Pulacayo Project, Bolivia

The Pulacayo project is located in the Potosi district in Bolivia and includes two mines, namely Pulacayo and Paca. The property is 100% owned and operated by Apogee Silver.

The project includes 34,000ha of mining concessions which are currently being explored by Apogee. It contains silver (50%), zinc (25%) and lead (25%) deposits.

The Pulacayo mine was discovered during the Spanish Colonial period. It produced nearly 600 million ounces of silver between 1883 and 1958. It went through a series of production and shutdown periods before being completely shutdown in 1959.

Exploration activities were restarted by ASC Bolivia, a subsidiary of the Golden Minerals Company (formerly Apex Silver Corporation), in 2001. Apogee entered into a joint venture with ASC in March 2006 to develop the mine. In January 2011, Apogee acquired 100% interest in the project.

Geology and reserves at Pulacayo

The Pulacayo mine is a low sulphidation deposit made of tertiary volcanic-sedimentary formations of the Silurian and Neogene age. The sedimentary rocks are made of diamictites, sandstone and shale which form a dome structure.

Extending up to several kilometres in length, the dome comprises many other domes oriented in a north-south direction.

The Paca mine lies about 10km north of the Pulacayo deposit. It is a silver-zinc-lead deposit similar to the Pulacayo deposit.

Reserves

Indicated mineral resources at the Pulacayo deposit are estimated at 5.96mt graded at 153.14g/t of Ag, 0.91% of Pb and 2.04% of Zn. Inferred resources are estimated at 5.42mt, graded at 150.61g/t of Ag, 0.83% of Pb, 2.07% of Zn. Further exploration of the deposit is expected to increase the resource estimates.

Inferred mineral resource estimates of the Paca deposit are 18.4mt graded at 43.04g/t of Ag, 0.68% of Pb and 1.16% of Zn.

Mineralisation

The silver-zinc-lead mineralisation at the property is part of a larger structural formation oriented in an east-west direction. The main mineralised structure of the mine is called Veta Tajo and contains high silver and base metal concentration. It extends along strike for 2,700m up to a depth of 1,000m with width varying from 1m to several metres.

The Veta Tajo mineralised body consists of stockwork, narrow veins and veinlets oriented in an east-west direction. About 450m of the mineralisation is contained in volcanic formations and 550m in sedimentary formation.

The mine largely contains galena, sphalerite, barite, sulfosalts, pyrite, quartz and minor chalcopyrite.

Exploration and drilling

Apogee is carrying out exploration and drilling activities at the mine in four phases. The first phase was carried out between January and June 2006 with the drilling of 19 holes.

Exploration of the Paca deposit was prioritised from June 2006 to February 2007. The second phase of drilling commenced in November 2007 and included drilling of 14 holes.

Phase three of the drilling programme was carried out between January 2008 and August 2008. The fourth phase is currently ongoing with 16 holes already being drilled.

Mining and processing

Apogee is examining three production scenarios for the development of the mine - open pit, underground and a mix of both open pit and underground mining. Initial production from the mine will be through the open pit method.

Mined ore will be processed by a 400t/d capacity pilot concentrator. It will include a primary and secondary crusher, a fine ore bin and mill and a floatation circuit.

Existing environmental application for the mine includes permission for a 200t/d plant.

Apogee is planning to obtain an expanded permit by the second quarter of 2012 to enable construction of the plant.

Detailed engineering and design of the facility is nearing completion. The plant is expected to be commissioned in the fourth quarter of 2012.

Production and contracts

Apogee commenced trial production from the mine between October and November 2011 with the extraction of 500t of ore. Following commissioning of the pilot concentrator, production from the mine is expected to commence at the rate of 1,800t/d.

Micon International was awarded the contract to carry out a scoping study for the mine.

In August 2011, TWP Sudamérica was awarded an engineering, procurement and construction management contract for the pilot concentrator.