Of the geological formations associated with the Guanajuato district only the Esperanza and La Luz Formations occur in the Bolañitos mine area with mineralization residing primarily within the La Luz Formation. Mineralization is known to dissipate at the contact with the Esperanza Formation.

The Veta Madre historically was the most productive vein in the Guanajuato district, and is by far the most continuous, having been traced on the surface for nearly 25 km. The vein dips from 35° to 55º to the southwest with measured displacement of around 1,200m near the Las Torres mine and 1,700 m near La Valenciana mine. The most productive veins at Bolañitos strike parallel to the Veta Madre system.

Bolañitos mineralization is directly related to faulting. Mineralization occurs as open-space fillings in fracture zones or impregnations in locally porous wall rock. Veins which formed in relatively open spaces are the main targets for mining.

There are 21 veins within the Bolañitos mine area that are included in the mineral resource estimate. These mineralized veins are known to occur from an elevation of 2300 m down to an elevation of 1900 m.

Mineralized veins at Bolañitos consist of the classic banded and brecciated epithermal variety. Silver occurs primarily in dark sulfide-rich bands within the veins, with little mineralization within the wall rocks. The major metallic minerals reported include pyrite, argentite, electrum and ruby silver, as well as some galena and sphalerite, generally deeper in the veins. Mineralization is generally associated with phyllic (sericite) and silicification alteration which forms haloes around the mineralizing structures. The vein textures are attributed to the brittle fracturing-healing cycle of the fault-hosted veins during and/or after faulting.

Economic concentrations of precious metals are present in “shoots” distributed vertically and laterally between non-mineralized segments of the veins. Overall, the style of mineralization is pinch-and-swell with some flexures resulting in closures and others generating wide sigmoidal breccia zones.

Primary economic mineralization at Bolañitos is gold and silver. Bolañitos is postulated to be a low sulphidation system with pyrite but no arsenopyrite.

The silver-rich veins of Bolañitos contain quartz, adularia, pyrite, acanthite, naumannite and native gold. Native silver is widespread in small amounts. Much of the native silver is assumed to be supergene. Silver sulfosalts (pyrargyrite and polybasite) are commonly found at depth.

The ground conditions at the San Miguel, La Luz and Lucero mines are considered to be good. The rocks are competent and require no special measures for support other than occasional rock bolting and regular scaling. Cable bolting is sometimes required during the preparation of stopes for longhole blasting. The cable bolts are installed by drilling holes in the hanging wall and fixing the bolts in place with cement pumped into the hole.

Conventional drill and blast methods are used to extract the ore at Bolañitos, and access to the mining areas is provided by ramps and audits. Mine development headings are drilled by jumbo and by jackleg. Traditionally a conventional bottom-up cut and fill mining method was employed with waste rock brought in using diesel loaders. The rock used to backfill the stopes is generated from the waste development underground.

Over the past eight years a transition to a modified long hole method has taken place wherever the width and dip of the vein is applicable to this method.

Once sill development is completed and the limits of the ore have been defined, stope production can begin. For conventional cut and fill stoping, ore is mined upward in horizontal slices using jackleg drills. Cut and fill mining is a method of short hole mining with hole lengths usually less than 2m. For long hole mining the holes are typically 12-16m in length but vary from 6 to 16m depending on the stope.

For cut-and-fill, the production cycle starts by drilling upper holes using a jackleg. Geologists mark up the vein, and the stope is drilled and blasted accordingly. Drillholes on the vein are blasted first. After the ore has been mucked, the holes drilled in waste are then blasted to achieve the dimensions required for the scoop to work in the next production lift.

By comparison, longhole open-stoping, holes are drilled upwards from the sill level. Longhole methods are typically 6 to 16m in length and are more productive than cut and fill methods. Longhole stoping is also cheaper than conventional cut and fill stoping. As with cut and fill methods, longhole stopes are filled with waste rock from development headings or from surface waste.

Some of the ore produced with the longhole drill machines is generated by drilling old pillars. Other stopes are blind by drilling uppers and blasting a slot at the far end of the stope to enable the ore to break in the subsequent larger stope blasts. Uppers are drilled to a 10-15m height on vein projections in rows across the width of the vein. The rows closest to the slot are blasted first. The stope is mucked clean, or at least sufficiently to allow the next blast. The ore is extracted using remote- controlled scoops.

In areas of old workings which have had high grade sections of the vein removed or the vein has been selectively mined, the open stope areas over time have filled with collapsed vein and wallrock material. Often this fill material carries economic grades and are removed through cross cuts that act as draw points for the loose stope fill material. This material is known as ¨chorros¨in the area. Chorros are not budgeted nor are they calculated in the resource.

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Ore is processed in the on-site mill and floatation process capable of processing 1,600 tpd.

The plant processing rate is a planned 1,100 t/d which is designed to maximise recoveries. Previously the plant had operated at 1600 tpd from 1,200 t/d after the addition in 2012 of a 6’x14’ vibration screen, four additional flotation cells 500 ft3 each, six 1st cleaner cells 100 ft3 each, six 2nd cleaner cells 50 ft3 each, conveyor belts and a flocculent mixing system.

The flotation layout considers two cleaning stages though the 2nd cleaning stage was shut down in December 2013 since the concentrate grade obtained in the column cell was meeting the target silver grade between 7 and 9 kg/t.

The final concentrate flows by gravity to a thickener, where it is thickened to 60% of solids, then it is pumped to a filter press where concentrate is dewatered down to 13-17% of moisture. The filtered concentrate is stored, then loaded on 35 t trucks and shipped to concentrate traders.