Mineralization at San Felipe can be classified as a zinc-lead skarn (Einaudi et al, 1981). These skarn systems commonly occur in continental settings associated with either subduction or rifting. They are sulphide rich with Zn + Pb commonly ranging from 10-20 % and Ag from 30-300 g/t. Zinc-lead skarns are often transitional to massive-sulphide veins and often lack significant calc-silicate alteration. The San Felipe district is characterized by a strong structural control on hydrothermal fluid movement and resulting alteration / mineralization in the northern areas (Ventana, Transversales and San Felipe) and a more disseminated style to the south (Lamas). Calc-silicate alteration at San Felipe is Mn-rich including bustamite-rhodonite, piemontite, garnet and pyroxene.

The San Felipe District contains a series of easterly-trending Pb-Zn-Ag-Mn skarn veins and pipes that cut the Lower Metamorphic sequence and intrusive rocks. The district hosts five principal, westerly-striking, vein systems that include Artemisa-Cornucopia, Las Lamas, San Felipe, Transversales and La Ventana. Primary minerals are sphalerite, galena, pyrite, and magnetite with lesser native silver, chalcopyrite, arsenopyrite, scheelite, and covelite within a gangue of garnet, pyroxene, epidote, quartz, rhodonite, and carbonate (Roldan-Quintana, 1979: Calmus et al., 1996).

Three types of felsic intrusions are spatially associated with the deposits and include the San Felipe rhyolite porphyry, a coarse grained quartz-feldspar porphyry with large amoeboidshaped quartz eyes (up to 1 cm-dia.) in a pink ground mass; the fragmental rhyolite porphyry, a medium-grained rhyolite with fragments of Lower sequence including epidote skarnoid; and granite, a medium-grained, equigranular plutonic rock with rhyolitic composition.

Skarn veins are late, structurally controlled, and crosscut all rock types. Hydrothermal fluid flow paths followed the dike margins, and the same fractures and minor faults that controlled the rhyolite porphyry intrusions.

Skarn-related calc-silicate minerals and sphalerite are useful indictors of system zonation and temperatures. Those minerals with high Fe/Mn ratios formed at higher temperature closer to the hydrothermal source, and minerals with decreased Fe/Mn ratios formed at lower temperatures further from the source. The San Felipe skarns are distal expressions of a larger hydrothermal system, and the skarn mineralogy and Ag-Pb-Zn-bearing sulfides display a metal zonation across the district from high Zn, low Mn in the south to high Pb, high Mn in the north.

Skarn in the south parts of the district at Las Lamas and Artemisa-Cornucopia contains Fe-rich, dark brown garnets (andradite) and dark green pyroxenes (hedenbergite) with epidote, magnetite, quartz, and carbonate associated with low Pb/Zn ratios, low Mn contents, and high Fe contents. This sphalerite is dark brown to deep red with high Fe contents and indicates high formation temperatures >300°C (Meinert, 2007).

In contrast, skarn in the north part of the district at La Ventana and San Felipe Este contain Mn-rich pyroxenoids (pinkish-tan rhodonite and bustamite), Mn-rich epidote, and quartz with increased Mn and Ag contents, increased Pb/Zn ratios, and decreased Fe contents. This sphalerite is honey-colored, an indication of decreased iron content, and the galena is argentiferous, and both are consistent with decreased temperatures of crystallization. Grossular garnet and wollastonite are common in areas with more abundant limestone (ie. Santa Rosa and Las Lamas).

A variety of mining methods will be used at the San Felipe project including conventional open pit and underground methods applied to the four deposits targeted for mining at this time. The La Ventana deposit will be mined using a combination of open pit and underground methods, as will the San Felipe deposit. Las Lamas will be mined using underground methods only and Transversales will be mined using open pit methods only.

At an average mining and processing rate of 1,250 tonnes per day the anticipated life of mine is expected to be 7.5 years.

Underground development requirements for La Ventana, San Felipe and Las lamas total approximately 8,100 meters and includes ramps, level accesses, and vertical developments such as ventilation and service raises.

La Ventana underground mining will be a variation of longhole open stoping with rock backfill provided from surface using waste rock reclaimed from Ventana open pit operations. During the first year when the La Ventana pit is providing mill feed, the underground development of La Ventana will begin on levels 800, 780 and 760 with completion of the sill drifts on these levels in year 1. Access to the levels above 800 will be from the pit floor designed for this interface and transition.

For La Ventana underground mining a dilution factor of 20% at zero grade was assumed and 20% mining losses were applied.

The HW-1 structure of the San Felipe deposit will be mined beyond what the pit takes out using underground methods comprised principally of conventional longhole stoping techniques, starting at the bottom of the deposit and working up so as to avoid the need to leave sill pillars or construct structurally engineered sills. It is anticipated that Cemented Rock Fill (CRF) may be used during longhole stoping operations, and the cost of placing this type of engineered backfill was applied to 30% of San Felipe tonnes planned for underground mining.

For San Felipe underground mining a dilution factor of 20% at zero grade was assumed and 10% mining losses were applied.

Las Lamas will be mined using only underground methods comprised principally of conventional longhole stoping techniques, starting at the bottom of the deposit and working up so as to avoid the need to leave sill pillars or construct structurally engineered sills. It is anticipated that Cemented Rock Fill (CRF) may be used during longhole stoping operations, and the cost of placing this type of engineered backfill was applied to 30% of Las Lamas tonnes planned for underground mining.

For Las Lamas underground mining a dilution factor of 20% at zero grade was assumed and 10% mining losses were applied.

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A 1,250 mtpd (metric tonne per day) mill will be constructed in the first year of project development. The mill will be located proximal to the old Artemisa mill site approximately 2 km southeast of the Ventana vein.

The cyclone overflow will be pumped to the lead rougher and scavenger flotation circuit. The scavenger concentrate will be recycled back to the rougher flotation feed. The rougher concentrate will be subjected to counter-current two stage cleaner flotation. The lead concentrate will be thickened and filtered and stored for shipment.

The lead rougher flotation tailing will be sent to the zinc rougher/ scavenger flotation circuit. The zinc scavenger flotation tailing will be sent to the conventional tailing pond. The rougher zinc concentrate will be subjected to two stages of counter-current cleaner flotation and the final concentrate will be thickened and filtered.