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