Regionally, the SMO is characterized by a thick sequence of lower Tertiary volcanic rocks comprised of an older andesite series overlain by younger pyroclastic dominated rhyolite series. These two series of volcanic rocks are referred to as the Lower Volcanic Series (LVS) and Upper Volcanic Series (UVS) respectively.

The El Castillo mine property is located within the Basin Range Province of Central Mexico which is characterized by northwest-trending basin and range extensional tectonics and related structures. Within the district, structure is dominated by a northwest striking range front fault along the west side of the mine, and younger northeast striking dextral faulting throughout the district. A northeast to easterly-striking post-mineral fault system (North Fault) along the northern margin of the present pit forms the northern limit to mineralization. It appears that the North Fault has cut-off and down-dropped a northern portion of the ore zone as much as 135 m (in drillhole CA-31) as drilling in the hanging wall of the north fault has encountered significant thicknesses of post mineral cover.

Gold mineralization is hosted in thin-bedded Cretaceous sediments and intruding granodiorite porphyry sills. Within the mine area, these rock types normally form an alternating sequence of sediments (referred to as mantos) and near parallel intrusive sills. This layered sequence strikes mainly to the northwest and dips moderately to the northeast. The mineralizing porphyry intrusion created a prograde metamorphic aureole with a definitive potassic propylitic alteration assemblage and localized hornfels-skarn contact metamorphism in the older sediments. There is a close association between gold and pyrite with native gold occurring within and attached to pyrite grains and disseminated in wall rock. Gold-pyrite mineralization is both fracture controlled and disseminated. Later supergene oxidation of this pyrite dominated mineralization created, on average an 80 to 100 m thick oxide blanket and an underlying partially oxidized (transition) zone averaging approximately 25 m thick. The combined oxide/transition mineralization is amenable to heap leach extraction and form the current minable gold resource in the El Castillo mine.

The El Castillo mineral system occurs within an erosional window through post mineral cover. Cover rocks in the area include rhyolites thought to be part UVS of the Sierra Madre Occidental. Regional mapping by the Consejo (1993) and El Castillo geologists has identified rhyolite ignimbrites as the dominant volcanic rock that forms the cover to the Cretaceous window.

Drilling has also identified a felsic volcanic tuff unit of a similar age that occurs locally below the ignimbrite that is also post mineral. This tuff unit, where exposed in the open pit mining operation, is up to 20 m thick and lies unconformably on the once outcropping mineralized zone and locally contains lenses and irregular beds of fragmental debris derived from the eroded ore zone. The mapped rhyolite ignimbrite is not known to be altered or mineralized within the Mine area. The ignimbrite is known from regional mapping to be as thick as 300 m. Drilling has shown this unit to be approximately 90 m thick in the El Castillo area. Overlying rhyolite ignimbrite is a continental, polymictic conglomerate that is the major valley cover to the west and south of the Property. Regionally, the conglomerate is up to 200 m thick.

Most of the copper-gold bearing granodiorite porphyry underwent moderate to strong potassic alteration. It is evident that there are associated metasomatic zones, incipient development of skarn with an abundance of disseminated and fracture related pyrite with traces of bornite and chalcopyrite. Mineralization can also selectively replace favourable stratigraphy within the sedimentary sequence, even following fold hinges. Within the mineral system there are late cross cutting veins and veinlets of pyrite, sphalerite, galena, and calcite. In that these are younger and cross cut the gold system this suggests that San Agustin is a porphyry related gold system with a late superimposed epithermal base metal dominated system of low to medium sulphidation.

The mining method employed at the El Castillo Mine consists of traditional open pit drill and blast operations followed by excavator loading of rigid body haul trucks for ore transport to heap leach pad or crusher with waste transported to designated dump locations.

The mine drills, which include two Atlas Copco DM45's and two Atlas Copco DM30's, produce a combination of 4.5-inch to 5.5-inch holes on 3 metres x 3 metres to 4.8 metres x 6.5 metres patterns that are loaded with sacked ammonium nitrate/fuel oil (ANFO). The amount of ammonium nitrate/fuel oil (ANFO) ranges from 21 to 52 kilograms ("kg") per drill hole. Drill chips are sampled and sent to the local assay laboratory for grade control map creation by the mine engineering staff.

Loading is done with one Caterpillar 993K and four Caterpillar 992 frontend loaders to fill 19 100- tonne class haulage trucks (four Caterpillar 777 haulage trucks, and 15 Terex TR100 haulage trucks). Waste material is sent to either of three waste dumps, one located to the north of the mine, one located to the south of the mine and one located within the mined out area of the existing pit (in-pit dump). No acid rock drainage (ARD) issues are currently evident with the mining of oxide material and testing to date shows no acid rock drainage (non-ARD) in the sulphide mineralization but as the pit deepens this will need to be further evaluated.

The current cut-off grade is 0.15 g/t gold. Softer ore with grades from 0.15 g/t gold and higher grade and harder ore from 0.15 g/t to 0.25 g/t gold are classified as single-stage crushed ore and are delivered to the West Crusher and crushed to -6 inches. Harder ore with grades greater than 0.25 g/t gold is classified as higher grade ore and transition ore with grades greater than 0.21 g/t gold are two-stage crushed at the East Crusher to -1 inches before being delivered to the leach pad by a portable conveyor system.

The El Castillo Mine currently processes oxide and transition gold ore through a conventional heap leaching operation that includes single-stage and two-stage crushing , truck and portable conveyor transport to multi-lift heap leach pads, irrigation with cyanide solution, and gold recovery through Carbon-in-Column (“CIC”) gold recovery circuits. Loaded carbon is transported to the Corporation’s La Colorada Mine facilities for further processing to a final doré.

Lime is added to all ore before delivery to the pad in order to maintain protective alkalinity with a target leach solution of 10.5 pH.

Heap leaching is presently conducted on the East and West Side heap leach pads. All of the leach pads are double lined with clay and one and a half mm high density polyethylene (HDPE). The East Side leach pads, which were completed in early 2012, are divided into five cells with a total capacity of 30 million tonnes. An additional 9 million tonne expansion was completed i ........