Preliminary Economic Assessment Update Technical Report for the Malku Khota Project Department of Potosi, Bolivia

Preliminary Economic Assessment Update Technical Report for the Malku Khota Project Department of Potosi, Bolivia May 10, 2011 Prepared for South American Silver Corp. by Allan Armitage, Ph.D, P.Geo – GeoVector Management Inc. Pierre Desautels, P.Geo – AGP Mining Consultants Inc. Gordon Zurowski, P.Eng – AGP Mining Consultants Inc. William Pennstrom – Pennstrom Consulting Inc. Felipe Malbran, Geo – South American Silver Corp. Ralph Fitch – South American Silver Corp. Malku Khota Project PEA Update May 10, 2011 CONTENTS 1 SUMMARY .............................................................................................................................. 10 1.1 LOCATION ..................................................................................................................................... 11 1.2 WORK SINCE THE 2009 PEA.......................................................................................................... 12 1.3 MINERAL RESOURCES AND RESERVES .......................................................................................... 13 1.4 BASE CASE – ACID-CHLORIDE HEAP LEACH ................................................................................. 14 1.5 FACILITIES AND CONSTRUCTION ................................................................................................... 15 1.6 CAPITAL AND OPERATING COSTS .................................................................................................. 15 1.7 PROJECT ECONOMICS .................................................................................................................... 16 1.8 ALTERNATIVE CASE – CYANIDE HEAP LEACH .............................................................................. 19 1.9 PROJECT DEVELOPMENT PLAN ...................................................................................................... 20 1.10 CONCLUSIONS AND RECOMMENDATIONS ...................................................................................... 21 2 INTRODUCTION ..................................................................................................................... 23 2.1 BACKGROUND AND PURPOSE ........................................................................................................ 23 2.2 QUALIFIED PERSONS ..................................................................................................................... 24 3 RELIANCE ON OTHER EXPERTS ........................................................................................ 25 4 PROPERTY DESCRIPTION AND LOCATION ...................................................................... 26 4.1 LOCATION ..................................................................................................................................... 26 4.2 TENURE ......................................................................................................................................... 26 4.3 ENVIRONMENTAL LIABILITY AND PERMITTING ............................................................................. 27 4.4 PROPERTY STATUS AND OWNERSHIP ............................................................................................ 28 4.5 AGREEMENTS ................................................................................................................................ 29 5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY ................................................................................................................... 32 5.1 ACCESS ......................................................................................................................................... 32 5.2 CLIMATE ....................................................................................................................................... 32 5.3 LOCAL RESOURCES AND INFRASTRUCTURE .................................................................................. 32 5.4 PHYSIOGRAPHY ............................................................................................................................. 33 5.5 SUFFICIENCY OF SURFACE RIGHTS FOR MINING OPERATIONS ...................................................... 33 6 HISTORY ................................................................................................................................ 34 7 GEOLOGIC SETTING ............................................................................................................ 35 7.1 GEOLOGY ...................................................................................................................................... 35 7.2 REGIONAL GEOLOGY .................................................................................................................... 36 7.3 PROJECT GEOLOGY ....................................................................................................................... 37 7.4 GEOLOGIC STRUCTURE ................................................................................................................. 39 8 DEPOSIT TYPES .................................................................................................................... 45 9 MINERALIZATION ................................................................................................................. 46 10 EXPLORATION ...................................................................................................................... 48 10.1 GEOCHEMICAL SURFACE SAMPLING ............................................................................................. 48 11 DRILLING ............................................................................................................................... 49 11.1 CORE DRILLING ............................................................................................................................. 49 11.2 UNDERGROUND MAPPING AND SAMPLING .................................................................................... 49 110511 MK PEA Update SEDAR.doc Page 2 of 181 Malku Khota Project PEA Update May 10, 2011 12 SAMPLING METHODOLOGY AND APPROACH ................................................................. 50 12.1 SILEX 2005−2006 .......................................................................................................................... 50 12.2 CMMK 2007−2010....................................................................................................................... 50 13 SAMPLE PREPARATION, ANALYSES & SECURITY ......................................................... 54 13.1 SILEX 2005−2006 .......................................................................................................................... 54 13.2 CMMK 2007−2010....................................................................................................................... 54 13.3 SECURITY ...................................................................................................................................... 54 13.4 ASSAY QUALITY CONTROL ........................................................................................................... 55 13.4.1 Blanks ................................................................................................................................... 55 13.4.2 Field Duplicates ................................................................................................................... 56 13.5 OPINION ON ADEQUACY OF SAMPLE TESTING ............................................................................... 58 14 DATA VERIFICATION ............................................................................................................ 59 14.1 SUMMARY OF VALIDATION BY PAH .............................................................................................. 59 14.2 SITE VISIT BY AGP IN 2010 ........................................................................................................... 59 14.2.1 Database Validation ............................................................................................................. 63 14.2.2 Collar Coordinate Validation ............................................................................................... 64 14.2.3 Down-Hole Survey Validation .............................................................................................. 65 14.2.4 Assay Validation ................................................................................................................... 65 15 ADJACENT PROPERTIES .................................................................................................... 67 16 MINERAL PROCESSING AND METALLURGICAL TESTING ............................................. 68 16.1 METALLURGICAL TESTWORK ........................................................................................................ 68 16.2 METALLURGICAL SAMPLE DESCRIPTION ...................................................................................... 68 16.3 EXISTING TESTWORK .................................................................................................................... 69 16.3.1 Acid – Chloride Leaching ..................................................................................................... 72 16.3.2 Cyanide Leaching ................................................................................................................. 77 16.3.3 Hydrodynamic Characterization Studies at HydroGeosense, Inc. ....................................... 78 16.3.4

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