical Report”), is based on a study of the data and literature available on the San Felipe Project. I am responsible for Section 14 and Appendices 2 and 4 of the Technical Report completed in Vancouver during 2014. I have not visited the property.

7) I have not previously worked on this deposit.

8) As of the effective date of the Technical Report, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

9) I am independent of the issuer applying all of the tests in section 1.5 of National Instrument 43-101.

10) I have read National Instrument 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.


{Original Signed and Sealed} “G. Giroux”

G. H. Giroux, P.Eng., MASc.


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MARK E. SMITH, P.E.

I, Mark E. Smith, P.E., geotechnical engineer, do hereby certify that:

1. This certificate applies to the Technical Report entitled “2014 Mineral Resource Estimate and Preliminary Economic Assessment, San Felipe Project, Sonora Mexico” dated effective September 4, 2014 and amended on June 29, 2016, (the "Technical Report"). I am responsible for Section 18.1 and Table 26-1 of the Technical Report.

2. I am a professional engineer and the chief executive with RRD International with residence and business address at 759 Eagle Drive, Incline Village, Nevada, USA.

3. I have practiced my profession continuously since 1979. I have 37 years of experience in geotechnical engineering and tailings management.

4. I graduated from the University of Nevada, Reno (M.Sc. Civil Eng.) in 1986, and the University of California, Davis (B.Sc. Civil Eng.) in 1979. I also studied geological engineering, groundwater hydrology and rock mechanics at the University of Utah, Salt Lake City (1979-1980).

5. I am a registered civil and geotechnical engineer in California (#CE35469 and #G2082), a registered professional engineer (civil) and water rights surveyor in Nevada (#6546 and #701), a registered professional engineer (civil and structural) in Idaho and Utah, and a registered professional engineer (civil) in Texas and South Dakota. I am a Registered Member of the Society for Mining, Metallurgy & Exploration (#3005800). I am a member of the Advisory Board for the College of Engineering, University of Nevada, Reno. I am the qualifying officer for contractor’s licenses for general building and engineering construction in California (#968419).

6. I visited the property on February 14 -15, 2014. I have no prior involvement with the San Felipe project. I am independent of the Issuer and related companies applying all of the tests in Section 1.5 of NI43-101.

7. As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the technical not misleading.

8. I have read the definition of “Qualified Person” set out in National Instrument 43-101 (NI43-101) and certify that by reason of my education, affiliation with professional associations, and past relevant work experience, I fulfill the requirements to be a “Qualified Person” for the purposes of NI43-101.

9. I have read NI43-101 and the Technical Report has been prepared in compliance with NI43-101 and Form 43-101.

Dated this 29th day of June, 2016.

{Original Signed and Sealed}

“Mark E. Smith”

Mark E. Smith, P.E.


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