The Pallancata mineralization has been recognized as a low-sulfidation precious metal epithermal system by IMZ geologists and independent geological consultants.

Multiple events of mineralization are apparent. The main-stage precious metal mineralization overprints earlier stages, but may also represent the waning stages of the same hydrothermal system. Control of the main-stage mineralization is likely to have been provided by a major northwest-southeast striking fault. Low sulfidation, epithermal silver-gold mineralization is present in a complex array of veins, breccias (both hydrothermal and tectonic), stockworks and silicified zones. Vein zones comprise vein breccia with in-situ clasts of bladed carbonate replacement and partial leaching. Crustiform and colloform banding is also common. The matrix generally consists of milky-white to coarse-grained semi translucent drusy quartz. Multiple phases of veining are apparent. Breccias range from simple tectonic breccias to complex multiple event hydrothermal breccias. These include black silica breccia (rich in sulfides) to massive white quartz breccias.

The main Pallancata Vein System is the principal target area and hosts a west northwest to east-southeast trending zone of complex multiphase veining and faulting that generally has well-defined conduits that underwent major dilation. The system pinches, splits and has a sinuous nature. It is apparent that the vein system is en echelon in form, both horizontally and vertically.

The dip of the vein system is generally sub vertical, with a down-throw to the south. The alteration style of the clay components changes from smectitic to illitic towards the main structure, but it is often hard to distinguish hydrothermal-related clay alteration from diagenetic alteration due to the high pumice content of the lapilli tuffs. There is a distinct silicified halo around the veins which is more prominent on the north side of the vein.

The main Pallancata Vein structure, as currently recognized has a strike length of approximately 2 km and is up to 40 m wide at its widest, including the intensely silicified wall rocks. Individual veins or splays are more typically 0.5 m to 3 m wide. Mineralization has been delineated to depths up to 500 m below surface. Portions of the system are dominated by in situ quartz altered, bladed carbonate. Elsewhere it shows jigsaw breccia, commonly with black chalcedonic silica and sulfide fill. Other parts are true hydrothermal breccias with complex textures and multiple phases of banded chalcedonic silica and euhedral drusy quartz.

Much of the high-grade mineralization on the Pallancata Property is seen in the West Vein. This zone is located in the western part of the main Pallancata structure, and comprises an intensely silicified body with a strong stockwork of quartz veins, typically striking northeastsouthwest to north-south. High-grade zones occur where these veins intersect the northwestsoutheast striking main Pallancata Vein System. In the West Vein, fracture movements are seen to be normal and sinistral, while in the Central Vein they are normal and dextral. The main structure displays mineralized cimoides (duplex veins) and tensional veins principally in the footwall of the West Vein, and in both footwall and hanging wall in the Central Vein.

The mineralization is generally sulfide poor and includes argentite, ruby silver (pyrargyrite/proustite), pyrite, marcasite, galena, electrum and, rarely, native gold. Most of the visible silver mineralization in drill core from the Pallancata Vein occurs within the massive silica, including silica displaying carbonate replacement textures. In these areas the silver occurs as argentite and pyrargyrite. Some argentite mineralization occurs with adularia after an early silicification and brecciation and an intermediate banded chalcedony phase. There appear to have been multiple episodes of silver deposition in the Pallancata Vein.

The principal mining method in use in the steeply-dipping veins is the Avoca method, which is mechanized cut-and-fill with ascending stopes. Fill material used is discarded mine waste and dewatered cycloned tailings which are back-hauled from the Selene plant.

Drilling in the stopes utilizes longhole drills to drill vertical holes. Drilling drifts are mined in the vein, nominally 12 m apart vertically, leaving a pillar of ore approximately 8 m in height between the drifts. This pillar is drilled from the upper level with a long-hole machine, drilling down-holes in a series of fans or parallel holes. Holes are drilled on a square pattern of 1.5 m by 1.5 m, burden and spacing.

The stope is started at a slot raise in the center of the stope and progresses, fan by fan, along the length of each stope half, retreating from the center of the stope. The ore falls to the lower drift where it is loaded by diesel LHD (load haul dump truck) to an ore-pass. An additional drive in the waste is mined to allow access to the stope once blasting has commenced. As the ore is removed, waste rock fill is progressively loaded into the void from the upper level, to ensure wall stability, and to provide a floor for the next stope above. To reduce the dilution effect from the fill material mixing with the blasted rock, a plastic sheet is used to cover the fill material before blasting.

Ore is then hauled by LHDs to ore-passes located at one of the internal access ramps. From these ramps, ore is loaded into road-type haul trucks for transportation to surface.

Extracted ore is stored on surface at the Pallancata mine site in one of a series of stockpiles to enable ore blending to take place.

It is estimated that stoping widths will be in the order of 15 to 35 m in the Pallancata Central Vein area, which is not currently being mined. The Avoca method has been tried at the Central Vein but adverse ground conditions prevented the use of this method. Hochschild is currently evaluating several different mining methods for this area. The options considered are sub-level caving and overhand cut-and-fill mining. Both have the potential to be able to exploit the Central Vein in a more economical fashion, taking into account both production requirements, dilution and worker safety. Hochschild has employed an independent geotechnical consultant to work with the Pallancata mining staff with the aim of further developing these mining methods.

All ore from the Pallancata Mine is toll treated at the Selene flotation plant, 22 km to the north by road.

The 2,000 t/d flowsheet includes:
x Two- stage crushing.
x Grinding.
x Flotation of silver-gold concentrate.
x Concentrate de-watering.
x Tailings disposal.

The Selene flotation plant capacity was recently expanded to a rated throughput of 3,000 t/d ore.

Crushing Circuit
The circuit has been modified from two-stage to three-stage crushing and a washing circuit is being considered to remove clays from primary crushed ore ahead of secondary crushing. The circuit includes:
x Aprimary crushing system comprising a grizzly screen and a Metso C100 crusher, nominal capacity of 145 t/h at a three-inch setting, is retained.
x A single, standard HP200 crusher is installed as a new secondary crusher.
x The existing secondary HP200 shorthead crushers are converted to tertiary crushing duty and a third HP200 has been added to the circuit.
x Two additional fine ore bins are provided, each 300-t capacity.

Grinding Circuit
x Milling Circuit No. 1 remains unchanged.
x Milling Circuit No. 2 is expanded by installing a 9.5 ft by 12 ft diameter ball mill to provide secondary grinding following the existing primary mill.

Flotation Circuit
x A third flotation circuit is installed including one conditioner tank and additional
rougher, scavenger and cleaner flotation cells.

Concentrate Dewatering and Tailings Handling
x The capacity for concentrate dewatering is increased by the addition of a 20-ft diameter concentrate thickener and a new twenty plate, one-meter by one-meter pressure filter.
x A third, 50-ft diameter tailings thickener has been added.