Gold-silver mineralization on the Mercedes property is hosted within epithermal low sulphidation (adularia-sericite) veins, stockwork, and breccia zones.

A total of 16 principal low sulphidation epithermal vein/stockwork/breccia zones, have been identified on the Mercedes property. The currently producing veins have been divided into three sub-district areas:
• Mercedes Area (Mercedes-Barrancas)
• Klondike Area (Klondike-Rey de Oro)
• La Lupita Area (Lupita-Diluvio).

The majority of the veins are hosted within the andesite package, or locally at the fault contact between andesite and the underlying lithic tuff package. Only the Diluvio zone at Lupita and the Anita veins contain significant economic grade mineralization hosted completely in the lower tuff package.

The mineralized zones display a combination of fissure vein, stockwork, and breccia morphologies that change rapidly on strike and dip. The zones range in width from less than one metre to composite vein/stockwork/breccia zones up to 15 m wide. In the Diluvio zone, gold-silver bearing vein/stockwork zones locally attain thicknesses in excess of 100 m. Length of individual veins varies from 100 m to over two kilometres. Property-wide, Au-Ag bearing veins occur over a vertical range greater than 600 m (680 m to 1,300 m).

The Mercedes vein is the most important and continuous vein system identified on the property to date, with quartz-carbonate veining being traced almost continuously on strike for nearly 3.5 km. The Mercedes fault system consists of numerous anastomosing strands within a zone over 50 m wide. Emplaced within these faults in extensional open areas were a series of complex, multi-stage, anastomosing vein/breccia/stockwork zones one metre to 15 m wide. Vein mineralogy (multiple quartz and carbonate stages) and morphology change rapidly along strike and down dip. Mineralized green-grey sugary to chalcedonic quartz is often highly brecciated and cemented by 15% to 80% late stage grey calcite, rhodochrosite, and/or brownblack manganese-iron carbonates.

The Klondike vein zone trends N70ºW, dipping 65º to 80º southwest. It is approximately 800 m long, with a maximum vertical range of nearly 300 m and width ranging from 0.5 m to over 50 m.

The Klondike vein system is significantly different from that at Mercedes, in that it typically forms as a tectonic breccia zone rather than fissure fill vein. Within the breccia zone, there are highly variable lenses of brecciated white to green or grey quartz and abundant manganese carbonates and calcite. Fissure filling veins over 0.5 m wide are rare, while the overall zone of crackle brecciation and stockwork veining with silicification and strong manganese-iron oxides may be up to 50 m in width.

The Lupita vein zone outcrops on surface for 1,800 m following a contact between the overlying andesite package and underlying quartz-crystal lithic tuff package. In outcrop, the vein zone ranges from one metre to five metres thick. Multi- stage quartz-carbonate ± adularia veining locally extends continuously down dip in places more than 450 m along most of the west half of the surface outcrop.

Most importantly, at depths of 200 m to 300 m in the Diluvio zone, an extensive zone of multistage quartz-carbonate ± adularia vein breccias, stockwork, and hydrothermal breccia up to 150 m thick has been identified that is primarily hosted in the lower lithic tuff-volcaniclastic sequence. Based on preliminary geologic interpretation, it is proposed that the tuff/volcaniclastic sequence hosting the main portion of the Diluvio deposit is a large fault block that was displaced down the Lupita fault structure prior to andesite deposition. Diluvio therefore is the only mineral deposit in the district with the lower lithic tuff/volcaniclastic sequence as the primary host.

The Mercedes operation consists of five separate underground mines, all of which are in the production planning stage; plus an open pit mine that is in the planning stage. The five underground mine areas are:
1. the Mercedes Mine area composed of Corona de Oro (CDO), Casa Blanca, Brecha Hill, and Brecha Hill Norte;
2. the Barrancas-Lagunas mine area composed of the Lagunas, Barrancas Centro, and Barrancas Norte;
3. the Lupita mine area;
4. the Diluvio mine area;
5. the Rey de Oro mine area composed of both an underground operation and a very small open pit, which is under evaluation, and requires permitting. The permitting of this open pit is expected to be completed in mid-2018 according to MMM staff.

Production will come from the Mercedes, Barrancas- Lagunas, Lupita, Diluvio, and Rey de Oro. Access to all of the mines is by way of declines. The Rey de Oro area is contiguous with and immediately south of the mined-out Klondike deposit and will incorporate many of the methods and infrastructure from this older mine area.

The underground mines are all designed as ramp access mechanized mines. The anticipated ore production rate ranges from 1,700 tpd to 1,900 tpd (average 1,800 tpd) which is lower than the designed 2,200 tpd capacity. Ore from underground is hauled by 16 t trucks to stockpiles near the portals. Ore from the Barrancas-Lagunas, Lupita, Diluvio, and Rey de Oro mines is hauled to a common stockpile area near the jaw crusher.

The mine schedule is based on a seven days in/seven day out roster for 365 days per year. Crews work 12-hour shifts; planning is based upon the loss of three hours per shift for breaks, safety meetings, equipment checks, and minor maintenance. The total hours worked per year per person on this schedule is 2,190 hours. The available working time per shift equates to an average availability of 75% of the total hours.

Until 2018, there were two underground mining methods in use at Mercedes. Approximately 90% of the rock was mined by mechanized CAF stoping. Where the rock quality was appropriate, the ore was mined by long hole open stopes (LHOS) with cemented paste backfill. However, for the 2018 LOM production plan reviewed under the scope of this report, MMM staff reported that the mining method is wholly mechanized CAF stoping with no LHOS mining.

The CAF method is further subdivided into two types of mining, Full Face and Split Blasting. In areas where the full face (3.5 m width) does not meet the cut-off grade criteria, split blasting is considered. With split blasting, the round is taken with two blasts. First the mineralized zone is blasted and mucked, followed by a waste cut being blasted and mucked in order to meet the minimum mining width of 3.5 m. This allows narrow zones to be mined with reduced dilution. The mineralized cut for split blasting has a minimum width of two metres and any non-vein material included in the cut is assumed at zero grade. Split blasting is only assumed in select areas where there is a history of successfully implementing this technique.

The open pit mine at Rey de Oro is a small open pit, which extends up a slope. The pit contains approximately 114,000 tonnes of ore, which is a 25% decrease from the 2016 Mineral Reserve of 151,000 tonnes. Due to the low tonnage, the most reasonable mining scenario appears to be contract mining with technical supervision and grade control provided by Mercedes.

The processing facilities at Mercedes use conventional milling with Merrill-Crowe recovery of precious metals. The plant processes approximately 2,000 tpd. The plant consists of:
• Three stage crushing
• Single stage grinding and classification with cyclones
• Gravity concentration
• Agitated cyanide leaching
• Counter-current-decantation (CCD) thickener wash circuit
• Merrill-Crowe precious metal recovery circuit
• Cyanide detoxification of tailings
• Refinery.

Run of Mine (ROM) stockpiles ahead of the crusher are used to blend different grades of ore. ROM ore is transported to the crusher dump hopper. From the dump hopper the ore discharges onto a vibrating grizzly feeder that feeds the ore into the jaw crusher. The jaw crusher product discharges onto the crusher discharge belt feeder and onto a transfer conveyor that transports the crushed ore to the coarse ore bin.

A reclaim feeder transfers crushed ore from the coarse ore bin to the reclaim conveyor. The reclaim conveyer transports the primary crushed ore to the secondary screen. Secondary screen undersize material (final product) discharges to the screen undersize conveyor which transports it to the fine ore bin. Oversize material from the secondary is crushed in the secondary crusher. The discharge from the secondary crusher is routed to the tertiary screen.

The grinding circuit reduces the crushed ore from a particle size distribution of 80% passing (P80) 12.5 mm (1/2 in.) to P80 45 µm.

Approximately 25% of the hydrocyclone underflow is directed to a 762 mm diameter bowl style gravity concentrator. Tailings from the gravity concentrator are returned to the ball mill circuit. Gravity concentrate flows by gravity to a magnetic separator and shaking table circuit. Nonmagnetic concentrate material is further upgraded on a shaking table. Middlings from the shaking table are recirculated to the table feed while the tailings are pumped back to the ball mill circuit. The table concentrate is dried in an electric oven prior to smelting. The concentrate is direct smelted to produce a final doré product.

Flocculant and dilution water are added to a 16.4 m diameter high rate thickener feed to aid in settling the solids and, in turn, establishing the liquid/solids separation process. A variable speed thickener underflow pump is adjusted to either thickener underflow density or thickener solids loading. Underflow from the pre-leach thickener is pumped at approximately 50% solids to the leach circuit. Overflow from the pre-leach thickener is pumped to the clarification circuit.

The leach circuit consists of a series of four 9.3 m diameter by 9.9 m high agitated tanks. Each tank has a working volume of 581 m³. The slurry is leached in cyanide solution to extract gold and silver from the ore. The four leach tanks provide approximately 24 hours of retention time at 50% solids. Cyanide solution may be added to the first, third, or fourth tanks. Low pressure air is piped to all tanks. Slurry advances by gravity from leach tank to leach tank, starting at leach tank one and exiting leach tank four.

After leaching, the slurry continues to flow by gravity and reports to a series of four high capacity 16.4 m diameter CCD thickeners for washing of the leach tailings to remove soluble gold and silver. CCD thickener underflow slurry is advanced by pumping from thickener to thickener, starting in CCD number one and exiting the last CCD thickener. The slurry density in the CCD thickeners is maintained at 60% solids by weight. From the final CCD thickener the underflow slurry flows by gravity to the cyanide recovery thickener. Overflow from the cyanide recovery thickener, along with barren solution from the Merrill-Crowe plant, are pumped to the last CCD thickener dilution box where it combines with barren solution to be used as wash water. CCD thickener overflow flows by gravity in a flow that is counter current to the underflow slurry, starting at the last CCD thickener and ending at the first CCD thickener. From CCD number one, the overflow solution is pumped to the Merrill-Crowe circuit.

Underflow from the last stage of CCD reports to a high capacity, 16.4 m diameter cyanide recovery thickener. Flocculant and dilution water are added to the thickener feed to aid in settling. The withdrawal rate of settled solids is controlled by a variable speed, thickener underflow pump to maintain either thickener underflow density or thickener solids loading. The thickener underflow pump sends the cyanide recovery slurry to the detoxification circuit, while overflow from the cyanide recovery thickener is pumped back to the CCD circuit as wash water.

In the tailings detoxification circuit, weak acid dissociable (WAD) residual cyanide is oxidized to the relatively non-toxic form of cyanate by the sulphur dioxide-air process using sodium metabisulphite and air. Copper sulphate is added as a catalyst for the reaction. Milk of lime is also added to maintain a slurry pH in the range of 8.0 to 8.5. The stable iron cyanide complexes are precipitated from solution as insoluble ferro- cyanide complexes. Cyanide levels are reduced to environmentally acceptable, non-toxic levels.

Gold and silver are recovered from pregnant solution by zinc cementation of metal ions using zinc dust in a Merrill-Crowe process. The process of recovering silver and gold by the MerrillCrowe process includes:
• Clarification and filtering of pregnant solution to remove suspended solids
• De-aeration of pregnant solution to reduce the dissolved oxygen concentration
• Recovering gold and silver from the solution by addition of zinc dust using the cementation process that is commonly called zinc “precipitation”
• Filtering and drying of precipitate.

Mercedes returns a portion of the pregnant solution from CCD thickener number one to the grinding circuit for use as dilution water. This enriches the pregnant solution to achieve higher concentrations of precious metals which improves the performance of the Merrill-Crowe circuit and improves recovery of the metals from the pregnant solution. The precious metal recovery circuit is designed to process approximately 155,000 ounces of gold and 594,834 ounces of silver annually. Barren solution exiting the Merrill-Crowe circuit flows into a barren solution tank for re-use in the process.

The zinc precipitate and gravity concentrate are independently batch processed in retort furnaces to vaporize and recover mercury which may be present in the precipitate. Two mercury retorts are provided. The dry precipitate and/or the gravity concentrate are mixed with fluxing agents and charged to a diesel fired, indirect fired crucible melting furnace for smelting. The metal, containing the gold and silver and minor impurities, is poured into bar molds to produce doré. The doré is shipped off site for further refining. The impurities are collected in slag that rises to the top of the molten metal and separated from the precious metal. The slag is returned to the grinding circuit for re- processing.