PROJECTS

CHINCHILLAS SILVER PROJECT

Highlights

  • 75-25 JV with Silver Standard Resources Inc.
  • Chinchillas deposit to be developed into satellite open-pit mine
  • Low capex and fast-tracked development using infrastructure from the Pirquitas mine
  • Positive pre-feasibility study with robust economics
  • Immediate Production Income from Pirquitas mine operation

On March 31, 2017 Golden Arrow received the required notice from Silver Standard Resources Inc. (TSX – SSO; NASDAQ – SSRI, “Silver Standard”) to exercise its option on the Chinchillas project and form a joint venture to combine the Chinchillas project with the producing Pirquitas Mine into a single new operation. The joint venture will be owned on a 75% / 25% basis by each company, respectively. Silver Standard will be the operator.

The full details of the Business Combination Agreement with Silver Standard dated September 30, 2015, setting out the terms and conditions for the formation of the joint venture were set out in our news release dated October 1, 2015. The following is a summary of the key provisions and benefits of the transaction:

  • ~ US$15 million option exercise payment by Silver Standard to Golden Arrow, equal to 25% of Pirquitas mine earnings less certain expenditures incurred from October 1, 2015 to closing, payable on closing, which is expected on or before May 30, 2017.
  • Fast-tracked development of the Chinchillas property, in a capital efficient manner, through use of the existing facilities at the Pirquitas Mine and establishment of common infrastructure.
  • 25% of net earnings from processing of remaining stockpiles at Pirquitas.
  • The combined operation will be managed and overseen by Silver Standard’s proven operational management team with extensive mine construction and operational expertise.

A pre-feasibility study (“PFS”) has been completed for the joint-venture development of Chinchillas, as detailed in Golden Arrow’s new release dated March 31, 2017. The supporting National Instrument 43-101 technical report has been filed on SEDAR dated May 15 2017.
Highlights include:

  • Mineral Reserves of 11.7 million tonnes containing 58 million ounces of silver at a grade 154 g/t, 310 million pounds of lead at a grade of 1.20% and 127 million pounds of zinc at a grade of 0.49%.
  • Measured and Indicated Mineral Resources (inclusive of Mineral Reserves) of 29.3 million tonnes containing 96 million ounces of silver at a grade 101 g/t, 581 million pounds of lead at a grade of 0.90% and 386 million pounds of zinc at a grade of 0.60%.
  • Average annual silver equivalent production of 8.4 million ounces over an eight-year mine life at a 4,000 tonne per day plant throughput.
  • Construction beginning in the third quarter of 2017, followed by ore delivery to the mill in the second half of 2018, subject to permitting.
  • Robust operating margins based on cash costs of $7.40 per payable ounce of silver sold over the life of mine.
  • Post-tax net present value of $178 million using a 5% discount rate and metal prices of $19.50 per ounce silver, $0.95 per pound lead and $1.00 per pound zinc.
  • Attractive post-tax internal rate of return of 29%.

(All financial results are in U.S. dollars and all technical data are presented on a 100% project basis.)

Project Geology & Exploration Summary

Chinchillas is a Tertiary aged diatreme volcanic complex that has erupted through the Paleozoic basement sediments. The resulting depression or basin, filled with volcanic breccias and tuffs, is approximately 1.5 kilometres in diameter. Mineralization starts at surface within the basin, hosted in favorable volcanic tuff units, hydrothermal breccias, and along faults and structural zones, and is present in basement sediments and metasediments, as well as across the schist-volcanic contacts.

Mineralization at Chinchillas is dominated by silver with lesser values of lead and zinc occurring as disseminated sulphides and matrix infilling within the volcanic tuffs, and as matrix and fracture filling in breccias within the basement meta-sediments. Within the basement lithologies shears and structures are more commonly mineralized. Depth of oxidation is just a few metres within the volcanics and is insignificant within the basement rocks. Silver, lead and zinc bearing minerals include silver sulfosalts, boulangerite, tetrahedrite, freibergite, schalenblende sphalerite (zinc and iron), and argentiferous galena.

The deposit is divided into two main areas: The Silver Mantos in the western part of the basin and the Socavon Del Diablo in the east. Each area has zones of mineralization both within the basin and in the basement host rocks. Mineralization in the Silver Mantos basin is disseminated in multiple flat lying layers, or mantos, composed of strongly clay-altered volcanic tuffs and breccias. Within the Ordivician basement pelites and sandstones schists mineralization is more steeply dipping and hosted in breccias, minor small veinlets, fracture filling and mineralized structures. Mineralization is more silver and lead-rich in this zone.

On the eastern side of the basin, mineralization in the Socavon del Diablo is dominated by manto-style disseminated sulphides within favorable shallow dipping volcanic tuff horizons but also includes crosscutting structures, hydrothermal breccias, and some mineralized structures and breccias within the basement. Generally, mineralization is more zinc-rich in this area.

Figure 1. Schematic Geological Cross Section W-E with Mineralized Zones

Historical drilling on the property includes 2,996 metres in 14 holes (7 RC and 7 diamond holes) by two previous operators within a 1.0 kilometre by 0.4 kilometre area. This drilling tested five main mineralized targets, providing focus for the Company's first drill program on the two main zones.

Between April and June, 2012, the Company completed a Phase I, 27 hole, 3,224 m shallow drill program on the Silver Mantos (12 holes) and Socavon del Diablo (9 holes) areas of the basin, with the remaining 6 holes testing outside targets. The program was successful in confirming and expanding the mineralized zones, and in discovering new mineralization. Both Silver Mantos and Socavon del Diablo remained open in all directions.

Figure 2. Location Drill Holes

A Phase II drill program was concluded in early March 2013, and exceeded the planned 6500 metres of drilling with a total of 7,286 metres completed over 49 holes. The Phase II drilling further expanded the Socavon del Diablo and Silver Mantos mineralized zones in most directions. Exploration holes on the north side of the Chinchillas basin encountered significant mineralization providing new targets up to 200 metres to the north. In addition, a second style of mineralization was identified, characterized by silver, lead and zinc in structures and breccias at the contact with, and within, the Ordivician basement pelites and sandstone schists occurring beneath the volcanic hosts. Results of the Phase II and earlier drilling were incorporated into the first mineral resource estimate, published on SEDAR dated June 20th, 2013. This resource estimate was used as the basis for the first preliminary economic assessment ("PEA") on the project, which was detailed in a technical report filed on SEDAR on January 20th 2015. (Note: all Technical reports prior to the most recent one are no longer considered current.)

Phase III drilling commenced in February 2014 and continued to June 2014. Originally planned and budgeted for 6,000 metres, the program was twice expanded based on good results, for a total of 37 holes or 8,985 metres drilled. The program was designed to increase the existing resources at the Chinchillas deposit through exploration proximal to the deposit and in new areas of the properties. The program was deemed a success, with excellent intercepts of silver, lead and zinc in holes within and around the existing resource that were incorporated into the new mineral resource estimate released August 29th, 2014. The new resource estimate was used to update the PEA, and the updated technical report was filed on SEDAR dated February 13th, 2015. (Note: all Technical reports prior to the most recent one are no longer considered current. For details on the Phase III drill program results please refer to original news releases.)

Between November 2014 and April 2015 the Company conducted a Phase IV drilling program at Chinchillas. The program was planned to include up to 16,000 metres of diamond drilling with goals of: testing the limits of the deposit in all directions, including at depth; in-filling drill hole spacing to facilitate the upgrade of the resource categories to Measured and Indicated, and; drilling for infrastructure and geotechnical studies. Nearly all holes intersected new silver, lead and zinc mineralization, extending the deposit without reaching the limits. Therefore the drill program was stopped with 11,162 metres drilled in order to update the mineral resource estimate and assess the remainder of the program. The updated estimate was announced on July 31st, 2015, with a substantial increase in resources but not an upgrade of a significant portion to higher categories, as was originally planned.

The Company thereafter designed the Phase V 15,000 metre drill program with a primary goal of upgrading resources in the main Silver Mantos area as part of the option agreement pre-development activities with Silver Standard. The program was completed between October 2015 and February 2016, with results being incorporated into the April 12 2016 resource estimate filed on SEDAR. Once again, the program was deemed a success, with a substantial portion of the Inferred and Indicated resources upgraded to the Indicated and Measured categories.

In May of 2016, Golden Arrow announced a 6,500 metre Phase VI drill program at the Chinchillas project. The program was completed in August with a total of 7,188 metres drilled over 34 holes including seven short reverse circulation holes and one hole redrilled for a water well. The drill program was designed to focus on condemnation drill holes beneath areas selected for major infrastructure, such as the waste rock facility, as the pre-development teams worked towards a pre-feasibility level for the project.

Results from Phase VI drilling were reported in news releases dated September 7th 2016 and October 3rd 2016.

In 2016 additional work was completed by the Golden Arrow and Silver Standard teams as part of the pre-development activities and pre-feasibility level studies. This included environmental baseline studies, community engagement programs, geotechnical studies, hydrological testing and metallurgical work.

Permitting

On September 21st, 2016 the Company announced that the Environmental Report ("ER") for exploitation at the Chinchillas project had been submitted to the mining authority in the Province of Jujuy. This report initiates formal permitting for mine development. The detailed Environmental Report is the main focus of permitting for mining projects in the province of Jujuy. The report includes a description of the expected environmental impacts of the proposed mining operation, a management plan for those impacts and a plan of action on environmental contingencies. The ER is submitted for review by Jujuy’s Provincial Environmental Management Unit, or UGAMP. The UGAMP is a multi-stakeholder group chaired by a technical appointee from the Mining Department who review and discuss the ER, and recommend approval or rejection to the provincial mining authorities. Approval by UGAMP provides the needed social license to obtain an exploitation permit.

Property Exploration Potential

Figure 3. Chinchillas Project exploration potential

During the Phase III program, drilling in areas as much as 1.5 kilometres to the south of the main Chinchillas deposit intercepted significant silver, lead and zinc mineralization in brecciated basement and tuff rock units. Management was very encouraged by these results and defined a target potential for the new Chinchillas South zone. This covered an area of approximately 0.8 square kilometres with an estimated average thickness of 50 to 80 metres. There has been insufficient exploration to define a mineral resource in this area, and it is uncertain that further exploration will result in the target being delineated as a resource. However using conceptual grades and quantities derived from the drill results a target potential of 100 to 160 million tonnes at average grades of 32 to 40 g/t silver equivalent was estimated. (Silver Equivalent grades were calculated using US$20/oz. for silver, US$0.94/lb. for lead and US$0.94/lb. for zinc. For details please refer to original news release dated July 22nd 2014.)

Three additional holes were drilled in Chinchillas South in the Phase V program, with all three returning significant intervals, particularly in zinc. (See news releases March 3rd and March 30th, 2016.)

The Phase VI drill program included additional holes in three zones with the potential for new resources outside of the main Chinchillas Deposit. The program confirmed that the area planned for surface infrastructure to support mining at Chinchillas is devoid of significant near-surface mineralization. The Chinchillas South was confirmed to be underlain by narrow high grade structures found over a 440 metre by 120 metre area that are similar in style to those found at Pirquitas. Drilling also tested the Breccia Dome target, south of and similar in mineralization to the Socavon Zone, and the Jesuita target, directly southeast of the Socavon zone. Both areas returned significant intervals of mineralization, and together with the Chinchillas South area provide future resource potential for the project.

Option Agreement Terms:

Golden Arrow acquired a 100% interest in the Chinchilla and Chinchilla I properties by making the cash payments to the vendor totaling $1.866 million. An additional payment of $1.2 million is due to the vendor upon the commencement of commercial production.