hermosani43101peanov2012_v001_q0gnem

Preliminary Economic Assessment

Santa Cruz County, Arizona

REVISION 1 Prepared For:

M3-PN120076 12 November 2012

M3 Engineering & Technology Corporation ● 2051 West Sunset Road, Tucson, AZ 85704 ● 520.293.1488

Hermosa Project

HERMOSA PROJECT PRELIMINARY ECONOMIC ASSESSMENT

M3-PN120076 12 November 2012 Revision 1 i

DATE AND SIGNATURES PAGE

This report is current as of 12 November 2012.

“Signed” Joshua Snider, P.E. 12 November 2012

Signature Date


M3-PN120076 12 November 2012 Revision 1 ii


FORM 43-101F1 TECHNICAL REPORT

TABLE OF CONTENTS

SECTION PAGE

DATE AND SIGNATURES PAGE .................................................................................................. I

TABLE OF CONTENTS................................................................................................................... II

LIST OF FIGURES AND ILLUSTRATIONS .......................................................................... VIII

LIST OF TABLES ............................................................................................................................. X

1 SUMMARY ............................................................................................................................. 1

1.1 KEY DATA .................................................................................................................... 1

1.2 CAPITAL COSTS ........................................................................................................... 2

1.3 OPERATING COSTS ...................................................................................................... 2

1.4 FINANCIAL MODEL ...................................................................................................... 3

1.5 PROPERTY DESCRIPTION AND OWNERSHIP ............................................................... 3

1.6 MINERALIZATION ........................................................................................................ 3

1.7 CURRENT EXPLORATION ............................................................................................. 4

1.8 HERMOSA PROPERTY MINERAL RESOURCES ............................................................ 4

1.8.1 Skarn Resource ....................................................................................... 5

1.9 MINE PLANNING .......................................................................................................... 5

1.10 METALLURGICAL DEVELOPMENT .............................................................................. 6

1.11 PROCESS DESCRIPTION ............................................................................................... 6

1.12 ENVIRONMENTAL ....................................................................................................... 11

1.13 CONCLUSIONS AND RECOMMENDATIONS................................................................. 11

1.13.1 General................................................................................................... 11 1.13.2 Metallurgy ............................................................................................. 11

2 INTRODUCTION ................................................................................................................ 13

2.1 PURPOSE ..................................................................................................................... 13

2.2 SOURCES OF INFORMATION ...................................................................................... 13

2.3 PERSONAL INSPECTIONS ............................................................................................ 14

2.4 UNITS AND ABBREVIATIONS ...................................................................................... 15

3 RELIANCE ON OTHER EXPERTS ................................................................................. 17


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4 PROPERTY DESCRIPTION AND LOCATION ............................................................ 18

4.1 LOCATION .................................................................................................................. 18

4.2 PROPERTY DESCRIPTION........................................................................................... 20

4.3 PROPERTY OWNERSHIP ............................................................................................. 21

4.4 MINERAL TENURE ..................................................................................................... 21

4.5 OPTION AGREEMENTS ............................................................................................... 24

4.6 AGREEMENTS AND ROYALTIES ................................................................................. 25

5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY ...................................................................................................... 26

5.1 ACCESS ....................................................................................................................... 26

5.2 CLIMATE .................................................................................................................... 26

5.3 INFRASTRUCTURE ...................................................................................................... 26

5.3.1 Water ..................................................................................................... 26 5.3.2 Workforce .............................................................................................. 27 5.3.3 Commercial Resources and Services .................................................. 27 5.3.4 Social Services and Security ................................................................ 27 5.3.5 Power ..................................................................................................... 27 5.3.6 Gas Pipeline ........................................................................................... 27 5.3.7 Communication .................................................................................... 27 5.3.8 Transportation ...................................................................................... 28

5.4 PHYSIOGRAPHY .......................................................................................................... 28

6 HISTORY .............................................................................................................................. 29

6.1 GENERAL HISTORY, MINING HISTORY, AND PRODUCTION .................................... 29

6.2 ASARCO EXPLORATION HISTORY .......................................................................... 30

6.3 PROPERTY OWNERSHIP HISTORY ............................................................................ 31

7 GEOLOGICAL SETTING AND MINERALIZATION ................................................. 32

7.1 REGIONAL GEOLOGY ................................................................................................ 32

7.2 PROPERTY GEOLOGY ................................................................................................ 32

7.3 ALTERATION .............................................................................................................. 41

7.4 MINERALIZATION ...................................................................................................... 42

7.5 STRUCTURAL GEOLOGY ............................................................................................ 42

7.6 SUMMARY AND CONCLUSION .................................................................................... 42

8 DEPOSIT TYPES ................................................................................................................. 43

9 EXPLORATION ................................................................................................................... 44


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9.1 ASARCO EXPLORATION .......................................................................................... 44

9.2 WILDCAT SILVER EXPLORATION ............................................................................. 44

10 DRILLING ............................................................................................................................ 46

10.1 PREVIOUS DRILLING .................................................................................................. 46

10.2 WILDCAT SILVER DRILLING (2006-2012) ................................................................ 48

11 SAMPLE PREPARATION, ANALYSES AND SECURITY ......................................... 49

11.1 ASARCO DRILLING PROGRAM ............................................................................... 49

11.2 WILDCAT SILVER CORPORATION ............................................................................. 49

11.3 WILDCAT SILVER QUALITY ASSURANCE CONTROL ANALYTICAL PROGRAM ................................................................................................................... 50

11.4 WILDCAT SILVER ANALYTICAL PROGRAM ............................................................. 50

12 DATA VERIFICATION ...................................................................................................... 51

12.1 WILDCAT SILVER PULP RE-ASSAY ........................................................................... 51

12.2 WILDCAT SILVER COMPARATIVE DRILLING ........................................................... 51

12.3 ADDITIONAL DATA VALIDATION .............................................................................. 52

12.4 QUALITY CONTROL PROGRAM ................................................................................. 52

13 MINERAL PROCESSING AND METALLURGICAL TESTING ............................... 55

13.1 GENERAL .................................................................................................................... 55

13.2 UPPER SILVER ZONE ................................................................................................. 57

13.3 UPPER SILVER ZONE PEA RECOVERY ..................................................................... 58

13.4 HERMOSA MANTO OXIDE METALLURGICAL TEST PROGRAM............................... 59

13.4.1 Phase 1 Batch Rotary Kiln .................................................................. 60 13.4.2 Phase 2 and 3 Continuous Rotary Kilns: ........................................... 61

14 MINERAL RESOURCE ESTIMATES ............................................................................. 69

14.1 DATABASE .................................................................................................................. 69

14.2 GEOLOGIC AND MINERALIZED MATERIAL TYPE MODEL ...................................... 71

14.3 BLOCK MODEL .......................................................................................................... 71

14.4 GEOSTATISTICS .......................................................................................................... 73

14.5 GRADE ESTIMATION .................................................................................................. 74

14.6 RESOURCE CLASSIFICATION ..................................................................................... 74

14.7 DENSITY ...................................................................................................................... 74

14.8 OPEN PIT MINE RESOURCES ..................................................................................... 75


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14.8.1 Pit Optimization Parameters ............................................................... 75 14.8.2 Hermosa Resource ................................................................................ 75 14.8.3 Skarn Resource ..................................................................................... 76

15 MINERAL RESERVE ESTIMATES ................................................................................ 77

16 MINING METHODS ........................................................................................................... 78

16.1 MINE OPTIMIZATION ................................................................................................. 78

16.2 MINE PLANNING ........................................................................................................ 80

16.3 PRODUCTION SCHEDULE ........................................................................................... 81

16.4 MINE SITE LAYOUT ................................................................................................... 84

16.5 MOBILE EQUIPMENT FLEET ..................................................................................... 84

16.6 MINING PERSONNEL .................................................................................................. 84

17 RECOVERY METHODS .................................................................................................... 86

17.1 PROCESS PLANT ......................................................................................................... 86

17.1.1 General................................................................................................... 86 17.1.2 Process Overview .................................................................................. 86 17.1.3 Metal Recovery and Production Schedule ......................................... 90

17.2 PROCESS REAGENTS .................................................................................................. 90

18 PROJECT INFRASTRUCTURE ....................................................................................... 91

18.1 POWER ........................................................................................................................ 91

18.2 NATURAL GAS ............................................................................................................ 91

18.3 ROADWORK ................................................................................................................ 91

18.4 GENERAL SITE LAYOUT ............................................................................................ 91

18.5 TAILINGS STORAGE FACILITY (TSF) ....................................................................... 94

18.6 ROCK STORAGE AREA ............................................................................................... 98

19 MARKET STUDIES AND CONTRACTS ...................................................................... 101

20 ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL OR COMMUNITY IMPACT .................................................................................................. 102

20.1 INTRODUCTION ........................................................................................................ 102

20.2 ENVIRONMENTAL PERMITTING .............................................................................. 102

20.2.1 National Environmental Policy Act (NEPA) ................................... 102 20.2.2 Air Quality Permit .............................................................................. 104 20.2.3 Aquifer Protection Permit ................................................................. 105 20.2.4 Other Permits ...................................................................................... 106

20.3 SOCIAL AND COMMUNITY ....................................................................................... 106


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20.4 ENVIRONMENTAL DESIGN AND OPERATION CONSIDERATIONS ........................... 107

20.4.1 Tailings and Waste Rock ................................................................... 107 20.4.2 Monitoring ........................................................................................... 108 20.4.3 Site Water Management .................................................................... 108

20.5 RECLAMATION AND CLOSURE ................................................................................ 109

21 CAPITAL AND OPERATING COSTS ........................................................................... 113

21.1 CAPITAL COSTS ....................................................................................................... 113

21.1.1 Capital Cost Summary ....................................................................... 113

21.2 BASIS OF CAPITAL COST ESTIMATE ....................................................................... 114

21.2.1 Mining .................................................................................................. 114 21.2.2 Process Plant and Infrastructure ...................................................... 114 21.2.3 Major Indirect Capital Costs ............................................................ 114 21.2.4 TSF Costs ............................................................................................. 115

21.3 TAILINGS STORAGE FACILITY CAPITAL COST ...................................................... 116

21.4 OPERATING COSTS .................................................................................................. 117

21.4.1 Operating Cost Summary .................................................................. 117 21.4.2 Basis of Operating Cost ..................................................................... 118 21.4.3 Items Excluded from the Estimate ................................................... 120

22 ECONOMIC ANALYSIS .................................................................................................. 121

22.1 PRODUCTION STATISTICS ........................................................................................ 121

22.2 REVENUES ................................................................................................................ 122

22.3 OPERATING COST .................................................................................................... 123

22.4 CAPITAL EXPENDITURES ......................................................................................... 123

22.5 WORKING CAPITAL ................................................................................................. 124

22.6 INCOME TAXES ........................................................................................................ 124

22.7 ECONOMIC ANALYSIS SUMMARY RESULTS ........................................................... 125

22.8 SENSITIVITY ANALYSIS ............................................................................................ 127

22.9 MINE LIFE ................................................................................................................ 127

22.10 RECLAMATION AND CLOSURE ................................................................................ 127

23 ADJACENT PROPERTIES .............................................................................................. 128

24 OTHER RELEVANT DATA AND INFORMATION ................................................... 129

25 INTERPRETATION AND CONCLUSIONS ................................................................. 130

25.1 METALLURGY .......................................................................................................... 130


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25.2 PROJECT ECONOMIC OUTCOMES (TSF RELATED) AND RELATED UNCERTAINTIES ....................................................................................................... 130

25.3 ENVIRONMENTAL ..................................................................................................... 131

26 RECOMMENDATIONS ................................................................................................... 132

26.1 METALLURGICAL RECOMMENDATIONS................................................................. 132

26.2 GEOTECHNICAL AND TAILINGS .............................................................................. 133

26.3 ENVIRONMENTAL ..................................................................................................... 133

27 REFERENCES.................................................................................................................... 135

APPENDIX A – PEA CONTRIBUTORS AND PROFESSIONAL QUALIFICATIONS ........................................................................................................... 136


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LIST OF FIGURES AND ILLUSTRATIONS

FIGURE DESCRIPTION PAGE Figure 1-1: Overall Process Flowsheet ............................................................................................8

Figure 1-2: Mine Site Plan (000-GA-001) .......................................................................................9

Figure 1-3: Plant Site Plan (000-GA-002) .....................................................................................10

Figure 4-1: Property Location Map related to Arizona .................................................................19

Figure 4-2: Hermosa Project Location Map related to Santa Cruz County, AZ ............................20

Figure 4-3: Hermosa Claim Status Map ........................................................................................24

Figure 7-1: Regional Geology .......................................................................................................33

Figure 7-2: Geological Map of the Hermosa Project .....................................................................35

Figure 7-3: Generalized Cross-Section ..........................................................................................36

Figure 7-4: Generalized Long-Section ...........................................................................................37

Figure 7-5: Stratigraphic Column for the Western Half of the Hermosa Project Area. ................38

Figure 7-6: Stratigraphic column for the eastern half of the Hermosa project area ......................39

Figure 10-1: Drill Holes Used In 2012 Resource ..........................................................................47

Figure 12-1: Silver Check Assays Skyline and Inspectorate Laboratories ....................................54

Figure 13-1: Metallurgical Development - Conceptual Process Diagram .....................................56

Figure 13-2: Hazen – Upper Silver Zone – PEA Silver Dissolution vs. Head Grade ...................59

Figure 13-3: PEA Silver Dissolution versus Head Grade ..............................................................68

Figure 14-1: Drill Hole Location Map ...........................................................................................70

Figure 14-2: Block Model Cross Section Showing Mineralized material Type at Section 167,451 Northing .................................................................................................................73

Figure 16-1: Whittle Comparison of Mine Size and Pit Value Varied by Metal Prices ................79

Figure 16-2: Pit Extents and Block Values in Northing Section 168,417 .....................................80

Figure 17-1: Overall Process Flowsheet ........................................................................................89

Figure 18-1: Mine Site Plan (000-GA-001) ...................................................................................92

Figure 18-2: Plant Site Plan (000-GA-002) ...................................................................................93

Figure 18-3: Tailings Storage Facility Plan View (Starter) ...........................................................95

Figure 18-4: Tailings Storage Facility Plan View (Ultimate) ........................................................96

Figure 18-5: Tailings Storage Facility Embankment and Basin Cross Section .............................97

Figure 18-6: Rock Storage Area Plan View (Starter) ....................................................................99

Figure 18-7: Rock Storage Area Plan View (Ultimate) ...............................................................100


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Figure 22-1: Sensitivity Graph.....................................................................................................127


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LIST OF TABLES

TABLE DESCRIPTION PAGE

Table 1-1: Key Project Data ............................................................................................................2

Table 1-2: Operating Cost Summary ...............................................................................................2

Table 1-3: Financial Model Indicators .............................................................................................3

Table 1-4: Measured Mineral Resources in Pit................................................................................4

Table 1-5: Indicated Mineral Resources in Pit ................................................................................4

Table 1-6: Combined Measured and Indicated Mineral Resources in Pit .......................................5

Table 1-7 Inferred Mineral Resources in Pit ....................................................................................5

Table 1-8: Hermosa Skarn Inferred Resource .................................................................................5

Table 1-9: Pit Resource Used for Production Scheduling ...............................................................6

Table 2-1: Dates of Site Visits and Areas of Responsibility .........................................................14

Table 2-2: Units, Terms and Abbreviations ...................................................................................15

Table 4-1: Hermosa Patented Claims List .....................................................................................23

Table 6-1: Historic Production from Hardshell Area Mines .........................................................30

Table 10-1: Drill Hole Summary ...................................................................................................46

Table 10-2: Comparison Drill Hole Pairs ......................................................................................48

Table 12-1: Database Analytical Proportions - Historic and Re-Assayed Data ............................51

Table 12-2: Comparison Drill Hole Pairs .....................................................................................51

Table 12-3: Twinned Drill Hole Comparisons ..............................................................................52

Table 12-4: Results for Silver Standards .......................................................................................53

Table 13-1: Upper Silver Zone – Summary of Silver Dissolution Tests .......................................58

Table 13-2: Upper Silver Zone – Derived Silver Dissolution vs. Head Grade..............................58

Table 13-3: Batch Kiln Summary of Silver Dissolution ................................................................65

Table 13-4: Continuous Kilns - Silver Dissolution by Mineralized material Type. ......................66

Table 13-5: PEA Silver Dissolution Curve – Silver Dissolution vs. Head Grade .........................67

Table 14-1: Drilling and Assay Statistics ......................................................................................69

Table 14-2: Percent of Total Intervals Assays ...............................................................................69

Table 14-3: Block Model Parameters for Hermosa Project ...........................................................71

Table 14-4: Block Model Geologic and Mineralized Material Type Coding ................................72

Table 14-5: Hermosa Grade Estimation Parameters ......................................................................74

Table 14-6: Hermosa Resource Classification Methodology ........................................................74


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Table 14-7: Density by Geologic Units .........................................................................................74

Table 14-8: Metal Prices and Recoveries used for Economic Pit ..................................................75

Table 14-9: Mining and Processing Costs used for Economic Pit.................................................75

Table 14-10 Measured Pit Resources for Hermosa by Zone .........................................................75

Table 14-11: Indicated Pit Resources for Hermosa by Zone .........................................................76

Table 14-12: Measured and Indicated Hermosa Pit Resource .......................................................76

Table 14-13: Inferred Hermosa Pit Resource ................................................................................76

Table 14-14: Hermosa Skarn Resource (Welhener, March 2012) .................................................76

Table 16-1: Whittle Optimization Parameters ...............................................................................78

Table 16-2: Metal Selling Prices used in Whittle Optimization ....................................................78

Table 16-3: Pit Resource Used for Production Scheduling ...........................................................79

Table 16-4 Whittle Nested Pits for Mine Planning ........................................................................80

Table 16-5: Block Value Metal Prices and Recoveries .................................................................81

Table 16-6: Mineralized Material Type Breakdown Conditions ...................................................81

Table 16-7: Hermosa Mine Plan ....................................................................................................83

Table 16-8: Estimated Mobile Equipment Fleet ............................................................................84

Table 16-9: Peak Mine Production Mine Workforce ....................................................................85

Table 17-1: Metal Recovery and Production Schedule .................................................................90

Table 17-2: Reagents and Consumption Rates ..............................................................................90

Table 20-1: Environmental Permits and Approvals....................................................................109

Table 21-1: Capital Cost Summary..............................................................................................113

Table 21-2: Tailings Storage Facility - Capital Cost Estimate Summary ....................................116

Table 21-3: Rock Storage Area - Capital Cost Estimate Summary .............................................116

Table 21-4: Operating Cost Summary – Life-of-Mine Average .................................................117

Table 21-5: Reagent Consumption Rates and Unit Pricings .......................................................119

Table 21-6: Liners, Grinding Media & Kiln Refractory Consumption Rates and Unit Pricings 119

Table 22-1: Mine Production .......................................................................................................121

Table 22-2: Commodity Production ............................................................................................122

Table 22-3: Metal Prices ..............................................................................................................122

Table 22-4: Refining and Smelter Return factors ........................................................................123

Table 22-5: Operating Cost Summary .........................................................................................123

Table 22-6: Capital Expenditures by Year...................................................................................125


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Table 22-7: Economic Analysis Summary ..................................................................................126


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LIST OF APPENDICES

APPENDIX DESCRIPTION

A PEA Contributors and Professional Qualifications

• Certificate of Qualified Person (“QP”)


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1 SUMMARY

M3 Engineering and Technology of Tucson, AZ was contracted by Wildcat Silver ("Wildcat") of Vancouver, British Columbia, Canada, to prepare an Preliminary Economic Assessment (the “PEA”) and Independent Technical Report (the "Report"), compliant with National Instrument 43-101 ("NI 43-101”) on the Hermosa Property (the "Property").

This section briefly summarizes the findings of the PEA. The proposed project is an open pit silver mine that delivers mineralized material to a 16,500 tpd (tons per day) or 6,000,000 tpy (tons per year) processing facility. The processing facility treats the material with crushing, grinding, calcining, leaching, SART precipitation and Merrill Crowe refining. The project is located near Patagonia, Arizona, USA which has a balance of remoteness and proximity to infrastructure. Over the life of the project, 125,720,000 ounces (troy ounces) of silver and 230,000 ounces of gold are projected to be produced.

Wildcat selected third-party consultants that are well known and respected in the industry. These consultants performed the design, engineering, resource calculations, and environmental studies used for this report. All consultants have the capability to support the project, as required and within the confines of expertise, from feasibility study to full operation. All costs are based on third quarter 2012 US dollars.

M3 Engineering & Technology Corporation (M3), and other Wildcat consultants, developed mine plans, process flow sheets and estimates for the project.

1.1 KEY DATA

Key project data are presented in Table 1-1 including a summary of the project size, production, operating costs, metal prices, and financial indicators.



Table 1-1: Key Project Data

Mine Life (years) 16 Mine Type: Open Pit Process Description: Crushing, grinding, calcining, leaching and

SART precipitation and Merrill Crowe refining Mill Throughput (Tons Per day) 16,500 Initial Capital Costs ($US Millions) $627.4 Sustaining Capital Costs ($US Millions) $152.1 Payable Metals Manto Oxide Zone - Average Processed Material Grade 2.59 oz/t Ag, 0.003 oz/t Au, 0.08% Copper

Upper Silver Zone - Average Processed Material Grade 1.30 oz/t Ag, 0.002 oz/t Au Manto Oxide Zone - Average Mill Recovery 82% Ag, 90% Au, 20% Cu Upper Silver Zone – Average Mill Recovery 40% Ag, 90% Au Unit Operating Cost: Mining Cost per total ton $1.25

Mining Cost per processed ton $4.53 Processing Cost per processed ton $11.88 G&A per processed ton $1.03 Other Cost per processed ton $1.51 Total cost per processed ton $18.95 Silver Price (price per troy ounce) $28.75 Gold Price (price per troy ounce) $1525.00 Copper Price (price per pound) $3.50 After Tax Project Internal Rate of Return (IRR) 31.9% After Tax NPV at 5% Discount Rate ($ Millions) $658.2 After Tax Payback (years) 1.7

1.2 CAPITAL COSTS

The project costs were estimated using project specific data that was created from historical and in house data on similar projects or developed specifically for this project. The estimate is PEA level and has an accuracy of +/- 30%. The capital costs for the project were estimated at $627.4 million, which includes a contingency of $96 million.

1.3 OPERATING COSTS

Operating costs were built up based on anticipated labor and estimated consumption rates and presented in Table 1-2.

Table 1-2: Operating Cost Summary

Life of Mine Average $(000) $/t Mineralized Material Mining $27,152 $4.53 Process $71,310 $11.88 G&A $6,200 $1.03 Other $9,041 $1.51 Total Operating Cost $113,703 $18.95



1.4 FINANCIAL MODEL

The Hermosa Project economics were completed using a discounted cash flow model. The financial indicators examined for the project included the Net Present Value (NPV), Internal Rate of Return (IRR) and payback period (time in years to recapture the initial capital investment). Annual cash flow projections were estimated over the life of the mine based on capital expenditures, production costs, transportation and treatment charges and sales revenue. The life of the mine is 16 years. Metal price assumptions are $28.75/ounce silver and $1,525/ounce gold. The after tax financial indicators based on a 100% equity case are summarized as follows:

Table 1-3: Financial Model Indicators After Taxes

NPV @ 0% ($M) $1,027 NPV @ 5% ($M) $658 NPV @ 7.5% ($M) $528 IRR % 31.9% Payback – years 1.7

1.5 PROPERTY DESCRIPTION AND OWNERSHIP

The Hermosa Project is located in the northern end of the Patagonia Mountains. Elevations on the property range from 4,900 to 6,200 feet above sea level. The area is sparsely populated. Livestock grazing is the dominant land use. The property is located within the USFS Farrell Grazing Allotment.

The core of the property is composed of 154 acres of fee simple surface and mineral rights ownership on patented mining claims. These patented mining claims are surrounded by 313 unpatented mining claims (5996.5) held by Arizona Minerals, Inc. These federal lands are administered by the United States Forest Service, Coronado National Forest, US Department of Agriculture. The Sierra Vista Ranger District of the Coronado National Forest is the responsible agent.

The property contains shafts, trenches and other surface openings from historic mining and exploration activities. The area is accessed through a series of interconnected low maintenance roads and trails.

1.6 MINERALIZATION

The mineralization of interest with the property is related to a Manto type deposit that is rich in silver, gold, manganese, zinc, copper, and lead (Ag-Au-Mn-Zn-Cu-Pb). The Manto replacement-skarn mineralization formed at a contact between carbonate limestones and rhyolitic volcanic rocks. Structural episodes, fracturing and emplacement of hydrothermal fluids have emplaced high concentrations of metals into four mineralization types; vein controlled sooty Mn oxides, disseminated silver and iron in the rhyolites, replacement-style Manto Oxides in the carbonates and volcanics, and strongly silicified zones.



The shape of the mineralization can be characterized as subhorizontal lenses. These lenses make this an attractive deposit for the evaluation of the mineralization and for economic extraction.

1.7 CURRENT EXPLORATION

Geological mapping, geochemical sampling, geophysical surveys and several drilling campaigns have been undertaken at the Hermosa project by Asarco, the former owner of the property, and Wildcat Silver Corporation (“Wildcat” or “Wildcat Silver”). To date, the project area has been mapped, rock chip and soil geochemical samples have been collected, an airborne EM and magnetic survey has been completed and 343 exploration holes have been drilled.

Early campaigns undertaken by Asarco led to the discovery of the Hardshell Ag deposit and to the eventual patenting of public lands over the mineral deposit. Wildcat’s drilling campaigns have been restricted to these patented lands and have confirmed, characterized and extended the mineral deposit. Wildcat has submitted a Plan of Operation (PoO) to the United States Forest Service and seeks permission to extend the drilling coverage beyond the limits of the patented holdings to unpatented mining claims lying on the Coronado National Forest.

1.8 HERMOSA PROPERTY MINERAL RESOURCES

SEWC applied a cutoff grade of 0.25 oz/ton Ag for this Mineral Resource Statement. Since there is ample metallurgical definition of the mineralization, good understanding of the geology and sufficient drilling density, the resources can be categorized in accordance with NI43-101. The following tables list the Measured Mineral Resources, Indicated Mineral Resources and Inferred Mineral Resources for the Property. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

Additionally, the stated resources have been confined to the limits of an economic pit using Lerchs-Grossmann optimization techniques. SEWC recommends that this methodology best identifies the portion of the mineralization that has reasonable prospects of economic extraction.

Table 1-4: Measured Mineral Resources in Pit

Zone Type Tons (000)

Ag (oz/ton)

Au (oz/ton)

Mn (%)

Zn (%)

Cu (%)

Contained Silver

Ounces (000s) Manto Oxide 40,504 1.94 0.003 6.46 1.65 0.06 78,725 Upper Silver Mixed 62,873 0.86 0.002 0.77 0.11 0.02 54,360 Total Measured 103,377 1.29 0.002 3.00 0.71 0.04 133,085

Table 1-5: Indicated Mineral Resources in Pit


Ag (oz/ton)

Au (oz/ton)

Mn (%)

Zn (%)

Cu (%)

Contained Silver

Ounces (000s) Manto Oxide 43,776 1.21 0.002 5.16 1.51 0.05 53,008 Upper Silver Mixed 66,893 0.74 0.002 0.86 0.14 0.02 49,481 Total Indicated 110,669 0.93 0.002 2.56 0.68 0.03 102,489



Table 1-6: Combined Measured and Indicated Mineral Resources in Pit


Ag (oz/ton)

Au (oz/ton)

Mn (%)

Zn (%)

Cu (%)

Contained Silver

Ounces (000s) Manto Oxide 84,280 1.56 0.002 5.79 1.57 0.06 131,733 Upper Silver Mixed 129,767 0.80 0.002 0.82 0.13 0.02 103,841 Total Measured & Indicated 214,046 1.10 0.002 2.77 0.70 0.03 235,574

Table 1-7 Inferred Mineral Resources in Pit


Ag (oz/ton)

Au (oz/ton)

Mn (%)

Zn (%)

Cu (%)

Contained Silver Ounces (000s)

Manto Oxide 23,971 1.15 0.002 6.38 2.53 0.09 27,662 Upper Silver Mixed 63,673 0.81 0.002 0.77 0.15 0.02 51,346 Total Inferred 87,645 0.90 0.002 2.31 0.80 0.04 79,008

1.8.1 Skarn Resource

In addition to the above mineral resource, Hermosa also has a deep Sulfide Skarn Zone which hosts 4.2 million tons of 0.9 oz/ton Ag, 4.68% Mn, 0.07% Cu and 2.31% Zn for total contained silver ounces of nearly 4.0 million. This Skarn resource was previously announced in Wildcat’s February 6, 2012 mineral resource press release and is included in the NI 43-101 Hermosa Technical Report dated March 21, 2012.

Table 1-8: Hermosa Skarn Inferred Resource


Ag (oz/ton)

Mn (%)

Zn (%)

Cu (%)

Contained Silver Ounces

Skarn Sulfide 4,212 0.9 4.68 2.31 0.07 3,982,500 1.9 MINE PLANNING

A Preliminary Economic Assessment provides a basis to estimate project operating and capital costs and establish a projection of the potential mineable resource including measured, indicated and inferred category materials as permitted under National Instrument 43-101. Whittle pit optimizations were performed using estimates of operating costs typical of surface mines using similar milling operations and using estimates of metallurgical recovery based on test work performed on Hermosa core. The mine plan was developed with the assumption that the mine would employ conventional surface mining methods using drill and blast rock breakage and trucks and shovels for material movement. Stockpiles would be utilized to bring higher-grade material to the process plant earlier in the mine life. Pit mining operations would occur for nine years, followed by seven years of re-handling to feed remaining stockpile material to the plant. The average strip ratio for the life of the mine was 2.8:1.

Wildcat Silver acknowledges that the PEA incorporates inferred mineral resources which are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Therefore, Wildcat Silver advises that there can be no certainty that the estimates contained in the PEA will be realized.



Gemcom Whittle software was used to evaluate a pit that would maximize the value of the deposit. Based on these studies, the resource listed in Table 1-9 was used for a mine production plan.

Table 1-9: Pit Resource Used for Production Scheduling Resource Category Zone Tons

(000s) Ag

(oz/ton) Au

(oz/ton) Mn (%)

Zn (%)

Cu (%)


Measured Manto 25,407 2.98 0.003 8.26 1.84 0.08 75,713 Upper Silver 20,129 1.26 0.003 0.71 0.10 0.02 25,407

Indicated Manto 19,524 2.08 0.002 6.91 1.72 0.07 40,657 Upper Silver 17,561 1.20 0.002 0.73 0.12 0.02 21,029

Inferred Manto 2,539 2.56 0.002 6.85 2.58 0.11 6,489 Upper Silver 15,083 1.3 0.003 0.39 0.07 0.02 19,649

1.10 METALLURGICAL DEVELOPMENT

Metallurgical programs have succeeded in developing silver recovery processes for the Upper Silver Zone and Manto Oxide Zone materials in the Hermosa Deposit. Upper Silver Zone materials may be processed in a conventional fine grinding and silver recovery circuit. An Upper Silver Zone recovery versus head grade curve was developed based on grinding to a P80 of 40 micron. The derived curve indicates that as silver head grades increase from 1.0 oz/t to 4.9 oz/t, silver dissolutions will increase from 29.8% to 75.9%.

Manto Oxide Zone material may be processed by a reducing kiln-fine grinding circuit followed by conventional silver recovery. Continuous pilot plant kiln tests indicate Manto Oxide material stage crushed to P80 of 2400 microns, calcined in a reducing atmosphere at 550-750oC with a solids residence time of 60-120 minutes, and ground to a P80 of 40 microns will achieve silver dissolutions as high as 89%. The Manto silver recovery versus head grade curve was developed from the direct fired 15” kiln pilot-plant data. The derived curve suggests that as silver head grades increase from 1.5 oz/t to 5.8 oz/t, the silver dissolution will increase from 72% to 90%.

Upper Silver Zone and Manto Oxide leach residues passed TCLP tests for all metals. Leach solutions were shown to be amenable to the Merrill-Crowe and SART processes. Copper recovery was assumed to be 20%, and gold recovery was assumed to be 90%. Manganese and zinc are not assumed to be recovered from the leach residues as saleable concentrates in this study. Wildcat continues development of by-product processes to fully realize byproduct potential.

1.11 PROCESS DESCRIPTION

The Hermosa Project will include an open pit, a material processing facility (mill) and miscellaneous infrastructure and support facilities. The unit processes that will be used to recover minerals from the mineralized material in the processing facility will include crushing, calcining, grinding, agitation leaching, counter-current decantation, Merrill-Crowe silver/gold recovery,



SART precipitation, gold refining, tailing detoxification and tailing disposal. The two mineralized materials (Manto Oxide and Upper Silver) will be ground in the ball mill after crushing and calcining of the Manto Oxide material before leaching with cyanide to extract silver, gold, copper and zinc. Silver and gold will be extracted from the pregnant cyanide solution via the Merrill-Crowe process, while the copper and zinc will be precipitated out of the barren solution via the Sulfidization, Acidification, Recovery and Thickening process, (“SART”).

After mineral extraction, tailings, in the form of a slurry, will be delivered to a tailings storage facility (TSF). The TSF will consist of a conventional facility with an embankment that encloses the fully geomembrane lined tailings basin for containment of tailings solids and process water. In addition to the liner within the basin, drainage provisions will be provided to limit hydraulic head on the liner in areas of potential high head. The TSF is designed as a “zero discharge” (non-discharge) facility where water liberated from the tailings slurry as supernatant (free water) will be re-used in the process circuit along with meteoric water that reports to the TSF basin. Any excess water from meteoric events collected in the TSF will also be used in the process circuit.

Overburden will be removed from the pit and placed into a Rock Storage Area (RSA). An RSA has been sized based on a stripping ratio of 2.8:1 of overburden to mineralized material.

See Figure 1-1 for the overall process flowsheet, Figure 1-2 for the mine site plan, and Figure 1-3 for the plant site plan.



Figure 1-1: Overall Process Flowsheet



Figure 1-2: Mine Site Plan (000-GA-001)



Figure 1-3: Plant Site Plan (000-GA-002)



1.12 ENVIRONMENTAL

A variety of permits and approvals from state and federal agencies will be required in order to open and operate the Hermosa Mine project. A list of permits and approvals identified at the present time is provided in Section 20. By far, the most involved permitting effort will involve the preparation of an Environmental Impact Statement (EIS) for the U.S. Forest Service (USFS), in order to comply with the National Environmental Policy Act (NEPA). A NEPA process is required because much of the land needed for the project is administered by the USFS Coronado National Forest. Another major permitting effort is the Aquifer Protection Permit (APP) from the Arizona Department of Environmental Quality (ADEQ), which covers any facility that has the potential to discharge pollutants to the groundwater system. A third major permitting effort will be an Air Permit under the Clean Air Act, which is administered by ADEQ with oversight from the U.S. Environmental Protection Agency (USEPA). The time to prepare an EIS is expected to be from a minimum of two years to five years or more after submission of a Mine Plan of Operations (PoO) to the USFS. The APP, Air Permit, and other permit actions can all be performed coincident with the EIS and may generally be timed to be completed at approximately the same time as the EIS. A Mine PoO should be submitted as soon as possible after completion of a Pre-Feasibility Study or Feasibility Study.

Baseline studies to obtain background environmental data have been initiated and should be continued in the coming months. A PoO for drilling activities, including exploration, geotechnical and hydrogeologic investigations, has been submitted to the USFS for review and evaluation. A NEPA review and analysis, most likely in the form of an Environmental Assessment (EA), will be required for the current PoO and may take from six to eighteen months to complete. Assuming the decision from the EA is a Finding of No Significant Impact (FONSI), the planned exploration, geotechnical and hydrogeologic investigations will be allowed to commence and the results will be incorporated into Pre-Feasibility and/or Feasibility-level studies. Other baseline studies, including biological resources, cultural resources, stormwater and groundwater quality, and other studies that do not require drilling or other soil disturbances, may continue during the NEPA process for the current PoO.

1.13 CONCLUSIONS AND RECOMMENDATIONS

1.13.1 General

Based on the encouraging financial performance predicted by this preliminary economic assessment, M3 recommends Wildcat Silver Corporation consider proceeding to a full prefeasibility evaluation of the Hermosa property. Wildcat should also pursue additional testwork as recommended in this report.

Wildcat Silver should initiate the required environmental studies which are deemed appropriate for the prefeasibility stage such that the studies will eventually support permitting efforts.

1.13.2 Metallurgy

Metallurgical programs have succeeded in developing silver recovery processes for Upper Silver Zone and Manto Oxide Zone mineralized materials in the Hermosa Deposit.



• Upper Silver Zone mineralized materials may be processed in a conventional fine grinding and silver recovery circuit.

• Upper Silver Zone silver recovery versus head grade curve was developed based on grinding to a P80 of 40 micron. The derived curve indicates that as silver head grades increase from 1.0 oz/t to 4.9 oz/t, silver dissolutions will increase from 29.8% to 75.9%.

• Manto mineralized materials may be processed by a reducing kiln/fine grinding circuit followed by conventional silver recovery.

• The Manto Oxide Zone recovery versus head grade curve was developed from the direct fired 15” kiln silver dissolution data. The derived curve suggests that as silver head grades increase from 1.5 oz/t to 5.8 oz/t, the silver dissolution will increase from 72% to 90%.

It is recommended metallurgical developments continue to support prefeasibility/feasibility engineering studies in the following areas:

• Additional “no-reformer” tests should be conducted at lower temperatures for all mineralized material types and selected residence times.

• Calcination parameters and silver dissolution of high grade mineralized materials, reflective of the first 2 years of the mine plan, should be determined.

• It is recommended an equipment manufacturer be selected to supply the kiln processes. The selected manufacturer should evaluate mineralized material composites to support equipment design parameters such as heat and material balances, combustion equipment arrangements, and discharge gas handling. The test program should incorporate emission testing of the kiln off gas with data collection designed to support environmental permits.

• Additional process optimization and development in selected areas:

a. Silver leaching, copper dissolution, and SART tests should be conducted at sodium cyanide concentrations reflective of plant operations to validate sodium cyanide consumption.

b. Silver leach tests should be conducted with Manto mineralized materials and Lag mineralized material combined together in the grinding circuit to determine the combined lime consumption and solid/liquid separation characteristics.

c. Additional flotation tests should be conducted for the recovery of zinc. d. Magnetic separation and other methods should be investigated to recover the

manganese.

The estimated cost of additional metallurgical test work is approximately $1,100,000.



2 INTRODUCTION

2.1 PURPOSE

This report was compiled by M3 Engineering & Technology Corporation (“M3”) for Wildcat with respect to the Hermosa property in Santa Cruz County, Arizona. The purpose of this technical report is to prepare a Preliminary Economic Assessment (“PEA”), including a reasonably executable plan of development for the Hermosa deposit and to apply accepted cost estimation tools to create operating and capital cost estimates for the plan. The financial model incorporates the cost estimates, along with reasonable projections for metal prices, taxes, and other financial elements to predict the economic performance of the project and to analyze the performance using standard economic metrics.

2.2 SOURCES OF INFORMATION

This report builds on prior studies, including the following reports:

• Easton Process Consulting, Inc., 2012. Metallurgical Update for the Hermosa Deposit, Review of Preliminary Laboratory and Pilot Plant Data, Prepared by Christopher L. Easton. Easton Process Consulting, November 2012.

• M3, 2010. Hardshell Project, NI 43-101 Technical Report, Preliminary Economic Assessment Study, Patagonia, Arizona, Revision 2. Prepared by M3 Engineering & Technology Corporation for Wildcat Silver Corporation. 26 October 2010.

• Welhener, Herbert E., 2012. Mineral Resource Hermosa Project, Santa Cruz County, Arizon, Independent Mining Consultants, Inc., March 12, 2012.

• Wilson, Scott E., Osterberg, Mark W., Pennstrom, William, 2012. Technical Report for The Hermosa Project, Santa Cruz County, Arizona, USA, Scott E. Wilson Consulting, Inc., August 9, 2012.

Portions of the October 2010 PEA (M3, 2010) have been adapted into this study for the sake of completeness and to present the level of study on the project. When appropriate, additional information has been added to the report sections where new information has been developed since the October 2010 PEA.

New information and updates to and review of existing information were performed by the Qualified Persons (“QPs”) as shown in Table 2-1.



Table 2-1: Dates of Site Visits and Areas of Responsibility

QP Name Company Qualification Site Visit Date Area of Responsibility

Josh Snider

M3 Engineering & Technology Corporation – Tucson, AZ

P.E. 20-Sep-2012 Sections 1, 2, 3, 4, 5, 6, 18, 19, 21, 22, 23, 24, 25, 26 & 27.

Tom Drielick

M3 Engineering & Technology Corporation – Tucson, AZ

P.E. N/A Sections 13 and 17.

Paul Ridlen Tetra Tech –Tucson, AZ P.E. 18-Jul-2012

6-Aug-2012

Environmental Section 20 and portions of summary, conclusions, references and recommendations that pertain to that section.

Mike Smith NewFields – Denver, CO P.E. 20-Sep-2012

Project Infrastructure Section 18 and portions of summary, conclusions, references and recommendations that pertain to that section.

Christopher L. Easton

Easton Process Consulting Inc.

– Highlands Ranch, CO

MMSA 20-Sep-2012

Mineral Processing and Metallurgical Testing Section 13 and portions of summary, conclusions, references and recommendations that pertain to that section.

Mark Osterberg

MineMappers – Marshfield, WI P.G. 12-Sep-2012

Geology and Drilling, Sections 7, 8, 9, 10, 11, 12 and portions of summary, conclusions, references and recommendations that pertain to those sections.

Scott Wilson

Scott E. Wilson Consulting – Highlands Ranch, CO

P.G. 20-Sep-2012

Mineral Resource and Mining Methods, Sections 14 and 16 as well as portions of summary, conclusions, references and recommendations that pertain to those sections.

2.3 PERSONAL INSPECTIONS

On July 18, 2012, Paul Ridlen visited Hermosa to reconnoiter for the siting of tailings impoundment(s) and identify locations for geotechnical and hydrogeologic drilling. On August 6, 2012, Paul Ridlen visited Hermosa to meet with representatives of the U.S. Forest Service to identify access requirements for proposed exploration, geotechnical, and hydrogeologic drilling.

Josh Snider, Mike Smith, Chris Easton and Scott E. Wilson visited the Hermosa site on September 20, 2012 to review the access roads and bridges, process facilities layout, past and current drilling and sampling sites, core and sample storage, and the mine and tailings disposal areas.



2.4 UNITS AND ABBREVIATIONS

The report considers US Dollars ($) only. Unless otherwise noted, all units are avoirdupois or English units, grades are described in terms of percent (%), grams per metric tonne (g/tonne) or troy ounces per short ton (oz/t), with tonnages stated in dry short tons (2,000 pounds). Salable base metals are described in terms of pounds or tons. Salable precious metals are described in terms of troy ounces.

Table 2-2 is a list of abbreviations and terms that may be used in this report.

Table 2-2: Units, Terms and Abbreviations Abbreviation Unit or Term

% Percent by weight 2-D Two-Dimensional 3-D Three-Dimensional 4WD Four-Wheel Drive AA Atomic Adsorption AAL American Analytical Laboratories ADEQ Arizona Department of Environmental Quality Ag Silver AG Autogenous Grinding AT Assay Ton Au Gold AZDWR Arizona Department of Water Resources BLM Bureau of Land Management CCD Counter Current Decantation CNF Coronado National Forest CO3 Carbonate COG Cutoff grade Cu Copper CV Coefficient of Variation (standard deviation/mean) dba doing business as DDH Diamond Drill Hole DO Dissolved Oxygen DTB Draft-Tube Baffled EMF Electromotive Force EPA Environmental Protection Agency FA Fire Assay kg/mt Kilograms per metric tonne g/tonne grams per metric tonne GPS Global Positioning System H2 Hydrogen HPGR High-Pressure Grinding Rolls ICP Inductively-Coupled Plasma IRR Internal Rate of Return k Thousands kcal Kilocalories kg Kilograms km Kilometer kW-h Kilowatt-hour L Liters



Abbreviation Unit or Term LAg Leachable Silver reference to Upper Silver Zone

Mineralized material LOM Life of Mine Ma Million years old Mn Manganese MRA Mine Reserves Associates MRZc Code for a specific block area in the Manto Zone MRZs Code for a specific block area in the Manto Zone NFRAP No Further Remedial Action Planned NPL National Priority List NPV Net Present Value NSR Net Smelter Return opt Troy ounces per English (or, Long) ton oz./st Troy ounces per short ton (alternate abbreviation) oz/t Troy ounce per short ton PAH Pincock, Allen & Holt Pb Lead ppm Part per million PSD Particle Size Distribution PZ Code for a specific block area in the Manto Zone QA/QC Quality Assurance/Quality Control RC Reverse Circulation SEWC Scott E. Wilson Consulting t Short Ton (2,000 lbs) tpa Tons per annum tpd Tons per day tpy Tons per year US$ / USD United States Dollars USFS United States Forest Service USGS United States Geological Survey WSC Wildcat Silver Corporation XRD X-Ray Diffraction XRF X-Ray Fluorescence Zn Zinc



3 RELIANCE ON OTHER EXPERTS

In cases where the M3 Preliminary Economic Assessment Study author has relied on contributions of the Qualified Persons, the conclusions and recommendations are exclusively the Qualified Persons’ own. The results and opinions outlined in this report that are dependent on information provided by Qualified Persons outside the employ of M3 are assumed to be current, accurate and complete as of the date of this report.

Reports received from other experts have been reviewed for factual errors by Wildcat and M3. Any changes made as a result of these reviews did not involve any alteration to the conclusions made. Hence, the statements and opinions expressed in these documents are given in good faith and in the belief that such statements and opinions are not false and misleading at the date of these reports.

Metallurgical testing done by Wildcat’s consultants depends on the samples’ accuracy representing the mineral body.

Persons or companies relied on during the preparation of this report include those listed in Section 2.2 and the reports referenced in Section 27, References.

All maps, as well as many of the tables and figures for this report were supplied by Wildcat, or incorporated from previous reports published on SEDAR including the M3 Engineering & Technology Corporation report titled “Hardshell Project – Preliminary Economic Assessment – Santa Cruz County, Arizona”, dated 26 October 2010.

M3 relied upon Wildcat for project ownership data. M3 did not verify ownership or underlying agreements.

Mining is a risky business. The risk must be borne by the Owner. M3 does not assume any liability other than performing this technical study to normal professional standards.



4 PROPERTY DESCRIPTION AND LOCATION

4.1 LOCATION

The Hermosa (formerly “Hardshell”) Property is part of the Harshaw and Patagonia Mining Districts located in the Patagonia Mountains of Santa Cruz County, Arizona (Figure 4-1 and Figure 4-2). Hermosa is located six miles southeast of the town of Patagonia, which has a population of approximately 1,000 people.



Figure 4-1: Property Location Map related to Arizona



Figure 4-2: Hermosa Project Location Map related to Santa Cruz County, AZ

The property is located 15 miles northeast of the Santa Cruz county seat at Nogales and 50 miles southeast of Tucson, in adjacent Pima County. The international border with Mexico is approximately eight miles to the south.

The property occupies an area of approximately 10 square miles and lies within Sections 27, 28, 29, 32, 33 and 34, Township 22 South, Range 16 East and Sections 1, 2, 3, 4, 5, 8, 9, 10, 11, 12, 13, 14, 15, and 16 of Township 23 South, Range 16 East. General property coordinates are 31° 28’ North latitude and 110° 43’ West longitude (NAD 83, Geographic, North America).

4.2 PROPERTY DESCRIPTION

The Hermosa Project is located in the northern end of the Patagonia Mountains. Elevations on the property range from 4,900 to 6,200 feet above sea level. The area is sparsely populated. Livestock grazing is the dominant land use. The property is located within the USFS Farrell Grazing Allotment.

The core of the property is composed of 154 acres of fee simple surface and mineral rights ownership on patented mining claims. These patented mining claims are surrounded by unpatented mining claims held by Arizona Minerals, Inc. These federal lands are administered



by the United States Forest Service, Coronado National Forest, US Department of Agriculture. The Sierra Vista Ranger District of the Coronado National Forest is the responsible agent.

The property contains shafts, trenches and other surface openings from historic mining and exploration activities. The area is accessed through a series of interconnected low maintenance roads and trails.

4.3 PROPERTY OWNERSHIP

The Hermosa Property is owned by Arizona Minerals, Inc., a Nevada Corporation which was registered on October 4, 2005 with the Arizona Corporation Commission to do business within the State of Arizona. On October 28, 2005, Arizona Minerals entered into an agreement with ASARCO, LLC to purchase the Hermosa Property. At that time, the property consisted of eight patented claims in three separate tax parcels acquired by a combination of patents in 1961 and purchase in 1968 and 1978; in addition, 26 unpatented “Shell No.” lode claims located in 1965 and 1968 by American Smelting and Refining Company. American Smelting and Refining Company later changed its name to ASARCO, Incorporated and was subsequently merged into ASARCO LLC. On February 17, 2006, the US Bankruptcy Court, Southern District of Texas, Corpus Christi Division in Case 05-21207 approved the sale of the Hardshell Group of Mining Claims by ASARCO, LLC to Arizona Minerals, Inc. This acquisition closed on March 14, 2006, with the final payment made to ASARCO, LLC on March 14, 2007. Arizona Minerals has no royalty or other obligations due to ASARCO, LLC or any predecessor claim owners.

As part of the purchase agreement with ASARCO, LLC, Arizona Minerals also acquired all available original or copies of data, documents and reports pertaining to the property including information on land, geology, previous drilling, assays, engineering, groundwater and metallurgical studies. ASARCO, LLC also transferred the remaining drill core, samples and assay pulps to Arizona Minerals, Inc.

Wildcat Silver Corporation (“Wildcat”), a Canadian Public Company, has an 80 percent common stock interest in Arizona Minerals, Inc. 5348 Investments Ltd. (a wholly owned subsidiary of Diamond Hill Investment Company), a private Canadian company, holds the remaining 20 percent of the shares of Arizona Minerals, Inc. A Shareholders Agreement between Wildcat, 5348 Investments Ltd. and Arizona Minerals governs the affairs of Arizona Minerals. Wildcat is listed on the Toronto Stock Exchange under the symbol “WS.”

4.4 MINERAL TENURE

The Hermosa Property consists of mining claims located in the Harshaw and Patagonia Mining Districts. Title to the mineral rights is vested in WSC’s majority-owned subsidiary Arizona Minerals, Inc. (“AMI” or “Arizona Minerals”). A map of the claims is shown as Figure 4-3.

Arizona Minerals located an additional 44 lode claims (approximately 909 acres) surrounding the original 26 unpatented claims in December 2006 and January 2007. In April and May 2007 an additional 77 lode claims (about 1,447 acres) were staked by Arizona Minerals, to the east toward the San Rafael Valley, and south to the Mowry Mining Camp. In 2008, four additional claims were staked to cover orphan fractions around the core patented claims, one unnecessary



claim dropped, and 44 claims were amended at the recommendation of the BLM to cover slight imperfections in the descriptions of the quarter sections in this non-standard unsurveyed-protracted township. An additional 16 claims (about 330 acres) were staked in September 2008 to complete the NE corner of the claim block. In November 2011 an additional 85 claims (1,623 acres) were staked on the east side of the claim block. An additional 60 lode claims (about 1,240 acres) were staked contiguous to the northwest boundary of the existing SHELL claim block in March 2012 followed by two additional lode claims in May 2012 (about 32 acres) on the southwest side. The total unpatented lode claims on surface lands of the Coronado National Forest held by Arizona Minerals, Incorporated are 313 covering approximately 5996.5 acres.

The AMI holdings now consist of 8 patented lode mining claims totaling about 154 acres with the surface and mineral rights owned fee simple. The patented land is surrounded by 313 contiguous “SHELL” unpatented lode mining claims totaling approximately 5996.5 acres. Under the terms of United States mining law, the unpatented mining claims can be held as long as the annual federal maintenance fee is paid (no expiration date). Data on the individual claims is shown in Table 4-1 (Patented Claims).

AMI contracted a registered land surveyor, Darling Environmental & Surveying (Darling), to complete a Record of Survey (new corner pins reset where necessary) for all eight patented claims. This was done, in part, to assist USFS and BLM in accurately reflecting the patented claims on government working maps. The Record of Survey was filed with the Santa Cruz County Recorder and has become part of the Official Title Record. The patented claim boundaries have been brushed and flagged by AMI to help better identify the boundaries. Unpatented claim boundaries were also checked or established (new claims) by Darling. Old unpatented claim corners were checked and new unpatented corners set, both using GPS survey methods by Darling. Differential GPS was used for the patent Record of Survey and primary control for the unpatented claims. Hand-held GPS and compass line-of-sight was used for secondary work on the May 2007 unpatented claims, and the 16 claims staked in September 2008 by Arizona Minerals used compass and tape survey methods starting from previous GPS corners. The last 147 claims staked in late 2011 and early 2012 used differential GPS surveying techniques.

The wholly-owned, patented land parcels with full surface and mineral rights are subject to annual property tax payments to Santa Cruz County, Arizona. The mineral rights for the unpatented mining claims are held by the annual payment of maintenance fees to the US Bureau of Land Management, U.S. Department of Interior and must also be filed with the Santa Cruz County Recorder. The unpatented claims can be held as long as the annual Federal maintenance fee is paid to the BLM. The surface rights of the unpatented mining claims are administered by the US Forest Service under multiple‐use regulatory provisions.

John C. Lacy, attorney-at-law of the firm DeConcini, McDonald, Yetwin & Lacy, PC issued a 50-page Title Report, dated June 19, 2006. He found both patented and unpatented claims to be valid as of the date of the opinion, and that the necessary assessment work and annual payments for maintenance had been completed since before and after the federal BLM legal assessment changes of August 31, 1993, back to the origin of the claims. All taxes and other recording requirements with Santa Cruz County were also in order. In an updated 54-page Title Opinion of



May 6, 2008, John C. Lacy stated that the surface and mineral estates of the eight patented and 147 unpatented claims of Arizona Minerals, Inc. were still in order and that all required payments and taxes to the US BLM and Santa Cruz County had been made to date. Taxes due to Santa Cruz County for the three patented parcels have been paid to date. One hundred and sixty-seven (167) unpatented claims were staked and recorded subsequent to Mr. Lacy’s report.

Maintenance fees have been paid to the BLM for all unpatented claims through September 1, 2013. All mineral resources disclosed in this report are fully contained within the property boundaries as described above.

Table 4-1: Hermosa Patented Claims List Un-Surveyed Sections 3, 4 & 9, Township 23 South, Range 16 East, G & SR Base Line & Meridian, Santa Cruz County, AZ

Claim Name BLM Recorded Patent Number

Mineral Survey Survey Completed

Claim Acreage

Quadrant of Section

Santa Cruz County Records Document Page

County Assessor’s Parcel

Number Number Lot

Camden Mine 121192 4460 * 11/5/1958 20.66 SW,SE 4 Doc. 25 30 105-49-001A Camden No. 2 121192 4460 * 11/5/1958 20.66 SW,SE 4 Doc. 25 31 105-49-001A Hardshell No. 1 121192 4460 * 11/5/1958 20.66 SW,SE 4 Doc. 25 32 105-49-001A Hardshell No. 15 121192 4460 * 11/5/1958 17.3 SW,SE 4 Doc. 25 33 105-49-001A Bluff 10279 500 50 4/27/1883 20.07 SW3 Book 88 467 105-52-001 Hermosa 10278 499 49 4/27/1883 20.65 SW3,SE4 Book 88 469 105-52-001 Salvador 10614 498 48 4/26/1883 14.45 SE 4 Book 88 482 105-52-001 Alta 8635 84 38A 1/3/1877 20.11 NW,SE 4 Deed of Mines Book 17 213 105-49-002 Filed with the Official Records of Santa Cruz County, Nogales, Arizona and U.S. Bureau of Land Management, Phoenix, Arizona. Note: the last four claims, when surveyed and patented, were part of Pima County, Arizona Territory. Early records with Pima County, Tucson. These sections in T23S, R16E are non-standard, un-surveyed and protracted. *No lot number assigned Total Acreage: 154.56



Figure 4-3: Hermosa Claim Status Map

4.5 OPTION AGREEMENTS

There are no property or mineral option agreements for this project.



4.6 AGREEMENTS AND ROYALTIES

There is a two (2) percent NSR Royalty due to Diamond Hill Investment Corp., a private Canadian company, from Arizona Minerals, Inc. from any future production. There are no underlying royalties, fees or additional obligations due to ASARCO, LLC or previous claim holders.

Arizona Minerals has granted a grazing lease to the Hale Family Revocable Trust doing business as the Hale Ranch on the 154 patented acres in cooperation with the US Forest Service, Sierra Vista Ranger District. This arrangement is a continuation of a similar lease that had existed between the Hale Ranch and ASARCO LLC since 1966. The Hermosa Deposit is under the American Peak Pasturage of the Farrell Grazing Allotment from the USFS to the Hale Ranch. Range Management on the unpatented ground is supervised by the USFS. Some arrangements will be required with the Hale Ranch/USFS Farrell Grazing Allotment for loss of grazing areas on the American Peak pasturage during mine production.

Santa Cruz County has a 66 foot wide road easement centered on the Harshaw Road (USFS CNF Road No. 49). About 400 feet of the Harshaw Road crosses the northwest end of the Alta patented ground, where an access road to the property is located. The local power company, UniSource Energy Services, also has a high voltage power line with easements along the Harshaw Road, through the Alta patented claim. A branch of this power line also extends through the Harshaw town site owned by the Hale Ranch and continues into the San Rafael Valley.



5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

5.1 ACCESS

The Hermosa Property is located approximately 50 miles southeast of Tucson, Arizona and 15 miles northeast of Nogales, Arizona in Santa Cruz County, Arizona, eight miles north of the international border with Mexico. The property is accessed via Harshaw Road, a Santa Cruz county road, leading six miles eastward from Patagonia, Arizona to the Harshaw townsite. An interconnecting system of USFS-numbered road network, originally constructed largely for exploration, mining and ranching, exists around Harshaw and the district. The property extends southward for approximately two miles from Harshaw townsite and a mile northwestward from Harshaw townsite. Access around the property is by single lane roads.

The property lies on the eastern pediment flank of the Patagonia Mountains, a portion of the northwestern edge of the Mexican Highlands section of the Basin and Range Physiographic Province of the southwestern United States. Elevations in the mountains range up to 7,200 feet above sea level, while elevations on the property range from 4,900 to 6,200 feet. The property is dominated by the western San Rafael Valley pediment plateau at about 5,400 feet, which onlaps the higher foothills of the Patagonia range to the west. The plateau is deeply incised by tributaries of Harshaw Creek which drain to the north into Sonoita Creek at the Town of Patagonia.

5.2 CLIMATE

The Harshaw-Patagonia area has a semi-arid mountainous climate characteristic of the Arizona Uplands. Temperatures seldom remain above 90° Fahrenheit in the summer with warm to moderately cool nights. Winter days are usually mild with periodic frosts at night. Light snowfall is not uncommon but seldom remains for more than a few days. Cooler temperatures and higher winds occur at higher elevations in the area.

Precipitation, characteristic of this upland desert region, is variable and cyclic. Annual precipitation averages 17 inches and ranges from 8 to 36 inches per year with higher amounts of precipitation occurring at higher elevations in the range. More than 50 percent of the rainfall comes during the period from late June to early October in cyclonic, often torrential “monsoonal” thunderstorms, which are often accompanied by strong, destructive winds.

The operating and construction seasons for the Hermosa Property are year-long.

5.3 INFRASTRUCTURE

5.3.1 Water

The local base level of the water table is approximately 4,850 feet elevation at Harshaw townsite. The Hermosa project area and the local Harshaw Creek drainage are not part of an Arizona Department of Water Resources Active Management Area.



Available information suggests adequate water supplies are available for project requirements.

5.3.2 Workforce

Southern Arizona hosts several major mining districts and the local area has several large active mines. Experienced, skilled workers are readily available within a reasonable commuting distance.

5.3.3 Commercial Resources and Services

Resources in the town of Patagonia are limited. The town has a high school, a motel, several restaurants, a small grocery store and a gas station. Nogales, 20 miles by road to the southwest of Patagonia, has a population of approximately 20,000 people and is large enough to serve as a supply and service center for most needs. Nogales has rail freight service, and a small commercial airport.

Tucson, just over 50 miles to the north, is the commercial and service/supply center for one of the world’s largest mining districts. Tucson has a full-service commercial airport and is a large rail center.

5.3.4 Social Services and Security

Patagonia has K-12 schools and a well-stocked town library.

Patagonia has a small police force which is supplemented by the Santa Cruz County Sherriff and the Arizona Highway Patrol. The U.S. Border Patrol has a strong presence in the area as well.

Patagonia has a small family medical facility. EMT services are associated with the Volunteer Fire Department. Medical helicopter landing facilities are available.

Nogales has a small regional hospital. Tucson’s large hospitals are easily accessible by ambulance or helicopter.

5.3.5 Power

A 13.8 kV power line follows Harshaw Creek from west of Patagonia to the old town site of Harshaw and continues on to the San Rafael Valley. Higher capacity power lines traverse the Sonoita Creek Valley from Huachuca City to Sonoita-Elgin and Patagonia from the east.

5.3.6 Gas Pipeline

A major regional natural gas pipeline, owned and operated by El Paso Natural Gas extends from Nogales to the northeast through the Sonoita Valley and to localities to the east.

5.3.7 Communication

A trunk phone line follows the Harshaw Creek Road with phone service available in Harshaw. Cellullar telephone service is good in the Patagonia-Harshaw area.



5.3.8 Transportation

The property is accessed via state and county hard surfaced roads and USFS secondary and tertiary roads, constructed largely for exploration, mining and ranching needs around Harshaw townsite and the district. A major rail hub is located approximately 20 miles south near the city of Nogales.

5.4 PHYSIOGRAPHY

The Hermosa property is located in an area of moderate to rugged topography, with numerous arroyos and canyons incised through volcanic and sedimentary stratigraphy. The arroyos and canyons contain streams which flow intermittently in response to rainfall events. Elevation on the property area ranges from 4,800 to 6,200 feet above sea level. Vegetation is typical of the Pinyon-Oak-Juniper Woodland and is characterized by short evergreen trees and scrub oaks mixed with a variety of desert and upland shrubs. Lower slope faces are covered by open grasslands.



6 HISTORY

6.1 GENERAL HISTORY, MINING HISTORY, AND PRODUCTION

Mining in the Harshaw District dates from mid-18th century Spanish Colonial times, but is poorly documented before the 1870’s. Initially, oxide lead-silver vein ore was mined from the Trench property, located approximately one mile northwest of Hermosa and the Mowry property located approximately two miles to the south. This work continued intermittently until the late 19th century. History from the late 1800’s and early 1900’s can be found in Schrader (1915: USGS Bulletin 582) and Keith (1975: AZ Geol. Survey Bulletin 191). The district’s historic production is poorly constrained but is believed to be around 150,000 tons, yielding approximately two million ounces of Ag with by-product lead, copper and manganese.

Early, un-named small-scale mine owners in the Hermosa area developed small tonnages of milling and direct-shipping oxidized ores in a number of small individual mines.

Production from the district was dominated by the Trench area mines, mines of the Alta claim and the Hardshell Incline and the Hermosa mine and is described as follows. The Trench area mines and sulfide flotation custom mill a mile northwest of the Hermosa property produced primarily silver ores with minor by-product lead, but important production of direct-shipping manganese ores was recorded during World Wars I and II and the Korean War. The bulk of the production was from small underground operations in the area. Approximately half of the production was direct-shipping oxide ore and half was milling ore. The Trench mill produced both lead and zinc concentrates with copper, silver and minor gold by-product production.

The Alta Claim, staked in 1877, produced several thousand tons of oxidized high-grade lead-silver ore from a 35°, northeastward-dipping vein. The Hardshell Incline Mine, discovered in 1879, produced approximately 35,000 tons with an average grade of about 8 ounces per ton Ag and 6 to 8 percent lead between 1896 and 1964.

The Hermosa mine, one-half mile to the southeast of the Hardshell Incline Mine and discovered about the same time was developed into a major project. The Hermosa mine produced high-grade silver halide ores from a 30° north dipping stratiform vein, averaging approximately 20 ounces per ton Ag. 70,000 tons were processed in a 100 ton per day mill over an 18 to 24 month period, producing 1.4 million ounces of Ag, confirmed by Wells Fargo shipping records. Scavaging secondary production from 1902 to 1943 yielded an additional 600,000 ounces of Ag with by-product lead and copper.

A summary of the historic production of the Hermosa area mines is presented in Table 6-1, derived from the Arizona Bureau of Mine Data (Bulletin 191, 1975) and ASARCO company files (Fleetwood Koutz, personal communication, 2006).



Table 6-1: Historic Production from Hardshell Area Mines

Mine Name Production Period *Tons

Produced Average Ore Grades Comments Alta Mine Hardshell Incline Hardshell Mine Hardshell Mine Hardshell Incline Hardshell Mine Hardshell Mine Hermosa Mine Salvador Mine Black Eagle Mine Black Eagle Mine Bender Mine Bender Mine

Before 1905 1896-1905 1921-1927 1905-1940 1943-1948 1963-1964 1964 to present 1880-1902 1880’s 1880’s WWII Prior to WWI WWI, WWII, 1952-55

3,500

20,000 900

Several 000’s 2,500 2,900 None

70,000 Unknown

4,900 Few hundred

50 6,000

Ag (oz/t) Zn (%) Pb (%) Cu (%) Au (oz/t) Mn (%) Direct shipping ore Direct shipping and milling ore. Direct shipping ore, with some Mn in WWI ASARCO production, direct shipping ore McFarland lease from ASARCO, smelter flux About 1.4 million oz Ag produced in period About 30,000 oz Ag produced in period Direct shipping Mn-Ag ore Direct shipping Mn ore Mn smelter fluxing ore Direct shipping Mn ore – US Gov’t Purchase

10 unknown

20 unknown

8 8

20 unknown

22 unknown

20 unknown

NA unknown

NA unknown

NA NA

unknown unknown

NA NA NA

unknown

35 unknown

20 unknown

6 6

unknown unknown

NA NA NA

unknown

1 unknown

NA unknown

NA NA

unknown unknown

NA NA NA

unknown

minor unknown

NA unknown

NA NA

unknown unknown

NA NA NA

unknown

NA NA NA

unknown NA NA

unknown unknown unknown unknown

NA unknown

* Total production from mines in the Hardshell area is probably < 150,000 tons

6.2 ASARCO EXPLORATION HISTORY

ASARCO operated the nearby Trench Mine, one mile northwest of Hermosa, between 1939 and 1949 and produced lead, zinc, silver, and copper from a fissure vein sulfide deposit. The 150-ton per day Trench lead-zinc flotation mill also treated district ores between 1939 and 1964 on a custom basis. The Hermosa Property was first used as a source of water for the Trench Mill, and was mapped and drilled in exploration programs from 1940 to 1991 by ASARCO.

ASARCO’s first diamond drilling program did not intercept “significant” extensions of Hardshell Incline Pb-Ag ores. Follow-up diamond drilling to the southeast of the Hardshell Incline discovered thick Ag-Pb-Zn bearing, manganese oxides of the main manto between 1947 and 1954. The four main Hardshell claims were patented by ASARCO between 1958 and 1961 on the basis of this discovery. Rising silver prices in the mid-1960s led to renewed interest in Hermosa mineralization. Review of the data and geologic mapping led to additional claim staking in the district and acquisition of three patented claims of the Hermosa Group between 1965 and 1968. The Alta patented claim was purchased in the late 1970’s.

ASARCO undertook significant, bench scale beneficiation testwork, including high-tension magnetic separation, electrostatic separation, reduction and segregation roasting, SO2 and thio-sulfate leaching as well as various cyanidation processes in the late 1970’s continuing to the early 1990’s. Only reduction roast tests progressed beyond bench scale testing.

ASARCO made a number of historical resource and “reserve” estimates for the Hermosa property. A 1968, open pit resource of 6.5 million tons at 5 ounces per ton Ag; 1 to 2 percent Pb + Zn and 15 percent MnO2 was calculated and used in a number of older publications. An updated, open pit resource was calculated by ASARCO in 1975 to contain 20 million tons at an average grade of 3.33 ounces per ton Ag with 8 percent manganese, with a waste:ore stripping ratio of 2:1. A 1979 ASARCO estimate reported a range of resources, the median was 6,586,500 tons at an average grade of 7.92 ounces per ton silver, at a cut-off grade of 5 ounces per ton Ag. A mineral inventory estimate calculated by ASARCO in 1984 estimated a resource of 9,596,000 short tons with an average grade of 6.9 ounces per ton silver, at a cutoff grade of 1.5 ounces per ton silver.



Pan American Silver had a minimal lease/option/first right of refusal on most of ASARCO’s Hardshell property from 1994 to 2002, Pan American Silver did not undertake any significant exploration work, confining their activity to internal economic evaluations.

6.3 PROPERTY OWNERSHIP HISTORY

The Hermosa Property is owned outright by Arizona Minerals, Inc., a Nevada Corporation, registered with the Arizona Corporation Commission to do business within the State of Arizona since October 4, 2005. Arizona Minerals entered into an agreement with ASARCO, LLC to purchase the Hardshell (now Hermosa) Property on October 28, 2005. The property consisted of the eight patented claims in three separate tax parcels as well as 26 unpatented “Shell” lode claims. The US Bankruptcy Court, Southern District of Texas, Corpus Christy Division, in Case 05-21207, approved the sale of the Hardshell Group of Mining Claims by ASARCO, LLC to Arizona Minerals, Inc. on February 17, 2006. This acquisition closed on March 14, 2006. Final payment made to ASARCO, LLC on March 14, 2007. Arizona Minerals has no royalty or other obligations due to ASARCO, LLC or any predecessor claim owners.

Arizona Minerals also acquired all available originals or copies of data pertaining to the property including information on land, geology, previous drilling, assays, engineering, groundwater and metallurgical studies as part of the purchase agreement with ASARCO, LLC. The remaining drill cores, samples and assay pulps were also transferred to Arizona Minerals, Inc.

Arizona Minerals located an additional 44 lode claims (approximately 909 acres) surrounding the original 26 lode claims in December 2006 and January 2007. In April and May 2007 an additional 77 lode claims (approximately 1,447 acres) were staked by Arizona Minerals, to the east toward the San Rafael Valley, and south almost to the Mowry Mining Camp. In 2008, four additional claims were staked to cover orphan fractions around patented ground, one unnecessary claim dropped, and 44 claims were amended at the recommendation of the BLM to cover slight imperfections in the descriptions of the quarter sections in this non-standard township. An additional 16 claims (approximately 330 acres) were staked in September 2008 to complete the NE corner of the claim block. In November 2011 an additional 85 claims (1,623 acres) were staked on the east side of the Arizona Minerals, Inc. claim block.

In March 2012, 60 more lode claims (about 1,240 acres) were staked contiguous to the northwest boundary of the existing claim block followed by two additional lode claims in May 2012 (about 32 acres) on the southwest side of the March block. Arizona Minerals, Inc. holds 313 unpatented lode claims comprising approximately 5,996.5 acres on surface lands of the Coronado National Forest.



7 GEOLOGICAL SETTING AND MINERALIZATION

7.1 REGIONAL GEOLOGY

The regional geology of the area is shown in Figure 7-1 and is summarized from Simons, 1972; Schrader and Hill, 1915; Koutz, 1984 and Berger et al, 2003.

The oldest rocks in the Patagonia Mountains area are predominant Proterozoic granodiorite with subordinate amounts of pelitic schist, diorite and gabbro. Phanerozoic siliclastic and carbonate rocks overlie the Precambrian basement. The Paleozoic section consists of Cambrian to Permian limestones, dolomites, and sandstones exposed in and around the Mowry mine located at the southern edge of the Hermosa property and in semi-homoclinal, 30° northward-dipping section from Mowry to American Peak.

Mesozoic volcanic, sedimentary and intrusive rocks lie above the Paleozoic stratigraphic sequence. Cretaceous andesitic to felsic volcanic and intrusive rocks cover much of the project and surrounding areas. In the northwestern Patagonia Mountains, Jurassic granite intrudes Triassic to Jurassic volcanic and sedimentary rocks. Most of the central and southern parts of the range consist of Paleocene (64 to 58 Ma) medium to coarse-grained hornblende granodiorite batholithic rocks. The batholith is bounded by northwest-striking faults and its emplacement was structurally controlled.

Laramide felsic volcanic and intrusive stocks are prevalent at Red Mountain and west of the historic Trench mining camp in the Chief-Sunnyside Diatreme area. Intrusive rocks and alteration at Sunnyside are thought to be coeval with alteration at Hermosa.

Late Oligocene to Miocene conglomerates, sandstones, ash flow tuffs and lakebed sedimentary rocks onlap the Hermosa Property and fill the San Rafael Basin to the east of the Patagonia Mountains and the northeastward trending Sawmill Creek Basin.

Regional faults strike north, northwest and northeast. In the Patagonia Mountains, the northwest-striking, strike-slip Guajolote fault separates the Patagonia batholith from undivided Mesozoic rocks. The northwest-striking Harshaw Creek fault parallels the Guajolote fault. Stratigraphic and structural relationships between the two zones suggest they were active during the Jurassic and Early Cretaceous and that linking braided faults were developed and reactivated during the early Cenozoic. Northeast striking extensional faulting opened up the Sonoita Valley into grabens and half-grabens northwest of Red Mountain and the town of Patagonia.

7.2 PROPERTY GEOLOGY

The Hardshell Ag-Mn-Pb-Zn deposit is a stratigraphically- and structurally-controlled, manto-type replacement/skarn deposit formed at the contact between Permian carbonate rocks and overlying late-Cretaceous rhyolitic volcanic rocks. The deposit and its host rocks strike approximately east-west and dip ± 35° to the north. They do not appear to be significantly disrupted by post-mineralization faulting.



A new outcrop geological map with generalized cross- and long-sections of the Hermosa project area at a field scale of 1:2000 are presented as Figure 7-2, Figure 7-3 and Figure 7-4.

Figure 7-1: Regional Geology

The drill program completed between December 2010 and March 2012 was concentrated in the western portion of the project area, designated the Hardshell Hill Zone, and is the location for most of the currently identified mineral resource. The eastern portion of the project area is



designated the Hermosa zone. Important stratigraphic differences that bear on the distribution of mineralization exist between the two zones. Please refer to Figure 7-5 and Figure 7-6 for schematic representation of the stratigraphic section.

Lithology and Stratigraphy

The Cretaceous volcanic rocks and the underlying Permian sedimentary rocks of the Hermosa project area are divided into the following units, recognized across the property and in the drill holes. They are listed and described from youngest to oldest.

Trachyandesite of Meadow Valley. Designated andesite and (Kmv) on map and sections. It is an approximately conformable, complex flow unit that overlies the Hardshell Volcanic Sequence on the western and northern margins of the Hermosa property. Drilling shows local dikes of similar composition. The trachyandesite is variably described as dark gray to brown, fine- to medium-grained with 1- to 3-mm, euhedral-subhedral plagioclase phenocrysts and sparse 2- to 5-mm square K-feldspar phenocrysts in a fine-grained plagioclase-pyroxene-amphibole groundmass. It may contain interstitial magnetite and is generally fresh to weakly propylitized, especially on fractures.

Hardshell Volcanic Sequence. Five distinct rhyolitic volcanic units have been identified as making up the Hardshell sequence, and are correlated between map and drill holes.

Rhyolite crystal tuff. Designated (Khct) on map and cross-sections. Appears to be the uppermost unit in the Hardshell volcanic sequence and is conformable with underlying rhyolite breccia unit (Khb). Described as white to gray to buff to locally pale pink, fine- to medium-grained, and crystal-rich. Rare, thin, relict bedding planes. Abundant 1- to 3-mm plagioclase crystals and rare 0.5-mm, broken quartz eyes. Rare patches and zones of 5- to 15-mm, angular to subrounded lithic clasts.

Rhyolite Breccia. Designated (Khb) on map and cross-sections. Prominent outcrop former in the Hardshell Ridge zone. Clast-supported or nearly clast-supported fragmental unit with abundant 1-mm to > 5-m, angular, unsorted, rhyolite clasts in very-fine-grained rhyolitic groundmass. Contains abundant clasts with diameters greater than core diameter.

Rhyolite Lithic Tuff. Designated (Khlt) on map and cross-sections. Gray to gray-green, locally crystal-rich tuff with common 5- to 25-mm rhyolitic lithic fragments. Abundant 1- to 25-mm, partially collapsed and flatted pumice fragments in very-fine-grained, partially welded groundmass give the rock a distinctive, eutaxitic texture.

Rhyolite Polymict Breccia. Designated (KhHZ) on map and cross-sections. This is the named Hardshell Zone, and interpreted to be the primary host to the deposits exploited by the old Hardshell Incline workings. Rhyolite volcaniclastic and fragmental unit with abundant 1- to 25-mm, angular, rhyolite lithic clasts in a welded, eutaxitic matrix. Distinguished from Khlt by the presence of sparse to very abundant sedimentary clasts derived from underlying Paleozoic rocks. Contains limestone clasts, up to more than 10-m across. Commonly mineralized with Mn-oxide as 1- to 10-mm blebs and larger pods up to complete replacements, as well as in veins/veinlets and fracture coatings. Local zones of gray, vuggy, pervasive silicification.



Figure 7-2: Geological Map of the Hermosa Project



Figure 7-3: Generalized Cross-Section



Figure 7-4: Generalized Long-Section



Figure 7-5: Stratigraphic Column for the Western Half of the Hermosa Project Area.

(Note: Individual Units Have Not Been Measured for True Stratigraphic Extent. Their Thicknesses are Represented Relative to one Another.)



Figure 7-6: Stratigraphic column for the eastern half of the Hermosa project area

Individual units have not been measured for true stratigraphic extent. Their thicknesses are represented relative to one another.

Rhyolite Tuff. Designated (Kht) on map and cross–sections. Basal unit in Hardshell Volcanic Sequence. Light gray, massive, rhyolite tuff with rare, fine-grained plagioclase phenocrysts and rare, < 10-mm lithic clasts in very-fine-grained, tuffaceous groundmass. Local irregular, faint relict bedding and weak, hematite-limonite liesegang banding. Lies directly on Paleozoic sedimentary rock in the western part of the property, and on the spherulite unit (KoSP) of the Older Volcanic Sequence to the east.



Older Volcanic Sequence. The Older Volcanic Sequence is a predominantly rhyolitic volcanic package that underlies the Hardshell Sequence in the eastern part of the property and contains lithologies that occur as clasts in the Hardshell Volcanic Sequence, especially in the Khb and Khlt units. The Older Volcanic Sequence has not been mapped in detail, and relatively few core holes penetrate the unit. The following units have been recognized and placed in a tentative stratigraphic sequence.

Rhyolite Spherulite Zone. Designated (KoSP) on map and cross-sections. Abundant, crowded, 1- to -100-mm3, semi-spherical, zoned, partially devitrified spherulites in very-fine-grained partially welded groundmass.

Rhyolite Welded Tuff. Designated (KoT) on map and cross-sections. Light reddish-gray to purple, densely welded crystal tuff with strong to subtle laminar eutaxitic texture. Abundant, 0.1- to 3-mm, subhedral to euhedral, plagioclase phenocrysts in shard-bearing, eutaxitic, very-fine-grained groundmass. Laminated to thin-bedded, locally contorted due to flowage. This rock type is the most common clast lithology in the Khb of the Hardshell Volcanic Sequence.

Latite Porphyry. Designated (KoLA) on map and cross-sections. Distinctly porphyritic intrusive and/or flow unit with prominent, abundant, 1- to 5-mm, subhedral to euhedral, white, prismatic plagioclase phenocrysts and less common 1- to 5-mm, euhedral, white, approximately equant K-feldspar phenocrysts. Rare, relict, 0.1- to 1-mm, rotten, biotite books in fine- to medium-grained, red-brown groundmass.

Concha Formation. Designated Pzl on map and cross-sections. Gray, massive, fine-grained, recrystallized limestone-marble with common 1- by 5-cm to 10- by 25-cm, irregular dark gray to black chert pods. Local 1- to 5-mm wide, irregular, discontinuous calcite veinlets. Prominent chert nodules and complete absence of sandy detritus distinguish the Concha formation limestone-marble from the underlying Scherrer formation.

Scherrer Formation. Six separate lithologies comprise the Scherrer formation stratigraphy. In general, sandy units are towards the top and silty units towards the bottom. However, insufficient work has been completed to definitively assign an internal stratigraphy to the Scherrer formation.

Arkose. Designated Pzar on cross-sections. Not observed in outcrop. Reddish-brown, massive to thin-bedded, fine-grained, arkosic sandstone. Non-calcareous.

Calcareous sandstone. Designated Pzcs on map and cross-sections. Gray, massive to thin-bedded. 60 percent fine-grained, well-rounded, well-sorted quartz sand in calcareous matrix.

Sandy Limestone. Designated Pzsl on map and cross-sections. Light gray, massive. 30 percent fine-grained, well-rounded, well-sorted quartz sand in calcareous matrix.

Limestone. Designated Pzl on map and cross-sections. Gray, locally bleached, massive to irregularly thin-bedded, very-fine-grained limestone with rare, 1- by 5-cm to 10- by 25-cm, irregular dark gray to black chert pods with 1- to 10-mm, talcy selvages. Sparse 1- to 25-mm, spots, pods and ovals of white calcite after gypsum.



Quartzite. Designated Pzq on map and cross-sections. Gray, massive to thin-bedded. 60 percent fine-grained, well-rounded, well-sorted quartz sand firmly indurated with quartz overgrowth cement. Non-calcareous.

Silty Limestone. Designated Pzst on map and cross-sections. Gray, thin-bedded, very-fine-grained, silty. Well preserved, 0.1- to 1-mm, regular, thin-beds. Local carbonaceous slips and partings. Common very-fine-grained, pyritic partings.

7.3 ALTERATION

Rhyolitic rocks, particularly Khb, in both the Hardshell Hill and Hermosa zones are uniformly light gray to tan, with primary volcanic and clastic textures generally well preserved. The same rocks are generally shades of purple to maroon where they crop out at a distance from known mineralization. Locally, in otherwise unaltered rhyolite outcrops, small patches of fine-grained secondary K-feldspar have been noted. These observations suggest that the tan coloration proximal to mineralization may be pervasive and moderately strong potassic alteration. This alteration seems to form a broad background upon which later alteration more directly associated with the Hermosa project mineralization has been imposed. The clasts within Hardshell volcanic sequence lithic tuff and breccia are commonly selectively overprinted by white kaolinite-sericite veinlets and patches. The fine-grained, tuffaceous, matrix to the lithic tuff, polymict breccia and lower rhyolite tuff are pervasively overprinted by very-fine, disseminated kaolinite-sericite. In both cases, primary textures are generally very well preserved and the rock remains competent and hard.

Manto-type mineralization is always surrounded by an asymmetric envelope of pervasive and strong silicification, referred to in the past as “jasperoid”. The greatest volume and the most massive expression of this silicification is within the rhyolite tuff in the hanging wall of the manto. There it commonly penetrates more than 10-meters above manto mineralization. In the footwall carbonates, silicification is less complete and penetrates only a few meters below the manto. Primary mineralogy and texture in these rocks are completely replaced by gray, fine-grained quartz. Rare small patches or pods of ghostly relict volcanic texture have been noted.

Concha and Scherrer formation carbonate rocks are weakly to moderately recrystallized and contain fine to coarse, irregular and discontinuous calcite veinlets. They are commonly bleached to a light gray color. Fossils are normally well preserved along with fine primary sedimentary textures. A few drill holes in the northwestern part of the property contain increasingly pervasive and stronger recrystallization in the Concha carbonate rocks that ultimately grades into calc-silicate skarn with associated base metal sulfide mineralization.

Calcareous sandstone intervals contain fewer calcite veinlets but they are still present. Quartzites only rarely host calcite veinlets.

Andesite drill intercepts and outcrops typically contain fine, thin, irregular and discontinuous calcite veinlets and may also contain finely distributed groundmass calcite. Biotite, where present, is typically degraded with greenish chlorite selvages. Magnetite is occasionally noted and pyrite is by no means uncommon.



7.4 MINERALIZATION

Mineralization has been subdivided into four mineralized material types shown on cross-sections (Figure 7-3 and Figure 7-4). The oxidized rhyolites overlying manto-style mineralization and the carbonate units contain irregular patches and zones of veinlet-controlled hematite-limonite and sooty Mn-oxide with accessory Ag mineralization. Manto-style mineralization in rocks of rhyolitic composition is dominated by black, sooty Mn-oxide, with or without yellowish orange secondary Pb-oxides and with quartz-dominant gangue mineralogy. Manto-style mineralization in carbonate rocks does not typically contain Pb-oxides. Strong, pervasive gray, silicification is also present and calcite occurs as veinlets, vugs and fracture fillings. Drill core intercepts containing rhodochrosite and pink calcite are not uncommon and rarer intercepts of hard pinkish rhodonite-bustamite have also been noted.

A separate, noteworthy horizon in the upper oxide silver zone has been designated the “Hardshell Zone” (Figure 7-2, Figure 7-3 and Figure 7-4). This zone supported historic mining at the Hardshell Incline mine and is composed of a 10- to greater than 100-foot polymict rhyolite breccia with a minor portion of clasts of carbonate sedimentary provenance and is the locus of partial to massive Mn-oxide replacement mineralization. Calc-silicate skarn mineralization developed within the Concha limestone, particularly in the northwestern-most drill holes. These skarns contains patches and massive, wholesale replacements of carbonate by very-fine-grained, massive, wollastonite-diopside and rhodonite. They also contain coarse-grained, crystalline aggregates of galena, alabandite, sphalerite, chalcopyrite and pyrite.

7.5 STRUCTURAL GEOLOGY

Outcrops, old workings and road cuts are commonly disrupted by irregular, discontinuous, complex structural zones. These zones are characterized by rubbly, broken, brecciated and sheared features that do not typically displace either lithologic contacts or alteration or mineralization zones at map or cross-section scale (typically 1:2400).

This fracturing and small-displacement faulting is confirmed by geotechnical measurements on core from the 2010-2012 drilling campaign that showed the average core recovery was 84 percent and the average RQD measurement was only 27 percent.

7.6 SUMMARY AND CONCLUSION

1. Hermosa project geology is characterized by relatively un-disrupted volcanic and sedimentary stratigraphy, alteration and mineralization.

2. Alteration and mineralization combine to form coherent, continuous bodies. 3. Upper Silver, Manto Oxide and PZ mineralized material types are based on gangue

characteristics, lithological host and grade profiles.



8 DEPOSIT TYPES

The mineral deposit at the Hermosa project is a manto-type replacement deposit, located along the stratigraphic contact between Cretaceous rhyolite volcanic rocks and underlying Paleozoic carbonates. The manto is composed predominately of cryptomelane-type manganese oxide minerals. Silver and base metals occur predominately in the lattice-structure of cryptomelane. Accessory silver-bearing sulfides and sulfosalts as well as lead oxides and sulphate minerals are present as well.

Rhyolite country rocks lying above the manto are oxidized and commonly host sooty Mn-oxide and Fe-oxide coated fractures and veinlets- after sulfides. Metallurgical tests indicate that most of the silver and base metal mineralization is predominantly associated with these veinlets and fractures. A small proportion of silver and base metal mineralization is hosted within crystal lattice sites in cryptomelane-type minerals.

Weak phyllic alteration overprints the rhyolite volcanic rocks, andesites are overprinted by weak propylitic alteration assemblages and wollastonite-diopside-rhodonite bearing, calc-silicate skarns with base metal sulfide mineralization occur in the northwestern extents of the project area. A wide variety of clay-minerals also exist in this area.

The Laramide Red Mountain porphyry copper deposit is located approximately two miles from the Hermosa project. The Laramide Sunnyside Diatreme is nearer to the Hermosa project, located approximately one-half mile northwest. The porphyry style alteration and the proximity to the Hermosa project area suggest a genetic link but direct evidence for an association with either or both of these intrusions has not been recognized to date.



9 EXPLORATION

The following discussion is an overview of the exploration programs conducted on the Hermosa property by Asarco Exploration and Wildcat Silver Corporation.

9.1 ASARCO EXPLORATION

Asarco explored the Hermosa property with intermittent drill programs from 1940 through 1991, supplemented with geological mapping. The early program diamond drilling, spurred by WWII metal prices, failed to find significant extensions of Hardshell Incline Pb-Ag ores. Nonetheless, several thousand tons of moderate grade Pb-Ag oxide ore were shipped from the lower levels of the Hardshell Incline from 1943 to 1948 and from 1963 and 1964. Second pass diamond drilling programs, undertaken from 1946 to 1953, located thick Ag-Pb-Zn bearing, manganese oxides of the Main Manto to the southeast of the Hardshell Incline. ASARCO patented the four main Hardshell claims to cover this discovery between 1958 and 1961.

Rising silver prices in the mid-1960s led to renewed interest in the Hermosa mineralization. Reevaluation of the geologic data led to staking of additional claims in the district and the three patented claims of the Hermosa Group were acquired between 1965 and 1968. ASARCO used the newly developed, air-hammer rotary drilling method to drill the silica jasperoid cap and the vuggy Main Manto zone. Diamond drilling was used successfully in some outlying stratigraphic holes but attempts to deepen air-hammer drill holes in vuggy, silicified limestone often failed when drill fluid circulation was lost.

Geophysical surveying and detailed geologic and metallurgical studies on the manganese oxide ores began in the late 1960s and continued through 1991. Close-spaced, rotary hammer drilling partially defined a heap-leach-amenable low-grade manganese and low-grade silver resource located near the historic Hermosa mine workings. Three shallow rotary air-hammer drill holes were completed in 1989 for metallurgical samples and a 1,500 foot deep diamond drill hole in 1990-91 explored for deeper mineralization. ASARCO drilled 114 air-hammer and core holes, with an aggregate of approximately 46,000 feet on the Hermosa Property and surrounding area.

ASARCO conducted beneficiation tests to determine silver recovery processes. Bench scale, high-tension magnetic separation, electrostatic separation, reduction and segregation roasting, SO2 and thio-sulfate leaching and various cyanidation processes, in both company and commercial laboratories were tested. Little consideration was given to recovering other metals, including Mn, Zn, Cu, Au and potential co-products silica or clays. Minor test consideration was given to heap-leaching non-manganese low-grade silver ores.

9.2 WILDCAT SILVER EXPLORATION

Wildcat has been active on the Hermosa Property since 2006. A re-assay program of all remaining ASARCO assay pulps verified the silver and manganese assay data and added high-quality Pb, Zn, Cu, and Au values to the database. Rock types, alteration, and mineral codes from paper drill logs and cross sections were added to the electronic assay database. All available ASARCO drill assays and supplemental 16-element X-ray fluorescence analyses were captured electronically as well. Preliminary SO2 leach tests were run on two composite samples of assay



pulps at Hazen Labs. A resource estimate and preliminary economic evaluation was included in a February 7, 2007 Preliminary Economic Assessment report written by Pincock, Allen and Holt.

An additional 140 lode mining claims were staked in three stages by Wildcat Silver Corporation. Patented claim lines were brushed out and flagged and claim corners were checked. A Record of Survey by a Registered Land Surveyor was filed with the Santa Cruz County Recorder and sent to the BLM. Historic access roads, drill roads and pads were rehabilitated and new drill roads and pads were built on patented ground. A secure work site for sample storage, core logging and splitting was built in Harshaw townsite.

Four core holes totaling 4,450 feet were completed for comparison with four ASARCO rotary air-hammer drill holes in 2007. Three long exploration core holes, totaling 7,928 feet, tested the Main Manto Zone mineralization along the Hogan Fault Zone in 2007 and 2008. Six long core holes, totaling 12,005 feet, were also drilled to test targets peripheral to the Hogan Fault Zone in 2009. Results are available in Technical Reports of Exploration Progress, dated August 7, 2008, February 26, 2010 and May 26, 2010. Assay results from this work and bench-scale metallurgical test work undertaken by Hazen Laboratory in Golden, Colorado in 2008 were used for a resource update and Preliminary Economic Assessment, completed and released in October 2010 by M3 Engineering of Tucson.

Wildcat embarked on a drilling campaign to define and classify the Hermosa mineralization in December, 2010. Supporting geological mapping, geochemical sampling and airborne geophysical projects were undertaken as well. The drilling project was completed on March 19, 2012 totaling 101,813 feet of reverse circulation drilling and 81,486 feet of core drilling.

A resource technical report, published on March 21, 2012 by Independent Mining Consultants of Tucson, Arizona documented interim progress for the Wildcat evaluation. Another report dated August 9, 2012 by Scott E. Wilson Consulting, Inc. was published in September of the same year.



10 DRILLING

Table 10-1 is a breakdown of the various drilling programs by drilling types and footages. Figure 10-1 Drill Holes Used In 2012 Resource is a drill location map of the holes completed to March 19, 2012. In total, 343 drill holes were used in the calculation of the current resource. Six Asarco drill holes fell outside the resource area and were not used in the calculation. The 216 holes completed in the current program with an aggregate footage of 183,298 feet are designated in red on the Figure 10-1, drill location map.

Table 10-1: Drill Hole Summary

Company Rotary Air-Hammer

Reverse Circulation Core Total

Holes feet Holes feet Holes feet Holes Feet Asarco 91 30,400 1 600 22 15,000 114 46,000 Wildcat Silver (2007-2009) 0 0 0 0 13 24,400 13 24,400

Wildcat Silver (2010-2012) 0 0 159 101,813 57 81,486 216 183,299

Totals 91 30,400 160 102,413 92 120,886 343** 253,699 *Many Asarco core holes were drilled below previous air-hammer holes several years later. ** Six (6) of the Asarco holes in the table fall outside the resource area. 10.1 PREVIOUS DRILLING

ASARCO drilled 114 air-hammer and core holes with an aggregate length of 46,000 feet on the Hermosa Property from 1950 to 1991. Driller daily logs, drill supervisors notes and monthly reports, geologic and graphic logs for most of these holes are available. Daily drill data sheets, assay certificates and progress reports for all assayed intervals after 1966 are available. A portion of assay certificates from drilling before 1966 are available. In cases where original lab assay certificates are unavailable, assay data was extracted from cross sections, graphic logs and old reports.

Recovery by weight or footage, water levels and volumes, lithology, alteration, mineralization and miscellaneous comments were logged in the field for most ASARCO drill holes and posted to graphic logs and cross-sections. Most air-hammer holes were drilled dry or with minimal water injection for dust control. They were usually lost after the water table or significant fracture zones or voids were encountered. Most of this drilling did not penetrate the static water table.

Down-hole deviation was not measured for any of the ASARCO drill holes at Hermosa.



Figure 10-1: Drill Holes Used In 2012 Resource



10.2 WILDCAT SILVER DRILLING (2006-2012)

Wildcat Silver Corporation completed 13 diamond drill holes on the Hermosa Property between 2006 and 2009. Three of these holes totaling 7,928-feet were completed in 2007 and 2008. Six additional diamond core holes were completed in 2009 for a total of 12,005 feet.

Four of these holes were twins of older air-hammer drill holes and the remaining nine holes were exploration test holes.

From December 2010 to March 2012 Wildcat completed 216 drill holes with an aggregate footage of 183,298 feet. The aggregate footage was composed of 101,813 feet of reverse circulation drilling and 81,486 feet of core drilling.

Drill core was handled as follows: core was washed by the drill helper and transferred from split-tube half-section to the core box. It was then field-logged and photographed, Geotechnical characteristics, lithology, alteration and mineralization were subsequently logged and assay intervals marked and recorded. All holes were surveyed for directional deviation using a Reflex EZ-Shot magnetic survey tool.

Comparative Drilling Evaluation

Wildcat Silver Corporation drilled four twinned core holes in 2007 for comparison with air-hammer drilling. These four holes penetrated beyond the final depths of the twinned air-hammer rotary holes and tested deeper stratigraphic horizons. Separation distances between core and air-hammer collars holes ranged from 7 to 28 feet (Table 10-2). Drill technique induced grade bias was not detected and grade variation was observed to reflect natural short range grade differences in the deposit rather than deficiencies in air-hammer or core sample recoveries.

Table 10-2: Comparison Drill Hole Pairs New Core Hole

Number Core Hole TD

(feet) Previous Air‐

Hammer Number Air‐Hammer Hole

TD (feet) Separation

Distance (feet) HDS‐99 1,257.00 HDS‐83 480 6.6 HDS‐98 1,016.00 HDS‐40 570 10.5 HDS‐100 1,127.00 HDS‐62 385 27.8 HDS‐101 1,058.50 HDS‐81 500 13.4



11 SAMPLE PREPARATION, ANALYSES AND SECURITY

11.1 ASARCO DRILLING PROGRAM

ASARCO drill programs generated chip samples derived from air rotary hammer drilling and core samples from diamond drill holes. ASARCO’s drilling programs were intended to further their assessment of the economic merits of Hermosa, and it is assumed that sampling conformed to standard industry practices of the time.

11.2 WILDCAT SILVER CORPORATION

ASARCO Pulp Re-assays

ASARCO retained a large proportion of pulps from their sampling and assaying programs. Wildcat Silver Corporation took possession and inventoried these pulps in 2006. Sample preparation and copper, lead, zinc, and manganese analyses were conducted by Skyline Laboratories in Tucson, Arizona using inductively-coupled plasma and atomic absorption methods. A split of each pulp was then sent to Assayers Canada in Vancouver, British Columbia for silver and gold fire assays. Approximately 4,272 ASARCO pulp samples were re-analyzed.

Core samples

Competent, intact core samples were divided with a hydraulic splitter. Spatulas and trowels were used for splitting the sample in clayey or rubbly intervals. Splitter and sample trays were carefully cleaned between samples. Typical, standard sample interval length was nominally set at 5-feet. In areas of mineralogical or geologic interest, sample intervals ranged from one-half to seven feet.

One split was returned to the original core box for reference and long term storage. The other split was placed in a heavy gauge plastic bag marked with drill hole and interval labels. These bags were closed with a wire tie, weighed and consolidated in shipping boxes or bulk shipping bags.

Reverse Circulation Sample Collection and Preparation

Reverse circulation holes were drilled wet. The holes were cleaned and blown by the driller between each nominal five foot sample interval. A cyclone and wet rotary splitter were set up to obtain two identical splits, weighing approximately 10 to 15 pounds. The original and duplicate samples were placed in Tyvek sample bags, collected on pallets, shrink wrapped and transported to the project sample processing facility.

The samples were then inventoried and weighed. Standards, blanks and duplicates were inserted in the sample stream. Shipment of samples to Skyline Laboratory of Tucson, Arizona for sample preparation and analyses occurred at regular intervals throughout the drilling campaign.



11.3 WILDCAT SILVER QUALITY ASSURANCE CONTROL ANALYTICAL PROGRAM

Standards were inserted every 20th sample as a check of assay accuracy and precision. Five standards were prepared for the Hermosa project and certified by Mineral Exploration Group of Reno, Nevada using a systematic, six laboratory, round-robin analytical program.

Field duplicates from core and chips were taken at intervals of approximately 50 feet. Core duplicates were quarter-splits, chip duplicates were nominally full sample weight.

Blank samples were used to check the integrity of sample preparation procedures and were inserted at the beginning and end of every sample batch run. Blank samples were prepared and certified by Mineral Exploration Group of Reno, Nevada from limestone, silica sand and volcanic rocks.

11.4 WILDCAT SILVER ANALYTICAL PROGRAM

Sample Preparation and Analysis

Skyline Laboratory prepared two identical 250 gram pulps from each sample. One pulp was retained by Skyline Laboratory and the second pulp was sent to Inspectorate Laboratories of Sparks, Nevada for the 2010 to 2012 drilling campaign. The duplicate pulps from the 2006 and 2009 drilling campaigns were sent to Assayers Canada.

Pulps were analyzed by ICP at Skyline for percent copper, lead, zinc, and manganese after a multi-acid digestion. Inspectorate Laboratory determined silver values by gravimetric fire assay with gold values determined by AA finish on the same dissolved doré bead. Remaining portions of the core and all assay pulps are stored in locked, steel shipping containers on property owned or controlled by Wildcat Silver Corporation.



12 DATA VERIFICATION

12.1 WILDCAT SILVER PULP RE-ASSAY

4,272 sample pulps from historic ASARCO drill hole analytical work were re-analyzed in 2006. This work was done to replace incomplete, partial assay results with silver, gold, manganese, lead, zinc and copper assays and analyses compatible and comparable to those done for the Wildcat Silver Corporation drilling campaigns.

Table 12-1 compares the number of new and old assays of ASARCO pulps that exist in the current drill hole database. For elements other than silver, over 90 percent of the data was generated by Wildcat Silver Corporation’s re-assay program. For silver, 77 percent of the data was generated by Wildcat Silver Corporation’s re-assay program. The discrepancy is due to inclusion of original ASARCO silver values from pulps that were not available for re-assay in the database.

Table 12-1: Database Analytical Proportions - Historic and Re-Assayed Data Mn Ag Zn Pb Cu Au New Pulp Reassay Data – Skyline Laboratories for Wildcat Silver Old Data – ASARCO (used where no new data available)

4,272 375

4,272 1,302

4,272 198

4,272 349

4,272 74

4,272 55

Total number of ASARCO drill hole data values 4,647 5,574 4,470 4,621 4,346 4,327 Percent of ASARCO drill hole data that is new (replaced) 92% 77% 95% 92% 98% 99%

Pincock, Allen & Holt (2008) confirmed the general viability of the historic sample geochemical values, supporting the use of historic analytical data where newer re-assayed analytical data are not available.

12.2 WILDCAT SILVER COMPARATIVE DRILLING

Wildcat Silver Corporation drilled four diamond drill holes proximal to existing ASARCO air-hammer holes to test for bias related to drilling method in 2007. Core was sampled, prepared and assayed per project protocols. Separation distances between drill hole twins ranged from seven to 28 feet (Table 12-2). New core holes were surveyed for down-the-hole directional deviation using a Reflex EZ-Shot magnetic survey tool.

Table 12-2: Comparison Drill Hole Pairs New Core Hole

Number Core Hole TD

(feet) Previous Air-

Hammer Number Air-Hammer Hole

TD (feet) Separation

Distance (feet) HDS-99 1,257.00 HDS-83 480 6.6 HDS-98 1,016.00 HDS-40 570 10.5 HDS-100 1,127.00 HDS-62 385 27.8 HDS-101 1,058.50 HDS-81 500 13.4 Note: All drill holes are vertical.

The results of the twin drilling are summarized in Table 12-3. Twinned holes intercepted similar material at equivalent depths down hole with similar interval lengths.



Table 12-3: Twinned Drill Hole Comparisons

Hole Interval (feet)

Thickness (feet)

Silver (oz/t)

Manganese (%)

Zinc (%)

Copper (%)

HDS-98 vs. HDS-40 HDS-98 (Core) HDS-81 (Air-hammer)

390-567 380-565

177 185

5.09 6.4

17.75 18.65

1.83 1.93

0.2 0.21


350-470 350-470

120 120

6.34 7.08

17.6

14.52

1.44 1.55

0.13 0.17


222-373 220-370

151 150

7.09 6.52

12.35

8.57

2.43 2.09

0.21 0.34


272-508 265-500

236 235

5.64 9.36

5.07 5.87

1.86 2.4

0.11 0.1

The analytical results for all metals show grade values behave similarly. Pincock, Allen & Holt (2008) concluded that the analytical variability reflects natural short range grade differences in the deposit rather than drilling method bias.

12.3 ADDITIONAL DATA VALIDATION

Logging procedures and protocols, re-logs of chips and core and field checks have also been used to validate data sources. Drill hole collar locations have been resurveyed by a licensed Arizona registered land surveyor.

12.4 QUALITY CONTROL PROGRAM

Analytical Solutions Ltd. reviewed the analytical quality control, quality assurance program for Wildcat Silver Corporation. Analytical Solutions Ltd. concluded that the protocols and procedures used by Wildcat Silver Corporation are robust and effective.

Systematic contamination during sample preparation was not detected in the analyses of blanks.

The Ag results for standards are summarized in Table 12-4. Silver values are biased 29 percent low for analyses that lie within the average grade range for the Hermosa deposit. Twenty of the 29 listed silver quality control/quality assurance failures were incorrectly designated as standards. These 20 cases have been corrected and do not require additional follow up.

Gold, zinc and copper values for the standards are consistent. Manganese values for the standards range from 0.2 to 10.1 percent and are biased five to 20 percent low. Lead values for the standards range from 0.1 to 6.4 percent. Results do not indicate a systematic analytical bias.



Table 12-4: Results for Silver Standards

RM N Expected Ag (oz/t) Observed Ag (oz/t) Percent of

Expected QC

Failures Average Stdev. Average Stdev. S-1 95 0.47 0.16 0.334 0.049 71.0 3 S-2 77 4.14 0.69 3.82 0.18 92.2 3 S-3 183 6.21 0.72 5.58 0.27 89.9 7 S-4 172 12.16 1.62 11.98 0.43 98.6 5 S-5 61 32.99 1.62 33.37 0.86 101.2 4 S-900 series 208 n.a. n.a. 6.68 0.22 n.a. 7 796 * - Weighted Average 90.8* 29

Certificates are not available for the Mining Exploration Geochemistry standards and it is possible that the materials have degraded over time. Additional test work on the standards to verify consensus values is in progress. It has been recommended that commercially available reference materials are used in future programs.

Cross-check exchange analyses between Skyline and Inspectorate laboratories were done for silver from 242 pulps (Figure 12-1). There is broad, general correspondence between the two sets of silver results. Specific differences may be related to acid digestion procedures used at Skyline and Inspectorate Laboratories.

298 core duplicates pairs were submitted for silver and gold assays and 322 pairs were submitted for manganese, lead, zinc and copper analyses. Assays for duplicate pairs agree within acceptable limits. Approximately 70 percent of the duplicate pairs agree within 25 percent for all elements except gold.

183 reverse circulation sample duplicates were submitted for silver and gold assays and 180 pairs for manganese, lead, zinc and copper. Assays for duplicate pairs agree within acceptable limits. Approximately 70 percent of the duplicate pairs agree within 20 percent for all elements except gold.



Figure 12-1: Silver Check Assays Skyline and Inspectorate Laboratories



13 MINERAL PROCESSING AND METALLURGICAL TESTING

13.1 GENERAL

According to Easton (2012), metallurgical test work has been conducted at Resource Development Incorporated (“RDI”) and Hazen Research Incorporated (“Hazen”) to develop silver extraction from the Upper Silver Zone (LAg) and manganese-silver Manto Oxide zones. The metallurgical development has succeeded in defining commercially recognized process operations for recovery of silver.

Upper Silver Zone mineralized material may be processed in a fine grinding, conventional silver leach-Merrill Crowe circuit. Manto Oxide materials may be processed in a fine crush, reducing kiln, fine grinding, and conventional silver leach Merrill-Crowe circuit.

Metallurgical programs and process development produced a conceptual block diagram that is presented in Figure 13-1. Plant design considerations have further optimized this conceptual process resulting in the commercial process concept for this PEA study.



Run-of-Mine Manto Ore

Manto Silver/Manganese

Ore Types (3)

Primary and Fine Crushing

Manto Reduction Kiln

Fine Grinding, Thickening,Silver Leach

Solids Wash and Thickening

Silver Recovery to Silver Dore’

Fine Ore Storage

Leach Solids Tailing Thickening

and Storage

Cyanide Treatment/Recovery

Upper Silver Zone

Primary and Fine Crushing

Quench Solids in Water

Fine Grinding, Thickening,Silver Leach

Run-of-Mine Upper Silver Zone

Solids Wash and Thickening

Copper, Manganese, and Zinc By-Product

Processes

Fine Ore Storage

Cyanide Treatment/Recovery

Figure 13-1: Metallurgical Development - Conceptual Process Diagram



13.2 UPPER SILVER ZONE

Upper Silver Zone drill hole/interval and composite samples were treated with standard bottle roll tests to determine silver dissolution as a function of particle size, time, and reagent consumption. Additionally, a large 60 kg silver dissolution test, tailings toxic leach characteristic test (TCLP), comminution parameters, and solid/liquid separation tests were completed. Table 13-1 summarizes Upper Silver Zone dissolution results.

• A review of composite sample drill hole data indicates metallurgical samples fall within the open pit outline and are representative of the mineralized material that would be mined.

• In drill hole/interval tests, silver dissolution ranged from 8.2% to 73.4% and averaged 31% after 72 hours with a grinding size P80 of 74 microns. Silver dissolution increased when ground to 100% passing 37 microns. The increase ranged from 6.1% to 26.2% and averaged 15.5%.

• In composite tests, silver recovery increased from 16-18% to 42-45% as the particle size decreased from 1221 microns to 4 microns.

• Silver leaching kinetics show leaching was nearly complete in 24 hours with less than 2% of additional silver recovery taking place after 48 hours.

• Sodium cyanide consumption ranged from 0.1-4.0 kg/mt.

• Lime consumption ranged from 0.5-5.2 kg/mt.

• Electron microprobe analysis on leach residue indicated silver is present as acanthite, Ag2S, and silver halides, AgCl, AgI, locked as 1, 2, 15, and 31 micron inclusions in quartz and K-feldspar.

• Upper Silver Zone Comminution parameters were determined:

o Bond Impact tests measured 12.5 kW-hr/mt. o Abrasion Index measured 0.545 g. o Standard Bond Ball Mill grindability tests measured 15.9 kW-hr/mt. o Standard Bond Rod Mill grindability tests measured 14.8 kW-hr/mt.

• A 60 kg sample was ground to a P80 of 31 microns and transferred to an air sparged agitated tank. The sample was leached at 40% wt. solids for 48 hours. Sodium cyanide was added and maintained at 3 gpl. The pH was maintained pH > 11.0 with lime.

o Silver dissolution was determined to be 35.3%. o Sodium cyanide consumption was determined to be 2.4 kg/mt. o Lime consumption was determined to be 1.2 kg CaO/mt.



o Five calcine/leach tests on Upper Silver Zone Material indicated calcining did not improve silver dissolution.

Table 13-1: Upper Silver Zone – Summary of Silver Dissolution Tests

Upper Siver Zone Leach Tests

No. Tests

Particle Size P80

(Min-Max)

Silver Dissolution (Min-Max)/ Average

NaCN Consumed (Min-Max)/ Average

CaO Consumed (Min- Max)/

Average Initial

pH Initial NaCN

Leach Time

microns % kg/mt kg/mt pH gpl hr

RDi - 74 u grind 43 74 (8.2-73.4)/ 31.4 N/A N/A 11.0 2.0 72

RDi - Fine Grind 7 P100=37 (21.2-66.8)/ 46.7 (0.8-4.0)/ 2.5 (2.7-5.3)/ 4.4 11.0 2.0 72

Hazen - Grind/Recovery 16 4-1221 (16.2-45.0)/

33.9 (0.1-1.1)/ 0.8 (0.5-1.6)/ 0.9 >10 3.0 48

Hazen - Calcine 6 35-2400 (8.8-36.0)/ 23.3 (5.4-15.8)/ 11.8 (1.12-3.0)/ 1.9 >10 9.0 48 Hazen - 60 kg

Pilot Plant 1 31 35.3 2.4 1.20 11.2 3.0 48

13.3 UPPER SILVER ZONE PEA RECOVERY

The Upper Silver Zone silver dissolution versus head grade curve was developed based on bottle roll leach data adjusted to a grind size of ~40 microns. The following methodology was used to empirically derive the head grade versus silver dissolution curve:

• The RDi P80 of 74 micron silver dissolution data was adjusted to a ~40 micron grind by adding the average increase in silver dissolution, 15.5%, determined by RDi, or by applying a fixed tail of 36 gpt determined from Hazen data.

• Silver dissolution was calculated and the drill hole data sorted by head grade, averaged, the average data plotted, and a regression curve determined.

• The data suggest as silver head grade increases from 1.0 oz/t to 4.9 oz/t the silver dissolution will increase from 29.8% to 75.9%. The derived averaged data and recovery curve are presented in Table 13-2 and Figure 13-2.

Table 13-2: Upper Silver Zone – Derived Silver Dissolution vs. Head Grade

Head Grade (g/tonne)

Head Grade (oz/t)

Silver Dissolution (%)

36.1 1.1 46.5

43.7 1.3 29.8

52.6 1.5 31.5

73.2 2.1 50.7

85.0 2.5 57.6

96.8 2.8 62.8

166.7 4.9 75.9



Figure 13-2: Hazen – Upper Silver Zone – PEA Silver Dissolution vs. Head Grade

13.4 HERMOSA MANTO OXIDE METALLURGICAL TEST PROGRAM

Metallurgical development for the manganese-silver bearing Hermosa Manto Oxide materials took place predominantly at Hazen.

Previous work by Hazen (Owusu, 2009) was done in two stages of laboratory testing for process development. This information was incorporated into the previously published Preliminary Economic Assessment dated June 2, 2010 and is incorporated by reference into this report (M3, 2010).

Wildcat Silver and Hazen conducted a literature review to determine alternative extraction methods to the previously developed sulfuric acid – sulfur dioxide leach. Literature suggested reduction roasting had been applied to manganese mineralized material to liberate manganese and manganese-silver material to liberate silver.

The general chemistry employed is a reduction reaction with a reducing gas. The following reactions illustrate the reduction of manganese dioxide to manganese oxide by carbon monoxide, hydrogen and methane:

1) MnO2 + CO = MnO + CO2 2) MnO2 + H2 = MnO + H2O 3) 3 MnO2 + CH4 = 3MnO + CO + 2 H2O



Other metal oxides may be reduced in the reducing atmosphere. Commercially, nickel, manganese and iron mineralized materials are reduced with similar applied chemistry. The reducing agent may be hydrogen, sulphur, or hydrocarbons such as methane, coal or naphthalene.

Hazen developed a comprehensive test program that progressed in three phases:

• Phase 1: Bench Scale Calcination and Silver Leach Testing with associated mineralogy • Phase 2: 7-inch Diameter – Indirect Fired Rotary Kiln Pilot-Plant and 60 kg scale Silver

Leach Tests • Phase 3: 15-inch Diameter – Direct Fired Rotary Kiln Pilot-Plant and Silver Leaching

Tests

13.4.1 Phase 1 Batch Rotary Kiln

Development of the reducing calcine process began with Thermal Gravemetric Analysis (TGA) and X-Ray Diffraction Analysis (XRD) in different reducing atmospheres. Initial test results suggested a temperature range and gas composition for use in Batch Kiln tests.

Over 100 batch kiln / silver dissolution tests were completed. Batch kiln testing took place in a small quartz kiln. Parameters evaluated included gas composition, temperature, solids residence time, calcine solids particle size, and cooling method. Optimum conditions were based on subsequent silver dissolution in conventional sodium cyanide leach tests.

The gas compositions passing over the solids were selected and adjusted using bottled gases. Air, nitrogen, steam, carbon monoxide, hydrogen, sulfur dioxide, and methane were tested in varying compositions. The most common composition, “syn gas”, was composed of 25 v/v% CO, 25 v/v % H2 and 50 v/v% N2. The outlet gas compositions were monitored for CO, CO2, H2, SO2, and O2. Solids from the tests were cooled in air, inert gas, or quenched in water. Cooled solids were ground and leachable silver determined by conventional bottle roll testing.

See Table 13-3 for a summary of Batch Kiln test results.

Phase 1 Batch Kiln results indicate:

• TGA, XRD, and Microprobe analysis confirmed altered chemical structure caused by heating the mineralized material in the kiln.

• Microprobe photos of calcined mineralized material show indications of reactions with riming, fracturing, and increased porosity. The core of the particles is coronodite PbMn8O16. The rims have a lower ratio of Mn/Pb. The majority of the manganese in the sample is present as manganosite (MnO).

• Bench scale tests indicate that silver dissolutions from 1-93% were obtained in different kiln atmospheres; air, steam, carbon monoxide, hydrogen and methane, at temperatures from 450-1100°C and varying solids particle sizes and solids residence times.



o A combustion gas atmosphere is capable of enhancing silver dissolution. Silver dissolution of 89% was achieved with a mixed combustion gas of methane, carbon monoxide and carbon dioxide at a residence time of 240 minutes.

o Calcine particle size P80 of 2400-35 microns showed enhanced silver dissolution. In “syn gas” atmosphere with calcine solids particle size P80 of 2,400 and 35 microns, the average silver dissolutions were identical at 87%.

o Fine grinding the calcined mineralized materials was determined to be critical for high silver dissolution:

In a “syn gas” reducing atmosphere, as the leach particle size P80 decreases from 2400 microns to 35 micron the silver dissolution increases from an average of 47% to an average of 90%.

In a 100% CO reducing atmosphere, as the leach particle size P80 decreases from 2,400 microns to 35 microns, the silver dissolution increases from an average of 58% to an average of 83%.

o Calcine solids should be cooled in an inert gas or quenched in water. Solids were cooled in air, inert gases, quenched in water, and sodium cyanide solution.

In a 100% carbon monoxide atmosphere, silver dissolution from solids cooled in an inert gas atmosphere or quenched into water produced identical silver dissolutions of 84%. Silver dissolution was reduced to 62% when similar calcined and leached solids were cooled in air.

In a “syn gas” atmosphere, silver dissolution from solids cooled in an inert gas atmosphere or quenched into water produced silver dissolutions of 89% and 87% respectively. Silver dissolution was reduced to 16% when similar calcined and leached solids were quenched into 3 or 9 gpl sodium cyanide solution.

13.4.2 Phase 2 and 3 Continuous Rotary Kilns:

The Phase 2 pilot plant evaluated different mineralized material composites, processed continuously, through a 7 inch diameter indirect fired kiln. The test program also evaluated; comminution parameters, silver precipitation from leach solutions, sodium cyanide recovery, tailings toxic leach characteristics, solid/liquid separation, and investigated by-product processing for manganese and zinc.

In Phase 3, Manto Oxide composites were processed continuously in a larger 15” diameter direct fired rotary kiln. The direct fired kiln pilot-plant most closely simulates commercial operation. Manto Oxide composite samples were stage crushed to 100% minus ¼ inch and fed by screw feeder through an inert gas purged rotary valve to the kiln. Kiln solids residence time varied between 60-120 minutes, and operating temperatures ranged from 550-800°C. The gas flow was counter-current to the solids feed. Solids were discharged into an argon purged container, or



quenched into water. Cooled calcined samples were ground and silver leached in laboratory scale agitated beakers. Discharge gases exited through a gas cyclone, bag house and after burner to combust remaining carbon monoxide, methane and hydrogen.

The pilot plant evaluated different mineralized material types and operation with combustion gas operating “fuel rich” to maintain a reducing atmosphere. Carbon monoxide and hydrogen gas were supplemented to combustion gases and were supplied by a natural gas air catalytic reformer.

Table 13-4 summarizes continuous kiln metallurgical results by mineralized material type. Selected results are discussed below:

• A review of Manto Oxide composite drill hole data indicates that metallurgical samples fall within the open pit outline and were representative of the mineralized material that would be mined.

• Silver dissolution ranged from 70-83% in 7” indirect fired kiln tests with a calcine particle size P50 ranged from 194-1382 microns, a temperature ranged from 500-550oC, solids residence times of 30-120 minutes and leach particle size P80 of 35-54 microns. Sodium cyanide consumption ranged from 0.4-12 kg/t. Lime consumption ranged from 0.0-1.0 kg/ton.

• In 15” direct fired kiln tests:

o MRZS mineralized material indicated a silver dissolution of 89% at 725-750°C with a solids residence time of 60-120 minutes. Reformer gas was added to combustion gas.

o MRZC mineralized material indicated a silver dissolution of 83% at 700°C with a solids residence time of 60 minutes. Reformer gas was added to combustion gas.

o MRZC silver dissolution at 800°C, 60 minute solids residence time, with the reformer “off”, achieved a silver dissolution of 71%. This compares to the reformer “on” test that achieved an average silver dissolution of 60%. This test suggests combustion gases alone, without supplemental carbon monoxide or hydrogen, may be a sufficient reducing atmosphere.

o PZ mineralized material indicate a silver dissolution of 78% at 550°C, with a solids residence time of 120 minutes. Reformer gas was added to combustion gas.

• Sodium cyanide consumption ranged from 1.0 – 24 kg/mt.

• Lime consumption ranged from 0 – 0.8 kg/mt.

• Silver dissolution kinetics for calcined Manto Oxide were rapid with 95% completion in 8-10 hours



• Comminution Parameters: Impact Work Index, Abrasion Work, Index, Rod Mill Work Index, and Ball Mill Work Index were determined:

o Bond Impact tests measured 9.8, and 19.8 for non-calcined, MRZC and MRZS mineralized materials, respectively.

o Abrasion Indices measured 0.136 and 1.179 g for non-calcined, MRZC and MRZS mineralized materials, respectively.

o Standard Bond Ball Mill grindability tests for non-calcined MRZC and MRZS mineralized materials measured 12.4 and 20.7 kW-hr/mt, respectively.

o Calcined Standard Bond Ball Mill Grindability tests on MRZC, MRZS, and PZ and a 50/50 wt% blend MRZC, and PZ mineralized materials measured 11.8, 13.3, 10.9, and 12.1 kW-hr/mt, respectively.

o Standard Bond Rod Mill grindability tests on non-calcined MRZC and MRZS mineralized materials measured 11.3 and 18.2 kW-hr/mt, respectively.

• Silver bearing leach liquors proved amenable to the simulated Merrill Crowe process. Silver recovery averaged 95.4% with a high of 98.9%. Final silver concentration in solution averaged 2 mg/l. Zinc usage averaged 343.4 g/m3. Copper precipitated averaged 0.7% with a high value of 1.39%.

• Copper, zinc and cyanide recovery is amenable to Sulfidization, Acidification, Recycling and Thickening process (“SART”).

In filtrate contained 320 mg/l copper, 2,320 mg/l zinc, 3 mg/l Ag and 7,230 mg/l NaCN. Test results indicate 99.6% copper, 98.8% zinc, 82.1% silver, and 99.2% cyanide can be removed from solution at a pH of 4. Copper requires 130% of stoichiometric NaSH addition for 96.5% removal. Zinc may be removed separately from copper by reducing the pH to 4.0 prior to acidification. Cyanide evolved <99% at pH values below pH 6.

• TCLP tests were conducted on calcined leached solids and Upper Silver leached solids. Lead was the only TCLP metal detected at 0.06-0.48 mg/L Pb. The regulatory limit of 5 mg/L was not exceeded.

• Kiln discharge gas “grab” sampling detected metals and mercury.

• XRD and microprobe analysis of batch kiln solids and leach residue indicate zinc is present as Willemite. Manganese recovery by magnetic separation in leach residue produced poor results. Manganese and zinc could not be recovered from silver leach tailings solids in limited scoping tests.



• Flocculent screening, conventional and high rate thickening, and underflow viscosity tests were completed on MRZS, MRZC and Upper Silver Zone materials.

o Flocculent screening indicated Hychem AF 302 produced suitable underflow densities with a dosage range of 20-35 g/mt for all mineralized material types. MRZS mineralized material required an equal dose of a cationic flocculent to produce clear overflow solutions.

o Static thickening tests indicated conventional thickeners could be sized for 1.25-1.5 m3/MTPD and dynamic thickeners sized for 1.25-1.5 m3/m2-hr, for all mineralized material types.

o Maximum underflow densities ranged from 44-67 wt. % solids for conventional thickeners, and 51-71 wt. % for high rate thickeners.



Table 13-3: Batch Kiln Summary of Silver Dissolution



Table 13-4: Continuous Kilns - Silver Dissolution by Mineralized material Type.

The Manto Oxide silver dissolution versus head grade curve was developed from the direct fired 15” kiln silver dissolution data. The following methodology was used to empirically derive the head grade versus silver dissolution curve:

• Evaluation of the silver dissolution curve was based on preliminary issued data.



• The silver dissolution data was reviewed for each mineralized material type and the average recovery examined as well as the range.

• The data suggested as silver head grade increased from 1.5 oz/t to 5.8 oz/t, the silver dissolution increased from 72% to 90%.

• Derived averaged data, average Manto LOM grade, and PEA annual mine silver head grades are presented below.

• Silver dissolutions at high mine plan silver head grades show extrapolated recoveries to 93%. Direct fired kiln testing is recommended to confirm silver dissolutions at high silver head grades.

Table 13-5: PEA Silver Dissolution Curve – Silver Dissolution vs. Head Grade

Head Grade, Ag oz/t Material Type

Silver Recovery - 15"

Kiln, %

Silver Recovery - 15" Kiln, Average

%

PEA Silver Recovery,

%

5.8 MRZS 88-89 88.5% 90.0%

2.9 MRZC 76-80.1 78.0% 81.0%

1.4 PZ 70-74 71.3% 72.0%



Figure 13-3: PEA Silver Dissolution versus Head Grade

• Gold dissolution was assumed to be 90%. Residual gold in leached solids was reported as “less-than” the analytical detection limit.

• Copper dissolution was assumed to be 20% based on limiting cyanide.



14 MINERAL RESOURCE ESTIMATES

The mineral resource of the Hermosa deposit is categorized into three main mineralized material types; Manto Oxide zone, Upper Silver zone, and the Deep Skarn zone. In the March 2012 report (Welhener, March 2012), all three zones were included in the resource. In this report, only the Manto Oxide and Upper Silver zone are being considered for the resource certified by SEWC.

The resource was estimated by SEWC using Maptek Vulcan® software. The resource is composed of silver, gold, manganese, zinc, copper and lead metals. Silver is the metal of most interest to Wildcat Silver.

14.1 DATABASE

Wildcat Silver provided SEWC with a drill hole database in the form of a Microsoft Excel Workbook. The Workbook included spreadsheets for collar, assay, survey, lithology, alternation, faulting and recovery data. The database included collars for 340 drill holes.

The database was imported into Vulcan software for compositing and grade estimation routines. SEWC validated the database was free of errors. The database was composited into 20 foot intervals.

Table 14-1: Drilling and Assay Statistics

Core RC Rotary Core/Rotary Total Number of holes 85 165 82 10 342

Total drilling, feet 115,739 103,382 28,243 8,146 255,510 Total assay intervals 21,965 20,223 4,338 1,049 47,575

Assayed for silver 21,743 20,094 4,292 1,033 47,162 Assayed for zinc 21,556 20,101 3709 767 46,133

Assayed for copper 21,494 20,049 3707 755 46,005 Assayed for manganese 21,619 20,101 3,786 768 46,274

Assayed for lead 21,603 20,101 3,811 767 46,282

Table 14-2: Percent of Total Intervals Assays

Core RC Rotary Core/Rotary Total Silver 99.0 99.4 98.9 98.5 99.1

Zinc 98.1 99.4 85.5 73.1 97.0 Copper 97.9 99.1 85.5 72.0 96.7

Manganese 98.4 99.4 87.3 73.2 97.3 Lead 98.4 99.4 87.9 73.1 97.3



Figure 14-1: Drill Hole Location Map



14.2 GEOLOGIC AND MINERALIZED MATERIAL TYPE MODEL

The triangulations files used to model and flag the geologic and mineralized material type units within the block model were created by Mark Osterberg of Mine Mappers LLC. SEWC imported these files into Vulcan from MineSight triangulation files. The triangulations were all validated in Vulcan to be virtually free of any errors, and when errors were found they were fixed to make the triangulation valid.

Neither the geologic nor mineralized material type boundaries were used to constrain the grade estimation performed. This is how the model had been run previously and SEWC decided to continue without the boundary constraints for this estimation.

After the estimation was complete, upon visual inspection of the block model it was apparent there were blocks with high grade manganese in the Upper Silver Zone. These blocks were also noted to be in close proximity to the Upper Silver and Manto Oxide boundaries. Because the Upper Silver material is known to be barren of manganese, any block with a manganese grade above 1.0% and with a silver grade above 1.4 ounces per ton was re-categorized as Manto Oxide material, or more specifically MRZS. This was performed using a script on the block model post grade estimation.

14.3 BLOCK MODEL

A block model was constructed in order to perform the resource estimation. The block model was created using Vulcan software. No sub-blocking scheme was applied to the model; all blocks are the same size. The parameters used to setup the block model are outlined in Table 14-3.

Table 14-3: Block Model Parameters for Hermosa Project Parameter Value

Origin (x; y; z) 1,071,500.0; 163,000.0; 1,800.0 Feet Offset (x; y; z direction) 9,000.0; 9,750; 4,420 Feet Orientation (Bearing; Plunge; Dip) 90.0; 0; 0 Number of Blocks 7,757,100 Block Size (x; y; z) 50; 50; 20 Feet

As part of the block model definition, triangulations were used to flag block geologic and mineralized material type units. Table 14-4 outlines the geologic and mineralized material types and their corresponding values assigned to respective blocks.



Table 14-4: Block Model Geologic and Mineralized Material Type Coding Parent Unit Sub-Units Value

Geologic Unit Andesite 20 Rhyolite 40 Limestone 60

Mineralized Material Type

LAg1 (Upper Silver Zone) 86 MRZs (Manto Oxide Zone) 87 MRZc (Manto Oxide Zone) 88 PZ (Manto Zone) 90

Mineralization at Hermosa occurs in manto-type replacement bodies located mostly in the Permian sediments near their contact with the overlying Cretaceous volcaniclastics. There are some local variations in the dip of the mantos but the overall trend is sub-horizontal. The mantos also tend to be discontinuous, with higher-grade stringers occurring both above and below.

Mineralization extends above the manto replacement and to the east in a silver rich, base metal poor area referred to as the Upper Silver Zone. The mineralization also extends below the manto zone. During the evaluation of statistics and the grade estimates, all areas were estimated with the same modeling parameters. As the project moves forward and more understanding of the various mineralized areas, these metal grades in these areas may be estimated differently.

Geologic controls were not used during grade estimation because the lithology variables in the model do not adequately segregate the composites into higher-grade and lower-grade populations.

A sample cross section through the block model showing blocks colored by mineralized material type can be seen in Figure 14-2. In this figure, the blue blocks represent the Upper Silver zone material, while the green, red and orange blocks represent Manto Oxide material.



Figure 14-2: Block Model Cross Section Showing Mineralized material Type at Section

167,451 Northing 14.4 GEOSTATISTICS

Based on the probability plots, zinc, manganese and lead were estimated separately inside and outside the IK100 shapes using ID5, 1/10 minimum/maximum composites inside the shapes and 2/10 outside, and silver and copper were estimated using ID5 and 2/10 minimum/ maximum composites without boundary constraints. ID5 was selected because experience on other properties indicates that higher-power inverse distance operators are usually needed to replicate blast hole grade distributions and because ID5 “splits the difference” between the NNP and OK models.

The ID5 model gives the most representative results. It contains more blocks above cutoff than the IK100 model and about the same number as the NNP, IK30 and IK30100 models, but recovered value are significantly lower. This would be a logical expectation given that the IK100 shapes limit the influence of the higher-grade zinc and manganese in the ID5 model.



14.5 GRADE ESTIMATION

Mineralization was estimated with the following criteria for each metal on the Property.

Table 14-5: Hermosa Grade Estimation Parameters

Estimation Method

Search Orientation (Bearing; Plunge;

Dip)

Search Ellipsoid (Major; Semi-Major;

Minor Axis)

Min/Max Samples

Used Capping Ag ID5 0; 0; 0 250; 250; 30 Feet 2/10 60

Ag Nearest Neighbor 0; 0; 0 250; 250; 30 Feet 1/1 60

Au ID5 0; 0; 0 250; 250; 30 Feet 2/10 0.2 Mn ID5 0; 0; 0 250; 250; 30 Feet 2/10 35 Pb ID5 0; 0; 0 250; 250; 30 Feet 2/10 20 Zn ID5 0; 0; 0 250; 250; 30 Feet 2/10 25 Cu ID5 0; 0; 0 250; 250; 30 Feet 2/10 1.5

14.6 RESOURCE CLASSIFICATION

The Hermosa Resource was classified into measured, indicated and inferred categories based on number of samples used to estimate a block and the distance to the nearest sample from an estimated block. Table 14-6 outlines the methodology used to classify the Hermosa Resource.

Table 14-6: Hermosa Resource Classification Methodology Classification Methodology

Measured Block is estimated with a minimum of 3 drill holes and Ag nearest neighbor sample is less than or equal to 75 feet.

Indicated Block is estimated with a minimum of 3 drill holes and Ag nearest neighbor sample is greater than 75 feet and less than 250 feet.

Inferred All remaining blocks. 14.7 DENSITY

Density values were assigned to blocks based on the block geologic code. All blocks in the Upper Volcanics, or rhyolites, were assigned a density of 12.6 cubic feet per ton (2.54 g/cc). Blocks in the lower sediments, including manto zone blocks, were assigned a density of 11.9 cubic feet per ton (2.7 g/cc). Table 14-7 outlines the density values assigned to each geologic unit.

Table 14-7: Density by Geologic Units

Geologic Unit Density (g/cc)

Density (Ft3/Ton)

Andesite 2.8 11.4 Rhyolite 2.54 12.6 Limestone 2.7 11.9



14.8 OPEN PIT MINE RESOURCES

14.8.1 Pit Optimization Parameters

The block model was imported into Gemcom Whittle ® software to determine a reasonable economic pit resource. Wildcat Silver provided the metal prices, recoveries, and other parameters used by SEWC to determine a pit shell. SEWC felt the information provided by Wildcat Silver was reasonable, and used them in Whittle to determine a pit shell. Table 14-8 and Table 14-9 outline the parameters provided and used for Whittle pit optimization. All measured, indicated and inferred blocks were imported into Whittle and included in the optimization for the pit resource.

Table 14-8: Metal Prices and Recoveries used for Economic Pit Metal Price (US$) Recovery (%)

Silver $25.76/oz 90 Gold $1,300/oz 85 Manganese $0.60/lb 95 Zinc $0.93/lb 80 Copper $3.21/lb 90 Lead $0 0

Table 14-9: Mining and Processing Costs used for Economic Pit

Parameter Cost Mining Cost $1.50 Processing: Upper Silver Zone $5.80 Processing: Manto Zone $25.00 G&A $1.00

14.8.2 Hermosa Resource

Based on the reasonable economic parameters used to determine an optimized mining shell, Table 14-12 outlines the Measured and Indicated Pit Resource for the Hermosa Project. The Inferred Pit Resource for Hermosa is listed in Table 14-13. For all classifications categories, the resource is reported at a silver grade cut-off of 0.25 ounces per ton.

Table 14-10 Measured Pit Resources for Hermosa by Zone


Ag (oz/ton)

Au (oz/ton)

Mn (%)

Zn (%)

Cu (%)


Manto Oxide 40,504 1.94 0.003 6.46 1.65 0.06 78,725 Upper Silver Mixed 62,873 0.86 0.002 0.77 0.11 0.02 54,360 Total Measured 103,377 1.29 0.002 3.00 0.71 0.04 133,085



Table 14-11: Indicated Pit Resources for Hermosa by Zone


Ag (oz/ton)

Au (oz/ton)

Mn (%)

Zn (%)

Cu (%)

Contained Silver

Ounces (000s) Manto Oxide 43,776 1.21 0.002 5.16 1.51 0.05 53,008 Upper Silver Mixed 66,893 0.74 0.002 0.86 0.14 0.02 49,481 Total Indicated 110,669 0.93 0.002 2.56 0.68 0.03 102,489

Table 14-12: Measured and Indicated Hermosa Pit Resource


Ag (oz/ton)

Au (oz/ton)

Mn (%)

Zn (%)

Cu (%)

Contained Silver

Ounces (000s)

Manto Oxide 84,280 1.56 0.002 5.79 1.57 0.06 131,733 Upper Silver Mixed 129,767 0.80 0.002 0.82 0.13 0.02 103,841 Total Measured & Indicated 214,046 1.10 0.002 2.77 0.070 0.03 235,574

Table 14-13: Inferred Hermosa Pit Resource


Ag (oz/ton)

Au (oz/ton)

Mn (%)

Zn (%)

Cu (%)


Manto Oxide 23,971 1.15 0.002 6.38 2.53 0.09 27,662 Upper Silver Mixed 63,673 0.81 0.002 0.77 0.15 0.02 51,346 Total Inferred 87,645 0.90 0.002 2.31 0.80 0.04 79,008

14.8.3 Skarn Resource

In addition to the above mineral resource, Hermosa also has a deep Skarn Sulfide Zone which hosts 4.2 million tons of 0.9 oz/ton silver, 4.68% manganese, 0.07% copper and 2.31% zinc for total contained silver ounces of nearly 4.0 million. This Skarn resource was previously announced in the Company’s February 6, 2012 mineral resource press release and included in the NI 43-101 Hermosa Technical Report dated March 21, 2012.

Table 14-14: Hermosa Skarn Resource (Welhener, March 2012)


Ag (oz/ton)

Mn (%)

Zn (%)

Cu (%)

Contained Silver Ounces

Skarn Sulfide 4,212 0.9 4.68 2.31 0.07 3,982,500



15 MINERAL RESERVE ESTIMATES

Mineral reserves have not been calculated for the Hermosa Project.



16 MINING METHODS

This section describes the mining assumptions used in this PEA and how they were used to develop a mine production plan for the life of the Hermosa Mine. The mining method was assumed to employ conventional surface mining methods, with drill and blast rock breakage, front-end loaders and shovel loading, and haul trucks for materials handling. For this study, unsmoothed nested Whittle pit shells were used for production scheduling. An optimized pit was developed using Gemcom Whittle software, and scheduled with Maptek Vulcan and Excel software. The mine plan was developed to produce 3 million tons of Upper Silver material and 3 million tons of Manto material per year. Stockpiles were utilized to bring higher grade material to process earlier in the mine life. The mine has a life of 16 years, of which the last seven years consist solely of re-handling stockpile material to the processing plant. Runge Talpac software was used to determine a mining fleet based on average haul distance for each phase of the mine plan.

The mine plan described in this section was evaluated on the Measured, Indicated and Inferred resource as described in Section 14. The deep Skarn resource was not evaluated as part of this study, and that resource did not contribute to the mine plan described in this section.

16.1 MINE OPTIMIZATION

Gemcom Whittle software was used to determine optimal ultimate pit size and incremental pit phases based on grade, metallurgical recoveries, mining costs and metal selling prices. Whittle uses Lerch-Grossman algorithms to determine economical pit limits. Table 16-1 outlines the parameters used in Whittle. No recovery values were used for manganese, lead or zinc. Metal selling prices are listed in Table 16-2. An overall pit slope of 49 degrees was assumed and used in Whittle, as no detail geotechnical analysis has been completed.

Table 16-1: Whittle Optimization Parameters

Material Type Mining Cost ($/ton)

Processing Cost ($/ton)

Admin Cost ($/ton)

Ag Recovery

(%)

Au Recovery

(%)

Cu Recovery

(%) Upper Silver 1.25 6.45 1.00 45 90 0 Manto 1.25 19.30 1.00 83 90 20

Table 16-2: Metal Selling Prices used in Whittle Optimization

Metal Selling Price (US$) Ag $27/oz. Au $1,400/oz. Cu $3.20/lb

To determine the maximum value of an open pit, a Whittle optimization was performed with silver, gold and copper prices factored from a range of 0.3 to 1.3 of their set prices as listed in Table 16-2. The results of this optimization are shown in Figure 16-1 and show a maximum pit value is reached between $21.60 and $24.30/ounce for silver. Based on these results, the ultimate pit shell used for the mine plan was limited to a factor of 0.825, or $22.28/oz silver,



$1,155/oz gold and $2.64/lb copper. The in-pit resources based on these results are listed in Table 16-3, and Northing Section 168,417 of the pit extents and block values is shown in Figure 16-2. The blocks shown in Figure 16-2 are only blocks with a value above $10.5.

Figure 16-1: Whittle Comparison of Mine Size and Pit Value Varied by Metal Prices

Table 16-3: Pit Resource Used for Production Scheduling

Resource Category Zone Tons

(000s) Ag

(oz/ton) Au

(oz/ton) Mn (%)

Zn (%)

Cu (%)


Measured Manto 25,407 2.98 0.003 8.26 1.84 0.08 75,713 Upper Silver 20,129 1.26 0.003 0.71 0.10 0.02 25,407

Indicated Manto 19,524 2.08 0.002 6.91 1.72 0.07 40,657 Upper Silver 17,561 1.20 0.002 0.73 0.12 0.02 21,029

Inferred Manto 2,539 2.56 0.002 6.85 2.58 0.11 6,489 Upper Silver 15,083 1.3 0.003 0.39 0.07 0.02 19,649



Figure 16-2: Pit Extents and Block Values in Northing Section 168,417

16.2 MINE PLANNING

To aid in mine planning, four Whittle pit shells were created to represent four mine planning phases. These nested pits represent increasing value pits and are ideal for mine planning, as higher grade material at shallower depths is mined earlier in the life of the mine. The basis for these nested pit shells is outlined in Table 16-4.

Table 16-4 Whittle Nested Pits for Mine Planning

Pit/Phase Metal Price Factor

Mineralized Tons

(000’s) Overburden

Tons Strip Ratio

1 0.300 7,128 34,442 4.8 2 0.475 18,707 62,675 3.4 3 0.650 23,799 32,221 1.4 4 0.825 41,877 140,340 3.4

These four Whittle pits shells were imported into the Vulcan block model to continue the mine planning process, where each block was assigned a Whittle pit value. Using the block model, the surface topography, and the Whittle pit value flagged in the model, reserves were reported by 40 foot benches and by material type. In addition, the reserves for each bench were broken down into five different mineralized material types; low-grade Upper Silver, mid-grade Upper Silver, high-grade Upper Silver, low-grade Manto and high-grade Manto mineralized material. A sixth



type was made for overburden material. The breakdown for each type is outlined in Table 16-6. A block value was calculated for each block based on the estimated grade, selling price, and recovery for each metal including silver, gold, zinc, copper and manganese. The selling prices and recoveries used for this calculation are outlined in Table 16-5.

Table 16-5: Block Value Metal Prices and Recoveries

Metal Selling Price (US$) Recovery (%) Upper Silver Manto

Ag $27.00/oz 45 83 Au $1,400/oz 90 90 Zn $0.85/lb 0 20 Cu $3.20/lb 0 80 Mn $0.30/lb 0 40

Table 16-6: Mineralized Material Type Breakdown Conditions

Material Type Condition Low-Grade Upper Silver $10.5 <= Block Value < $13.0 Mid-Grade Upper Silver $13.0 <= Block Value < $22.0 High-Grade Upper Silver $22.0 <= Block Value Low-Grade Manto $25.0 <= Block Value < $75.0 High-Grade Manto $75.0 <= Block Value

The bench reserves exported from Vulcan were imported into an Excel spreadsheet for mine scheduling.

16.3 PRODUCTION SCHEDULE

The bench reserves broken down by mineralized material type and pit phase were scheduled in Excel. Based on metallurgical processing constraints and optimizations, the processing circuits required 3 million tons of Upper Silver material and 3 million tons of Manto material per year. This was the primary constraint placed on mine production. Stockpiles were planned, one for each of the materials outlined in Table 16-6. A pre-strip period of one year was planned for before the first year of production. During the pre-strip period, mineralized material would be placed in its respective stockpile. Overburden material in the pre-strip period would be used to construct roads and earth dams for tailings facilities. Overburden would continue to be used for construction projects until complete, and then overburden material would be sent to the rock storage facility.

Production was scheduled to begin in year one. In the early years of production, low-grade Upper Silver and Manto material would be placed directly into their respective stockpiles, while high and mid-grade material would feed the plant. High-grade material would take priority to the plant, and mid-grade would be sent to the plant or stockpile depending on grade and remaining balance from lack of high-grade material.

The schedule developed for this study contains nine years of mining; including a year of pre-stripping and stockpiling. The average strip ratio is 2.8 over the life of the mine. Six stockpiles would be built throughout the life of the mine, and some stockpiles would be re-handled before



in-pit mining activities were completed. In year nine, in-pit mining would be completed, and the remaining material in the stockpiles would be fed to the plant. The total mining and processing is expected to take 16 years to complete.

The 16 year mine plan is outlined in Table 16-7. The grade and quantities of metals shown in the table represent contained metal quantities.



Table 16-7: Hermosa Mine Plan

Total Year -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Overburden Tons 265,190,991 17,991,566 34,039,779 32,571,008 33,862,551 37,606,194 40,355,398 39,469,030 23,142,574 5,558,577 594,315 - - - - - - -

Strip Ratio

2.76 - 6.28 6.42 6.07 6.27 7.57 9.70 4.74 1.82 0.10 - - - Manto Processed

Total Processed Tons 47,470,369

3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 2,470,369 From Mine Tons 22,686,684

3,000,000 3,000,000 2,581,420 3,000,000 2,328,709 2,000,210 3,000,000 3,000,000 776,345 - - - - - - -

From Stockpiles Tons 24,783,685

- - 418,580 - 671,291 999,790 - - 2,223,655 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 2,470,369

Ag oz 122,859,312

21,568,696 18,931,910 12,127,282 11,669,694 8,185,846 6,558,312 7,889,261 6,628,993 4,767,562 3,595,210 3,595,210 3,595,210 3,595,210 3,595,210 3,595,210 2,960,498

` Ag opt 2.59

7.19 6.31 4.04 3.89 2.73 2.19 2.63 2.21 1.59 1.20 1.20 1.20 1.20 1.20 1.20 1.20

Au oz 138,250

23,982 17,443 10,211 6,769 7,273 7,967 6,916 6,930 6,336 6,510 6,510 6,510 6,510 6,510 6,510 5,361

Au opt 0.003

0.008 0.006 0.003 0.002 0.002 0.003 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002

Mn lb 7,243,178,915

494,845,565 584,260,191 492,038,301 455,747,293 606,888,849 606,846,861 611,501,516 746,058,739 396,079,403 329,585,490 329,585,490 329,585,490 329,585,490 329,585,490 329,585,490 271,399,259

Mn % 7.63

8.25 9.74 8.20 7.60 10.11 10.11 10.19 12.43 6.60 5.49 5.49 5.49 5.49 5.49 5.49 5.49

Cu lb 71,493,302

8,155,556 7,060,873 4,493,807 6,254,011 5,046,570 5,905,932 6,350,448 8,498,139 3,292,853 2,408,620 2,408,620 2,408,620 2,408,620 2,408,620 2,408,620 1,983,393

Cu % 0.08

0.136 0.118 0.075 0.104 0.084 0.098 0.106 0.142 0.055 0.040 0.040 0.040 0.040 0.040 0.040 0.040

Zn lb 1,734,580,614

71,319,710 102,847,445 74,960,619 88,216,527 111,520,936 152,227,401 225,307,068 248,104,736 118,232,235 79,409,014 79,409,014 79,409,014 79,409,014 79,409,014 79,409,014 65,389,855

Zn % 1.83

1.19 1.71 1.25 1.47 1.86 2.54 3.76 4.14 1.97 1.32 1.32 1.32 1.32 1.32 1.32 1.32

Pb lb 1,151,302,399

90,918,023 86,915,412 61,022,923 106,787,404 97,995,399 85,363,193 107,195,554 156,749,697 78,489,528 41,015,176 41,015,176 41,015,176 41,015,176 41,015,176 41,015,176 33,774,207

Pb % 1.21

1.52 1.45 1.02 1.78 1.63 1.42 1.79 2.61 1.31 0.68 0.68 0.68 0.68 0.68 0.68 0.68

Upper Silver Processed Total Processed Tons 48,529,631

3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,529,631

From Mine Tons 17,508,839

2,420,709 2,071,585 3,000,000 3,000,000 3,000,000 2,069,730 1,886,349 60,466 - - - - - - - - From Stockpiles Tons 31,020,792

579,291 928,415 - - - 930,270 1,113,651 2,939,534 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,529,631

Ag oz 62,817,422

6,646,589 5,634,142 6,802,891 4,984,240 4,338,300 3,654,614 3,755,267 3,344,366 3,345,483 3,345,483 3,345,483 3,345,483 2,937,533 2,309,917 2,309,917 2,717,718

Ag opt 1.29

2.22 1.88 2.27 1.66 1.45 1.22 1.25 1.11 1.12 1.12 1.12 1.12 0.98 0.77 0.77 0.77

Au oz 117,872

13,044 16,402 13,246 2,340 3,337 3,343 3,685 7,427 7,580 7,580 7,580 7,580 6,815 5,639 5,639 6,635

Au opt 0.002

0.004 0.005 0.004 0.001 0.001 0.001 0.001 0.002 0.003 0.003 0.003 0.003 0.002 0.002 0.002 0.002

Mn lb 603,990,002

20,873,727 29,759,589 34,570,199 39,277,517 21,977,897 66,171,104 113,371,070 28,173,157 25,243,600 25,243,600 25,243,600 25,243,600 30,033,160 37,401,716 37,401,716 44,004,752

Mn % 0.62

0.35 0.50 0.58 0.65 0.37 1.10 1.89 0.47 0.42 0.42 0.42 0.42 0.50 0.62 0.62 0.62

Cu lb 19,892,612

1,128,953 1,621,348 1,957,668 1,281,595 1,156,080 1,746,881 1,881,937 1,032,052 966,581 966,581 966,581 966,581 986,750 1,017,780 1,017,780 1,197,463

Cu % 0.02

0.019 0.027 0.033 0.021 0.019 0.029 0.031 0.017 0.016 0.016 0.016 0.016 0.016 0.017 0.017 0.017

Zn lb 96,912,391

2,187,641 4,335,793 6,376,813 4,348,240 3,322,349 11,446,017 21,171,176 4,711,334 3,920,338 3,920,338 3,920,338 3,920,338 4,688,053 5,869,153 5,869,153 6,905,315

Zn % 0.10

0.04 0.07 0.11 0.07 0.06 0.19 0.35 0.08 0.07 0.07 0.07 0.07 0.08 0.10 0.10 0.10

Pb lb 240,036,739

15,151,672 11,922,828 35,786,820 22,667,487 13,956,725 20,915,631 31,954,256 11,806,879 9,012,232 9,012,232 9,012,232 9,012,232 9,253,367 9,624,343 9,624,343 11,323,459

Pb % 0.25

0.25 0.20 0.60 0.38 0.23 0.35 0.53 0.20 0.15 0.15 0.15 0.15 0.15 0.16 0.16 0.16

Total Processed Total Processed Tons 96,000,000

6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000

From Mine Tons 40,195,523

5,420,709 5,071,585 5,581,420 6,000,000 5,328,709 4,069,940 4,886,349 3,060,466 776,345 - - - - - - - From Stockpiles Tons 55,804,477

579,291 928,415 418,580 - 671,291 1,930,060 1,113,651 2,939,534 5,223,655 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000

Ag oz 185,676,734

28,215,285 24,566,052 18,930,173 16,653,934 12,524,146 10,212,926 11,644,528 9,973,359 8,113,045 6,940,692 6,940,692 6,940,692 6,532,742 5,905,126 5,905,126 5,678,216

Ag opt 1.93

4.70 4.09 3.16 2.78 2.09 1.70 1.94 1.66 1.35 1.16 1.16 1.16 1.09 0.98 0.98 0.95

Au oz 256,122

37,026 33,845 23,457 9,109 10,610 11,310 10,600 14,358 13,916 14,090 14,090 14,090 13,326 12,150 12,150 11,996

Au opt 0.003

0.006 0.006 0.004 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002

Mn lb 7,847,168,917

515,719,291 614,019,780 526,608,500 495,024,809 628,866,746 673,017,965 724,872,586 774,231,895 421,323,002 354,829,090 354,829,090 354,829,090 359,618,650 366,987,206 366,987,206 315,404,011

Mn % 8.27

4.30 5.12 4.39 4.13 5.24 5.61 6.04 6.45 3.51 2.96 2.96 2.96 3.00 3.06 3.06 2.63

Cu lb 91,385,914

9,284,508 8,682,222 6,451,474 7,535,606 6,202,650 7,652,812 8,232,385 9,530,191 4,259,434 3,375,201 3,375,201 3,375,201 3,395,371 3,426,400 3,426,400 3,180,856

Cu % 0.10

0.077 0.072 0.054 0.063 0.052 0.064 0.069 0.079 0.035 0.028 0.028 0.028 0.028 0.029 0.029 0.027

Zn lb 1,831,493,005

73,507,351 107,183,239 81,337,433 92,564,768 114,843,285 163,673,418 246,478,243 252,816,070 122,152,573 83,329,352 83,329,352 83,329,352 84,097,067 85,278,166 85,278,166 72,295,170

Zn % 1.93

0.61 0.89 0.68 0.77 0.96 1.36 2.05 2.11 1.02 0.69 0.69 0.69 0.70 0.71 0.71 0.60

Pb lb 1,391,339,138

106,069,694 98,838,241 96,809,743 129,454,891 111,952,124 106,278,824 139,149,809 168,556,576 87,501,760 50,027,409 50,027,409 50,027,409 50,268,543 50,639,519 50,639,519 45,097,666

Pb % 1.47

0.88 0.82 0.81 1.08 0.93 0.89 1.16 1.40 0.73 0.42 0.42 0.42 0.42 0.42 0.42 0.38

Stockpiles Balances Manto Stockpiles Stockpile Opening Balance Tons

- 198,950 1,826,787 4,676,934 7,045,989 10,025,971 11,454,449 13,139,239 18,225,417 21,661,349 20,470,369 17,470,369 14,470,369 11,470,369 8,470,369 5,470,369 2,470,369

From Mine to Manto Stockpile Tons 24,783,685 198,950 1,627,837 2,850,147 2,787,635 2,979,982 2,099,769 2,684,580 5,086,178 3,435,933 1,032,675 - - - - - - - From Manto Stockpile to Process Tons 24,783,685

- - 418,580 - 671,291 999,790 - - 2,223,655 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 2,470,369

Stockpile Closing Balance Tons

198,950 1,826,787 4,676,934 7,045,989 10,025,971 11,454,449 13,139,239 18,225,417 21,661,349 20,470,369 17,470,369 14,470,369 11,470,369 8,470,369 5,470,369 2,470,369 -

21,661,349

Opening Balance of Low Grade Manto Stockpile Tons

- 97,960 1,429,159 3,895,846 6,683,481 9,663,463 11,454,449 13,139,239 18,225,417 21,661,349 20,470,369 17,470,369 14,470,369 11,470,369 8,470,369 5,470,369 2,470,369 From Mine to Low Grade Manto Stockpile Tons 24,002,597 97,960 1,331,199 2,466,687 2,787,635 2,979,982 2,099,769 2,684,580 5,086,178 3,435,933 1,032,675 - - - - - - -

From Low Grade Manto Stockpile to Process Tons 24,002,597

- - - - 308,783 999,790 - - 2,223,655 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 2,470,369 Closing Balance of Low Grade Manto Stockpile Tons

97,960 1,429,159 3,895,846 6,683,481 9,663,463 11,454,449 13,139,239 18,225,417 21,661,349 20,470,369 17,470,369 14,470,369 11,470,369 8,470,369 5,470,369 2,470,369 -

Max Low Grade Manto Stockpile Tons 21,661,349 Opening Balance of High Grade Manto Stockpile Tons

100,990 397,628 781,088 362,508 362,508 - - - - - - - - - - -

From Mine to High Grade Manto Stockpile Tons 781,088 100,990 296,638 383,460 - - - - From High Grade Manto Stockpile to Process Tons 781,088

- - 418,580 - 362,508 -

Closing Balance of High Grade Manto Stockpile Tons

100,990 397,628 781,088 362,508 362,508 - - - - - - - - - - - - Max High Grade Manto Stockpile Tons 781,088

Total From Mine to Manto Stockpiiles Tons 24,783,685 198,950 1,627,837 2,850,147 2,787,635 2,979,982 2,099,769 2,684,580 5,086,178 3,435,933 1,032,675 - - - - - - - Upper Silver Stockpiles

Stockpile Balance

- 6,609,925 14,206,868 20,425,840 26,989,177 29,874,666 31,757,589 32,040,609 31,689,229 28,772,494 25,772,494 22,772,494 19,772,494 16,772,494 13,772,494 10,772,494 7,772,494 From Mine to Lag Stockpile

35,263,655 6,609,925 8,176,234 7,147,387 6,563,337 2,885,489 1,882,923 1,213,290 762,271 22,799 - - - - - - - -

From Lag Stockpile to Process

35,263,655 - 579,291 928,415 - - - 930,270 1,113,651 2,939,534 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,529,631 Stockpile Closing Balance

6,609,925 14,206,868 20,425,840 26,989,177 29,874,666 31,757,589 32,040,609 31,689,229 28,772,494 25,772,494 22,772,494 19,772,494 16,772,494 13,772,494 10,772,494 7,772,494 4,242,863

32,040,609

Opening Balance Low Grade Lag Stockpile Tons

1,774,770 4,861,455 7,130,620 9,226,976 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 9,529,631 6,529,631 3,529,631 From Mine to Low Grade Lag Stockpile Tons 10,711,449 1,774,770 3,086,685 2,269,165 2,096,356 1,484,473 - - - - - - - - - - - -

From Log Grade Lag Stockpile to Process Tons 14,954,312

- - - - - - - - - - - - 1,181,818 3,000,000 3,000,000 3,529,631 Closing Balance of Low Grade Lag Stockpile Tons

1,774,770 4,861,455 7,130,620 9,226,976 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 10,711,449 9,529,631 6,529,631 3,529,631 0

Max Low Grade Lag Stockpile Tons 10,711,449 Opening Balance Mid Grade Lag Stockpile Tons

3,327,449 8,416,998 13,295,220 17,762,201 18,623,334 18,801,637 17,871,367 16,757,716 13,818,182 10,818,182 7,818,182 4,818,182 1,818,182 - - -

From Mine to Mid Grade Lag Stockpile Tons 18,801,637 3,327,449 5,089,549 4,878,222 4,466,981 861,133 178,303 - - - - - - - - -

- From Mid Grade Lag Stockpile to Process Tons 18,801,637

- - - - - 930,270 1,113,651 2,939,534 3,000,000 3,000,000 3,000,000 3,000,000 1,818,182 -

-

Closing Balance of Mid Grade Lag Stockpile Tons

3,327,449 8,416,998 13,295,220 17,762,201 18,623,334 18,801,637 17,871,367 16,757,716 13,818,182 10,818,182 7,818,182 4,818,182 1,818,182 - - - - Max Mid Grade Lag Stockpile Tons 18,801,637

Opening Balance of High Grade Lag Stockpile Tons

1,507,706 928,415 - - - - - - - - - - - - - - From Mine to High Grade Lag Stockpile Tons 1,507,706 1,507,706 - - - - -

From High Grade Lag Stockpile to Process Tons 1,507,706

579,291 928,415 - - - Closing Balance of High Grade Lag Stockpile Tons

1,507,706 928,415 - - - - - - - - - - - - - - -

Max High Grade Lag Stockpile Tons 1,507,706



16.4 MINE SITE LAYOUT

A potential layout for the Hermosa mine site includes three stockpiles with capacities for the low-grade Manto, low-grade Upper Silver and mid-grade Upper Silver material. The remaining two stockpiles for high-grade Manto and high-grade Upper Silver material would be built on early phases of the overburden rock storage pile, and would be re-handled before the ultimate overburden rock storage area was completed.

16.5 MOBILE EQUIPMENT FLEET

The mobile equipment fleet required for the production schedule was developed based on analysis of loading and hauling requirements. Average haul routes were estimated for each mining phase and loaded into Runge Talpac software, where round-trip haul distance and cycle times were computed and used to estimate the quantity and size of haul trucks, shovels and loaders required. Other required units were estimated from observed equipment fleets at similarly sized operations currently in production. Table 16-8 lists the estimated mobile equipment requirements and costs based on the Mining Cost Service from InfoMine’s estimating guide.

Table 16-8: Estimated Mobile Equipment Fleet

Equipment Quantity Capacity Unit Cost (US$ 000s)

Total Cost (US$ 000s)

Front End Loader 2 25 cubic yard 4,633.0 9,266.0 Hydraulic Shovel 1 29 cubic yard 6,697.0 6,697.0 Haul Truck 14 200 ton 2,835.0 39,690.0 Blasthole Drills 5 - 670.2 3,351.0 Dozer 5 - 734.5 3,672.5 Graders 2 - 1,775 3,550.0 Water Truck 2 - 773.0 1,546.0 Bulk Explosive Truck 2 - 84.7 169.4 Service Truck 2 - 69.5 138.9 Tire Truck 2 - 163.5 327.0 Lube/Fuel Truck 2 - 82.7 165.5 Light Plants 4 - 10.0 40.0 Pumps 6 - 10.0 60.0 Pickup Trucks 10 - 30.0 300.0

16.6 MINING PERSONNEL

A 24/7 workforce was assumed for mine production that would be covered by four crews working 12-hour rotations. A rotation typical to mining operations would be employed, where a rotation starts working four night shift, followed by three days off, then working three days, followed by one day off, then working three night shifts, followed by three days off, then working four day shift, followed by seven days off, and then the cycle repeats.

Table 16-9 outlines the peak workforce required for the mining portion of the operation, including maintenance shop personnel. This workforce would be built up over the first four



years of mine production and pre-stripping until the mine was at full production. Roles indicated with only two shifts would operate during day shifts only.

Table 16-9: Peak Mine Production Mine Workforce Personnel Role Shifts Persons/Shift Total Persons Mine Manager 1 1 1 Mine Superintendent 1 1 1 Shift Foreman 4 1 4 Front End Loader Operator 4 2 8 Shovel Operator 4 1 4 Haul Truck Operator 4 14 56 Blasthole Driller 2 5 10 Driller Assistant 2 5 10 Dozer Operator 4 5 20 Grader Operator 2 2 4 Water Truck Operator 4 2 8 Maintenance Shop Day Crew 2 10 20 Maintenance Shop Night Crew 2 3 6 Total Peak Mine Production Workforce 152



17 RECOVERY METHODS

17.1 PROCESS PLANT

17.1.1 General

Wildcat’s Hermosa mineralized material body consists of two mineralized material types; the Manto Oxide material, which has high manganese content, and the Upper Silver (leachable silver) material, which is a silica caprock above the main Manto Oxide zone. The Manto Oxide material requires calcining with reducing gases (like CO or H2) to reduce the manganese and expose the silver to cyanidation. The two mineralized material types will be mined and treated separately up to the grinding stage where they will be ground in the same ball mill.

The design basis for the mill is 16,500 tons per day or 6 million tons per year (“tpy”) at 93% mill availability. The Manto Oxide and Upper Silver material will be treated at the same rate of 3 million tons per year.

This section presents the process design criteria that will govern the design of the processing facility (mill) including crushing, calcining, grinding, agitation leaching, counter current decantation, Merrill-Crowe silver/gold recovery, SART precipitation, gold refining, tailing detoxification, and tailing disposal. The process plant designed for the Hermosa Project utilizes processes and equipment which are standard for the industry.

17.1.2 Process Overview

The following items summarize the process operations required to extract silver from the Hermosa mineralized material:

1. Size reduction of the mineralized material by a primary gyratory crusher to reduce the mineralized material size from run-of-mine (ROM) to minus 150 millimeters.

2. Primary crushed mineralized material will be conveyed to a closed circuit secondary crushing circuit consisting of a secondary screen and a cone crusher.

3. The secondary crushed mineralized materials will be conveyed to the HPGR crusher for tertiary crushing. The tertiary crushed mineralized materials will be conveyed to separate fine mineralized material stockpiles; the Manto mineralized material stockpile and the Upper Silver mineralized material stockpile.

4. The fine crushed Manto mineralized material will be reclaimed and conveyed to the kiln feed storage silo from where it will be reclaimed to feed the reduction kiln. Hot reducing gases will react with the Manto mineralized material in the kiln to reduce manganese from the manganese IV valency state to a manganese II valency state.

5. Reduced Manto mineralized material will be cooled in a quench tank and dewatered in the reduced mineralized material dewatering thickener. The thickener underflow will be pumped to the ball mill sump for grinding.



6. The crushed Upper Silver material will be conveyed to the ball mill where it will be ground, together with the reduced Manto Oxide material in the grinding circuit to liberate the silver minerals.

7. The grinding circuit will consist of a ball mill and a vertical mill operated in closed circuit with hydrocyclones. Primary grinding will occur in the ball mill to reduce the mineralized material size to 80% minus 100 microns (P80 of 100) followed by secondary grinding in vertical mills to reduce the size to 40 microns.

8. The ground slurry will be thickened to recycle water to the grinding circuit.

9. Pre-aeration of the ground slurry in conditioning tanks will be conducted to raise the dissolved oxygen content to optimum levels.

10. The slurry will be leached with cyanide in agitated leach tanks.

11. Liquid/solid separation will be conducted using a four stage counter-current decantation (CCD) circuit to wash the solids and recover cyanide.

12. Recovery of silver from the pregnant leach solution will be conducted in a Merrill Crowe plant. The process of recovering silver and gold by the Merrill Crowe process includes:

• Clarification and filtering of pregnant solution to remove suspended solids, • Deaeration of pregnant solution to reduce dissolved oxygen, • Precipitating gold and silver metal out by addition of metallic zinc dust, • Filtering and air drying of precipitate, • Heating the precipitate in a vacuum chamber to remove mercury, and • Melting the precious metal precipitate in a crucible furnace to produce Doré bars

which will be the final product of the mineralized material processing facility.

13. Recovery of copper, zinc and cyanide from a bleed of the Merrill-Crowe barren solution will be accomplished via the SART precipitation process. In the Sulfidization, Acidification, Recycle and Thickening (SART) plant, sulfuric acid and sodium hydrosulfide will be added to the barren solution containing copper, zinc and cyanide complexes to react and convert copper and zinc to copper and zinc sulfide precipitates and free cyanide as HCN in solution. The Acidification and Sulfidization reactions for copper are presented below:

2Na3Cu(CN)4 + 3.5H2SO4 +NaHS = Cu2S(S) + 3.5Na2SO4 + HCN(aq)

The resulting slurry, containing copper (and zinc) as copper (and zinc) sulfide precipitate and cyanide as HCN in solution, will be fed to the SART thickener where they will be separated. The thickener overflow will be reacted with lime to precipitate gypsum and stabilize cyanide for recycle.

14. Detoxification of residual cyanide in the agitated leach tail stream will be conducted using ammonium bisulfite and oxygen, with copper sulfate as a catalyst.



15. The detoxified slurry will be thickened to recycle water to the process. Thickened slurry will be sent to the tailings pond.

16. Water from the tailings pond will be recycled for reuse in the process. Plant water stream types include: process solution, fresh water, and potable water.

17. Storage, preparation, and distribution of reagents to be used in the process will be conducted at the plant. Reagents which require storage and distribution include: sodium cyanide, caustic soda, flocculant, copper sulfate, ammonium bisulfite, sulfuric acid, lime, sodium hydrosulfide, and antiscalant.

The overall process flow diagram of the proposed processing plant is presented in Figure 17-1.



Figure 17-1: Overall Process Flowsheet



17.1.3 Metal Recovery and Production Schedule

Table 17-1 shows the metal recoveries and production schedule for the project.

Table 17-1: Metal Recovery and Production Schedule

% Recovery* oz per day oz/year

Manto Mineralized material Silver 82 17,456 6,371,000

LAg Mineralized material Silver 40 4,274 1,560,000

Manto Mineralized material Gold 90 22.2 8,100

LAg Mineralized material Gold 90 14.8 5,403

Manto Mineralized material Copper 20 26,301 (lb) 9,600,000 (lb) *Based on LOM grade

17.2 PROCESS REAGENTS

Table 17-2 shows process reagents and consumption rates.

Table 17-2: Reagents and Consumption Rates

Reagent Lb/Mineralized Material Ton Lb/year

Ammonium bisulfite 0.12 720,000

Sulfuric Acid 2.41 14,460,000

Lime 9.32 55,920,000

Sodium Cyanide 0.47 2,820,000

Zinc Dust 0.09 540,000

Sodium Hydroxide 0.12 720,000

Sodium Hydrosulfide 0.14 840,000

Diatomaceous Earth 0.16 960,000

Antiscalant 0.05 300,000

Flocculant 0.46 2,760,000



18 PROJECT INFRASTRUCTURE

The Project will have a plant site, open pit, tailing storage facility and a waste rock storage area. In addition, the site has existing infrastructure that can be used and/or improved as part of project development. There are existing roads which will be improved, and the project will take advantage of nearby resources such as power lines and a gas pipeline.

18.1 POWER

High capacity power lines traverse the Sonoita Valley from Huachuca City to Sonoita-Elgin and Patagonia from the east. A 115 kV power line, 41 miles long, is included in the project to connect the plant with the substation at Rio Rico.

18.2 NATURAL GAS

A major regional natural gas pipeline (El Paso Natural Gas) from Nogales to the northeast is tapped for use in the Sonoita Valley. The project includes an estimated 27-mile-long natural gas pipe line to connect the plant to the El Paso Natural Gas pipeline. Natural gas is required for the Manganese Reduction Kiln.

18.3 ROADWORK

Roadwork includes the following:

• A 1.9 mile long Plant Access Road that begins at Harshaw Road. • An additional 0.6 mile of intra-plant roads. • One bridge and possibly a second bridge on Harshaw Road may require improvements. • Harshaw Road will require improvements.

18.4 GENERAL SITE LAYOUT

See Figure 18-1 for the mine site plan and Figure 18-2 for the plant site plan.



Figure 18-1: Mine Site Plan (000-GA-001)



Figure 18-2: Plant Site Plan (000-GA-002)



18.5 TAILINGS STORAGE FACILITY (TSF)

Mineral recovery will involve a milling process where mineralized material (ore) will be ground and solution added to produce a fine-grained slurry. The slurry, with a typical pulp density (solids content divided by total weight of slurry) of between 50 to 60%, will be directed via pipeline to the TSF located downstream of the plant site. A TSF layout was developed based on the desire to position the facility proximate to the processing facilities and optimizing the location with respect to the existing topography.

The TSF is designed as a “zero discharge” facility with an ultimate storage capacity of 100 million tons and the ability to store an operational supernatant or process water pool (15 feet deep). In addition to process water storage the TSF has been sized to allow for direct run-on from the Probable Maximum Flood (PMF) (5 feet of depth) and 5 feet of freeboard. For this level of study the Tailings storage capacities have been determined based on flat filling of the TSF basin and a dry density of 80 pounds per cubic foot (pcf) for the tailings.

In general, the facilities consist of an embankment that encloses a basin area for tailings storage. At this stage of conceptual design, the embankment has been designed with upstream and downstream slopes of 2.5H (horizontal):1V (vertical) and an embankment crest width of 50 feet. It is assumed that the embankment would be constructed of mine overburden materials and that the mine would haul, place and compact the materials within the embankment as part of their pre-stripping operation and ongoing pit development.

The TSF development plan is to stage construction of the facility to spread capital costs over the life of the facility, to make maximum beneficial use of waste rock production to construct the staged embankment, and to limit the amount of exposed geomembrane at any time during development of the TSF. The TSF was developed with a 2 year starter facility (12 Mton capacity) and expansions approximately every 3 years to the ultimate facility (100 Mton capacity). Layouts of the starter and ultimate TSF are presented on Figure 18-3 and Figure 18-4. For this conceptual study, it is assumed that the embankment would be developed using downstream construction methods as shown on Figure 18-5.



Figure 18-3: Tailings Storage Facility Plan View (Starter)



Figure 18-4: Tailings Storage Facility Plan View (Ultimate)



Figure 18-5: Tailings Storage Facility Embankment and Basin Cross Section



The basin and upstream slope of the TSF embankment is designed with a composite liner system consisting of compacted clay with a coefficient of permeability (k) ≤ 1x10-6 cm/sec overlain by a 60 mil HDPE liner. To control head on the liner system and allow for increased consolidation of the tailings, an under-drainage system consisting of crushed gravel augmented with perforated corrugated piping was placed in the topographic lows within the TSF basin. Under-drain flows will be directed via gravity to an under-drainage collection pond located downstream of the main TSF embankment. The under-drainage collection outlet is routed beneath the facility via a reinforced concrete encased outlet pipe. The under-drain collection pond has been sited near the downstream toe of the ultimate facility. Underdrainage collected in the pond will be pumped back into the TSF and ultimately reused in the processing circuit.

Tailings will be routed to the TSF via gravity through a pipeline and discharged into the facility using “rotational sub-aerial” deposition methods. This method of deposition will occur in zones along the basin perimeter allowing active deposition in one zone while drying and consolidation of tailings occurs in other zones. Rotation of the deposition zones will be completed as needed to form a sloping beach that promotes a distinct supernatant pond location. A reclaim system equipped with pumps will be used to recycle liberated process water (supernatant) and storm-water back to the plant.

A haul road has been included for delivery of mine overburden materials to the TSF embankment as shown on Figure 18-3 and Figure 18-4. The road was preliminarily designed with a maximum slope of 10%, a road width of 85 feet and 5-foot high safety berms. The road consists primarily of fill and it is assumed that the mine will construct the road of pit overburden materials.

18.6 ROCK STORAGE AREA

The Rock Storage Area (RSA) was sized to store approximately 270 Mtons of material and is based on an average strip ratio at the mine of 2.8:1 and average side slopes of 3H:1V. The facility is unlined due to the fact that the waste rock at the site has a net buffering capacity and does not present a risk of generating low pH effluent. Detention ponds have been sited downstream to eliminate significant sediment load transference to receiving streams. A layout of a starter facility with a capacity of 15 Mtons was completed for the purposes of initial capital cost estimation. The starter and ultimate facility layouts are included on Figure 18-6 and Figure 18-7.

The RSA will be developed in a series of lifts by end dumping materials from the haul equipment and spreading with a bull dozer. The individual lifts will be maintained at an overall slope equal to the angle of repose (approximately 1.5H:1V). Benches will be left between each lift to produce a compound overall slope of 3H:1V. The RSA was designed with a 1 million gallon sediment pond at its base to control sediment emanating from the active RSA.



Figure 18-6: Rock Storage Area Plan View (Starter)



Figure 18-7: Rock Storage Area Plan View (Ultimate)



19 MARKET STUDIES AND CONTRACTS

Marketing studies were not required for the gold and silver doré and copper concentrates produced in the process plant. The products will be shipped for treatment at a precious metals refinery and copper smelter, respectively, where the treatment charges will be subject to contract negotiations before production begins.



20 ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL OR COMMUNITY IMPACT

20.1 INTRODUCTION

The purpose of this section is to explain the environmental permits and approvals necessary to bring the Hermosa Project into production. The following sections explain the various permitting programs, their required advance studies, and the estimated time required to secure permits and approvals.

20.2 ENVIRONMENTAL PERMITTING

A variety of federal, state and local permits and approvals must be obtained prior to operating the proposed Hermosa Project. A summary of the expected permits/approvals, the lead agency for each permit/approval, and comments relevant to each are provided in Table 20-1. This list has been prepared based on the current understanding of the project approach and the regulations currently in effect. The list may be subject to change as project development continues forward. The timeframes described are based on recent projects in Arizona, but are subject to change, depending on the complexity of the project, public opinion, agency capabilities and priorities and other factors. Discussion of the most significant environmental permits and approval actions is provided in the following subsections.

20.2.1 National Environmental Policy Act (NEPA)

Most of the proposed facilities and operations for the Hermosa Project are located on land administered by the United States Forest Service (USFS), Coronado National Forest (CNF). As a result, compliance with the National Environmental Policy Act (NEPA) of 1969 will be required for all major activities at the site. NEPA informs the federal government’s decision-making process by requiring full and complete disclosure of the potential impacts of the proposed action on the human environment. The NEPA process requires coordination with other agencies and public involvement. The NEPA analysis and process will represent the most significant effort, in terms of time and resources of all the permitting activities.

Use of federal lands by private parties is regulated under the Federal Land Policy and Management Act (FLPMA). Regulations under FLPMA require Wildcat Silver to obtain approval from USFS for a mine plan of operations (POO) prior to construction and operation of a mine on land managed by USFS. In addition, a POO is required for exploration drilling and other major activities performed on federal lands prior to initiating mining operations. The USFS decision to approve, or approve with stipulations, a POO is a “major federal action,” which is the “trigger” for NEPA compliance. The USFS has to review the project under NEPA, before making its approval decision.

A draft Plan of Operations (POO) for drilling activities has been submitted to the USFS for review and comment. The proposed drilling activities in the POO, which include exploration, geotechnical and hydrogeologic investigations, will trigger NEPA leading to either a Categorical Exclusion (CE or CatEx), an Environmental Assessment (EA) or an Environmental Impact Statement (EIS). The USFS will determine the level of review required, but the most likely



NEPA level of review is an EA, which is expected to take 6-12 months to complete, with a Finding of No Significant Impact (FONSI) as the anticipated outcome. If a FONSI is issued by the USFS, the drilling activities will be allowed to commence. Results from drilling activities will be incorporated into Pre-Feasibility and/or Feasibility-level studies.

If Pre-Feasibility and/or Feasibility studies support mine development, a Plan of Operations for all proposed mining activities through the life of mine and closure will be prepared and submitted to the USFS. Submittal of a Mining POO will require a USFS decision that will again trigger NEPA. A much more exhaustive NEPA analysis, in the form of an EIS, and the process that goes along with it, will be required. The EIS process requires evaluation of possible impacts of the proposed project on various resources, including: air quality; surface water and groundwater quality; water quantity; transportation; terrestrial wildlife, fisheries, and migratory birds; sensitive species; socioeconomics; vegetation and wetlands; visual resources, recreation, noise and vibration; hazardous materials and hazardous waste; historic trails; cultural resources; and Native American concerns and traditional cultural places. Other subjects may be evaluated based on public and agency input into the process. In addition to analyzing potential impacts of the project, the NEPA process requires that alternatives to project components be analyzed to identify whether impacts can be reduced by changing project features, locations, etc. The USFS will produce a Record of Decision (ROD) with the final EIS. The ROD documents that the USFS has complied with NEPA and identifies the environmentally preferable and selected alternatives, along with mitigation measures or stipulations that are required to be included in the final POO. Although the ROD is not a permit, per se, the proposed mining activities may not proceed until the ROD is issued, administrative appeals have been exhausted, and a final POO consistent with the ROD has been accepted. The timeline for an EIS ranges significantly, from two to five years or more, especially if the project generates significant public controversy or is in an environmentally sensitive area.

Environmental baseline studies are required to establish conditions prior to the initiation of mining activities and to be used in NEPA documents. The studies are also used to support applications for air and water permits or other permits. These baseline studies are best initiated and completed as early as possible, to the extent practicable, though data can also be collected during the early part of the NEPA process. Following established protocols and coordination with the USFS and permitting agencies is important in the development of work plans and during data collection to ensure that the data will be adequate for permitting and NEPA. In addition to baseline studies, testing of waste rock and tailings is needed to predict the potential for acid rock drainage and metal leaching. Environmental modeling is generally required to predict whether there will be changes to surface and ground water quality and air quality as a result of mining. Supplemental studies may be required during the NEPA process, but early data collection generally improves the quality of the analyses, timeline of the analysis, trust between agencies and project proponents, and produces more favorable outcomes in the end. Baseline studies for biological resources, cultural resources, stormwater, air, and groundwater have been initiated for the Hermosa Project. Wildcat Silver has been actively communicating with the USFS.



20.2.2 Air Quality Permit

Air quality is regulated at the federal level by the US Environmental Protection Agency (US EPA) under the Clean Air Act (CAA), although authority for air quality permitting has been delegated by US EPA (Region IX) to the Arizona Department of Environmental Quality (ADEQ), with US EPA retaining oversight. Prevention of Significant Deterioration (PSD) is a program established under the CAA to maintain ground-level concentrations of regulated air pollutants within National Ambient Air Quality Standards (NAAQS), which have been established for a variety of pollutants, including ozone, carbon monoxide, nitrogen dioxide, sulfur dioxide, particulate matter, and lead. Areas of the United States in compliance with NAAQS are designated as “attainment areas”. A PSD permit allows a facility to be constructed and operated within an attainment area.

The Hermosa Project is presently located in an attainment area for all regulated pollutants. A relatively small nonattainment area for particulate matter is located in the vicinity so any facilities proposed beyond the current project area should be reviewed for potential effects to this nonattainment area. PSD review is triggered for proposed emissions of a regulated pollutant greater than 250 tons per year (tpy) or for proposed emissions greater than 100 tpy if the proposed facility includes a “categorical source”. As planned, the Hermosa project does not include any of the twenty-eight (28) listed categorical sources, so the PSD threshold for the Hermosa Project is 250 tpy.

The PSD program also provides special protection for designated Class I areas, which are areas of special national or regional natural, scenic, recreational, or historic value. Generally, these additional analyses come into play for proposed facilities planned to be constructed within 10 kilometers (km) of a Class I area. The Hermosa project does not appear to have any Class I areas within 10 km.

ADEQ has a Unitary Permit Program wherein construction permits and operating permits are combined into one application and subsequently one air quality control operating permit is issued. ADEQ has two air quality permit classifications: Class I (major source) and Class II (minor source). A Class I air quality operating permit is required for emissions of regulated pollutant exceeding 100 tpy (not to be confused with the PSD threshold). An assessment of the potential-to-emit (PTE) of regulated air pollutants allows the determination of the source classification for an air quality control permit application as a Class I or a Class II.

Development and issuance of a Class I permit may take 18 months to over 2 years, based on complexity and level and nature of public comment, whereas a Class II permit generally takes about 9 to 12 months. In either case, it is anticipated that ADEQ will require atmospheric dispersion modeling to demonstrate compliance with NAAQS for the proposed project.

Baseline studies are planned and will be completed to establish background weather and air quality data for the area in and around the Hermosa Project. This information will be used to support air permitting and the NEPA process.



20.2.3 Aquifer Protection Permit

The ADEQ is responsible for issuing an Aquifer Protection Permit (APP) to facilities that may discharge pollutants which may have the potential to adversely impact groundwater quality. The following types of facilities fall under APP regulations: surface impoundments (process water ponds, holding ponds, settling pits or ponds, etc.), tailings storage facilities, waste rock stockpiles subjected to leaching, mine leaching facilities, wastewater treatment facilities, septic tanks, injection wells, and point-source discharges to “navigable waters”.

In order to obtain an APP, applicants must make five “demonstrations” to the satisfaction of the ADEQ:

1. That the facilities are designed and will be constructed and operated according to “best available demonstrated control technology (BADCT).”

2. That the facility will not “cause or contribute to” an exceedance of Aquifer Water Quality Standards (AWQS) at designated point(s) of compliance, or if AWQS for a pollutant has already been exceeded in an aquifer (pre-existing condition), that no additional degradation will occur.

3. That the applicant is technically capable of carrying out the conditions of the permit. 4. That the applicant is financially capable of constructing, operating, closing and assuring

post-closure care of the facility. 5. That the facility complies with applicable municipal or county zoning ordinances and

regulations (however, mines are exempted from local zoning ordinances).

In the BADCT demonstration, two general approaches are available: 1) the use of “prescriptive” BADCT criteria or 2) the use of “individual” BADCT criteria. Prescriptive BADCT include pre-approved control technologies for tailings impoundments and certain types of ponds and generally represent conservative approaches that are relatively independent of site conditions.

In order to characterize pre-existing conditions and demonstrate that the facility will comply with AWQS, an extensive hydrogeologic characterization of the site, including the characterization of subsurface water levels, groundwater flow direction(s), groundwater quality, and other parameters, is required. Baseline data are required to establish normal seasonal fluctuations in subsurface conditions and background water quality. Several existing wells are currently being monitored by Wildcat Silver, and additional hydrogeologic investigation is included in the drilling POO described in Section 20.2.1. One or more point-of-compliance (POC) wells will be identified during the APP permitting process. To the extent possible, one or more of the wells identified in the POO will be used as POC wells.

In addition to the hydrogeologic characterization, characterization of representative samples of materials representing waste rock and tailings is needed. These samples assist in identifying the BADCT approaches for waste rock and tailings accumulations on site.

The permitting process for an APP on a project of this size typically lasts from 12 to 18 months. ADEQ has an expedited program for accelerating the APP process in which an additional fee is paid to use an ADEQ-approved consultant.



20.2.4 Other Permits

Although several other permits and approvals are required (see Table 20-1), none are expected to be as involved as the NEPA EIS, APP, and Air Permit described in the previous sections. Section 404 permitting under the Clean Water Act has the potential to be a significant effort if the drainages and washes affected by the proposed activities are determined by the U.S. Army Corps of Engineers (USACE) to be jurisdictional “waters of the U.S.” and if an “individual” 404 permit is required. Determination of jurisdiction in the Santa Cruz watershed is complicated and controversial and it is recommended that a formal jurisdictional determination be prepared and submitted to the USACE. In the event the affected drainages are declared by the USACE to be jurisdictional and an individual 404 permit is needed, the USACE will need to comply with NEPA before making its 404 permit decision. The USACE would likely coordinate with the USFS as a cooperating agency in developing the EIS and the 404 permit process would closely track the USFS EIS process.

Wildcat currently holds an Arizona Pollution Discharge Elimination System (AZPDES) general permit for stormwater discharges related to the exploration program. Stormwater from mining activities will require a similar permit, a version called an AZPDES Multi-Sector General Permit (MSGP). The process is relatively straightforward, but the Stormwater Pollution Prevention Plan (SWPPP) would need to be revised to incorporate the proposed mining operations and the degree of compliance monitoring would likely increase. Stormwater discharges to Upper Harshaw Creek (an impaired water) will require a demonstration that the discharge is not expected to cause or contribute to exceedance of a water quality standard. The demonstration would be submitted to ADEQ concurrent with a revised SWPPP and therefore is not expected to take significant additional time.

20.3 SOCIAL AND COMMUNITY

The Project is located in a relatively remote area eight miles north of the international border with Sonora, Mexico in Santa Cruz County. Nogales, the Santa Cruz county seat, is located about 20 miles by road to the southwest, with a 2010 population of about 21,000. The second largest community in the county is Rio Rico, also about 20 miles away, with a population of about 19,000. Both of these larger populations are located on Interstate 19. The county also includes several small towns and communities, of which Patagonia, with approximately 1,000 residents, is the closest, located about 6 miles northwest of the Hermosa Project. The major population and economic centers in the area include Sierra Vista, population of about 45,000 and located about 45 miles to the east, and Tucson, population of about 520,116 and located about 65 miles to the north.

Patagonia has minimal socioeconomic infrastructure and capacity to support the Project. The Town has K-12 schools including a high school serving approximately 90 students from grades 9 through 12. There is one hotel, two bed-and-breakfast lodges, several restaurants, a small grocery store and a gas station. Tucson has historically been the commercial and service/supply center for the mining industry in southern Arizona. Tucson has a commercial airport and large rail center.



Patagonia has a Police Department with a small but fully staffed force. The Santa Cruz County Sherriff and the Arizona Department of Public Safety Highway Patrol Division patrol the area around Patagonia and the Project. Medical facilities in Patagonia include a small family medical clinic and the Patagonia Fire Department’s Emergency Medical Technician (EMT) service. The Fire Department also has helicopter landing facilities for transporting serious medical cases to larger hospitals in Nogales or Tucson. Nogales has a regional hospital.

Although, the Patagonia area has historically been a mining, ranching and railroad community that would generally be favorable to development of a major mining operation with the attendant economic benefits and increase in employment opportunities, many of the more recent additions to the community may actively oppose the project at the grassroots level. In addition, the project is likely to attract the attention of organized, well-funded environmental activist organizations. In recent years, the Patagonia and nearby Sonoita areas have attracted artists and upscale, well-educated, professional/technical individuals who have either retired to the area or commute to work elsewhere. Sonoita is also home to a nascent wine industry. Many local businesses cater to the tourist and outdoor sporting industry. The Patagonia Mountains, in which the Hermosa project is located, have been noted internationally as a bird-watching destination to observe numerous species of rare and exotic birds. The area is also popular for other outdoor recreational activities, including hiking, biking, horseback riding, and off-road four-wheel driving within the Coronado National Forest lands. As a result, the project may attract similar levels of opposition as other recent mine permitting efforts in the state.

A well-developed strategy to understand, provide information in advance, and proactively respond to the grass-roots and organized components of non-governmental organizations and the public should be developed and implemented. Public outreach and education efforts will be required to garner support and develop trust with the community and to mitigate the efforts of organized opponents to sway public opinion. Consideration of public input will be important to the NEPA review and analysis.

20.4 ENVIRONMENTAL DESIGN AND OPERATION CONSIDERATIONS

20.4.1 Tailings and Waste Rock

As described in Section 18, tailings will be hydraulically deposited in a lined impoundment facility. The facility will need to be designed, constructed, and operated in compliance with an Aquifer Protection Permit (APP). The estimated capital cost assumes an Individual BADCT approach, based on similar project experience in Arizona. The tailings will be placed upstream (inside) of a rockfill dam, to be constructed of mine overburden by the downstream method. The downstream method of construction will prevent concurrent reclamation on the embankment. Phased construction of the tailings embankment to facilitate concurrent reclamation should be considered in future studies.

Waste rock stockpiles are planned along the western perimeter of the pit. Waste rock will need to be characterized for acid-generating potential – sampling and testing are planned as part of the geotechnical and hydrogeologic baseline investigations described in Section 20.2.1. However, based on a review of the geology at the site, potential for low pH effluent generation is believed



to be low and the need for lining of the facility is not deemed necessary. Waste rock stockpiles should be designed and phased to facilitate reclamation in 3 to 4 year sequences.

20.4.2 Monitoring

Prior to the start of mine operations and during operations, monitoring of various media is needed to identify baseline characteristics of the air, groundwater and surface water. Baseline studies establish background environmental conditions prior to the initiation of mining activities that could potentially alter or affect those environmental conditions, provide a basis for modelling or predicting potential impacts from proposed activities, and provide necessary input for design efforts to eliminate, minimize, or mitigate effects on the environment resulting from the proposed operations. In addition, monitoring will be required during operations to demonstrate compliance with the various permits under which the mine will operate.

Surface water monitoring is required during mine operations as part of the AZPDES Multi-Sector General Permit (MSGP) for Mining. In the case of the Hermosa Project, surface water monitoring is necessary during all project phases (including exploration) due to the close proximity of the project to a waterways designated as “impaired” under the Clean Water Act. Harshaw Creek is part of the Santa Cruz watershed which has been designated as impaired water. The Hermosa Project currently operates under an AZPDES permit for construction stormwater (initiated because of exploration and related activities). Stormwater sampling has been initiated and the first report has been submitted to ADEQ.

Quarterly groundwater monitoring will be required to monitor compliance with the the APP process to demonstrate the groundwater quality in downstream areas of the mine operations in points of compliance wells. Monitoring the points of compliance wells are an important method for demonstrating the effectiveness of the BADCT and whether the mine operations or materials are impacting groundwater quality during the life of the mine.

20.4.3 Site Water Management

On-site water management will use generally-accepted practices to control stormwater runoff in the areas of the open pit, plant site, waste rock and tailings impoundment areas, washes or surface water, and roads and diversions. The proposed mine is at the headwaters of the surrounding watersheds, so relatively minimal, localized diversion is needed. As the depth and area of the open pit increases during the project, the open pit will be treated as a closed system that is designed to capture rainfall and local runoff as contact water into a sump in the pit bottom. The sump will be part of the pit dewatering system so that any groundwater and runoff entering the sump will be incorporated into the mill process. At the end of the mine life, the pit will most likely develop a pit lake, establishing equilibrium between evaporation and inflow from groundwater and surface water. The plant site will include diversions, to pass relatively minor upstream flows past the plant site. Precipitation and localized runoff and precipitation that falls within the plant site will be collected with containment measures and evaporated or reused in the mill process.



Concurrent reclamation and best management practices will be used to limit erosion from the waste rock stockpiles. Process water collected in the tailings impoundment will be recycled back to the mill. The tailings embankment has been designed with sufficient freeboard to store the Probable Maximum Flood (PMF) for the entire catchment area upstream. Any ponding of water can also be pumped to a treatment process as needed to limit infiltration into the waste rock or tailings accumulations.

Diversions will be used throughout the active mine area to minimize the amount of non-contact water draining into the open pit or contacting waste from the mining process. The diversion channels will run in parallel to the existing drainage patterns of the area. Storm water from the project will be discharged under an AZPDES permit.

20.5 RECLAMATION AND CLOSURE

Closure and reclamation planning will be required for the Project. The Arizona State Mine Inspector requires submission and approval of a Mined Land Reclamation Plan and financial assurances to cover the costs associated with the plan. In addition, the ADEQ APP regulations require that technologies are considered and included for all phases of the project including closure/reclamation and post-closure. The USFS will also require that closure and reclamation plans meet performance standards and have financial assurance.

Reclamation of the project site will follow guidelines and practices to ensure geotechnical stability and that promote the re-establishment of ecological functionality and the development of self-sustaining plant communities suitable to the local climate and conditions. Concurrent reclamation will be employed during mining operations to progressively rehabilitate affected areas, where possible. At the conclusion of mine life, decommissioning of site infrastructure, demolition, and closure of all facilities will be required.

The primary opportunities for concurrent reclamation are the waste rock stockpiles and tailings impoundment. Concurrent reclamation has the advantages of distributing reclamation costs over time, minimizing disturbance footprint, addressing some of the expected environmental concerns expressed by the public, and allowing site-specific procedures to be developed over time to develop the most effective, long-term solutions. The equivalent annual costs estimated for reclamation assume the tailings dam and waste piles will be reclaimed in phases. The waste stockpiles should be phased in such a way as to allow a section to be reclaimed every 3 to 4 years of operation. The surface of the impounded tailings storage facility will be reclaimed at the end of mine life.

Table 20-1: Environmental Permits and Approvals

Lead Agency Permit, Approval or other Action Comments Federal Permits, Approvals and Actions US Department of Agriculture, US Forest Service, Coronado National Forest (USFS)

Plan of Operations (POO) approval for Environmental and Exploration Drilling

POO for exploration, geotechnical and hydrogeologic drilling on lands managed by USFS requires approval before the work can be implemented.



Lead Agency Permit, Approval or other Action Comments USFS Compliance and Decision pursuant

to National Environmental Policy Act of 1969 (NEPA) for drilling activities

USFS needs to comply with NEPA before making a decision on the POO. It is expected that an EA will be required. Process expected to take between 9 months and 18 months, including potential appeals procedures.

USFS POO Approval for Mining POO for mining operations, to be submitted after completion of a favorable Pre-Feasibility Study (PFS) or Feasibility Study (FS), incorporating the results of the drilling activities described above. USFS needs to comply with NEPA before making a decision on the POO.

USFS NEPA Compliance and Decision pursuant to NEPA for mining operations

An Environmental Impact Statement (EIS) will be required for the mining operation. The EIS process, including obtaining the ROD, is expected to take from 2 to 5 years to complete.

US Environmental Protection Agency (US EPA)

Clean Water Act (CWA) Section 402 – National Pollutant Discharge Elimination System (NPDES) permit(s) Oversight

US EPA has granted primacy to the Arizona Department of Environmental Quality (ADEQ). See below for description. US EPA may exercise authority to review the AZPDES permit.

US EPA Clean Air Act Oversight US EPA has granted primacy to the ADEQ. See below for description. EPA may exercise authority to review the air permit.

US EPA Resource Conservation and Recovery Act (RCRA) ID Number

Required for disposal of materials identified by RCRA as hazardous waste. Process expected to take approximately one year to complete.

US EPA CWA Section 404 Review US EPA has authority to review the CWA 404 permit public notice, elevate concerns, and require restrictions related to the discharge area.

US EPA Clean Air Act, Section 309 and NEPA Review

EPA required to review and rate EISs developed by Federal Agencies.

U.S. Army Corps of Engineers (USACE)

CWA Section 404 Permit Permit(s) required for discharge of fill material to waters of the United States, including jurisdictional wetlands. An individual permit is likely to be required, unless affected tributaries on the site are determined by the USACE to be “non-jurisdictional”. Individual permit requires NEPA compliance and a Record of Decision, expected to be performed in coordination with the USFS NEPA process. Timeline is generally coincident with the USFS NEPA process.

Mine Safety and Health Administration (USFS)

MSHA Number Miner registration number required for mining operations. Timeline is a matter of days to complete.

US Fish and Wildlife Service (USFWS)

Endangered Species Act Section 7 Consultation

USFWS review and consultation is required for USFS POO decision and Section 404 permit. Consultation documentation and process generally occurs in coordination with NEPA



Lead Agency Permit, Approval or other Action Comments

U.S. Department of Transportation (USDOT)

Hazardous Materials Transportation Registration

Required for shipment of hazardous materials to or from the mine site. Timeline is a matter of days to complete.

Bureau of Alcohol, Tobacco, and Firearms (ATF)

Blasting Operator Registration Registration of all personnel that may handle blasting materials. Timeline a matter of months, but less than one year.

Federal Communications Commission (FCC)

Radio Licenses for Industrial/Business l Conventional Use

Communications equipment must be licensed. Timeline is a matter of weeks to months.

State Permits, Approvals, and Actions Arizona Department of Environmental Quality (ADEQ)

Aquifer Protection Permit (APP) Required for waste dumps, tailings storage, leaching facilities, process-water ponds and reservoirs, or any other facility that has the potential to “discharge” to the aquifer or vadose zone. Requires hydrogeologic study and the submission of construction plans for the proposed facilities. Review process generally takes from 6-18 months after submission of an application accepted by ADEQ as administratively complete.

ADEQ Air Quality Permit Required for mobile and stationary emission sources, including any source that may emit air pollutants (e.g. dust, listed air pollutants). Timeline generally takes from 6 months to 1 year to complete. Usually require baseline studies and monitoring of weather and ambient air conditions.

ADEQ Arizona Pollutant Discharge Elimination System (AZPDES) Construction Stormwater Permit/General Stormwater Permit

Regulates discharge of stormwater runoff to waters of the U.S. Substantive requirements are development and implementation of a r Stormwater Pollution Prevention Plan (SWPPPs)

ADEQ Clean Water Act Section 401 – Water Quality Certification.

ADEQ certifies that the 404 permit complies with water quality standards. Coordinated with Section 404 permit process.

ADEQ Solid Waste Management Inventory Number

Landfill and waste area requirements

ADEQ Hazardous Waste Management Number

Management of hazardous waste

ADEQ Waste Tire Cell Registration Management of off-road tires greater than 3 feet in diameter

Arizona State Historic Preservation Office (SHPO)

National Historic Preservation Act Section 106 consultation.

USFS and USACE need to comply with NHPA Section 106 in coordination with the NEPA process. This will entail cultural resource surveys, documentation, and consultation with SHPO.

Arizona Department of Water Resources (ADWR)

Groundwater Withdrawal Permits Groundwater withdrawal rights. Usually takes about 6 – 12 months for approval, assuming water rights are in place.



Lead Agency Permit, Approval or other Action Comments ADWR Safety of Dams Permit

Requirements for construction of dams, as defined by Statute. Tailings dams are exempt, but require permitting through the APP process. Timeline usually takes 3 to 6 months for approval.

Arizona State Mine Inspector

Reclamation Plan Post-mining land uses and plans for regrading. Timeline usually takes 3 months for approval.

Local Agency Permits, Approvals, and Actions None Identified None Identified Arizona Statute 11-830 generally exempts mining

facilities from building codes and other local ordinances.



21 CAPITAL AND OPERATING COSTS

21.1 CAPITAL COSTS

21.1.1 Capital Cost Summary

Direct capital costs are shown in Table 21-1. The costs are PEA level and the accuracy is +/-30%. In general, engineers constructed the estimates utilizing project specific data and equipment. In some cases, data was used from similar projects in design or construction.

Table 21-1: Capital Cost Summary Description Cost (M$) Process Plant and Infrastructure General Site 20.3 Crushing and Storage 70.7 Manto Oxide Reduction 34.7 Grinding 49.3 Slurry Conditioning, Silver Leach, CCD, Recovery 35.3 SART 15.8 Merrill Crowe Refinery 21.1 Process Water 1.0 Fresh Water 5.5 Main Plant Substation 7.3 Off-Site High Voltage Power 8.4 Reagents 4.1 Ancillaries 14.6 Freight 19.6 Total Direct Level Costs 307.9 Basic Indirect Costs 14.7 EPCM 50.8 Mining Equipment and Pre-Production 60.0 Contingency on Mine Process Plant and Infrastructure 96.3 Natural Gas Pipeline 27.0 Mine Waste Stockpile 1.3 TSF and Haul Road to TSF 31.6 Owners Costs 37.9 Total Project Costs 627.4

The estimate assumes that the project will be awarded to a mid-sized construction company or M3 Engineering as a construction manager with appropriate subcontractors and that only one mobilization will be required; i.e., there will be a continuity of construction activity once the project has begun.

All costs are in 3rd quarter 2012 dollars with no escalation.



21.2 BASIS OF CAPITAL COST ESTIMATE

21.2.1 Mining

Mining capital costs are $60 million including $29 million for initial mining equipment and $31 million for pre-production costs to mine 24.8 million tons of Manto Oxide, Upper Silver and overburden at a cost of $1.25/ton.

21.2.2 Process Plant and Infrastructure

At the time of this estimate, engineering was less than 1% complete. Documents available to the estimators included the following:

• Design Criteria • Preliminary Equipment List • Preliminary Flowsheets • General Arrangements – (1) GA Mine Site Plan and (1) GA Plant Site Plan

Freight has been included as 10% of materials and equipment cost in the estimate for domestic sourced equipment.

21.2.3 Major Indirect Capital Costs

Major Indirect Capital Costs include items such as mobilization, spares, and so on. Mobilization is listed below the Area Direct Costs at 0.5% of Total Direct Cost without Mine and Mobile Equipment.

Spares are included as follows:

• Capital Spares are included as an allowance at 2 % of Plant Equipment. • Start up and Commissioning Spares are included as an allowance at 0.5% of Plant

Equipment. • Start-up or Commissioning Spares are those that are on hand during start-up and

commissioning of the equipment and have a high probability of being used during this phase.

Contractor commissioning crews and Vendors’ representative costs during fabrication and construction are included at 2% of the Process Equipment cost.

EPCM indirect costs have been assumed as follows:

− Management & accounting 0.75% Total Constructed Cost w/o mine − Engineering 6.0% Total Constructed Cost w/o mine − Project services 1.0% Total Constructed Cost w/o mine − Project control 0.75% Total Constructed Cost w/o mine − Construction management 6.5% Total Constructed Cost w/o mine



− EPCM fee 1.5% Total Constructed Cost w/o mine

An owner’s cost estimate was supplied by Wildcat Silver.

21.2.4 TSF Costs

• Rock Excavation

o Quantity based on a volume calculated by two methods (1) 20% of basin area at an average 10-ft depth and (2) calculating areas of slopes steeper than 3H:1V (assuming steep topographic areas represent rock outcropping) and applying a 10-foot depth.

o Drill and blast costs based on this work being completed by the mine.

• Embankment Construction Basis

o Embankment will be constructed of pit overburden materials.

o Mine will haul material to embankment and only that cost associated with the overhaul distance will be charged to the TSF construction cost. Mining costs include for a one-way haul distance from the pit to the Rock Storage Area of one mile. An overhaul distance to the TSF was measured from the center of the pit to the center of the embankment with a one mile subtraction.

o Embankment compaction will be completed by systematic routing of the haul equipment over the surface of the fill.

• Liner Bedding

o The liner bedding is included to conform to the prescriptive BADCT requirements that include a composite liner system consisting of a single geomembrane (60 mil if HDPE) over 12 inches (liner bedding) of low permeability compacted soil (saturated hydraulic conductivity less than 10-6 cm/sec.)

o The unit price assumes a suitable borrow area exists within 1 mile of the project.

• Drainage Fingers

o Costing for the TSF underdrain system assumes an individual BADCT approach could be taken with the construction of drainage fingers versus a full 18-inch protective/drainage layer cover as this type of design system could provide a sufficient method for hydraulic relief over the liner.



21.3 TAILINGS STORAGE FACILITY CAPITAL COST

For initial capital and sustaining capital cost estimation, the TSF was developed with a 2 year starter facility (12 Mton capacity) and expansions approximately every 3 years to the ultimate facility (100 Mton capacity). This TSF expansion plan has construction occurring at years -1, 2, 5, 8, 11 and 14. Capital costs were developed for the Starter and Ultimate facilities for the major construction components and sustaining capital was estimated for the intermediate phases by assigning factored percentages of the total cost to each construction phase. Unit rates were developed based on either (1) equipment rental rates (Red Mountain Machinery), prevailing wages and fringes for the Santa Cruz County (www.wdol.gov/dba.asp) and a fuel price of $3.50/gal, (2) cost data from previous similar projects and (3) vendor supplied quotes. The following table summarizes the costs for the major cost items.

Table 21-2: Tailings Storage Facility - Capital Cost Estimate Summary

Construction Item Cost ($ Millions) - Starter TSF (12 Mton)

Cost ($ Millions) – Ultimate TSF (100 Mton)

Mobilization/Demobilization $0.81 $3.00 Site Preparation $1.13 $4.56 Rock Excavation $3.65 $14.47 Embankment Construction $2.15 $14.09 Random Fill $0.00 $1.30 Liner Bedding $2.26 $8.95 Geomembrane Liner $4.50 $17.85 Drainage Fingers $0.30 $0.46 Tailings and Reclaim Pipe $2.05 $3.45 Reclaim Support System $0.50 $0.50 Underdrain System $1.81 $2.61 Diversion Channel $0.00 $5.89 Haul Road Construction $3.60 Contingency (20%) $4.55 $15.43 ESTIMATED DIRECT COSTS $27.31 $92.56 ESTIMATED INDIRECT COST $4.29 $14.65 TOTAL COST $31.60 $107.21

Table 21-3: Rock Storage Area - Capital Cost Estimate Summary

Construction Item Cost ($ Millions) - Starter RSA

Cost ($ Millions) – Ultimate RSA

Mobilization/Demobilization $0.04 $0.17 Site Preparation $0.41 $2.25 Internal Sediment Control $0.17 $0.51 Diversion Channel $0.26 $0.60 Sediment/Runoff Detention Facility $0.04 $0.08 Contingency (20%) $0.18 $0.72 ESTIMATED DIRECT COSTS $1.10 $4.33 ESTIMATED INDIRECT COST $0.17 $0.65 TOTAL COST $1.27 $4.98

http://www.wdol.gov/dba.asp



21.4 OPERATING COSTS

21.4.1 Operating Cost Summary

Table 21-4 shows a summary of the operating costs for the project for a typical year.

Table 21-4: Operating Cost Summary – Life-of-Mine Average Tons Processed per Year:

Manto Oxide Zone 3,000,000 Upper Silver Zone 3,000,000

Area Description Annual Cost Unit Cost/Mineralized

material Ton

Mining Operations* $ 27,152,000 $4.53

Process Plants Labor $6,845,000 $1.14 Electrical Power $16,550,000 $2.76 Natural Gas $16,787,000 $2.80 Reagents $17,048,000 $2.83 Grinding media and liners $7,753,000 $1.29 Maintenance Parts $5,092,000 $0.85 Supplies & Services $900,000 $0.15 Analytical $330,000 $0.06

Total Process Plants $71,310,000 $11.88 General Administration

Labor $2,661,000 $0.44 Supplies & Services $3,539,000 $0.59

Total General Administration $6,200,000 $1.03

Other Royalties $4,919,000 $0.82 Property tax $1,500,000 $0.25 Severance tax $1,504,000 $0.25 Reclamation $1,118,000 $0.19

Total Other $9,041,000 $1.51

Total Operating Cost $113,703,000 $ 18.95 *The life-of-mine average annual mining operating cost in this chart was a calculation of the sum of the LOM mining cost of $420,488,000 plus the LOM re-handling cost of $13,951,000 divided by 16 years. Mining operations unit cost equals the life of mine average annual cost divided by 6 million tons.



21.4.2 Basis of Operating Cost

21.4.2.1 Mining Operations

Mining costs have been estimated at $1.25/t of material mined and $0.25/t of material re-handled based on experience with other operations and similar studies in the area.

21.4.2.2 Process Plants

Labor

The process plants’ staffing has been estimated to have 78 employees including maintenance and laboratory staffing. An average annual wage of $65,000 with fringe benefits of 35% of annual wages was used.

Electrical Power

Electrical power consumption is estimated using connected kW power requirements for the major crushing and grinding equipment and the Mn reduction plant and discounted for operating time and anticipated operating load level. Added to this consumption is approximately the same amount of power consumption for the rest of the plant. Power costs were based on a unit price of $0.061 per kW-h.

Reagents and Wear Items

Reagents for the process plants include flocculant, sodium cyanide, lime, sodium hydroxide, lead nitrate, zinc dust, DE, ammonium bisulfate, sodium hydrosulfide, sulfuric acid, and antiscalant. Consumption rates were determined from the metallurgical test data or industry practice. Budget quotations were obtained for reagents where available or from other M3 projects with an allowance for freight to site.

Liner and grinding media consumption was based on industry practice or other M3 projects. Unit prices were obtained from other M3 projects. The kiln refractory brick cost was obtained from the manufacturer.

Consumption rates and unit pricings are as follows:



Table 21-5: Reagent Consumption Rates and Unit Pricings Reagents Lb/t $/Lb Flocculant 0.46 $2.00 Sodium Cyanide 0.47 $1.13 Lime 9.32 $0.07 Sodium hydroxide 0.12 $0.31 Lead nitrate 0.07 $1.10 Zinc Dust 0.09 $1.36 Diatomaceous Earth 0.16 $0.38 Ammonium bisulfite 0.12 $0.19 Sodium hydrosulfide 0.14 $0.63 Sulfuric acid 2.41 $0.08 Antiscalant 0.05 $2.80

Table 21-6: Liners, Grinding Media & Kiln Refractory Consumption Rates and Unit

Pricings Reagents Lb/t $/Lb Liners Primary Crusher 0.013 $2.15 Secondary Crusher 0.013 $1.23 HPGR Tertiary Crusher $/ton $0.20 Ball Mill 0.039 $1.85 Regrind Mill 0.002 $1.35 Kiln Refractory $/ton $1.00 Grinding Media Ball Mill 0.820 $0.56 Regrind Mill 0.019 $0.74

Maintenance Parts and Supplies

An allowance was made to cover the cost of maintenance parts and supplies of the process plants. The allowance was 5% of the direct capital cost of equipment.

Supplies and Services

An allowance for operating supplies such as safety items, tools, lubricants and office supplies was made using data from other M3 projects on a unit cost per ton basis.

21.4.2.3 General Administration

Labor

The General Administration area includes the general manager’s office, accounting office, purchasing and warehousing, human resources, information services, security and safety and environmental departments. A total of 33 employees are considered in these departments at an average annual wage of $65,000 with fringe benefits of 25% of annual wages.



Supplies and Services

Annual allowances for expenses in the General Administration area include supporting departments, legal, risk insurance, travel, training, communications and community relation expenses. These costs do not include salaries for these departments.

21.4.2.4 Other

Royalties are calculated based on 2% of the calculated revenues from metal sales less refining, smelting, and transportation costs, in accordance with the royalty agreement between Arizona Minerals and Diamond Hill.

Property tax is estimated by comparison with another project.

Severance tax is calculated at the Arizona State rate of 2.5% applied to 50% of the difference between the total revenue less processing, general and administration, royalties and property taxes.

Reclamation is the cost to reclaim the area, which will primarily include the tailings and waste dump areas, over the life of the mine with most of the cost incurred at the end of the mine life.

21.4.3 Items Excluded from the Estimate

• Finance and interest charges. • Future feasibility studies. • Future exploration drilling and metallurgical testing.



22 ECONOMIC ANALYSIS

The Hermosa project economics were completed using a discounted cash flow model. The financial indicators examined for the project included the Net Present Value (NPV), Internal Rate of Return (IRR) and payback period (time in years to recapture the initial capital investment). Annual cash flow projections were estimated over the life of the mine based on mine production and related revenues, transportation and treatment charges and operating costs, initial, expansion and sustaining capital expenditures, working capital and income, and other taxes. No allowance has been made for cost inflation or price escalation.

It is assumed for the purposes of this study that the project will be all equity financed. No leverage or debt expense has been applied in the financial analysis.

22.1 PRODUCTION STATISTICS

Mine Production Statistics

Mine production is reported as mineralized material and overburden from the mining options. The annual production figures were obtained from the mine plan as reported previously.

The life of mine material quantities and mineralized material grade are presented in Table 22-1 below.

Table 22-1: Mine Production

Mineralized Tons (000)

Overburden Tons (000)

Silver (o/z/t)

Gold (o/z/t) Copper %

Manto Oxide 47,470 265,192 2.59 0.003 0.08% Upper Silver Zone 48,529 0 1.30 0.002 0

Process Plant Production Statistics

The following products will be produced from the Process Plant:

• Silver and gold Doré • Copper sulfide concentrate

The estimated recoveries for each metal are as follows:

• Silver (Manto Oxide) 82% • Silver (Upper Silver Zone) 40% • Gold (Manto Oxide and Upper Silver Zone) 90% • Copper (Manto Oxide) 20%

Life of mine saleable production is presented in Table 22-2 below.



Table 22-2: Commodity Production

Silver

(000 oz) Gold

(000 oz) Copper (000 lbs)

Manto Oxide 100,579 124 13,791 Upper Silver Zone 25,141 106 0

22.2 REVENUES

Annual revenue is determined by applying estimated metal prices to the annual payable metal before treatment, refinery, and transportation charges for each operating year. Sales prices have been applied to all life of mine production without escalation or hedging.

The evaluation used prices calculated by M3 based on weighted average prices for NI-43-101 reporting purposes, 60% historical prices; 40% futures forecast prices for the end of August 2012.

Metal sales prices used in the evaluation are shown in Table 22-3.

Table 22-3: Metal Prices Silver $28.75/oz Gold $1,525.00/oz Copper $3.50/lb

Refining and Smelter Return Factors

The process plant products will be shipped from the site for refining in the case of the silver and gold doré and to a smelter in the case of the copper concentrate. The refining and smelter treatment charges will be subject to negotiation at the time of final agreement.

A refiner or smelter may impose a penalty either expressed in higher treatment charges or in metal deductions to treat doré or copper concentrate that contains higher than specified quantities of certain elements. The silver and gold doré is expected to be within the normal tolerances imposed by refiners. Similarly, it is expected that the copper concentrate will not pose any special restrictions on smelting and that the concentrate will be marketable to a smelting company.

The refining and smelter charges calculated in the financial evaluation include charges for refining and smelting these products. The off-site charges that have been included are presented in Table 22-4.



Table 22-4: Refining and Smelter Return factors Silver Doré Payable silver 99.5% Treatment charge - $/oz $0.25 Refining charge - $/oz. $0.20 Shipping charge - $/oz $0.15 Gold Doré Payable gold 99.5% Treatment charge - $/oz $0.25 Refining charge - $/oz. $0.70 Shipping charge - $/oz $0.15 Copper Concentrate Payable copper 96.5% Treatment charge - $/ton $50.00 Refining charge- $/lb $0.06 Shipping charge - $/ton $15.00

22.3 OPERATING COST

The average Operating Cost per year over the life of the mine includes mining, process plant, general administrative and other costs (royalties, reclamation, property and severance taxes). These are shown in Table 22-5.

Table 22-5: Operating Cost Summary

Life of Mine

Average $(000)

$/t Mineralized

Material Mining $27,152* $4.53 Process $71,310 $11.88 G&A $6,200 $1.03 Other $9,041 $1.51 Total Operating Cost $113,703 $18.95 *See Table 21-4.

Royalties

Other operating costs include royalties payable to Diamond Hill and are calculated at 2% of the net smelter returns in accordance with the terms of the royalty agreement.

22.4 CAPITAL EXPENDITURES

Initial Capital

The total capital for new construction (includes direct and indirect costs) is estimated to be $627.4 million including $31 million for mine pre-development work, $29 million for initial mine equipment and a $96.3 million contingency.



Any land acquisition or exploration costs or other owner’s study expenditures incurred or expected to be incurred up to and including the completion of a Feasibility Study have been treated as “sunk” costs and have not been included in the analysis.

Expansion and Sustaining Capital

Expansion capital for mine fleet expansion in years 1 through 4 is estimated to be $39.9 million and total life of mine sustaining capital is estimated to be $152.1 million.

Salvage Value

An allowance of $25.0 million, representing 20% of the mine equipment cost and 10% of the process and other equipment cost has been included in the cash flow from the salvage and resale of this equipment at the end of the mine life.

22.5 WORKING CAPITAL

Working capital has been factored into the model assuming that there will be 15 days of production inventory on-hand at any point in time, that it will take 15 days on average to collect accounts receivable on shipment of product to the refinery or smelter and that it will take 30 days to pay non-payroll related accounts payable.

22.6 INCOME TAXES

Cash income taxes were calculated in accordance with the applicable Federal and Arizona State income tax rules. Taxable income for income tax purposes was calculated as total revenues minus total operating expenses and depreciation and depletion for income tax purposes with further adjustments for the qualified production activities deduction. Income tax rates for Federal and Arizona State purposes are assumed to be as follows and take account of the reduction in the Arizona State income tax rate from 7% to 4.9% by 2016:

• Federal rate 35.0% • Arizona State rate 4.9% • Combined effective tax rate 38.2%

The combined effective tax rate was calculated as follows as the State rate is deductible for Federal tax purposes:

State rate (4.9%) + Federal rate 35.0% * (1-state rate 4.9%)

Alternative Minimum Tax (“AMT”) was also calculated at a rate of 20% after adding back the depletion and excess depreciation preference items to taxable income for regular income tax purposes. Where AMT exceeded regular income taxes it was added to the regular income taxes required to be paid. Where AMT was less than the regular income taxes it was deducted from the regular income taxes to the extent of the cumulative AMT paid in prior years.



Depreciation for Income Tax Purposes

Depreciation percentages for income tax purposes were calculated based on the MACRS tables using a 7 year life beginning in the year the expenditures were incurred. The last year in the cash flow was used to write-off, for tax purposes, any assets that had not been fully depreciated at that date.

Below are the percentages that were applied to the capital expenditures beginning in the year the expenditure was incurred:

Table 22-6: Capital Expenditures by Year

Year Capital

Expenditure

1 14.29%

2 24.49%

3 17.49%

4 12.49%

5 8.93%

6 8.92%

7 8.93%

8 4.46% Depreciation for income tax purposes calculated in the pre-production years was added to mine development cost and amortized as to 70% in the year incurred with the balance amortized over five years.

The loss for income tax purposes created in the pre-production years was deducted from the income for tax purposes in year one.

Depletion

The percentage depletion method was used to calculate depletion for income tax purposes. It was calculated as a percentage of gross income from the property, not to exceed 50% of taxable income before the depletion deduction. The gross income from the property is defined as metal revenues minus downstream costs from the mining property (smelting, refining and transportation). Taxable income is defined as gross income minus operating expenses, depreciation and Arizona State taxes. A depletion rate of 15% was used.

22.7 ECONOMIC ANALYSIS SUMMARY RESULTS

Table 22-7 summarizes the results of the financial analysis.



Table 22-7: Economic Analysis Summary Total Mineralized material Mined and Processed(t) 96.0 million

Manto Oxide Zone 47.5 million Upper Silver Zone 48.5 million

Total Waste Mined 265.2 million Mine Life (years) 16 Silver Grade (oz/t)

Manto Oxide Zone 2.59 Upper Silver Zone 1.30

Gold Grade (oz/t) Manto Oxide Zone 0.003 Upper Silver Zone 0.002

Copper Grade (%) Manto Oxide Zone 0.08

Silver Recovery (%)

Manto Oxide Zone 82 Upper Silver Zone 40

Gold Recovery (%) Manto Oxide Zone 90 Upper Silver Zone 90

Copper Recovery (%) Manto Oxide Zone 20

Silver Payable Metal (000 oz)

Manto Oxide Zone 100,579 Upper Silver Zone 25,141

Gold Payable Metal (000 oz) Manto Oxide Zone 124 Upper Silver Zone 106

Copper Payable Metal (000 lbs) Manto Oxide Zone 13,791

Silver Price ($/oz) 28.75 Gold Price ($/oz) 1,525.00 Copper Price ($/lb) 3.50 ($ in millions) Revenue – Total

Silver $3,614 Gold $350 Copper $48 Refining, treatment and transportation ($78) Sale of equipment $25

$3,959 Production Cash Cost $1,815 Income from Operations ($M) $2,144 Initial Capital Expenditures (includes Mine Development) ($M) $627 Expansion Capital Expenditures ($M) $40 Sustaining Capital ($M) $152 Income Taxes ($M) $297 Cash Flow After Taxes ($M) $1,027 Property Economic Indicators: NPV @ 0% ($M) $1,027 NPV @ 5% ($M) $658 NPV @ 7.5% ($M) $528 IRR 31.9% Payback (years) 1.7



22.8 SENSITIVITY ANALYSIS

Sensitivity analysis was performed on after tax NPV at 5% to changes in each of capital cost, silver price and operating cost by ±10% and ±20% with the following results.

Figure 22-1: Sensitivity Graph

As expected, economic performance is very sensitive to the price for the product within current ranges.

22.9 MINE LIFE

The mine life is 16 years.

22.10 RECLAMATION AND CLOSURE

A total of $14.9 million is allocated for reclamation during the mine life and included in operating cost together with a further $3 million for bonding costs. The cost is based on the judgement and experience of Newfields engineers.



23 ADJACENT PROPERTIES

Currently there are no significant operating mines in the Harshaw or nearby mining districts. Properties adjacent to Hermosa have had limited or no recent exploration. The mineralization discussed on adjacent properties is hosted by various types of deposits that are not directly related to Wildcat’s Hermosa deposit, nor a projection of the Hermosa deposit, and this information is not intended to indicate that such mineralization might be present on the Hermosa property.

ASARCO LLC’s: Trench Property. The Trench mine produced silver, lead, and zinc from a vein system discontinuously between 1760 and 1949, with a custom mill that operated between 1938 and 1964. The last exploration in the area was conducted in 1979-1989. The mine and mill complex (~300 acres) included four tailings ponds, all of which were reclaimed by ASARCO between 1989-1994. The property has been transferred to the ASARCO Custodial Trust.

Bronco Creek Exploration: This group holds a small block of unpatented (PAT) claims located on the western margin of Hermosa property. There is no known exploration activity.

White Cloud Resources: Large Block of unpatented (WCR) claims west and south of Hermosa property. Recent activity by a joint venture partner, Oz Minerals Inc. includes permitting with the USFS to drill targets on the unpatented claim block.

Mowry Group Patented Claims: The Mowry holdings are essentially contiguous to WSC’s claims to the south of the Hermosa property. The holdings consist of approximately 290 acres of patented claims. These workings produced oxidized silver, lead and manganese oxides from replacements in Paleozoic limestones along a strong east-northeast fault zone from the 1700s to 1952. This patented ground was traded to the US Government in 1992-94 with the USFS now administering the surface. The mineral rights (BLM administered) to these patented claims were also included in the trade and the ground is not open to mineral entry as they are “Acquired Lands.”

The authors have not independently verified any of the aforementioned properties and cannot confirm that the mineralization has similar characterizations to Hermosa.

There are no adjacent properties with NI43-101 reports.



24 OTHER RELEVANT DATA AND INFORMATION

There is no additional relevant data which has not been presented for the development of the current mineral resource.



25 INTERPRETATION AND CONCLUSIONS

This section discusses the main conclusions, risks and opportunities that were found with respect to the Project.

25.1 METALLURGY

Metallurgical development programs have succeeded in developing silver recovery processes for Upper Silver Zone and Manto Oxide Zone mineralized materials in the Hermosa Deposit.

• Upper Silver Zone mineralized materials may be processed in a conventional fine grinding – silver recovery circuit.

• The Upper Silver Zone silver dissolution versus head grade curve was developed based on bottle roll leach data adjusted to a grind size of ~40 microns. The data suggest as silver head grade increased from 1.1 oz/t to 4.9 oz/t the silver dissolution will increase from 29.8% to 75.9%.

• Manto Oxide Zone mineralized materials may be processed by a reducing kiln-fine grinding circuit followed by conventional silver recovery.

• The Manto Oxide silver dissolution versus head grade curve was developed from the direct fired 15” kiln pilot-plant silver dissolution data. The data suggested that as silver head grade increased from 1.5 oz/t to 5.8 oz/t, the silver dissolution will increase from 72% to 90%.

As discussed, this PEA includes only the recovery of the silver, gold and 20% of the copper. An opportunity exists to increase the economic potential of the project if the recovery of the manganese, zinc and the remaining copper can be made feasible. Section 26 of the report contains recommendations that additional testwork be undertaken to determine if this is possible. In addition, the average recovery of silver from the Upper Silver Zone included in the PEA was approximately 40%. Another opportunity exists to increase the economic potential of the project through increasing the recovery of this material. Section 26 of the report also contains recommendations that additional testwork be undertaken to determine if this is possible.

25.2 PROJECT ECONOMIC OUTCOMES (TSF RELATED) AND RELATED UNCERTAINTIES

• Costing for lining the TSF is based on conforming to the prescriptive BADCT criteria which states “Tailings Impoundments will be designed with a composite liner consisting of single geomembrane of at least 30 mil thickness (60 mil if HDPE) over, a minimum, twelve inches (placed in two 6-inch lifts) of 3/8 inch minus native or natural materials compacted to achieve a saturated hydraulic conductivity of no greater than 10-6 cm/sec.

o Unit costing could be impacted depending on identification and location of a suitable borrow source for the soil component of the liner system. Cost could be less with a clay source proximate to the embankment location and will be more for remote borrow areas.



o Depending on the groundwater depth (if shallow) in the area of the TSF may prohibit the use of the prescriptive BADCT approach.

• Costing for the TSF underdrain system assumes an individual BADCT approach could be taken with the construction of drainage fingers versus a full 18-inch protective/drainage layer cover as this type of design system could provide a sufficient method for hydraulic relief over the liner. Additional cost would be required if a full protective/drainage layer is required within the TSF basin.

• Costing for the rock excavation has been based on a volume calculated as 20% of the basin area over an average depth of 10 feet. This calculation is based on assuming steep areas (>3H:1V – which represents approximately 20% of the ultimate basin area) will require regrading to establish flat enough slopes for construction of the composite soil/geomembrane lining. Should more areas, as defined by geological mapping of the outcrops in the area, require drilling and blasting, costs for this item would increase.

• Subsurface conditions within the embankment foundation area is assumed to be relatively favorable given conditions observed over most of the site. We have assumed a 10 foot excavation depth is acceptable to address unsuitable soils within the embankment footprint. If unsuitable materials exist to a greater depth, cost of excavation and fill required to fill the excavation will increase. Conversely, shallower unsuitable will result in a cost savings.

25.3 ENVIRONMENTAL

Numerous permits and approvals from state and federal agencies will be required in order to open and operate the Hermosa Mine project. The most involved permitting efforts include the preparation of an Environmental Impact Statement (EIS) for the USFS to comply with the National Environmental Policy Act (NEPA), an Aquifer Protection Permit (APP) from the ADEQ, and an Air Permit, also from the ADEQ. The preparation of an EIS will certainly be the most complex, costly, and time-consuming permitting effort. The time to prepare an EIS is expected to be from a minimum of two years to five years or more after submission of a Mine PoO to the USFS. A Mine PoO should be submitted as soon as possible after completion of a Pre-Feasibility Study or Feasibility Study.

Baseline studies to obtain background environmental data have been initiated and should be continued in the coming months. A PoO for drilling activities, including exploration, geotechnical and hydrogeologic investigations, has been submitted to the USFS for review and evaluation. The data from the proposed geotechnical and hydrogeologic investigations are part of and necessary to the baseline studies. A NEPA review and analysis, most likely in the form of an Environmental Assessment, will be required for the drilling PoO and may take from six to eighteen months to complete. The NEPA public scoping and analyses for the proposed drilling operations will provide useful social and environmental data and conclusions that should be used to develop design criteria during future engineering studies and detailed engineering.



26 RECOMMENDATIONS

This section summarizes the recommendations made by Wildcat’s various consultants. In general, M3 believes that the Project should advance to the level of a Pre-Feasibility Study (which will have an approximate cost of $5 million).

26.1 METALLURGICAL RECOMMENDATIONS

Wildcat should consider the following:

• Metallurgical developments continue in the areas outlined below to support prefeasibility/feasibility level engineering studies.

• Metallurgical samples received for the RDI and Hazen programs fall within the current open pit outline and are representative on the mineralized material that would be mined. Additional metallurgical testwork should consider samples from holes that are within the open pit, but have not contributed to metallurgical test composites.

• Additional “no-reformer” kiln tests should be conducted at lower temperatures for all mineralized material types and selected residence times.

• Calcination and silver dissolution tests on high grade mineralized materials, reflective of the first 2 years of the mine plan, should be determined to validate extrapolated silver dissolutions at high silver head grades.

• An equipment manufacturer should be selected to supply the kiln. The manufacturer should process mineralized material composites to support equipment design parameters such as heat and material balances, combustion equipment arrangements, and discharge gas handling. The test program should incorporate emission testing of the kiln off gas with data collection designed to support environmental permits.

• Additional process optimization and development of byproduct processing:

a. Silver leach, copper dissolution, and SART tests should be conducted at sodium cyanide concentrations reflective of plant operation to validate sodium cyanide consumption.

b. Silver leach tests should be conducted with calcined Manto Oxide mineralized materials and Upper Silver Zone mineralized material combined together in the fine grinding circuit to determine the combined lime consumption. Solid/liquid separation characteristics of the combined solids should also be evaluated.

c. Additional flotation tests should be conducted for the recovery of zinc. d. Magnetic separation as well as other methods should be investigated to recover

the manganese.

The estimated cost of additional metallurgical test work is approximately $1,100,000.



26.2 GEOTECHNICAL AND TAILINGS

Wildcat should consider performing the following tests:

• Basin Preparation Assessment – conduct geotechnical boring/test pits and geologic mapping of the proposed TSF area to assess subsurface conditions for the purpose of quantifying rock excavation and estimating surface preparation requirements to form a uniform and smooth basin for placement of the geomembrane. ($50,000)

• Embankment Foundation Assessment – conduct geotechnical drilling within the proposed embankment foundation to define overburden depth and assess strength parameters (in particular identifying low strength areas) within the overburden, define bedrock conditions such as identifying karst conditions that may affect foundation treatment requirements. ($50,000)

• Groundwater Evaluation/Bedrock Hydraulic Conditions – complete hydrogeologic drilling and down hole testing within the footprint of the facilities and in monitoring locations to define groundwater depth, bedrock condition and bedrock hydraulic conductivities with a goal of defining a local and regional groundwater regime. ($25,000)

• Borrow Area Assessment – undertake a borrow investigation and laboratory test work to confirm assumptions in the cost estimate with respect to the material suitability and haul distance for construction. ($50,000)

• Topographic Survey – complete a ground/aerial survey of the area for accurate contour generation and determine areas of localized steep topography and overhangs. Existing contour information is from a combination of sources including the USGS. Since the area has concentrated spots of high density tree cover, it is difficult to determine the accuracy of the ground surface under the canopy. ($30,000)

• Tailings Testwork – complete index testing on samples of the proposed tailings to obtain information on characteristics of the materials (grain size and plasticity index) and settling tests to access and determine expected in-place dry density of the tailings for sizing of the facility and to assess drainage characteristics of the tailings. ($20,000)

26.3 ENVIRONMENTAL

Wildcat Silver should continue baseline studies, to include:

• Biological Resources • Cultural Resources • Hydrogeologic Studies • Air and weather monitoring • Stormwater quality • Geotechnical (soil and rock) investigations



The estimated cost of the baseline studies is $2.5 million.

Wildcat Silver will be required to pay for the EA expected to be required for the drilling PoO currently under review by the USFS. The EA will likely be prepared by a third-party consultant selected by the USFS. The estimated cost of an EA is approximately $250,000. If an EIS is required, the estimated cost would likely increase to about $500,000.



27 REFERENCES

Arizona Department of State, Administrative Code, Chapter 15. Department of Water Resources

Arizona Mining Guidance Manual (BADCT), Aquifer Protection Program, Arizona Department of Environmental Quality

Easton Process Consulting, Inc., 2012. Metallurgical Update for the Hermosa Deposit, Review of Preliminary Laboratory and Pilot Plant Data, Prepared by Christopher L. Easton. Easton Process Consulting, November 2012.

InfoMine USA, Inc., 2012. Mining Cost Service.

M3, 2010. Hardshell Project, NI 43-101 Technical Report, Preliminary Economic Assessment Study, Patagonia, Arizona, Revision 2. Prepared by M3 Engineering & Technology Corporation for Wildcat Silver Inc. 26 October 2010.

Malhorta, D., 2012. “Title to be Determined”, Resource Development Incorporated, October 2012.

Owusu, G., Gertenbach, D., 2009. “Process Development Studies For The Hardshell Ore Deposit”, Hazen Research, Inc., August 10, 2009

Raths, J, 2012. “Calcining, Leaching and Metals Recovery for the Hermosa Deposit Laboratory and Pilot Plant Data”, Hazen Research Incorporated, October 2012.

Red Mountain Machinery Equipment Rental Rates, www.redmountain.com/rental.php

Wage Determination OnLine, 2012. Website. http://www.wdol.gov/. Last accessed November 2012.

Welhener, Herbert E., 2012. 2012 Mineral Resource Hermosa Project, Santa Cruz County, Arizona, Independent Mining Consultants, Inc., March 12, 2012.

Wilson, Scott E., Osterberg, Mark W., Pennstrom, William, 2012. Technical Report for The Hermosa Project, Santa Cruz County, Arizona, USA, Scott E. Wilson Consulting, Inc., August 9, 2012.

http://www.wdol.gov/



APPENDIX A – PEA CONTRIBUTORS AND PROFESSIONAL QUALIFICATIONS

CERTIFICATE of QUALIFIED PERSON I, Paul W. Ridlen, P.E., do hereby certify that: 1. I am currently employed as Principal Engineer by:

Tetra Tech, Inc. 3031 W Ina Road Tucson, Arizona 85741 U.S.A.

2. I am a graduate of Missouri University of Science and Technology (formerly named the

University of Missouri-Rolla) and received a Bachelor of Science degree in Civil Engineering in 1989 and a Master of Science in Civil Engineering (Geotechnical emphasis) in 1991.

3. I am a:

• Registered Professional Engineer in the State of Arizona (No. 49236) • Registered Professional Engineer in the State of Colorado (No. 0030610) • Registered Professional Engineer in the State of New Mexico (No. 19625) • Registered Professional Engineer in the State of Texas (No. 112047) • Member in good standing of the Society for Mining, Metallurgy and Exploration, Inc.

(No. 4066859) 4. I have practiced civil, geotechnical and environmental engineering and project

management for more than 23 years. I have practiced civil and geotechnical engineering and environmental permitting at operating mines and mining projects for more than eight years. I have worked for Tetra Tech, Inc. for 1-1/2 years.

5. I visited the property on July 18, 2012 and August 6, 2012. 6. I have read the definition of “qualified person” set out in National Instrument 43-101

(“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

7. I am responsible for the preparation of Section 20 of the technical report titled

“Environmental Studies, Permitting and Social or Community Impact”. 8. I have had prior involvement with the property that is the subject of the Technical Report.

I was a co-author of the “Hermosa Drilling Project, Arizona Minerals, Inc., Draft Plan of Operations,” dated October 1, 2012.

9. 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 required to be disclosed to make the report not misleading.

10. I am independent of Wildcat Silver, Inc., applying all of the tests in section 1.5 of NI 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. Dated this 12th day of November, 2012. “signed” Paul W. Ridlen Signature of Qualified Person Paul W. Ridlen Print name of Qualified Person

CERTIFICATE of QUALIFIED PERSON I, R. Michael Smith, P.E., do hereby certify that: 1. I am currently employed as a Principal Engineer/Partner by:

Newfields Companies, LLC 9635 Maroon Circle, Suite 400 Englewood CO 80112 USA

2. I am a graduate of University of Colorado with a Bachelor of Science degree in Civil Engineering in 1983.

3. I have the following professional registrations:

Registered Professional Engineer in the State of Arizona (No. 34939) Registered Professional Engineer in the State of Nevada (No. 16194) Registered Professional Engineer in the State of Colorado (No. 28114) Registered Professional Engineer in the State of New Mexico (No. 12405) Registered Professional Engineer in the State of Alaska (No. CE8785)

4. I have practiced civil engineering and project management for 30 years and have worked

for consulting engineering companies specializing in mine development for this period of time.

5. I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

6. I am responsible for the preparation of portions of Sections 1, 18, 21, 25, 26 and 27 of the technical report titled “Hermosa Project, Preliminary Economic Assessment, Santa Cruz County, Arizona” dated 12 November, 2012.

7. I have not had prior involvement with the property that is the subject of the Technical

Report.

8. 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 required to be disclosed to make the report not misleading.

9. I am independent of the issuer applying all of the tests in section 1.4 of the 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.

Dated this 12th day of November, 2012

Signature of Qualified Person R. Michael Smith Print name of Qualified Person

CERTIFICATE of QUALIFIED PERSON I, Christopher L. Easton, do hereby certify that: 1. I am currently employed as President by:

Easton Process Consulting, Inc. 9532 S. Desert Willow Way Highlands Ranch, Colorado 80129 U.S.A.

2. I am a graduate of University of Wyoming and received a Bachelor of Science degree in

Chemical Engineering in 1987. 3. I am a:

Registered Qualified Person of the Mining and Metallurgical Society of America (MMSA)

A lifetime Member in good standing of the American Institute of Chemical Engineering (AICHE)

Member in good standing of the Society for Mining, Metallurgy and Exploration, Inc. 4. I have practiced metallurgical and mineral processing engineering for 23 years. 5. I have read the definition of “qualified person” set out in National Instrument 43-101

(“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

6. I am responsible for the preparation of Sections 13 of the technical report titled “Hermosa

Project, Preliminary Economic Assessment, Santa Cruz County, Arizona ” dated November 12, 2012 (the "Technical Report").

7. I do not have prior involvement with the property that is the subject of the Technical

Report. 8. 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 required to be disclosed to make the report not misleading.

9. I am independent of Wildcat Silver Inc., applying all of the tests in section 1.5 of NI 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.

CERTIFICATE of QUALIFIED PERSON I, Scott Wilson, do hereby certify that:

1. I am currently employed as President by Scott E. Wilson Consulting, Inc., 9137 S. Ridgeline Blvd., Suite 140, Highlands Ranch, Colorado 80129.

2. I graduated with a Bachelor of Arts degree in Geology from the California State University, Sacramento in 1989.

3. I am a Certified Professional Geologist and member of the American Institute of Professional Geologists (CPG #10965) and a Registered Member (#4025107) of the Society for Mining, Metallurgy and Exploration, Inc.

4. I have been employed as either a geologist or an engineer continuously for a total of 22.5 years. My experience included resource estimation, mine planning, geological modeling and geostatistical evaluations of numerous projects throughout North and South America.

5. I have read the definition of “Qualified Person” set out in National Instrument 43-101 (“NI 43-101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a “Qualified Person” for the purposes of NI 43-101.

6. I am responsible for the preparation of sections 14 and 16 of the technical report titled Hermosa Project, Preliminary Economic Assessment, Santa Cruz County, Arizona, dated 12 November 2012.

7. I made a personal inspection of the Hermosa Project on September 20, 2012 for 1day. 8. I have had prior involvement with the property as a coauthor of the previously published

technical report for the Hermosa Project. 9. As of the date of the 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. That I have read NI 43-101 and Form 43-101F1, and that this technical report was prepared in compliance with NI 43-101.

11. I am independent of the issuer applying all of the tests in Section 1.5 of NI 43-101. 12. I consent to the filing of the Technical Report with any stock exchange and other

regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

Dated this 12th day of November 2012. “signed” Scott Wilson Signature of Qualified Person Scott Wilson CPG Print name of Qualified Person

hermosani43101peanov2012_v001_q0gnem

Documents

signatures page

arizona revision

property description

list of figures

current exploration

list of tables

process description

capital costs