Technical Report – Tejamen Silver Property Durango State, Mexico Preliminary Mining Assessment

Oremex Resources 3rd October 2006

Prepared by Allan Polk, P.Eng Senior Consultant, Mining Co-Author Alex Trueman, MAUSIMM Principal Consultant, Resource Estimation Co-Author John Fox, P.Eng President and Principal Consultant, Laurion Consultants, Inc. Office Locations This report has been prepared by Snowden Mining Industry Consultants Inc. (‘Snowden’) on behalf of Oremex Resources Inc. Perth 87 Colin Street ” 2006 West Perth WA 6005 PO Box 77 All rights are reserved. No part of this document may be reproduced, West Perth WA 6872 stored in a retrieval system, or transmitted in any form or by any AUSTRALIA means, electronic, mechanical, photocopying, recording or otherwise, Tel: +61 8 9481 6690 without the prior written permission of Snowden, except as required Fax: +61 8 9322 2576 under Canadian Securities Regulations ABN 99 085 319 562 [email protected]

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Internet http://www.snowdengroup.com Technical Report - Tejamen Silver Property, Durango State, Mexico Oremex Resources

1 SUMMARY...... 6

2 INTRODUCTION ...... 9

3 RELIANCE ON OTHER EXPERTS ...... 11

4 PROPERTY DESCRIPTION AND LOCATION...... 12 4.1 Location of Mineralization and Workings...... 13 4.2 Terms of Agreements...... 13

5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE, AND PHYSIOGRAPHY ...... 14

6 HISTORY ...... 16

7 GEOLOGICAL SETTING...... 18 7.1 Regional Geological Setting...... 18 7.2 Property and Local Geology...... 18 7.2.1 Lithology...... 18 7.2.2 Structure...... 19

8 DEPOSIT TYPE...... 20

9 MINERALIZATION...... 21

10 EXPLORATION ...... 22

11 DRILLING ...... 23

12 SAMPLING METHOD AND APPROACH ...... 24

13 SAMPLE PREPARATION, ANALYSIS AND SECURITY ...... 25

14 DATA VERIFICATION ...... 28

15 ADJACENT PROPERTIES...... 29

16 MINERAL PROCESSING AND METALLURGICAL TESTING...... 30 16.1 Background Information and Recovery Assumptions ...... 30 16.2 Process Description (by John Fox of Laurion Consulting) ...... 30

17 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES...... 33

18 OTHER DATA AND INFORMATION ...... 34 18.1 Background ...... 34 18.2 Mineral Resources ...... 35 18.2.1 Property Geology ...... 36

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18.3 Pit Optimisation ...... 36 18.3.1 Geotechnical ...... 36 18.3.2 Open Pit Design Parameters...... 37 18.3.3 Optimisation Results – Base Case...... 37 18.3.4 Selection of Pit ...... 38 18.4 Project Definition and Plan...... 40 18.4.1 Material Movement Forecast...... 43 18.4.2 Project Operating Assumptions...... 44 18.4.3 Mine Operations + Equipment...... 44 18.4.4 Processing...... 46 18.4.5 Manpower Requirements ...... 50 18.4.6 Misc. Project Requirements ...... 51 18.5 Cash flow Analysis ...... 52 18.5.1 Summary of Operating Costs ...... 52 18.5.2 Summary of Capital Costs...... 54 18.5.3 Cash flow Summary and NPV...... 55 18.6 Project Sensitivity...... 56 18.7 NPV Sensitivity with Base Case Pit Size...... 61

19 INTERPRETATION AND CONCLUSIONS...... 63

20 RECOMMENDATIONS...... 64 20.1.1 Mineralogy, High Grades, and Process Recovery ...... 64 20.1.2 Geotechnical ...... 65 20.1.3 Environmental / Social Impacts ...... 65

21 REFERENCES ...... 67

22 DATE AND SIGNATURES ...... 68

Tables Table 2.1 Qualified Persons + Section Responsibility ...... 10 Table 17.1 Tejamén project Mineral Resources (effective 13 April 2006) ...... 33 Table 18.1 Mineral Resource Estimate, Wardrop 2006 ...... 35 Table 18.2 Surface Mining Optimisation Parameters – BASE CASE ...... 37 Table 18.3 Base Case Pit Optimisation Results ...... 38 Table 18.4 Material Movement Forecast – Tejamen Project ...... 43 Table 18.5 General Operating Assumptions...... 44 Table 18.6 Hauling and Loading Assumptions ...... 45 Table 18.7 Drilling and Blasting Assumptions...... 45 Table 18.8 Ancillary Equipment for Mine ...... 46 Table 18.9 Capital Costs for Processing...... 50

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Table 18.10 Hourly Manpower Requirements ...... 50 Table 18.11 Staff Manpower Requirements ...... 51 Table 18.12 Summary of Operating Costs...... 53 Table 18.13 Summary of Capital Costs ...... 54 Table 18.14 Cash Flow Summary for the Tejamen Project ...... 55 Table 18.15 NPV Sensitivity to Process Recovery ...... 61 Table 18.16 NPV Sensitivity to Metal Value ...... 62

Figures Figure 4-1 Tejamen Project Claim Map...... 12 Figure 18-1 The Tejamen Project Area ...... 35 Figure 18-2 Best and Worst Case Cashflow for Base Case Pit Optimisation ...... 39 Figure 18-3 Incremental Cash Flow Between Pit Shells ...... 40 Figure 18-4 Tejamen Project Layout ...... 42 Figure 18-5 Process Flowsheet for Tejamen Project ...... 47 Figure 18-6 Whittle Run Sensittivity to Process Recovery ...... 57 Figure 18-7 Whittle Run Sensitivity to Mining Cost ...... 58 Figure 18-8 Whittle Run Sensitivity to Milling Cost...... 59 Figure 18-9 Whittle Run Sensitivity to Pit Slope Angle...... 60 Figure 18-10 Whittle Run Sensitivity to Metal Price ...... 61

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1 SUMMARY The Tejamen Silver Property consists of 21 claims covering an area of 1,672.05 ha. The property is situated in the municipality of Nuevo Ideal, State of Durango Mexico and is located between latitude 24º45’ and 24º50’ north and between longitude 105º05’ and 105º12’ west. The claims are held by Minera Montana S. de R. L. de C. V., which in turn is under contract with Oremex Resources Inc. (Oremex) to sell the mineral concessions to Oremex or a subsidiary owned by Oremex. This Technical Report is written to provide information about a recently completed Preliminary Mining Assessment performed for the Tejamen Property by Snowden Mining Industry Consultants (Snowden) at the request of Oremex Resources Inc. (Oremex). The results of the Preliminary Assessment were disclosed in summary form to the public as a New Release on October 3rd, 2006. It is important to note that the results presented are not definitive and should be used as a basis for further investigation only. All material described as ‘mill feed’ or the inadvertent use of the term ‘ore’ cannot be considered any part of a mining Reserve for the project due to the following: x Insufficient confidence in the geological resource, of which 100 percent is considered an Inferred Resource. x Insufficient detail in cost, mining, and process parameters to prove that economic extraction is possible. Economic viability has not been demonstrated. There is no certainty that the results of this Preliminary Assessment will be realized. From the results of the Preliminary Assessment, Snowden concludes that a surface mine and heap leach processing system can sustain a 10,000 tonne per day operation when silver prices average $US 8 per ounce and silver recoveries average 65 percent over the life of the operation. If silver prices are below $US 6 per ounce, then the project parameters suggest that economic return is unlikely and new options would need to be investigated. At a silver price of $US 10 per ounce and silver recovery of 70 percent, an initial capital investment of $45.2 million dollars and $8.6 million dollars of sustaining capital will provide a Net Present Value of $58.6 million (before taxes) and a mine life of approximately 7 years, including one year of pre-stripping and heap construction. The following table summarizes the Net Present Value of the project at variable silver price. A 7 percent discount rate has been used for these calculations.

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Ag Value Au Value NPV (x $/oz $/oz 1000000) 6 450 -19.7 8 500 19.2 10 550 58.6 12 600 97.4 15 650 155.5

For the purposes of the Preliminary Assessment, a geological block model created by Mr. Kevin Palmer of Wardrop Engineering (Wardrop) was utilized. A review of the block model and resource estimation process was performed by Mr. Alex Trueman, of Snowden during the course of the assessment. No fatal flaws within the resource estimation process were discovered by Snowden during this review and hence the resource estimation was accepted as reasonable for the purposes of the preliminary assessment and the Wardrop block model was utilized. Wardrop previously disclosed the results of their resource estimation on behalf of Oremex in a Technical Report for the project dated April 13, 2006. The two resource areas, Los Mantos and Cerro Prieto contain a resource of 22.3 million tonnes (Mtonnes) at an average grade of 65.4 grams per tonne (g/tonne) Ag and 0.03 g/tonne Au. This resource is reported at a cut-off grade of 20 g/tonne. Comments resulting from Snowden’s review of the Wardrop block model and resource estimation are included in various sections throughout the Technical Report as deemed appropriate. The preliminary mining assessment envisages an open pit mine utilizing front end loaders and haulage trucks to move run of mine material from drilling and blasting to a crusher, where the material will be crushed to <20 mm and ultimately stacked on heap leach pads. It is estimated that 21.7 Mtonnes at an average grade of 51.9 g/tonne Ag and 0.023 g/tonne Au will be mined and processed during the mine life. 42.7 Mtonnes of waste will also be created during mining operations and this material will be placed nearby in permanent waste dumps. Cyanide solution will be sprayed on the heap pads and collected after leaching for silver recovery within a Merrill-Crowe system. For the purposes of process operating and cost estimation, as well as the production of a preliminary flow-sheet, Mr. John Fox, P.Eng, of Laurion Consulting Inc. was engaged for expert opinion. Oremex provided the results of preliminary metallurgical test-work which has been performed upon samples from the project. A metal recovery of 70 percent has been used as a basis for estimations within the study. Ms. Shannon Shaw, of MESH Environmental in Vancouver, was also engaged to provide some in-sight into potential environmental and social issues which may arise during the course of the mine life. Her memorandum was provided to Oremex as an internal document to be used for some guidance into the type and amount of test-work which will need to be done during future project studies. Her recommendations for study work have been summarized and included as part of Snowden’s Preliminary Assessment. MESH notes that elevated levels of several metals are present within the rock mass. It is unknown at this point whether these metals will present long term environmental

7 of 68 Technical Report - Tejamen Silver Property, Durango State, Mexico Oremex Resources issues for the project. However, test-work must be undertaken to determine the potential impact of these metals and mitigating actions should any be required. It will be necessary to move the village of Tejamen as part of the project definition, particularly as a result of the Cerro Prieto pit. Within the Preliminary Assessment, Snowden has assumed that moving the village will be possible, in part because of precedent in Mexico for similar requirements at other mining operations. Since the completion and disclosure of the preliminary mining assessment, Oremex has begun the process of talks with individuals familiar with the process and legislative requirements to move the village. Additionally, the flow of the river, Quebrada Escondida will be seriously impacted by the mining operations, again more directly as a result of the Cerro Prieto pit. It may be necessary to divert the river. Additionally, it may be necessary to move and/or stabilize the dam at the head of the river, should the pit boundary ultimately prove to be too close to the reservoir. It is obvious that geo-technical investigations will need to be undertaken around the toe of the reservoir and in context of the planned location of the nearby open pit and river course. The final Snowden Preliminary Mining Assessment, except for sections with respect to recommendations and conclusions is included in Section 18.

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2 INTRODUCTION Oremex Resources Inc. (Oremex) retained Snowden Mining Consultants Inc. (Snowden) to carry out a Preliminary Mining Assessment of the Tejamen Silver Project, located near the town of Nuevo Ideal, in Durango State, Mexico. Figures showing the location of the project in relation to Durango are available within the April, 2006 Technical Report by Wardrop. Allan Polk, P.Eng, the author and qualified person for the purposes of this technical report visited the site on July 24th, 2006 to get an impression of the rock conditions, site infrastructure, and overall property geography. While Allan was on site, diamond drilling to confirm the historical RC drilling was being carried out, providing opportunity to see work on site as well as the in-situ rock conditions. The core from several diamond drill holes was seen during the short site visit. Neither Alex Trueman of Snowden, nor John Fox of Laurion Consulting have visited the site. The report “Technical Report on the Tejamen Silver Property, Durango State, Mexico” April 2006 by Kevin Palmer (previous qualified person) of Wardrop Engineering has been used often as a reference in the creation of this document. In turn, that document references the documents “Technical Report on the Tejamen Silver Property, Durango, Mexico” by Dr. P. A. Christopher, 2003 and “Mineral Resource Evaluation Report on the Tejamen Silver Property, Durango, Mexico”, by Norm Tribe, 2005. Several sections within this technical report have been taken directly from the Wardrop report as no additional work has been done to update the contained results. Wardrop has provided the geological block model for the study as part of the preliminary mining assessment. Oremex has also provided Snowden with preliminary metallurgical test-work results from McClelland Laboratories in Sparks, Nevada, an accredited laboratory. All currencies within this report are in United States dollars. This report has been prepared by Snowden in the format set-out within National Instrument 43-101 and by a qualified person as defined by the instrument. Snowden’s preliminary mining assessment, in Section 18 is intended to be used by Oremex and is subject to the terms and conditions of its contract with Snowden. Reliance on Snowden’s report may only be assessed and placed after due consideration of the nature of the report and Snowden’s scope of work, as described herein. The Preliminary Mining Assessment is intended to be read as a whole, and sections or parts thereof should therefore not be read or relied upon out of context. Except for the purposes legislated under provincial securities laws, any other use of this report by any third party are at that party’s sole risk. Responsibilities for portions of this report are tabulated in Table 2.1

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Table 2.1 Qualified Persons + Section Responsibility

Qualified Section(s) of Company Person (QP) Responsibility Allan Polk Snowden 1-12,15,18, 19-21 Alex Trueman Snowden 13,14,17,18.2 John Fox Laurion Consulting 16,18.4.4

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3 RELIANCE ON OTHER EXPERTS Ms. Shannon Shaw, of MESH Environmental in Vancouver, Canada, was engaged to provide a list of test-work required for the project based on assay information from samples. Her memorandum was provided to Oremex as an internal document for information purposes and her recommendations for test-work have been summarized and included in Section 20.1.3. Apart from Ms. Shaw, Snowden has not relied upon other experts who are not qualified persons.

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4 PROPERTY DESCRIPTION AND LOCATION During the course of the Preliminary Mining Assessment, Snowden has not investigated the legal implications of Oremex’s contract with Minera Montana, nor has it confirmed the legal boundaries and ownership of claims within the property. Snowden has relied on information from Oremex in this regard, but has no reason to believe that there is a problem with the claim tenure. Figure 4-1 below shows a map of the Tejamen Claims as well as the approximate outline of drilled mineralisation to date.

Figure 4-1 Tejamen Project Claim Map

2745000 N

N

U N I F I C A C I O N A M P L. F R O N T E R A 2744000 N E.-2/1.3-1557

TEJAMEN SIETE E.-14311 Cerro E.-14828

Prieto LA MUGROSA 2743000 N

E.-2/1.3-1408 PPD Los Mantos LA ENCANTADA A L 7 E.-17874 A . 5 K L 5 9 E P 1 FCO. 3 - R 5 M 3 . ANTONIO 0 U A 1 1 / E - E.-11679 . A 2 L - E.-23105 A E . . L E F LARRAÑAGA I EL LA N E.-14590 FRONTERA U DURANZO 1 A . R C E TEJAMEN OCHO FRACC. 3 UNIF. C T O A N AMPL. FRONTERA T R O E.-21546 DENVER A F R E.2/1.3-1557 U F E.-321.1/010 J A E.-22848 N A EL REFUGIO U FR G . 2 E.-25838 E .-2 /1. 3-1 55 7 TEJAMEN 2 TEJAMEN CINCO E.-27453 FRACC. E.-2/736 TEJAMEN 2 E.-27453 NAYA

AMPL. E.-29919 E.-25874 NEVAREZ

TEJAMEN TRES 2741000 N E.-20151 U N I F I C A C I O N A M P L. F R O N T E R A SANTA MARIA E.-14312 E.-2/1.3-1557 E.-2/1.3-1799 TEJAMEN NAYA E.-25874 NAYA CHAVITA E.-30103 SOCAVON E.-25880

2740000 N

2739000 N 484000 E 484000 E 485000 E 486000 E 487000 E 488000 E 489000

1000 meters 2000 meters

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4.1 Location of Mineralization and Workings There are a considerable number of historical small scale surface and underground workings around the Tejaman property, mining both the Cerro Prieto and Los Mantos mineralized areas. Both Minera Montana and Oremex have endeavoured to survey in the workings on surface and have obtained some of the old survey information for the larger underground workings. This survey information has been added to the general survey database for the project. As the project continues, the survey database will continuously be updated to reflect these workings. 4.2 Terms of Agreements According to information contained in the Wardrop Technical Report for the project, the claim titles are held in the names of Mrs. Bertha Jarvis G. and Minera Montana S. de R.L. de C.V., (Minera Montana) with Minera Montana holding an option to purchase the Tejamen Property from Mrs. Jarvis. Minera Montana is under contract to Oremex to sell the mineral concessions, which it owns, to either Oremex or to a Mexican subsidiary of Oremex. Minera Montana also has a contractual agreement with Oremex to perform the exploration work for Oremex at cost. Snowden notes that the most critical claims in the immediate area of the Los Mantos and Cerro Prieto pit boundaries are owned by Mrs. Jarvis. No provision for the costs of purchasing the claims from either Minera Montana or Mrs. Jarvis is included within the preliminary mining assessment.

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5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE, AND PHYSIOGRAPHY Parts of this section have been extracted from the previous Technical Report for the project by Wardrop, April 2006. Italicized text in quotations is extracted from the previous Technical Report, with additional comments by Snowden in normal text. “The Tejamen Property is located in the eastern part of the Sierra Madre Occidental physiographic province in the Llanuras Altas (high plain) subdivision. Elevations on the property average 2,200 m and range from 2,050 m in Quebrada Escondida to 2,500 m in the western part of the property. Elevations up to 3,230 m occur in the Sierra el Epazote Range to the west with basin and range features area trending north-northwest. Durango is the capital of the State of Durango and the commercial centre for the district. Durango has good air service with several flights per day to Mexico City, and daily flights to Mazatlan, Monterrey and Houston, Texas. The property is accessed by travelling from Durango for 56 km on Interstate Highway No. 45, a good all-weather paved two lane interstate highway, to the city of Guadalupe Aguilera turning left onto State Highway No. 23, another good paved highway and proceeding another 70 km to Nuevo Ideal. The village of Tejamen and the property is 15 km from Nuevo Ideal on a good all-weather gravel road. Quebrada Escondida and its tributaries, which flow easterly into the Laguna Santiaguillo, drain the Tejamen area. A local dam provides a source of water for the village of Tejamen.”

The river, Quebrada Escondida, lies between the planned boundaries of the Los Mantos and Cerro Prieto pits. A small dam and resulting reservoir is just upstream, and within 250 meters of the planned boundary of the Cerro Prieto pit. As such, the impact of the mining operations upon the water resource in the region is critical to ultimately creating a mine plan that provides both for the life of the operation as well as for the future. It is very important that investigations target the existing water quality as well as the impact that the operation will have upon the water quality for the long term. It is likely that a new bridge will need to be constructed over the river to be able to handle the heavy open pit haulage trucks. At this point, it is unknown whether or not the river and upstream reservoir would be sufficient to produce sufficient water for the mining operations, as well as for local agriculture needs. “The region is semi-arid with a temperate climate. Cooler temperatures in the winter may produce some freezing rain and snow. A rainy season occurs between July and October. The vegetation in the area is dominated by mesquite with prickly pear, napal and agave. Irrigation allows for farming of beans and corn, as well as fruit and nut orchards. Nuevo Ideal, located on Highway No. 39, is on a railroad and has stores, hotels and restaurants. Nuevo Ideal would provide a labour pool for a mining operation, with contractors and skilled professionals available in Durango. Durango is the capital of the state of Durango and is 140 km south of the property on Highway No. 39.”

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The village of Tejamen is on the electrical power grid. However, Snowden believes that the existing power line from Nuevo Ideal will require upgrading to provide the additional power necessary for mining operations.

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6 HISTORY In Snowden’s opinion, there is no material change to information provided in the previous technical report for this area. For the purposes of completeness, extracts from the April 2006 Technical Report by Wardrop are provided as follows: “Mineral exploration and exploitation has been an activity in the Tejamen area since about 1885. In the early part of the 20th century, an 80-ton/day cyanidation plant was operated on the Tejamen Property. The deposits on the property have bulk tonnage potential with some of the zones trending into the Tejamen village. Moving some or all of the village homes may be necessary for a bulk mining operation. The Tejamen area was explored by gambusinos (small or informal miners) from 1885 to 1900. In 1900, Compania Minera La Eureka and in 1906, the company El Duraznito were founded to work the La Eureka, Melchor Ocampo, Matilde, La Fama, Providencia, La Cuna, and El Duraznito mines. In 1908, La Eureka company installed a 50-ton/day cyanide mill and recovery plant. Mining activity was halted in 1910 because of the Mexican Revolution. In the 1970s, the Cerro Prieto was in production at 30-tons/day with the production shipped to the Parrilla concentrator plant of Comision de Fomento Minero. The Cerro Prieto mine was developed on 5 levels from a main vertical shaft 80 metres in depth. From 1978 to 1981, Consejo de Recursos Minerales (Carraco C., and Solis Y C.), Louismin, and Tormex, S.A. conducted geological and sampling programs on the Tejamen Property. Plans show that Tormex conducted a second sampling program in 1985 and Luismin conducted additional sampling and underground sampling in 1990 (Luismin Mining Corp.1991 Annual Report). From 1992 to 1994, EMISA explored the property with surface and underground, geological, geophysical and sampling programs and completed 12 reverse circulation holes totalling 2,030 metres and 24 diamond drill holes totalling 5,065 metres. The EMISA drilling demonstrated the presence of a large, low-grade silver-bearing system with some high-grade feeder veins. Kobex Resources Ltd., a Vancouver based junior mining company, explored the property in 1998 and 1999 with an induced polarization survey and drilled four diamond drill holes totalling 997m. Minera Montana acquired the Jarvis option on the Tejamen Property in 2000 and staked additional claims in 2001 and 2002 to protect extensions of known vein zones. In March 2003, Blackhorn agreed to acquire the concessions of Montana. On March 30, 2003 the author collected 13 rock chip samples from the Cerro Prieto working for comparison with previous surface channel sampling by Luismin (1991). (From Christopher, 2003). The samples taken by Christopher confirmed the presence of values in envelopes of stockwork quartz veining around the previously mined high-grades. The values obtained by Luismin were 40% higher than those of Christopher and Luismin may have taken samples closer to the mined out workings than Christopher (Christopher, 2003). The Luismin samples were analyzed for gold, silver, lead and zinc at the CRM laboratory in Hermosillo, Sonora. The CRM analytical methods were not described (Christopher, 2003).

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The Cerro Prieto and Los Mantos deposits are the best-known mineralized zones on a property that has over a dozen named vein zones with old mine workings. At Cerro Prieto, a narrow, high-grade silver-lead-zinc vein was developed in the 1970s via an 80-metre shaft. Grades of the Cerro Prieto deposit, based on 56 rock chip and channel samples from all six levels, were reported by Luismin to average 0.0979 g/t Au, 405 g/t Ag, 2.32% Pb, and 1.97% Zn over an average vein width of 1.38 metres (reported in Kobex Prospectus, June 1998). The ore minerals are galena, sphalerite, and pyrite with minor chalcopyrite, tetrahedrite and argentite in a gangue of quartz, calcite, barite and Fe and Mn oxides. Mineralization is present as veins, veinlets and breccia zones related to a northeast trending and northwest dipping high angle structure. Sampling by Luismin in 1991, of a Level 4 cross-cut driven into the footwall of the Cerro Prieto vein, returned 43.65 metres grading 160 g/t Ag, 1.26% Pb and 3.18% Zn. Drilling by EMISA and by Kobex contained wide zones of low grade silver in an envelope of stockwork veining around the main vein structure (Christopher, 2003).”

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7 GEOLOGICAL SETTING 7.1 Regional Geological Setting In Snowden’s opinion, there is no material change to information provided in the previous technical report for this area. For the purposes of completeness, extracts from the April 2006 Technical Report by Wardrop are provided as follows: “The Tejamen Silver Property is located in the Sierra Madre Occidental physiographic and geological province in an extensive volcanic plateau that has been affected by horst and graben structures with bounding normal faults. Fault structures generally have northerly or north- northwesterly trends. Caldera structures have been recognized north and south of Durango but have not been recognized in the Tejamen area. Tensional tectonic activity has resulted in numerous cross structures that may contain silver bearing veins with commercial values (E.g. Tayoltita). The eastern Sierra Madre Occidental is made up of two volcanic sequences separated by a period of no igneous activity. An Upper Volcanic Complex (UVC) is composed of gently dipping rhyolitic ignimbrites and rhyodacite that range in age from 27 to 34 million years. The UVC is part of the largest known ignimbrite cover. An unconformity separates the UVC from intermediate composition volcanic rocks of the Lower Volcanic Complex (LVC). The contact between the UVC and LVC is an irregular surface with local strong relief. The LVC occurs as erosional windows in the UVC. The LVC is formed of andesite flows and pyroclastic units with more siliceous interlayered ignimbrites. The LVC is weakly deformed, altered and intensely faulted, and it is the primary host rock for mineralization. Quaternary alluvial and colluvial deposits cover the volcanic complex in some low-lying areas. (From Christopher, 2003).” 7.2 Property and Local Geology In Snowden’s opinion, there is no material change to information provided in the previous technical report for this area. For the purposes of completeness, extracts from the April 2006 Technical Report by Wardrop are provided as follows: “The Tejamen Property geology has been mapped by the Consejo de Recursos Minerales, a Mexican government organization, and augmented by company geologists working for Luismin, Tormex, Emisa and Kobex Resources with a simplified property geology map presented as Figure 7.2. The rocks that outcrop on the Tejamen Property are volcanic rocks of the LVC of the eastern Sierra Madre Occidental. The andesitic to dacitic rocks are intruded by dacite porphyry and interlayered with dacitic and rhyolitic tuffs and ignimbrites. The main fault structures on the property trend northeast and north-south and control the main vein zones in the Tejamen area.” 7.2.1 Lithology In Snowden’s opinion, there is no material change to information provided in the previous technical report for this area. For the purposes of completeness, extracts from the April 2006 Technical Report by Wardrop are provided as follows:

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“The lithology is well described by Christopher in his report dated April 30, 2003 and is quoted intact below. “Lithology is described from oldest to youngest below. The local geology can be described in terms of Quaternary colluvial and alluvial cover, extensive UVC acidic ignimbrites, and the LVC that is the main host of mineralization throughout the Sierra Nevada Occidental. The LVC has been divided into four units that are described below. Dacite Porphyry The oldest Tertiary unit on the property is dacite porphyry of the LVC. The unit is fine grained with argillized yellow-green plagioclase phenocrysts and partially chloritized hornblende. It contains disseminated euhedral pyrite, microveinlets of quartz-pyrite and calcite, and minor galena-sphalerite mineralization. Dacite Tuff The dacite tuff unit is pale green to grey-green with reddish tones along oxidized structures. It is fine to medium grained with sub-angular to sub-rounded fragments. The presence of large sub-rounded fragments gives parts of the unit the appearance of agglomerate. The dacite tuff unit also contains fine to medium grained disseminated euhedral pyrite. The unit contains some quartz microveinlets, and occasionally disseminated galena and sphalerite. Rhyolite Tuff The rhyolite tuff unit is greyish green to reddish green. It is fine to medium grained with phenocrysts of quartz, potassium feldspar and hornblende. Alteration of the unit consists of chloritization in bands and patches, weak to moderate argillization and pervasive potassic alteration. Oxidation and silicification intensity increases as structures are approached. The upper part of the unit is white with occasional yellow tones. In the oxidized zone near the Cerro Prieto vein structure, the rhyolite tuff unit is porous with quartz-lined druses and quartz microveinlets. Andesite and Dacite Tuff The dacite tuff unit is white with yellow tones and generally fine to medium grained. In the oxidized zone the dacite tuff is porous with limonite and manganese oxides coating fractures. The andesite tuff unit is grey-green with bleaching to light gray or yellow tones. The unit is generally fine grained with occasional zones of plagioclase phenocrysts and medium to course lithic tuff fragments. (From Christopher, 2003)” 7.2.2 Structure In Snowden’s opinion, there is no material change to information provided in the previous technical report for this area. For the purposes of completeness, extracts from the April 2006 Technical Report by Wardrop are provided as follows: “The main fault structures on the property trend northeast and control the main vein zones in the Tejamen area. These structures form a classic sigmoidal loop into which the mineralization has migrated. The mineralized structures in the Manto area consist of a number of flat-lying synformaly anastamosing fault structures parallel to the stratigraphy and dipping easterly at 20º to 40º. Fault structures with moderate to high angles have northwest trends and are post-mineralization.”

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8 DEPOSIT TYPE In Snowden’s opinion, there is no material change to information provided in the previous technical report for this area. For the purposes of completeness, extracts from the April 2006 Technical Report by Wardrop are provided as follows: “Vein type mineral deposits in volcanic rocks of the Sierra Madre Occidental are of low or moderate sulfidation epithermal type. Higher-grade mineralization generally occurs in a temperature sensitive zone related to boiling of mineralizing solutions. Solutions follow and mineralize structures but strong tectonic activity may cause expansion of the mineralized zones into the hanging and footwall of the feeder structures. In the Mantos area, higher angle vein feeder structures intersected lower angle structural zones, and shallow dipping Mantos are formed. Propylitic alteration is widespread but argillic, potassic and siliceous alteration appears to occur in up to 80 metre wide envelopes around feeder vein structures. (From Christopher, 2003)”

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9 MINERALIZATION In addition to comments made in the previous Wardrop technical reports, Snowden notes that the geometry and nature of the high grade mineralised veins on the property should be investigated for several reasons as follows: 1. The steeply dipping veins have not been well drilled with the existing RC drilling on the property. Should unknown high grade veins lie near surface, these may provide excellent starter pit locations for improved economics at the beginning of the project. 2. The mineralisation within the high grade veins may not be recoverable by the chosen process and hence the highest grades within the deposit may be the least recoverable. Additional comments about this topic are included within the Preliminary Mining Assessment in section 18. 3. Historical mining has occurred on the high-grade veins and understanding the geometry of the high grade veins will assist in minimizing the risks associated with mining around the old voids, as well as assist in estimating how much of the resource has already been mined. The following additional information has been extracted verbatim from the Wardrop Technical Report as follows: “Information on this section has been taken from the technical report, “Mineral Resource Evaluation Report on the Tejamen Silver Property, Durango State, Mexico”, by Norm Tribe (2005). Minor changes have been made to spelling and grammar. “A system of flat faulting, 15º to 25º is present in the host rocks of both the Cerro Prieto and Los Mantos. Some areas show significant mineralization along these flat faults. The feeder vein at Cerro Prieto is strong and crops out into the hill that spawned the name. Most of the values in the Cerro Prieto deposit are close to this feeder vein structure. This feeder forms a distinctive sigmoidal loop (Figure 7.2). Other branches of the loop are seen in the Jeronimo and Carnival feeders between the Los Mantos and the Cerro Prieto. The Los Mantos area has similar mineralization and structure as the Cerro Prieto. There is another sigmoidal loop passing through the main part of the deposit marked by the Guanajuato and Morelos feeder veins and at least five low angle mineralized thrust faults, which host much of the mineralization. The solutions encountered several of these north 40º east structures dipping 20º to 40º east and mineralization spread laterally parallel to the bedding in the host LVC. Mineralization consists of galena, sphalerite, pyrite, and minor chalcopyrite, tetrahedrite and argentite in a gangue of mainly quartz and clay minerals. Native silver and free gold are reported to occur in strongly oxidized area. This flat faulting may be more pervasive than previously thought, with a number of imbricated structures providing a favourable environment at several layers in the volcanic pile, in the Cerro Prieto deposit, the Los Mantos deposit and in the surrounding area.””

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10 EXPLORATION To Snowden’s knowledge, and based on information provided by Oremex and the previous Technical Report by Wardrop, the exploration activities on the Tejamen project have been limited to diamond drill and RC drilling programmes, discussed in subsequent sections.

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11 DRILLING Snowden has relied upon the previous Technical Report by Wardrop Engineering titled “Technical Report on the Tejamén Silver Property, Durango State, Mexico” and dated 13 April 2006 (the “Technical Report”). Snowden considers that for this Preliminary Assessment, and considering there is no material change to the project data, information contained in the previous Technical Report is appropriate for this Preliminary Assessment. Relevant extracts from the previous Technical Report concerning the drilling information is included below. “Drilling to date, prior to Oremex, consisted of 24 diamond drill holes and 12 rotary percussion reverse circulation (RC) holes drilled by EMISA and 4 drilled by Kobex Resources in the 1970s. The information on this drilling was not made available and is not taken into account in this resource analysis. Oremex has drilled 217 RC holes for a total of 36,139 metres of drilling. The drilling was laid out on 50 metre lines with drill stations at every 30 metres. A line of infill holes between sections was drilled in 2005. Drill holes, inclined at 60° to the southeast, were drilled on Cerro Prieto. Vertical holes were drilled on Los Mantos. A standard two-metre sample was taken. Due to the type of drilling being RC, no core angles are available to enable the true thickness of each intersection to be calculated.” “Composites have been made of intersections above 20 g/t silver and a separate composite has been made for samples below 20 g/t silver.”

A summary of the drill hole intersections in available in the Wardrop Technical Report. To the best of Snowden’s knowledge, and up to the effective date of this technical report, October 3rd, 2006, no additional drill results are available for the Tejamen project.

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12 SAMPLING METHOD AND APPROACH Snowden has relied upon the previous Technical Report by Wardrop Engineering titled “Technical Report on the Tejamén Silver Property, Durango State, Mexico” and dated 13 April 2006 (the “Technical Report”). Snowden considers that for this Preliminary Assessment, and considering there is no material change to the project data, information contained in the previous Technical Report is appropriate for this Preliminary Assessment. Relevant extracts from the previous Technical Report concerning the sampling method are included verbatim below. “Information on this section has been taken from the technical report, Mineral ResourceG Evaluation Report on the Tejamen Silver Property, Durango State, Mexico by Norm TribeG(2005). Relevant information has been updated and minor changes have been made toGspelling and grammar.G Drilling has been carried out in a regularized drill pattern with a system of lines being established at right angles to the strike of the deposit and spaced 50 metres apart. Along these lines, drill stations were placed at 30 metre intervals, so that a 50 by 30 metre grid was established. Drill holes were drilled at each of the drill stations and sampled in two- metre intervals, providing a reasonably accurate and detailed sampling pattern from which to analyze the mineralization. In order to record the information collected in the drilling, a set of sections was drawn up showing all the drilling with geology and assays. Sections at a scale of 1:3000 were drawn up by Tribe (2005) and are available at the offices of Oremex Resources Inc. at 1001 – 1030 West Georgia St., Vancouver, B.C., and at the offices of Minera Montana S. de R.L. de C.V., in El Fuerte, Sinaloa, Mexico, as well as at the geology offices on the property. Drilling equipment used was a rotary percussion drill fitted out in the reverse circulation configuration. The drill bit had an initial diameter of 5.5 inches. This configuration allows the drilling cuttings to pass up through the centre of the drill string and into a cyclone separator, thus reducing the chance of contamination from the wall of the hole. There are other possible contamination scenarios inherent with this system, such as the flushing of fines from the face of the hole, but the method is accepted in the industry as one of the more reliable methods available. The equipment provided 750 cfm air to the drill bit at a pressure of 350 psi. This high pressure air flow is considered necessary as most of the holes were wet at depth and the high pressure air column is necessary to lift the water and cuttings, cleanly from the hole. A total of 217 holes were drilled using this method. Earlier diamond drill hole results and earlier RC drill holes, were not used in the mineral resource analysis, as none of this data is available.”

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13 SAMPLE PREPARATION, ANALYSIS AND SECURITY Snowden has relied upon the previous Technical Report by Wardrop Engineering titled “Technical Report on the Tejamén Silver Property, Durango State, Mexico” and dated 13 April 2006 (the “Technical Report”). Snowden considers that for this Preliminary Assessment, and considering there is no material change to the project data, information contained in the previous Technical Report is appropriate for this Preliminary Assessment. Relevant extracts from the previous Technical Report concerning sample preparation, analysis, and security are included verbatim below: “Oremex personnel collected samples from the cyclone, which was weighed and then split at least three times in a Jones type riffle splitter and a final sample of approximately 4-kg was retained while the remainder was left at the drill site. The 4-kg sample was split again and half the sample was sent to the storage warehouse near Tejamen. This procedure was carried out for dry samples. A rotary splitter was used to obtain an approximate 4-kg sample after drilling had intersected the water table. This was then subdivided into 2-kg samples one of which is stored at the warehouse. No samples were being processed at the time of the site visit as all logging and sampling of the drill holes used for the resource estimate had been completed prior to the site visit. A 2-kg sample was then sent to ALS Chemex in Guadalajara, Jalisco, Mexico, for drying crushing and pulverizing using the ALS Chemex PREP-31 process. Half the pulps were kept in storage in Guadalajara, and the other half of the pulp sample was sent to ALS Chemex in Vancouver, B.C., Canada, for final analysis. The ALS Chemex laboratory in Guadalajara is ISO 9001:2000 certified and the Vancouver facility is ISO 9001:2000 and ISO 17025 certified. Two different types of assaying techniques have been used to calculate the grades for the Tejamen samples. Drill holes prior to MMT-183 were processed using ME-GRA21, whereas drill holes from MMT-183 onwards were processed using Au-AA23 for Au and ME-ICP41 for Ag. Results greater than 100 g/t Ag are re-analysed using ME-AA46. The ALS Chemex description for techniques used is as follows: PREP-31, Sample is dried and the entire sample is crushed to better than 70% passingGa 2 mm (Tyler 10 mesh) screen. A split of up to 250 grams is taken and pulverized toGbetter than 85% passing a 75 micron (Tyler 200 mesh) screen.”G ME-GRA21, A prepared sample is fused with a mixture of lead oxide, sodium carbonate, borax, silica and other reagents in order to produce a lead button. The lead button containing the precious metals is cupelled to remove the lead. The remaining gold and silver bead is parted in dilute nitric acid, annealed and weighed as gold. Silver, if requested, is then determined by the difference in weights. Optionally, blanks with known silver and gold content can be assayed at the same time to determine the correction factor for silver loss in the fusion and cupellation.

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Au-AA23, “A prepared sample is fused with a mixture of lead oxide, sodium carbonate,G borax, silica and other reagents as required, inquarted with 6 mg of gold-free silver andGthen cupelled to yield a precious metal bead.GGThe bead is digested in 0.5 ml dilute nitric acid in the microwave oven, 0.5 mlG concentrated hydrochloric acid is then added and the bead is further digested in theGmicrowave at a lower power setting. The digested solution is cooled, diluted to a totalGvolume of 4 ml with de-mineralized water, and analyzed by atomic absorptionGspectroscopy against matrix-matched standards.”G ME-ICP41, A prepared sample (0.50 grams) is digested with aqua regia for at least oneGhour in a graphite heating block. After cooling, the resulting solution is diluted to 12.5 mlG with demineralized water, mixed and analyzed by inductively coupled plasma-atomicG emission spectrometry. The analytical results are corrected for inter-element spectralGinterferences.G ME-AA46, A prepared sample (0.4 to 2.00 grams) is digested with concentrated nitricGacid for one half hour. After cooling, hydrochloric acid is added to produce aqua regiaGand the mixture is then digested for an additional hour and a half. An ionizationGsuppressant is added if molybdenum is to be measured. The resulting solution is dilutedG to volume (100 or 250 ml) with demineralized water, mixed and then analyzed by atomicG absorption spectrometry against matrix-matched standards.G The 2-kg sample sent to the warehouse was examined by the field geologist, the rock type identified and a log made of the rock type, alteration, mineralization, and condition of the sample and cross referenced to the sample number and the weight. A total of 18,062 entries are present in the assay database. The ME-GRA21 analysis is more appropriate for high-grade samples and it is possible that the assay results are lower than the true value due to unavoidable loss of silver during the cupelling process, particularly at Ag values of less than 100 g/t. It is very difficult to duplicate silver results at lower ranges. The ICP41 package has several advantages, in that 34 elements are analysed at a reasonable cost, and the silver is reported up to 100 g/t. However, in some mineralized matrixes, the aqua regia digestion does not always dissolve all the silver. This can only be determined by running duplicate samples using both an aqua regia digestion and a 4 acid digestion. The analytical techniques used are likely to result in a minor underestimation of grade for the drill holes pre-dating MMT-183. Oremex would probably benefit from re-assaying samples that fall in the mineralized envelopes and that returned Ag values of less than 500 g/t in the pre MMT-183 drill holes by using the ICP method. Dr. Christopher (2003) took independent check samples throughout the property and the results obtained support the validity of the sampling program. No samples were taken for assay by the author, as drilling was not in progress during the site visit. There is no reason to assume that the historic sampling was not carried out to industry standards. A limited amount of check assaying was carried out. A total of 102 duplicate samples were submitted to ALS Chemex. A further 300 pulp rejects have been submitted but the results are not yet available. Approximately half of the

26 of 68 Technical Report - Tejamen Silver Property, Durango State, Mexico Oremex Resources duplicates were from samples that had returned results below detection. The results from the duplicate samples, including those below detection limit, show that the check assays returned grades approximately 10% higher than the routine assaying. This difference in results indicates that a more comprehensive QA/QC program is warranted. The author believes that the sampling and analytical techniques applied are adequate for a mineral resource estimate. The description of the sampling procedures described to the author meet industry standards and there is no reason to assume that there are any problems with preparation and security.”

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14 DATA VERIFICATION Snowden has not performed data verification for this Preliminary Assessment but has reviewed the previous Technical Report Wardrop Engineering titled “Technical Report on the Tejamén Silver Property, Durango State, Mexico” and dated 13 April 2006 (the “Technical Report”). Snowden considers that for this Preliminary Assessment, and considering there is no material change to the project data, a review of the Technical Report is an appropriate substitute for data verification. Mr Palmer’s data verification included: x validation of the drillhole database x validation of 20% of the total assay data in the database using assay certificates x survey of 43 drillhole collar locations x a review of geological logging by examining samples stored in chip trays Where errors, deficiencies, or omissions were discovered by Mr Palmer they were corrected if possible. Where correction was not possible the data was removed from the Mineral Resource estimation database or noted in the Technical Report. Snowden noted a number of key deficiencies with the data used in the Mineral Resource estimation: x no downhole surveys were performed on any drillholes x limited QAQC analysis indicates a potential bias in some laboratory analysis x no bulk density analysis has been performed for the project x confidence in the geological interpretation is low Despite these deficiencies, Snowden considers that the data is appropriate for use in an Inferred Mineral Resource estimation to be used in a Preliminary Assessment.

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15 ADJACENT PROPERTIES To Snowden’s knowledge, there are no additional adjacent properties of relevance to the Tejamen project.

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16 MINERAL PROCESSING AND METALLURGICAL TESTING 16.1 Background Information and Recovery Assumptions Oremex has provided the results of preliminary metallurgical test-work to Snowden and Laurion Consulting for the purposes of creating flow-sheet and cost estimations for a heap leach recovery system by cyanidation. The test work was performed at McLelland Laboratories in Sparks, Nevada. According to information from Oremex and summarized by a previous report by Christopher, 2003, “Three preliminary column leach tests were conducted at Cripple Creek by EMISA on large RC samples from Tejamen drilling. Sample TJBD-8-10 gave 79.24% silver extraction and sample TJBD-15 gave 57.39% silver extraction after 51 days. No results are available from the third sample, but Dave Stevens (2000) suggest that the leach tests indicated that silver in tuffaceous rocks leaches very. Details on the samples tested and leaching methods were not reported.” Results obtained from McClelland Laboratory from column metallic testing indicate a recovery of 72 percent for silver after 130 days from a high-grade sample (head grade 602 g/t) and a 63 percent recovery for a composite sample (head grade 246 g/t) after 86 days. Oremex plans to begin additional test-work on coarser crush samples obtained by diamond drilling. Snowden notes that the average head grade of material considered within the preliminary mining assessment is well below that of the test-work which has been performed thus far. In the future, some more modest grade samples of approximately 50 g/tonne should be used for metallurgical test-work. For the purposes of the Preliminary Mining Assessment, and based on conversations between Oremex, John Fox, and Snowden, a silver recovery of 70 percent and a gold recovery of 60 percent have been used as study parameters. The results of current test- work are preliminary and are based on samples that cannot be guaranteed to be representative of the deposit as a whole. More metallurgical test-work is required to confirm the recovery assumptions utilized. 16.2 Process Description (by John Fox of Laurion Consulting) Limited metallurgical data was available in the production of capital and operating costs for the proposed Tejamen silver heap leach in Mexico. As a result the process was based on typical industry practices that are very likely applicable at Tejamen rather than site specific parameters. Metallurgical testwork needs to be carried out to confirm some of the assumptions below. It is understood that in the region of the project relatively flat arable land is available for the construction of conventional leach pads. The mill feed is described as hard competent rock with argentite manifesting itself as a dark fine grained colouration in quartz. As such it is assumed the mill feed will need to be quite finely crushed in order to expose the argentite to the cyanide leach solutions, but no agglomeration is required as clays and gouge material is not anticipated with the process feed. Data suggests that lime and cyanide usage are modest (0.5kg/t NaCN and 3.5kg/t lime) The run of mine (ROM) material will be delivered to a dump pocket ahead of the primary jaw crusher. The dump pocket will normally be fed directly by mine haul truck and will be sized accordingly, although a storage pad will be available near the dump

30 of 68 Technical Report - Tejamen Silver Property, Durango State, Mexico Oremex Resources pocket to enable process feed to be stored if the crusher is unavailable for any reason. This process feed will be reclaimed by a front end loader. Process feed is removed from the dump pocket by apron feeder (or vibrating grizzley feeder) and fed to a Jaw Crusher (40x48). The belt under the crusher transmits the jaw crushed material with the cone crushed product to an 8x20 double deck screen where 20mm finished product is screened out. The screen oversize is fed onto a conveyor which returns it to a cone crusher. The cone crushed product is fed onto the same belt as the jaw crushed product. Screen undersize is collected onto the main transfer conveyor where it is taken to the vicinity of the heap leach pads. The heap leach pads will be placed on cleared and graded land. The base is prepared relatively level, with a slight slope in the direction of the collection ditches and ponds. The area is prepared with fine graded sand/rock to provide a clear snag free support to the impervious plastic membrane that is placed under the pad. Some jurisdictions require double liners with leak detection between the liners, in this case the underliner may be reworked clay. The area is divided into cells by slightly elevated berms graded into the material under the membrane. The exact size of these cells is determined by the operating schedule and topography. It is anticipated that initially 100,000 m2 of pads will be constructed divided into perhaps 10 cells, and that additional pad area of about 12,000 m2 per month needs to be constructed. On top of the membrane perforated collection pipes are placed to improve the drainage of pregnant leach solutions from the heap, and also allow for the ingress of oxygen. These pipes are directed towards the collection ditches, which in turn drain into the pregnant solution pond. The pipes are covered with gravel or crushed rock with the fines removed. The heaps are constructed in 6m lifts. This is done by running a series of grasshopper conveyors to a stacker from the end of the main transfer conveyor. Lime is added to the crushed rock as it is conveyed to the pads. The stacker builds the piles and as one section is completed the stacker is pulled back and the grasshopper conveyors removed one at a time until the cell is completely filled (9-10days). The grasshopper conveyor and stackers are then moved to the adjacent cell. Each pad area will eventually have 3 or 4 lifts of 6m constructed on it, the exact number dependent on geotechnical and other considerations. Between lifts the top of the pad below is ripped to ensure permeability. When the heap in the cell is complete it is put under leach. Header pipes are placed on top of the heap and connected to the pump in the barren solution pond. From the header, irrigation type pipes are distributed over the heaps, either dripper type or t-tape. In some cases irrigation spray nozzles are used (wobblers) but this is dependent on a number of factors including climatic considerations that will effect the water balance. Leach solutions containing lime and cyanide are applied to the heap from the barren solution pond. These drain through the heap leaching silver (and gold) and are collected in the pregnant solution pond. From the pregnant solution pond it is pumped to the metal recovery circuit. A number of recovery systems are available for gold and silver from cyanide solutions. The Merrill Crowe method using zinc precipitation of silver and gold from clarified pregnant leach solutions is the traditional method and is well suited to higher grade solutions as are generally generated from silver rich properties. The pregnant solution is clarified on a precoat filter, and the resulting clear solution de-aerated under vacuum.

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Zinc dust is added to the resulting solutions and this precipitates silver and gold which are recovered in a filter press. Barren solution exiting the filter press are recycled as leach solutions. The press precipitates are smelted into Silver Dore bars. Some alternatives exist for the metal recovery area. Most heap leaches have used the carbon adsorption but deal with relatively low levels of metals as generated in gold heap leaches: carbon technology was developed at about the same time as heap leaching of low grade ores was being introduced. Direct electrowinning of silver has also been proposed for the relatively high grade silver leaches. (the Pan American Silver property Alamo Dorado in Mexico is currently being commissioned and will directly electrowin silver from filtrate of their tailings wash circuit). Reagent mixing for cyanide and the carbon elution solutions are required. It may also be necessary to use scale inhibitors in the circulating solutions.

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17 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES The most current Mineral Resource estimate for the Tejamén project was completed by Mr. Kevin Palmer P.Geo. of Wardrop Engineering and disclosed in a Technical Report titled “Technical Report on the Tejamén Silver Property, Durango State, Mexico” dated 13 April 2006 (the “Technical Report”). The results of that estimation were disclosed in the Technical Report at a grade cut-off of 20 g/tonne AqEQ (Table 17.1).

Table 17.1 Tejamén project Mineral Resources (effective 13 April 2006)

Tonnes Ag Au AgEq Area Category (x 1,000) (g/tonne) (g/tonne) (g/tonne) Cerro Prieto Inferred 7,342 55.2 0.03 56.88 Los Mantos Inferred 15,283 72.4 0.05 75.91

Total Inferred 22,625 66.9 0.05 69.80 Note: 1. Total Mineral Resource at 20 g/tonne AqEQ (silver equivalent) cut-off grade. 2. AgEQ = Ag g/t + (64.56 * Au g/t) 3. AgEQ based on average metal price for three-year period 2003 to 2005

The Mineral Resources are classified as Inferred; no Indicated or Measured Mineral Resources have been estimated. No Mineral Reserves have been estimated for the Tejamén project. Mr. Palmer performed the Mineral Resource estimation using the following methodology: x sample data collection and analysisG x geological interpretation and modellingG x sample data manipulation prior to statistical analysis and estimationG x statistical analysis, including variographyG x block modelling, including block size selectionG x estimation, including search neighbourhood parameters x validation of the resource estimationG x resource confidence classificationG x reporting of resourcesG Snowden reviewed Mr. Palmer’s estimation methodology and considers that the Mineral Resource has been estimated using acceptable, industry-standard practices and is suitable for use in a Preliminary Assessment.

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18 OTHER DATA AND INFORMATION This Section of the Technical report contains the entire preliminary mining assessment carried out by Snowden. Snowden Mining Industry Consultants Inc. (Snowden) has been engaged by Oremex Resources Inc. (Oremex) to undertake a preliminary mining assessment of the Tejamen Project, in Durango State, Mexico. The results of the study suggest that the Tejamen silver project is a potentially economic mining project given today’s commodity prices and that further and more detailed investigation is warranted. This document provides details about the work undertaken and the results of that work. The project is envisaged to be a surface operation, recovering the silver and gold mineralisation through the use of cyanide heap leach technology. For mining operations, standard haulage trucks and front end loader excavators are planned. A geological block model was provided to Snowden by Oremex for the purposes of the mining study. This model was created by Wardrop Engineering during the course of a resource estimate and subsequent Technical Report (compliant with NI 43-101) upon the property in April, 2006. Additionally, input from independent experts in the areas of process technology and environmental considerations has been utilised in the creation of this report as well as for the estimate of costs associated with the project. It is important to note that the results presented are not definitive and should be used as a basis for further investigation only. All material described as ‘mill feed’ cannot be considered any part of a mining Reserve for the project due to insufficient confidence in the geological resource, of which 100% is considered Inferred Resource. Unless otherwise stated, all figures are presented in $US. 18.1 Background The Tejamen project currently comprises a mineralised resource within the Cerro Prieto and Los Mantos zones as per the Wardrop resource model. These zones are separated by a shallow valley which holds the village of Tejamen as well as a small river, Quebrada Escondida. Shortly upstream of the village is a clean water reservoir, Laguna Santiaguillo, which provides water to nearby towns and agriculture. A simplified picture of the mineralised zones in relation to the town, topography, and reservoir is shown in Figure 18-1.

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Figure 18-1 The Tejamen Project Area

2743000 N Cerro Prieto Zone

2742500 N Los Mantos Zone Laguna Santiaguillo

2742000 N 485000 E 485500 E 486000 E 486500 E 487000 E

Historical, small scale underground mining has been undertaken around the Tejamen project, with several small shafts being sunk. Some of the old workings are also shown in Figure 18-1 18.2 Mineral Resources A mineral resource block model for the project was created by Wardrop and utilized by Snowden for mining analysis. The block model was created in Datamine Studio and includes a standard block size of 10 m x 15 m x 5 m (Easting, Northing, Elevation). The following resource summary of Inferred resources has been provided by Wardrop based on a 20 gram / tonne silver equivalent: cut-off grade.

Table 18.1 Mineral Resource Estimate, Wardrop 2006

Zone Tonnes x 1000 Ag (g/t) Au (g/t) AgEQ (g/t) Cerro Prieto 6,944 53.5 .02 54.6 Los Mantos 14,455 71.1 .03 73.2 Total 21,399 65.4 .03 67.2

The silver equivalent grade has been calculated based on a three year average spot price for metals and includes the following resultant formula:

AgEq = Ag (g/t) + 64.56* Au (g/t) Wardrop notes that the application of a cut-off grade within Table 18.1 presumes some potential of economic return from a surface mining operation but does not include an assessment of the process recoverability of either metal.

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During the Preliminary Assessment, Snowden has performed a ‘fatal flaw’ review of the resource estimation process. Snowden has not found any “fatal flaws” in the current Inferred resource estimation. “Fatal flaws” are flaws in the estimation process that would cast serious doubt on the validity of the estimate and any subsequent reserve estimates or economic decisions. The current Inferred classification is considered to be appropriate given the uncertainties identified by Wardrop in the sample data and density determinations. Other issues, not reported by Wardrop, that require rectification before the resource can be upgraded to the Indicated confidence category are discussed in this document. Other, more minor, issues are detailed in this document that should be addressed in the interests of continuous improvement.” Snowden’s memorandum detailing the results of the block model and resource estimation review is provided in Appendix A. 18.2.1 Property Geology Although it is not the intention of this study to describe the geological knowledge of the property, the following excerpt from Mr. Norm Tribe’s property technical report dated February 1st, 2005 is included to provide some comments regarding the optimisation of mining plans. According to Tribe, 2005: “A system of flat faulting, 15 degrees to 25 degrees is present in the host rocks of both the Cerro Prieto and Los Mantos. Some areas show significant mineralization along these flat faults. The feeder vein at Cerro Prieto is strong and crops out into the hill that spawned the name. Most of the values in the Cerro Prieto deposit are close to this feeder vein structure. This feeder forms a distinctive sigmoidal loop. Other branches of the loop are seen in the Jeronimo and Carnival feeders between the Los Mantos and the Cerro Prieto. The Los Mantos area has similar mineralization and structure as the Cerro Prieto. There is another sigmoidal loop passing through the main part of the deposit marked by the Guanajuato and Morelos feeder veins and at least five low angle mineralized thrust faults, which host much of the mineralization. The solutions encountered several of these north 40 degrees east structures dipping 20 degrees to 40 degrees east and mineralization spread laterally parallel to the bedding in the host LVC. Mineralization consists of galena, sphalerite, pyrite, and minor chalcopyrite, tetrahedrite and argentite in a gangue of mainly quartz and clay minerals. Native silver and free gold are reported to occur in strongly oxidized area. This flat faulting may be more pervasive than previously thought, with a number of imbricated structures providing a favourable environment at several layers in the volcanic pile, in the Cerro Prieto deposit, the Los Mantos deposit and in the surrounding area.” Snowden notes that mapping of vein structures within old underground workings shows common north 40 degrees east structures dipping at approximately 70 degress to the North-west. 18.3 Pit Optimisation 18.3.1 Geotechnical At the time of writing, a geo-technical assessment of the rock conditions at the project is being carried out by Oremex (through Call and Nicholas of Tucson, Arizona) but the results of this assessment are not as of yet available. Based on the visual observation of a limited amount of drill core, the rock conditions are assessed to be ‘good’ to ‘very

36 of 68 Technical Report - Tejamen Silver Property, Durango State, Mexico Oremex Resources good’. Until such time as a more definitive evaluation of the rock conditions and ground water can be obtained, a moderate approach to slope stability has been utilised. For base case analysis, 50 degree slopes in all directions have been assumed. 18.3.2 Open Pit Design Parameters Whittle Four-X software has been utilised to present surface mining options for the project with an assessment of sensitivity so that risk-managed decisions can be made for the future of the project. The following list of optimisation parameters has been developed as a base case for study:

Table 18.2 Surface Mining Optimisation Parameters – BASE CASE

Parameter Units Source Base Case Value Mining Cost $ / tonne mined Snowden $0.75 Processing Cost $ / tonne processed Laurion $2.15 G&A $ / tonne processed Snowden $0.20 Metal Recovery - Ag % Oremex 70% Metal Recovery - Au % Oremex 60% Metal Price - Ag $ / gram Oremex / $0.32 Snowden Metal Price - Au $ / gram Oremex / $17.74 Snowden Selling Cost - Ag $ / gram Laurion $0.01 Selling Cost - Au $ / gram Oremex $0.05 Mining Recovery % Snowden 95% Mining Dilution % Snowden 0% Pit Slope Angles degrees Snowden 50 Discount Rate % / annum Oremex / 7% Snowden

Snowden has provided operating cost and/or project parameter estimates within the above table based on information obtained within the Snowden database of previous, similar projects, as well as operational experience.

Processing cost parameters have been provided by John Fox, P.Eng. of Laurion Consulting Inc.

Metal Recovery parameters have been provided by Oremex and are based on several internal memorandums which summarize the results of preliminary metallurgical test work. 18.3.3 Optimisation Results – Base Case The Whittle optimisation software produces a series of concentric pit shells that represent the theoretically optimum pit shapes (cash flow is optimised) at a variety of metal prices that represent factors of the base case metal price. The results of the base case surface mining optimisation for the Tejamen project are presented in Table 18.3 with various pit shells tabulated at a range of metal price factors.

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Table 18.3 Base Case Pit Optimisation Results

Mill Feed Pit Revenue Grade Waste Tonnes Tonnes No. Factor x 1000 Ag Au x 1000 1 0.3 2,028 77.7 0.022 1,662 2 0.4 10,039 70.7 0.022 23,579 3 0.5 14,851 61.0 0.023 29,622 4 0.6 17,914 56.6 0.023 34,863 5 0.7 19,910 54.0 0.023 38,823 6 0.8 21,711 51.9 0.023 42,730 7 0.9 24,543 49.8 0.022 55,214 8 1.0 25,720 49.1 0.022 61,788 9 1.1 26,437 48.3 0.022 63,709 10 1.2 27,938 46.8 0.022 67,940 11 1.3 28,328 46.5 0.022 70,022 12 1.4 28,673 46.3 0.022 72,295

The revenue factor 1.0 pit shell represents the pit shape that will produce maximum cash flow if it were possible to mine each concentric pit in order (shell x shell mining). As this is impossible, it is important to select a pit shell somewhat smaller than the revenue factor 1.0 pit shell. 18.3.4 Selection of Pit An analysis of the best and worst case discounted cash flow has been performed to select an appropriate pit shell from the base case optimisation. Figure 18-2 the best case (shell x shell mining) and worst case (top down, full bench x full bench mining) discounted cash flows for pit shells at an assumed yearly mill feed of 3.65 Mtonnes per annum. Of note within the figure is that the optimum pit size (the most discounted cash-flow) varies considerably from the best case (25.7 Mtonnes) to the worst case (19.9 Mtonnes). Somewhere between these pit sizes lies an appropriate pit shell for study, and one that will realistically provide the best cash flow for the operation. Figure 18-3 shows incremental increases (or decreases) in both best and worst case cash flows between pit shells. It is noted that Pit Shell #6 (Revenue factor 0.8) shows a small likelihood that worst case mining (bench x bench) will result in an incremental loss of cash flow. However, it is also noted that a best case mining scenario will result in a significant incremental cash flow and for these reasons Pit Shell # 6 has been selected for study. Therefore the base case mining scenario for study is: 21.71 Mtonnes of process feed at 51.9 g/tonne Ag and .023 g/tonne Au 42.7 Mtonnes of waste, causing an overall strip ratio of 1.97:1 Including the following from the Los Mantos pit: 14.96 Mtonnes of process feed at 55.2 g/tonne Ag and .026 g/tonne Au

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34.7 Mtonnes of waste, causing a pit strip ratio of 2.3:1 and including the following from the Cerro Prieto pit: 6.77 Mtonnes of process feed at 44.7 g/tonne Ag and .015 g/tonne Au 8.0 Mtonnes of waste, causing a pit strip ratio of 1.2:1 Based on this process feed tonnage and a reasonable expectation of mine life, a daily production rate of 10,000 tonnes has been selected. A mine life of 7 years is planned, which includes one year of pre-stripping and construction during which no revenue will be realized.

Figure 18-2 Best and Worst Case Cashflow for Base Case Pit Optimisation

Tejamen Project - Base Case Optimisation Results

140.0 Best Case Cashflow 120.0 Worst Case Cashflow 100.0

80.0 0.8 Rev. Factor pit shell 60.0

40.0 0.3 Rev. Factor pit shell Project Cashflow x 1000000 Project 20.0

0.0 0.00 10.00 20.00 30.00 40.00 Open Pit Tonnes x 1000000

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Figure 18-3 Incremental Cash Flow Between Pit Shells

Incremental Cashflow between Pit Shell

80,000,000 Best Case 70,000,000 Incremental Cash Rev Factor 0.4 Pit Shell Flow 60,000,000 Worst Case 50,000,000 Incremental Cash Flow 40,000,000 Rev Factor 0.3 Pit Shell 30,000,000 At Rev Factor 0.8, there is a 20,000,000 good likelihood that a positive incremental cashflow w ill result.. Rev Factor 0.8 pit Incremental Cash Flow Incremental 10,000,000 shell (pit shell #6) is chosen 0 0 10203040 -10,000,000 Mill Feed Tonnes x 1000000

18.4 Project Definition and Plan Having established a total pit size and a reasonably achievable production rate for the operation, Figure 18-4 shows the planned pit dimensions and surface infrastructure with respect to the existing surface features. Some of the noteworthy features of the plan are as follows: x Three potential phases for each pit (Los Mantos and Cerro Prieto) are shown in various colours in the figure. The central phases shown suggest the most profitable mining location and geometry based on the combination of mineralisation and costs. Snowden notes that the first phase (blue hatching in Figure 18-4 of mining within the Cerro Prieto pit will impact the course of the river and some alteration of the water course is very likely to be necessary at the beginning of the project. x In both mining areas, the first phase of mining will impact upon the boundaries of the village of Tejamen. It will therefore be necessary to move at least a portion of the village at the beginning of the project. For the purposes of this study, it has been assumed that the entire village will be moved, beginning during the first year of the project and finishing during the second year of the project. x The Los Mantos pit has an overall strip ratio of 2.3:1 and the Cerro Prieto pit has an overall strip ratio of 1.2:1. Much of the Los Mantos waste stripping will need to be done in the first phases of mining. As such, the Cerro Prieto pit is likely to provide the best initial return on investment based solely on the amount of mining required to access sufficiently mineralised rock. However, additional capital costs

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for mining in the Cerro Prieto pit due to the presence of the river and reservoir are likely and the ultimate choice of early mining may be altered due to this. x Potential locations for the heap leach pads and waste dumps have been identified during the site visit and incorporated into the plan shown. The existing drainages have been used as boundaries where possible. x Potential haulage routes are shown in red. Existing roadways are shown in black but it is apparent from the information that the network of existing roadways is incomplete. During future studies, the overall project database will need to be updated by surveying existing buildings, roadways, river + drainage boundaries (low and high-water marks), power infrastructure, as well as other significant surface features. x Typical lengths of haul from the Cerro Prieto area are 1.8 kilometers. (one way) A bridge or culvert system capable of handling the haulage trucks will be required over the river. x The operation is envisaged as a truck and shovel operation, with large benches of 10 m height, taking benefit of the low selectivity required to separate waste rock from sufficiently mineralised rock. x Haulage trucks will haul process feed to a crusher adjacent to the heap pads. After crushing, the process feed will be conveyed with a stacker conveyor to the heap pads. It has been assumed that crushing will be required to allow sufficient exposure of mineralised grains and maximum recovery in the heaps.

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Figure 18-4 Tejamen Project Layout

2744000 N

ng tli et S nd 2743500 N Po

Waste Dumps M Area: 950,000 m2 I L Thickness: 26 m L Total Material: 25,000,000 m3 Heap Pads 2743000 N Area: 400,000 m2 O F Thickness: 32 m F IC

E Total Material: 13,000,000 m3

S

H

O P

2742500 N Laguna Santiaguillo

Crusher Diversion

2742000 N 484500 E 485000 E 485500 E 486000 E 486500 E 487000 E 487500 E 488000 E 488500 E 490000 E 2741500 N

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18.4.1 Material Movement Forecast Table 18.4 shows the planned material movement forecast for the Tejamen project based on the selected pit shell. This is a very simplified version of the potential material movement considering that two different pits are planned to be mined and each pit has phasing options that will ultimately be considered for maximum economic benefit to the project.

Table 18.4 Material Movement Forecast – Tejamen Project

Year 1 2 3 4 5 6 7 Waste 7,000,000 7,000,000 6,000,000 6,000,000 6,000,000 6,000,000 4,700,000 Process Feed - Cerro Prieto 350,000 861,417 1,479,064 430,913 1,834,617 621,601 1,196,914 Grade – Ag (g/tonne) 59.36 59.36 55.79 44.91 40.68 35.33 27.35 Grade – Au (g/tonne) 0.011 0.011 0.014 0.013 0.017 0.017 0.017 Process Feed - Los Mantos 350,000 2,088,583 2,170,936 3,219,087 1,815,383 3,028,399 2,264,541 Grade – Ag (g/tonne) 60.93 60.93 49.19 96.35 39.01 38.33 31.59 Grade – Au (g/tonne) 0.023 0.023 0.024 0.028 0.034 0.024 0.0226 Total Processed 700,000 2,950,000 3,650,000 3,650,000 3,650,000 3,650,000 3,461,455 Grade – Ag (g/tonne) 60.15 60.47 51.86 90.28 39.85 37.82 30.12 Grade – Au (g/tonne) 0.017 0.019 0.020 0.026 0.025 0.023 0.021 Total Material Moved 7,700,000 9,950,000 9,650,000 9,650,000 9,650,000 9,650,000 8,161,455

Some items of note with respect to the material movement forecast are as follows: x Both of the mining areas are started in Year 1, during which 7,000,000 tonnes of pre-stripping is performed. Most of this will be from the Los Mantos pit. x During the pre-stripping, process feed will be stockpiled in preparation for crushing. In the final quarter of year 1, the feed will be crushed and heaped and the first heap spraying would occur so that metal production occurs at the beginning of year 2. Revenue from the metal production will occur approximately one quarter after the start of heap spraying. A total mine life of 7 years is planned, including the first year of pre-stripping without metal revenue, and during which plant and crusher construction will occur.

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18.4.2 Project Operating Assumptions In order to develop the required equipment and manning to complete the cost estimation, a series of assumptions regarding the operational parameters for the mine were made. The key assumptions are summarized as follows:

Table 18.5 General Operating Assumptions

Shift Schedule Unit Data Days / Year days 365 Operating Days / Year days 365 Scheduled Hours / Shift hours 10 Shifts / Day # 2 Minutes per Work Hour minutes 50 Efffective Work Hours / hours 8.5 Shift Operating Crews # 4 Equipment Utilisation % 85

18.4.3 Mine Operations + Equipment Loading and Hauling Haulage trucks and front end loader excavators will be the primary mining equipment for the operation. The yearly material movement forecast has been utilised with general operating assumptions to estimate the yearly requirements for both trucks and shovels. It has been assumed that 10 meter benches will be utilised and that 90 tonne capacity trucks will be a reasonably sized truck for the size of pit. Table 18.6 shows the loading and hauling parameters which have been utilised in estimating the equipment requirements for the operation. Snowden estimates that 9 x 90 tonne capacity trucks will be required for operational purposes at the Tejamen project. An option for this truck is the Caterpillar 777 haulage truck. Productivity estimates suggest that just over one 21 tonne capacity front end loader will be required for production and stripping needs at the Tejamen project. Snowden recommends that 2 units are purchased for this need to ensure that production does not falter should one of the units be down for maintenance. An appropriate option for the front end loader units is the Caterpillar 992 G.

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Table 18.6 Hauling and Loading Assumptions

Parameter Units Data Average truck speed Km/hour 15 Tray Fill Factor % 95 Average Haul Distance Km 2.0 (one way) Spotting / Manuevering minutes 0.5 Dumping Time at Crusher minutes 0.5 Shovel Passes / Truck # 4 Load Time per Shovel Pass minutes 0.5 Average Haul Distance Kilometers 2.0 (one way)

Drilling and Blasting A standard vertically oriented drill unit capable of single pass drilling for the planned 10 m bench height is recommended for use at the Tejamen project. Oremex has indicated that considerable ground water exists over the project area and for this reason the use of a waterproof explosive product such as pumpable emulsion has been assumed for the project.

Table 18.7 Drilling and Blasting Assumptions

Parameter Units Data Drill hole diameter cm 20 Minimum Powder Factor Kg / tonne blasted 0.25 Sub-grade drilling m 1.5 Collar length (unloaded) m 4.5 Penetration Rate Meters / hour 30

Based on the drilling and blasting parameters provided in Table 18.7, Snowden estimates that one drill unit will be capable of achieving daily production for the operation. A potential unit for this requirement is the Bucyrus 35. Snowden recommends that two drill units are purchased for the operation because of the critical nature of the drilling process and the serious impact upon production should a single drill unit be down for an extended length of time. As a result, two units are indicated in the capital expenditures plan for the operation, but each unit will only need to be manned for ½ of available shifts.

A square drill pattern of 6.5 m x 6.5 m will be utilised for both all material and is based on the proposed drill hole diameter and presumed powder factor shown. For explosives loading purposes, a single unit capable of pumping bulk emulsion will be required.

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Ancillary Equipment The following list of additional ancillary equipment will be required for mining operations over the life of mine.

Table 18.8 Ancillary Equipment for Mine

Unit # of Units Water Truck 1 Tire Handler 1 Grader (Cat 14H) 1 Mobile Fuel / Lube Truck 1 Mobile Mechanics Truck 1 Blasting Truck 1 ½ Tonne Mine Trucks 10 Cassette Type Front End 1 Loader** Portable Lighting Plant 6 Dewatering Pumps 3 Dozer (Cat D8) 1

** A small loader with a cassette style front mount for various uses has been included and is expected to be used for general purposes on surface and for plant needs. 18.4.4 Processing The following process description and flow-sheet have been sourced from a memo from John Fox, dated 26 September, 2006, with some minor corrections and/or adjustments for clarity. Some preliminary metallurgical test work has been undertaken by Oremex resources, the results of which have been provided to Snowden (and Laurion Inc.) in the form of internal memorandums. The preliminary metallurgical information has been used where possible in the development of the processing flow sheet and cost estimation. In other cases, typical industry practices have been assumed. Mr. Fox estimates an operating cost of $2.15 / tonne for the process and flow sheet as described in the following. Mr. Fox’s memorandum is included in Appendix B in its entirety. A process flow sheet detailing the assumed process is provided in Figure 18-5.

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Figure 18-5 Process Flowsheet for Tejamen Project

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Heap Construction During the site visit by Snowden, potential heap and waste dump locations were identified, and it has been assumed that these locations will be geo-technically suitable for stacking the material. The process feed is expected to be quite competent rock with very fine grained and disseminated mineralisation and this has lead to two assumptions for heap construction: x Run of mine material will need to be finely crushed to expose the argentite to the cyanide leach solutions for the anticipated metal recovery. x No agglomeration of the heaps will be required as clay and/or gouge material is not expected. As a result, it is assumed that the ROM process feed will be delivered to a dump pocket ahead of the primary jaw crusher. The dump pocket will be directly fed by haul truck and will be sized accordingly, although a storage pad will be available near the dump pocket to enable feed to be stored if the crusher is unavailable. A front end loader will be required to load any storage pad material back into the dump pocket if this occurs and it has been assumed that one of the main production units will be available if necessary. Process feed will flow from the dump pocket to the jaw crusher (40” x 48”). Below the jaw crusher, an apron (or vibrating grizzly feeder) will feed the jaw crusher undersize to a conveyor belt. The conveyor belt transmits jaw crushed material to an 8 x 20 double decked screen where 20 mm finished product is screened out. The screen oversize is fed onto a second conveyor which returns it to a cone crusher. The cone crushed product is fed onto the same conveyor as the jaw crushed product. Refer to Figure 18-5. Screen undersize (<20mm) is collected onto the main transfer conveyor where it is taken to the vicinity of the heap leach pads. The heap leach pads will be placed on cleared and graded land. The base is prepared relatively level, with a slight slope in the direction of the collection ditches and ponds. The area is prepared with fine graded sand/rock to provide clear snag free support to the impervious plastic membrane that is placed under the pad. Some jurisdictions require double liners with leak detection between the liners. In this case, it has been assumed that re-worked clay will be used as an under liner. The heap area is divided into cells by slightly elevated berms graded into the material under the membrane. The exact size of these cells is determined by the operating schedule and topography. It is anticipated that initially 100,000 m2 of pads will be constructed and will be divided into 10 cells, and that additional pad area of about 12,000 m2 per month will need to be constructed over time. On top of the membrane perforated collection pipes are placed to improve the drainage of pregnant leach solution from the heap, and also to allow ingress of oxygen. These pipes are directed towards the collection ditches, which in turn drain into the pregnant solution pond. The pipes are covered with gravel or crushed rock with the fines removed. The heaps are constructed in 6 m lifts. This is done by running a series of grasshopper conveyors from the end of the main transfer conveyor to a stacker. Lime is added to the crushed rock as it is conveyed to the pads. Preliminary metallurgical test work estimates that 3.5 kg of lime per tonne of process feed will be required and it has been

48 of 68 Technical Report - Tejamen Silver Property, Durango State, Mexico Oremex Resources assumed that 50% of this will be added upon the conveyors. The stacker builds the piles and as one section is completed the stacker is pulled back and the grasshopper conveyors are removed one at a time until the cell is completely filled (9-10 days). The grasshopper conveyors and stackers and then moved to the adjacent cell. Each pad area will eventually have 5 lifts of 6 meters constructed on it based on the current area laid out for heap construction. Between lifts the top of the pad below is ripped to ensure permeability. It is assumed that a mine operations dozer equipped with a ripping tooth will be used for this operation. Leach Process When the heap cell is complete it is put under leach. Header pipes are placed on top of the heap and connected to the pump in the barren solution pond. From the header, irrigation type pipes are distributed over the heaps, either dripper type or t-tape. Leach solutions containing remaining lime requirements and cyanide are applied to the heap from the barren solution pond. These drain through the heap, leaching silver (and gold) and are collected in the pregnant solution pond. From the pregnant solution pond it is pumped to the metal recovery circuit. A number of recovery systems are available for gold and silver from cyanide solutions. The Merrill Crowe method using zinc precipitation of silver and gold from clarified pregnant leach solutions is the traditional method and is well suited to higher grade solutions as are generally generated from silver rich properties. The pregnant solution is clarified on a precoat filter, and the resulting clear solution de-aerated under vacuum. Zinc dust is added to the resulting solutions and this precipitates silver and gold which are recovered in a filter press. Barren solution exiting the filter press is recycled as leach solution. The press precipitates are smelted into Silver Dore bars. Some alternatives exist for the metal recovery area. Most heap leaches have used the carbon adsorption but deal with relatively low levels of metals as generated in gold heap leaches: carbon technology was developed at about the same time as heap leaching of low grade ores was being introduced. Direct electrowinning of silver has also been proposed for the relatively high grade silver leaches. (the Pan American Silver property Alamo Dorado in Mexico is currently being commissioned and will directly electrowin silver from filtrate of their tailings wash circuit). Reagent mixing for cyanide and the carbon elution solutions are required. It may also be necessary to use scale inhibitors in the circulating solutions. Process Capital Expenditures The following table provides a summarized list of capital requirements for processing at the Tejamen project. The complete detailed list of capital requirements is included in Appendix B.

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Table 18.9 Capital Costs for Processing

Item Capital Cost Process Plant (includes crusher) 7,300,000 Stacker Conveyors 1,100,000 Heap Construction 2,100,000 EPCM 1,050,000 Total Capital 11,550,000

18.4.5 Manpower Requirements Table 18.10and Table 18.11 provide indicative lists of the hourly and staff manpower requirements for the Tejamen project respectively.

Table 18.10 Hourly Manpower Requirements

# on Total Area Description site Req'd Mine Haulage Truck Driver 9 36 Excavator Operator 2 8 Drill Operator 1 4 Dozer Operator 1 4 Blasting Crew 2 2 Grader Operator 1 4 Misc. Surface Operators 4 16 Mill Operators 7 30 Maintenance Chief Elect/Mech 1 1 Plant Electrician 1 4 Plant Mech / Fitting 2 8 Heavy Duty Mech 4 16 Misc. Janitor 1 4 First Aid / Security 1 4 Warehousemen 1 4 TOTALS 38 145

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Table 18.11 Staff Manpower Requirements

Num on Desription Total req'd site Mine Manager 1 1 Mine Superintendant 1 1 Mill Superintendant 1 1 Senior Engineer 1 1 Short Range Planner 1 1 Senior Geologist 1 1 Geological Technicians 1 2 Mine Supervisors 2 8 Plant Supervisors 1 4 Assay Technologist 1 2 Human Resources Officer 1 1 Administrative Assistant 1 1 Payroll Clerk 1 2 Environmental Technician 1 1 TOTALS 15 27

18.4.6 Misc. Project Requirements Power A power line currently exists from Nuevo Ideal to the village of Tejamen. Based on a visual observation of the line, Snowden believes that some upgrade of services will be required to provide sufficient power to the mine. An allowance of $1,500,000 for electrical infrastructure has been included in the capital expenditures for the project. Once this upgrade has been performed, it is presumed that the power grid will be capable of supplying sufficient power to the mine. During future studies, it will be necessary to assess the validity of this assumption and the cost of power. De-watering Information provided by Oremex suggests that there is a considerable amount of ground water in the area. Based on this information, there will be a need to de-water the mine during operations. An allowance of $75,000 has been provided in the capital expenditures for the purchase of pumps for this purpose. During future studies, it will be necessary to assess the amount of groundwater and the draw-down rate for the water table as time progresses. If extreme amounts of groundwater and permeability are encountered, it may be necessary to drill perimeter de-watering holes around the pits to ensure that the water table is drawn below the level of the pit before mining. It has been assumed at this point that this will not be necessary. Operating costs for in-pit pump based de-watering are included in the mine operating cost.

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Analysis of ground water on the property will also be important in determining a reasonable slope angle for geotechnical stability. Lighting Portable lighting plants will be required within the pit, crusher area, and waste dumps so that night-time operations can be facilitated safely. Snowden recommends that 6 portable, diesel lighting plants be purchased (3 per pit) at the beginning of the project. Buildings A maintenance shop will be required for the operation. As the equipment fleet for the operation is fairly small, Snowden recommends that a maintenance shop with 3 full sized bays and two small bays is constructed. It is also recommended that the shop include room for a property warehouse, with a secure door and systems in place for sign-out of wares and supplies. It is recommended that the shop + warehouse are located beside the main office buildings to facilitate communication between groups. An office building is planned for the operation. A potential location is shown in Figure 18-4 based on the fact that there is some moderately level ground in this location. According to the staff and hourly manpower requirements for the operation, some of the recommended requirements of the office building are as follows: x 8 to 10 individual offices x a planning area for geological and planning technician work and communication x a board room / meeting room capable of seating most of the daily crew requirements x a training room / first aid / rescue room x two ‘wickets’ for daily instruction of operators regarding lineup It is not a necessity for operations but it is recommended that condemnation drilling be performed to ensure that the mineralisation does not extend underneath planned locations for buildings, heaps, and waste dumps. 18.5 Cash flow Analysis 18.5.1 Summary of Operating Costs Table 18.12 below shows a summary of operating costs associated with the Material Movement Forecast in Table 18.4. Process recoveries of 70% for Ag and 60% for Au (base case) are used to calculated recovered metals in Table 18.12. Note that all costs associated with the operation within Year 1 are capitalized and not shown below.

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Table 18.12 Summary of Operating Costs

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Mining Waste 5,250,000 4,500,000 4,500,000 4,500,000 4,500,000 3,525,000 Mining – Mill Feed 2,212,500 2,737,500 2,737,500 2,737,500 2,737,500 2,596,091 Processing Mill Feed 7,847,500 7,847,500 7,847,500 7,847,500 7,847,500 7,442,128 Recovered Ag - grams 154,344,803 132,513,726 230,657,935 101,815,217 96,627,788 72,990,714 Recovered Au - grams 41,648 43,686 57,442 55,747 49,949 42,916 Selling Cost Ag 1,543,448 1,325,137 2,306,579 1,018,152 966,278 729,907 Selling Cost Au 2,082 2,184 2,872 2,787 2,497 2,146 G&A 730,000 730,000 730,000 730,000 730,000 692,291 Total Op. Costs 17,585,530 17,142,322 18,124,451 16,835,940 16,783,775 14,987,563 Total Op. Costs + 20% Contingency 21,102,637 20,570,786 21,749,342 20,203,127 20,140,530 17,985,076

Based on the summary of costs within Table 18.12, a typical operating (cash) cost (including 20% contingency) of $5.71 per tonne of rock processed has been estimated.

Based on silver and gold recoveries of 70% and 60% respectively, an average of 131,491,700 grams of silver and 48,565 grams of gold will be produced during Year 2 to Year 7. By converting the value of the gold to an equivalent number of grams of silver, an average cash cost of $0.196 per gram silver ($6.10 / oz) is estimated.

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18.5.2 Summary of Capital Costs Table 18.13 provides a capital cost summary for the life of the Tejamen project.

Table 18.13 Summary of Capital Costs

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Pre-Stripping (capitalized) 5,250,000 Mining Process Feed (capitalized) 525,000 G&A (capital in first year only) 730,000 Plant 7,300,000 Crushing + Stacking System 1,100,000 Powerline Revamp + Electrical 1,500,000 Mine Buildings 2,000,000 EPCM 1,050,000 Heap Construction 2,100,000 Equipment 16,200,000 2,000,000 Town Move 1,250,000 1,500,000 Hardware + Software - Eng/Admin/Ops 300,000 Closure 3,000,000 1,000,000 TOTALS 39,305,000 1,500,000 0 0 2,000,000 0 0 3,000,000 1,000,000 TOTALS + 15% Contingency 45,201,000 1,800,000 0 0 2,400,000 0 0 3,600,000 1,200,000

It is estimated that the Tejamen project will require an initial capital expenditure of $39,305,000, followed by $7,500,000 of sustaining capital over an eight year period, including 2 years for closure. With 15% contingency, the initial capital expenditure increases to $45,201,000 and the sustaining capital increases to $8,625,000.

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18.5.3 Cash flow Summary and NPV A cash flow summary based on the Material Movement Schedule provided previously is shown in Table 18.14 below.

Table 18.14 Cash Flow Summary for the Tejamen Project

CASHFLOW Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Total Capital Costs 39,305,000 1,500,000 0 0 2,000,000 0 0 3,000,000 1,000,000 Total Operating Costs 0 17,585,530 17,142,322 18,124,451 16,835,940 16,783,775 14,987,563 17,585,530 17,142,322 Total Costs 39,305,000 19,085,530 17,142,322 18,124,451 18,835,940 16,783,775 14,987,563 3,000,000 1,000,000 Total Op Costs + 20% Contingency 0 21,102,637 20,570,786 21,749,342 20,203,127 20,140,530 17,985,076 0 0 Total Capital costs + 15% Contingency 45,201,000 1,725,000 0 0 2,300,000 0 0 3,450,000 1,150,000 Total Revenue 0 50,435,360 43,441,781 75,287,426 33,770,105 31,997,251 24,261,759 0 0 Yearly Cash flow -45,201,000 27,607,723 22,870,996 53,538,084 11,266,978 11,856,720 6,276,683 -3,450,000 -1,150,000

The yearly revenue provided in Table 18.14 is calculated with metal prices of $0.322 / gram Ag and $17.68 / gram Au, and process recoveries of 70% and 60% respectively.

A project NPV of $58,592,403 (before taxes and depreciation) is calculated with a 7% discount rate.

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18.6 Project Sensitivity Some sensitivity analysis has been performed for the Tejamen project at two points during the study: x During pit optimisation and ultimately during the development of the project definition and establishment of the pit size. x During cash flow analysis based on the pit size which has been chosen for study. These are somewhat different in that the first will suggest how the pit size choice would change should a specific variable be different. The second will suggest how the cash flow would change given a choice of pit size. However, variation in extremely sensitive variables will cause large NPV changes in both cases. By performing the sensitivity analysis during pit optimisation additional geometric variables such as pit slope angle can also be tested. As per all projects, the project is highly sensitive to changes in metal price and/or process recovery because these affect the final revenue directly. Figure 18-6 shows the results of changes to the selected pit shell as a result of decreases or increases in process recovery. The base case recoveries of 70% for Ag and 60% for Au are adjusted upwards and downwards as suggested within the figure. The results suggest that if 54% recovery of Ag and 48% recovery of Au (23% lower than base case) are realized then the selection of pit shell will be considerably smaller (~ 15 Mtonnes feed instead of 21.7 Mtonnes of feed) and the entire project definition should be changed. This would change the daily production rate, equipment requirements, and capital investment. If only the process recovery is changed within the cash-flow model by -23% (54% Ag recovery), then the project NPV drops from $58.6 million dollars to $15.1 million dollars. Some additional Whittle sensitivity results are shown in the following figures. All of the sensitivity analysis suggests that if the process recoveries (or metal prices) drop significantly from the base case parameters of 70 % and 60 % for Ag and Au respectively, then the project size will be smaller. If other variables such as mining cost, milling cost, or slope angle need to be adjusted within +/- 10% then the project size will still be reasonable.

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Figure 18-6 Whittle Run Sensittivity to Process Recovery

Tejamen Project - Whittle Run Sensitivity to Process Recovery

185.0

165.0

145.0

125.0 Base Case Scenario Recovery + 10% 105.0 Recovery -10% Recovery -23% 85.0

65.0 Pit Choice @ 54% Pit Choice @ 70%

Disc. Cash Flow (Best Case Cash (Best 7%) Disc. - Flow Ag Recovery Ag Recovery ~ 15 Mtonnes Ore 21.7 Mtonnes Ore 45.0

25.0 10.00 15.00 20.00 25.00 30.00 Ore Tonnes x 1000000

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Figure 18-7 Whittle Run Sensitivity to Mining Cost

Tejamen Project - Whittle Run Sensitivity to Mining Cost

185.0

165.0

145.0

125.0 Base Case Scenario Mining Cost + 10% 105.0 Mining Cost -10% Mining Cost +20% 85.0

65.0 Disc. Cash Flow (Best Case Cash (Best 7%) Disc. - Flow

45.0

25.0 10.00 15.00 20.00 25.00 30.00 Ore Tonnes x 1000000

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Figure 18-8 Whittle Run Sensitivity to Milling Cost

Tejamen Project - Whittle Run Sensitivity to Milling Cost

185.0

165.0

145.0

125.0 Base Case Scenario 105.0 Milling Cost + 10% Milling Cost -10% 85.0

65.0 Disc. Cash Flow (Best Case - 7%) - Case (Best Flow Cash Disc.

45.0

25.0 5.00 15.00 25.00 35.00 Ore Tonnes x 1000000

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Figure 18-9 Whittle Run Sensitivity to Pit Slope Angle

Tejamen Project - Whittle Run Sensitivity to Slope Angle

185.0

165.0

145.0

125.0 Base Case Slope Angle 50 Degrees Slope Angle 45 Degrees 105.0

Slope Angle 55 Degrees 85.0

65.0 Disc. Cash Flow (Best Case 7%) (Best - CashFlow Disc.

45.0

25.0 5.00 15.00 25.00 35.00 Ore Tonnes x 1000000

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Figure 18-10 Whittle Run Sensitivity to Metal Price

Tejamen Project - Whittle Run Sensitivity to Metal Price

185.0

165.0

145.0

125.0 Base Case Scenario Metal Price $12 Ag 105.0 Metal Price $8 Ag Metal Price $6 Ag 85.0

65.0 At $6 Ag, the

Disc. Cash Flow (Best Case 7%) (Best - CashFlow Disc. project size would be different 45.0

25.0 5.00 15.00 25.00 35.00 Ore Tonnes x 1000000

18.7 NPV Sensitivity with Base Case Pit Size The following tables show how the project NPV is affected by adjustments to process recovery and metal price. All other base case parameters and the material movement schedule are maintained.

Table 18.15 NPV Sensitivity to Process Recovery

Ag Au NPV (x Recovery Recovery 1000000) 77% 66% 77.6 70% 60% 58.6 63% 54% 39.6

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Table 18.16 NPV Sensitivity to Metal Value

Ag Value Au Value NPV (x $/oz $/oz 1000000) 6 450 -19.7 8 500 19.2 10 550 58.6 12 600 97.4 15 650 155.5

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19 INTERPRETATION AND CONCLUSIONS Snowden has performed a preliminary mining assessment of the Tejamen project in Durango State, Mexico. Based on the cost and productivity assumptions provided in this study, Snowden concludes that a surface mining project and heap leach processing system can maintain a 10,000 tonne per day operation when silver prices average $8 / oz. (~ $0.26 / gram) and process recoveries for silver average 65 % or greater over the life of mine. If silver prices are below $6 / oz, then the project parameters suggest that economic return is unlikely and new options would need to be investigated. At a silver price of $10 / oz and silver recovery of 70%, an initial capital investment of $45.2 million dollars and $8.6 million dollars of sustaining capital will provide a Net Present Value of $58.6 million (before taxes) and a mine life of approximately 7 years, including one year of pre-stripping and heap construction. At a silver price of $8 / oz and silver recovery of 70%, the estimated Net Present Value for the project drops to $19.2 million, demonstrating the considerable sensitivity of the project to metal price.

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20 RECOMMENDATIONS Snowden recommends that the Tejamen Silver Project has reasonable potential of economic return given recent and historic silver prices and that further study work is warranted. 20.1.1 Mineralogy, High Grades, and Process Recovery Historic information from production at underground operations within the Tejamen project area suggests that considerable amounts of sphalerite and galena are present within the steeply dipping, high grade, feeder veins. According to John Fox, the heap leach process which has been planned will recover minimal silver that is included within the sphalerite and galena. Limited mineralogical investigation has occurred to define the proportions of silver locked up within other sulphides in comparison to the amount of recoverable silver within the deposit. Effectively, the highest grade silver grades within the deposit MAY present lower overall recovery. It should be emphasized that the preliminary metallurgical test work performed to date does NOT suggest that this will be an enormous problem. The higher grade, and lowest strip ratio material is effectively targeted in the Whittle optimisation process so that better net present value cash flow is generated for the project from increased grade at the beginning of the mine life. A decrease in revenue from the highest grade material could affect the project economics seriously should recovery issues occur as a result of mineralogy. Up to this point, no attempt has been made to remove material from the block model that has previously been mined within historic workings. If the tonnage of material mined is low compared to the overall mining reserve, but the grade of the material is very high, then this lack of information could cause a material error in the resource estimation. Within the geological block model, the geometry of high grade feeder veins has been poorly assessed because the drill holes to this point have been drilled vertically, limiting the ability of holes to cross feeder structures. Because of all of these reasons, there is considerable project benefit to assessing the geometry, grade, and mineralogy of the high grade feeder veins within the project, as well as those veins which have already been mined. The following are recommendations for this work: x Historical information should be used to assess how much mining has occurred within the old workings and it’s location. This information should be included within the geological block model as voids if possible. x Diamond drill holes should be drilled to test the orientation of the high grade feeder structures and their grades. x Mineralogical work should be performed to assess the amounts of silver entrained within various sulphide minerals within the high grade veins. x Metallurgical test work should be undertaken to assess the recovery of silver and gold from both the high grade veins as well as from lower grade areas within the deposit.

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x Geological work should be done during the resource estimation to domain high grade veins as separate conditions within the block model. If this is performed, the results of metallurgical test work into high grade vein recovery can be incorporated into future open pit optimisations.

20.1.2 Geotechnical Snowden understands that Oremex has already begun the process of geotechnical investigation for the project. Based on visual observations of a limited amount of core only, the rock conditions are good and it seems likely that typical mine operations will be easy and slopes stable. However, there are two geotechnical risks for the project that stand out from the general rock conditions issues. These are: x The boundaries of the Cerro Prieto pit lie very close to the small river, Quebrada Escondida, that runs through the village of Tejamen. The edge of the pit will also be close to the existing weir dam at the head of the river and form the reservoir which provides water to nearby communities. The bottom of the Cerro Prieto pit will lie well below the reservoir and river. The potential effects of mining and the geotechnical conditions of rock below the dam and river will need to be assessed during the next stage of study. Oremex’s geotechnical consultants will provide the final opinion on the steps required for this, but Snowden suggests that investigative, oriented drill holes be drilled and analysed. x There exist many historical underground workings in the area of the Cerro Prieto and Los Mantos mineralised zones. During mining operations, it will be necessary to drill below the current production bench to assess the proximity of these workings and their condition. Mitigating actions during operations are likely and could increase mining costs. During the next stages of study, geotechnical advice on the risks associated with these underground workings should be included within cost estimates for mining and production scheduling.

20.1.3 Environmental / Social Impacts Shannon Shaw, of MESH environmental in Vancouver, Canada has reviewed the limited mineralogical and metallurgical information for the project and provided recommendations and information in the form of an internal memorandum. Ms. Shaw’s recommendations are based on potential technical issues only, rather than permitting requirements. Of note within her recommendations is the fact that both acid rock drainage and metal leaching issues should be investigated within the next stages of study and before a decision is made for production. Snowden notes that piles of waste rock from historical mine workings around the property do not show considerable oxidation, creating optimism about the limited potential for the creation of acid in the long term. However, MESH has reviewed available sample data and pointed out that a variety of metals are present in concentrations which are typically higher than those found in similar host rocks.

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As a result, Snowden recommends that Oremex undertakes the following list of test work during the next stage (Pre-Feasibility) of study, regardless of permitting requirements. x Baseline water quality samples should be taken in the reservoir and river as soon as possible. x Full metal ICP analyses should be continued on any project samples, including diamond drilling, grab, and RC drilling samples. x A static test program should be started for the project, aiming at lithological and/or mineralogical domains that can be identified. The static test work should include:  Paste pH and conductivity measurements  Acid Based Accounting and Total Inorganic Carbon analyses  Net Acid Generation analysis  Acid Buffering Characteristic Curves  Shake Flask Extraction x Environmental test work similar to the list of static test work above should also be included within the metallurgical test work program. An assessment of residual cyanide as well as speciation should be performed upon the metallurgical samples once metallurgical test work has been completed. This should include a rinsing cycle to assess the long term chemistry of the heaps. x Once the static test work has been completed, it is likely that kinematic test work aimed at refining initial classifications and evaluating weathering behaviour of the various units will need to be undertaken. Snowden has included a provision of $4,000,000 for closure costs under the presumption that inert capping will be required for the process heaps. It is unknown at this stage if this will be required. This study has assumed that the village of Tejamen will need to be completely moved during the first two years of the project life. There is considerable precedent within Mexico for this process and it is not deemed to be an issue that will compromise the project. As soon as possible, discussions with stakeholders and villagers within the area should be undertaken to identify where the new village location would be and when the movement would occur.

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21 REFERENCES

Wardrop Engineering, Palmer, Kevin (author and Q.P), April 2006, ‘Technical Report on the Tejamen Silver Property, Durango State, Mexico’

Christopher, P. A., 2003, Technical Report on the Tejamen Silver Property, Durango, Mexico

Tribe, N., 2005, Mineral Resource Evaluation Report on the Tejamen Silver Property, Durango State, Mexico

3rd October 2006 67 of 68 22 DATE AND SIGNATURES

23 APPENDICES FROM PRELIMINARY MINING ASSESSMENT 23.1 Appendix A –Snowden Review of Resource Estimation Suite 550 – 1090 West Pender Street Vancouver BC V6E 2N7 CANADA Telephone +1 604 683 7645 Facsimile +1 604 683 7929 [email protected] www.snowdengroup.com Perth, Brisbane, Vancouver, Johannesburg, London

MEMORANDUM

TO: Allan Polk

COPY: Warwick Board (reviewer)

FROM: Alex Trueman

DATE: 7 September 2006

SUBJECT: Review of Tejamén resource estimation PROJECT: V505

1 INTRODUCTION Snowden Mining Industry Consultants Inc. (Snowden) has conducted a desktop review of the process used by Wardrop Engineering Inc. (Wardrop) to produce the current Inferred resource estimate for Oremex Resources Inc.’s (Oremex) Tejamén project. The review principally relied on the current NI43-101 technical report (technical report) produced by Wardrop (2006). Wardrop’s block model, drillhole, assay, and estimation parameter data were also referred to during the review. The review is not comprehensive and relies on information supplied by Wardrop; Snowden has not performed any independent verification or validation of data and results. Snowden has reviewed the following aspects of the resource estimation process as detailed in the technical report: ƒ sample data collection and analysis ƒ geological interpretation and modelling ƒ sample data manipulation prior to statistical analysis and estimation ƒ statistical analysis, including variography ƒ block modelling, including block size selection ƒ estimation, including search neighbourhood parameters ƒ validation of the resource estimation ƒ resource confidence classification ƒ reporting of resources Snowden has not found any “fatal flaws” in the current Inferred resource estimation. “Fatal flaws” are flaws in the estimation process that would cast serious doubt on the validity of the estimate and any

SNOWDEN MINING INDUSTRY CONSULTANTS INC 20060907_OREMEX_DesktopResourceReview_R_Ag.doc Page 1 of 6 subsequent reserve estimates or economic decisions. The current Inferred classification is considered to be appropriate given the uncertainties identified by Wardrop in the sample data and density determinations. Other issues, not reported by Wardrop, that require rectification before the resource can be upgraded to the Indicated confidence category are discussed in this document. Other, more minor, issues are detailed in this document that should be addressed in the interests of continuous improvement.

2 FINDINGS Snowden has not identified any “fatal flaws” for the Inferred resource estimation. “Fatal flaws” would cause the estimation to be incorrect to such a degree that any subsequent evaluation would be flawed. Issues identified that affect the reliability of the estimation are classified into two groups: ƒ Key issues: those issues with the resource estimation process that must be rectified before the resource confidence classification can be upgraded from Inferred. Even if an upgrade of the confidence classification is not required, these issues should be addressed to improve the accuracy and precision of the estimated results. ƒ General issues: issues that in isolation do not significantly affect the reliability of the estimation, but in combination may have a more significant impact. These issues should be rectified in the interest of continuous improvement and to create the best possible resource estimation.

2.1 KEY ISSUES AND RECOMMENDATIONS Following are a list of key issues and recommendation for rectification. These issues must be rectified before the resource can be upgraded from its current Inferred classification.

2.1.1 Geological model A robust geological interpretation and model is a critical aspect of any reliable resource estimation. Confidence in the current geological interpretation and model used for the resource estimation is poor. Geological and structural interpretations by Tribe (2005) were based on reverse circulation percussion (RC) drilling only. The interpretation of mineralised envelopes, used as primary estimation domains, is mostly based on a 20 g/t silver equivalent (AgEq) cut-off grade with some geological input. High and low grade sub-domaining of these envelopes is performed using categorical kriging of the 20 g/t AgEq indicator. Oremex must improve its understanding of the structural and lithological controls on mineralisation through mapping of surface outcrop and logging of suitably spaced and oriented diamond drillhole core. This data and understanding must be incorporated into a geological interpretation and model for use in resource estimation.

2.1.2 Sampling and analytical quality An appropriate QAQC programme is necessary to measure and improve sampling and analytical accuracy and precision. Confidence in the ability of samples and analyses to measure the grade of the deposit cannot be known without QAQC. Wardrop have identified that a programme of QAQC is required for historic and future sample and analytical data. This is because of a possible 10% bias in the analysis of Ag evident in results for a small number of check samples. A lack of adequate QAQC information is one factor that led Wardrop to downgrade the resource confidence classification to Inferred.

20060907_OREMEX_DesktopResourceReview_R_Ag.doc Page 2 of 6 Snowden agrees with Wardrop’s opinions on the necessity of QAQC and adds that the any future programmes of QAQC should also aim to quantify the quality of wet RC samples taken at the end of most RC drillholes in the current resource area. It is likely that sampling of wet material has introduced bias in the sample results because of contamination, segregation, washing, loss of fines, and poor splitting of samples. Future QAQC programmes should also use standard reference samples and blanks inserted into sample batches to check analytical accuracy.

2.1.3 Bulk density Bulk density is a critical but often overlooked parameter for the estimation of resources. Density is often much less variable than the economic factors being considered. It is still critical that the nature of density variance is characterised for individual lithologies (including un-mineralised material) in the resource model. Wardrop identified from check measurements that the average density used in previous estimates may not be correct. Wardrop have applied a constant density to all areas of the model for estimation of tonnes. The check measurements indicated some degree of variation in density within and between lithologies. Low confidence in the density data is one reason for Wardrop decreasing the resource confidence classification to Inferred. Oremex should perform appropriate density determinations for core samples from its planned diamond drilling programme (as recommended by Wardrop). Ideally, Oremex should collect sufficient samples to characterise the variance of density within rock types and thus determine whether the tonnage estimation would benefit from a block estimation of density.

2.1.4 Drillhole location and orientation Drillhole location and orientation can often significantly differ from the plan due to unforseen circumstances on the surface (e.g., rig set-up) and during drilling (e.g., ground conditions, poor drilling practices). The actual drillhole location should be determined after drilling by surveying the actual collar location and by performing downhole surveys of orientation. The RC drillhole data used to estimate the current resource has not been surveyed for azimuth or dip. Wardrop states that the large diameter, shallow drillholes should not have deviated enough to be a significant source of error. While it is true that properly drilled, large diameter, shallow RC drillholes should not deviate significantly from their planned orientation, there is no evidence presented to demonstrate that this is true for the Tejamén drillholes. It is also possible that errors occurred in the set-up of drill rigs such that the incorrect azimuth or dip was drilled regardless of possible deviations. All future drillhole should have a minimum of one end of hole downhole survey and ideally several surveys down the hole. If possible, a proportion of (or all) historic drillholes should be re-entered for downhole surveys.

2.1.5 Variography Variography is used to characterise the spatial correlation between points within the deposit, i.e., for a given distance and direction how closely associated are two points in terms of the variable being studied. The model of the spatial correlation, the variogram model, is a key input into ordinary kriging (OK) and is used to calculate weights for samples used to estimate block grades. Wardrop have used downhole variograms to determine the nugget effect and indicator variograms to determine spatial variance for the categorical kriging exercise. The categorical kriging was performed to flag high and low grade areas (based on a 20 g/t AgEq cut-off) within the mineralised envelopes. Log transformed correlograms were used to model spatial correlation for the estimation of Ag grade in the different domains (Ag variogram models were applied to the estimation of Au). When asked, Wardrop were not certain if the software that they used for variography (Sage2005) performed an

20060907_OREMEX_DesktopResourceReview_R_Ag.doc Page 3 of 6 automatic back-transformation of the log variogram model (it is possible to back-transform a log variogram model; although the method has some limitations). The use of downhole variograms is appropriate for determination of nugget effect. The nugget effect (spatial correlation at very small separation distances) and the short-range correlation are the most important aspects of the variogram model. The use of log transformed variograms is an effective method for producing quality variograms; however, the log transformation distorts the variogram y-axis scale. Directly modelling the log transformed variogram and applying that model to OK estimation is not appropriate (the distortion generally leads to an underestimation of the relative proportion of nugget effect). Whether the log variogram models were back transformed or not should be determined. Snowden recommends using an alternative transform, such as normal scores, in preference to log transforms because the back- transformation is more robust.

2.1.6 Block size for estimation The ability to perform reliable local block estimation is limited by the spacing of sample data and the characteristics of the variogram. It is industry practice to consider half the dimensions of the sampling grid (e.g., Vann et al., 2003) as the smallest block size suitable for reliable estimation for metalliferous deposits. For smaller block sizes the estimation error becomes excessive. The smallest mining unit (SMU) for the proposed or actual mining method should also be considered when selecting an appropriate block size. Wardrop have selected a block size for estimation of 10 mE by 15 mN by 5 mElevation based on the drillhole spacing and the proposed SMU for the open cut mining method. Given that spacing for RC drilling used in the estimation is 30 m by 50 m, the selected block size is probably too small for reliable local estimation (i.e., individual blocks will have a high degree of estimation error). It is possible to determine the relative quality of different block sizes (and thus optimise the selection of block size) using quantitative kriging neighbourhood analysis (QKNA). QKNA uses measures of estimation quality such as kriging efficiency, regression slope, and weight of the mean (from simple kriging) to quantify estimation quality. By calculating these measures for a range of block sizes in different locations throughout the domain it is possible to test the sensitivity of estimation quality to block size. QKNA should be used to determine the optimal block size.

2.2 GENERAL ISSUES AND RECOMMENDATIONS The following list of general issues should be rectified in the interests of continuous improvement.

2.2.1 Search neighbourhood Search neighbourhood refers to the samples used to estimate individual block grades. These samples are selected based on their distance and direction from the block (search ellipsoid) and on criteria such as the minimum and maximum number of samples required to estimate a grade. Wardrop have used a search ellipsoid size with radii for the axes equal to the maximum range of the variogram model for the first pass and equal to four times the range for the second pass estimation. A minimum of three samples and a maximum of 16 samples are required for the estimation. While it is good practice to use the variogram to determining search neighbourhood parameters, using only the longest range neglects the most important parts of the variogram, that is, the nugget effect and the slope of the variogram at short ranges. As the range of the variogram gets smaller the search radius required for quality estimation actually gets larger (Vann et al., 2003). In an ideal situation the estimation should be performed using a minimum of ten to twelve samples (Vann et al., 2003).

20060907_OREMEX_DesktopResourceReview_R_Ag.doc Page 4 of 6 A better approach to determining optimal search neighbourhood parameters is the use of QKNA. This approach gives quantified measures of estimation quality that can be used to analyse different search neighbourhood scenarios.

2.2.2 Sample capping Sample capping or top cutting is the practice of truncating extreme grade values to improve variograms and to prevent over representation of extreme grades in OK estimations. Variogram quality is sensitive to extreme values usually present in highly skewed distributions such as those for Ag and Au at Tejamén. The quality of OK estimation is also sensitive to highly skewed data. When determining sample capping requirements it is necessary to check univariate statistics (such as the histogram) to identify possible extreme or outlier values (extreme values are a valid part of the sample population while outliers are not valid). It is also very important to spatially identify the extreme values and determine the level of support from surrounding samples – isolated extreme values are more of a problem than extreme values supported by numerous close samples. Wardrop have applied sample capping based on an examination of the effects of different levels of capping on the domains with a coefficient of variation (CV) of 1.2 or higher. After determining capping values Wardrop examined the effect of the capping on the mean and CV of the sample data and also on the estimated tonnes, metal, and grade of the Inferred resource (above a 20 g/t AgEq cut-off). Snowden agrees that it is necessary to apply capping to the very highly skewed Ag and Au data to prevent over representation of extreme grades in the OK estimation. The selection of domains based on a CV of 1.2 or higher is arbitrary – all domains should be examined for the influence of extreme values. It is also critical to examine the location of extreme values to determine if they have support from nearby samples and to determine if they are a valid part of the domain in question.

2.2.3 Mining voids The Tejamén deposit has undergone significant, small-scale mining for more than 100 years. The exact extent of and quantity of mined material is unknown. Wardrop have determined, on the basis of voids intersected during drilling, that the mining represents an insignificant tonnage compared to the total resource. It is possible that the tonnage mined is greater than estimated and that the metal mined is more significant to the resource than the tonnage; the mining is presumably in areas of highest grade. Further efforts should be made to better estimate the volume and locations of mined material. This may include surveys of surface workings and interpretation of workings from drillhole intersections.

2.2.4 Reporting of resources Wardrop have used a 20 g/t AqEq cut-off to report the total Inferred resource; no other economic restrictions have been placed on the resource for reporting. The cut-off used is arbitrary as no economic criteria were available at the time of the reporting. Methods for ensuring that a reported resource has “reasonable prospects for economic extraction” (CIM, 2004) vary throughout the mining industry. At one extreme, practitioners apply similar criteria to a full mining study but at some predicted higher future metal price or lower mining cost. At the very least the cut-off grade should be based on economic criteria and the resource should be restricted laterally and vertically to the expected dimensions of reasonable open pit mining.

3 REFERENCES CIM, 2004. CIM Definition Standards on Mineral Resources and Mineral Reserves, Prepared by CIM Standing Committee on Reserve Definitions, November 14

20060907_OREMEX_DesktopResourceReview_R_Ag.doc Page 5 of 6 Tribe, 2005. Mineral Resource Evaluation Report on the Tejamen Silver Property, Durango State, Mexico, Prepared by N. Tribe & Associates Ltd, Prepared for Oremex Resources Inc., February

Vann, J., Jackson, S. and Bertoli, O., 2003. Quantitative Kriging Neighbourhood Analysis for the Mining Geologist — A Description of the Method With Worked Case Examples, paper presented to 5th International Mining Geology Conference, Bendigo, 17 – 19 November.

Wardrop, 2006. Technical Report on the Tejamen Silver Property, Durango State, Mexico, Prepared by Wardrop Engineering Inc., Prepared for Oremex Resources Inc., Project 0652290100-REP-L0001-01, April

20060907_OREMEX_DesktopResourceReview_R_Ag.doc Page 6 of 6 23.2 Appendix B – Laurion Inc Processing Input Laurion CONSULTING INC

CONSULTING METALLURGICAL ENGINEERS AND PROJECT MANAGERS 302-304 W.Cordova St, Vancouver, BC. V6B 1E8. Tel: 1(604) 681 6355 POBox 4738 Station Terminal, Vancouver, BC V6B 4A4 Fax: 1(604) 681 4415 E-Mail: [email protected] or [email protected] Cell: 1(604) 603 1215 Skype: jrwfox Skype-In: (UK Tel): +44 131 208 1255 Philippine Cell: +63 918 214 0745 Indonesian Handphone: +62 813 8088 4267 UK Mobile: +44 7769 818 608 TECHNICAL NOTE #1

To: Al Polk Company: Snowden Resource Consultants From: John Fox Date: 2 Sept 2006 Copy: Subject: OMTN#1: OreMex: 10000tpd Tejamen Mexican silver heap leach

I have limited information available but have worked up some operating costs based on what I do know and generic “Industry Norm” type info. I have tried to make it as transparent as possible so that as we get better info it will be easy to revise.

I have assumed that we need to crush but not agglomerate and that we will do three 6m lifts on each prepared pad and then construct additional pad area. I have assumed all staff is Mexican and the plant does not have any Ex-Pats.

10 000 TPD Heap Leach Plant (3 500 000 Tonne/annum) Item US$/year US$/T Notes Supervision 120 000 0.034 4 Mexican Professionals Labour Ops 162 000 0.046 30 Men Labour (Maint) 72 000 0.021 12 Men Power 525 000 0.150US$0.05/kWh Crusher Steel 280 000 0.100 Reagents 3 325 000 0.950 0.5kg/TNaCN+3.5kg/T Lime + Carbon Etc Maintence Parts 875 000 0.250 Mechanical: Crusher, Pumps, conveyors etc Consumables 1 050 000 0.300 Includes Drippers (T-Tape) etc Sustaining 1 120 000 0.320 Pad Building including clearing, leveling and lining Capital TOTAL 7 529 000 2.171 Without contingency

At a smaller operation costs per tonne would increase slightly, but the big costs are in reagents and consumables which increase pro-rata with tonnage.

John Fox, P.Eng Consulting Metallurgical Engineer Laurion Consulting Inc OreMex Snowden Resource Consultants 302-304 West Cordova St 10000tpd Heap Leach Vancouver, V6B 1E8

Item No Description N/U Cost US$ Note Include lot Truck access ramp (rock and gabions N 75000 1 1 Dump Pocket c/w Grizzley N 100000 1 1 Apron Feeder N 200000 1 1 Jaw Crusher (40x48) N 450000 1 1 Collection Conveyor N 75000 1 1 Dust Collector N 30000 1 1 Cone Crusher (eq HP800) N 600000 1 1 Screen (8x20) N 75000 1 1 Return Conveyor N 60000 1 1 Tramp Iron Magnet N 10000 1 1 Main transport Conveyor N 200000 1 1 Weightometer N 15000 1 Lot Crushing plant structural steel N 100000 1 20 Grasshopper Conveyors N 500000 1 1 Radial Stacker for heap building N 75000 1 Lot Plastic Liner for Heaps (400000m^2@$4.0/m^2 N 1600000 1 2 Pregnant Pond Pumps N 30000 1 2 Barren Pond Pumps N 30000 1 Lot Solution Distribution Piping N 100000 1 Lot Drippers N 25000 1 10 Carbon Absorbtion Tanks N 200000 1 Lot Carbon Stripping Columns with Ancilliaries N 200000 1 lot Electrowinning Cells N 150000 1 1 Carbon regeneration kiln N 125000 1 Lot Refinery Equipment N 50000 1 3 Carbon Screens N 60000 1 1 Cyanide Mix Tank N 25000 1 1 Other Reagent Mix systems N 20000 1 Lot Reagent Feeders N 20000 1 lot Other Process Pumps N 30000 1 Lot Small Tanks N 20000 1 Lot Piping and Valves N 60000 1 Lot Miscalaneous Paltework (Pupbox, Hoppers etc) N 40000 1 Lot Allowance: Steel, supports, platforms, walkways, stairs N 50000 1 lot Control Room with MCC's N 75000 1 1 Process Building N 75000 1 Mechanical Intermediate total 5550000 2915000 910000 1725000 lot Unspecified Items (20% of above) N 1110000 583000 182000 345000 Mechanical Subtotal 6660000 3498000 1092000 2070000

Electrical Equipment and Cable (8% of Mechanical) N 532800 1 Transport (4% of Mechanical) N 266400 1 Concrete: 250m3 @ 300/m3 N 75000 1 Installation Labour: (15% of Mechanical) N 999000 1 Site Consumables (4% of Mechanical) N 266400 1 Equipment Rentals (3% of mechanical) N 199800 1 Site preperation and Earthmoving allowance N 500000 1 Other Directs Subtotal 2839400 2839400

Assay & Metallurgical Lab N 250000 1 2 Pickup Trucks N 100000 Main Electrical Substation N 400000 1 Standby Generator (100kW) N 75000 1 Maintenance Shop and Equipment N 50000 1 Bulldozer (D8 or equivalent) N 600000 Loader (ITC28) N 130000 Spare Parts Allowance N 80000 1 First Fills (reagents) N 75000 1 Sub Total 1760000 930000

Plant Equipment and Related Costs 11259400 7267400 1092000 2070000 Contingancy: 15% 1688910 EPCM: 10% 1125940 1042940

TOTAL ORE PROCESSING 14074250 Plant Stacker Heaps EPCM

Totals 7,300,000 1,100,000 2,100,000 1,050,000

Tel: +1(604) 681 6355 Fax: +1(604) 681 4415 OreMex Cap$1.xls10000tpd Cell: +1(604)603 1215 Printed9/28/2006 e-mail: [email protected] Designed 2006/09/21 23.3 Appendix C – Project Information Spreadsheets Unit Type Each Number Req'd Total Cost Haulage Trucks Cat 777 1,000,000 9 9,000,000 Excavators Cat 992 1,100,000 2 2,200,000 Production Drill Bucyrus 35 1,400,000 2 2,800,000 Dozer Cat D8 650,000 1 650,000

Water Truck 85,000 1 85,000 Tyre Handler 150,000 1 150,000 Grader Cat 14H 340,000 1 340,000 Fuel / Lube Truck 100,000 1 100,000 Field Mechanical Truck Toyota (conv.) 75,000 1 75,000 Blasting Truck 150,000 1 150,000 Loader for plant misc. 150,000 1 150,000

Mine Trucks Toyota Hiab 35,000 8 280,000

Portable lighting plant Terex AL4000 25,000 6 150,000 Dewatering pumps 25,000 3 75,000

sub-total major equipment 16,205,000

Communications (radios + dispatch) 100,000 1 100,000 Engineering / Survey 100,000 1 100,000 Administration 100,000 1 100,000

sub-total computers 300,000 Year 123456789 Waste Tonnes Mined 7000000 7000000 6000000 6000000 6000000 6000000 4700000 0 0 Ore Tonnes Mined Cerro Prierto 350000 861417 1479064 430913 1834617 621601 1196914 0 0 Grade Ag 59.36 59.36 55.79 44.91 40.68 35.33 27.35 0 0 Au 0.011 0.011 0.014 0.013 0.017 0.017 0.017 0 0 Los Mantos 350000 2088583 2170936 3219087 1815383 3028399 2264541 0 0 Grade Ag 60.93 60.93 49.19 96.35 39.01 38.33 31.59 Au 0.023 0.023 0.024 0.028 0.034 0.024 0.0226 Total Tonnes Moved 7700000 9950000 9650000 9650000 9650000 9650000 8161455

Total Ore Tonnes 700000 2950000 3650000 3650000 3650000 3650000 3461455 0 0 Grade Ag 60.145 60.47 51.86 90.28 39.85 37.82 30.12 0.00 0.00 Au 0.017 0.019 0.020 0.026 0.025 0.023 0.021 0.000 0.000

Recovered Metal Rate Silver 70% 154,344,803 132,513,726 230,657,935 101,815,217 96,627,788 72,990,714 0 0 Gold 60% 41,648 43,686 57,442 55,747 49,949 42,916 0 0

Revenue Silver 0.32 0 49,699,026 42,669,420 74,271,855 32,784,500 31,114,148 23,503,010 0 0 Gold 17.68 0 736,333 772,362 1,015,571 985,605 883,103 758,750 0 0

Operating Expenditures Unit Rate

Mining Waste 0.75 5,250,000 4,500,000 4,500,000 4,500,000 4,500,000 3,525,000 0 0 Mining Ore 0.75 2,212,500 2,737,500 2,737,500 2,737,500 2,737,500 2,596,091 0 0 Processing Ore 2.15 7,847,500 7,847,500 7,847,500 7,847,500 7,847,500 7,442,128 0 0 Selling Silver 0.01 1,543,448 1,325,137 2,306,579 1,018,152 966,278 729,907 0 0 Selling Gold 0.05 2,082 2,184 2,872 2,787 2,497 2,146 0 0 G&A (applied to ore only) 0.2 730,000 730,000 730,000 730,000 730,000 692,291 0 0

Total Operating Costs 0 17,585,530 17,142,322 18,124,451 16,835,940 16,783,775 14,987,563 0 0 20% 21,102,637 20,570,786 21,749,342 20,203,127 20,140,530 17,985,076 Total Operating Cash Flow 0 32,849,829 26,299,460 57,162,974 16,934,166 15,213,476 9,274,196 0 0

Capital Expenditures Pre-Stripping (capitalized) 0.75 5,250,000 Mining Ore (capitalized) 0.75 525,000 G&A (capital in first year only) 730,000 Plant 7,300,000 Crushing + Stacking System 1,100,000 Powerline Revamp + Electrical 1,500,000 Mine Buildings 2,000,000 EPCM 1,050,000 Heap Construction 2,100,000 Equipment 16,200,000 2,000,000 Town Move 1,250,000 1,500,000 Hardware + Software - Eng/Admin/Ops 300,000 Closure 3,000,000 1,000,000 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Total Capital Costs 39,305,000 1,500,000 0 0 2,000,000 0 0 3,000,000 1,000,000 Total Capital Costs + 15% Contingency 45,201,000 1,725,000 0 0 2,300,000 0 0 3,450,000 1,150,000 Total Operating Costs 0 17,585,530 17,142,322 18,124,451 16,835,940 16,783,775 14,987,563 0 0 Total Operating Costs + 20% Contingency 0 21,102,637 20,570,786 21,749,342 20,203,127 20,140,530 17,985,076 0 0 Total Costs 39,305,000 19,085,530 17,142,322 18,124,451 18,835,940 16,783,775 14,987,563 3,000,000 1,000,000 Total Costs + Contingency 45,201,000 22,827,637 20,570,786 21,749,342 22,503,127 20,140,530 17,985,076 3,450,000 1,150,000 Total Revenue 0 50,435,360 43,441,781 75,287,426 33,770,105 31,997,251 24,261,759 0 0 Yearly Cashflow -45,201,000 27,607,723 22,870,996 53,538,084 11,266,978 11,856,720 6,276,683 -3,450,000 -1,150,000 Project NPV 7% 58,592,403