Bilbao Silver-Lead-Zinc Project Preliminary Economic Assessment

 

TORONTO, ON - Xterra Inc. has received an updated NI 43-101 compliant resource estimate and a Preliminary Economic Assessment (PEA) on the Bilbao Project, prepared by RungePincockMinarco Limited (RPM).

The Bilbao Project is a polymathic sulphide and oxide replacement silver-lead-zinc-copper deposit located approximately 500km northwest of Mexico City in the southeastern part of the State of Zacatecas. RPM updated the previous resource model taking into account additional drilling completed in both 2012 and 2013 and coordinated and supervised various third party independent consultants to carry out various studies including: Norman Engineering Ltd. developed a mine design and production schedule; DRA Americas Inc. analyzed metallurgical testing and recovery methods and designed a process plant; Golder Associates carried out various environmental studies including the design of a tailings disposal facility; and Micon International Limited carried out a high level review of metal markets.

The following disclosure is based on and/or derived from the PEA. The PEA is preliminary in nature in that it includes in part inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources that are not mineral reserves do not have demonstrated economic viability. There is no certainty that the results projected by the PEA will be realized with further work and actual results may vary substantially. Because inferred resources are speculative, the modifying factors that are applied to assess the potential economic viability of the project are also speculative.

RPM, after reviewing the extensive work previously completed and the large amount of information generated, recommended extending the scope of the previously completed infill drilling program by a minimum of four holes and assaying historical core in strategic locations.

Six infill holes were drilled in June 2013, completing an additional drilling campaign in the southern part of the silver-zinc-lead project. This drilling followed a 10 hole, 2032 meter infill drilling campaign during the third quarter of 2012.

Since 2006, Xterra has drilled 113 diamond drill-holes in the Bilbao deposit. All of the drill-holes are diamond NQ-HQ core holes with most (104) being vertical. The drill campaigns defined a general grid of 50 m by 50 m and a tighter drilling grid of 26 holes defining a 35 m by 35 m in the high grade core. The drilled zone extends over an area of 530m along north-south axis and 580m along east-west axis.

The new Zn/Pb/Ag/Cu resource estimation of the Bilbao deposit was prepared by RPM to incorporate new drilling information acquired during 2011-2013. The geological model was generated using 113 holes (all the logged drill holes). The block resource model was estimated using 105 holes which had assays. A lithology model was built and Indicator and Ordinary Charging (OK) were used to estimate Zn, Pb, Ag and Cu resources. Density measurements were updated using 224 new density determinations completed since the last 2010 model was constructed. The previous 2011 model was based on the average of 14 measurements and assigned a density of 3.6g/cc to sulphide blocks while the new 2013 model established a mean density of 3.3 g/cc for the sulphide zone.

RPM used three year trailing average prices of US$0.94 lb./Zn, US$1.01 lb./Pb and US$30.24 oz/Ag for purposes of determining cutoff grades and Zn equivalent values. Metallurgical recoveries were applied in the equivalent equation as 76.7%, 90.6% and 73.4% for Zn, Pb, and Ag, respectively. The Zn equivalent equation used is as follows: Zneq = Zn + 0.969*Pb + 0.09947*Ag.

The potentially mineable underground resource is estimated by RPM to be 5.2M tonnes at grades of 2.10 % Zn, 1.40 % Pb and 63.96 grams Ag per tonne. The tonnes and grade include an average dilution of 10 percent, at zero grade, as well as mining losses of 5%. The RPM PEA relies on Indicated Mineral Resources (approximately 75 percent of the total resource tonnes) as well as Inferred Mineral Resources (approximately 25 percent of the total resource tonnes).

The current mine plan incorporated in the PEA targets the extraction of the sulphide zone only given the results of the metallurgical test work on the oxide and transition zones completed to date.

The mine production schedule is based on a production rate of 2,000 tpd of potentially economic mineralization, or 720,000 tonnes per year. This provides for a mine life of approximately 8 years, mining out the resources available.

Underground mining methods will be used to access the sulphide zone located approximately 50 meters below surface, and accessed via a portal and ramp system. The main access to the underground mine will be via a main ramp from surface to the 1860 Level.

The main proposed mining method is Longhole Open Stoping using downholes, while near the top of the deposit Longhole Open Stoping using upholes will be employed. Longhole stopes will be backfilled with a cemented rock fill.

Based on the selected mining method a dilution factor of 10% is applied which allows for dilution from hanging and footwall wall exposures and cemented backfill dilution which results from blasting against backfilled stopes. Mining recovery of 95% is assumed for this deposit.